THORNBURG LIMITED TERM MUNICIPAL FUND INC, 485APOS, 1998-12-03

THORNBURG LIMITED TERM MUNICIPAL FUND INC
485APOS, 1998-12-03

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As Filed with the Securities and Exchange Commission
December 3, 1998

Registration No. 2-89526

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No. ____

Post-Effective Amendment No. 30
----
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. 32
----
(Check appropriate box or boxes)

THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
- --------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

119 East Marcy Street, Suite 202, Santa Fe, NM 87501
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (505) 984-0200
--------------
H. Garrett Thornburg, Jr.
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
---------------------------------------
(Name and Address of Agent for Service)

copy to:
Charles W. N. Thompson, Jr.
White, Koch, Kelly & McCarthy, P. A.
Post Office Box 787
Santa Fe, New Mexico 87504-0787

Approximate date of Proposed Public Offering: February 1, 1999
----------------
It is proposed that this filing will become effective
(check appropriate box):

[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[x] 60 days after filing pursuant to paragraph (a)
[ ] On [date] pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On (date) pursuant to paragraph (a)(2)

If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.

(i) Thornburg Limited Term Municipal Fund National Portfolio

(ii) Thornburg Limited Term Municipal Fund California Portfolio

CONTENTS

Facing Sheet
Contents
Cross Reference Sheets (Thornburg Limited Term Municipal Fund
National Portfolio [Class A and Class C
shares];
Thornburg Limited Term Municipal Fund
California Portfolio [Class A and Class C
shares]);
(Thornburg Limited Term Municipal Fund
National Portfolio [Institutional Class
shares]);
(Thornburg Limited Term Municipal Fund
California Portfolio [Institutional Class
shares])

Prospectus (Thornburg Limited Term Municipal Fund
National Portfolio [Class A and Class C
shares];
Thornburg Limited Term Municipal Fund
California Portfolio [Class A and Class C
shares])

Prospectus (Thornburg Limited Term Municipal Fund
National Portfolio [Institutional Class
shares]);
Thornburg Limited Term Municipal Fund
California Portfolio [Institutional Class
shares])

Statement of (Thornburg Limited Term Municipal Fund
Additional Information National Portfolio [Class A and Class C
shares];
Thornburg Limited Term Municipal Fund
California Portfolio [Class A and Class C
shares])

Statement of (Thornburg Limited Term Municipal Fund
Additional Information National Portfolio [Institutional Class
shares])
Thornburg Limited Term Municipal Fund
California Portfolio [Institutional Class
shares])

Part C

Signature Page

Exhibits

CROSS REFERENCE SHEET

(i) Thornburg Limited Term Municipal Fund National Portfolio
[Class A and Class C shares]
(ii) Thornburg Limited Term Municipal Fund California Portfolio
[Class A and Class C shares]

Form N-1A Item Number
- ---------------------
Part A Prospectus Caption
- ------ ------------------

1(a). . . . . . . . . . . . . . . . . .Front Cover Page
(b). . . . . . . . . . . . . . . . . . Back Cover Page
2(a) . . . . . . . . INVESTMENT OBJECTIVES OF THE FUNDS
(b) . . . PRINCIPAL INVESTMENT STRATEGIES OF THE FUNDS
(c) . . . . . . . . . . . . . . . . . .PRINCIPAL RISKS
3 . . . . . . . . . . . .FEES AND EXPENSES OF THE FUNDS
4 . . . . . . . . FUND INVESTMENTS, INVESTMENT POLICIES
AND RELATED RISKS
5 . . . . . . . .FUND PERFORMANCE AND INDEX COMPARISONS
6(a) . . . . . . . . . . . . . . . . INVESTMENT ADVISER
(b) . . . . . . . . . . . . . . . . . .(Not Applicable)
7(a) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
(b) . .YOUR ACCOUNT - BUYING FUND SHARES; Buying Class
A Shares; Buying Class C Shares
(c) . . . . . . . . . . . . . . . .SELLING FUND SHARES
(d) . . . . . . . . . . . .DIVIDENDS AND DISTRIBUTIONS
(e) . . . . . . . . . . . . . . . . . . . . . . .TAXES
(f) . . . . . . . . . . . . . . . . . .(Not Applicable)
8(a) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
(b) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
9 . . . . . . . . . . . . . . . . .FINANCIAL HIGHLIGHTS

Part B Statement of Additional Information
- ------ -----------------------------------
10(a) . . . . . . . . . . . . . . . . .Front Cover Page
10(b) . . . . . . . . . . . . . . . . TABLE OF CONTENTS
11(a) . . . . . . . . . . . . ORGANIZATION OF THE FUNDS
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
12(a) . . . . . . . . . . . . ORGANIZATION OF THE FUNDS
(b) . . . . . . . .INVESTMENT OBJECTIVES AND POLICIES
(c) . . . . . . . INVESTMENT OBJECTIVES AND POLICIES;
INVESTMENT LIMITATIONS
(d) . . . . . . . . . . . . . . . . . . . .Prospectus
(e) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
13(a) . . . . . . ORGANIZATION OF THE FUNDS; MANAGEMENT
(b) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
(c) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
(d) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
14(a) . . . . . . . . . . . . . . . . . (Not Applicable)
(b) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
(c) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
15(a) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(b) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(c) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(d) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(e) . . . . . . . . . . . . . . . . . (Not Applicable)
(f) . . . . . . . . . . . . . Prospectus; DISTRIBUTOR
(g) . . . . . . . . . .SERVICE AND DISTRIBUTION PLANS
(h) . . . . . . . . . . . . . . . . . (Not Applicable)
16(a) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
(c) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
(d) . . . . . . . . . . . . . . . . . (Not Applicable)
(e) . . . . . . . . . . . . . . . . . (Not Applicable)
17(a) . . . . . . Prospectus; ORGANIZATION OF THE FUNDS
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
18(a) . . . . . . . Prospectus; PURCHASE OF FUND SHARES
(b) . . . . . . . . . . . . . PURCHASE OF FUND SHARES
(c) . . .Prospectus; DETERMINATION OF NET ASSET VALUE
(d) . . . . . . . . . . . . . . . . . . . .Prospectus
19(a) . . DISTRIBUTIONS, TAXES AND SHAREHOLDER ACCOUNTS
(b) . . DISTRIBUTIONS, TAXES AND SHAREHOLDER ACCOUNTS
20(a) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(b) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(C) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
21(a) . . . . . . . . . . . . . . . . . (Not Applicable)
(b) . . . . . . . . . . YIELD AND RETURN COMPUTATION;
REPRESENTATIVE PERFORMANCE INFORMATION
22(a) . Financial Statements (incorporated by reference)
(b) . Financial Statements (incorporated by reference)

CROSS REFERENCE SHEET

(i) Thornburg Limited Term Municipal Fund National Portfolio
[Institutional Class shares]

(ii) Thornburg Limited Term Municipal Fund California Portfolio
[Institutional Class shares]

Form N-1A Item Number
- ---------------------
Part A Prospectus Caption
- ------ ------------------

1(a). . . . . . . . . . . . . . . . . .Front Cover Page
(b). . . . . . . . . . . . . . . . . . Back Cover Page
2(a) . . . . . . . . INVESTMENT OBJECTIVES OF THE FUNDS
(b) . . . . . . . . . .PRINCIPAL INVESTMENT STRATEGIES
3 . . . . . . . . . . . .FEES AND EXPENSES OF THE FUNDS
4 . . . . . . . FUND INVESTMENTS, INVESTMENT STRATEGIES
AND RELATED RISKS
5 . . . . . . . .FUND PERFORMANCE AND INDEX COMPARISONS
6(a) . . . . . . INVESTMENT ADVISER AND MANAGEMENT FEES
(b) . . . . . . . . . . . . . . . . . .(Not Applicable)
7(a) . . . . . . . . YOUR ACCOUNT - BUYING FUND SHARES;
TRANSACTION DETAILS
(b) . .YOUR ACCOUNT - BUYING FUND SHARES; Buying Class
A Shares; Buying Class C Shares
(c) . . . . . . . . . . . . . . . .SELLING FUND SHARES
(d) . . . . . . . . . . . .DIVIDENDS AND DISTRIBUTIONS
(e) . . . . . . . . . . . . . . . . . . . . . . .TAXES
(f) . . . . . . . . . . . . . . . . . .(Not Applicable)
8(a) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
(b) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
9 . . . . . . . . . . . . . . . . .FINANCIAL HIGHLIGHTS

Part B Statement of Additional Information

10(a) . . . . . . . . . . . . . . . . .Front Cover Page
10(b) . . . . . . . . . . . . . . . . TABLE OF CONTENTS
11(a) . . . . . . . . . . . . .DESCRIPTION OF THE TRUST
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
12(a) . . . . . . . . . . . . .DESCRIPTION OF THE TRUST
(b) . . . . . . . INVESTMENT POLICIES AND LIMITATIONS
(c) . . . . . . . INVESTMENT POLICIES AND LIMITATIONS
(d) . . . . . . . . . . . . . . . . . . . .Prospectus
(e) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
13(a) . . . . . . . . . . . . .DESCRIPTION OF THE TRUST
(b) . . . . . . . . . . . . . . TRUSTEES AND OFFICERS
(c) . . . . . . . . . . . . . . TRUSTEES AND OFFICERS
(d) . . . . . . . . . . . . . . TRUSTEES AND OFFICERS
14(a) . . . . . . . . . . . . . . . . . (Not Applicable)
(b) . . . . . . . . . PRINCIPAL HOLDERS OF SECURITIES
(c) . . . . . . . . . PRINCIPAL HOLDERS OF SECURITIES
15(a) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(b) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(c) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(d) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(e) . . . . . . . . . . . . . . . . . (Not Applicable)
(f) . . . . . . . . . . . . . Prospectus; DISTRIBUTOR
(g) . . . . . . . . . .SERVICE AND DISTRIBUTION PLANS
(h) . . . . . . . . . . . . . . . . . (Not Applicable)
16(a) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
(c) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
(d) . . . . . . . . . . . . . . . . . (Not Applicable)
(e) . . . . . . . . . . . . . . . . . (Not Applicable)
17(a) . . . . . . .Prospectus; DESCRIPTION OF THE TRUST
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
18(a) . . . . . . . Prospectus; ADDITIONAL PURCHASE AND
REDEMPTION INFORMATION
(b) . .ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
(c) . . . . . . . . . . . . . . . . . . . .Prospectus
(d) . . . . . . . . . . . . . . . . . . . .Prospectus
19(a) . . . . . . . . . . . . . DISTRIBUTIONS AND TAXES
(b) . . . . . . . . . . . . . DISTRIBUTIONS AND TAXES
20(a) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(b) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(C) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
21(a) . . . . . . . . . . . . . . . . . (Not Applicable)
(b) . . . . . . . . . . . PERFORMANCE; REPRESENTATIVE
PERFORMANCE INFORMATION
22(a) . Financial Statements (incorporated by reference)
(b) . Financial Statements (incorporated by reference)

PART A
<OUTSIDE FRONT COVER>

THORNBURG MUNICIPAL FUNDS
Prospectus
February 1, 1999

The Thornburg Municipal Funds are separate investment portfolios ("Funds")
offered through this combined prospectus by Thornburg Limited Term Municipal
Fund, Inc. and Thornburg Investment Trust.

LIMITED TERM MUNICIPAL FUNDS

(series of Thornburg Limited Term Municipal Fund, Inc.):
Thornburg Limited Term Municipal Fund National Portfolio
("Limited Term National Fund")
Thornburg Limited Term Municipal Fund California Portfolio
("Limited Term California Fund")

INTERMEDIATE TERM MUNICIPAL FUNDS

(series of Thornburg Investment Trust):
Thornburg Intermediate Municipal Fund ("Intermediate National Fund")
Thornburg Alabama Intermediate Municipal Fund
("Intermediate Alabama Fund")*
Thornburg Arizona Intermediate Municipal Fund
("Intermediate Arizona Fund")*
Thornburg Florida Intermediate Municipal Fund
("Intermediate Florida Fund")
Thornburg New Mexico Intermediate Municipal Fund
("Intermediate New Mexico Fund")
Thornburg New York Intermediate Municipal Fund
("Intermediate New York Fund")
Thornburg Pennsylvania Intermediate Municipal Fund
("Intermediate Pennsylvania Fund")*
Thornburg Tennessee Intermediate Municipal Fund
("Intermediate Tennessee Fund")*
Thornburg Texas Intermediate Municipal Fund
("Intermediate Texas Fund")*
Thornburg Utah Intermediate Municipal Fund
("Intermediate Utah Fund")*

* Funds marked with an asterisk are not currently active, and propose to
commence investment operations in the future.

* Each Fund seeks current income exempt from federal income tax.

* Each of the Funds having a state's name seeks to have interest dividends
payable to its state's shareholders exempt from individual income taxes
imposed by that state.

* As a secondary objective, each of the Limited Term Municipal Funds seeks
to reduce changes in its share price compared to intermediate long-term
bond portfolios. Each of the Intermediate Term Municipal Funds, as a
secondary objective, seeks to reduce changes in its share price compared
to long-term bond portfolios.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

FUND SHARES INVOLVE INVESTMENT RISKS (INCLUDING POSSIBLE LOSS OF PRINCIPAL),
AND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, AND ARE
NOT INSURED BY, ANY BANK, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY GOVERNMENT AGENCY.

NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE

<PAGE>

TABLE OF CONTENTS

__ Investment Objectives of the Funds

__ Principal Investment Strategies of the Funds

__ Principal Risks

__ Fees and Expenses of the Funds

__ Fund Performance and Index Comparisons

__ Fund Investments, Investment Policies and Related Risks

__ Your Account - Buying Fund Shares

__ Selling Fund Shares

__ Investor Services, Transaction Services

__ Dividends and Distributions

__ Taxes

__ Transaction Details

__ Exchange Restrictions

__ Organization of the Funds

__ Investment Adviser

__ Financial Highlights

__ Additional Information

<PAGE>

INVESTMENT OBJECTIVES OF THE FUNDS

The primary investment objective of each Fund is to obtain as high a level of
current income exempt from federal income tax as is consistent, in the view
of TMC, with the preservation of capital. Each single state Fund also seeks
exemption of its interest dividends from any income taxes imposed by that
state on individuals. The Intermediate New York Fund has the additional
objective of obtaining exemption of its income dividends from the New York
City individual income tax. The Intermediate Florida Fund and the
Intermediate Pennsylvania Fund have the additional objective of obtaining
exemption from ad valorem taxes imposed by those states on securities held by
individuals. The secondary objective of the Limited Term Funds is to
minimize expected fluctuations in net asset value relative to longer
intermediate and long-term bond portfolios, while expecting lower yields than
intermediate and long-term portfolios normally receive. The secondary
objective of the Intermediate Funds is to reduce fluctuations in net asset
value relative to long-term municipal bond portfolios. The Intermediate
Municipal Funds seek higher yields than the Limited Term Municipal Funds
expect to receive, while expecting greater changes in share price. There is
a risk in all investments, however, and there is no assurance that the Funds'
objectives will be achieved. Income otherwise exempt from federal income tax
may be subject to the federal alternative minimum tax, and distributions from
gains attributable to market discount are characterized as ordinary income
for federal income tax purposes.

PRINCIPAL INVESTMENT STRATEGIES OF THE FUNDS

Each Fund will pursue its primary objective by investing in a portfolio of
investment grade or equivalent obligations which are issued by states and
state agencies, and local governments and agencies and by United States
territories and possessions ("Municipal Obligations"). Each single state
Fund will invest primarily in Municipal Obligations originating in the state
of the same name. Municipal Obligations are discussed below under the
caption "Municipal Obligations," and investment grade ratings are discussed
below under the caption "Investment Ratings."

Each of the Limited Term Funds will seek to achieve its secondary objective
of minimizing changes in its share price by maintaining a portfolio of
investments with a dollar-weighted average maturity normally not exceeding
five years. Each Intermediate Fund will seek to achieve its secondary
objective of obtaining lower share price fluctuation than a long-term
portfolio and obtaining higher yields than a limited term portfolio by
maintaining a dollar-weighted average portfolio maturity normally between
three and ten years. Any Intermediate Fund may maintain a portfolio maturity
shorter than three years as a defensive strategy during abnormal market
conditions. There is no limitation on the maturity of any specific security
a Fund may purchase, subject to the limitation on the Fund's average
portfolio maturity. If your sole objective is preservation of capital, then
the Funds may not be suitable for you because their net asset values will
vary as market interest rates fluctuate. Investors whose sole objective is
preservation of capital may wish to consider a high quality money market
fund.

PRINCIPAL RISKS OF INVESTING IN A 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
each Fund's investments declines and the Fund's share value is reduced. When
interest rates decline, the value of the Fund's investments increases.
Dividends also will vary over time. During periods of declining interest
rates each Fund's dividends similarly 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 reduces the ability
of issuers to pay principal and interest when due or changes the tax
treatment of interest on municipal obligations. The loss of money is a risk
of investing in a Fund, and when you sell your shares they may be worth more
or less than what you paid for them. These and other risks of investing in
the Funds are further discussed below under the caption "Fund Investments,
Investment Policies and Related Risks."

Each of the single state Funds, except for the Limited Term California Fund,
is a nondiversified investment company. This means that it may invest a
greater proportion of its assets in the securities of a single issuer. This
may be riskier, because a default or other adverse condition affecting an
issuer in which a Fund had invested a high proportion of its assets could
cause the Fund's share price to decline to greater degree.

An investment in a 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.

Prospective investors should consider how each Fund's investment returns may
vary each year, and that each Fund's share value may go down in some periods.
The following bar charts show how each Fund's annual total returns for Class
A shares have been different in each full year since it began operations.
The accompanying average annual total return figures for each Fund compare
the performance of the Fund's Class A shares (and Class C shares, if those
shares are offered by the Fund) to a recognized performance index. This
information gives some indication of the risks of investing in each Fund by
showing changes in performance from year to year and by showing how the
Fund's average annual total returns for the periods shown compare with a
broad measure of market performance.

The sales charge for Class A shares is not reflected in the returns shown in
the bar charts, and the returns would be less if the sales charge was taken
into account. The figures shown in the average annual total return tables do
reflect maximum sales charges imposed, assuming a redemption at the end of
each period shown. A Fund's performance in the past is not necessarily an
indication of how the Fund will perform in the future.

<The following is presented as a bar graph in the Profile>
Limited Term National Fund Annual Total Returns Class A Shares
- --------------------------------------------------------------
15%
12.72
10% 9.97 8.81 8.61 11.01
7.74 7.79 7.89
5% 5.47 6.48 4.15
3.97
0%
(1.48)
- -5%
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985

The year-to-date return for the nine months ending September 30, 1998 was
4.05%. During the 13-year period shown in the bar chart, the highest
return for a quarter was 4.46% (quarter ending December 31, 1985), and the
lowest return for a quarter was (2.10)% (quarter ending March 31, 1984).
The Fund commenced operations on September 28, 1984.

Limited Term National Fund Average Annual Total Returns
Class A and Class C Shares
- --------------------------------------------------------
One Year Five Years Ten Years
Ended Ended Ended
12-31-97 12-31-97 12-31-97

Class A Shares 2.87% 4.74% 6.21%
Class C Shares 4.54% N/A N/A
Lehman Five-Year 6.48% 5.89% 6.94%
General Obligation
Bond Index

<The following is presented as a bar graph in the Profile>
Limited Term California Fund Annual Total Returns Class A Shares
- ----------------------------------------------------------------
15%

10% 10.27
8.21
7.53 7.52 7.52 7.77
6.77
5% 5.84
4.81

0%
(2.13)

- -5%
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988

The year-to-date return for the nine months ending September 30, 1998 was
4.39%. During the ten-year period shown in the bar chart, the highest
return for a quarter was 3.77% (quarter ending March 31, 1995), and the
lowest return for a quarter was 2.08% (quarter ending March 31, 1994). The
Fund commenced operations on February 19, 1987.

Limited Term California Fund Average Annual Total Returns
Class A and Class C Shares
- ---------------------------------------------------------
One Year Five Years Ten Years
Ended Ended Ended
12-31-97 12-31-97 12-31-97

Class A Shares 3.17% 4.68% 6.04%
Class C Shares 5.00% N/A N/A
Lehman Five-Year
General Obligation 6.48% 5.89% 6.94%
Bond Index

<The following is presented as a bar graph in the Profile>
Intermediate National Fund Annual Total Returns Class A Shares
- --------------------------------------------------------------
15%
13.22 12.29
10% 9.81

5% 4.45

0% 0.72
(2.48)
- -5%
1997 1996 1995 1994 1993 1992

The year-to-date return for the nine months ending September 30, 1998 was
4.97%. During the six-year period shown in the bar chart, the highest
return for a quarter was 4.91% (quarter ending March 31, 1995), and the
lowest return for a quarter was (3.33)% (quarter ending March 31, 1994).
The Fund commenced operations on July 23, 1991.

Intermediate National Fund Average Annual Total Returns
Class A and Class C Shares
- --------------------------------------------------------
One Year Five Years
Ended Ended
12-31-97 12-31-97

Class A Shares 3.47% 6.02%
Class C Shares 6.17% N/A
Merrill Lynch Municipal
(7-12 years) Bond Index 8.98% 7.06%

<The following is presented as a bar graph in the Profile>
Intermediate New Mexico Fund Annual Total Returns Class A Shares
- ----------------------------------------------------------------
15%
11.15
10% 10.31
6.49 8.63
5%

0% 0.42
(1.19)
- -5%
1997 1996 1995 1994 1993 1992

The year-to-date return for the nine months ending September 30, 1998 was
4.17%. During the six-year period shown in the bar chart, the highest
return for a quarter was 4.43% (quarter ending March 31, 1995), and the
lowest return for a quarter was (2.91)% (quarter ending March 31, 1994).
The Fund commenced operations on June 21, 1991.

Intermediate New Mexico Fund Average Annual Total Returns
Class A Shares
- ---------------------------------------------------------
One Year Five Years
Ended Ended
12-31-97 12-31-97

Class A Shares 2.75% 5.19%
Merrill Lynch
Municipal Bond
(7-12 year) Index 8.98% 7.06%

<The following is presented as a bar graph in the Profile>
Intermediate Florida Fund Annual Total Returns Class A Shares
- -------------------------------------------------------------
15%
12.19
10%
7.28
5% 4.67

- -5%
1997 1996 1995

The year-to-date return for the nine months ending September 30, 1998 was
4.54_%. During the three-year period shown in the bar chart, the highest
return for a quarter was 4.68% (quarter ending March 31, 1995), and the
lowest return for a quarter was 0.11% (quarter ending March 31, 1996). The
Fund commenced operations on February 1, 1994.

Intermediate Florida Fund Average Annual Total Returns
Class A Shares
- ------------------------------------------------------
One Year
Ended
12-31-97

Class A Shares 3.55%
Merrill Lynch
Municipal Bond
(7-12 year) Index 8.98%

<The following is presented as a bar graph in the Profile>
Intermediate New York Fund Annual Total Returns Class A Shares
- --------------------------------------------------------------
15%

10%

- -5%
[1998]

The year-to-date return for the nine months ending September 30, 1998 was
5.39_%. During the one-year period shown in the bar chart, the highest
return for a quarter was _.__% (quarter ending ________, 199_), and the
lowest return for a quarter was __.___% (quarter ending ________, 199_).
The Fund commenced operations on September 4, 1997.

Intermediate New York Fund Average Annual Total Returns
Class A Shares
- ------------------------------------------------------
One Year
Ended
12-31-98

Class A Shares _.__%
Merrill Lynch
Municipal Bond
(7-12 year) Index ____%

FEES AND EXPENSES OF THE FUNDS

The following tables describe the fees and expenses that you may pay if you
buy and hold shares of a Fund.

<TABLE>
SHAREHOLDER FEES (fees paid directly from your investment)
<CAPTION>
Limited Term Municipal Funds Thornburg Intermediate Municipal Funds
----------------------------- -------------------------------------
Class A Class C Class A Class C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge on Purchases 2.50% none 3.50% none
(as a percentage of offering price)

Maximum Deferred Sales Charge on Redemptions 0.50 <F+> 0.50% <F++> 0.50 <F+> 0.60% <F++>
(as a percentage of redemption proceeds or
original purchase price, whichever is lower)

<FN>
<F+> Imposed only on redemptions of purchases greater than $1 million
in the event of a redemption within 12 months of purchase.
<F++> Imposed only on redemptions of Class C shares within 12 months of purchase.
</FN>
</TABLE>

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)

Thornburg Limited Term Municipal Fund-National Portfolio
Class A Class C
Management Fee .45% .45%
Distribution and Service (12b-1) Fees .25% 1.00%
Other Expenses .27% .38%
---- -----
Total Annual Operating Expenses .97% 1.83%

Thornburg Management Company, Inc. (TMC) intends to reimburse a portion of
the Class C other expenses, and Thornburg Securities Corporation intends to
waive a portion of the Class C 12b-1 fees, so that actual Class C other
expenses are .30%, actual Class C 12b-1 fees are .63%, and so that actual
total Fund operating expenses are 1.38% for Class C shares. TMC's and
TSC's reimbursement of expenses and waiver of these fees may be terminated
at any time.

Example. This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
costs would be:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $347 $553 $776 $1,421
Class C Shares 238 581 1,001 2,175

You would pay the following expenses if you did not redeem your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $347 $553 $776 $1,421
Class C Shares 188 581 1,002 2,175

Thornburg Limited Term Municipal Fund-California Portfolio
Class A Class C
Management Fee .50% .50%
Distribution and Service (12b-1) Fees .25% 1.00%
Other Expenses .29% .47%
---- -----
Total Annual Operating Expenses 1.04% 1.97%

Expenses reflect rounding. Thornburg Management Company, Inc. (TMC)
intends to reimburse a portion of the Class A other expenses, so that
actual Class A other expenses are .25%, and actual total fund operating
expenses are 1.00%. TMC and Thornburg Securities Corporation (TSC) intend
to waive a portion of the Class C 12b-1 fees, and TMC intends to reimburse
a portion of the Class C other expenses, so that actual Class C 12b-1
expenses are .63%, actual Class C other expenses are .27%, and actual total
fund operating expenses for Class C are 1.40%. TMC's and TSC's waiver of
fees and TMC's reimbursement of expenses may be terminated at any time.

Example. This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $354 $575 $814 $1,501
Class C Shares 252 625 1,075 2,326

You would pay the following expenses if you did not redeem your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $354 $575 $814 $1,501
Class C Shares 202 625 1,075 2,326

Thornburg Intermediate Municipal Fund
Class A Class C
------- -------
Management Fee .50% .50%
Distribution and Service (12b-1) Fees .25% 1.00%
Other Expenses .29% .43%
----- -----
Total Annual Fund Operating Expenses 1.04% 1.93%

Expenses reflect rounding. Thornburg Management Company, Inc. (TMC)
intends to reimburse a portion of the Class A other expenses, so that
actual Class A other expenses are .25%, and actual total fund operating
expenses are 1.00%. TMC and Thornburg Securities Corporation (TSC) intend
to waive a portion of the Class C 12b-1 fees, and TMC intends to reimburse
a portion of the Class C other expenses, so that actual Class C 12b-1
expenses are .60%, actual Class C other expenses are .30%, and actual total
fund operating expenses for Class C are 1.40%. TMC's and TSC's waiver of
fees and TMC's reimbursement of expenses may be terminated at any time.

Example. This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $453 $671 $908 $1,589
Class C Shares 258 613 1,054 2,283

You would pay the following expenses if you did not redeem your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $453 $671 $908 $1,589
Class C Shares 198 613 1,054 2,283

Thornburg New Mexico Intermediate Municipal Fund
Class A
-------
Management Fee .50%
Distribution and Service (12b-1) Fees .25%
Other Expenses .26%
-----
Total Annual Fund Operating Expenses 1.01%

Expenses reflect rounding and are restated to reflect current expenses.
Thornburg Management Company, Inc. (TMC) intends to reimburse a portion of
the Class A other expenses, so that actual Class A other expenses are .25%,
and actual total fund operating expenses are 1.00%. TMC's reimbursement of
expenses may be terminated at any time.

Example. This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $451 $665 $898 $1,566

You would pay the following expenses if you did not redeem your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $451 $665 $898 $1,566

Thornburg Florida Intermediate Municipal Fund
Class A
-------
Management Fee .50%
Distribution and Service (12b-1) Fees .25%
Other Expenses .36%
-----
Total Annual Fund Operating Expenses 1.11%

Expenses reflect rounding and are restated to reflect current expenses.
Thornburg Management Company, Inc. (TMC) intends to reimburse a portion of
the Class A other expenses, so that actual Class A other expenses are .23%,
and actual total fund operating expenses are .98%. TMC's reimbursement of
expenses may be terminated at any time.

Example. This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $460 $693 $945 $1,668

You would pay the following expenses if you did not redeem your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $460 $693 $945 $1,668

Thornburg New York Intermediate Municipal Fund
Class A
-------
Management Fee .50%
Distribution and Service (12b-1) Fees .25%
Other Expenses .44%
-----
Total Annual Fund Operating Expenses 1.19%

Expenses reflect rounding and are restated to reflect current expenses.
Thornburg Management Company, Inc. (TMC) intends to reimburse the Class A
other expenses, so that actual Class A other expenses are 0%, and actual
total fund operating expenses are .75%. TMC's reimbursement of expenses
may be terminated at any time.

Example. This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $468 $717 $987 $1,757

You would pay the following expenses if you did not redeem your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $468 $717 $987 $1,757

FUND PERFORMANCE AND INDEX COMPARISONS

The graphs on the next page compare how $10,000 would have appreciated if
invested in shares of the named Fund, a broad based securities market index,
and the Consumer Price Index, a general measure of inflation. The table
accompanying each graph shows average annual total return for the Fund for
the designated period. Class A total return figures assume an investment of
$10,000 at the public offering price for purchases up to $10,000; Class C
total return figures assume an investment of $10,000.

Comparison of Fund performance to widely used indices is imperfect, because
the indices do not reflect the laddered maturity strategy each Fund uses.
Each index shown attempts to model the total return of a constant maturity
bond portfolio, including bonds from throughout the United States. Each index
also assumes no trading costs for buying and selling bonds, no custodial or
accounting costs, and coupons are immediately reinvested at no transactional
cost. Consequently, the reader should remain aware of the inherent
limitations in comparing a theoretical index to actual results of a Fund
portfolio.

Each Fund "ladders" or arrays the maturities of its bonds. The Limited Term
Municipal Funds maintain a weighted average maturity using this technique
which is normally no more than five years, while the Intermediate Municipal
Funds' weighted average maturity is normally three to ten years.

In general, interest rates have continued, with some fluctuations, to
decline over the one-year period ended September 30, 1998. Interest rates
have dropped more for intermediate-term bonds than for short-term bonds or
long-term bonds, leading to a flatter yield curve. For instance, 30-year
treasury bond yields fell 1.43% to 4.97% while five-year bond yields fell
1.76% to 4.21% and one-year bond yields dropped 1.03% to 4.39%.

The municipal bond market, facing the largest volume of supply in several
years, has underperformed the treasury bond market. Thirty-year AA-rated
municipal bond yields declined by 0.38% to 4.89% over the one-year period
ended September 30, 1998. Meanwhile, five-year AA-rated municipal yields
declined by 0.44% to 3.88% and ten-year AA-rated municipal bond yields
declined by 0.45% to 4.25%. These yield declines have caused price increases
of 1.61% and 3.34% for the five-year and ten-year bonds, respectively. Over
the same one-year period, the net asset values of Limited Term National and
California Portfolios have increased 0.97% and 1.68%, respectively. The net
asset values of the Intermediate National Fund has similarly increased by
2.30%. While the net asset values of all the Funds rose over the period
described, the dividend yields of all declined slightly. If interest rates
continue to fall, the net asset values of all the Funds should continue to
rise, but the dividend yields would be expected to decrease.

LIMITED TERM NATIONAL FUND

Index Comparison

Compares performance of the Limited Term National Fund, the Lehman 5-Year
General Obligation Bond Index and the Consumer Price Index for the periods
ending June 30, 1998. On June 30, 1998, the weighted average securities
ratings of the Index and the Fund were AA and AA, respectively, and the
weighted average portfolio maturities of the Index and the Fund were 5.0
years and 4.1 years, respectively. Past performance of the Index and the
Fund may not be indicative of future performance.

<TABLE> <The following tables appear as side-by-side graphs in the
prospectus.>
Class A Shares
<CAPTION>
FUND Lehman CPI
A Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
9/84 $ 9,746 $10,000 $10,000
12/84 9,928 10,448 10,151
3/85 10,232 10,852 10,283
6/85 10,677 11,400 10,355
9/85 10,747 11,355 10,417
12/85 11,226 11,741 10,564
3/86 11,739 12,628 10,522
6/86 11,842 12,636 10,553
9/86 12,177 13,103 10,616
12/86 12,471 13,447 10,702
3/87 12,741 13,755 10,852
6/87 12,656 13,629 10,983
9/87 12,683 13,347 11,104
12/87 12,988 13,857 11,204
3/88 13,402 14,289 11,294
6/88 13,589 14,350 11,430
9/88 13,838 14,514 11,545
12/88 14,013 14,601 11,649
3/89 14,168 14,559 11,789
6/89 14,580 15,244 11,955
9/89 14,783 15,421 12,027
12/89 15,105 15,881 12,172
3/90 15,239 15,959 12,404
6/90 15,524 16,316 12,529
9/90 15,715 16,488 12,781
12/90 16,085 17,034 12,948
3/91 16,400 17,402 13,026
6/91 16,704 17,706 13,117
9/91 17,073 18,336 13,222
12/91 17,470 18,952 13,355
3/92 17,628 18,904 13,435
6/92 18,107 19,519 13,543
9/92 18,509 20,010 13,624
12/92 18,822 20,328 13,747
3/93 19,341 20,808 13,858
6/93 19,780 21,298 13,941
9/93 20,264 21,761 14,011
12/93 20,481 22,028 14,123
3/94 20,050 21,332 14,208
6/94 20,225 21,619 14,293
9/94 30,324 21,784 14,408
12/94 20,178 21,713 14,466
3/95 20,896 22,677 14,582
6/95 21,390 23,254 14,713
9/95 21,755 23,890 14,772
12/95 22,190 24,327 14,861
3/96 22,232 24,403 15,010
6/96 22,374 24,510 15,116
9/96 22,703 24,909 15,237
12/96 23,070 25,452 15,374
3/97 23,150 25,411 15,451
6/97 23,595 26,044 15,498
9/97 24,007 26,612 15,591
12/97 24,332 27,102 15,653
3/98 24,552 27,420 15,669
6/98 24,787 27,698 15,763
</TABLE>

Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 6/30/98): 2.46%
Five Years: 4.09%
Ten Years: 5.92%
From Inception (9/28/84): 6.82%

<TABLE>
<CAPTION>
FUND Lehman CPI
C Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
8/94 $10,000 $10,000 $10,000
9/94 9,952 9,925 10,020
10/94 9,894 9,869 10,030
11/94 9,792 9,806 10,040
12/94 9,858 9,893 10,060
1/95 9,969 9,988 10,090
2/95 10,120 10,132 10,110
3/95 10,193 10,293 10,141
4/95 10,245 10,321 10,171
5/95 10,405 10,547 10,202
6/95 10,425 10,556 10,232
7/95 10,483 10,703 10,243
8/95 10,550 10,812 10,263
9/95 10,586 10,844 10,273
10/95 10,663 10,890 10,304
11/95 10,740 10,982 10,314
12/95 10,786 11,043 10,335
1/96 10,848 11,174 10,376
2/96 10,838 11,136 10,408
3/96 10,788 11,077 10,439
4/96 10,786 11,060 10,470
5/96 10,808 11,047 10,501
6/96 10,847 11,125 10,512
7/96 10,910 11,199 10,544
8/96 10,932 11,222 10,565
9/96 11,004 11,307 10,596
10/96 11,067 11,412 10,628
11/96 11,163 11,570 10,660
12/96 11,161 11,553 10,692
1/97 11,192 11,584 10,703
2/97 11,257 11,667 10,735
3/97 11,197 11,535 10,746
4/97 11,228 11,592 10,756
5/97 11,309 11,719 10,767
6/97 11,391 11,822 10,778
. . .
9/97 11,578 12,080 10,843
12/97 11,723 12,302 10,886
3/98 11,817 12,446 10,897
6/98 11,927 12,573 11,229
</TABLE>

Average Annual Total Returns
C Shares One Year (12 mos. ended 6/30/98): 4.70%
From Inception (9/1/94): 4.71%

LIMITED TERM CALIFORNIA FUND

Index Comparison

Compares performance of the Limited Term California Fund, the Lehman
5-Year General Obligation Bond Index and the Consumer Price Index for periods
ending June 30, 1998. On June 30, 1998, the weighted average securities
ratings of the Index and the Fund were AA and AA, respectively, and the
weighted average portfolio maturities of the Index and the Fund were 5.0
years and 4.8 years, respectively. Past performance of the Index and the Fund
may not be indicative of future performance.

Class A Shares Class C Shares
<CAPTION>
FUND Lehman CPI FUND Lehman CPI
A Shares Government C Shares Government
-------- ---------- ------- -------- ---------- -------
<S> <C> <C> <C> <S> <C> <C> <C>
1/87 $ 9,750 $10,000 $10,000 8/94 $10,000 $10,000 $10,000
3/87 9,786 10,034 10,080 9/94 9,950 9,925 10,020
6/87 9,857 9,942 10,202 10/94 9,887 9,869 10,030
9/87 9,924 9,737 10,314 11/94 9,792 9,806 10,040
12/87 10,100 10,108 10,407 12/94 9,818 9,893 10,060
3/88 10,375 10,424 10,491 1/95 9,926 9,988 10,090
6/88 10,557 10,469 10,617 2/95 10,099 10,132 10,110
9/88 10,733 10,588 10,724 3/95 10,164 10,293 10,141
12/88 10,885 10,651 10,820 4/95 10,231 10,321 10,171
3/89 10,994 10,620 10,951 5/95 10,380 10,547 10,202
6/89 11,313 11,121 11,105 6/95 10,398 10,556 10,232
9/89 11,469 11,249 11,172 7/95 10,441 10,703 10,243
12/89 11,704 11,585 11,306 8/95 10,509 10,812 10,263
3/90 11,814 11,642 11,522 9/95 10,561 10,844 10,273
6/90 12,009 11,902 11,638 10/95 10,640 10,890 10,304
9/90 12,140 12,028 11,872 11/95 10,719 10,982 10,314
12/90 12,496 12,426 12,027 12/95 10,756 11,043 10,335
3/91 12,707 12,694 12,099 1/96 10,833 11,174 10,376
6/91 12,904 12,916 12,184 2/96 10,828 11,136 10,408
9/91 13,121 13,376 12,282 3/96 10,781 11,076 10,439
12/91 13,436 13,825 13,405 4/96 10,793 11,060 10,470
3/92 13,566 17,790 12,480 5/96 10,805 11,047 10,502
6/92 13,950 14,239 12,580 6/96 10,861 11,125 10,512
9/92 14,261 14,597 12,655 7/96 10,925 11,199 10,544
12/92 14,448 14,829 12,770 8/96 10,953 11,222 10,565
3/93 14,813 15,179 12,872 9/96 11,017 11,307 10,596
6/93 15,116 15,537 12,949 10/96 11,089 11,412 10,628
9/93 15,437 15,874 13,014 11/96 11,189 11,570 10,660
12/93 15,634 16,069 13,119 12/96 11,174 11,553 10,692
3/94 15,308 15,562 13,197 1/97 11,195 11,584 10,703
6/94 15,474 15,771 13,277 2/97 11,260 11,667 10,735
9/94 15,495 15,891 13,383 3/97 11,200 11,535 10,746
12/94 15,300 15,839 13,437 4/97 11,228 11,592 10,756
3/95 15,877 16,542 13,545 5/97 11,328 11,719 10,767
6/95 16,266 16,964 13,667 6/97 11,410 11,822 10,778
9/95 16,549 17,427 13,722 7/97 11,564 12,036 10,799
12/95 16,871 17,746 13,804 8/97 11,521 11,972 10,821
3/96 16,927 17,802 13,943 9/97 11,613 12,080 10,843
6/96 17,670 17,880 14,040 10/97 11,641 12,154 10,864
9/96 17,332 18,171 14,153 11/97 11,679 12,192 10,875
12/96 17,597 18,567 14,281 12/97 11,789 12,302 10,886
3/97 17,655 18,537 14,352 1/98 11,854 12,410 10,886
6/97 18,004 18,999 14,395 2/98 11,883 12,425 10,897
9/97 18,342 19,413 14,482 3/98 11,893 12,446 10,897
12/97 18,625 19,771 14,540 4/98 11,857 12,387 10,919
3/98 18,808 20,002 14,555 5/98 11,959 12,534 10,951
6/98 19,006 20,206 14,642 6/98 11,997 12,573 10,962

Average Annual Total Returns Average Annual Total Returns
(at max. offering price)
A Shares One Year (12 mos. ended C Shares One Year (12 mos. ended
6/30/98): 2.90% 6/30/98): 5.14%
Five Years: 4.16% From Inception (9/1/94): 4.87%
Ten Years: 5.79%
From Inception (2/19/87): 5.81%
</TABLE>

INTERMEDIATE NATIONAL FUND

Index Comparison

Compares performance of the Intermediate National Fund, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, for periods
ending September 30, 1998. On September 30, 1998, the weighted average
securities ratings of the Index and the Fund were AA and A+, respectively,
and the weighted average portfolio maturities of the Index and the Fund were
9.5 years and 8.4 years, respectively. Class C shares became available on
September 1, 1994. Past performance of the Index and the Fund may not be
indicative of future performance.

<TABLE> <appears as two graphs side-by-side in the prospectus>
Class A Shares Class C Shares
<CAPTION>
FUND ML Muni CPI FUND ML Muni CPI
A Shares 7-12 Yrs. C Shares 7-12 Yrs.
-------- --------- ------- -------- --------- --------
<S> <C> <C> <C> <S> <C> <C> <C>
6/91 $ 9,648 $10,000 $10,000
9/91 9,819 10,428 10,080
12/91 10,099 10,647 10,181
3/92 10,207 10,593 10,243
6/92 10,586 10,982 10,325
9/92 10,876 11,220 10,387
12/92 11,090 11,440 10,480
3/93 11,496 11,834 10,565
6/93 11,847 12,164 10,628
9/93 12,291 12,456 10,681
12/93 12,453 12,682 10,767
3/94 12,039 12,114 10,832
6/94 12,160 12,187 10,897 8/94 $10,000 $10,000 $10,000
9/94 12,244 12,306 10,984 9/94 9,903 9,848 10,020
12/94 12,145 12,227 11,028 12/94 9,813 9,785 10,060
3/95 12,742 12,860 11,117 3/95 10,286 10,291 10,141
6/95 13,066 13,334 11,217 6/95 10,530 10,671 10,232
9/95 13,365 13,573 11,262 9/95 10,754 10,862 10,273
12/95 13,751 14,054 11,330 12/95 11,052 11,247 10,335
3/96 13,699 14,059 11,443 3/96 11,000 11,251 10,439
6/96 13,814 14,107 11,524 6/96 11,082 11,290 10,512
9/96 14,120 14,398 11,616 9/96 11,307 11,523 10,596
12/96 14,363 14,762 11,721 12/96 11,499 11,814 10,692
3/97 14,413 14,729 11,779 3/97 11,528 11,787 10,746
6/97 14,772 15,218 11,815 6/97 11,803 12,179 10,778
9/97 15,094 15,682 11,886 9/97 12,048 12,550 10,843
12/97 15,397 16,087 11,933 12/97 12,227 12,874 10,886
3/98 15,567 16,276 11,945 3/98 12,391 13,025 10,897
6/98 15,759 16,508 12,017 6/98 12,541 13,211 10,962
9/98 16,162 17,104 12,065 9/98 12,839 13,688 11,006

Average Annual Total Returns Average Annual Total Returns
(at max. offering price)
A Shares One Year (12 mos. ended C Shares One Year (12 mos. Ended
9/30/98): 3.32% 9/30/98): 6.57%
5 Years: 4.88% From Inception (9/1/94): 6.31%
From Inception (7/23/91): 6.90% </TABLE

INTERMEDIATE NEW MEXICO FUND

Index Comparison

Compares performance of the Intermediate New Mexico Fund, the Merrill
Lynch Municipal Bond (7-12 year) Index and the Consumer Price Index, June 18,
1991 to September 30, 1998. On March 31, 1998, the weighted average
securities ratings of the Index and the Fund were AA and AA, respectively,
and the weighted average portfolio maturities of the Index and the Fund were
9.5 years and 7.0 years, respectively. Past performance of the Index and the
Fund may not be indicative of future performance.

</TABLE>
<TABLE> <This appears as a graph in the prospectus.>
FUND ML Muni CPI
A Shares 7-12 Yrs.
-------- --------- ---------
<S> <C> <C> <C>
5/91 $ 9,650 $10,000 $10,000
9/91 9,957 10,375 10,100
12/91 10,260 10,593 10,202
3/92 10,329 10,539 10,263
6/92 10,686 10,926 10,345
9/92 10,950 11,162 10,408
12/92 11,145 11,381 10,501
3/93 11,490 11,773 10,586
6/93 11,789 12,102 10,649
9/93 12,150 12,392 10,703
12/93 12,294 12,617 10,788
3/94 11,936 12,052 10,853
6/94 12,012 12,125 10,919
9/94 12,119 12,243 11,006
12/94 12,059 12,164 11,050
3/95 12,593 12,794 11,139
6/95 12,859 13,266 11,239
9/95 13,100 13,504 11,284
12/95 13,404 13,982 11,352
3/96 13,358 13,987 11,466
6/96 13,450 14,035 11,547
9/96 13,713 14,325 11,639
12/96 13,967 14,687 11,744
3/97 14,012 14,653 11,803
6/97 14,305 15,141 11,838
9/97 14,606 15,602 11,910
12/97 14,874 16,005 11,957
3/98 15,012 16,193 11,969
6/98 15,203 16,424 12,041
9/98 15,494 17,016 12,089
</TABLE>

Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 9/30/98): _.__%
5 Years: _.__%
From Inception (6/21/91): _.__%

<PAGE>
INTERMEDIATE FLORIDA FUND

Index Comparison

Compares performance of Intermediate Florida Fund, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, February 1,
1994 to September 30, 1998. On September 30, 1998, the weighted average
securities ratings of the Index and the Fund were AA and AA+, respectively,
and the weighted average portfolio maturities of the Index and the Fund were
9.5 years and 8.5 years, respectively. Past performance of the Index and the
Fund may not be indicative of future performance.

<TABLE> <This appears as a graph in the prospectus.>
FUND ML Muni CPI
A Shares 7-12 Yrs.
-------- --------- ---------
<S> <C> <C> <C>
1/94 $ 9,648 $10,000 $10,000
2/94 9,568 9,726 10,030
3/94 9,350 9,466 10,060
6/94 9,481 9,524 10,121
9/94 9,557 9,617 10,202
12/94 9,492 9,555 10,243
3/95 9,936 10,049 10,325
6/95 10,148 10,420 10,418
9/95 10,342 10,607 10,460
12/95 10,595 10,982 10,523
3/96 10,607 10,987 10,628
6/96 10,716 11,024 10,703
9/96 10,897 11,252 10,789
12/96 11,090 11,536 10,886
3/97 11,153 11,510 10,940
6/97 11,387 11,892 10,973
9/97 11,665 12,255 11,039
12/97 11,897 12,572 11,083
3/98 12,011 12,719 11,095
6/98 12,168 12,901 11,161
9/98 12,437 13,366 11,206
</TABLE>

Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 9/30/98): 2.89%
From Inception (2/01/94): 4.79%

INTERMEDIATE NEW YORK FUND

Index Comparison

Compares performance of Intermediate New York Fund, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, September 4,
1997 to June 30, 1998. On June 30, 1998, the weighted average securities
ratings of the Index and the Fund were AA and AA-, respectively, and the
weighted average portfolio maturities of the Index and the Fund were 9.5
years and 10 years, respectively. Past performance of the Index and the Fund
may not be indicative of future performance.

<TABLE> <This appears as a graph in the prospectus.>
FUND ML Muni CPI
A Shares 7-12 Yrs.
-------- --------- ---------
<S> <C> <C> <C>
9/4/97 10,000 10,000 10,000
9/97 11,153 11,510 10,940
10/97 11,387 11,892 10,973
11/97 11,665 12,255 11,039
12/97 11,897 12,572 11,083
. . .
3/98 12,011 12,719 11,095
6/98 12,168 12,901 11,161
</TABLE>

Average Annual Total Returns (at max. offering price)
From Inception (9/04/97): 1.03%

<PAGE>
FUND INVESTMENTS, INVESTMENT POLICIES AND RELATED RISKS

Thornburg Management Company, Inc. (TMC) actively manages the portfolios
of each of the Funds in attempting to meet each Fund's primary investment
objective. Investment decisions are based upon general economic and
financial trends, such as domestic and international economic developments,
outlooks for securities markets, interest rates and inflation, the supply and
demand for debt securities, and other factors. The Funds' portfolios are
determined by individual security analyses, and TMC's credit analysts
actively monitor the credit quality of the Funds' portfolios. Each of the
Funds seeks to enhance its income by taking advantage of yield disparities,
trends or other factors in the fixed income markets. Although each Fund
ordinarily will acquire securities for investment rather than for realization
of gains on market fluctuations, a Fund 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 preclude these Funds
from obtaining the highest yields available.

Because the magnitude of changes in the market value of interest bearing
obligations ordinarily is greater for obligations of longer terms, each Fund
believes that it can reduce the magnitude of fluctuations in the values of
its assets by limiting the weighted average maturity of its assets. There is
no limitation on the maturity of any specific security any of the Funds may
purchase subject to the limitation on the average portfolio maturity of each
Fund. Each Fund's dollar-weighted average maturity may be lowered for
temporary defensive purposes if conditions or expectations for the behavior
of interest rates indicate that a lower average maturity will be
advantageous. Such conditions could include increasing inflation or a market
in which short-term obligations temporarily have higher yields than longer-
term obligations. TMC also will attempt to minimize fluctuations in the
value of the Funds' portfolios through, among other things, diversification,
careful credit analysis and security selection.

Except to the extent a Fund is invested in temporary investments for
defensive purposes, the object of each Fund under normal conditions is to
invest 100% of its net assets in Municipal Obligations. As a fundamental
policy which may not be changed without a vote of the Fund's shareholders,
each Fund must normally invest at least 80% of its net assets in Municipal
Obligations. Under normal conditions each single state Fund will invest 100%,
and as a matter of fundamental policy, will invest at least 65% of its total
assets in Municipal Obligations which originate in the state having the same
name as the Fund. Any Fund may purchase obligations issued by or on behalf of
territories or possessions of the United States and their agencies and
instrumentalities.

The Funds have reserved the right to invest up to 20% of each Fund's net
assets in "temporary investments" in taxable securities (of comparable
quality to the above tax-exempt investments) that would produce interest not
exempt from federal income tax. Such temporary investments, which may include
repurchase agreements with dealers, banks or recognized financial
institutions that in the opinion of TMC represent minimal credit risk,
may be made due to market conditions, pending investment of idle funds or to
afford liquidity. Such investments are, like any investment, subject to
market risks and fluctuations in value. In addition, each Fund's temporary
taxable investments may exceed 20% of its net assets when made for defensive
purposes during periods of abnormal market conditions. The Funds do not
expect to find it necessary to make temporary investments in taxable
investments.

MUNICIPAL OBLIGATIONS

Municipal Obligations are obligations bearing interest exempt from federal
income taxes, which are issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia, and their
political subdivisions, agencies and instrumentalities. Municipal
Obligations include notes (including tax-exempt commercial paper), bonds,
municipal leases and participation interests in these obligations. Interest
on Municipal Obligations may be subject to the alternative minimum tax or
state income taxes. See "Federal Taxes."

The yields on Municipal Obligations are dependent on a variety of factors,
including the condition of the general money market and the Municipal
Obligation market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The market value of outstanding
Municipal Obligations will vary with changes in prevailing interest rate
levels and as a result of changing evaluations of the ability of their
issuers to meet interest and principal payments. Variations in market value
of Municipal Obligations held in a Fund's portfolio arising from these or
other factors will cause changes in the net asset value of that Fund's
shares. Municipal Obligations often grant the issuer the option to pay off
the obligation prior to its final maturity. Prepayment of Municipal
Obligations may reduce the expected yield on invested funds, the net asset
value of a Fund, or both if interest rates have declined below the level
prevailing when the obligation was purchased. If interest rates have
declined, reinvestment of the proceeds from the prepayment of Municipal
Obligations may result in a lower yield to a Fund. In addition, the federal
income tax treatment of gains from market discount as ordinary income may
increase the price volatility of Municipal Obligations.

Obligations of issuers of Municipal Obligations are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the United States Bankruptcy Code. In addition, the
obligations of such issuers may become subject to the laws enacted in the
future by Congress, state legislatures or referenda extending the time for
payment of principal or interest, or imposing other constraints upon
enforcement of such obligations or upon municipalities to levy taxes. There
is also the possibility that, as a result of legislation or other conditions,
the power or ability of any issuer to pay, when due, the principal of and
interest on its Municipal Obligations may be materially and adversely
affected.

VARIABLE RATE SECURITIES; INVERSE FLOATERS; AND DEMAND INSTRUMENTS

The Funds may purchase variable rate Municipal Obligations. These variable
rate securities bear rates of interest that are adjusted periodically
according to formulas intended to reflect market rates of interest, and these
may include "inverse floaters," whose rates vary inversely with changes in
market rates of interest. The values of inverse floaters will tend to be more
volatile than fixed rate municipal securities having similar credit quality,
redemption provisions, and maturity. No Fund will invest more than 10% of
its total assets in securities whose rates vary inversely with changes in
market rates of interest. Each Fund also may purchase variable rate demand
instruments and also may purchase fixed rate municipal demand instruments
either in the public market or privately from banks, insurance companies and
other financial institutions. These instruments provide for periodic
adjustment of the interest rate paid to the holder. The "demand" feature
permits the holder to demand payment of principal and interest prior to the
final stated maturity, either from the issuer or by drawing on a bank letter
of credit, a guarantee or insurance issued with respect to the instrument.

MUNICIPAL LEASES

Each Fund may invest in Municipal Leases. These obligations are used by state
and local governments to acquire a wide variety of equipment and facilities.
Many such obligations include "non-appropriation" clauses which provide
that the governmental issuer has no obligation to make payments unless money
is appropriated for that purpose. If an issuer stopped making payment on a
Municipal Lease held by a Fund, the Lease would lose some or all of its
value. Often, a Fund will not hold the obligation directly, but will purchase
a "participation interest" in the obligation, which gives the Fund an
undivided interest in the underlying Municipal Lease. Some Municipal Leases
may be illiquid under certain circumstances, and TMC will evaluate the
liquidity of each Municipal Lease upon its acquisition by a Fund and
periodically while it is held.

SECURITIES RATINGS AND CREDIT QUALITY

Each Fund's assets will normally consist of (1) Municipal Obligations
(including Municipal Leases) or participation interests therein that are
rated at the time of purchase within the four highest grades by Moody's
Investors Service ("Moody's"), Fitch Investors Service ("Fitch"), or Standard
& Poor's Corporation ("S&P"), (2) Municipal Obligations (including Municipal
Leases) or participation interests therein that are not rated by a rating
agency, but are issued by obligors that either have other comparable debt
obligations that are rated within the four highest grades (Baa or BBB or
better) by Moody's or S&P or Fitch or, in the case of obligors whose
obligations are unrated, are deemed by TMC to be comparable with
issuers having such debt ratings, and (3) cash. Securities rated in the
described categories are described as "investment grade," and are regarded as
having a capacity to pay interest and repay principal that varies from
"extremely strong" to "adequate." According to S&P, for example, BBB bonds
normally exhibit adequate protection parameters, although adverse economic
conditions or other changes are more likely to lead to a weakened capacity
compared to higher rated categories, and AAA bonds exhibit extremely strong
capacity. Securities rated Baa are regarded by Moody's as having some
speculative characteristics. Securities rated BBB by Fitch are considered to
have adequate capacity, although adverse changes in economic conditions and
circumstances are more likely to have an adverse impact than for higher rated
categories. Please see the Statement of Additional Information for Thornburg
Investment Trust - Intermediate Municipal Funds or the Statement of
Additional Information for Thornburg Limited Term Municipal Fund, Inc. for
detailed descriptions of these ratings.

Investments in Municipal Obligations may also include (i) variable rate
demand instruments that are rated within the two highest grades of either
rating agency or, if unrated, are deemed by TMC to be of high quality and
minimal credit risk, (ii) tax-exempt commercial paper that is rated within
the two highest grades of a rating agency, and (iii) municipal notes that are
rated within the two highest grades of a rating agency or, if unrated, are
deemed by TMC to be of comparable quality to such rated municipal notes. To
the extent that unrated Municipal Obligations may be less liquid, there may
be somewhat greater risk in purchasing unrated Municipal Obligations than in
purchasing comparable, rated Municipal Obligations. If a Fund experienced
unexpected net redemptions, it could be forced to sell such unrated Municipal
Obligations at disadvantageous prices without regard to the Obligations'
investment merits, depressing the Fund's net asset value and possibly
reducing the Fund's overall investment performance.

Credit ratings do not reflect the risk that market values of Municipal
Obligations will fluctuate with changes in interest rates, and credit rating
firms may fail to change credit ratings in a timely fashion to reflect events
subsequent to initial ratings. Accordingly, in addition to using credit
rating information, TMC subjects each issue under consideration for
investment to its own credit analysis in an effort to assess the issuer's
financial soundness. This analysis is performed on a continuing basis for all
issues held by the Funds, and TMC may determine to dispose of portfolio
securities upon a change in ratings or adverse events or market conditions
not reflected in ratings. TMC evaluates the credit quality of unrated
Municipal Obligations purchased by each Fund under the general supervision of
its Directors or Trustees, and determines the equivalency of unrated
obligations to rated obligations.

WHEN-ISSUED TRANSACTIONS

Each Fund may purchase Municipal Obligations on a "when-issued" or delayed
delivery basis, which means that the securities are not delivered until a
future date that may be as many as 45 days after the Fund has agreed to the
purchase. These transactions may involve an element of risk because the
value of the securities is subject to market fluctuation, no interest accrues
to the purchaser before delivery of the securities, and at the time of
delivery the market value may be less than cost. When a Fund agrees to
purchase Municipal Obligations on a "when-issued" basis, it will maintain
high grade liquid debt assets equal in value to the purchase price of the
"when-issued" securities in a segregated account with its custodian bank.

INVESTMENT RESTRICTIONS

Each of the Funds is subject to the restriction that it will not purchase
any investment or enter into any transactions if, as a result, more than 10%
of the Fund's net assets will be illiquid investments. Each of the Funds is
subject to other investment restrictions, which are described in that Fund's
Statement of Additional Information.

SPECIAL CONSIDERATIONS AFFECTING SINGLE-STATE FUNDS

Each of the single-state Intermediate Municipal Funds is a non-diversified
series of Thornburg Investment Trust, and each therefore may invest more than
five percent of its portfolio assets in the securities of a single issuer,
provided that it may not purchase any security (other than securities issued
or guaranteed as to principal or interest by the United States or its
instrumentalities) if, as a result, more than five percent of the Trust's
total assets would be invested in securities of a single issuer. All other
Funds are diversified series. Because each of the single state Funds will
purchase primarily Municipal Obligations originating from within its state,
an investment in a single state Fund may be riskier than an investment in
either the Limited Term National Fund or the Intermediate National Fund,
which purchase Municipal Obligations from throughout the United States.

Local economic factors could have varying effects on the obligations
owned by each single state Fund. In particular, the California economy,
although showing strength, is dependent upon the high technology industry,
and somewhat dependent upon exports to Asia. If the current Asian economic
slump continues or worsens, it could impair the ability of certain California
state and municipal issuers to pay their obligations. Taxpayer initiatives,
competitive forces, particularly in the electric utility industry, and
reallocation of certain revenues previously available to county and local
governments could reduce the revenue available to some California issuers.
Lower taxes available in some New Mexico locales, and reductions in staffing
at research and military facilities at Los Alamos, White Sands and
Albuquerque could adversely affect the ability of nearby municipalities to
meet their obligations. Florida has experienced rapid economic growth. While
the economy has broadened, this growth has brought pressure for more
infrastructure, educational facilities, and other improvements. Although
recent state budgets have been balanced, over-dependence on the sensitive
sales tax creates vulnerability to recession and to slower growth in the tax
base in the future. Also, health care, educational and correctional programs
cost increases could impose future financial and budgetary pressures on the
state, and recent law changes may restrict future tax increases. New York
State has a diverse economy, growing personal income, and strength in
consumer spending and tourism, but has not participated uniformly with other
regions in the national economic recovery of 1991 through 1998. Although
employment growth is weak, growth in personal income has resulted in some
increase in government revenues. The state, however, has not taken advantage
of revenue increases to reduce the state's substantial accumulated deficits
and establish reserves. Consequently the financial stability and credit of
the state and many of its agencies and political subdivisions could be
vulnerable to consumer spending reductions, national economic weakness or
changes in federally mandated programs. The state's chronic budget
difficulties, while helped recently by some spending reductions, also may be
aggravated by tax cuts unless further spending reductions are implemented or
the state's economy improves.

YEAR 2000 RISK

The inability of some computer systems to recognize the date January 1, 2000
may result in the failure of specific computer systems used by persons who
have issued securities owned by the Funds or by persons who provide services
used directly or indirectly by the Funds. This could result in delays or
disruptions in the receipt and crediting of payments on portfolio securities
held by the Funds, adverse effects on the issuers of securities held by the
Funds (and a decline in the value of those securities), and possible
inefficiencies or temporary difficulties in some Fund transactions. It is
also possible that failures of computer systems may result in general
economic and financial disruption not specific to the issuers of Fund
securities or the Funds, but the nature or extent of any general disruption
is controversial and difficult to estimate.

YOUR ACCOUNT -
BUYING FUND SHARES IN GENERAL

Each Fund offers Class A shares, and Limited Term National Fund, Limited
California Fund and Intermediate National Fund offer Class C shares. Each of
a Fund's shares represents an equal undivided interest in the Fund's assets,
and each Fund has common investment objectives and a common investment
portfolio. Each class may have varying annual expenses and sales charge
structures, which may affect performance. If you do not specify a class of
shares in your order, your money will be invested in Class A shares of the
Fund you purchase.

Financial advisors and others who sell shares of the Fund receive different
compensation for selling different classes of the Funds' shares. Shares of
the Funds may be purchased through investment dealers, brokers or agents
"financial advisors") who have agreements with the Funds' distributor,
Thornburg Securities Corporation (TSC), or through TSC in those states where
TSC is registered. Although shares of the National Funds generally are
available in most states, shares of the single state Funds are or will be
available only in their respective states and certain other states where
those Funds are qualified for sale. All orders are subject to acceptance by
the Funds, and the Funds and TSC reserve the right to refuse any order in
whole or in part.

Each Fund also may issue one or more other classes of shares not offered
through this Prospectus. Different classes may have different sales charges
and other expenses which may affect performance. Investors may telephone the
Funds' distributor, TSC, at (800) 847-0200 to obtain more information
concerning the various classes of shares which may be available to them
through their sales representatives. Investors may also obtain information
respecting the different classes of shares through their sales representative
or other person who is offering or making available shares of the Funds.

NET ASSET VALUE

When you purchase shares, the price is based on the net asset value (NAV)
next determined after receipt of your order. The net asset value is the
value of a share, and is computed for each class of a Fund by adding the
value of investments, cash and other assets for the class, subtracting
liabilities, and then dividing by the number of shares outstanding. Share
price is normally calculated at 4:00 p.m. Eastern time on each day the New
York Stock Exchange is open for business.

BUYING CLASS A SHARES

Class A shares are sold subject to a front-end sales charge. The sales
charge is deducted from the offering price when you purchase shares, and the
balance is invested at net asset value (NAV). The sales charge is not
imposed on shares that are purchased with reinvested dividends or other
distributions. Class A shares are also subject to a Rule 12b-1 Service Plan,
which provides for the Fund's payment to TMC of up to 1/4 of 1% of the
class's net assets each year, to obtain various shareholder related services.
Because this service fee is paid out of the class's assets on an ongoing
basis, over time these fees will increase the cost of your investment and may
cost more than paying other types of sales charges.

Because the fees for Class A shares of each Fund are lower than the fees for
Class C shares of the same Fund, Class A shares of each Fund pay higher
dividends than Class C shares of the same Fund. The deduction of the initial
sales charge, however, means that you purchase fewer Class A shares than
Class C shares of each Fund for a given amount invested.

If you are in any of the special classes of investors who can buy Class A
shares at net asset value or at a reduced sales charge, you should consider
buying Class A shares. If you are planning a large purchase or purchases
under the Right of Accumulation or Letter of Intent you should consider if
your overall costs will be lower by buying Class A shares, particularly if
you plan to hold your shares for an extended period of time.

<TABLE>
Class A Shares
Total Sales Charge
As Percentage As Percentage
of Offering Price of Net Asset Value
<S> <C> <C>
Limited Term Municipal Funds
- ----------------------------
Less than $50,000.00 2.50% 2.56%
$50,000 to 99,999.99 2.25% 2.30%
$100,000 to 249,999.99 1.75% 1.78%
$250,000 to 499,999.99 1.50% 1.52%
$500,000 to 999,999.99 1.00% 1.01%
$1,000,000 and up 0.00% 0.00%

Intermediate Municipal Funds
- ----------------------------
Less than $50,000.00 3.50% 3.63%
$50,000 to 99,999.99 3.00% 3.09%
$100,000 to 249,999.99 2.50% 2.56%
$250,000 to 499,999.99 2.00% 2.04%
$500,000 to 999,999.99 1.50% 1.52%
$1,000,000 and up 0.00% 0.00%
</TABLE>

* No sales charge will be payable at the time of purchase on investments
of $1 million of more made by a purchaser. A contingent deferred
sales charge will be imposed on these investments in the event of a
share redemption within one year following the share purchase at the
rate of 1/2 of 1%. In determining whether such a sales charge is
payable and the amount of any charge, it is assumed that shares not
subject to the charge are the first redeemed followed by other shares
held for the longest period of time. The applicability of these
charges will be unaffected by transfers of registration. TSC or TMC
intend to pay a commission of up to 1/2 of 1% to dealers who place
orders of $1 million or more for a single purchaser.

At certain times, for specific periods, TSC may reallow up to the full
sales charge to all dealers who sell Fund shares. These "full
reallowances" may be based upon the dealer reaching specified minimum
sales goals. TSC will reallow the full sales charge only after
notifying all dealers who sell Fund shares. During such periods,
dealers may be considered underwriters under securities laws. TMC or
TSC also may pay additional cash or non-cash compensation to dealer
firms which have selling agreements with TSC. Those firms may pay
additional compensation to financial advisors who sell Fund shares.
Non-cash compensation may include travel and lodging in connection
with seminars or other educational programs.

LETTERS OF INTENT. If you intend to invest, over the course of 13 or fewer
months, an amount of money that would qualify for a reduced sales charge if
it were made in one investment, you can qualify for the reduced sales charge
on the entire amount of your investment by signing a "Letter of Intent"
(LOI). Each investment you make during the 13 months will be charged the
reduced sales commission applicable to the amount stated in your LOI. You do
not have to reach the goal you set. If you don't, you will have to pay the
difference between the sales charge you would have paid and the sales charge
you did pay. You may pay this amount directly to TSC, or TSC will redeem a
sufficient number of your shares in the Fund to obtain the difference.

RIGHTS OF ACCUMULATION. Each time the value of your account plus the amount
of any new investment passes one of the breakpoints illustrated in the table
above, the amount of your new investment in excess of the breakpoint
will be charged the reduced sales charge applicable to that range.

WAIVERS. You may purchase Class A shares of each Fund with no sales charge if
you notify TSC or the Funds' transfer agent, NFDS, at the time you purchase
shares that you belong to one of the categories below. If you do not provide
such notification at the time of purchase, your purchase will not qualify for
the waiver of sales charge.

A SHAREHOLDER WHO REDEEMED CLASS A SHARES OF A THORNBURG FUND. For two
years after such a redemption you will pay no sales charge on amounts
that you reinvest in Class A shares of one of the Funds covered by this
prospectus, up to the amount you previously redeemed.

AN OFFICER, TRUSTEE, DIRECTOR, OR EMPLOYEE OF TMC (or any investment
company managed by TMC), TSC, any affiliated Thornburg Company, the
Funds' Custodian bank or Transfer Agent and members of their families
including trusts established for the benefit of the foregoing.

EMPLOYEES OF BROKERAGE FIRMS who are members in good standing with the
National Association of Securities Dealers, Inc. (NASD); employees of
financial planning firms who p lace orders for the Fund through a member in
good standing with NASD; the families of both types of employees. Orders
must be placed through an NASD member firm who has signed an agreement with
TSC to sell Fund shares.

CUSTOMERS of bank trust departments, companies with trust powers,
investment dealers and investment advisors who charge fees for service,
including investment dealers who utilize wrap fee or similar arrangements.
Accounts established through these persons are subject to conditions, fees
and restrictions imposed by these persons.

INVESTORS PURCHASING $1 MILLION OR MORE. However, a contingent deferred
sales charge of 1/2 of 1% applies to shares redeemed within one year of
purchase.

THOSE PERSONS WHO ARE DETERMINED BY THE DIRECTORS OR TRUSTEES OF THE FUND
to have acquired their shares under special circumstances not involving
any sales expenses to the Funds or Distributor.

PURCHASES PLACED THROUGH A BROKER THAT MAINTAINS ONE OR MORE OMNIBUS ACCOUNTS
WITH THE FUNDS provided that such purchases are made by: (i) investment
advisors or financial planners who place trades for their own accounts or the
accounts of their clients and who charge a management, consulting or other
fee for their services; (ii) clients of such investment advisors or
financial planners who place trades for their own accounts if the accounts
are linked to the master account of such investment advisor or financial
planner on the books and records of the broker or agent; and (iii)
retirement and deferred compensation plans and trusts used to fund those
plans, including, but not limited to, those defined in Sections 401(a),
403(b) or 457 of the Internal Revenue Code and "rabbi trusts." Investors may
be charged a fee if they effect transactions in Fund shares through a broker
or agent.

PROCEEDS FROM A LOAD FUND REDEMPTION. You may purchase shares of any Fund at
net asset value without a sales charge to the extent that the purchase
represents proceeds from a redemption (within the previous 60 days) of shares
of another mutual fund which has a sales charge. When making a direct
purchase at net asset value under this provision, the Fund must receive one
of the following with your direct purchase order: (i) the redemption check
representing the proceeds of the shares redeemed, endorsed to the order of
the Fund, or (ii) a copy of the confirmation from the other fund, showing
the redemption transaction. Standard back office procedures should be
followed for wire order purchases made through broker dealers. Purchases
with redemptions from money market funds are not eligible for this privilege.
This provision may be terminated anytime by TSC or the Funds without notice.

BUYING CLASS C SHARES

Class C shares are sold at the NAV next determined after your order is
received. Class C shares are subject to a 1% contingent deferred sales charge
(CDSC) if the shares are redeemed within one year of purchase. The percentage
is calculated on the amount of the redemption proceeds for each share, or the
original purchase price, whichever is lower. Shares not subject to the CDSC
are considered redeemed first. The CDSC is not imposed on shares purchased
with reinvested dividends or other distributions. Class C shares are subject
to a Rule 12b-1 Service Plan providing for payment of a service fee of up to
1/4 of 1% of the class's net assets each year, to obtain shareholder related
services. Class C shares are also subject to a Rule 12b-1 Distribution Plan
providing for payment of a distribution fee of up to 3/4 of 1% of the class's
net assets each year, to pay for commissions and other distribution expenses.
Because these service and distribution fees are paid out of the class's assets
on an ongoing basis, over time these fees will increase the cost of your
investment and may cost more than paying other types of sales charges.
Purchases of $1,000,000 or more of Class C shares will not be accepted.

If your investment horizon is relatively short and you do not qualify to
purchase Class A shares at a reduced sales charge, you should consider
purchasing Class C shares.

OPENING AN ACCOUNT
___________________________________________________________________________
Buying Shares To Open an Account To Add to an Account
- ---------------------------------------------------------------------------
In Minimum Minimum
- -- ------- -------
Regular Accounts $5,000 $ 100
Automatic Investment
Plans $ 100 $ 100

Through Your Financial Consult with your Consult with your
Advisor financial advisor. financial advisor

By Telephone Exchange from another Exchange from another
1-800-847-0200 Thornburg Fund account Thornburg Fund account
with the same registra- with the same registra-
tion, including name, tion, including name,
address, and taxpayer address, and taxpayer
ID number. ID number.

By Mail Complete and sign the Make your check payable
application. Make your to the applicable
check payable to the Thornburg Fund. Indicate
applicable Thornburg your Fund account number
Fund. Mail to the on your check and mail to
address indicated on the the address printed on
application. your account statement.

Automatic Investment Use one of the above Use Automated Clearing
Plan procedures to open your House funds. Sign up for
account. Obtain an this service when opening
Automatic Investment your account, or call
Plan form to sign up 1-800-847-0200 to add
for this service. to it.

Complete and sign an account application and give it, along with your check,
to your financial advisor. You may also open your account by wire or mail as
described above. If there is no application accompanying this prospectus,
call 1-800-847-0200.

If you buy shares by check and then redeem those shares, the payment may be
delayed for up to 15 business days to ensure that your previous investment
has cleared.

STREET NAME OWNERSHIP OF SHARES

Some securities dealers offer to act as owner of record of Fund shares as a
convenience to investors who are clients of those firms and shareholders of an
individual Fund. Neither the Fund nor the Transfer Agent can be responsible for
failures or delays in crediting shareholders for dividends or redemption
proceeds, or for delays in reports to shareholders if a shareholder elect s to
hold Fund shares in street-name through a brokerage firm account rather than
directly in the shareholder's own name. Further, neither the Fund nor the
Transfer Agent will be responsible to the investor for any loss to the investor
due to the brokerage firm's failure, its loss of property or funds, or its acts
or omissions. Prospective investors are urged to confer with their financial
advisor to learn about the different options available for owning mutual fund
shares. You may receive share certificates or hold shares in your name with the
Transfer Agent upon request.

SELLING FUND SHARES

You can withdraw money from your Fund account at any time by redeeming some or
all of your shares (by selling them back to the Fund or by selling the shares
through you r financial advisor). Your shares will be purchased by the Fund at
the next share price (NAV) calculated after your order is received in proper
form. The amount of the CDSC, if any, will be deducted and the remaining
proceeds sent to you. No CDSC is imposed on the amount by which the value of a
share may have appreciated. Similarly, no CDSC is imposed on shares obtained
through reinvestment of dividends or capital gains. Shares not subject to a
CDSC will be redeemed first. Share price is normally calculated at 4 p.m.
Eastern time.

To sell shares in an account, you may use any of the methods described on the
following page.

If you are selling some but not all of your shares, leave at least $1,000 worth
of shares in the account to keep it open.

CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to protect
you and your Fund from fraud. Your request must be made in writing and include
a signature guarantee if any of the following situations apply:

* You wish to redeem more than $10,000 worth of shares,
* Your account registration has changed within the last 30 days,
* The check is being mailed to a different address than the one on your
account (record address),
* The check is being made payable to someone other than the account owner,
or
* The redemption proceeds are being transferred to a Thornburg account with
a different registration.

You should be able to obtain a signature guarantee from a bank, broker
dealer, credit union (if authorized under state law), securities exchange or
association, clearing agency, savings association or participant in the
Securities Transfer Agent Medallion Program (STAMP). A notary public cannot
provide a signature guarantee.

TELEPHONE REDEMPTION. If you completed the telephone redemption section of
your application when you first purchased your shares, you may easily redeem
any class of shares of any Fund by telephone simply by calling a Fund
Customer Service Representative. Money can be wired directly to the bank
account designated by you on the application or sent to you in a check. The
Funds' Transfer Agent may charge a fee for a bank wire. This fee will be
deducted from the amount wired.

If you did not complete the telephone redemption section of your application,
you may add this feature to your account by calling the Fund for a telephone
redemption application. Once you receive it, please fill it out, have it
signature guaranteed and send it to: NFDS
c/o Thornburg Funds
P.O. Box 419017
Kansas City, MO 64141-6017

Internet redemption. You may redeem shares of any Fund by contacting Thornburg
at its Website, www.thornburg.com and following the instructions.

The Funds, TSC, TMC and the Funds' Transfer Agent are not responsible for, and
will not be liable for, the authenticity of withdrawal instructions received by
telephone or the delivery or transmittal of the redemption proceeds if they
follow instructions communicated by telephone that they reasonably believe to
be genuine. By electing telephone redemption you are giving up a measure of
security you otherwise may have by redeeming shares only with written
instructions, and you may bear the risk of any losses resulting from telephone
redemption. The Funds' Transfer Agent will attempt to implement reasonable
procedures to prevent unauthorized transactions and the Funds or their Transfer
Agent could be liable if these procedures are not employed. These procedures
will include recording of telephone transactions, providing written
confirmation of such transactions within 5 days, and requesting certain
information to better confirm the identity of the caller at the time of the
transaction.

____________________________________________________________________________
Redeeming Shares Account Type Special Requirements
- ----------------------------------------------------------------------------
Through Your Financial All Account Types Consult with your financial
Advisor advisor. Your financial
advisor may charge a fee.

By Mail Individual, Joint The letter of instruction
Tenant, Sole Pro- must be signed by all
prietorship, UGMA, persons required to sign
UTMA for transactions, exactly as
Send to: NFDS their names appear on the
c/o Thornburg Funds account, and must include:
P.O. Box 419017 * Your name,
Kansas City, MO * The Fund's name,
64141-6017 * Your Fund account
number,

* The dollar amount or
number of shares to be
redeemed,
* Any other applicable
requirements listed
above,
* Signature guarantee, if
required.

Trust In addition to the above
requirements, the trustee
must sign the letter
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
copy of the trust document
certified within the last
60 days.

Business or In addition to the above
Organization requirements, at least one
person authorized by
corporate resolution to act
on the account must sign
the letter which must be
signature guaranteed.
Include a corporate
resolution with corporate
seal.

Executor, Call 1-800-847-0200 for
Administrator, instructions.
Conservator, Guardian

By Telephone All Account Types You must sign up for the
1-800-847-0200 except Street-Name telephone redemption
Accounts feature before using it.
* Minimum Wire $1,000
* Minimum Check $50.00

By Systematic Withdrawal All Account Types You must sign up for this
Plan feature to use it.
* Minimum Account Balance
$10,000
* Minimum Check $50.00

Internet All Account Types www.thornburg.com
____________________________________________________________________________

INVESTOR SERVICES

Thornburg Funds provides a variety of services to help you manage your
account.

Information Services

Thornburg Funds' telephone representatives are available Monday through Friday
from 9:30 a.m. to 6:30 p.m. Eastern time. Whenever you call, you can speak with
someone equipped to provide the information or service you need.

Thornburg Funds' Audio Response system is available 24 hours a day, 365 days a
year. This computerized system gives you instant access to your account
information and up-to-date figures on all of the Thornburg Funds.

Thornburg Website. Thornburg's Website on the Internet provides you with helpful
information 24 hours a day, at: www.thornburg.com

Statements and reports that Thornburg Funds send to you include the following:
* Account statements after every transaction affecting your account
* Monthly account statements
* Financial reports (every six months)
* Cost basis statement (at the end of any year in which you redeem shares)

TRANSACTION SERVICES

Automatic Investment Plan. One easy way to pursue your financial goals is to
invest money regularly. Thornburg Funds let you transfer as little as $100 from
your bank account into your Fund account on a weekly, monthly or quarterly basis
automatically. Because the Fund's Automatic Investment Plan has a lower minimum
than a regular purchase, it is an ideal way for beginning investors to invest in
a Fund.

While regular investment plans do not guarantee a profit and will not protect
you against loss in a declining market, they can be an excellent way to invest
for retirement, a home, educational expenses, and other long-term financial
goals. Call 1-800-847-0200 and speak to a Fund Customer Service Representative
for more information.

Exchange Privilege. You may exchange Class A shares of any other Thornburg Fund
for Class A shares of one of the Thornburg Municipal Funds.

If you are exchanging from one of the Funds covered by this prospectus into
another Thornburg Fund, you may (i) have to pay the difference between the front
end sales charge you paid on the Fund out of which you are exchanging and the
front end sales charge applicable to the Fund into which you are exchanging; or
(ii) you may qualify for a reduced sales charge or no sales charge on that Fund.
Please consult the exchange an d reinvestment privilege information in the
Prospectus of the other Thornburg Fund.

Note that exchanges out of a Fund may have tax consequences for you. For details
on policies and restrictions governing exchanges, including circumstances under
which a shareholder's exchange privilege may be suspended or revoked, see page
28.

Systematic withdrawal plans let you set up periodic redemptions from your
account. Because of the sales charge on Class A shares of each Fund, you may not
want to set up a systematic withdrawal plan during a period when you are buying
Class A shares on a regular basis.

DIVIDENDS AND DISTRIBUTIONS

The Funds distribute substantially all of their net income and realized
capital gains, if any, to shareholders each year. Each Fund declares its net
investment income daily and distributes it monthly.Each Fund will distribute net
realized capital gains, if any, at least annually. Capital gain distributions
normally will be declared and payable in December.

Distribution Options
Each Fund earns interest from bond, money market, and other investments.
These are passed along as dividend distributions. Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them.
These are passed along as capital gain distributions.

When you open an account, specify on your application how you want to receive
your distributions. Each Fund offers four options, (which you can change at any
time).

Dividends
1. Reinvestment Option. Your dividend distributions will be automatically
invested in additional shares of your Fund. If you do not indicate a
choice on your application, you will be assigned this option. You may
also instruct the Fund to invest your dividends in the shares of any
other Thornburg Fund.

2. Cash Option. You will be sent a check for your dividend distributions.
Cash distribution checks are normally mailed on the third business day
after the month-end.

Capital Gains
1. Reinvestment Option. Your capital gain distributions, if any, will be
automatically reinvested in additional shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
You may also instruct the Fund to re invest your capital gain
distributions in shares of any other Thornburg Fund.

2. Cash Option. You will be sent a check for any capital gain distributions.

Shares of any Thornburg Fund purchased through reinvestment of dividend and
capital gain distributions are not subject to sales charges or contingent
deferred sales charges. No interest is accrued or paid on amounts represented
by uncashed distribution checks.

Turnover and Capital Gains

The Funds do not intend to engage in short-term trading for profits.
Nevertheless, when a Fund believes that a security will no longer contribute
towards its reaching its goal, it will normally sell that security.

When a Fund sells a security at a profit it realizes a capital gain. When it
sells a security at a loss it realizes a capital loss. A fund must, by law,
distribute capital gains, net of any losses, to its shareholders. Whether you
reinvest your capital gain distributions or take them in cash, the
distribution is taxable.

To minimize taxable capital gain distributions, each Fund will realize
capital losses, if available, when, in the judgment of the portfolio manager,
the integrity and income generating aspects of the portfolio would be unaffected
by doing so.

TAXES

Federal Taxes

Each Fund intends to satisfy conditions that will enable it to designate
distributions from the interest income generated by its investments in Municipal
Obligations, which are exempt from the individual federal income tax when
received by the Fund, as Exempt Interest Dividends.Shareholders receiving Exempt
Interest Dividends will not be subject to federal income tax on the amount of
such dividends, except to the extent the alternative minimum tax may be imposed.

The Funds' counsel, White, Koch, Kelly & McCarthy, Professional Association,
has not made and normally will not make any review of the proceedings
relating to the issuance of the Municipal Obligations or the basis for any
opinions issued in connection therewith. In the case of certain Municipal
Obligations, federal tax exemption is dependent upon the issuer (and other
users) complying with certain ongoing requirements. There can be no assurance
that the issuer (and other users) will comply with these requirements, in which
event the interest on such Municipal Obligations could be determined to be
taxable, in most cases retroactively from the date of issuance. Certain matters
under the Code, including certain exceptions to the foregoing, are discussed
more specifically below.

Distributions by each Fund of net interest income received from certain tempor-
ary investments (such as certificates of deposit, corporate commercial paper and
obligations of the United States government, its agencies and instrumentalities)
and net short-term capital gains realized by each Fund, if any, will be taxable
to shareholders as ordinary income whether received in cash or additional
shares. Distributions to shareholders will not qualify for the dividends
received deduction for corporations. Any net long-term capital gains realized by
a Fund, whether or not distributed, will be taxable to shareholders as long-
term capital gains regardless of the length of time investors have held their
shares, although gains attributable to market discount on portfolio securities
will be characterized as ordinary income. Each year each Fund will, where
applicable, mail to shareholders information on the tax status of dividends and
distributions, including the respective percentages of tax-exempt and taxable
income and an allocation of tax-exempt income on a state-by-state basis. The
exemption of interest income for federal income tax purposes does not
necessarily result in an exemption under the income or other tax laws of any
state or local taxing authorities. (See "State Taxes"). Shareholders are advised
to consult their own tax advisers for more detailed information concerning the
federal, state and local taxation of each Fund and the income tax consequences
to its shareholders.

The Code treats interest on certain Municipal Obligations which are private
activity bonds under the Code as a preference item for purposes of the
alternative minimum tax on individuals and corporations. The Funds may
purchase without limitation private activity bonds the interest on which is
subject to treatment under the Code as a preference item for purposes of the
alternative minimum tax on individuals and corporations, although the
frequency and amounts of these purchases are presently uncertain. Some
portion of Exempt Interest Dividends may, as a result of these purchases, be
treated as a preference item for purposes of the alternative minimum tax on
individuals and corporations. Shareholders are advised to consult their own
tax advisers as to the extent and effect of this treatment.

State Taxes

Distributions of interest income from Municipal Obligations will not necessarily
be exempt from taxes under the income or other tax laws of any state or local
taxing authority. Distributions to individuals attributable to interest on
Municipal Obligations originating in Alabama, California, Arizona, New Mexico,
New York and Tennessee will not be subject to personal income taxes imposed by
the state of the same name as the Fund. For example, an individual resident in
New Mexico, who owns shares in the Intermediate New Mexico Fund, will not be
required by New Mexico to pay income taxes on interest dividends attributable to
obligations originating in that state. Individual shareholders of the
Intermediate New York Fund, who are residents of New York City, will not be
required to pay New York State income taxes on interest dividends attributable
to obligations originating in New York State. Capital gain distributions are
taxable by these states, irrespective of the origins of the obligations from
which the gains arise. Individual shareholders of the Pennsylvania Intermediate
Fund, who are Pennsylvania residents, will not be subject to Pennsylvania income
tax on distributions attributable to interest on obligations originating in
Pennsylvania, or distributions attributable to gains on dispositions of
obligations of Pennsylvania and its political subdivisions and obligations of
the United States and its territories and possessions. Additionally, individual
shareholders will be exempt from Pennsylvania personal property tax on their
Intermediate Pennsylvania Fund shares to the extent the Fund's assets consist of
obligations described in the preceding sentence. Individual residents in
Pittsburgh will enjoy a similar exemption from personal property taxes imposed
by the City and School District of Pittsburgh.

Florida and Texas do not currently impose an income tax on individuals
or do not impose an income tax on distributions to individuals attributable
to Municipal Obligations. Florida imposes a personal property or
"intangibles" tax which is generally applicable to securities owned by
individual residents in Florida, but the intangibles tax will not apply to
Florida Fund shares if the Funds' assets as of the close of the preceding
taxable year consist only of obligations of Florida and its political
subdivisions and obligations of the United States, Puerto Rico, Guam or the
United States Virgin Islands.

With respect to distributions of interest income from the Limited Term
National Fund and the Intermediate National Fund, the laws of the several
states and local taxing authorities vary with respect to the taxation of such
distributions, and shareholders of these Funds are advised to consult their own
tax advisers in that regard. The Limited Term National Fund and the Intermediate
National Fund will advise shareholders approximately 60 days after the end of
each calendar year as to the percentage of income derived from each state as to
which it has any Municipal Obligations in order to assist shareholders in the
preparation of their state and local tax returns. Prospective investors are
urged to confer with their own tax advisers for more detailed information
concerning state tax consequences. In particular, corporations should note that
the preceding outline of state taxes pertains principally to individuals, and
tax treatment of corporations may be different.

TRANSACTION DETAILS

The Funds are open for business each day the New York Stock Exchange (NYSE)
is open. Each class of shares of the Fund normally calculates its NAV (and
offering price for Class A shares) as of the close of business of the NYSE,
normally 4 p.m. Eastern time. Each Fund's assets are valued on the basis of
valuations obtained from independent pricing services.

When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require the Fund to
withhold 31% of your taxable distributions and redemptions.

You may initiate many transactions by telephone. Note that a Fund will not be
responsible for any losses resulting from unauthorized transactions if it
follows reasonable procedures designed to verify the identity of the caller.
The Fund will request personalized security codes or other information, and
may also record calls. You should verify the accuracy of your confirmation
statements immediately after you receive them. If you want the ability to
redeem and exchange by telephone, fill in the appropriate section of the
application. If you have an existing account to which you wish to add this
feature, call the Fund for a telephone redemption application. If you are
unable to reach the Fund by phone (for example, during periods of unusual
market activity), consider placing your order by mail or by using your
financial advisor.

The Funds reserve the right to suspend the offering of shares for a period of
time. Each Fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page 28. Purchase orders may be refused if, in TMC's opinion, they would
disrupt management of a Fund.

When you place an order to buy shares, your order will be processed at the
next share price calculated after your order is received. If you open or
add to your account yourself rather than through your financial advisor
please note the following:

* All of your purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks.
* The Funds do not accept cash.
* If your check does not clear, your purchase will be cancelled and you
could be liable for any losses or fees the Fund or its Transfer Agent has
incurred.

When you buy shares of a Fund or sell them through your financial advisor,
you may be charged a fee for this service. Please read your financial
advisor's program materials for any additional procedures, service features
or fees that may apply.

Certain financial institutions that have entered sales agreements with TSC
may enter confirmed purchase orders on behalf of customers by phone, with
payment to follow no later than the time when the Fund is priced on the
following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.

Each Fund may authorize certain securities brokers to accept on its behalf
purchase and redemption orders received in good form, and some of those brokers
may be authorized to designate other intermediaries to accept purchase and
redemption orders on the Fund's behalf. Provided the order is promptly
transmitted to the Fund, the Fund will be deemed to have received a purchase or
redemption order at the time it is accepted by such an authorized broker or its
designee, and customer orders will be priced based upon the Fund's net asset
value next computed after the order is accepted by the authorized broker or its
designee.

When you place an order to sell shares, your shares will be sold at the next
NAV calculated after your request is received in proper form.(Except that a CDSC
will be deducted from Class C shares within one year of purchase and a CDSC of
1/2 of 1% will be deducted from redemptions of Class A shares within one year of
purchase where no sales charge was imposed on the purchase because it exceeded
$1,000,000). Note the following:

* Consult your financial advisor for procedures governing redemption
through his or her firm.
* If you redeem by mail the proceeds will normally be mailed to you on the
next business day, but if making immediate payment could adversely affect
your Fund, it may take up to 7 days to pay you.
* Telephone redemptions over the wire generally will be credited to your
bank account on the business day after your phone call.
* Each Fund may hold payment on redemptions until it is reasonably
satisfied that investments previously made by check have been collected,
which can take up to 15 business days.
* Redemptions may be suspended or payment dates postponed when the NYSE is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
* No interest or earnings will accrue or be paid on amounts represented by
uncashed distribution or redemption checks.
* To the extent consistent with state and federal law, a Fund may make
payments of the redemption price either in cash or in kind. The Funds
have elected to pay in cash all requests for redemption by any
shareholder. They may, however, limit such cash in respect to each
shareholder during any 90 day period to the lesser of $250,000 or 1% of
the net asset value of a Fund at the beginning of such period. This
election has been made pursuant to Rule 18f-1 under the Investment
Company Act of 1940 and is irrevocable while the Rule is in effect unless
the Securities and Exchange Commission, by order, permits its withdrawal.
In the case of a redemption in kind, securities delivered in payment for
shares would be valued at the same value assigned to them in computing
the net asset value per share of the Fund. A shareholder receiving such
securities would incur brokerage costs when selling the securities.

EXCHANGE RESTRICTIONS

As a shareholder you have the privilege of exchanging Class A shares of the
Funds for Class A shares of other Thornburg Funds. However, you should note the
following:

* The Fund you are exchanging into must be registered for sale in your
state.
* You may only exchange between accounts that are registered in the same
name, address, and taxpayer identification number.
* Before exchanging into a Fund, read its prospectus.
* If you exchange Class A shares into a Fund with a higher sales charge,
you may have to pay the percentage-point difference between that Fund's
sales charge and any sales charge you have previously paid in connection
with the shares you are exchanging. For example, if you had already paid
a sales charge of 2.5% on your shares and you exchange them into a Fund
with a 4.5% sales charge, you would pay an additional 2% sales charge.
* Exchanges may have tax consequences for you.
* Because excessive trading can hurt performance and shareholders, each
Fund reserves the right to temporarily or permanently terminate the
exchange privilege of any investor who makes more than four exchanges out
of a Fund in any calendar year. Accounts under common ownership or
control, including accounts with the same taxpayer identification number,
will be counted together for purposes of the four exchange limit.
* Each Fund reserves the right to refuse exchange purchases by any person
or group if, in TMC's judgement, the Fund would be unable to invest the
money effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
* Your exchanges may be restricted or refused if a Fund receives or
anticipates simultaneous orders affecting significant portions of the
Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to a Fund.

Although a Fund will attempt to give prior notice whenever it is reasonably
able to do so, it may impose these restrictions at any time. The Funds
reserve the right to terminate or modify the exchange privilege in the
future.

ORGANIZATION OF THE FUNDS

Each of the Limited Term Municipal Funds are diversified series of Thornburg
Limited Term Municipal Fund, Inc., a Maryland corporation organized as a
diversified, open-end management investment company. The Limited Term
Municipal Funds are managed by their investment adviser, Thornburg Management
Company, Inc., under the supervision of the Board of Directors of Thornburg
Limited Term Municipal Fund, Inc. (the "Company" ). The Company currently offers
two series of stock, referred to in this Prospectus as Limited Term National
Fund and Limited Term California Fund, each in multiple classes, and the Board
of Directors is authorized to divide authorized but unissued shares into
additional series and classes.

Each of the Intermediate Municipal Funds are series of Thornburg Investment
Trust, a Massachusetts business trust (the "Trust") organized as a diversified,
open-end management investment company under a Declaration of Trust (the
"Declaration" ). Each of the single-state Intermediate Funds is a
non-diversified series of the Trust, and the Intermediate Municipal Funds are
managed by their investment adviser, Thornburg Management Company, Inc. under
the supervision of the Trust's Trustees. The Trust currently has 13 authorized
Funds, ten of which are described in this Prospectus. The Trustees are
authorized to divide the Trust's shares into additional series and classes.

No Fund is liable for the liabilities of any other Fund. However, because the
Company and the Trust share this Prospectus with respect to the Funds, there is
a possibility that one of these companies could be liable for any
misstatements, inaccuracies or incomplete disclosure in the Prospectus
respecting Funds offered by the other company. The Company and the Trust do
not concede, and specifically disclaim, any such liability.

INVESTMENT ADVISER

The Funds are managed by Thornburg Management Company, Inc. (TMC). TMC
performs investment management services for each Fund under the terms of an
Investment Advisory Agreement which specifies that TMC will select
investments for the Fund, monitor those investments and the markets
generally, and perform related services. TMC also performs administrative
services specific to each class of shares of each Fund under an Administrative
Services Agreement which requires that TMC will supervise,
administer and perform certain administrative services necessary for the
maintenance of each class' shareholders. TMC's services to the Limited Term
Municipal Funds are supervised by the Directors of Thornburg Limited Term
Municipal Fund, Inc., and TMC's services to the Intermediate Municipal Funds
are supervised by the Trustees of Thornburg Investment Trust.

For each of the Funds, TMC receives a management fee and an administrative
services fee, computed according to the following scales and paid monthly as
a percentage of each Fund's average daily net assets.

<TABLE>
Limited Term Intermediate Term All Funds
Municipal Funds Municipal Funds Annual
Net Assets Annual Investment Annual Investment Administrative
Management Fee Management Fee Fee
- ---------- ----------------- ----------------- --------------
<S> <C> <C> <C>
0 to $500 million .50% .50% .125%
$500 million to $1 billion .40% .45% .125%
$1 billion to $1.5 billion .30% .40% .125%
$1.5 billion to $2 billion .25% .35% .125%
Over $2 billion .225% .275% .125%
</TABLE>

For the most recent fiscal year of Limited Term National Fund, Limited Term
California Fund and Intermediate New York Fund, ended June 30, 1998, the
investment management fee was .45%, .50% and .50%, respectively. For the most
recent fiscal year of Intermediate National fund, Intermediate New Mexico Fund
and Intermediate Florida Fund, ended September 30, 1998, the investment
management fee was .50% for each Fund.

TMC was established in 1982. Today, the Thornburg Funds include Thornburg
Value Fund, Thornburg Limited Term U.S. Government Fund and Thornburg Limited
Term Income Fund in addition to the Funds covered by this Prospectus. The
Thornburg Funds total over $1.8 billion in assets. Thornburg Management Company
Inc. is known as a provider of conservative investment products. For more than
a decade the Thornburg Funds have been committed to preserving and increasing
the real wealth of their shareholders. The key to growing real wealth is
increasing buying power after taxes, inflation, and investment related
expenses.

Brian J. McMahon and George Strickland, both of whom are managing directors
of TMC, are the portfolio managers for each of the Fund portfolios. Mr.
McMahon has managed municipal bond portfolios for TMC since 1984 and Mr.
Strickland has performed municipal bond credit analysis and management since
joining TMC in 1991. Mr. McMahon and Mr. Strickland are assisted by other
employees of TMC in managing the Funds.

TMC may, from time to time, agree to waive its fees or to reimburse any Fund
for expenses above a specified percentage of average daily net assets. TMC
retains the ability to be repaid by the Fund receiving these reimbursements
if expenses fall below the limit prior to the end of the fiscal year. Fee
waivers and expense reimbursements will increase a Fund's yield, and
repayment of waivers or reimbursements will lower the Fund's yield.

In addition to TMC's fees, each Fund will pay all other costs and expenses
of its operations. Funds will not bear any costs of sales or promotion incurred
in connection with the distribution of their shares, except as provided for
under the service and distribution plans applicable to each Fund class, as
described above under "Your Account - Buying Fund Shares."

Thornburg Securities Corporation (TSC) distributes and markets the Thornburg
Funds.

H. Garrett Thornburg, Jr. a Trustee and President of the Trust and a Director
and Chairman of the Company, is the controlling stockholder of both TMC and
TSC.

FINANCIAL HIGHLIGHTS

The financial highlights tables are intended to help you understand each Fund's
financial performance for the past five years (or if shorter, the period of the
Fund's operations). Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by McGladrey & Pullen, LLP, independent auditors, whose report, along
with each Fund's financial statements, are included in the Fund's Annual
Report, which is available upon request.

<TABLE>
- ------------------------------------
THORNBURG LIMITED TERM NATIONAL FUND
- ------------------------------------
---------------------------------------------------------------------------------------
CLASS A CLASS C
------------------------------------------ ------------------------------------------
Period
from
9/1/94 <F(a)>
Year Ended June 30: Year Ended June 30: to
1998 1997 1996 1995 1994 1998 1997 1996 6/30/95
------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.44 $13.35 $13.37 $13.27 $13.59 $13.46 $13.37 $13.40 $13.29

Income from Investment Operations:
Net Investment Income .61 .62 .63 .64 .63 .55 .57 .57 .46
Net Gains (or Losses) on Securities .06 .09 (.02) .10 (.32) .07 .09 (.03) .11
(Realized and Unrealized) ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations .67 .71 .61 .74 .31 .62 .66 .54 .57

Less Distributions:
Dividends (from Net Investment Income) (.61) (.62) (.63) (.64) (.63) (.55) (.57) (.57) (.46)
Distributions (from Capital Gains) - - - - - - - - -
Total Distributions (.61) (.62) (.63) (.64) (.63) (.55) (.57) (.57) (.46)

Net Asset Value, End of Period $13.50 $13.44 $13.35 $13.37 $13.27 $13.53 $13.46 $13.37 $13.40

Total Return <FN(b)> 5.05% 5.46% 4.60% 5.76% 2.25% 4.70% 5.02% 4.05% 4.25%

Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $836,947 837,621 917,831 931,987 1,030,293 $22,729 19,475 15,948 6,469
Ratio of Expenses to Average Net Assets (0.97)% (0.96)% (0.97)% (0.97)% (0.95)% (1.38)% (1.38)% (1.41)% (1.60)%<F(c)>
(After Expense Reimbursements)
Ratio of Net Income to Average Net Assets 4.50% 4.65% 4.66% 4.86% 4.60% 4.08% 4.24% 4.22% 4.22%<F(c)>
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets (0.97)% (0.96)% (0.97)% (0.97)% (0.95)% (1.45)% (1.86)% (1.63)% (1.84)%<F(c)>
(Before Expense Reimbursements)

Portfolio Turnover Rate 24.95% 23.39% 20.60% 23.02% 15.63% 24.95% 23.39% 20.60& 23.02%

- --------------------------------------
THORNBURG LIMITED TERM CALIFORNIA FUND
- --------------------------------------
---------------------------------------------------------------------------------------
CLASS A CLASS C
------------------------------------------ ------------------------------------------
Period
from
9/1/94 <F(a)>
Year Ended June 30: Year Ended June 30: to
1998 1997 1996 1995 1994 1998 1997 1996 6/30/95
------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.75 $12.64 $12.61 $12.57 $12.85 $12.76 $12.65 $12.62 $12.55

Income from Investment Operations:
Net Investment Income .55 .57 .58 .58 .58 .50 .52 .53 .42
Net Gains (or Losses) on Securities .15 .11 .03 .04 (.28) .15 .11 .03 .07
(Realized and Unrealized) ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations .70 .68 .61 .62 .30 .65 .63 .56 .49

Less Distributions:
Dividends (from Net Investment Income) (.55) (.57) (.58) (.58) (.58) (.50) (.52) (.53) (.42)
Distributions (from Capital Gains) - - - - - - - - -
Total Distributions (.55) (.57) (.58) (.58) (.58) (.50) (.52) (.53) (.42)

Net Asset Value, End of Period $12.90 $12.75 $12.64 $12.61 $12.57 $12.91 $12.76 $12.65 $12.62

Total Return <FN(b)> 5.57% 5.47% 4.94% 5.12% 2.37% 5.14 5.06% 4.46% 3.98%

Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $122,231 94,253 94,379 98,841 111,723 $7,843 5,882 2,444 790
Ratio of Expenses to Average Net Assets (1.00)% (1.00)% (1.00)% (1.00)% (1.00)% (1.40)% (1.40)% (1.43)% (1.63)%<F(c)>
(After Expense Reimbursements)
Ratio of Net Income to Average Net Assets 4.25% 4.47% 4.59% 4.69% 4.51% 3.85% 4.06% 4.16% 4.07%<F(c)>
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets (1.04)% (1.03)% (1.05)% (1.04)% (1.03)% (1.60)% (2.15)% (2.92)% (3.21)%<F(c)>
(Before Expense Reimbursements)

Portfolio Turnover Rate 21.21% 20.44% 22.68% 18.54% 15.26% 22.21% 20.44% 22.68& 18.54%

- ------------------------------------
THORNBURG INTERMEDIATE NATIONAL FUND
- ------------------------------------
---------------------------------------------------------------------------------------
CLASS A CLASS C
------------------------------------------ ------------------------------------------
Period
from
9/1/94
<F(a)>
Year Ended September 30: Year Ended September 30: to
1998 1997 1996 1995 1994 1998 1997 1996 1995 9/30/94
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.46 $13.23 $13.18 $12.73 $13.47 $13.48 $13.24 $13.20 $12.73 $12.91

Income from Investment Operations:
Net Investment Income .63 .66 .68 .68 .67 .58 .61 .63 .60 .05
Net Gains (or Losses) on Securities .30 .23 .05 .45 (.72) .29 .24 .04 .47 (.18)
(Realized and Unrealized) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations .93 .89 .73 1.13 (.05) .87 .85 .67 1.07 (.13)

Less Distributions:
Dividends (from Net Investment Income) (.63) (.66) (.68) (.68) (.67) (.58) (.61) (.63) (.60) (.05)
Distributions (from Capital Gains) - - - - (.02) - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (.63) (.66) (.68) (.68) (.69) (.58) (.61) (.63) (.60) (.05)

Net Asset Value, End of Period $13.76 $13.46 $13.23 $13.18 $12.73 $13.77 $13.48 $13.24 $13.20 $12.73

Total Return <FN(b)> 7.08% 6.90% 5.64% 9.16% (0.38)% 6.57 6.55% 5.14% 8.60% (0.97)%

Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $368,108 309,293 246,128 227,881 207,718 $20,852 11,292 7,586 4,001 139
Ratio of Expenses to Average Net Assets (1.00)% (1.00)% (1.00)% (1.00)% (.95)% (1.40)% (1.40)% (1.40)% (1.66)% (1.76)%
(After Expense Reimbursements) <F(c)>
Ratio of Net Income to Average Net Assets 4.65% 4.96% 5.12% 5.31% 5.23% 4.23% 4.55% 4.73% 4.62% 4.51%
(After Expense Reimbursements) <F(c)>
Ratio of Expenses to Average Net Assets (1.04)% (1.05)% (1.09)% (1.08)% (1.05)% (1.53)% (1.99)% (1.97)% (2.35)% (1.76)%
(Before Expense Reimbursements) <F(c)>

Portfolio Turnover Rate 16.28% 15.36% 12.64% 32.20% 27.37% 16.28% 15.36% 12.64% 32.20% 27.37%

- --------------------------------------
THORNBURG INTERMEDIATE NEW MEXICO FUND
- --------------------------------------
------------------------------------------
CLASS A
------------------------------------------
Year Ended September 30:
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.28 $13.09 $13.12 $12.72 $13.36

Income from Investment Operations:
Net Investment Income .62 .64 .63 .60 .60
Net Gains (or Losses) on Securities .17 .19 (.03) .40 (.63)
(Realized and Unrealized) ------ ------ ------ ------ ------
Total from Investment Operations .79 .83 .60 1.00 (.03)

Less Distributions:
Dividends (from Net Investment Income) (.62) (.64) (.63) (.60) (.60)
Distributions (from Capital Gains) - - - - -
------ ------ ------ ------ ------
Total Distributions (.62) (.64) (.63) (.60) (.60)

Net Asset Value, End of Period $13.45 $13.28 $13.09 $13.12 $12.72

Total Return <FN(b)> 6.08% 6.51% 4.68% 8.10% (0.26)%

Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $153,118 145,850 131,307 136,742 143,910
Ratio of Expenses to Average Net Assets (1.00)% (1.00)% (1.00)% (1.00)% (.90)%
(After Expense Reimbursements)
Ratio of Net Income to Average Net Assets 4.64% 4.88% 4.81% 4.71% 4.85%
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets (1.02)% (1.05)% (1.07)% (1.06)% (1.04)%
(Before Expense Reimbursements)

Portfolio Turnover Rate 13.74% 10.06% 10.88% 17.06% 6.87%

- -----------------------------------
THORNBURG INTERMEDIATE FLORIDA FUND
- -----------------------------------
------------------------------------------
CLASS A
------------------------------------------
Period
from
2/01/94
<F(a)>
Year Ended September 30: to
1998 1997 1996 1995 9/30/94
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.14 $11.88 $11.83 $11.54 $12.06

Income from Investment Operations:
Net Investment Income .56 .56 .57 .63 .40
Net Gains (or Losses) on Securities .23 .26 .05 .29 (.52)
(Realized and Unrealized) ------ ------ ------ ------ ------
Total from Investment Operations .79 .82 .62 .92 (.12)

Less Distributions:
Dividends (from Net Investment Income) (.56) (.56) (.57) (.63) (.40)
Distributions (from Capital Gains) - - - - -
------ ------ ------ ------ ------
Total Distributions (.56) (.56) (.57) (.63) (.40)

Net Asset Value, End of Period $12.37 $12.14 $11.88 $11.83 $11.54

Total Return <FN(b)> 6.62% 7.04% 5.37% 8.22% (0.95)%

Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $28,091 24,663 19,501 14,822 8,076
Ratio of Expenses to Average Net Assets (.98)% (.83)% (.61)% (.38)% (.25)%
(After Expense Reimbursements) <F(c)>
Ratio of Net Income to Average Net Assets 4.54% 4.65% 4.80% 5.41% 5.09%
(After Expense Reimbursements) <F(c)>
Ratio of Expenses to Average Net Assets (1.11)% (1.13)% (1.34)% (1.44)% (1.95)%
(Before Expense Reimbursements) <F(c)>

Portfolio Turnover Rate 70.91% 51.48% 77.12% 89.60% 19.94%
- -----------------------------------
THORNBURG INTERMEDIATE NEW YORK FUND
- -----------------------------------
--------
CLASS A
--------
Period
from
9/04/97
<F(a)>
to
6/30/98
-------
<S> <C>
Net Asset Value, Beginning of Period $12.50

Income from Investment Operations:
Net Investment Income .52
Net Gains (or Losses) on Securities .21
(Realized and Unrealized) ------
Total from Investment Operations .73

Less Distributions:
Dividends (from Net Investment Income) (.52)
Distributions (from Capital Gains) -
------
Total Distributions (.52)

Net Asset Value, End of Period $12.71

Total Return <FN(b)> 5.92%

Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $25,472
Ratio of Expenses to Average Net Assets (.78)%<F(c)>
(After Expense Reimbursements)
Ratio of Net Income to Average Net Assets 4.90%<F(c)>
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets (1.19)%<F(c)>
(Before Expense Reimbursements)

Portfolio Turnover Rate 42.27%

<FN>
<F(a)> Commencement of operations.
<F(b)> Sales charges are not reflected in computing total return,
which is not annualized for periods less than one year.
<F(c)> Annualized.

ADDITIONAL INFORMATION

Reports to Shareholders
Shareholders will receive annual reports of their Fund containing financial
statements audited by the Funds' independent auditors, and also will receive
unaudited semi-annual reports. In addition, each shareholder will receive an
account statement no less often than quarterly.

Custodian and Transfer Agent
The custodian of each Fund's assets is State Street Bank & Trust Co. National
Financial Data Services is the transfer agent for the Funds and
performs bookkeeping, data processing and administrative services incident to
the maintenance of shareholder accounts.

General Counsel
Legal matters in connection with the issuance of shares of the Funds are
passed upon by White, Koch, Kelly & McCarthy, Professional Association, Post
Office Box 787, Santa Fe, New Mexico 87504-0787.

INVESTMENT ADVISER
Thornburg Management Company, Inc.
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501

DISTRIBUTOR
Thornburg Securities Corporation
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501

AUDITOR
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017

CUSTODIAN
State Street Bank & Trust Co.
Boston, Massachusetts

TRANSFER AGENT
State Street Bank & Trust Co.
c/o NFDS Servicing Agent
Post Office Box 419017
Kansas City, Missouri 64141-6017

<OUTSIDE BACK COVER>
The current Statement of Additional Information (SAI) for each of the
Funds includes additional information about the Funds, and additional
information about each Fund's investments is available in the Fund's annual
and semiannual reports to shareholders.

Shareholder inquiries and requests for copies of the Funds' SAI, annual and
semiannual reports, and other Fund information may be made to Thornburg
Securities Corporation at 119 East Marcy Street, Suite 202, Santa Fe, New
Mexico 87501 (800) 847-0200. SAIs and annual and semiannual reports are
furnished at no charge.

Information about the Funds (including the SAI) may be reviewed and copied at
the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. Information about the Public Reference Room may be obtained by calling
the Commission at 1-800-SEC-0330. 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. 20549-6009.

No dealer, sales representative or any other person has been authorized to
give any information or to make any representation not contained in this
Prospectus and, if given or made, the information or representation must not
be relied upon as having been authorized by any Fund or Thornburg Securities
Corporation. This Prospectus constitutes an offer to sell securities of a
Fund only in those states where the Fund's shares have been registered or
otherwise qualified for sale. A Fund will not accept applications from
persons residing in states where the Fund's shares are not registered.

<logo>
Thornburg Funds
Investing With Integrity
Thornburg Securities Corporation, Distributor
119 East Marcy Street, Santa Fe, New Mexico 87501
(800) 847-0200
www.thornburg.com email: [email protected]

Securities and Exchange Commission Investment Company Act of 1940 file
numbers:
Thornburg Investment Trust: 811-05201
Thornburg Limited Term Municipal Fund, Inc.: 811-4302
<PAGE>
<OUTSIDE FRONT COVER>

THORNBURG FUNDS
Institutional Class Shares

Prospectus
February 1, 1999

Limited Term National Fund and Limited Term California Fund are separate
investment portfolios of Thornburg Limited Term Municipal Fund, Inc. and
Intermediate National Fund, Government Fund and Income Fund are separate
investment portfolios of Thornburg Investment Trust. Value Fund is also a
separate investment portfolio of Thornburg Investment Trust.

MUNICIPAL FUNDS
Thornburg Limited Term Municipal Fund National Portfolio
("Limited Term National Fund")
Thornburg Limited Term Municipal Fund California Portfolio
("Limited Term California Fund")
Thornburg Intermediate Municipal Fund
("Intermediate National Fund")

TAXABLE INCOME FUNDS
Thornburg Limited Term U. S. Government Fund ("Government Fund")
Thornburg Limited Term Income Fund ("Income Fund")

THORNBURG VALUE FUND
Thornburg Value Fund ("Value Fund")

* Limited Term National Fund, Limited Term California Fund and
Intermediate National Fund each seeks current income exempt
from federal income tax.
* Limited Term California Fund also seeks to have the income dividends
payable to its shareholders exempt from California individual income
taxes.
* Government Fund and Income Fund seek current income.
* Value Fund seeks long-term capital appreciation by investing in securities
selected on a value basis, and seeks some current income as a secondary
consideration.

* As a secondary investment objective, Limited Term National Fund, Limited
Term California Fund, Government Fund and Income Fund each seeks to reduce
fluctuations in its share price compared to intermediate and longer term
portfolios by investing in obligations with an expected dollar-weighted
average maturity of normally not more than five years.
* Intermediate Municipal fund will seek to reduce fluctuations in its share
price compared to long-term portfolios by investing in obligations with an
expected dollar-weighted average maturity of normally three to ten years.

NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE

<PAGE>
TABLE OF CONTENTS

__ Investment Objectives of the Funds
__ Principal Investment Strategies
__ Principal Risks of Investing in a Fund
__ Fees and Expenses of the Funds
__ Fund Performance and Index Comparisons
__ Fund Investments, Investment Policies and Related Risks
__ Investment Policies and Risks of the Municipal Funds
__ Investment Policies and Risks of the Taxable Income Funds
__ Securities Ratings and Credit Quality
__ Investment Policies and Risks of Value Fund
__ Your Account - Buying Fund Shares
__ Selling Fund Shares
__ Investor Services
__ Dividends and Distributions
__ Taxes
__ Organization of the Funds
__ Investment Adviser
__ Financial Highlights
__ Additional Information

<PAGE>

INVESTMENT OBJECTIVES OF THE FUNDS

Municipal Funds
- ---------------

The primary investment objective of each Municipal Fund is to obtain as high a
level of current income exempt from federal income tax as is consistent, in the
view of TMC, with the preservation of capital. Limited Term California Fund
will invest primarily in Municipal Obligations originating in California with
the object of obtaining exemption of interest dividends from any income taxes
imposed by that state on individuals. The secondary objective of the Limited
Term National Fund and Limited Term California Fund is to reduce expected
changes in its share price relative to longer intermediate and long-term bond
portfolios, while expecting lower yields than intermediate and long-term
portfolios normally receive. The secondary objective of the Intermediate
National Fund is to reduce changes in its share price relative to long-term
municipal bond portfolios. Intermediate National Fund seeks higher yields than
Limited Term National Fund expects to receive, while expecting more change in
its share price than experienced by Limited Term National Fund. There is a
risk in all investments, however, and there is no assurance that the Funds'
objectives will be achieved. Income otherwise exempt from federal income tax
may be subject to the federal alternative minimum tax, and distributions from
gains attributable to market discount are characterized as ordinary income for
federal income tax purposes.

Taxable Income Funds
- --------------------

Each Taxable Income Fund's primary investment objective is to provide,
through investment in a portfolio of fixed income obligations, as high a
level of income as is consistent, in the view of the Funds' investment
adviser, with safety of capital. Each Fund also seeks to reduce changes in
its share price compared to longer intermediate and long-term bond
portfolios.

No assurance can be given that these goals will be achieved.

Value Fund
- ----------

The Value Fund is an equity mutual fund seeking long-term capital
appreciation. As a secondary consideration, the Fund also seeks some current
income. No assurance can be given that these goals will be achieved.

PRINCIPAL INVESTMENT STRATEGIES

Municipal Funds
- ---------------

Each Fund will pursue its primary objective by investing in a portfolio of
investment grade or equivalent obligations which are issued by states and state
agencies, and local governments and agencies and by United States territories
and possessions ("Municipal Obligations"). Limited Term California Fund will
invest primarily in Municipal Obligations originating in California. Municipal
Obligations are discussed below under the caption "Municipal Obligations," and
investment grade ratings are discussed below under the caption "Investment
Ratings."

Limited Term National Fund and Limited Term California Fund each seeks to
achieve its secondary objective by maintaining a portfolio of investments with
a dollar-weighted average maturity normally not exceeding five years.
Intermediate National Fund seeks to achieve its secondary objective of
obtaining lower share price fluctuation than a long-term portfolio and
obtaining higher yields than a limited term portfolio by maintaining a dollar-
weighted average portfolio maturity normally between three and ten years.
Intermediate National Fund may maintain a portfolio maturity shorter than three
years as a defensive strategy during abnormal market conditions. There is no
limitation on the maturity of any specific security a Fund may purchase,
subject to the limitation on the Fund's average portfolio maturity.

Taxable Income Funds
- --------------------

Limited Term U.S. Government Fund pursues its primary goal by investing
primarily in obligations issued or guaranteed by the United States Government
or its agencies and instrumentalities, and in participation in such
obligations or in repurchase agreements secured by such obligations. Limited
Term Income Fund pursues its primary goal by investing primarily in
investment grade short and intermediate maturity bonds and in asset backed
securities. Each Fund also seeks to reduce changes in its share value
compared to longer term portfolios by maintaining a portfolio of investments
with a dollar-weighed average portfolio maturity of not more than five years.

Value Fund
- ----------

Thornburg Value Fund seeks its primary objective of capital appreciation by
investing mainly in domestic equity securities selected on a value basis
using fundamental research and valuation methods. As a secondary investment
consideration, the Funds seeks to realize some current income through
selection of dividend paying equity securities, and through the purchase of
some preferred stocks and domestic and foreign debt securities. The Fund's
investment strategies are discussed in detail below under the caption "Fund
Investments, Investment Policies and Related Risks."

PRINCIPAL RISKS OF INVESTING IN A FUND

Municipal Funds
- ---------------

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 each
Fund's investments declines and the Fund's share value is reduced. When
interest rates decline, the value of the Fund's investments increases.
Dividends also will vary over time. During periods of declining interest rates
each Fund's dividends similarly 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 reduces the ability of
issuers to pay principal and interest when due or changes the tax treatment of
interest on municipal obligations. The loss of money is a risk of investing in
each Fund, and when you sell your shares they may be worth more or less than
what you paid for them. These and other risks of investing in the Funds are
further discussed below under the caption "Fund Investments, Investment
Policies and Related Risks."

Taxable Income Funds
- --------------------

The value of each Taxable Income Fund's shares and its dividends will
fluctuate in response to changes in interest rates. Additionally, variations
in interest rates may result in prepayments of certain obligations the Funds
will acquire. These prepayments may require a Fund to reinvest at a lower
rate of return, and may reduce a Fund's net asset value because the value of
such securities may not appreciate as rapidly as non-callable debt
securities. Obligations owned by Limited Term Income Fund may be subject to
default, or could be downgraded by ratings agencies, reducing the value of
Income Fund's shares. The loss of money is a risk of investing in each Fund,
and when you sell your shares they may be worth more or less than what you
paid for them.

Value Fund
- ----------

The value of Value Fund's investments varies from day to day, generally
reflecting changes in market conditions, political and economic news,
interest rates, dividends and specific corporate developments. The value of
the Fund's investments also could be reduced by defaults in debt securities
owned by the Fund, unsuccessful investment strategies, or risks affecting
foreign securities. The Fund is subject to the additional risks of foreign
investments, including changes in currency exchange rates which may adversely
affect the Funds' investments, political instability, confiscation, inability
to sell foreign investments, and reduced legal protections for investments.
The loss of money is a risk of investing in the Fund, and when you sell your
shares they may be worth more or less than what you paid for them.

An investment in a 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. If your sole objective is preservation of capital, then the Funds may
not be suitable for you because their share values will move up and down.
Investors whose sole objective is preservation of capital may wish to consider
a high quality money market fund.

Prospective investors should consider how the Funds' investment returns may
vary each year, and the Funds' share values may go down in some periods. The
following bar charts show how each Fund's annual total returns for
Institutional Class shares have been different in each full year since it began
operations. The accompanying average annual total return figures compare the
performance of each Fund's Institutional Class shares to a broad-based
securities index. This information gives some indication of the risks of
investing in each Fund by showing changes in performance from year to year and
by showing how the Fund's average annual total returns for the periods shown
compare with a broad measure of market performance.

<The following is presented as a bar graph in the Profile>
Limited Term National Fund Annual Total Returns Class I Shares
- --------------------------------------------------------------
15%

10%

5% 5.86%

- -5%
[1998] 1997

The year-to-date return for the nine months ending September 30, 1998 was
4.34%. During the period shown in the bar chart, the highest return for a
quarter was 1.94% (quarter ending June 30, 1997), and the lowest return for a
quarter was 0.51% (quarter ending March 31, 1997). Limited Term National
Fund commenced its offering of Class I shares on July 5, 1996.

Limited Term National Fund Average Annual Total Returns
Class I Shares
- --------------------------------------------------------
One Year
Ended
12-31-97
--------
Class I Shares 5.86%
Lehman Five-Year 6.48%
General Obligation
Bond Index

<The following is presented as a bar graph in the Profile>
Limited Term California Fund Annual Total Returns Class A Shares
- ----------------------------------------------------------------
15%

10%

- -5%
[1998]

The year-to-date return for the nine months ending September 30, 1998 was
4.57%. During the period shown in the bar chart, the highest return for a
quarter was _.__% (quarter ending ________, 199_), and the lowest return for
a quarter was _.__% (quarter ending ________, 199_). The Fund commenced its
offering of Institutional Class shares on April 1, 1997.

Limited Term California Fund Average Annual Total Returns
Class I Shares
- ---------------------------------------------------------
One Year
Ended
[12-31-98]
--------
Class I Shares _.__%
Lehman Five-Year ____%
General Obligation
Bond Index

<The following is presented as a bar graph in the Profile>
Intermediate National Fund Annual Total Returns Class I Shares
- --------------------------------------------------------------
15%

10%

5% 7.38%

- -5%
[1998] 1997

The year-to-date return for the nine months ending September 30, 1998 was
5.21%. During the period shown in the bar chart, the highest return for a
quarter was 2.64% (quarter ending June 30, 1997), and the lowest return for a
quarter was 0.28% (quarter ending March 31, 1997). The Fund commenced its
offering of Institutional Class shares on July 5, 1996.

Intermediate National Fund Average Annual Total Returns
Class I Shares
- --------------------------------------------------------
One Year
Ended
12-31-97
--------
Class I Shares 7.38%
Merrill Lynch 8.98%
Municipal Bond
(7-12 year) Index

<The following is presented as a bar graph in the Profile>
Limited Term U.S. Government Fund Annual Total Returns Class I Shares
- ---------------------------------------------------------------------
15%

10%
6.97%
5%

- -5%
[1998] 1997

The year-to-date return for the nine months ending September 30, 1998 was
7.06%. During the period shown in the bar chart, the highest return for a
quarter was 2.55% (quarter ending June 30, 1997), and the lowest return for a
quarter was 0.23% (quarter ending March 31, 1997). Limited Term U.S.
Government Fund commenced its offering of Class I shares on July 5, 1996.

Government Fund Average Annual Total Returns
Class I Shares
- --------------------------------------------
One Year
Ended
12-31-97
--------
Class I Shares 6.97%
Lehman Intermediate 7.87%
Government
Bond Index

<The following is presented as a bar graph in the Profile>
Limited Income Fund Annual Total Returns Class I Shares
- -------------------------------------------------------
15%

10%

5% 5.91%

- -5%
[1998] 1997

The year-to-date return for the nine months ending September 30, 1998 was
6.01%. During the period shown in the bar chart, the highest return for a
quarter was 2.80% (quarter ending June 30, 1997), and the lowest return for a
quarter was (0.56)% (quarter ending March 31, 1997). Limited Term National
Fund commenced its offering of Class I shares on July 5, 1996.

Limited Term Income Fund Average Annual Total Returns
Class I Shares
- -----------------------------------------------------
One Year
Ended
12-31-97
--------
Class I Shares 5.91%
Lehman Intermediate 7.87%
Corporate
Bond Index

<The following is presented as a bar graph in the Profile>
Value Fund Annual Total Returns Class A Shares
- ----------------------------------------------
40%
37.82%
30% 33.70%

20%

10%

0%
[1998] 1997 1996

The year-to-date return for the nine months ending September 30, 1998 was
1.90%. During the period shown in the bar chart, the highest return for a
quarter was 15.05% (quarter ending September 30, 1997), and the lowest return
for a quarter was (0.03)% (quarter ending June 30, 1998). The returns
reflected above and in the table below are for a class of shares that is not
offered in this Prospectus but that would have substantially similar annual
returns because the shares are invested in the same portfolio of securities.
Annual returns would differ only to the extent Class A shares and Class I
shares do not have the same expenses. Value Fund commenced its offering of
Class A shares on October 2, 1995 and commenced offering Class I shares on
November 2, 1998.

Value Fund Average Annual Total Returns - Class A Shares
- --------------------------------------------------------
One Year
Ended
12-31-97
--------
Class A Shares 27.72%
Standard & Poor's 33.35%
Corporate Index
of 500 Stocks

FEES AND EXPENSES OF THE FUNDS

The following tables describe the fees and expenses that you may pay if you
buy and hold shares of a Fund.

SHAREHOLDER FEES (fees paid directly from your investment)

Maximum Sales Charge (Load) imposed on purchases none
(as a percentage of offering price)

Maximum Deferred Sales Charge (Load) (as a none
percentage of the lesser of redemption
proceeds or original offering price)

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)

Thornburg Limited Term National Fund
- ------------------------------------
Management Fee .45%
Distribution and Service (12b-1) Fees .00%
Other Expenses .21%
----
Total Annual Operating Expenses .66%

Expenses reflect rounding, and amounts are restated to reflect current
expenses. Thornburg Management Company, Inc. (TMC) intends to reimburse a
portion of the other expenses, so that actual other expenses are .15% and the
actual total Fund operating expenses for Class I shares are .60%. TMC's
reimbursement of expenses may be terminated at any time.

Example. This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and redeem all of your shares at the end of these periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class I Shares $68 $212 $370 $829

You would pay the following expenses if you did not redeem your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class I Shares $68 $212 $370 $829

Limited Term California Fund
- ----------------------------
Management Fee .50%
Distribution and Service (12b-1) Fees .00%
Other Expenses .42%
----
Total Annual Operating Expenses .92%

Expenses reflect rounding, and amounts are restated to reflect current
expenses. Thornburg Management Company, Inc. (TMC) intends to reimburse a
portion of the other expenses, so that actual other expenses are .15% and the
actual total Fund operating expenses for Class I shares are .65%. TMC's
reimbursement of expenses may be terminated at any time.

Example. This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and redeem all of your shares at the end of these periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class I Shares $94 $295 $513 $1,142

You would pay the following expenses if you did not redeem your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class I Shares $94 $295 $513 $1,142

Intermediate National Fund
- --------------------------
Management Fee .50%
Distribution and Service (12b-1) Fees .00%
Other Expenses .29%
----
Total Annual Operating Expenses .79%

Expenses reflect rounding. Thornburg Management Company, Inc. (TMC) intends
to reimburse a portion of the other expenses, so that actual other expenses
are .25% and the actual total Fund operating expenses for Class I shares are
.75%. TMC's reimbursement of expenses may be terminated at any time.

Example. This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and redeem all of your shares at the end of these periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class I Shares $81 $254 $442 $987

You would pay the following expenses if you did not redeem your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class I Shares $81 $254 $442 $987

Government Fund
- ---------------
Management Fee .38%
Distribution and Service (12b-1) Fees .00%
Other Expenses .80%
-----
Total Annual Operating Expenses 1.18%

Expenses reflect rounding. Thornburg Management Company, Inc. (TMC) intends
to reimburse a portion of the other expenses, so that actual other expenses
are .22% and the actual total Fund operating expenses for Class I shares are
.60%. TMC's reimbursement of expenses may be terminated at any time.

Example. This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and redeem all of your shares at the end of these periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class I Shares $121 $377 $654 $1,446

You would pay the following expenses if you did not redeem your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class I Shares $121 $377 $654 $1,446

Income Fund
- -----------
Management Fee .50%
Distribution and Service (12b-1) Fees .00%
Other Expenses .69%
----
Total Annual Operating Expenses 1.19

Expenses reflect rounding. Thornburg Management Company, Inc. (TMC) intends
to reimburse a portion of the other expenses, so that actual other expenses
are .19% and the actual total Fund operating expenses for Class I shares are
.69%. TMC's reimbursement of expenses may be terminated at any time.

Example. This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and redeem all of your shares at the end of these periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class I Shares $122 $381 $660 $1,458

You would pay the following expenses if you did not redeem your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class I Shares $122 $381 $660 $1,458

Value Fund
- ----------
Management Fee .88%
Distribution and Service (12b-1) Fees .00%
Other Expenses .11%
----
Total Annual Operating Expenses .99%

Expenses reflect rounding. Other expenses are estimated.

Example. This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and redeem all of your shares at the end of these periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class I Shares $102 $317 $551 $1,225

You would pay the following expenses if you did not redeem your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class I Shares $102 $317 $551 $1,225

FUND PERFORMANCE AND INDEX COMPARISONS

Intermediate National Fund, Government Fund, Income Fund,
Limited Term National Fund, & Limited Term California Fund

The following graphs compare how $10,000 would have appreciated if invested in
shares of the named Fund, a broad based securities market index, and the
Consumer Price Index, a general measure of inflation. The figures accompanying
each graph shows average annual total return for the Fund for the designated
periods.

Comparison of Fund performance to widely used indices is imperfect, because the
indices do not reflect the laddered maturity strategy each of the fixed income
Funds uses. Each index shown attempts to model the total return of a constant
maturity bond portfolio, including bonds from throughout the United States.
Each index also assumes no trading costs for buying and selling bonds, no
custodial or accounting costs, and coupons are immediately reinvested at no
transactional cost. Consequently, the reader should remain aware of the
inherent limitations in comparing a theoretical index to actual results of a
Fund portfolio.

In general, interest rates have continued, with some fluctuations, to
decline over the one-year period ended September 30, 1998. Interest rates have
dropped more for intermediate-term bonds than for short-term bonds or long-term
bonds, leading to a flatter yield curve. For instance, 30-year treasury bond
yields fell 1.43% to 4.97% while five-year bond yields fell 1.76% to 4.21% and
one-year bond yields dropped 1.03% to 4.39%.

The municipal bond market, facing the largest volume of supply in several
years, has underperformed the treasury bond market. Thirty-year AA-rated
municipal bond yields declined by 0.38% to 4.89% over the one-year period ended
September 30, 1998. Meanwhile, five-year AA-rated municipal yields declined by
0.44% to 3.88% and ten-year AA-rated municipal bond yields declined by 0.45% to
4.25%. These yield declines have caused price increases of 1.61% and 3.34% for
the five-year and ten-year bonds, respectively. Over the same one-year period,
the net asset values of Limited Term National and California Portfolios have
increased 0.97% and 1.68%, respectively. The net asset values of the
Intermediate National Fund has similarly increased by 2.30%. While the net
asset values of all the Funds rose over the period described, the dividend
yields of all declined slightly. If interest rates continue to fall, the net
asset values of all the Funds should continue to rise, but the dividend yields
would be expected to decrease.

Limited Term National Fund
- --------------------------
Index Comparison

Compares performance of the Limited Term National Fund Class I shares, the
Lehman 5-year General Obligation Bond Index and the Consumer Price Index for
the period July 5, 1996 to June 30, 1998. On June 30, 1998 the weighted
average securities ratings of the Index and the Fund were AA and AA,
respectively, and the weighted average portfolio maturities of the Index and
the Fund were 5.0 years and 4.1 years, respectively. Past performance of the
Index and the Fund may not be indicative of future performance.

</TABLE>
<TABLE> <This appears as a graph in the prospectus.>
FUND Lehman CPI
I Shares 5 Yrs.
-------- --------- ---------
<S> <C> <C> <C>
7/5/96 $10,000 $10,000 $10,000
7/31/96 10,119 10,066 10,030
8/31/96 10,147 10,087 10,050
9/30/96 10,220 10,163 10,080
10/31/96 10,285 10,257 10,110
11/30/96 10,382 10,400 10,141
12/31/96 10,386 10,384 10,171
1/31/97 10,422 10,412 10,181
2/28/97 10,489 10,486 10,212
3/31/97 10,439 10,368 10,222
4/30/97 10,475 10,420 10,232
5/31/97 10,558 10,533 10,243
6/30/97 10,642 10,626 10,253
. . .

9/30/97 10,838 10,858 10,314
12/31/97 10,995 11,058 10,356
3/31/98 11,104 11,187 10,366
6/30/98 11,229 11,301 10,428
</TABLE>

I Shares Average Annual Total Return
One Year (12 mos. Ended 6/30/98): 5.52%
From Inception (7/5/96): 6.01%
6
<PAGE>
Limited Term California Fund
- ----------------------------
Index Comparison

Compares performance of the Limited Term California Fund Class I shares, the
Lehman 5-year General Obligation Bond Index and the Consumer Price Index for
the period April 1, 1997 to June 30, 1998. On June 30, 1998 the weighted
average securities ratings of the Index and the Fund were AA and AA,
respectively, and the weighted average portfolio maturities of the Index and
the Fund were 5.0 years and 4.8 years, respectively. Past performance of the
Index and the Fund may not be indicative of future performance.

<TABLE> <This appears as a graph in the prospectus.>
FUND Lehman CPI
A Shares 5 Yrs.
-------- --------- ---------
<S> <C> <C> <C>
4/01/97 $10,000 $10,000 $10,000
4/30/97 10,032 10,050 10,010
5/31/97 10,127 10,160 10,020
6/30/97 10,208 10,249 10,030
7/31/97 10,360 10,434 10,050
8/31/97 10,319 10,379 10,070
9/30/97 10,408 10,473 10,090
10/31/97 10,440 10,536 10,111
11/30/97 10,481 10,570 10,121
12/31/97 10,586 10,665 10,131
1/31/98 10,651 10,759 10,131
2/28/98 10,683 10,772 10,141
3/31/98 10,699 10,790 10,141
4/30/98 10,673 10,739 10,161
5/31/98 10,772 10,866 10,192
6/30/98 10,813 10,900 10,202
</TABLE>

I Shares Average Annual Total Return
One year (12 mos. Ended 6/30/98): 5.93%
From Inception (4/1/97): 6.47%

Intermediate National Fund
- --------------------------
Index Comparison

Compares performance of the Intermediate National Fund Class I shares, the
Merrill Lynch Municipal Bond (7-12 Year) Index and the Consumer Price Index for
the period July 5, 1996 to September 30, 1998. On September 30, 1998, the
weighted average securities ratings of the Index and the Fund were AA and A+,
respectively, and the weighted average portfolio maturities of the Index and
the Fund were 9.5 years and 8.4 years, respectively. Past performance of the
Index and the Fund may not be indicative of future performance.

<TABLE> <This appears as a graph in the prospectus.>
FUND ML Muni
I Shares 7-12 Yrs. CPI
-------- --------- -------
<S> <C> <C> <C>
7/5/96 10,000 10,000 10,000
7/31/96 10,164 10,107 10,030
8/31/96 10,195 10,113 10,050
9/30/96 10,311 10,206 10,080
10/31/96 10,404 10,324 10,110
11/30/96 10,521 10,486 10,141
12/31/96 10,497 10,464 10,171
1/31/97 10,511 10,490 10,181
2/28/97 10,590 10,568 10,212
3/31/97 10,526 10,440 10,222
4/30/97 10,589 10,497 10,232
5/31/97 10,692 10,676 10,243
6/30/97 10,804 10,787 10,253
. . .

9/30/97 11,040 11,116 10,314
12/31/97 11,271 11,403 10,356
3/31/98 11,403 11,537 10,366
6/30/98 11,553 11,702 10,428
9/30/98 11,858 12,124 10,470
</TABLE>

I Shares Average Annual Total Return
One year (12 mos. ended 9/30/98): 7.41%
From Inception (7/5/96): 7.91%

Government Fund
- ---------------
Index Comparison

Compares performance of the Government Fund Class I shares, the Lehman
Brothers Intermediate Government Bond Index, and the Consumer Price Index for
the period July 5, 1996 to September 30, 1998. On September 30, 1998, the
weighted average securities ratings of the Index and the Fund were AAA and AAA,
respectively, and the weighted average portfolio maturities of the Index and
the Fund were 3.9 years and 4.2 years, respectively. Past performance of the
Index and the Fund may not be indicative of future performance.

<TABLE> <This appears as a graph in the prospectus.>
FUND Lehman CPI
I Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
7/5/96 10,000 10,000 10,000
7/31/96 10,116 10,031 10,030
8/31/96 10,131 10,042 10,050
9/30/96 10,245 10,172 10,080
10/31/96 10,385 10,338 10,110
11/30/96 10,501 10,463 10,141
12/31/96 10,464 10,407 10,171
1/31/97 10,504 10,447 10,181
2/28/97 10,525 10,463 10,212
3/31/97 10,488 10,404 10,222
4/30/97 10,588 10,521 10,232
5/31/97 10,654 10,603 10,243
6/30/97 10,755 10,694 10,253
. . .

9/30/97 10,989 10,968 10,314
12/31/97 11,194 11,243 10,356
3/31/98 11,372 11,481 10,366
6/30/98 11,542 11,693 10,428
9/30/98 11,984 12,238 10,470
</TABLE>
I Shares Average Annual Total Return
One year (12 mos. ended 9/30/98): 9.06%
From Inception (07/05/96): 8.42%

Income Fund
- -----------
Index Comparison

Compares performance of the Income Fund Class I shares, the Lehman Brothers
Intermediate Government Corporate Bond Index, and the Consumer Price Index for
the period July 5, 1996 to September 30, 1998. On September 30, 1998, the
weighted average securities ratings of the Index and the Fund were A and AA,
respectively, and the weighted average portfolio maturities of the Index and
the Fund were 4.3 years and 4.8 years, respectively. Past performance of the
Index and the Fund may not be indicative of future performance.

<TABLE> <In the prospectus, this table appears as a graph>
FUND Lehman CPI
I Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
7/5/96 $10,000 $10,000 $10,000
7/31/96 10,123 10,030 10,030
8/31/96 10,230 10,038 10,050
9/30/96 10,397 10,178 10,080
10/31/96 10,624 10,358 10,110
11/30/96 10,801 10,494 10,141
12/31/96 10,730 10,427 10,171
1/31/97 10,720 10,468 10,181
2/28/97 10,742 10,488 10,212
3/31/97 10,670 10,415 10,222
4/30/97 10,737 10,538 10,232
5/31/97 10,857 10,626 10,243
6/30/97 10,969 10,723 10,253
. . .
9/30/97 11,208 11,012 10,314
12/31/97 11,365 11,248 10,356
3/31/98 11,540 11,523 10,366
6/30/98 11,677 11,740 10,428
9/30/98 12,047 12,266 10,470
</TABLE>

I Shares Average Annual Total Return
One year (12 mos. ended 9/30/98): 7.49%
From Inception (07/05/96): 8.68%

FUND INVESTMENTS, INVESTMENT POLICIES, AND RELATED RISKS

Thornburg Management Company, Inc. (TMC) actively manages the portfolios of
the Municipal Funds and the Taxable Income Funds in attempting to meet those
Funds' primary investment objectives. Investment decisions are based upon
general economic and financial trends, such as domestic and international
economic developments, outlooks for securities markets, interest rates and
inflation, the supply and demand for debt securities, and other factors. The
Funds' portfolios are determined by individual security analyses, and TMC's
credit analysts actively monitor the credit quality of the Funds' portfolios.
Each of the Municipal Funds and the Taxable Funds will seek to enhance its
income by taking advantage of yield disparities, trends or other factors in the
fixed income markets. Although each of these Funds ordinarily will acquire
securities for investment rather than for realization of gains on market
fluctuations, a Fund 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. In addition,
the Funds may utilize other techniques, discussed below, to enhance a Fund's
investment income. The objective of the Municipal Funds and the Taxable Income
Funds to preserve capital may preclude these Funds from obtaining the highest
yields available.

TMC also actively manages Value Fund, investing in securities selected on a
value basis using traditional and additional fundamental research and valuation
methods. TMC also may use additional investment techniques, discussed below,
to increase or decrease its exposure to other factors which affect securities
values. The Fund is designed for those who seek capital appreciation from a
conservative style of investing in equities, and when appropriate, some fixed
income securities. Although values of equity securities are more volatile,
these securities historically have shown greater growth potential than other
types of securities.

The secondary objective of each of the Municipal Funds and the Taxable
Income Funds is to minimize expected fluctuations in net asset value relative
to longer intermediate and long-term bond portfolios. Because the magnitude of
the changes in market value of interest bearing obligations ordinarily is
greater for obligations of longer terms, each Fund believes that it can reduce
the magnitude of fluctuations in the values of its assets by limiting its
weighted average maturity. There is no limitation on the maturity of any
specific security any of these Funds may purchase, subject to the limitation on
the average portfolio maturity of each Fund. Each Fund's dollar-weighted
average maturity may be lowered for temporary defensive purposes if conditions
or expectations for the behavior of interest rates indicate that a lower
average maturity will be advantageous. Such conditions could include
increasing inflation or a market in which short-term obligations temporarily
have higher yields than longer-term obligations. TMC also will attempt to
minimize principal fluctuations in the Funds' portfolios through, among other
things, diversification, careful credit analysis and security selection.

Some policies of each of the Funds are fundamental policies, that is, are
subject to change only with shareholder approval. For example, the primary
objective of each Fund is a fundamental policy of that Fund, and the secondary
objective for each of the Municipal Funds and the Taxable Income Funds also is
a fundamental policy. All policies and restrictions, other than those
identified as fundamental, may be changed without shareholder approval.
Policies and limitations are considered at the time of purchase; the sale of
investments is not required in the event of a subsequent circumstances.

INVESTMENT STRATEGIES AND RISKS
OF THE MUNICIPAL FUNDS

The Municipal Funds will pursue their primary objective by investing in a
portfolio of investment grade or equivalent obligations which are issued by
states and state agencies, and local governments and agencies, and by United
States territories and possessions ("Municipal Obligations"). Municipal
Obligations are described below in detail. Investment grade ratings are
discussed below under the caption "Securities Ratings and Investment Quality".

Except to the extent the Municipal Funds are invested in temporary investments
for defensive purposes, each Municipal Fund's policy under normal conditions is
to invest 100% of its net assets in Municipal Obligations. As a fundamental
policy which may not be changed without a vote of a Municipal Fund's
shareholders, each Municipal Fund must normally invest at least 80% of its net
assets in Municipal Obligations. Under normal conditions, Limited Term
California Fund will invest 100%, and as a matter of fundamental policy, will
invest at least 65% of its total assets in Municipal Obligations originating in
California. The Municipal Funds may purchase obligations issued by or on
behalf of territories or possessions of the United States and their agencies
and instrumentalities.

Each Municipal Fund has reserved the right to invest up to 20% of its net
assets in "temporary investments" in taxable securities (of comparable quality
to the tax-exempt investments) that would produce interest not exempt from
federal income tax. Such temporary investments, which may include repurchase
agreements with dealers, banks or recognized financial institutions that in the
opinion of TMC represent minimal credit risk, may be made due to market
conditions, pending investment of idle funds or to afford liquidity. Such
investments are, like any investment, subject to market risks and fluctuations
in value. In addition, each Fund's temporary taxable investments may exceed 20%
of its net assets when made for defensive purposes during periods of abnormal
market conditions. None of the Municipal Funds expect to find it necessary to
make temporary investments in taxable investments.

Each Municipal Fund is subject to the restriction that it will not purchase any
investment or enter into any transaction if as a result more than 10% of the
Fund's net assets are illiquid investments. No Municipal Fund will borrow
money, except for emergency or temporary purposes, and then only in an amount
not exceeding 5% of the Fund's total assets at the time of borrowing.
Investment policies are subject to additional restrictions, which are described
in the Statement of Additional Information.

Municipal Obligations

Municipal Obligations are obligations bearing interest exempt from federal
income taxes, which are issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia, and their
political subdivisions, agencies and instrumentalities. Municipal Obligations
include notes (including tax-exempt commercial paper), bonds, municipal leases
and participation interests in these obligations. Interest on Municipal
Obligations may be subject to the alternative minimum tax or state income
taxes. See "Taxes."

The yields on Municipal Obligations are dependent on a variety of factors,
including the condition of the general money market and the Municipal
Obligation market, the size of a particular offering, the maturity of the
obligation and the rating of the issues. The market value of outstanding
Municipal Obligations will vary with changes in prevailing interest rates and
as a result of changing evaluations of the ability of their issuers to meet
interest and principal payments. Variations in market value of Municipal
Obligations held in a Fund's portfolio arising from these or other factors will
cause changes in the net asset value of its shares. Municipal Obligations
often grant the issuer the option to pay off the obligation prior to its final
maturity. Prepayment of Municipal Obligations may reduce the expected yield on
invested funds, the net asset value of the Fund, or both if interest rates have
declined below the level prevailing when the obligation was purchased. If
interest rates have declined, reinvestment of the proceeds from the prepayment
of Municipal Obligations may result in a lower yield to the Fund. In addition,
the federal income tax treatment of gains from market discount as ordinary
income may increase the price volatility of Municipal Obligations when interest
rates rise.

Obligations of issuers of Municipal Obligations are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the United States Bankruptcy Code. In addition, the
obligations of such issuers may become subject to the laws enacted in the
future by Congress, state legislatures or referenda extending the time for
payment of principal or interest, or imposing other constraints upon
enforcement of such obligations or upon municipalities to levy taxes. There is
also the possibility that, as a result of legislation or other conditions, the
power or ability of any issuer to pay, when due, the principal of and interest
on its Municipal Obligations may be materially affected.

Variable Rate Securities; Inverse Floaters; and
Demand Instruments

Any Municipal Fund may purchase variable rate Municipal Obligations. These
variable rate securities bear rates of interest that are adjusted periodically
according to formulas intended to reflect market rates of interest, and these
may include "inverse floaters," whose rates vary inversely with changes in
market rates of interest. The values of inverse floaters will tend to be more
volatile than fixed rate municipal securities having similar credit quality,
redemption provisions, and maturity. None of the Municipal Funds will invest
more than 10% of its total assets in securities whose rates vary inversely with
changes in market rates of interest. Each Fund also may purchase variable rate
demand instruments and also may purchase fixed rate municipal demand
instruments either in the public market or privately from banks, insurance
companies and other financial institutions. These instruments provide for
periodic adjustment of the interest rate paid to the holder. The "demand"
feature permits the holder to demand payment of principal and interest prior to
the final stated maturity, either from the issuer or by drawing on a bank
letter of credit, a guarantee or insurance issued with respect to the
instrument.

Municipal Leases

Any of the Municipal Funds may invest in Municipal Leases. These obligations
are used by state and local governments to acquire a wide variety of equipment
and facilities. Many such obligations include "non-appropriation" clauses
which provide that the governmental issuer has no obligation to make payments
unless money is appropriated for that purpose. If an issuer stopped making
payment on a Municipal Lease held by a Fund, the Lease would lose some or all
of its value. Often, a Fund will not hold the obligation directly, but will
purchase a "participation interest" in the obligation, which gives the Fund an
undivided interest in the underlying Municipal Lease. Some Municipal Leases
may be illiquid under certain circumstances, and TMC will evaluate the
liquidity of each Municipal Lease upon its acquisition by a Fund and
periodically while it is held.

When Issued Securities

Any of the Municipal Funds may purchase securities on a when-issued or forward
delivery basis, for payment or delivery at a later date. The price and yield
are generally fixed on the date of the purchase commitment. During the period
between purchase and settlement, the market value of the security may be more
or less than its purchase price.

Special Risks Affecting Limited Term California Fund

Because Limited Term California Fund will purchase Municipal Obligations
originating primarily in California, an investment in Limited Term California
Fund may be riskier than an investment in either Limited Term National Fund or
Intermediate National Fund, which purchase Municipal Obligations from
throughout the United States. The California economy, although improving
rapidly, is dependent upon the high technology industry, and somewhat dependent
upon exports to Asia. If the current Asian economic slump continues or
worsens, it could impair the ability of certain California state and municipal
issuers to pay their obligations. Taxpayer initiatives, competitive forces,
particularly in the electric utility industry, and reallocation of certain
revenues previously available to county and local governments could reduce the
revenue available to some California issuers. The Statement of Additional
Information includes a more detailed discussion of California state fiscal
matters.

INVESTMENT STRATEGIES AND RISKS
OF THE TAXABLE INCOME FUNDS

Government Fund - Investment Strategies and Risks
- -------------------------------------------------

The Government Fund will invest at least 65% of its total assets in obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities, and will invest at least 80% of its total assets in such
obligations and in readily marketable participations in such obligations or in
repurchase agreements secured by such obligations. See "Repurchase
Agreements," below. Although the Fund will acquire obligations issued or
guaranteed by the U.S. Government and its agencies and instrumentalities,
neither the Fund's net asset value nor its dividends are so guaranteed.

The Government Fund may under certain market conditions invest up to 20% of its
assets in (i) time certificates of deposit maturing in one year or less after
the date of acquisition which are issued by United States banks having assets
of one billion dollars or more, or (ii) time certificates of deposit insured as
to principal by the Federal Deposit Insurance Corporation. If any certificate
of deposit (whether insured in whole or in part) is nonnegotiable, and it
matures in more than seven days, it will be considered illiquid and subject to
the Fund's fundamental investment restriction that no more than 10% of the
Fund's net assets will be placed in illiquid investments.

U.S. Government securities the Government Fund may purchase include U.S.
Treasury obligations such as U.S. Treasury Bills, U.S. Treasury Notes, and U.S.
Treasury Bonds, with various interest rates, maturities and dates of issuance.
These U.S. Treasury securities are direct obligations of the U.S. Treasury,
backed by the full faith and credit of the U.S. Government. The Government
Fund also may purchase obligations issued by various U.S. government agencies
when those obligations are more attractive investments. Some of these "agency
obligations" are backed by the full faith and credit of the U.S. Government,
but other agency obligations are supported by the agency's authority to borrow
from the U.S. Government or the discretionary authority of the Treasury to
purchase obligations of the issuing agency.

From time to time the Government Fund will invest a significant portion of its
assets in "GNMA" certificates issued by the Government National Mortgage
Association. These certificates are mortgage-backed securities of the modified
pass-through type, each of which evidences an interest in a specific pool of
mortgage loans insured by the Federal Housing Administration or guaranteed by
the Veterans Administration. The National Housing Act provides that the full
faith and credit of the U.S. Government is pledged to the timely payment of
amounts due for principal and interest by the GNMA on these certificates.
Variations in interest rates and other factors may result in prepayment of some
mortgages underlying these certificates, so that the resulting term of the
certificates will change. During periods of rising interest rates, mortgage
backed securities may have a greater risk of capital depreciation because of
decreased prepayments and increased effective maturity, and during periods of
declining interest rates these securities may have less potential for capital
appreciation because of increased prepayments. The Funds' investment adviser
continually will evaluate any investment in these certificates in light of
market conditions and the Fund's policy of maintaining a portfolio normally
having a dollar-weighted average maturity or estimated average life of not more
than five years.

Participations. To facilitate its investment in any of the types of
obligations which the Fund may acquire, the Fund may purchase "participations"
in any of these obligations. Participations are undivided interests in pools
of securities which are assembled by certain banks or other responsible
persons, such as securities broker/dealers and investment banking houses, where
the underlying government credit support passes through or is otherwise
available to the participants or the trustee for all participants. Similarly,
the Fund may acquire collateralized mortgage obligations ("CMOs"), which are
obligations issued by a trust or other entity organized to hold a pool of U.S.
Government insured mortgage-backed securities (such as GNMA certificates) or
mortgage loans. The Fund will acquire a CMO when TMC believes that the CMO is
more attractive than the underlying securities in pursuing the Fund's primary
and secondary investment objectives. Participations and privately issued CMOs
are not considered U.S. Government securities, and are not considered part of
the 65% of the total assets of the Government Fund which will be invested in
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.

Repurchase Agreements. When the Government Fund purchases securities, it may
enter into a repurchase agreement with the seller in which the seller agrees,
at the time of sale, to repurchase the security at a mutually agreed-upon time
and price. The price will include a margin of profit or return for the Fund.
If the seller of the repurchase agreement enters a bankruptcy or other
insolvency proceeding, or the seller fails to repurchase the underlying
security as agreed, the Fund could experience losses, including loss of rights
to the security. The Fund will not enter into a repurchase agreement if, as a
result, more than 10% of the value of its net assets would then be invested in
repurchase agreements maturing in more than seven days and other securities
which are considered illiquid.

The fund may enter into reverse repurchase agreements to obtain short-term
liquidity. In such a transaction the Fund would sell a security to a purchaser
and agree to repurchase the security in the future. The Fund will enter into
reverse repurchase agreements only with dealers, banks or recognized financial
institutions. These agreements are subject to the risk that the underlying
security will decline in value during the period when the Fund is obligated to
repurchase it. the Fund will not enter into any reverse repurchase agreement
if, as a result, more 5% of its total assets would be subject to such
obligations.

The Government Fund may from time to time enter into other transactions in
seeking its primary and secondary investment objectives, including lending its
securities, entering into reverse repurchase agreements and dollar roll
transactions and purchasing securities on a when-issued or forward delivery
basis. These transactions, together with the investments described above, are
discussed in detail in the Funds' Statement of Additional Information.

Income Fund - Investment Strategies and Risks
- ---------------------------------------------

In general, the Income Fund may purchase securities permissible for the
Government Fund, except that the Income Fund may not enter into a repurchase
agreement or purchase any security deemed illiquid if as a result, more than
15% of the value of its net assets would be invested in repurchase agreements
maturing in more than seven days and other securities which are considered
illiquid. The Income Fund also may invest in other types of debt securities,
such that at least 65% of its net assets are invested in a managed portfolio of
securities consisting of:

* U.S. Government securities, including bonds, notes, and bills issued by
the U.S. Treasury, and securities issued or guaranteed by agencies and
instrumentalities of the U.S. Government;
* Corporate debt securities, such as bonds, notes and debentures;
* Mortgage-backed securities;
* Other asset-backed securities;
* Municipal securities;
* Money market instruments which are comprised of commercial paper, bank
obligations (i.e., certificates of deposit and bankers' acceptances) and
repurchase agreements;
* Privately-placed securities (restricted securities); and
* Foreign securities, including non-U.S. dollar-denominated securities and
U.S. dollar-denominated debt securities issued by foreign issuers and
foreign branches of U.S. banks.

Securities Ratings. The Income Fund emphasizes "investment grade" investments.
At least 65% of the Income Fund's net assets will be invested in (1)
obligations of the U.S. Government, its agencies, or instrumentalities and in
(2) debt securities rated at the time of purchase in one of the three highest
categories of Standard & Poor's Corporation (AAA, AA, or A) or Moody's
Investors Service, Inc. (Aaa, Aa, or A) or, if not rated, judged to be of
comparable quality by TMC. In addition, the Fund will not invest in any debt
security rated at the time of purchase lower than BBB by Standard & Poor's or
Baa by Moody's, or of equivalent quality as determined by TMC. Should the
rating of a portfolio security be downgraded TMC will determine whether it is
in the best interest of the Income Fund to retain or dispose of the security.

Securities rated BBB by Standard & Poor's or Baa by Moody's are neither highly
protected nor poorly secured. These securities normally pay higher yields but
involve potentially greater price variability than higher-quality securities.
These securities are regarded as having adequate capacity to repay principal
and pay interest, although adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to do so. Such
securities may have speculative elements as well as investment-grade
characteristics.

The Income Fund's securities generally offer less current yield than securities
of lower quality (rated below BBB/Baa) or longer maturity, but lower-quality
securities generally have less liquidity. Both lower quality securities and
longer maturity securities have greater credit and market risk, and
consequently more price volatility than higher quality securities or shorter
maturity securities.

Mortgage and Other Asset-Backed Securities. The Fund may also invest in
mortgage-backed securities which are securities representing interests in pools
of mortgage loans. The securities provide shareholders with payments
consisting of both interest and principal as the mortgages in the underlying
mortgage pools are paid off. See description under "Government Fund -
Investment Strategies and Risks" above. Some mortgage-backed securities which
the Fund may purchase will not be backed by the full faith and credit of the
U.S. Government. The Income Fund may also invest in securities representing
interests in pools of certain consumer loans, such as automobile loans and
credit card receivables. Variations in interest rates and other factors may
result in prepayments of the loans underlying these securities, reducing the
potential for capital appreciation and requiring reinvestment of the prepayment
proceeds by the Fund at lower interest rates. Additionally, in periods of
rising interest rates these securities may suffer capital depreciation because
of decreased prepayments.

Municipal Securities. The Income Fund may invest in municipal securities, which
include obligations issued by states, territories and possessions of the United
States, and their political subdivisions, agencies and instrumentalities.
Municipal securities may be "general obligation" bonds or "revenue bonds."
General obligation bonds are backed by the credit of the issuing political
subdivision or agency, and revenue bonds are repaid from the revenues derived
from a specific project such as a waste treatment plant or stadium. Although
investments in municipal obligations will be made subject to the Fund's
emphasis on purchases of investment grade securities ( described below under
"Securities Ratings"), municipal obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. In addition, these obligations could become subject to actions by
state legislatures or voter referenda extending the time for repayment of
principal or imposing other constraints upon enforcement of the obligations or
upon political subdivisions to levy taxes to pay the obligations.

Foreign Securities. While the Income Fund generally emphasizes investments in
U.S. Government securities and other issuers domiciled in the United States, it
may invest in foreign securities of the same types and quality as the domestic
securities in which it invests when TMC anticipates the performance of foreign
securities offers more potential than domestic alternatives. Foreign
securities may be denominated either in U.S. dollars or foreign currencies.

The Income Fund may also invest in instruments offered by brokers which combine
forward contracts, options and securities in order to reduce foreign currency
exposure. The Income Fund may enter into multiple futures, options and foreign
currency transactions or a combination of these transactions, instead of a
single transaction, as part of a hedging strategy.

Investments in foreign securities involve special risks due to more limited
information, higher brokerage costs, different accounting standards, thinner
trading markets and the likely impact of foreign taxes on the yield from debt
securities. They may also entail other risks, such as the possibility of one
or more of the following: imposition of dividend or interest withholding or
confiscatory taxes; currency blockages or transfer restrictions; expropriation,
nationalization or other adverse political or economic developments; less
government supervision and regulation of securities exchanges, brokers and
listed companies; and the difficulty of enforcing obligations in other
countries. Purchases of foreign securities are usually made in foreign
currencies and, as a result, the Income Fund may incur currency conversion
costs and may be affected favorably or unfavorably by changes in the value of
foreign currencies against the U.S. dollar. Further, it may be more difficult
for the Income Fund's agents to keep currently informed about corporate actions
which may affect the prices of portfolio securities. Communications between
the United States and foreign countries may be less reliable than within the
United States, thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. The Income
Fund's ability and decisions to purchase and sell portfolio securities may be
affected by laws or regulations relating to the convertibility and repatriation
of assets. These risks may be more acute in the case of developing countries.

Strategic Positions. Limited Term Income Fund may use futures, options and
other derivative instruments to "hedge" or protect its investments from adverse
movements in securities prices and interest rates. Limited Term Income Fund
may use currency hedging techniques, including forward currency contracts, to
manage exchange rate risk. The Fund also may use these techniques to obtain
potential gains, but no more than 5% of the Fund's assets will be committed to
Strategic Positions entered into for purposes other than bona fide hedging,
risk management or portfolio management. The Fund believes that use of
derivatives will benefit the Fund, but the Fund's performance could be reduced
if TMC's judgment is incorrect. Risks resulting from the use of derivatives
include:

* the risk that interest rates or markets (including currency values)
will not move in the direction the portfolio manager anticipates;
* some futures and options markets may not always be liquid, and the
Fund may not be able to close out a transaction without loss;
* daily margin calls for futures contracts may create a greater risk
of loss;
* imperfect correlations may occur between the price of the derivative
instrument and movement in the price of securities, interest rates or
currencies being hedged;
* inability to close out hedged positions may occur because of illiquidity
or disruption in markets, or exchange-imposed limitations or restrictions;
* the other party to a transaction may not fulfill its obligations;
* price changes in an instrument may result in a loss greater than the
Fund's actual investment.

Other Investments and Strategies. The Income Fund may from time to time engage
in repurchase agreements and reverse repurchase agreements, which are described
above in relation to Government Fund, and may engage in securities lending
transactions, dollar rolls, and purchasing securities on a when-issued or
forward delivery basis. These transactions, together with the investments
described above, are discussed in detail in the Statement of Additional
Information.

Counsel to the Funds has advised that in their view shares of Government Fund
are a legal investment for, among other investors, commercial banks and credit
unions chartered under the laws of the United States. This advice is based
upon a review of this Prospectus and the Statement of Additional Information,
and upon counsel's receipt of undertakings by TMC and Thornburg Investment
Trust respecting investment policies. In addition, Thornburg Investment Trust
believes that the Government Fund is currently a legal investment for savings
and loan associations and commercial banks chartered under the laws of certain
states.

Taxable Income Funds - Additional Investment Restrictions
---------------------------------------------------------

Government Fund will not purchase any investment or enter into any transactions
if as a result more than 10% of the Fund's net assets are illiquid investments;
the comparable restriction applicable to Income Fund is 15%. Government Fund
will not borrow money, except for emergency or temporary purposes, and then
only in an amount not exceeding 5% or 10% if the borrowing is from banks.
Income Fund will not borrow money, except as a temporary measure, and then only
in an amount not exceeding 5% of total assets unless the borrowing is from
banks, in which case the limitation is 10%. The Taxable Income Funds are
subject to additional restrictions, which are described in the Statement of
Additional Information.

SECURITIES RATINGS
AND CREDIT QUALITY

Each of the Municipal Funds' assets will normally consist of (1) securities, or
participation interests therein, that are rated at the time of purchase within
the four highest grades by Moody's Investors Service ("Moody's"), Fitch
Investors Service ("Fitch"), or Standard & Poor's Corporation ("S&P"), (2)
securities, or participation interests therein, that are not rated by a rating
agency, but are issued by obligors that, at the time of purchase, either have
other comparable debt obligations that are rated within the four highest grades
(Baa or BBB or better) by Moody's or S&P or Fitch or, in the case of obligors
whose obligations are unrated, are deemed by TMC to be comparable to issuers
having such debt ratings, and (3) cash. Government Fund invests at least 65%
of its total assets in obligations issued or guaranteed by the U. S. Government
or its agencies or instrumentalities, and may invest in participations,
repurchase agreements and other obligations described above beginning on page
14. Such obligations are not typically rated. At least 65% of Income Fund's
net assets will be invested in (1) obligations of the U. S. Government, its
agencies and instrumentalities, and in (2) debt securities rated at the time of
purchase in one of the three highest categories of Standard & Poor's
Corporation (AAA, AA or A) or Moody's Investor's Service, Inc. (Aaa, Aa or A)
or, if not rated, judged to be of comparable quality by TMC. Income Fund will
not invest in any debt security rated at the time of purchase lower than BBB by
Standard & Poor's or Baa by Moody's or of equivalent quality as determined by
TMC.

Securities rated in the described categories are described as "investment
grade," and are regarded as having a capacity to pay interest and repay
principal that varies from "extremely strong" to "adequate." According to S&P,
for example, BBB bonds normally exhibit adequate protection parameters,
although adverse economic conditions or other changes are more likely to lead
to a weakened capacity compared to higher rated categories, and AAA bonds
exhibit extremely strong capacity. Securities rated Baa are regarded by
Moody's as having some speculative characteristics. Securities rated BBB by
Fitch are considered to have adequate capacity, although adverse changes in
economic conditions and circumstances are more likely to have an adverse impact
than for higher rated categories. Please see the Statement of Additional
Information for detailed descriptions of these ratings.

If permitted to do so, the Municipal Funds will only buy (i) variable rate
demand instruments that are rated within the two highest grades of either
rating agency or, if unrated, are deemed by TMC to be of high quality and
minimal credit risk, (ii) commercial paper that is rated within the two highest
grades of a rating agency, and (iii) municipal notes that are rated within the
two highest grades of a rating agency or, if unrated, are deemed by TMC to be
of comparable quality to such rated municipal notes. To the extent that
unrated securities may be less liquid, there may be somewhat greater risk in
purchasing unrated securities, especially Municipal Obligations, than in
purchasing comparable, rated securities. If a Fund experienced unexpected net
redemptions, it could be forced to sell such unrated securities at
disadvantageous prices without regard to the security's investment merits,
depressing the Fund's net asset value and possibly reducing the Fund's overall
investment performance.

Credit ratings do not reflect the risk that market values of fixed income
securities will fluctuate with changes in interest rates, and credit rating
firms may fail to change credit ratings in a timely fashion to reflect events
subsequent to initial ratings. Accordingly, in addition to using credit rating
information, TMC subjects each issue under consideration for investment to its
own credit analysis in an effort to assess the issuer's financial soundness.
This analysis is performed on a continuing basis for all issues held by a Fund,
and TMC may determine to dispose of portfolio securities upon a change in
ratings or adverse events or market conditions not reflected in ratings. TMC
evaluates the credit quality of unrated securities purchased by a Fund under
the general supervision of the Fund's Directors or Trustees, and determines the
equivalency of unrated obligations to rated obligations.

INVESTMENT POLICIES AND RISKS
OF VALUE FUND

General Investment Principles

Value Fund seeks long-term capital appreciation by investing in equity and
debt securities of all types. This goal is a fundamental policy of the Fund
and may be changed only with shareholder approval. The Fund also seeks some
current income as a secondary investment consideration. The Fund expects to
invest its assets primarily in domestic equity securities selected on a value
basis. However, the Fund may buy foreign equity and debt securities, domestic
debt securities and securities that are not currently paying dividends, but
which, in TMC's opinion, offer prospects for capital appreciation.

The value of the Fund's investments varies based on many factors. Stock values
fluctuate in response to the activities of individual companies and general
market and economic conditions. The value of bonds fluctuates based on changes
in interest rates and in the credit quality of the issuer. In general, bond
prices rise when interest rates fall, and vice versa. TMC may use various
investment techniques to hedge the Fund's risks, but there is no guarantee that
these strategies will work as TMC intends. When you sell your shares, they may
be worth more or less than what you paid for them.

TMC intends to invest on an opportunistic basis, where in their opinion there
is intrinsic value. Value Fund's principal focus will be on traditional, value
stocks. However, the portfolio may include stocks and other securities that in
TMC's opinion provide value in a broader or different context. Other contexts
would include growing companies with consistent results, when they are selling
below historic norms, as well as companies whose growth in products and
services reflects social and economic changes. The Fund will typically buy the
latter when they are out of favor. The relative proportions of these different
types of securities will vary over time. The portfolio ordinarily will reflect
a bias towards certain stocks or industries when those stocks or industries are
depressed, reflecting unfavorable market perceptions of company or industry
fundamentals.

TMC primarily uses individual company and industry analysis when making
investment decisions for Value Fund. The Fund will typically make equity
investments in the following three types of companies:

Companies which, in TMC's opinion, are financially sound companies with
well established businesses whose stock is selling at low valuations
relative to the companies' net assets or potential earning power. The
fortunes of this type of company are often cyclical, and these companies
generally do well when the economy or their industry is doing well.
TMC's judgment in evaluating these companies, or the industries in which
they operate, will likely be contrary to the popular perception of the
moment. These companies are often attractive candidates for corporate
takeovers or restructuring when no single person or group owns a
controlling interest.

Consistent growth companies when they are selling at valuations below
historic norms. Stocks in this category generally sell at premium
valuations. The attractive feature of companies of this type is steady
earnings and dividend growth. Typically, these companies have below
average risk because of their financial strength, high profitability and
dominant industry position.

Rapidly growing companies that, in TMC's opinion, are in the process of
establishing a leading position in a product, service or market and
which TMC expects will grow, or continue to grow, at an above average
rate. The stock price of these smaller, less seasoned companies will
fluctuate more than the stock prices of the first two types of company
listed above. Under normal conditions the proportion of the Fund
invested in companies of this type will be modest when compared to the
proportion invested in cyclical or consistent growth companies.

TMC selects securities, including equity securities, for inclusion in the Value
Fund's investment portfolio based on total return potential. "Total return"
means all elements of return including dividends (or interest ) and price
appreciation. TMC believes that investments in undervalued stocks, in addition
to offering potential capital appreciation, will help limit the Fund's exposure
to loss under adverse market conditions.

Value, for purposes of the Fund's selection criteria, relates both to current
and to projected measures. Among the specific factors considered by TMC in
identifying undervalued securities for inclusion in the Fund are:

* price/earnings ratio * undervalued assets

* price/sales ratio * relative earnings growth potential

* price to book value * industry growth potential

* price/cash flow ratio * industry leadership

* debt/capital ratio * dividend growth potential

* dividend yield * franchise value

* dividend history * potential for favorable
development
* security and consistency
of revenue stream

The Value Fund may invest in the stock of issuers of any size, including stocks
of small, unseasoned issuers.

Debt securities will be considered for investment when TMC believes them to be
more attractive than equity alternatives. When analyzing debt security
alternatives, TMC will ordinarily consider the issuer's overall financial
strength as well as prevailing market conditions for debt securities as opposed
to equities.

Described below are certain investment practices Value Fund may use in pursuing
its investment objective, risks associated with those practices, and certain
restrictions which apply to the Fund's investments. TMC may not buy all of
these instruments or use all of these techniques to the full extent permitted
unless it believes that doing so will help the Fund achieve its goal. Current
holdings are described in the Fund's financial reports which are sent to
shareholders twice a year. For a free Statement of Additional Information or
financial report, call 800-847-0200.

Diversification. Diversifying a mutual fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.

Restrictions. With respect to 75% of its total assets, the Fund may not
invest more than 5% of its total assets at the time of purchase in any
one issuer. The Fund may not invest more than 25% of its total assets at
the time of purchase in any one industry. These limitations do not apply
to U.S. Government securities. These are fundamental limitations.

Equity Securities may include common stocks, preferred stocks, convertible
securities, warrants, ADRs (American Depository Receipts or GDR's), partnership
interests and publicly traded real estate investment trusts. Common stocks, the
most familiar type, represent an equity (ownership) interest in a corporation.
Although equity securities have a history of long-term growth in value, their
prices fluctuate based on changes in a company's financial condition and on
overall market and economic conditions.

Restrictions. With respect to 75% of total assets, the Fund may not own
more than 10% of the outstanding voting securities of a single issuer.

Investments in smaller companies. The Fund may invest in the stock or debt
securities of smaller or unseasoned issuers. Although investments in these
companies may offer greater prospects for appreciation, they involve additional
risks because of limited product lines, limited access to markets and financial
resources, and greater vulnerability to competition and changes in markets.
Additionally, the value of these securities may fluctuate more, and they may be
more difficult to sell, particularly in declining markets.

Investments in Other Investment Companies. The Fund may invest in securities
of closed end investment companies. Up to 5% of its total assets at the time of
purchase may be invested in any one investment company, provided that after its
purchase no more than 3% of that investment company's outstanding stock is
owned by the Fund, and provided further, that no more than 10% of the Fund's
total assets are invested in investment companies. TMC will charge an advisory
fee on the portion of the Fund's assets that are invested in securities of
other investment companies. Thus shareholders will be paying a "double fee" on
those assets since the advisers of the investment companies also will be
charging fees on the same assets.

Debt Securities. The Fund may buy debt securities of any type. Bonds and other
debt instruments, including convertible debt securities, are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. Debt securities have varying
degrees of quality and varying levels of sensitivity to changing interest
rates. Longer-term debt securities are generally more sensitive to interest
rate changes than short term debt securities.

Lower-quality debt securities (sometimes called "junk bonds" or "high yield
securities") are rated below investment grade by the primary rating agencies,
and are often considered to be speculative. These securities involve greater
risk of default or price changes due to changes in the issuer's
creditworthiness, or they may already be in default. The market prices of
these securities may fluctuate more than higher-quality securities and may
decline significantly in periods of general economic difficulty or in response
to adverse publicity or changes in investor perceptions.

Restrictions. The Fund may not invest more than 35% of its assets at the
time of purchase in lower quality debt securities (those rated below Baa
by Moody's or BBB by S&P, and unrated securities judged by TMC to be of
equivalent quality). Refer to the Statement of Additional Information
for a discussion of these ratings.

Foreign Securities and foreign currencies may involve additional risks.
Securities of foreign issuers, even if denominated in U.S. dollars, may be
affected significantly by fluctuations in the value of foreign currencies, and
the value of these securities in U.S. dollars may decline even if the
securities increase in value in their home country. Foreign securities also
are subject to greater political risk, including nationalization of assets,
confiscatory taxation, currency exchange controls, excessive or discriminatory
regulations, and restrictions on repatriation of assets and earnings to the
United States. In some countries, there may be political instability or
insufficient governmental supervision of markets, and the legal protections for
the Fund's investments could be subject to unfavorable judicial or
administrative changes. Further, governmental issuers may be unwilling or
unable to repay principal and interest when due, and may require that the terms
for payment be renegotiated. Markets in some countries may be more volatile,
and subject to less stringent investor protection and disclosure requirements
and it may be difficult to sell securities in those markets. Moreover, the
economies in many countries may be relatively unstable because of dependence on
a few industries or economic sectors.

These factors could make foreign investments more volatile. The Fund will only
invest in companies domiciled in a country whose currency is freely convertible
into U.S. dollars and in companies (such as oil production companies) whose
business is conducted primarily in U.S. dollars. Investment companies whose
business is conducted in U.S. dollars could involve securities of issuers
located in developing countries. Risks of investment in developing countries
may be greater than risks otherwise pertaining to foreign securities due to
conditions in those countries, including illiquid markets, increased difficulty
in repatriating assets and earnings, reduced or uncertain legal protections for
investors, and greater political instability.

Adjusting Investment Exposure. Value Fund can use various techniques to
increase or decrease its exposure to changing securities prices, interest
rates, currency exchange rates, commodity prices, or other factors that affect
securities values. These techniques may involve derivative transactions such as
buying and selling options and futures contracts, entering into currency
exchange contracts or swap agreements, purchasing indexed securities, and
selling securities short. TMC can use these practices to adjust the risk and
return characteristics of the Fund's portfolio of investments. If TMC judges
market conditions incorrectly or employs a strategy that does not correlate
well with the Fund's investments, these techniques could result in a loss,
regardless of whether the intent was to reduce risk or increase return. These
techniques may increase the price volatility of the Fund and may involve a
small investment of cash relative to the magnitude of the risk assumed. In
addition, these techniques could result in a loss if the counterparty to the
transaction does not perform as promised.

Other Securities include short-term, highly liquid securities, such as time
certificates of deposit, and investment grade short-term corporate debt
obligations and commercial paper. The Fund may, under normal conditions, hold
a portion of its assets in other securities pending investment of idle funds or
to provide liquidity. During temporary defensive conditions, the Fund may
invest up to 100% of its assets in other securities. If any certificate of
deposit is non-negotiable, and it matures in more than seven days, it will be
considered illiquid.

Repurchase Agreements. In a repurchase agreement, the Fund buys a security at
one price and simultaneously agrees to sell it back at a higher price. Delays
or losses could result if the other party to the agreement defaults or becomes
insolvent. In a reverse repurchase agreement, the Fund sells a security and
agrees to repurchase the security at a higher price. See "Borrowing," below.

Illiquid and Restricted Securities. Some investments may be determined by TMC,
under the supervision of the Trustees, to be illiquid, which means that they
may be difficult to sell promptly at an acceptable price. The sale of other
securities, including illiquid securities, may be subject to legal
restrictions. Difficulty in selling securities may result in a loss or may be
costly to the Fund.

Restrictions. The Fund may not purchase a security if, as a result, at
the time of purchase more than 10% of its assets would be invested in
illiquid securities.

Borrowing. The Fund may borrow from banks or through reverse repurchase
agreements. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off. If the Fund makes
additional investments while borrowings are outstanding, this may be considered
a form of leverage.

Restrictions. The Fund may borrow only for temporary or emergency
purposes or in connection with reverse repurchase agreements, but not in
an amount exceeding 33-1/3% of its total assets. This is a fundamental
limitation.

Securities Lending. Lending securities to broker-dealers and other
institutions is a means of earning income. This practice could result in a loss
or a delay in recovering the Fund's securities.

Restrictions. Loans, in the aggregate, may not exceed 33-1/3% of the
Fund's total assets.

PORTFOLIO TURNOVER

Each Fund anticipates that its annual turnover rate normally will be less than
100%. A 100% turnover rate would occur, for example, if all of the securities
held by a Fund were sold and replaced within one year. TMC does not consider
the portfolio turnover rate a limiting factor in making investment decisions
for a Fund which are otherwise consistent with that Fund's investment
objectives and management policies. A higher rate of turnover, may, however,
result in increased transaction costs and taxable capital gains.

YEAR 2000 RISK

The inability of some computer systems to recognize the date January 1, 2000
may result in the failure of specific computer systems used by persons who have
issued securities owned by the Funds or by persons who provide services used
directly or indirectly by the Funds. This could result in delays or
disruptions in the receipt and crediting of payments on portfolio securities
held by the Funds, adverse effects on the issuers of securities held by the
Funds (and a decline in the value of those securities), and possible
inefficiencies or temporary difficulties in some Fund transactions. It is also
possible that failures of computer systems may result in general economic and
financial disruption not specific to the issuers of Fund securities or the
Funds, but the nature or extent of any general disruption is controversial and
difficult to estimate.

YOUR ACCOUNT

Buying Fund Shares

The Institutional Class shares of the Funds are sold on a continuous basis with
no initial sales charge or contingent deferred sales charge at the net asset
value (NAV) per share next determined after a purchase order is received by the
Funds' transfer agent and accepted. The NAV of each Fund is computed at least
once each day the Funds conduct business, by adding the value of the Fund's
assets, subtracting its liabilities and dividing the result by the number of
shares outstanding. NAV is normally calculated at four o'clock p. m. Eastern
time on each day the New York Stock Exchange is open. See the table below for
instructions on how to place your order.

Institutional Class shares of each Fund are subject to a Rule 12b-1 Service
Plan, which permits each Fund to reimburse the investment adviser (TMC) for
costs to obtain various shareholder services from persons who sell shares. The
maximum annual reimbursement under the plan is 1/4 of 1% of the class's net
assets, but TMC has never sought a reimbursement of any expenses under the plan
for Class I shares. TMC has advised that it has no current intention to do so.
Because this fee is paid out of the class's assets, payment of the fee on an
ongoing basis would increase the cost of your investment and might cost more
than paying other types of sales charges.

Each Fund reserves the right to suspend the offering of shares for a period of
time. Each Fund also reserves the right to reject any specific purchase order,
including certain purchases by exchange. See "Exchange Restrictions" on page
__.

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. TMC or TSC may make payments from
their own resources to assist in the sales or promotion of the Funds.

Opening An Account
- ----------------------------------------------------------------------------
Buying Shares To Open an Account To Add To An Account
- ----------------------------------------------------------------------------

Qualified Individual Minimum Minimum
or Institutional $2,500,000 $5,000

Qualified Plans Consult your Plan Consult your Plan
Administrator Administrator

Within Wrap or Fee Based Consult your Program Consult your Program
Program Sponsor Sponsor

By Telephone Exchange from another Exchange from another
1-888-598-0400 Thornburg Fund Thornburg Fund
account with the same account with the same
registration, registration
including name, including name,
address, and address, and
taxpayer ID number. taxpayer ID number.

By Mail Complete and sign Make your check
the application. payable to the
Make your check applicable
payable to the Thornburg Fund.
applicable Indicate your
Thornburg Fund. Fund account number
Mail to the address on your check and
indicated on the mail to the address
application. printed on your
account statement.
Automatic Investment Plan Use one of the above Use Automated Clearing
procedures to open House funds. Sign up
your account. Obtain for this service when
an Automatic you open your account,
Investment Plan form or call 1-888-598-0400
to sign up for this to add it.
service.
- ----------------------------------------------------------------------------

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. TSC 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 $250,000. Consult your applicable professional for their
minimum.

Employees, officers, trustees, directors of any Thornburg Fund or Thornburg
company, and their families or trusts established for the benefit of any of the
foregoing, may also purchase Institutional Class shares.

Opening an Account

Complete and sign an account application and give it, along with your check, to
the Fund in which you are investing or to your financial intermediary. You may
also open your account by wire or mail. If there is no application accompanying
this prospectus, please call 1-888-598-0400. If you buy shares by check and
then redeem those shares, the payment may be delayed for up to 15 business days
to ensure that your previous investment has cleared.

When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and that you are
not subject to 31% backup withholding for failing to report income to the IRS.
If you violate IRS regulations, the IRS can require the Fund to withhold 31% of
your taxable distributions and redemptions.

If you open or add to your account yourself rather than through your financial
advisor please note the following:

* All of your purchases must be made in U. S. dollars.
* Checks must be drawn on U. S. banks; the Funds do not accept cash.
* If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its Transfer Agent
have incurred.

When you buy shares of a Fund or sell them through your financial advisor, you
may be charged a fee for this service. Please read your financial advisor's
program materials for any additional procedures, service features or fees that
may apply.

Certain financial institutions that have entered into sales agreements with TSC
may enter confirmed purchase orders on behalf of customers by phone, with
payment to follow no later than the time when the Fund is priced on the
following business day. If payment is not received by that time, the financial
institution could be held liable for resulting fees or losses.

Street Name Accounts

Some financial intermediaries offer to act as owner of record of Fund shares as
a convenience to investors who are clients of those firms and shareholders of
an individual Fund. Neither the Funds nor their Transfer Agent can be
responsible for failures or delays in crediting shareholders for dividends or
redemption proceeds, or for delays in reports to shareholders if a shareholder
elects to hold Fund shares in street-name through an account with a financial
intermediary rather than directly in the shareholder's own name. Further,
neither the Funds nor their Transfer Agent will be responsible to the investor
for any loss to the investor due to the failure of a financial intermediary,
its loss of property or funds, or its acts or omissions. Prospective investors
are urged to confer with their financial intermediaries to learn about the
different options available for owning mutual fund shares. You may receive
share certificates or hold shares in your name with the Transfer Agent upon
request.

SELLING FUND SHARES

Shareholders of record (the person or entity in whose name the shares are
registered) can withdraw money from their Fund at any time by redeeming some or
all of the shares in the account, either by selling them back to the Fund or by
selling the shares through their financial advisor. The shares will be
purchased by the Fund at the next share price (NAV) calculated after the
redemption order is received in proper form. Share price is normally
calculated at 4 p.m. Eastern time. Please note the following:

* Consult your financial advisor for procedures governing redemption
through the advisor's firm.

* Telephone redemptions over the wire generally will be credited to your
bank account on the business day after your phone call (see Telephone
Redemption, page 29).

- ---------------------------------------------------------------------------
Redeeming Shares Account Type Special Requirements
- ---------------------------------------------------------------------------
Through a Financial All Account Types Consult with your
Intermediary financial advisor.
They may charge a fee.

By Mail Individual, Joint The letter of
Send to: NFDS Tenant, Sole instruction must be
c/o Thornburg Funds Proprietorship, signed by all persons
PO Box 419017 UGMA, UTMA required to sign for
Kansas City, MO transactions, exactly
64141-6017 as their names appear
on the account and
must include:
* Your name,
* The Fund's name,
* Your Fund account no.
* The dollar amount or
number of shares to be
redeemed,
* Any other applicable
requirements listed above
* Signature guarantee,
if required.

Trust In addition to the
above requirements,
the trustee must sign
the letter indicating
capacity as trustee.
If the trustee's name
is not in the account
registration, provide
a copy of the trust
document certified
w/in the last 60 days.

Business or In addition to the
Organization above requirements,
at least one person
authorized by
corporate resolution
to act on the account
must sign the letter
which must be
signature guaranteed.
Include a corporate
resolution with a
corporate seal.

Executor, Call 888-598-0400
Administrator,
Conservator,
Guardian

By Telephone All Account Types You must sign up for
except Street Name the telephone
Accounts redemption feature
before using it.
Minimum Wire $1,000
Minimum Check $500

Internet All Account Types www.Thornburg.com
- ---------------------------------------------------------------------------

* Your Fund may hold payment on redemptions until it is reasonably
satisfied that investments previously made by check have been
collected, which can take up to 15 business days.

* Payment for shares redeemed normally will be made by mail the next
business day, and in most cases within seven days, after receipt by the
Transfer Agent of a properly executed request for redemption
accompanied by any outstanding certificates in proper form for
transfer. The Funds may suspend the right of redemption and may
postpone payment when the New York Stock Exchange is closed for other
than weekends or holidays, or if permitted by rules of the Securities
and Exchange Commission during an emergency which makes it impractical
for the Funds to dispose of their securities or fairly to determine net
asset value, or during any other period specified by the Securities and
Exchange Commission in a rule or order for the protection of investors.

* No interest is accrued or paid on amounts represented by uncashed
distribution or redemption checks.

* To the extent consistent with state and federal law, your Fund may make
payments of the redemption price either in cash or in kind. The Funds
have elected to pay in cash all requests for redemption by any
shareholder. They may, however, limit such cash in respect to each
shareholder during any 90 day period to the lesser of $250,000 or 1% of
the net asset value of a Fund at the beginning of such period. This
election has been made pursuant to Rule 18f-1 under the Investment
Company Act of 1940 and is irrevocable while the Rule is in effect
unless the Securities and Exchange Commission, by order, permits its
withdrawal. In the case of a redemption in kind, securities delivered
in payment for shares would be valued at the same value assigned to
them in computing the net asset value per share of the Fund. A
shareholder receiving such securities would incur brokerage costs when
selling the securities.

To sell shares in an account, you may use any of the methods described below.

If you are a qualified individual or qualified institution selling some but not
all of your shares, leave at least $25,000 worth of shares in the account to
keep it open. If you own shares through a "wrap" or fee based program, you
must leave at least $1,000 worth of shares in the account to keep it open.
Accounts below these minimums may be closed by the Fund, and the proceeds
returned to the investor. There is no minimum balance requirement for
Qualified Plans.

Certain requests must include a signature guarantee. It is designed to protect
you and your Fund from fraud. If you are redeeming directly rather than
through a financial adviser and you have not signed up for telephone
redemption, your request must be made in writing and include a signature
guarantee if any of the following situations apply:

* You wish to redeem more than $10,000 worth of shares,

* Your account registration has changed within the last 30 days,

* The redemption check is being mailed to a different address than the
one on your account,

* The check is being made payable to someone other than the person in
whose name the account is registered, or

* The redemption proceeds are being transferred to a Thornburg account
with a different registration.

You should be able to obtain a signature guarantee from a bank, broker dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, savings association or participant in the
Securities Transfer Agent Medallion Program (STAMP). A notary public cannot
provide a signature guarantee.

Telephone Redemption

If you completed the telephone redemption section of your application when you
first purchased your shares, you may easily redeem shares of your Fund by
telephone. Simply call a Fund Customer Service Representative at 888-598-0400.
Money can be wired directly to the bank account designated by you on the
application or sent to you in a check. The Fund's Transfer Agent may charge a
fee for a bank wire. This fee will be deducted from the amount wired.

NFDS
c/o Thornburg Funds
P.O. Box 419017, Kansas City, MO 64141-6017.

Considerations With Respect to Telephone Redemption

The Funds, TSC, TMC and the Funds' Transfer Agent are not responsible for, and
will not be liable for, the authenticity of withdrawal instruction received by
telephone or the delivery or transmittal of the redemption proceeds if they
follow instructions communicated by telephone that they reasonably believe to
be genuine. By electing telephone redemption you are giving up a measure of
security you otherwise may have by redeeming shares only with written
instructions, and you may bear the risk of any losses resulting from telephone
redemption. The Funds and their Transfer Agent will attempt to implement
reasonable procedures to prevent unauthorized transactions and the Funds or
their Transfer Agent could be liable if these procedures are not employed.
These procedures will include recording of telephone transactions, providing
written confirmation of such transactions within 5 days, and requesting certain
information to better confirm the identity of the caller at the time of the
transaction. You should verify the accuracy of your confirmation statements
immediately after you receive them.

Internet Redemption

You may redeem shares of any Fund by contacting Thornburg at its Website,
www.thornburg.com and following the instructions.

INVESTOR SERVICES

Thornburg Funds provides a variety of services to help you manage your account.

Investor Services

Thornburg Funds' telephone representatives are available Monday through Friday
from 8:30 am to 6:30 p.m. Eastern time. Whenever you call, you can speak with
someone equipped to provide the information or service you need.

Statements and reports that Thornburg Funds send to you include the following:

* Account statements after every transaction affecting your account

* Monthly account statements (except the Value Fund which sends
quarterly account statements)

* Financial reports (every six months)

* Cost basis statement (at the end of any year in which you redeem
shares)

Thornburg's Website on the Internet provides you with helpful information 24
hours a day, at www.thornburg.com

Exchange Privilege

You may exchange Institutional Class shares of any Thornburg Fund for
Institutional Class shares of any other Thornburg Fund that offers
Institutional Class shares, subject to the restrictions described below.
Please consult the exchange and reinvestment privilege information in the
Prospectus of the other Thornburg Fund. Note that exchanges out of a Fund may
have tax consequences for you.

Exchange Restrictions

As a shareholder, you have the privilege of exchanging Institutional Class
shares of a Fund for Institutional Class shares of other Thornburg Funds which
offer Institutional Class shares. However, you should note the following:

* The Fund you are exchanging into must be registered for sale in your
state.

* You may only exchange between accounts that are registered in the same
name address, and taxpayer identification number.

* Before exchanging into a Fund, read its prospectus.

* Exchanges may have tax consequences for you.

* Because excessive trading can hurt fund performance and shareholders,
each Fund reserves the right to temporarily or permanently terminate
the exchange privilege of any investor who makes more than four
exchanges out of a Fund in any calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the
four exchange limit.

* Each Fund reserves the right to refuse exchange purchases by any person
or group if, in TMC's judgment, the Fund would be unable to invest the
money effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.

* Your exchanges may be restricted or refused if a Fund receives or
anticipates simultaneous orders affecting significant portions of the
Fund's assets. In particular, a pattern of exchanges that coincide
with a "market timing" strategy may be disruptive to a Fund. Although
a Fund will attempt to give prior notice whenever it is reasonably able
to do so, it may impose these restrictions at any time. The Funds
reserve the right to terminate or modify the exchange privilege in the
future.

Systematic Withdrawal Plans

Systematic withdrawal plans let you set up periodic redemptions from your
account. Consult your financial intermediary or call a Fund Customer Service
Representative at 888-598-0400 for information.

Each Fund may authorize certain securities brokers to accept on its behalf
purchase and redemption orders received in good form, and some of those brokers
may be authorized to designate other intermediaries to accept purchase and
redemption orders on the Fund's behalf. Provided the order is promptly
transmitted to the Fund, the Fund will be deemed to have received a purchase or
redemption order at the time it is accepted by such an authorized broker or
its designee, and customer orders will be priced based upon the Fund's net
asset value next computed after the order is accepted by the authorized broker
or its designee.

DIVIDENDS AND DISTRIBUTIONS

Each Fund distributes substantially all of its net income and realized capital
gains, if any, to shareholders each year. Each of the Municipal Funds and the
Taxable Income Funds declares its net investment income daily and distributes
it monthly. Value Fund distributes net investment income quarterly. Each Fund
will distribute net realized capital gains, if any, at least annually. Capital
gain distributions, if any, normally will be declared and payable in December.
You will be notified annually by your Fund as to the amount and
characterization of distributions paid to or reinvested by you for the
preceding tax year.

Distribution Options

The Funds earn interest from bond, money market, and other investments. These
are passed along as dividend distributions. Each Fund realizes capital gains
whenever it sells securities for a higher price than it paid for them. These
are passed along as capital gain distributions. When you open an account,
specify on your application how you want to receive your distributions. Each
Fund offers four options, which you can change at anytime. Shares of any
Thornburg Fund purchased through reinvestment of dividend and capital gain
distributions are not subject to sales charges or contingent deferred sales
charges. No interest or earnings are accrued or paid on amounts represented by
uncashed distribution checks.

Dividends

1. Reinvestment Option. Your dividend distributions will be automatically
invested in additional shares of your Fund. If you do not indicate a
choice on your application, you will be assigned this option. You may
also instruct the Fund to invest your dividends in the shares of another
Thornburg Fund.

2. Cash Option. You will be sent a check for your dividend distributions.
Cash distribution checks are normally mailed on the third business day
after the month-end for the Municipal Funds and for the Taxable Income
Funds.

Capital Gain

1. Reinvestment Option. Your capital gain distributions, if any, will be
automatically reinvested in additional shares of your Fund. If you do
not indicate a choice on your application, you will be assigned this
option. You may also instruct the Fund to reinvest your capital gain
distributions in shares of another Thornburg Fund.

2. Cash Option. You will be sent a check for any capital gain distributions.

Turnover and Capital Gains

The Funds do not normally engage in short-term trading for profits. However,
when a Fund believes that a security will no longer contribute towards its
reaching its goal or that another security will better contribute to its goal,
it will normally sell that security.

To minimize taxable capital gain distributions, each Fund will realize capital
losses, if available, when, in the judgment of the portfolio manager, the
integrity and income generating aspects of the portfolio would be unaffected by
doing so.

TAXES

Federal Taxes - In General

Certain general aspects of federal income taxation of individual
shareholders are discussed below. Aspects of investment by shareholders who
are not individuals are addressed in a limited manner. Prospective investors,
and in particular persons who are not individuals, should consult their own tax
advisers concerning federal, state and local tax consequences respecting
investments in the Funds.

Federal Tax Treatment of Distributions - Municipal Funds

The Municipal Funds intend to satisfy conditions that will enable them to
designate distributions from the interest income generated by investments in
Municipal Obligations, which are exempt from federal income tax when received
by a Fund, as Exempt Interest Dividends. Shareholders receiving Exempt
Interest Dividends will not be subject to federal income tax on the amount of
such dividends, except to the extent the alternative minimum tax may be
imposed.

Distributions by the Municipal Funds of net interest income received from
certain temporary investments (such as certificates of deposit, corporate
commercial paper and obligations of the U. S. government, its agencies and
instrumentalities) and net short-term capital gains realized by the Fund, if
any, will be taxable to shareholders as ordinary income whether received in
cash or additional shares. Distributions to shareholders will not qualify for
the dividends received deduction for corporations. Any net long-term capital
gains realized by the Fund, whether or not distributed, will be taxable to
shareholders as long-term capital gains regardless of the length of time
investors have held their shares, although gains attributable to market
discount on portfolio securities will be characterized as ordinary income.
Each year the Fund will, where applicable, mail to shareholders information on
the tax status of dividends and distributions, including the respective
percentages of tax-exempt and taxable, if any, income and an allocation of
tax-exempt income on a state-by-state basis. The exemption of interest income
for federal income tax purposes does not necessarily result in an exemption
under the income or other tax laws of any state or local taxing authorities.
(See "State Taxes"). Shareholders are advised to consult their own tax
advisers for more detailed information concerning the federal, state and local
taxation of the Fund and the income tax consequences to its shareholders.

The Code treats interest on certain Municipal Obligations which are private
activity bonds under the Code as a preference item for purposes of the
alternative minimum tax on individuals and corporations. The Municipal Funds
may purchase without limitation private activity bonds the interest on which is
subject to treatment under the Code as a preference item for purposes of the
alternative minimum tax on individuals and corporations, although the frequency
and amounts of these purchases are uncertain. Some portion of Exempt Interest
Dividends could, as a result of such purchases, be treated as a preference item
for purposes of the alternative minimum tax on individuals and corporations.
Shareholders are advised to consult their own tax advisers as to the extent and
effect of this treatment.

Federal Tax Treatment of Distributions - Taxable Income Funds

Distributions to shareholders representing net investment income and net short
term capital gains will be taxable to the recipient shareholders as ordinary
income, whether the distributions are actually taken in cash or are reinvested
in additional shares. Fund distributions will not be eligible for the
dividends received deduction for corporations. Distributions of net long-term
capital gains, if any, will be treated as long-term capital gains by
shareholders regardless of the length of time the shareholder has owned the
shares, and whether received as cash or in additional shares.

Federal Taxes - Value Fund

Distributions to shareholders representing net investment income and net
short term capital gains will be taxable to the recipient shareholders as
ordinary income, whether the distributions are actually taken in cash or are
reinvested in additional shares. Fund distributions will not be eligible for
the dividends received deduction for corporations. Distributions of net
long-term capital gains, if any, will be treated as long-term capital gains by
shareholders regardless of the length of time the shareholder has owned the
shares, and whether received as cash or in additional shares.

Federal Tax Treatment of Sales or Redemptions of Shares - All Funds

Redemption or resale of shares by a shareholder will be a taxable transaction
for federal income tax purposes, and the shareholder will recognize gain or
loss in an amount equal to the difference between the shareholder's basis in
the shares and the amount received on the redemption or resale. If the shares
sold or redeemed are a capital asset, the gain or loss will be a capital gain
or loss and will be long-term if the shares were held for more than one year.

State Taxes

With respect to distributions of interest income and capital gains from the
Funds, the laws of the several states and local taxing authorities vary with
respect to the taxation of such distributions, and shareholders of the Funds
are advised to consult their own tax advisers in that regard. The Municipal
Funds will advise shareholders approximately 60 days after the end of each
calendar year as to the percentage of income derived from each state as to
which it has any Municipal Obligations in order to assist shareholders in the
preparation of their state and local tax returns. Distributions of interest
income by Limited Term California Fund to individuals resident in California,
to the extent the interest income is attributable to Municipal Obligations
originating in California, will not be subject to California personal income
tax under current law. The Taxable Income Funds will advise shareholders
approximately 60 days after the end of each calendar year as to the percentage
of income derived from Treasury securities in order to assist shareholders in
the preparation of their state and local tax returns. Prospective investors
are urged to confer with their own tax advisers for more detailed information
concerning state tax consequences.

ORGANIZATION OF THE FUNDS

Limited Term National Fund and Limited Term California Fund are diversified
series of Thornburg Limited Term Municipal Fund, Inc., a Maryland corporation
organized as a diversified, open-end management investment company (the
"Company"). The Company currently offers two series of stock, Limited Term
National Fund and Limited Term California Fund, each in multiple classes, and
the Board of Directors is authorized to divide authorized but unissued shares
into additional series and classes.

Intermediate Municipal Fund, Government Fund, Income Fund and Value Fund are
diversified series of Thornburg Investment Trust, a Massachusetts business
trust (the "Trust") organized as a diversified, open-end management investment
company under a Declaration of Trust (the "Declaration"). The Trust currently
has 14 authorized Funds, four of which are described in this Prospectus. The
Trustees are authorized to divide the Trust's shares into additional series and
classes.

INVESTMENT ADVISER

The Funds are managed by Thornburg Management Company, Inc., (TMC). TMC
performs investment management services for each Fund under the terms of an
Investment Advisory Agreement which specifies that TMC will select investments
for the Fund, monitor those investments and the markets generally, and perform
related services. TMC also performs administrative services specific to the
Institutional Class under an Administrative Services Agreement which requires
that TMC will supervise, administer and perform certain administrative services
necessary for the maintenance of Institutional Class shareholders. TMC's
services to Limited Term National Fund and Limited Term California Fund are
supervised by the Directors of Thornburg Limited Term Municipal Fund, Inc.; its
services to the other Funds are supervised by the Trustees of Thornburg
Investment Trust.

TMC was established in 1982. Today, the Thornburg Funds include other mutual
funds in addition to the Funds covered by this Prospectus. The Thornburg Funds
total over $1.8 billion in assets. Thornburg Management Company Inc. is known
as a provider of conservative investment products. For more than a decade the
Thornburg Funds have been committed to preserving and increasing the real
wealth of their shareholders. The key to growing real wealth is increasing
buying power after taxes, inflation, and investment related expenses. TMC
receives fees for managing each Fund computed in accordance with the following
tables. These annual rates are calculated on average daily net assets and are
paid monthly.

For the most recent fiscal year of each of the Funds, the investment
advisory and administrative services fee rates for each of the Funds were:

Advisory Fee Rate Administrative Services
Rate
----------------- -------------------------
- ---
Year Ended June 30, 1998
------------------------
Limited Term National Fund .45% .05%

Limited Term California Fund .50% .05%

Year Ended September 30, 1998
-----------------------------
Intermediate National Fund .50% .05%

Limited Term Government Fund .375% .05%

Limited Term Income Fund .50% .05%

Value Fund Class I shares became available on November 2, 1998.

Brian J. McMahon and George Strickland, both of whom are Managing
Directors of TMC, are the portfolio managers for the Municipal Funds. Mr.
McMahon has managed municipal bond portfolios for TMC since 1984 and Mr.
Strickland ahs performed municipal bond credit analyses and management since
joining TMC in 1991. Mr. McMahon and Mr. Strickland are assisted by other
employees of TMC in managing the Municipal Funds.

Steven J. Bohlin, a Managing Director of TMC, is the portfolio manager of the
Taxable Income Funds. He has held this responsibility for Government Fund
since 1988 and for Income Fund since its inception in 1992. Mr. Bohlin is
assisted by other employees of TMC in managing the Taxable Income Funds.

William Fries, a Managing Director of TMC, is the portfolio manager of Value
Fund, which he has managed since its inception in 1995. Before joining TMC
in May 1995, Mr. Fries managed equity mutual funds for 16 years with another
mutual fund management company. Mr. Fries is assisted by other employees of
TMC.

TMC may, from time to time, agree to waive its fees or to reimburse a Fund
for expenses above a specified percentage of average daily net assets. TMC
retains the ability to be repaid by the Fund for these expense reimbursements
if expenses fall below the limit prior to the end of the fiscal year. Fee
waivers or expenses by a Fund will boost its performance, and repayment of
waivers or reimbursements will reduce its performance.

In addition to TMC's fees, each Fund will pay all other costs and expenses of
its operations. No Fund will bear any costs of sales or promotion incurred
in connection with the distribution of Institutional Class shares, except as
described above under "Service Plan".

Thornburg Securities Corporation (TSC) distributes and markets the Thornburg
Funds. TMC or TSC may make payments from their own resources to assist in
the sales or promotion of the Funds.

H. Garrett Thornburg, Jr., a Director and Chairman of the Fund, is the
controlling stockholder of both TMC and TSC.

FINANCIAL HIGHLIGHTS

The Financial Highlights table for each Fund is intended to help you
understand the Funds' financial performance for the periods shown. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate an investor would have earned or lost
on an investment in the Fund, assuming reinvestment of all dividends and
distributions. The information has been audited by McGladrey & Pullen, LLP,
independent auditors, whose report, along with the Funds' financial
statements, are included in the Funds' Annual Reports, which are available on
request. No figures are available for Value Fund, which commenced its
offering of Institutional Class shares on November 2, 1998.

<TABLE>
- --------------------------
LIMITED TERM NATIONAL FUND
- -------------------------- FISCAL YEAR OR PERIOD
---------------------
CLASS I
---------------------
Year Period
Ended from
June 30, 7/5/96(a)
1998 to 6/30/97
-------- ----------
<S> <C> <C>
Net Asset Value, Beginning of Period $13.44 $13.27

Income from Investment Operations:
Net Investment Income .66 .66
Net Gains (or Losses) on Securities .07 .17
(Realized and Unrealized) ------ ------
Total from Investment Operations .73 .83

Less Distributions:
Dividends (from Net Investment Income) (.66) (.66)
Distributions (from Capital Gains) - -
Total Distributions (.66) (.66)

Net Asset Value, End of Period $13.51 $13.44

Total Return(b) 5.52% 6.42%

Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $77,605 35,476
Ratio of Expenses to Average Net Assets (0.60)% (0.60)%(c)
(After Expense Reimbursements)
Ratio of Net Income to Average Net Assets 4.85% 5.01%(c)
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets (0.66)% (0.79)%(c)
(Before Expense Reimbursements)

Portfolio Turnover Rate 24.95% 23.39%

- ----------------------------
LIMITED TERM CALIFORNIA FUND
- ---------------------------- FISCAL YEAR OR PERIOD
---------------------
CLASS I
---------------------
Year Period
Ended from
June 30, 4/1/97(a)
1998 to 6/30/97
-------- ----------
<S> <C> <C>
Net Asset Value, Beginning of Period $12.75 $12.64

Income from Investment Operations:
Net Investment Income .59 .15
Net Gains (or Losses) on Securities .15 .11
(Realized and Unrealized) ------ ------
Total from Investment Operations .74 .26

Less Distributions:
Dividends (from Net Investment Income) (.59) (.15)
Distributions (from Capital Gains) - -
Total Distributions (.59) (.15)

Net Asset Value, End of Period $12.90 $12.75

Total Return(b) 5.93% 2.07%

Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $8,284 3,949
Ratio of Expenses to Average Net Assets (0.65)% (0.63)%(c)
(After Expense Reimbursements)
Ratio of Net Income to Average Net Assets 4.60% 4.77%(c)
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets (0.92)% (1.32)%(c)
(Before Expense Reimbursements)

Portfolio Turnover Rate 21.21% 20.44%

- --------------------------
INTERMEDIATE NATIONAL FUND
- -------------------------- FISCAL YEAR OR PERIOD
-------------------------------
CLASS I
-------------------------------
Year Period
Year Ended from
September 30, 7/5/96(a)
1998 1997 to 6/30/97
-------- -------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $13.44 $13.23 $13.00

Income from Investment Operations:
Net Investment Income .67 .70 .17
Net Gains (or Losses) on Securities .30 .21 .23
(Realized and Unrealized) ------ ------ ------
Total from Investment Operations .97 .91 .40

Less Distributions:
Dividends (from Net Investment Income) (.67) (.70) (.17)
Distributions (from Capital Gains) - - -
Total Distributions (.67) (.70) (.17)

Net Asset Value, End of Period $13.74 $13.44 $13.23

Total Return(b) 7.41% 7.07% 3.11

Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $20,461 16,615 689
Ratio of Expenses to Average Net Assets (0.69)% (0.69)% (.70)(c)
(After Expense Reimbursements)
Ratio of Net Income to Average Net Assets 4.95% 5.16% 5.49(c)
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets (0.79)% (1.24)% (6.10)(c)
(Before Expense Reimbursements)

Portfolio Turnover Rate 16.29% 15.36% 12.64%

- ---------------------------------
LIMITED TERM U.S. GOVERNMENT FUND
- --------------------------------- FISCAL YEAR OR PERIOD
-------------------------------
CLASS I
-------------------------------
Year Period
Year Ended from
September 30, 7/5/96(a)
1998 1997 to 6/30/97
-------- -------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $12.31 $12.24 $12.14

Income from Investment Operations:
Net Investment Income .74 .79 .20
Net Gains (or Losses) on Securities .34 .07 .10
(Realized and Unrealized) ------ ------ ------
Total from Investment Operations 1.08 .86 .30

Less Distributions:
Dividends (from Net Investment Income) (.74) (.79) (.20)
Distributions (from Capital Gains) - - -
Total Distributions (.74) (.79) (.20)

Net Asset Value, End of Period $12.65 $12.31 $12.24

Total Return(b) 9.06% 7.26% 2.45%

Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $2,250 5,263 9
Ratio of Expenses to Average Net Assets (0.60)% (0.60)% (.58)(c)
(After Expense Reimbursements)
Ratio of Net Income to Average Net Assets 6.01% 6.35% 6.64(c)
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets (1.18)% (6.57)% (305.74)(c)
(Before Expense Reimbursements)

Portfolio Turnover Rate 29.77% 41.10% 23.27%

- ------------------------
LIMITED TERM INCOME FUND
- ------------------------ FISCAL YEAR OR PERIOD
-------------------------------
CLASS I
-------------------------------
Year Period
Year Ended from
September 30, 7/5/96(a)
1998 1997 to 6/30/97
-------- -------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $12.36 $12.23 $11.95

Income from Investment Operations:
Net Investment Income .75 .80 .19
Net Gains (or Losses) on Securities .14 .13 .28
(Realized and Unrealized) ------ ------ ------
Total from Investment Operations .89 .93 .47

Less Distributions:
Dividends (from Net Investment Income) (.75) (.80) (.19)
Distributions (from Capital Gains) - - -
Total Distributions (.75) (.80) (.19)

Net Asset Value, End of Period $12.50 $12.36 $12.23

Total Return(b) 7.49% 7.80% 3.97%

Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $7,768 4,495 797
Ratio of Expenses to Average Net Assets (0.69)% (0.69)% (.69)(c)
(After Expense Reimbursements)
Ratio of Net Income to Average Net Assets 6.10% 6.44% 6.67(c)
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets (1.19)% (1.98)% (4.26)(c)
(Before Expense Reimbursements)

Portfolio Turnover Rate 41.01% 13.87% 44.35%

(a) Commencement of operations.
(b) Total return is not annualized for periods less than one year.
(c) Annualized.
</TABLE>

ADDITIONAL
INFORMATION

Custodian and Transfer Agent
The custodian of each Fund's assets is State Street Bank & Trust Co. National
Financial Data Services is the transfer agent for the Funds and performs
bookkeeping, data processing and administrative services incident to the
maintenance of shareholder accounts.

INVESTMENT ADVISER
Thornburg Management Company, Inc.
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501

DISTRIBUTOR
Thornburg Securities Corporation
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501

AUDITOR
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017

CUSTODIAN
State Street Bank & Trust Co.
Boston, Massachusetts

TRANSFER AGENT
State Street Bank & Trust Co.
c/o NFDS Servicing Agent
Post Office Box 419017
Kansas City, Missouri 64141-6017

The current Statement of Additional Information (SAI) for each of the
Funds includes additional information about the Funds, and additional
information about each Fund's investments is available in the Fund's annual
and semiannual reports to shareholders.

<Thornburg Funds logo>
Investing With Integrity
Thornburg Securities Corporation, Distributor
119 East Marcy Street, Santa Fe, New Mexico 87501
(800) 847-0200
www.thornburg.com email: [email protected]

Limited Term National Fund and Limited Term California Fund are separate
series of Thornburg Limited Term Municipal Fund, Inc., which files its
registration statements and certain other information with the Securities and
Exchange Commission under Investment Company Act of 1940 file number 811-
4302.

Intermediate National Fund, Government Fund, Income Fund and Value Fund are
separate series of Thornburg Investment Trust, which files its registration
statements and certain other information with the Commission under Investment
Company Act of 1940 file number 811-05201.

<PAGE>
PART B

<PAGE>
THORNBURG LIMITED TERM MUNICIPAL FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information of Thornburg Limited Term
Municipal Fund, Inc. (the "Company") is not a prospectus but should be read
in conjunction with the Company's Prospectus dated February 1, 1999, (the
"Prospectus"). A copy of the Prospectus, and copies of the Fund's most recent
Annual and Semiannual Reports to Shareholders, may be obtained, without
charge, by writing to Thornburg Securities Corporation (the "Distributor"),
119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501. Prior to June
28, 1985, the Company's name was "Tax-Free Municipal Lease Fund, Inc.;" and
the Company operated under the name "Limited Term Municipal Fund, Inc." from
June 28, 1985 to November 1, 1992.

The date of this Statement of Additional Information is February 1,
1999.

<PAGE> i
TABLE OF CONTENTS

TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . i

ORGANIZATION OF THE FUNDS . . . . . . . . . . . . . . . . __

INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . __
Ratings . . . . . . . . . . . . . . . . . . . . . . __
Temporary Investments. . . . . . . . . . . . . . . . __
Repurchase Agreements. . . . . . . . . . . . . . . . __
U.S. Government Obligations. . . . . . . . . . . . . __

INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . __

PERFORMANCE COMPUTATION . . . . . . . . . . . . . . . . . __
Performance Computations - In General. . . . . . . . __
Representative Performance Figures -
Limited Term National Fund (Classes A and C). . __
Representative Performance Figures -
Limited Term California Fund
(Classes A and C). . . . . . . . . . . . . __

DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . __
Distributions. . . . . . . . . . . . . . . . . . . . __
Tax Matters . . . . . . . . . . . . . . . . . . . . __
State and Local Tax Aspects. . . . . . . . . . . . . __
Special Risks Affecting the California Portfolio . . __
Accounts of Shareholders . . . . . . . . . . . . . . __

INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES
AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . __
Investment Management Services . . . . . . . . . . . __
Administrative Services Agreement. . . . . . . . . . __

SERVICE AND DISTRIBUTION PLANS. . . . . . . . . . . . . . __
Service Plan - All Classes . . . . . . . . . . . . . __
Class C Distribution Plan. . . . . . . . . . . . . . __
General Matters Relating to Service and
Distribution Plans . . . . . . . . . . . . . . . __

PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . . . . __

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . __
i
<PAGE> ii
PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . . . . . __

HOW TO PURCHASE FUND SHARES . . . . . . . . . . . . . . . __

NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . __

REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . __

DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . __

INDEPENDENT AUDITORS. . . . . . . . . . . . . . . . . . . __

FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . __
ii

<PAGE>
ORGANIZATION OF THE FUNDS

The Company currently offers two separate investment portfolios or
Funds: Thornburg Limited Term Municipal Fund National Portfolio ("Limited
Term National Fund") and Thornburg Limited Term Municipal Fund California
Portfolio ("Limited Term California Fund"). Each Fund currently offers two
classes of shares, Class A shares and Class C shares.

Each of the Funds is a diversified series of Thornburg Limited Term
Municipal Fund, Inc. (the "Company"), a Maryland corporation organized as a
diversified, open-end management company. The Company was originally
organized in 1984. Limited Term National Fund and Limited Term California
Fund were created on the dame date. Limited Term National Fund commenced
investment operations on September 28, 1984, and Limited Term California
Fund commenced investment operations on February 19, 1987. The Limited
Term Municipal Funds are managed by their investment adviser, Thornburg
Management Company, Inc., under the supervision of the Board of Directors
of the Company. The Company currently offers two series of stock, referred
to in this Prospectus as Limited Term National Fund and Limited Term
California Fund, each in multiple classes, and the Board of Directors is
authorized to divide authorized but unissued shares into additional series
and classes.

Each Fund may hold special shareholder meetings and mail proxy
materials. These meetings may be called to elect or remove Directors,
change fundamental investment policies, or for other purposes.
Shareholders not attending these meetings are encouraged to vote by proxy.
Each Fund will mail proxy materials in advance, including a voting card
and information about the proposals to be voted on. The number of votes
you are entitled to is based upon the number of shares you own. Shares do
not have cumulative rights or preemptive rights.

INVESTMENT OBJECTIVES AND POLICIES

The investment objective of the Funds is to provide for their respective
shareholders as high a level of current interest income exempt from federal
income tax as is consistent, in the view of the Funds' management, with
preservation of capital. Additionally, the Limited Term California Fund
seeks to provide as high a level of current interest income exempt from
California state income tax as is consistent in the view of the Fund's
management with preservation of capital. Investors should recognize,
however, that income otherwise exempt from federal income tax may be subject
to the federal minimum tax and state income taxes. See "DISTRIBUTIONS AND
TAXES", below.

A secondary investment objective of the Funds is to minimize expected
fluctuations in net asset value per share relative to municipal bond
portfolios with longer average maturities by maintaining a portfolio with a
dollar-weighted average maturity that will normally not exceed five years.
There is a risk in all investments, however, and there can be no assurance
that the Funds' objectives will be achieved. The objective of preservation
of capital may preclude the Funds from obtaining the highest available
yields.

The Funds will seek to achieve their objective by investing in a
diversified portfolio of obligations issued by state and local governments
the interest on which is exempt from federal income tax ("Municipal
Obligations"). The Fund may invest its assets in Municipal Obligations (or
participation interest therein) that constitute leases or installment
purchase or conditional sale contracts by state or local governments or
authorities to obtain property or equipment ("Municipal Leases").

Municipal Obligations include debt obligations issued by states, cities
and local authorities to obtain funds for various public purposes, including
the construction of a wide range of public facilities such as airports,
bridges, highways, housing, hospitals, mass transportation, schools, streets
and water and sewer works. Other public purposes for which Municipal
Obligations may be issued include the refunding of outstanding obligations,
the obtaining of funds for general operating expenses and the obtaining of
funds to lend to other public institutions and facilities. In addition,
certain types of industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide privately-operated housing
facilities, sports facilities, convention or trade show facilities, airport,
mass transit, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. Municipal Obligations have also been issued
to finance single-family mortgage loans and to finance student loans. Such
obligations are included within the term Municipal Obligations if the
interest paid thereon is exempt from federal income tax. Municipal
Obligations also include obligations issued by or on behalf of territories or
possessions of the United States and their agencies and instrumentalities.

The two principal classifications of Municipal Obligations are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a specific revenue source. Industrial development bonds
are in most cases revenue bonds and are generally not secured by the pledge
of the credit or taxing power of the issuer of such bonds. There are, of
course, variations in the security of Municipal Obligations, both within a
particular classification and between classifications, depending on numerous
factors.

The Funds' assets will normally consist of (1) Municipal Obligations
(including municipal Leases) or participations therein that are rated at the
time of purchase within the four highest grades by Moody's or S&P and
(2) Municipal Obligations (including Municipal Leases) or participations
therein that are not rated by a rating agency, but are issued by obligors
that either have other comparable debt obligations that are rated within the
four highest grades (Baa or BBB or better) by Moody's Investors Service
("Moody's") Standard & Poor's Corporation ("S&P") or Fitch Investors Service
("Fitch") or, in the case of obligors whose obligations are unrated, are
deemed by the Funds' investment adviser, Thornburg Management Company, Inc.
("TMC"), to be comparable with issuers having such debt ratings, (3) cash and
receivables. Investments in Municipal Obligations may also include
(i) variable rate demand instruments that are rated within the two highest
grades of either rating agency or, if unrated, are deemed by TMC to be of
high quality and minimal credit risk; (ii) tax-exempt commercial paper that
is rated within the two highest grades of either rating agency;
(iii) municipal notes that are rated within the two highest grades of either
rating agency or, if unrated, are deemed by TMC to be of comparable quality
to such rated municipal notes; and (iv) other municipal demand instruments
rated within the three highest grades of either rating agency or, if unrated,
are deemed by TMC to be of comparable quality to such rated municipal demand
instruments. Unrated Municipal Leases will be purchased only subject to
certain restrictions described in the Prospectus under the caption
"Investment Objectives and Policies -- Municipal Obligations". To the extent
that unrated Municipal Obligations may be less liquid, there may be somewhat
greater risk in purchasing unrated Municipal Obligations than in purchasing
comparable rated Municipal Obligations. Except to the extent that a Fund is
invested in temporary investments for defensive purposes, the Fund will,
under normal conditions, invest 100% of its net assets in Municipal
Obligations, and as a matter of fundamental policy normally will not invest
less than 80% in Municipal Obligations. Under normal conditions the Limited
Term California Fund will attempt to invest 100% and as a matter of
fundamental policy, will invest at least 65% of its net assets in Municipal
Obligations (and participation interests therein) issued by public entities
located in the State of California.

In some cases, investments by a Fund in Municipal Leases will take the
form of purchases of participation interests therein from banks and other
responsible parties. A participation interest gives the Fund a specified
undivided interest in the obligation in the proportion that the Fund's
participation interest bears to the total principal amount of the Municipal
Lease.

The foregoing restrictions and other limitations discussed herein and
under "Investment Limitations" will apply only at the time of purchase of
securities and will not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of an acquisition of
securities.

The Fund has reserved the right to invest up to 20% of its net assets in
"temporary" investments in taxable securities, but it does not expect to find
it necessary to do so. See "Temporary Investments" and "Repurchase
Agreements" below.

Portfolio trading will be undertaken to accomplish the Funds' investment
objectives in relation to actual and anticipated movements in interest rates.

The Funds also may engage to a limited extent in short-term trading
consistent with their investment objectives. Securities may be sold in
anticipation of a market decline (a rise in interest rates) or purchased in
anticipation of a market rise (a decline in interest rates) and later sold,
but the Funds will not engage in trading solely to recognize a gain. In
addition, a security may be sold and another of comparable quality purchased
at approximately the same time to take advantage of what a Fund believes to
be a temporary disparity in the normal yield relationship between the two
securities. Yield disparities may occur for reasons not directly related to
the investment quality of particular issues or the general movement of
interest rates, such as changes in the overall demand for or supply of
various types of Municipal Obligations or changes in the investment
objectives of investors. With respect to income tax consequences to the
Funds and their shareholders resulting from short-term trading by the Funds,
see "Distributions and Taxes".

Subject to the foregoing, each Fund will attempt to achieve its
investment objective by prudent selection of Municipal Obligations with a
view to holding them for investment. While there can be no assurance
thereof, each Fund anticipates that its annual portfolio turnover rate
generally will not exceed 70%. However, each Fund reserves the right to make
changes in its portfolio whenever it deems such action advisable, and the
rate of turnover will not be a limiting factor when the Fund deems it
desirable to sell or purchase securities. Therefore, depending upon market
conditions, each Fund's annual portfolio turnover rate may exceed 70% in
particular years.

Except as expressly set forth in this Statement of Additional
Information or in the Prospectus, the investment objective and the
permissible investments set forth herein under the caption "Investment
Objective and Policies" are not fundamental policies and may be changed by
the Board of Directors of the Company without approval by Fund shareholders.
Any fundamental policy may be changed only with the approval of a majority
of the outstanding shares of each Fund which would be affected by the change.
See "Investment Limitations".

Each Fund may invest a portion of its assets in Municipal Leases and
participation interests therein. Such obligations, which may take the form
of a lease or an installment purchase of conditional sale contract, are
issued by state and local governments and authorities to acquire a wide
variety of equipment and facilities, such as fire and sanitation vehicles,
telecommunications equipment and other capital assets. Interest payments on
qualifying Municipal Leases are exempt from federal income taxes.

Municipal Leases have special risks not normally associated with general
obligation or revenue bonds. The constitutions and statutes of all states
contain requirements that the state or a municipality must meet to incur
debt. These often include voter referenda, interest rate limits and public
sale requirements. Leases and installment purchase or conditional sale
contracts (which normally provide for title to the leased asset to pass
eventually to the governmental issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting their
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations are deemed to be inapplicable because of the
inclusion in many leases or contracts of "non-appropriation" clauses which
provide that the governmental issuer has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on a yearly or other periodic
basis.

Although Municipal Leases typically will be secured by the leased
property, the disposition of the property in the event of non-appropriation
or foreclosure might, in some cases, prove difficult. In addition, in
certain instances the tax-exempt status of the obligations will not be
subject to the legal opinion of a nationally recognized "bond counsel," as is
customarily required in larger issues of Municipal Obligations. However, in
all cases the Company will require that a Municipal Lease purchased by a Fund
be covered by a legal opinion (typically from the issuer's counsel) to the
effect that, as of the effective date of such Lease, the Lease is the valid
and binding obligation of the governmental issuer.

TMC will evaluate the liquidity of each Municipal Lease upon its
acquisition by a Fund and periodically while it is held based upon factors
established by the Fund's board of directors, including (i) the frequency of
trades and quotes for the obligation, (ii) the number of dealers who will buy
or sell the obligation and the potential buyers of the obligation, (iii) the
willingness of dealers to make a market for the obligation, and (iv) the
nature and timing of marketplace trades. For purposes of the preceding
sentences, an unrated Municipal Lease with non-appropriation risk that is
backed by an irrevocable bank letter of credit or an insurance policy, issued
by a bank or insurer deemed by TMC to be of high quality and minimal credit
risk, will not be deemed to be "illiquid" solely because the underlying
Municipal Lease is unrated, if TMC determines that the Municipal Lease is
readily marketable because it is backed by such letter of credit or insurance
policy.

Each Fund will seek to reduce further the special risks associated with
investment in Municipal Leases by investing in Municipal Leases only where,
in TMC's opinion, certain factors established by the Fund's directors have
been satisfied, including (1) the nature of the leased equipment or property
is such that its ownership or use is deemed essential to a governmental
function of the governmental issuer, (2) the Municipal Lease has a shorter
term to maturity than the estimated useful life of the leased property and
the lease payments will commence amortization of principal at an early date,
(3) appropriate covenants will be obtained from the governmental issuer
prohibiting the substitution or purchase of similar equipment for a specified
period (usually 60 days or more) in the event payments are not appropriated,
(4) the underlying equipment has elements of portability or use that enhance
its marketability in the event foreclosure on the underlying equipment was
ever required, and (5) the governmental issuer's general credit is adequate.
The enforceability of the "non-substitution" provisions referred to in (3)
above has not been tested by the courts. Investments not meeting certain of
these criteria (such as the absence of a non-substitution clause) may be made
if the Municipal Lease is subject to an agreement with a responsible party
(such as the equipment vendor) providing warranties to the Fund that satisfy
such criteria.

Each Fund may purchase variable rate demand instruments and also may
purchase fixed rate municipal demand instruments either in the public market
or privately from banks, insurance companies and other financial
institutions. These instruments provide for periodic adjustment of the
interest rate paid to the holder. The "demand" feature permits the holder to
demand payment of principal and interest prior to the final stated maturity,
either from the issuer or by drawing on a bank letter of credit, a guarantee
or insurance issued with respect to the instrument. In some cases these
demand instruments may be in the form of units, each of which consists of
(i) a Municipal Obligation and (ii) a separate put option entitling the
holder to sell to the issuer of the option the Municipal Obligation in such
unit, or an equal aggregate principal amount of another Municipal Obligation
of the same issuer, issue and maturity as the Municipal Obligation, at a
fixed price on specified dates during the term of the put option. In those
cases, each unit taken as a whole will be considered a Municipal Obligation.
The demand option may or may not increase the liquidity of the underlying
Municipal Obligation at any point in time. The issuer of the demand option
may or may not guarantee payments of principal and interest on the underlying
Municipal Obligation. However, as long as the issuer of the option honors
its obligation, or is perceived to be able to do so, the option should
decrease the risk of downward price fluctuation of the underlying Municipal
Obligation at any point in time by establishing a fixed price for which the
Municipal Obligation can be sold before its final maturity. In order to
reduce further the risk associated with this type of investment, a Fund will
invest in a fixed rate municipal demand instrument only if the instrument or
the letter of credit, guarantee or insurance associated therewith is rated
within the three highest grades of a nationally recognized rating agency, or
if unrated, is deemed by TMC to be of comparable quality with issues having
these debt ratings. The credit quality of such investments will be reviewed
on a periodic basis by TMC under the supervision of the Fund's directors.
When a Fund holds an investment in a Municipal Obligation together with a put
option relating to it, the maturity of the Municipal Obligation for purposes
of calculating the Fund's dollar-weighted average portfolio maturity will be
deemed to be the shorter of (1) the final maturity of the Municipal
Obligation, or (2) the next date that the Fund may demand payment for the
Municipal Obligation from the issuer of the put option.

Each Fund may purchase participation interests in Municipal Leases
principally from banks or other responsible parties (such as equipment
vendors, insurance companies, broker-dealers and other financial
institutions) which have entered into a "remarketing agreement" with the Fund
providing that the other party will either remarket or repurchase the
Municipal Leases within seven days after demand by the Fund on certain
conditions described below within seven days after demand by the Fund. Such
agreements are referred to herein as "remarketing agreements" and the party
that agrees to remarket or repurchase a Municipal Lease is referred to herein
as a "remarketing party.") The agreement will provide for a remarketing
price equal to the current value of the Fund's participation interest in the
obligation as determined by the Fund's portfolio valuation service as of the
demand date (plus accrued interest). The Funds anticipate that, in most
cases, the agreement will also provide for the seller of the participation
interest or the remarketing party to service the Municipal Lease, often for a
servicing fee. The conditions to a Fund's right to require the remarketing
party to remarket the obligation are that the Fund must certify at the time
of remarketing that (1) payments under the Municipal Lease are current and
the Fund has no knowledge of any default thereunder by the governmental
issuer, (2) such remarketing is necessary in TMC's sole opinion to meet the
Fund's liquidity needs and (3) the governmental issuer has not notified the
Fund of termination of the Municipal Lease.

A Fund will enter into remarketing agreements only with banks or other
responsible parties (such as equipment vendors, insurance companies,
broker-dealers and other financial institutions) that in the opinion of TMC
are capable of meeting their obligations to the Fund. TMC will monitor on a
continuous basis the ability of remarketing parties to meet their obligations
to the Fund. Although each Fund expects to deal with a variety of
remarketing parties, it reserves the right to enter into such agreements
covering up to 25% of its net assets with any particular remarketing party
meeting TMC's normal credit criteria. In addition, up to 50% of its net
assets may be covered by a remarketing agreement with a remarketing party
that is deemed by TMC to be of high quality and minimal credit risk. The
Company received an interpretation from the staff of the Securities and
Exchange Commission on January 18, 1985, enabling the Funds to enter into
remarketing agreements with a broker-dealer, provided the broker-dealer has
sold a participation interest in the underlying Municipal lease and the Fund
reflects the investment on its balance sheet as a participation interest.

The "remarketing" feature of the remarketing agreement entitles the
remarketing party to attempt to resell a Fund's participation interest in the
Lease within seven days after demand; however, the remarketing party will be
obligated to repurchase the Lease for its own account within the seven-day
period if the Lease has not been resold. The remarketing agreement will
often be entered into with the party who has sold a participation interest in
the Municipal Lease to the Fund, but remarketing agreements may also be
entered into with a separate remarketing party of the same type and meeting
the same criteria as described above. A Fund will not invest in unrated
Municipal Leases with non-appropriation risk that are not subject to a
remarketing agreement if, as a result of such investment, more than 10% of
its net assets would be invested in (1) unrated Municipal Leases with
non-appropriation risk not covered by such agreements and (2) other
investments not considered readily marketable by the Fund (including unrated
Municipal Leases not currently subject to remarketing pursuant to any such
agreement then in effect).

The Funds will enter into remarketing agreements solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. Remarketing agreements ordinarily will not be transferable
or assignable by a Fund, although the Fund will be entitled to sell the
underlying Municipal Obligation to another party at any time. If the Fund is
unable to exercise its rights under a remarketing agreement, it may be
required to hold the underlying Municipal Lease to maturity or treat the
Municipal Lease as an "illiquid" investment (see "Municipal Obligations",
below), unless it is able to place the investment with a new remarketing
party.

A Fund also may purchase and sell Municipal Obligations on a when-issued
or delayed delivery basis. When-issued and delayed delivery transactions
arise when securities are purchased or sold with payment and delivery beyond
the regular settlement date. (When-issued transactions normally settle
within 30-45 days.) On such transactions the payment obligation and the
interest rate are fixed at the time the buyer enters into the commitment.
The commitment to purchase securities on a when-issued or delayed delivery
basis may involve an element of risk because the value of the securities is
subject to market fluctuation, no interest accrues to the purchaser prior to
settlement of the transaction, and at the time of delivery the market value
may be less than cost. At the time the Fund makes the commitment to purchase
a Municipal Obligation on a when-issued or delayed delivery basis, it will
record the transaction and reflect the value of the security in determining
its net asset value. The Fund also will maintain liquid assets at least
equal in value to commitments for when-issued or delayed delivery securities,
such assets to be segregated by State Street Bank & Trust Co., the Funds'
custodian, specifically for the settlement of such commitments. The value of
the segregated assets will be marked to the market daily so that the Fund
will at all times maintain assets in the segregated account equal in value to
the amount of these commitments. The Fund only will make commitments to
purchase Municipal Obligations on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities, but the Fund
reserves the right to sell these securities before the settlement date if it
is deemed advisable. If a when-issued security is sold before delivery any
gain or loss would not be tax-exempt.

No Fund will invest in illiquid securities if, as a result of such
investment, more than 10% of its net assets will be invested in illiquid
securities. For purposes of this limitation, "illiquid securities" shall be
deemed to include (1) Municipal Leases subject to non-appropriation risk
which are not rated at the time of purchase within the four highest grades by
Moody's or S&P and not subject to remarketing agreements (or not currently
subject to remarketing, pursuant to the conditions of any such agreement then
in effect, with a responsible remarketing party, deemed by TMC to be capable
of performing its obligations), (2) repurchase agreements maturing in more
than seven days, (3) securities which the Fund is restricted from selling to
the public without registration under the Securities Act of 1933, and
(4) other securities or participations not considered readily marketable by
the Fund, provided that for purposes of the foregoing an unrated Municipal
Lease which is backed by an irrevocable bank letter of credit or an insurance
policy, issued by a bank or insurer deemed by TMC to be of high quality and
minimal credit risk, will not be deemed to be "illiquid" solely because the
underlying Municipal Lease is readily marketable because it is backed by the
letter of credit or insurance policy.

From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption
for interest on municipal securities. Similar proposals may be introduced in
the future. These proposals, if enacted, may have the effect of reducing the
availability of investments for the Fund. Moreover, the value of the Fund's
portfolio may be affected. The Fund may be compelled to reevaluate its
investment objective and policies and submit possible changes in the
structure of the Funds for the approval of their shareholders.

The yields on Municipal Obligations are dependent on a variety of
factors, including the condition of the general market and the Municipal
Obligation market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The ratings of Moody's, S&P and
Fitch represent their opinions as to the quality of the Municipal Obligations
which they undertake to rate. See "Ratings". It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, Municipal Obligations with the same maturity, coupon and
rating may have different yields, while Obligations of the same maturity and
coupon with different ratings may have the same yield. The market value of
outstanding Municipal Obligations will vary with changes in prevailing
interest rate levels and as a result of changing evaluations of the ability
of their issuers to meet interest and principal payments. Such variations in
market value of Municipal Obligations held in the Funds' portfolios arising
from these or other factors will cause changes in the net asset value of the
Funds' shares.

The ability of the Funds to achieve their investment objectives is
dependent upon the continuing ability of issuers of Municipal Obligations in
which the Funds invest to meet their payment obligations. In addition to
using public rating agencies, TMC will use its own credit analysis to assess
each issuer's financial soundness. Such analysis will include reliance upon
information from various sources including, if available, reports by the
rating agencies, research, analysis and appraisals of brokers, dealers and
commercial banks, and the views of the Funds' directors and others regarding
economic developments and the credit worthiness of particular issuers.

Ratings

Tax-Exempt Bonds. The four highest ratings of Moody's for tax-exempt
bonds are Aaa, Aa, A and Baa. Tax-exempt bonds rated Aaa are judged to be of
the "best quality". The rating of Aa is assigned to tax-exempt bonds which
are of "high quality by all standards," but as to which margins of protection
or other elements make long-term risks appear somewhat larger than Aaa rated
tax-exempt bonds. The Aaa and Aa rated tax-exempt bonds comprise what are
generally known as "high grade bonds". Tax-exempt bonds which are rated A by
Moody's possess many favorable investment attributes and are considered
"upper medium grade obligations". Factors giving security to principal and
interest of A-rated tax-exempt bonds are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. Tax-exempt bonds rated Baa are considered as "medium grade"
obligations. They are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such tax-exempt bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well. The foregoing ratings are sometimes presented in parentheses preceded
with "Con." indicating the bonds are rated conditionally. Bonds for which
the security depends upon the completion of some act or the fulfillment of
some condition are rated conditionally. These are bonds secured by
(a) earnings of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals which begin when facilities
are completed, or (d) payments to which some other limiting condition
attaches. The parenthetical rating denotes the probable credit status upon
completion of construction or elimination of the basis of the condition.

The four highest ratings of S&P and Fitch for tax-exempt bonds are AAA,
AA, A, and BBB. Tax-exempt bonds rated AAA bear the highest rating assigned
by S&P to a debt obligation and indicates an extremely strong capacity to pay
principal and interest. Tax-exempt bonds rated AA also qualify as
high-quality debt obligations. Capacity to pay principal and interest is
very strong, and in the majority of instances they differ from AAA issues
only in small degree. Bonds rated A have a strong capacity to pay principal
and interest, although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions. The BBB rating,
which is the lowest "investment grade" security rating by S&P, indicates an
adequate capacity to pay principal and interest. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
principal and interest for bonds in this category than for bonds in the A
category. The foregoing ratings are sometimes followed by a "p" indicating
that the rating is provisional. A provisional rating assumes the successful
completion of the project being financed by the bonds being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This
rating, however, while addressing credit quality subsequent to completion of
the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion.

Municipal Notes. The ratings of Moody's for municipal notes are MIG 1,
MIG 2, MIG 3 and MIG 4. Notes bearing the designation MIG 1 are judged to be
of the best quality, enjoying strong protection from established cash flows
of funds for their servicing or from established and broad-based access to
the market for refinancing, or both. Notes bearing the designation MIG 2 are
judged to be of high quality, with margins of protection ample although not
so large as in the preceding group. Notes bearing the designation of MIG 3
are judged to be of favorable quality, with all security elements accounted
for but lacking the undeniable strength of the preceding grades. Market
access for refinancing, in particular, is likely to be less well established.
Notes bearing the designation MIG 4 are judged to be of adequate quality,
carrying specific risk but having protection commonly regarded as required of
an investment security and not distinctly or predominantly speculative.

The S&P ratings for municipal notes are SP-1+, SP-1, SP-2 and SP-3.
Notes bearing an SP-1+ rating are judged to possess overwhelming safety
characteristics, with either a strong or very strong capacity to pay
principal and interest. Notes rated SP-1 are judged to have either a strong
or very strong capacity to pay principal and interest but lack the
overwhelming safety characteristics of notes rated SP-1+. Notes bearing an
SP-2 rating are judged to have a satisfactory capacity to pay principal and
interest, and notes rated SP-3 are judged to have a speculative capacity to
pay principal and interest.

Tax-Exempt Demand Bonds. The rating agencies may assign dual ratings to
all long term debt issues that have as part of their provisions a demand or
multiple redemption feature. The first rating addresses the likelihood of
repayment of principal and interest as due and the second rating addresses
only the demand feature. The long term debt rating symbols are used for
bonds to denote the long term maturity and the commercial paper rating
symbols are used to denote the put option (for example, "AAA/A-1+). For
newer "demand notes" maturing in 3 years or less, the respective note rating
symbols, combined with the commercial paper symbols, are used (for example.
"SP-1+/A-1+").

Commercial Paper. The ratings of Moody's for issuers of commercial
paper are Prime-1, Prime-2 and Prime-3. Issuers rated Prime-1 are judged to
have superior ability for repayment which is normally evidenced by
(i) leading market positions in well established industries, (ii) high rates
of return on funds employed, (iii) conservative capitalization structures
with moderate reliance on debt and ample asset protection, (iv) broad margins
in earnings coverage of fixed financial charges and high internal cash
generation, and (v) well established access to a range of financial markets
and assured sources of alternate liquidity. Issuers rated Prime-2 are judged
to have a strong capacity for repayment which is normally evidenced by many
of the characteristics cited under the discussion of issuers rated Prime-1
but to a lesser degree. Earnings trends, while sound will be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample adequate liquidity is
maintained. Issuers rated Prime-3 are judged to have an acceptable capacity
for repayment. The effect of industry characteristics and market composition
may be more pronounced. Variability of earnings and profitability may result
in changes in the level of debt-protection measurements and the requirement
for relatively high financial leverage. Adequate alternate liquidity is
maintained.

The ratings of S&P for commercial paper are A (which is further
delineated by Categories A-1+, A-1, A-2 and A-3), B, C and D. Commercial
paper rated A is judged to have the greatest capacity for timely payment.
Commercial paper rated A-1+ is judged to possess overwhelming safety
characteristics. Commercial paper rated A-1 is judged to possess an
overwhelming or very strong degree of safety. Commercial paper rated A-2 is
judged to have a strong capacity for payment although the relative degree of
safety is not as high as for paper rated A-1. Commercial paper rated A-3 is
judged to have a satisfactory capacity for timely payment but is deemed to be
somewhat more vulnerable to the adverse changes in circumstances than paper
carrying the higher ratings. Commercial paper rated B is judged to have an
adequate capacity for timely payment but such capacity may be damaged by
changing conditions or short-term adversities. Commercial paper rated C is
judged to have a doubtful capacity for payment and commercial paper rated D
is either in default or is expected to be in default upon maturity.

Temporary Investments

Each Fund has reserved the right to invest up to 20% of its net assets
in "temporary investments" in taxable securities that would produce interest
not exempt from federal income tax. See "Distributions and Tax Matters".
Such temporary investments may be made due to market conditions, pending
investment of idle funds or to afford liquidity. These investments are
limited to the following short-term, fixed-income securities (maturing in one
year or less from the time of purchase): (i) obligations of the United
States government or its agencies, instrumentalities or authorities;
(ii) prime commercial paper within the two highest ratings of Moody's or S&P;
(iii) certificates of deposit of domestic banks with assets of $1 billion or
more; and (iv) repurchase agreements with respect to the foregoing types of
securities. Repurchase agreements will be entered into only with dealers,
domestic banks or recognized financial institutions that in the opinion of
TMC represent minimal credit risk. Investments in repurchase agreements are
limited to 5% of the Fund's net assets. See "Repurchase Agreements". In
addition, temporary taxable investments may exceed 20% of the Fund's net
assets when made for defensive purposes during periods of abnormal market
conditions. The Fund does not expect to find it necessary to make such
temporary investments.

Repurchase Agreements

Each Fund may enter into repurchase agreements with respect to taxable
securities constituting "temporary investments" in its portfolio. A
repurchase agreement is a contractual agreement whereby the seller of
securities agrees to repurchase the same security at a specified price on a
future date agreed upon by the parties. The agreed upon repurchase price
determines the yield during the Fund's holding period. Repurchase agreements
may be viewed as loans collateralized by the underlying security that is the
subject of the repurchase agreement. The Fund will not enter into a
repurchase agreement if, as a result, more than 5% of the value of its net
assets would then be invested in repurchase agreements. The Fund will enter
into repurchase agreements only with dealers, banks or recognized financial
institutions that in the opinion of TMC represent minimal credit risk. The
risk to the Fund is limited to the ability of the seller to pay the agreed
upon repurchase price on the delivery date; however, although the value of
the underlying collateral at the time the transaction is entered into always
equals or exceeds the agreed upon repurchase price, if the value of the
collateral declines there is a risk of loss of both principal and interest if
the seller defaults. In the event of a default, the collateral may be sold
but the Fund might incur a loss if the value of the collateral declines, and
might incur disposition costs or experience delays in connection with
liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon the
collateral by the Fund may be delayed or limited. TMC will monitor the value
of the collateral at the time the transaction is entered into and
continuously during the term of the repurchase agreement in an effort to
determine that the value always equals or exceeds the agreed upon repurchase
price. In the event the value of the collateral declined below the
repurchase price, TMC will demand additional collateral from the seller to
increase the value of the collateral to at least that of the repurchase
price.

U.S. Government Obligations

The Funds' temporary investments in taxable securities may include
obligations of the U.S. government. These include bills, certificates of
indebtedness, notes and bonds issued or guaranteed as to principal or
interest by the United States or by agencies or authorities controlled or
supervised by and acting as instrumentalities of the U.S. government
established under the authority granted by the Congress, including, but not
limited to, the Government National Mortgage Association, the Tennessee
Valley Authority, the Bank for Cooperatives, the Farmers Home Administration,
Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land
Banks, Farm Credit Banks and the Federal National Mortgage Association. Some
obligations of U.S. government agencies, authorities and other
instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others only by the credit of the issuing agency, authority or other
instrumentality. In the latter case of securities not backed by the full
faith and credit of the United States, the investor must look principally to
the agency issuing or guaranteeing the obligation for ultimate repayment, and
may not be able to assert a claim against the United States itself in the
event the agency or instrumentality does not meet its commitments.

INVESTMENT LIMITATIONS

The Company has adopted the following fundamental investment policies
which may not be changed unless approved by a majority of the outstanding
shares of each Fund that would be affected by such change. Each Fund may
not:

(1) Invest in securities other than Municipal Obligations (including
participations therein) and temporary investments within the percentage
limitations specified in the Prospectus under the caption "Investment
Objective and Policies";

(2) Purchase any security if, as a result, more than 5% of its total
assets would be invested in securities of any one issuer, excluding
obligations of, or guaranteed by, the United States government, its agencies,
instrumentalities and authorities;

(3) Borrow money, except for temporary or emergency purposes and not
for investment purposes, and then only in an amount not exceeding 5% of the
value of the Fund's total assets at the time of borrowing;

(4) Pledge, mortgage or hypothecate its assets, except to secure
borrowings permitted by subparagraph (3) above;

(5) Issue senior securities as defined in the Investment Company Act
of 1940, except insofar as the Fund may be deemed to have issued a senior
security by reason of (a) entering into any repurchase agreement;
(b) purchasing any securities on a when-issued or delayed delivery basis; or
(c) borrowing money in accordance with the restrictions described above;

(6) Underwrite any issue of securities, except to the extent that, in
connection with the disposition of portfolio securities, it may be deemed to
be an underwriter under the federal securities laws;

(7) Purchase or sell real estate and real estate mortgage loans, but
this shall not prevent the Fund from investing in Municipal Obligations
secured by real estate or interests therein;

(8) Purchase or sell commodities or commodity futures contracts or
oil, gas or other mineral exploration or development programs;

(9) Make loans, other than by entering into repurchase agreements and
through the purchase of Municipal Obligations or temporary investments in
accordance with its investment objective, policies and limitations;

(10) Make short sales of securities or purchase any securities on
margin, except for such short-term credits as are necessary for the clearance
of transactions;

(11) Write or purchase puts, calls, straddles, spreads or other
combinations thereof, except to the extent that securities subject to a
demand obligation or to a remarketing agreement may be purchased as set forth
in the Prospectus or this Statement of Additional Information under the
captions "Investment Objective and Policies -- Municipal Obligations" and --
"Municipal Leases";

(12) Invest more than 5% of its total assets in securities of
unseasoned issuers which, together with their predecessors, have been in
operation for less than three years excluding (i) obligations of, or
guaranteed by, the United States government, its agencies, instrumentalities
and authorities and (ii) obligations secured by the pledge of the faith,
credit and taxing power of any entity authorized to issue Municipal
Obligations;

(13) Invest more than 5% of its total assets in securities which the
Fund is restricted from selling to the public without registration under the
Securities Act of 1933;

(14) Purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of any such issuer
to be held by the Fund;

(15) Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;

(16) Purchase securities (other than securities of the United States
government, its agencies, instrumentalities and authorities) if, as a result,
more than 25% of the Fund's total assets would be invested in any one
industry; or

(17) Purchase or retain the securities of any issuer other than the
securities of the Fund if, to the Fund's knowledge, those officers and
directors of the Fund, or those officers and directors of TMC, who
individually own beneficially more than 1/2 of 1% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
outstanding securities.

For the purpose of applying the limitations set forth in paragraphs (2)
and (12) above, an issuer shall be deemed a separate issuer when its assets
and revenues are separate from other governmental entities and its securities
are backed only by its assets and revenues. Similarly, in the case of a
nongovernmental user, such as an industrial corporation or a privately owned
or operated hospital, if the security is backed only by the assets and
revenues of the nongovernmental user, then such nongovernmental user would be
deemed to be the sole issuer. Where a security is also guaranteed by the
enforceable obligation of another entity it shall also be included in the
computation of securities owned that are issued by such other entity. In
addition, for purposes of paragraph (2) above, a remarketing party entering
into a remarketing agreement with a Fund as described in the Prospectus under
the caption "Investment Objective and Policies -- Municipal Obligations"
shall not be deemed an "issuer" of a security or a "guarantor" of a Municipal
Lease subject to such agreement.

Neither of the Funds will purchase securities if, as a result, more than
25% of the Fund's total assets would be invested in any one industry.
However, this restriction will not apply to purchases of (i) securities of
the United States government and its agencies, instrumentalities and
authorities, or (ii) tax exempt securities issued by different governments,
agencies, or political subdivisions, because these issuers are not considered
to be members of any one industry.

With respect to temporary investments, in addition to the foregoing
limitations, a Fund will not enter into a repurchase agreement if, as a
result thereof, more than 5% of its net assets would be subject to repurchase
agreements.

Although each of the Funds has the right to pledge, mortgage or
hypothecate its assets in order to comply with certain state statutes on
investment restrictions, a Fund will not, as a matter of operating policy
(which policy may be changed by the Board of Directors without shareholder
approval), pledge, mortgage or hypothecate its portfolio securities to the
extent that at any time the percentage of pledged securities will exceed 10%
of its total assets.

In the event a Fund acquires disposable assets as a result of the
exercise of a security interest relating to Municipal Obligations, the Fund
will dispose of such assets as promptly as possible.

Under the Investment Company Act of 1940 (the "Act"), a "vote of the
majority of the outstanding voting securities" of the Company or of a
particular Fund means the affirmative vote of the lessor of (1) more than 50%
of the outstanding shares of the Company or of such Fund or (2) 67% or more
of the shares of the Company or of such Fund present at a shareholders'
meeting if more than 50% of the outstanding shares of the Company or of such
Fund are represented at the meeting in person or by proxy.

Rule 18f-2 under the Act provides that any matter required to be
submitted by the provisions of the Act or applicable state law, or otherwise,
to the holder of the outstanding voting securities of a series investment
company such as the Company shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each Fund affected by such matter. Rule 18f-2 further provides
that a Fund shall be deemed to be affected by a matter unless it is clear
that the interests of each Fund in the matter are substantially identical or
that the matter does not affect any interest of that Fund. However, the Rule
exempts the selection of independent public accountants, the approval of
principal distribution contracts and the election of directors from the
separate voting requirements of the Rule.

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PERFORMANCE

YIELD COMPUTATION AND TOTAL RETURN

The Funds may quote their yields and returns in reports, sales literature and
advertisements. Yield and return information are computed separately for
Class A and Class C shares. Yield and return for Class C shares of a Fund
ordinarily will be less than t hat of Class A shares of the same Fund because
of the additional distribution fees imposed upon Class C shares.
Additionally, yield and return could differ in minor respects among classes
of the same Fund because of allocation of certain expenses to one or more
specific classes to which the expenses relate. Any return quoted should not
be considered a representation of the return in the future since return
figures are based upon historical earnings. Actual performance will vary.

Current yield quotations will include a standardized calculation which
computes yield for a 30-day or one-month period by dividing a Fund's net
investment income per share during the period by the maximum offering price
on the last day of the period and annualizing the result. Provided that any
such quotation is also accompanied by the standardized calculation referred
to above, any of the Funds also may quote non-standardized yields for a
specified period by dividing the net investment income per share of that Fund
for that period by either the Fund's average public offering price per share
for that same period or the offering price per share on the first or last day
of the period and annualizing the result. The primary differences between the
yield calculations obtained using the standardized performance measure and
any non-standardized performance measure will be caused by the following
factors: (1)The non-standardized calculation may cover periods other than the
30-day or one month period required by the standardize d calculation; (2)The
non-standardized calculations may reflect amortization of premium based upon
historical cost rather than market value; (3) 30-day or one month period
required by the standardized calculation; (4) The non-standardized
calculation may reflect the an offering price per share other than the
maximum offering price, provided that any time any Fund's return is quoted in
reports, sales literature or advertisements using a public offering price
which is less than the Fund's maximum public offering price, the return
computed by using the Fund's maximum public offering price also will be
quoted in the same piece; (5) The non-standard return quotation may include
the effective return obtained by compounding the monthly dividends.

Average annual total return quotations show the average annual percentage
change in value of $1,000 for one, five and ten-year periods unless the class
has been in existence for a shorter period. Average annual total return
includes the effect of paying the maximum sales charge (Class A shares) or
the deduction of the applicable CDSC (Class C shares) and assumes the
reinvestment of all dividends. The Funds also may furnish average annual
total return quotations for other periods, or based upon investments at
various sales charge levels or at net asset value. Total return quotations
show the total of all income and capital gain paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in the value of
the original investment, expressed as a percentage of the purchase price.

Yields and returns described in this section may also be quoted on a
"taxable equivalent yield" basis by computing the taxable yield or return
which a hypothetical investor subject to a specified income tax rate must
realize to receive the same yield or return after taxes. When a taxable
equivalent yield is quoted, the following additional information will be
furnished: (1) a standardized current yield; (2) the length of and the last
day of the base period used in computing the quotation; and (3) a description
of the method by which the quotation is computed. Yield and return
information may be useful in reviewing the performance of the Funds and for
providing a basis for comparison with other investment alternatives.
Comparative information about the yield or distribution rate of the shares of
a Fund and a bout average rates of return on certificates of deposit, bank
money market deposit accounts, money market mutual funds and other short-term
investments may also be included in advertisements and communications of the
Fund. Any such comparison will contain information about the differences
between the Funds and those investments.

From time to time, in advertisements and other types of literature, the
performance of the Funds may be compared to other groups of mutual funds.
This comparative performance ma y be expressed as a ranking or a rating
prepared by Lipper Analytical Services, Inc., Donoghue Organization, Inc.,
Morningstar, Inc., Value Line or other widely recognized independent services
which monitor the performance of mutual funds. Performance rankings and
ratings reported periodically in national financial publications such as
MONEY Magazine, FORBES, BARRON's, VALUE LINE, the WALL STREET JOURNAL and
MORNINGSTAR, and other such publications may also be used. The Funds may
illustrate performance or the characteristics of their respective investment
portfolios through graphs, tabular data, or other displays which describe (i)
the average portfolio maturity of a Fund's portfolio securities relative to
the maturities of other investments, (ii) the relationship of yield and
maturity of the Fund to the yield and maturity of other investments (either
as a comparison or through use of standard benchmarks or indices such as the
Treasury yield curve), (iii) changes in the Funds' share price or net asset
value relative to changes in the value of other investments, and (iv) the
relationship over time of changes in the Funds' (or other investments) net
asset values or prices and the Funds' (or other investments') investment
returns. The Funds also may illustrate or refer to their respective
investment portfolios, investment techniques and strategies, and general
market or economic trends in advertising or communications to shareholders or
prospective shareholders, including reprints of interviews or articles
written by or about, and including comments by, Fund managers. These
illustrations, references and comments ordinarily will relate to topics
addressed in the Funds' Prospectus and Statements of Additional Information.

REPRESENTATIVE PERFORMANCE FIGURES - LIMITED TERM NATIONAL FUND (CLASSES A
AND C)

THE FOLLOWING DATA FOR THE LIMITED TERM NATIONAL FUND REPRESENT PAST
PERFORMANCE, AND THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
IN THE FUND WILL FLUCTUATE. AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST.

Standardized Method of Computing Yield. The Limited Term National
Fund's yields for the 30-day period ended on June 30, 1998, computed in
accordance with the standardized calculation described above, were 3.57% and
3.24% for Class A shares and Class C shares, respectively. This method of
computing yield does not take into account changes in net asset value.

<R/>

Taxable Equivalent Yield. The Limited Term National Fund's taxable
equivalent yield, for the 30 day period ended on June 30, 1998 computed in
accordance with the standardized method described above using a maximum
federal tax rate of 39.6%, was 5.91% and 5.36% for Class A and Class C
shares, respectively.<R/>

Average Annual Total Return. The average annual total return for
Limited Term National Fund for Class A and Class C shares are set forth below
for the periods shown ending June 30, 1998. Shares denoted as Class A were
first offered on September 28, 1984, and Class C shares were first offered on
September 1, 1994. This computation assumes that an investor reinvested all
dividends, and further assumes the deduction of the maximum sales commission
of 2.50% imposed on Class A shares. Class C shares purchased on or after
October 2, 1995 are subject to a contingent deferred sales charge if redeemed
within one year of purchase, and the one-year return figure below reflects
deduction of the sales charge.

Although the maximum Class A sales charge imposed at the commencement of
investment operations on September 28, 1984 was 4.75%, the charge was reduced
two times to 2.50% as of April 1, 1993. Consequently, the computation for
Class A shares assumes today's maximum sales charge of 2.50%. "Total
return," unlike the standardized yield and non-standardized yield figures
shown above, takes into account changes in net asset value over the periods
shown.
since
1 year 5 years 10 years inception
------ ------- -------- ---------
Class A 2.46% 4.09% 5.92% 6.82%
Class C 4.20% N/A N/A 4.71%

REPRESENTATIVE PERFORMANCE FIGURES - LIMITED TERM CALIFORNIA FUND (CLASSES A
AND C)

THE FOLLOWING DATA FOR THE LIMITED TERM CALIFORNIA FUND REPRESENT PAST
PERFORMANCE, AND THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
IN THE FUND WILL FLUCTUATE. AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST.

Standardized Method of Computing Yield. The Limited Term California
Fund's yields for the 30-day period ended on June 30, 1998, computed in
accordance with the standardized calculation described above, were 3.51% and
3.19% for Class A shares and Class C shares, respectively. This method of
computing yield does not take into account changes in net asset value.

<R/>

Taxable Equivalent Yield. The Limited Term California Fund's taxable
equivalent yield, for the 30 day period ended June 30, 1998, computed in
accordance with the standardized method described above using a maximum
federal tax rate of 39.6%, and a maximum California tax rate of 9.3% was
6.87% and 6.24% for Class A and Class C shares, respectively. <R/>

Average Annual Total Return. The average annual total returns for
Limited Term California Fund for Class A and Class C shares are set forth
below for the periods shown ending June 30, 1998. Shares denoted as Class A
were first offered on February 19, 1987, and Class C shares were first
offered on September 1, 1994. This computation assumes that an investor
reinvested all dividends, and further assumes the deduction of the maximum
sales charge of 2.50% imposed upon purchases of Class A shares. Class C
shares purchased on or after October 2, 1995 are subject to a contingent
deferred sales charge if redeemed within one year of purchase, and the one-
year return figure below reflects deduction of the sales charge. "Total
return" unlike the standardized yield and non-standardized yield figures
shown above, takes into account changes in net asset value over the periods
shown.
since
1 year 5 years 10 years inception
------ ------- -------- ---------
Class A 2.90% 4.16% 5.79 5.81%
Class C 4.64% N/A N/A 4.87%

DISTRIBUTIONS AND TAXES

Distributions

All of the net income of each Fund is declared daily as a dividend on
shares for which the Fund has received payment. Net income of a Fund
consists of all interest income accrued on portfolio assets less all expenses
of the Fund. Expenses of the Fund are accrued each day. Dividends are paid
monthly and are reinvested in additional shares of the Fund at the net asset
value per share at the close of business on the dividend payment date or, at
the shareholder's option, paid in cash. Net realized capital gains, if any,
will be distributed annually and reinvested in additional shares of the Fund
at the net asset value per share at the close of business on the distribution
date. See "Accounts of shareholders."

Tax Matters

The Funds qualified under Subchapter M of the Internal Revenue Code (the
"Code") for tax treatment as regulated investment companies for the fiscal
year ended June 30, 1998, and intend to continue this qualification so long
as this qualification is in the best interest of the shareholders. This tax
treatment relieves the Funds from paying federal income tax on income which
is currently distributed to their shareholders. The Funds also intend to
satisfy conditions (including requirements as to the proportion of its assets
invested in Municipal Obligations) which will enable each Fund to designate
distributions from the interest income generated by its investments in
Municipal Obligations, which are exempt from federal income tax when received
by the Fund, as Exempt Interest Dividends. Shareholders receiving Exempt
Interest Dividends will not be subject to federal income tax on the amount of
those dividends, except to the extent the alternative minimum tax may
apply.<R/>

Under the Code, interest on indebtedness incurred or continued to
purchase or carry shares is not deductible. Under rules issued by the
Department of the Treasury for determining when borrowed funds are considered
used for the purpose of purchasing or carrying particular assets, the
purchase of shares may be considered to have been made with borrowed funds
even though the borrowed funds are not directly traceable to the purchase of
shares. Investors with questions regarding this issue should consult with
their own tax advisers.

Shares of a Fund may not be an appropriate investment for persons who
are "substantial users" of facilities financed by industrial development
bonds (including any Municipal Lease that may be deemed to constitute an
industrial development bond) or persons related to such "substantial users".
Such persons should consult their own tax advisers before investing in
shares.

Distributions by each Fund of net interest income received from certain
temporary investments (such as certificates of deposit, commercial paper and
obligations of the United States government, its agencies, instrumentalities
and authorities), short-term capital gains realized by the Fund, if any, and
realized amounts attributable to market discount on bonds, will be taxable to
shareholders as ordinary income whether received in cash or additional
shares. Distributions to shareholders will not qualify for the dividends
received deduction for corporations.

Any net long-term capital gains realized by a Fund, whether or not
distributed in cash or reinvested in additional shares, must be treated as
long-term capital gains by shareholders regardless of the length of time
investors have held their shares. If the Fund should have net undistributed
capital gain in any year, the Fund would pay the tax on such gains and each
shareholder would be deemed, for federal tax purposes, to have paid his or
her pro rata share of such tax.

If in any year a Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, (i) the Fund would incur a
regular corporate federal income tax upon its net interest income, other than
interest income from Municipal Obligations, for that year, and
(ii) distributions to its shareholders out of net interest income from
Municipal Obligations or other investments, or out of net capital gains,
would be taxable to shareholders as ordinary dividend income for federal
income tax purposes to the extent of the Fund's current or accumulated
earnings or profits. A Fund would fail to qualify under Subchapter M if,
among other requirements, in any year (i) 30% or more of its gross income
were derived from the sale or other disposition of securities held for less
than three months, (ii) less than 90% of the Fund's gross income were derived
from specified income sources such as dividends, interest and gains from the
disposition of stock or securities or (iii) the Fund failed to satisfy the
diversification of investments requirement of the Code and failed to timely
cure such failure. Furthermore, the Fund would be unable to make Exempt
Interest Dividends if, at the close of any quarter of its taxable year, more
than 50% of the value of the Fund's total assets consisted of assets other
than Municipal Obligations. Additionally, if in any year the Fund qualified
as a regulated investment company but failed to distribute all of its net
income, the Fund would be taxable on the undistributed portion of its net
income. Although each Fund intends to distribute all of its net income
currently, it could have undistributed net income if, for example, expenses
of the Fund were reduced or disallowed on audit.

If a Fund has both tax-exempt and taxable interest, it will use the
"actual earned method" for determining the designated percentage that is
taxable income and designate the use of such method within 45 days after the
end of the Fund's taxable year. Under this method the ratio of taxable
income earned during the period for which a distribution was made to total
income earned during the period determines the percentage of the distribution
designated taxable. The percentages of income, if any, designated as taxable
will under this method vary from distribution to distribution.

The Tax Reform Act of 1986 imposes a nondeductible excise tax on
regulated investment companies if they fail to satisfy certain minimum
distribution requirements. This excise tax should not have a material
adverse effect on the Funds' operation, because each Fund intends to
distribute all of its net income currently.

Although the Company currently intends to have two investment Funds
outstanding, each authorized to issue multiple classes of shares, the
Company's Board of Directors is authorized to divide the Company's authorized
shares into additional Funds and classes. Each additional series of Fund
stock would relate to a separate investment Fund that would be different from
the other Funds. Each Fund may be divided into multiple classes, each of
which would represent an interest in the same investment portfolio of that
Fund, and subject to the same investment objectives, policies and limitations
in common with the other classes of that Fund, but may differ from other
classes of the Fund with respect to sales charges, distribution fees, the
possible allocation of some expenses, and some voting rights. Separate Funds
will be treated under the Code as separate corporations except with respect
to the definitional requirements under Section 851(a) of the Code.

As is the case with other types of income, including other tax-exempt
interest income, Exempt Interest Dividends received by an individual
shareholder will be added to his or her "modified adjusted gross income" in
determining what portion, if any, of the individual's Social Security
benefits will be subject to federal income taxation. Shareholders are
advised to consult their own advisors as to the effect of this treatment.

The Code treats interest on certain Municipal Obligations which are
private activity bonds under the code issued after August 7, 1986 (in certain
cases, after September 1, 1986) as a preference item for purposes of the
alternative minimum tax on individuals and corporations. Each Fund may
purchase private activity bonds which are subject to treatment under the Code
as a preference item for purposes of the alternative minimum tax on
individuals and corporations, although the frequency and amounts of those
purchases are uncertain. Some portion of Exempt Interest Dividends may, as a
result of such purchases, be treated as a preference item for purposes of the
alternative minimum tax on individuals and corporations. Shareholders are
advised to consult their own advisors as to the extent and effect of such
treatment.

In addition, the Code provides that a portion of the adjusted current
earnings of a corporation reported on its financial statement and not
otherwise included in the minimum tax base will be included for purposes of
calculating the alternative minimum tax for such years. The adjusted current
earnings of a corporation will include Exempt Interest Dividends in
calculating the alternative minimum tax on corporations to the extent that
such Dividends are not otherwise treated as a preference item for the reasons
discussed above. An environmental tax is imposed on the excess of a
corporation's modified alternative minimum taxable income (minimum taxable
base, discussed above, with certain modifications) over $2 million. Modified
alternative minimum taxable income includes Exempt Interest Dividends. The
environmental tax applies with respect to taxable years beginning after
December 31, 1986 and before January 1, 1996. Exempt Interest Dividends are
included in effectively connected earnings and profits for purposes of
computing the branch profits tax on certain foreign corporations doing
business in the United States.

With respect to property and casualty companies, the amount of certain
cost deductions otherwise allowed is reduced (in certain cases below zero) by
a specified percentage of, among other things, Exempt Interest Dividends
received on shares acquired after August 7, 1986, for taxable years beginning
after 1986. Commercial banks, thrift institutions and other financial
institutions may not deduct their cost of carrying shares acquired after
August 7, 1986, for taxable years ending after December 31, 1986.

Redemption or resale of shares will be a taxable transaction for federal
income tax purposes and the shareholder will recognize gain or loss in an
amount equal to the difference between the shareholder's basis in the shares
and the amount realized by the shareholder on the redemption or resale. If
the redemption or resale occurs after 1997, and the shareholder held the
shares as capital assets, the gain or loss will be long-term if the shares
were held for more than 12 months, and any such long-term gain will be
subject to a maximum federal income tax rate of 20% to the extent that gain
exceeds any net short-term capital losses realized by the taxpayer. <R/>

The foregoing is a general and abbreviated summary of the provisions of
the Code and Treasury Regulations presently in effect as they directly govern
the taxation of the Funds and their shareholders. For complete provisions,
reference should be made to the pertinent Code sections and Treasury
Regulations. The Code and Treasury Regulations are subject to change by
legislative or administrative action, and any such change may be retroactive
with respect to Fund transactions. Shareholders are advised to consult their
own tax advisers for more detailed information concerning the Federal
taxation of the Fund and the income tax consequences to its shareholders. In
particular, prospective investors who are not individuals are advised that
the preceding discussion relates primarily to tax consequences affecting
individuals, and the tax consequences of an investment by a person which is
not an individual may be very different.

State and Local Tax Aspects

The exemption from federal income tax for distributions of interest
income from Municipal Obligations which are designated Exempt Interest
Dividends will not necessarily result in exemption under the income or other
tax laws of any state or local taxing authority.

The exemption from the State of California personal income taxes for
distributions of interest income in the Limited Term California Fund applies
only to shareholders who are residents of the State of California, and only
to the extent such income qualifies as "exempt-interest dividends" under
Section 17145 of the California Revenue and Taxation Code and is not derived
from interest on obligations from any state other than from California or its
political subdivisions.

The laws of the several states and local taxing authorities vary with
respect to the taxation of such distributions, and shareholders of the Fund
are advised to consult their own tax advisers in that regard. Each Fund will
advise shareholders within 60 days of the end of each calendar year as to the
percentage of income derived from each state in which the Fund has any
Municipal Obligations in order to facilitate shareholders in the preparation
of their state and local tax returns.

Special Risks Affecting the Limited Term California Fund<R/>

Due to the Limited Term California Fund's policy of concentrating its
investments in municipal securities exempt from California personal income
taxes, this Fund will invest primarily in California state, municipal, and
agency obligations. For this reason, an investment in the Limited Term
California Fund may be considered riskier than an investment in the Limited
Term National Fund, which buys Municipal Obligations from throughout the
United States. Prospective investors should consider the risks inherent in
the investment concentration of the Limited Term California Fund before
investing.

California's economy is the largest among the 50 states and one of the
largest in the world. The state's July 1, 1995 population of approximately
32.1 million represents 12.2 percent of the total United States population
and total personal income in the state, at an estimated $810 billion in 1996,
accounts for 12.6 percent of all personal income in the nation. Total
employment is about 14.5 million, the majority of which is in the service,
trade and manufacturing sectors.

Changes in California constitutional and other laws raise questions
about the ability of California state and municipal issuers to obtain
sufficient revenue to pay their bond obligations in all situations. In 1978,
California voters approved an amendment to the California Constitution known
as Proposition 13, which has had an affect on California issuers that rely in
whole or in part, directly or indirectly, on ad valorem real property taxes
as a source of revenue. Proposition 13 limits ad valorem taxes on real
property and restricts the ability of taxing entities to increase real
property taxes. In 1979, California voters approved another constitutional
amendment, Article XIIIB, which may have an adverse impact on California
state and municipal issuers. Article XIIIB prohibits government agencies and
the state from spending "appropriations subject to limitation" in excess of
the appropriations limit imposed. "Appropriations subject to limitation" are
authorizations to spend "proceeds of taxes", which consist of tax revenues,
certain state subventions and certain other funds, including proceeds from
regulatory licenses, user charges or other fees to the extent that such
proceeds exceed "the cost reasonably borne by such entity in providing the
regulation, product or service". No limit is imposed on appropriations of
funds which are not "proceeds of taxes", such as debt service on indebtedness
existing or authorized before January 1, 1979, or subsequently authorized by
the voters, appropriations required to comply with mandates of the courts or
the federal government, reasonable user charges or fees and certain other
non-tax funds. The amendment restricts the spending authority of state and
local government entities. If revenues exceed such appropriations limits,
such revenues must be returned either as revisions in the tax rate or fee
schedules.

California obtains roughly 45% of general fund revenues from personal
income taxes (individual and corporate) compared to an average of only 30%
for other states. Income taxes serve as a bellwether which is frequently a
leading indicator of economic weakness. Much of California's recent deficit
was caused by lower than projected income tax receipts. California's other
principal revenue source is sales taxes.

A recession began in mid-1990 due largely to job losses in the aerospace
and defense-related industries. The 1993 unemployment rate of 9.4% was 135%
of the national rate. The recession affected California's General Fund
revenues, and increased expenditures above initial budget appropriations due
to greater health and welfare costs. The state's budget problems in recent
years have also been caused by a structural imbalance in that the largest
General Fund Programs -- K-14 education, health, welfare and corrections --
were increasing faster than the revenue base, driven by the state's rapid
population growth. These pressures are expected to continue as population
trends maintain strong demand for health and welfare services, as the school
age population continues to grow, and as the state's corrections program
responds to a "Three-Strikes" law enacted in 1994, which requires mandatory
life prison terms for certain third-time felony offenders.

As a result of these factors and others, from the late 1980's until
1992-'93, the state had a period of budget imbalance. During this period,
expenditures exceeded revenues in four out of six years, and the state
accumulated and sustained a budget deficit approaching $2.8 billion at its
peak at June 30, 1993. Starting in the 1990-'91 fiscal year and for each
fiscal year thereafter, each budget required multibillion dollar actions to
bring projected revenues and expenditures into balance. The Legislature and
Governor agreed on the following principal steps to produce Budget Acts in
the years 1991-'92 to 1994-'95, including:

- significant cuts in health and welfare program expenditures;
- transfers of program responsibilities and funding from the state to
local governments (referred to as "realignment"), coupled with some reduction
in mandates on local government;
- transfer of about $3.6 billion in local property tax revenues from
cities, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing state funding for schools under
Proposition 98;
- reduction in growth of support for higher education programs, coupled
with increases in student fees;
- maintenance of the minimum Proposition 98 funding guarantee for K-14
schools, and the disbursement of additional funds to keep a constant level of
about $4,200 per K-12 pupil;
- revenue increases (particularly in the 1991-'92 fiscal year budget),
most of which were for a short duration;
- increased reliance on aid from the federal government to offset the
costs of incarcerating, educating and providing health and welfare services
to illegal immigrants, although during this time frame most of the additional
aid requested by the administration was not received; and
- various one-time adjustments and accounting changes.

Despite these budget actions as noted, the effects of the recession led to
large, unanticipated deficits in the budget reserve as compared to projected
positive balances. By the 1993-'94 fiscal year, the accumulated deficit was
so large that it was impractical to budget to retire it in one year, so a
two-year program was implemented, using the issuance of revenue anticipation
warrants to carry a portion of the deficit over the end of the fiscal year.
When the economy failed to recover sufficiently in 1993-'94, a second two-
year plan was implemented in 1994-'95, again using cross-fiscal year revenue
anticipation warrants to partly finance the deficit into the 1995-'96 fiscal
year.

With strengthening revenues and reduced caseload growth based on an
improving economy, the state entered the 1995-'96 fiscal year budget
negotiations with the smallest nominal "budget gap" to be closed in many
years. Nonetheless, serious policy differences between the Governor and
Legislature prevented timely enactment of the budget. The 1995-'96 Budget
Act was signed by the Governor on August 3, 1995, 34 days after the start of
the fiscal year. Due to an economy which was stronger than expected, the
General Fund received $2.2 billion more tax revenues than planned for in the
1995-'96 budget. This allowed the state to increase school, health and
welfare spending and still post a positive balance of $685 million to the
Adjusted fund Balance as of June 30, 1996.

The state continues to see healthy growth. Personal income is estimated
to be growing at an annual rate of about 6.8%. Revenues and transfers for
the state in the 1996-'97 fiscal year are estimated to have been about 48.9
billion while expenditures are estimated to have been about 48.9 billion.
This should allow the state to post a positive cash balance in the Fund for
Economic Uncertainty ("SFEU") for only the second time in the 1990's.
Economic difficulties in Asia, however, may have a negative impact upon
business and employment in California, which would potentially reduce tax
revenues and increase government expenditures for social programs. The
magnitude of these influences is difficult to quantify.

On August 18, 1997, the Governor signed the 1997 Budget Act. The Act
anticipates General Fund revenues and transfers of about $52.5 billion, a
6.8% increase over the previous year, and expenditures of $52.5 billion, an
8% increase. The SFEU is expected to decline about $112 million.

Accounts of Shareholders

When an investor makes an initial investment in shares of a Fund, the
Transfer Agent will open an account on the books of the Fund, and investor
will receive a confirmation of the opening of the account. Thereafter,
whenever a transaction, other than the reinvestment of interest income, takes
place in the account - such as a purchase of additional shares or redemption
of shares or a withdrawal of shares represented by certificates - the
investor will receive a confirmation statement giving complete details of the
transaction. Shareholders will also receive at least quarterly statements
setting forth all distributions of interest income and other transactions in
the account during the period and the balance of full and fractional shares.
The final statement for the year will provide the information for income tax
purposes described in the Prospectus under the caption "Distributions and
Taxes".

The monthly distributions of interest income, net of expenses, and the
annual distributions of net realized capital gains, if any, will be credited
to the accounts of a Fund's shareholders in full and fractional shares of the
Fund at net asset value on the payment or distribution date, as the case may
be. Upon written notice to the Transfer Agent, a shareholder may elect to
receive monthly distributions of net interest income in cash. This election
will remain in effect until changed by written notice to the Transfer Agent,
which change may be made at any time in the sole discretion of the
shareholder.

The issuance and delivery of certificates for shares is unnecessary, and
shareholders are thereby relieved of the responsibility of safekeeping. Upon
written request to the Transfer Agent, a certificate will be issued for any
or all of the full shares credited to a shareholder's account. Certificates
which have been issued to a shareholder may be returned at any time for
credit to his or her account. Shares so held will be redeemed as described
in the Prospectus under the caption "How to Redeem Fund Shares".

INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS

Investment Management Services

Pursuant to the Investment Advisory Agreement, Thornburg Management
Company, Inc., 119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501
("TMC"), will act as the investment adviser for, and will manage the
investment and reinvestment of the assets of, the Funds in accordance with
the Funds' investment objectives and policies, subject to the general
supervision and control of the Company's Board of Directors.

TMC is (i) investment adviser for Thornburg Investment Trust (a
registered investment company having 12 separate funds, ten of which have
investment objectives and policies for tax-exempt income similar to those of
the Fund) and (ii) sub-adviser for Daily Tax Free Income Fund, Inc. (a
registered investment company with investment objectives and policies for
tax-exempt income similar to those of the Fund).

TMC will provide continuous professional investment supervision in
accordance with the Investment Advisory Agreement. In addition to managing
the Funds' investments, TMC will administer the Funds' business affairs,
provide office facilities and related services. Pursuant to the Investment
Advisory Agreement, the Fund will pay to TMC a monthly management fee
described in the Prospectus in consideration of the services and facilities
furnished by TMC. All fees and expenses are accrued daily and deducted
before payment of dividends to investors.

In addition to the fee of TMC under the Investment Advisory Agreement,
the Funds will pay all other costs and expenses of their operations. The
Funds will not bear any sales or promotion expenses incurred in connection
with the offering of their shares, except for payments made under the
distribution and service plans described below, which might be considered
sales or promotional expenses, but expenses of registering and qualifying the
Funds and the shares for distribution under federal and state securities laws
(including legal fees) will not be deemed to be sales or promotion expenses.

For the three most recent fiscal periods ended June 30, 1996, 1997 and
1998 with respect to each Fund, the amounts paid to TMC by each Fund were as
follows:

1996 1997 1998
---- ---- ----
Limited Term National $6,584,836 $4,159,938 $4,213,345
Limited Term California $748,077 $496,821 $649,445

TMC waived its rights to fees in the same periods, as follows:
1996 1997 1998
---- ---- ----
Limited Term National $29,691 - 0 - - 0 -
Limited Term California $75,198 $27,360 - 0 -

The foregoing fees do not reflect the fee reduction effected by the
restatement of the Investment Advisory Agreement, described below. TMC may
(but is not obligated to) waive its rights to any portion of its fee in the
future, and may use any portion of its fee for purposes of shareholder and
administrative services and distribution of Fund shares. The expense ratio
of each Fund will fluctuate in the future as Fund expenses increase or
decrease. During the fiscal year ended June 30, 1998, the Funds reimbursed
TMC in the amounts of $101,150 (National) and $13,836 (California) for
certain accounting expenses incurred by TMC on behalf of the Funds.

The Investment Advisory Agreement was originally approved on July 10,
1984, by the Company's Board of Directors, including a majority of the
directors who are not "interested persons" (as defined in the Act) of the
Fund or TMC. The Investment Advisory Agreement was approved by the
shareholders at their first annual meeting on October 16, 1985 and ratified
by the shareholders of the Limited Term California Fund on December 29, 1993.
The initial term of the Agreement extended until September 28, 1986, and
thereafter for successive 12-month periods, provided that such continuation
is specifically approved at least annually by the Board of Directors or by a
vote of a majority of the outstanding voting securities, and, in either case,
by a majority of the directors who are not "interested directors" within the
meaning of the Investment Company Act of 1940. The directors restated the
Investment Advisory Agreement to reduce the management fees provided for
thereunder, and to provide that TMC would no longer furnish certain
administrative services associated with shareholder maintenance under the
Investment Advisory Agreement. Instead, TMC will furnish those
administrative services under the terms of an Administrative Services
Agreement specific to each class of each of the Funds. See "Administrative
Services Agreement," below. The restatement of the Investment Advisory
Agreement was approved by the shareholders on April 16, 1996, and became
effective on July 1, 1996. The directors most recently determined on
June 22, 1998 to extend the term of the Agreement, as restated, for another
12 months. The Agreement may be terminated by either party, at any time,
without penalty, upon 60 days' written notice, and will automatically
terminate in the event of its assignment. Termination will not affect the
right of TMC to receive payments on any unpaid balance of the compensation
earned prior to termination. The Investment Advisory Agreement provides that
in the absence of willful misfeasance, bad faith or gross negligence on the
part of TMC, or of reckless disregard of its obligations and duties
thereunder, TMC shall not be liable for any action or failure to act in
accordance with its duties thereunder.

Administrative Services Agreement

Effective July 1, 1996, TMC furnishes to each class of shares certain
administrative services necessary for the maintenance of the shareholders of
that class. These services are performed under the terms of an
Administrative Services Agreement, and TMC is paid a fee for the services
under the Agreement applicable to Class A and Class C shares of the Funds
which is described in the Prospectus applicable to Class A and Class C shares
of the Funds. These services were previously performed under the terms of
the Investment Advisory Agreement until its restatement, as described above.

For the years ended June 30, 1997 and 1998, each class paid
administrative fees as follows:

Limited Term National Fund 1997 1998
---- ----
Class A $1,013,060 $1,067,228
Class C $21,000 $25,308

Limited Term California Fund
Class A $108,917 $144,672
Class C $4,366 $9,139

The Administrative Services Agreement provides for successive 12-month
terms, provided that continuation is approved by the Board of Directors in
the same manner pertaining to the Investment Advisory Agreement. The
Agreement may be terminated by either party, at any time, without penalty on
60 days' written notice. The Agreement provides that in the absence of
willful misfeasance, bad faith or gross negligence of TMC, or of reckless
disregard of its obligations thereunder, TMC shall not be liable for any
action or failure to act in accordance with its duties thereunder.

H. Garrett Thornburg, Jr., Chairman, Treasurer and a Director of the
Company, is also Director and controlling stockholder of TMC.

SERVICE AND DISTRIBUTION PLANS

Service Plan - All Classes

The Funds have adopted a Plan and Agreement of Distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Service Plan")
which is applicable to Class A and Class C shares of each Fund. The Plan
permits payments to be made by each Fund in respect of its Class A and Class
C shares to TMC up to an amount on an annual basis not to exceed .25 of 1% of
the average daily net assets of Class A and Class C shares of the applicable
Fund, to reimburse TMC for particular expenditures incurred by it to obtain
certain services from securities dealers and other financial institutions and
organizations, including banks. No assets of any class or Fund will be used
to reimburse expenses attributable to any other class or Fund. Such services
likely will include answering shareholder questions and furnishing of
information to shareholders, preparing and transmitting to the transfer agent
computer processable tapes of customer transactions, obtaining proxies,
effecting redemptions, and other activities in connection with servicing
shareholder accounts. In addition, TMC may make payments under the Service
Plan, including incentive compensation, in connection with the distribution
of shares. Payments may be made by TMC to banks, savings and loan
associations and other depository institutions to the extent permissible
under applicable provisions of federal banking laws. TMC currently makes
payments described in the first sentence of this paragraph to the brokerage
firm of record with respect to each shareholder account in the following
manner: TMC intends to pay at an annual rate of (1) .10% based upon the
average daily net asset value of the account for all accounts opened less
than one year, and (2) .25% based upon the average daily net asset value of
the account, for all accounts opened more than one year.

The Service Plan permits accrued but unpaid reimbursements to be carried
over and reimbursed to TMC in later years. That is, payments by a Fund in
later years may be used to reimburse TMC for expenses incurred in a prior
year but not paid because the amount of those expenses exceeded the Service
Plan's annual percentage limitation. TMC will not charge interest or
carrying charges on any carry over amounts, and a Fund is not obligated to
pay TMC any carry over amounts if the Service Plan is terminated or not
renewed. Current distribution expenses will be paid first, then carryovers
would be paid. TMC has waived repayment of any carryovers accumulated to
June 30, 1998, but is under no obligation to waive any carryovers in the
future. Carryovers not waived are contingent and would not be reflected as
liabilities on a Fund balance sheet. Any carryover paid in a future period
would be treated for accounting purposes as a current expense for that
period, reducing income for the period. The Funds' management believes that
it is unlikely that the Funds will be called upon to pay any such carryovers
of expenses described in the Service Plan; furthermore, proposed Securities
and Exchange Commission regulations may reduce or prohibit such carryovers in
the future.

For the fiscal year ended June 30, 1998, the Funds paid the following
amounts to TMC under the Service Plans:

Class A Class C
------- -------
Limited Term National $2,134,444 $50,626
Limited Term California $ 289,344 $18,292

All amounts paid to TMC under the Service Plans were paid by TMC to brokerage
firm or other securities dealer of record for providing shareholder services
as described above.

Class C Distribution Plan

Each Fund has adopted a plan and agreement of distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940, applicable only to the
Class C shares of that Fund ("Class C Distribution Plan"). The Class C
Distribution Plan provides for the Fund's payment to TSC on a monthly basis
of an annual distribution fee of .75% of the average daily net assets
attributable to the Fund's Class C shares.

The purpose of the Class C Distribution Plan is to compensate TSC for
its services in promoting the sale of Class C shares of the Fund. TSC
expects to pay compensation to dealers and others selling Class C shares from
amounts it receives under the Class C Distribution Plan. TSC also may incur
additional distribution-related expenses in connection with its promotion of
Class C share sales, including payment of additional incentives to dealers,
advertising and other promotional activities and the hiring of other persons
to promote the sale of shares.

For the fiscal year ended June 30, 1998, the Funds paid the following
amounts to TSC under the Class C Distribution Plan:

Limited Term National (Class C only) $75,916
Limited Term California (Class C only) $63,985

General Matters Relating to Service and Distribution Plans

In reviewing the foregoing service and distribution plans, the Company's
Board of Directors received and considered all pertinent information and
determined that there was a reasonable likelihood that adoption of the Plans
would benefit each class and its shareholders. Specifically, the Directors
reviewed among other things (i) the nature and current extent of services to
be provided by TMC and TSC, (ii) the quality of past services provided by
TSC, (iii) the expenses of each Fund and class as compared with those of
similar mutual funds, (iv) the aggregate value of economic benefits received
by TMC and TSC from the Funds, (v) the possible disadvantages to shareholders
of the Funds of insufficient future increases in total shares of the Funds,
(vi) the expenses incurred in distributing shares of the Funds and dealer
feedback, (vii) the financial condition of TMC, and (viii) the merits of
possible alternative plans to reduce net redemptions and increase sales of
Fund shares.

Each Plan provides that if will continue in effect from year to year if
the continuance is specifically approved at least annually (i) either by a
vote of the "majority of the outstanding voting securities" (as that term is
defined in the 1940 Act) or the class or classes affected by the Plan or by
the Company's Board of Directors of the Fund and (ii) by a vote of the
majority of the Directors who are not "interested persons" (as defined in the
1940 Act) and have no direct or indirect financial interest in the operation
of the Plan, cast in person at a meeting called for the purpose of voting on
the Plan.

Approval by the shareholders of a class will be required before the
reimbursement percentage paid under a Plan to TMC or TSC, as the case may be,
for any class may be materially increased. A Plan may not be amended unless
the amendment is approved by a majority of the Board of Directors and a
majority of the Directors who are not "interested persons" of the Fund or by
a majority of the shares of the relevant class or classes of the Fund. A
Plan may be terminated as to any class at any time without the payment of any
penalty by vote of a majority of the Directors who are not "interested
persons" of the Company or a majority vote of the shares of the affected
class or classes.

So long as a Plan is in effect, the Board of Directors will receive and
review, at least quarterly, a written report of the amounts expended pursuant
to each such Plan and the purposes for which such expenditures were made; the
selection and nomination of the Directors who are not "interested persons" of
the Company shall be committed to the discretion of the Directors who are not
"interested persons" of the Company; the Directors will at least annually
request and evaluate and TMC will furnish information reasonably necessary to
an informed determination of whether the Plan should be continued; and the
Plan's continuance will be approved as to any class only if the Directors
conclude, in the exercise of reasonable judgment and light of their duties,
that there is a reasonable likelihood that the Plan will benefit the class
and the shareholders of the class.

PORTFOLIO TRANSACTIONS

TMC, in effecting purchases and sales of portfolio securities for the
accounts of the Funds, will place orders in such manner as, in the opinion of
TMC, will offer the best price and market for the execution of each
transaction. Participations in Municipal Leases will normally be purchased
from banks or other parties such as equipment vendors, insurance companies
and broker-dealers on a principal basis. Other portfolio securities will
normally be purchased directly from an underwriter or in the over-the-counter
market from the principal dealers in such securities, unless it appears that
a better price or execution may be obtained elsewhere. Purchases from
underwriters will include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers will include the spread between
the bid and asked price. Given the best price and execution obtainable, it
will be the practice of the Company to select dealers which, in addition,
furnish research information (primarily credit analyses of issuers) and
statistical and other services to TMC. It is not possible to place a dollar
value on information and statistical and other services received from
dealers. Since it is only supplementary to TMC's own research efforts, the
receipt of research information is not expected significantly to reduce TMC's
expenses. In selecting among the firms believed to meet the criteria for
handling a particular transaction, TMC may also give consideration to those
firms which have sold or are selling shares of the Funds. While TMC will be
primarily responsible for the placement of the Funds' business, the policies
and practices of TMC in this regard must be consistent with the foregoing and
will at all times be subject to review by the Board of Directors of the
Company. For the Funds' fiscal year ended June 30, 1997, the Funds did not
pay any brokerage commissions to TSC.

TMC reserves the right to manage other investment companies and
investment accounts for other clients which may have investment objectives
similar to those of the Funds. Subject to applicable laws and regulations,
TMC will attempt to allocate equitably portfolio transactions among the Funds
and the portfolios of its other clients purchasing securities whenever
decisions are made to purchase or sell securities by the Funds and one or
more of such other clients simultaneously. In making such allocations the
main factors to be considered will be the respective investment objectives of
the Funds and such other clients, the relative size of portfolio holdings of
the same or comparable securities, the availability of cash for investment by
the Funds and such other clients, the size of investment commitments
generally held by the Funds and such other clients and opinions of the
persons responsible for recommending investments to the Funds and such other
clients. While this procedure could have a detrimental effect on the price
or amount of the securities available to the Funds from time to time, it is
the opinion of the Company's Board of Directors that the benefits available
from TMC's organization will outweigh any disadvantage that may arise from
exposure to simultaneous transactions. The Company's Board of Directors will
review simultaneous transactions.

The Funds' portfolio turnover rates for the two fiscal years ending
June 30, 1998 are as follows:
1997 1998
---- ----
Limited Term National Fund 20.44% 24.95%
Limited Term California Fund 23.39% 21.21%

MANAGEMENT

The management of the Company and its Funds, including general
supervision of the duties performed by TMC under the Investment Advisory
Agreement, is the responsibility of the Board of Directors. There are five
Directors of the Company, one of whom is an "interested person" (as the term
"interested" is defined in the Investment Company Act of 1940) and four of
whom are "disinterested" persons. The names of the Directors and officers
and their principal occupations and other affiliations during the past five
years are set forth below, with those Directors who are "interested persons"
of the Company indicated by an asterisk:

Name of Director / Position / Principal Occupation During Past 5 Years
- ----------------------------------------------------------------------

H. Garrett Thornburg, Jr.,* 52 / Director, Chairman and Treasurer / Trustee
of Thornburg Investment Trust (mutual fund) since June, 1987, Chairman of
Trustees since September 1998 and President from June 1987 to September 1998;
Chairman and Director Thornburg Mortgage Advisory Corporation since its
formation in 1989; Chairman and Director of Thornburg Mortgage Asset
Corporation (real estate investment trust) since its formation in 1993;
Executive Vice President of Daily Tax Free Income Fund, Inc. (mutual fund)
since its formation in 1982 and a Director from 1982 to June 1993; a Director
of TMC since its formation in 1982 and President from 1982 to August 1997.

J. Burchenal Ault, 70 /Director / Consultant to and fundraiser for charities,
1990 to present; Trustee of Thornburg Investment Trust (Mutual Fund) since
June 1987; Director of Farrar, Strauss & Giroux (publishers) since 1968.

Eliot R. Cutler, 50 / Director / Partner, Cutler & Stanfield, Attorneys,
Washington, D.C. since 1988.

James E. Monaghan, Jr., 49 / Director / President, Monaghan & Associates,
Inc. and Strategies West, Inc. Denver, Colorado, (business consultants) since
1983.

A.G. Newmyer III, 48 / Director / President, from 1983 to December 1992, and
Senior Officer from January 1993, Newmyer Associates, Inc., Washington, D.C.,
(business consultants).

Richard M. Curry, 57 / Advisory Director / Senior Vice President McDonald &
Co., Cleveland, Ohio (securities dealers) since May 1984.

Brian J. McMahon, 42 / President / President of the Company since January,
1987; Vice President of the Company from 1984 to 1987; President of Thornburg
Investment Trust (mutual fund) since September 1998, Vice President from June
1987 to September 1998 and a Trustee from June, 1996 to August 1997; Managing
Director of TMC since December 1985, Vice President from April 1984 to July
1997 and President from August 1997.

Steven J. Bohlin, 38 / Vice President / Assistant Vice President of the
Company from July, 1985 to October 1989; Vice President of Thornburg
Investment Trust (mutual fund) since June 1987 and Treasurer since 1989;
Managing Director and Vice President of TMC since April 1991.

Dawn B. Fischer, 50 / Secretary / Secretary of the Company since its
formation; Secretary and Assistant Treasurer of Thornburg Investment Trust
(mutual fund) since June 1987; Managing Director of TMC since December 1985
and Vice President and Secretary of TMC since January 1984.

George Strickland, 34 / Assistant Vice President / Assistant Vice President
of the Company since July 1992; Assistant Vice President of Thornburg
Investment Trust (mutual fund) since June 1992; Associate of TMC from 1991 to
1996 and a Managing Director since 1996.

Jonathan Ullrich, 28 / Assistant Vice President / Assistant Vice President of
the Company since July 1992; Assistant Vice President of Thornburg Investment
Trust (mutual fund) since 1992; Associate of TMC since September 1991.

Jack Lallement, 59 / Assistant Vice President / Assistant Vice President of
the Company since September 1997; Assistant Vice President of Thornburg
Investment Trust since September 1997; Fund Accountant for TMC since March
1997; Chief Financial Officer/Controller for Zuni Rental, Inc. (equipment
leasing and sales), Albuquerque, New Mexico from February 1995 to March 1997;
Chief Financial Officer/Controller, Montgomery & Andrews, P.A. (law firm),
Santa Fe, New Mexico from March 1987 to August 1994.

Thomas Garcia, 27 / Assistant Vice President / Assistant Vice President of
the Company since September 1997; Assistant Vice President of Thornburg
Investment Trust since September 1997; Fund Accountant for TMC since 1993;
BBA, University of New Mexico, 1993.

Van Billops, 32 / Assistant Vice President / Assistant Vice President of the
Company since September 1997; Assistant Vice President of Thornburg
Investment Trust since September 1997; Fund Accountant for TMC since 1992; BA
(Business Administration), University of New Mexico.

Leigh Moiola, 31 / Assistant Vice President / Assistant Vice President of the
Company since June 1998; Assistant Vice President of Thornburg Investment
Trust since November 1995; Associate of TMC since December 1991 and Vice
President of TMC since November 1995.

Sophia Franco, 27 / Assistant Vice President / Assistant Vice President of
the Company since June 1998; Associate of TMC since August 1994.

Claiborne Booker, 36 / Assistant Vice President / Assistant Vice President of
the Company since June 1998; Assistant Vice President of Thornburg Investment
Trust since June 1998.

Kerry Lee, 31 / Assistant Vice President / Assistant Vice President of the
Company since June 1998; Associate of TMC since November 1995.

Richard Brooks, 51 / Assistant Vice President / Assistant Vice President of
the Company since June 1998; Associate of TMC since September 1994.

Dale Van Scoyk, 50 / Assistant Vice President / Assistant Vice President of
the Company since September 1997; Assistant Vice President of Thornburg
Investment Trust since September 1997; Account Manager for TMC since 1997;
National Account Manager for the Heartland Funds, 1993 to 1997.

The business address of each person listed is 119 East Marcy Street,
Suite 202, Santa Fe, New Mexico 87501. Mr. Thornburg is a Director and the
President of TSC, and Executive Vice President of Daily Tax-Free Income Fund,
Inc. Ms. Fischer is the Secretary of TSC.

The officers and Directors affiliated with TMC will serve without any
compensation from the Company. The Company pays each Director and Advisory
Director who is not an employee of TMC or an affiliated company a quarterly
fee of $1,000 plus a $500 fee for each meeting of the Board of Directors
attended by the Director. In addition, the Company pays a $1,000 annual
stipend to each member of the audit committee, and reimburses all Directors
and Advisory Directors for travel and out-of-pocket expenses incurred in
connection with attending such meetings. The Company paid fees to the
Directors during the year ended June 30, 1998 as follows:

<TABLE>
Pension or
Retirement Estimated Total
Aggregate Benefits Annual Compensation
Name of Compensation Accrued as Benefits from Company and
Person, from Part of Upon Fund Complex
Position Company Fund Expenses Retirement Paid to Directors
- -------- ------------ ------------- ------------- -----------------
<C> <C> <C> <C> <C>
H. Garrett - 0 - - 0 - - 0 - - 0 -
Thornburg,
Jr.

J. Burchenal $ 7,000 - 0 - - 0 - $14,000
Ault

Eliot R. $ 6,000 - 0 - - 0 - $ 6,000
Cutler

James E. $ 7,000 - 0 - - 0 - $ 7,000
Monaghan, Jr.

A. G. $ 7,000 - 0 - - 0 - $ 7,000
Newmyer, III

Richard M. $ 6,000 - 0 - - 0 - $ 6,000
Curry
</TABLE>

PRINCIPAL HOLDERS OF SECURITIES

As of August 5, 1998, Limited Term National Fund had 69,106,032.403
shares outstanding, and Limited Term California Fund had 10,338,392.731
shares outstanding.

No persons are known to have held of record or beneficially 5% or more
of any Fund's outstanding shares on August 5, 1998.

At August 5, 1998, the officers, Directors and related persons of the
Fund, as a group, owned less than one percent of the outstanding shares of
either Fund.

HOW TO PURCHASE FUND SHARES

Determination of Purchase Price for Shares
------------------------------------------

Each of the Funds offers Class A and Class C shares. Class A shares are
sold subject to a sales charge which is deducted at the time you purchase
shares. The Funds' distributor deducts the Class A sales charge shown in the
sales charge table in the Prospectus and invests the balance of your
investment at net asset value. The Class A sales charge is typically used to
compensate financial advisors and others who sell Fund shares; and the
distributor retains the balance to pay for its own operations. At certain
times, for specific periods, TSC may reallow up to the full sales charge to
all dealers who sell Fund shares. These "full reallowances" may be based
upon the dealer reaching specified minimum sales goals. TSC will reallow the
full sales charge only after notifying all dealers who sell Fund shares.
During such periods, dealers may be considered underwriters under securities
laws. TMC or TSC also may pay additional cash or non-cash compensation to
dealer firms which have selling agreements with TSC. Those firms may pay
additional compensation to financial advisors who sell Fund shares. Non-cash
compensation may include travel and lodging in connection with seminars or
other educational programs. Class C shares are sold at net asset value, but
are subject to a deferred sales charge if redeemed within one year of
purchase. Class A and Class C shares are subject to a service fee charged
under a "Rule 12b-1 plan," and Class C shares are also subject to a
distribution fee charged under a separate Rule 12b-1 plan. These fees are
described in the Prospectus. See also the discussion of Service and
Distribution Plans in this Statement of Additional Information.

Share prices are determined by reference to the "net asset value" of
shares next determined after receipt of a purchase order for the shares. The
net asset value is the value of the underlying assets represented by each
share, and is computed separately for each class of a Fund by adding the
value of investments, cash and other assets for the class, and dividing by
the number of shares outstanding. The value of assets is determined by
independent valuation services employed by each Fund. The trustees
periodically review the performance of each valuation service. Share price
is normally calculated at 4:00 p.m. Eastern time on each day the New York
Stock Exchange is open for business.

The Prospectus states that certain classes of investors, specified
below, may purchase Class A shares of a Fund at variations to the Public
Scale. The Company may change or eliminate these variations at any time.

(1) Existing shareholders of a Fund may purchase shares upon the
reinvestment of dividends and capital gains distributions with no sales
charge. This practice is followed by many investment funds that charge sales
loads for new investments.

(2) Shareholders of a Fund who have redeemed all or any portion of
their investment in Class A shares of a Fund may purchase Class A shares of
the Fund with no sales charge up to the maximum dollar amount of their shares
redeemed within 24 months of the redemption date, provided that the
shareholder's dealer or the shareholder must notify TSC or the Transfer Agent
at the time an order is placed that such a purchase would qualify for this
variation to the Public Scale. Similar notifications must be made in writing
by the dealer, the broker, or the shareholder when the order is placed by
mail. The sales charge will not be eliminated if notification is not
furnished at the time of the order or a review of TSC's or the Transfer
Agent's records fails to confirm the investor's represented previous
holdings.

(3) Persons may purchase Class A shares of a Fund at no sales charge
if they redeem Class A shares of the Fund or any other series of Thornburg
Limited Term Municipal Fund, Inc., or of any series of Thornburg Investment
Trust, and reinvest some or all of the proceeds within 24 months. The
shareholder's dealer or the shareholder must notify TSC or the Transfer Agent
at the time an order is placed that the purchase qualifies for this variation
to the Public Scale.

The special classes of shareholders in subsections (2) and (3) above
were created as a convenience for those shareholders who invest in a Fund and
subsequently make a decision to redeem all or part of their investment for a
temporary period. In some cases, the existence of this special class of
shareholders will act as further inducement for certain individuals to make
an initial investment in a Fund, particularly if those investors feel that
they might have a temporary need to redeem all or part of their investment in
the coming years. Shareholders who have previously invested in a Fund are
more familiar than the general public with the Fund, its investment
objectives, and its results. The costs to TSC of its marketing to these
individuals and maintaining the records of their prior investment are minimal
compared to the costs of marketing the Fund to the public at large.

(4) Officers, trustees, directors and employees of the Company, TMC,
TSC and the Custodian and Transfer Agent, while in such capacities, and
members of their families, including trusts for the benefit of the foregoing,
may purchase shares of a Fund with no sales charge, provided that they notify
TSC or the Transfer Agent at the time an order is placed that a purchase will
qualify for this variation from the Public Scale. The sales charge will not
be eliminated if the notification is not furnished at the time of the order
or a review of Fund records fails to confirm that the investor's
representation is correct. The reduced sales charge to these persons is
based upon the Company's view that their familiarity with and loyalty to the
Funds will require less selling effort by the Fund, such as a solicitation
and detailed explanation of the conceptual structure of the Funds, and less
sales-related expenses, such as advertising expenses, computer time, paper
work, secretarial needs, postage and telephone costs, than are required for
the sale of shares to the general public. Inclusion of the families of these
persons is based upon the Company's view that the same economies exist for
sales of shares to family members.

(5) Employees of brokerage firms who are members in good standing with
the National Association of Securities Dealers, Inc. ("NASD"), employees of
financial planning firms who place orders for a Fund placed directly with the
Transfer Agent or TSC and through a broker/dealer who is a member in good
standing with the NASD, and employees of eligible non-NASD members which
accept orders for shares of the Fund on an agency basis and clear those
orders through a broker/dealer who is a member in good standing with NASD,
and their families, including trusts for the benefit of the foregoing, may
purchase shares of the Funds for themselves with no sales charge, provided
that (i) the order must be through a NASD member firm which has entered into
an agreement with TSC to distribute shares of the Fund, and (ii) the
shareholder's broker/dealer or the shareholder must notify TSC or the
Transfer Agent at the time an order is placed that the purchase would qualify
for this variation to the Public Scale. Similar notification must be made in
writing by the dealer, the broker, or the shareholder when such an order is
placed by mail. The reduced sales charge will not apply if the notification
is not furnished at the time of the order or a review of TSC's, the dealer's
the broker's or the Transfer Agent's records fails to confirm that the
investor's representation is correct.

Because they sell the Funds' shares, these individuals tend to be much
more aware of the Funds than the general public. Any additional costs to TSC
of marketing to these individuals are minimal.

(6) Bank trust departments, companies with trust powers, and
investment advisors who charge fees for service, including investment dealers
who utilize wrap fee or similar arrangements, may purchase shares of a Fund
for their customers at no sales charge, provided that these persons notify
TSC or the Transfer Agent, at the time an order qualifying for this reduced
charge is placed, that such a purchase would qualify for this variation to
the Public Scale.

(7) Purchases of Class A shares of any Fund may be made at net asset
value provided that such purchases are placed through a broker that maintains
one or more omnibus accounts with the Funds and such purchases are made by
(i) investment advisers or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; (ii) clients of such investment
advisers or financial planners who place trades for their own accounts if the
accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker or agent; and (iii)
retirement and deferred compensation plans and trusts used to fund those
plans, including, but not limited to, those defined in Sections 401(a)
through 403(b) or 457 of the Internal Revenue Code and "rabbi trusts."
Investors may be charged a fee if they effect transactions in Fund shares
through a broker or agent.

These organizations may charge fees to clients for whose accounts they
purchase shares of a Fund in a fiduciary capacity. Where the reduced sales
charge applies, notification is required at the time the order is received,
and a review of TSC's or Transfer Agent's records must confirm that the
investor's representation is correct.

(8) No sales charge will be payable at the time of purchase on
investments of $1 million or more made by a purchaser. A contingent deferred
sales charge (CDSC) will be imposed on these investments in the event of a
share redemption within 1 year following the share purchase at the rate of
1/2 of 1% of the value of the shares redeemed. In determining whether a CDSC
is payable and the amount of any fee, it is assumed that shares not subject
to the charge are the first redeemed, followed by other shares held for the
longest period of time. The applicability of these charges will be
unaffected by transfers of registration. TSC or TMC intend to pay a
commission of up to 1/2 of 1% to dealers who place orders of $1 million or
more for a single purchaser.

(9) Such persons as are determined by the Directors to have acquired
shares under special circumstances, not involving any sales expense to the
Fund or to TSC, may purchase shares of the Fund with no sales charge. This
variation from the Public Scale contemplates circumstances where a relatively
large sale can be made at no distribution cost to a large investor or a
number of smaller investors who are similarly situated. In the contemplated
circumstances, there would be no cost of distribution, or any costs would be
paid by TMC.

(10) Investors may purchase shares of either Fund at net asset value
without a sales charge to the extent that the purchase represents proceeds
from a redemption (within the previous 60 days) of shares of another mutual
fund which has a sales charge. When making a direct purchase at net asset
value under this provision, the Fund must receive one of the following with
the direct purchase order: (i) the redemption check representing the
proceeds of the shares redeemed, endorsed to the order of the Fund, or (ii) a
copy of the confirmation from the other fund, showing the redemption
transaction. Standard back office procedures should be followed for wire
order purchases made through broker dealers. Purchases with redemptions from
money market funds are not eligible for this privilege. This provision may
be terminated anytime by TSC or the Funds without notice.

<R/>

REDEMPTION OF SHARES

Procedures with respect to redemption of Fund shares are set forth in
the Prospectus under the caption "Selling Fund Shares."

A Fund may suspend the right of redemption or delay payment more than
seven days (a) during any period when the New York Stock Exchange is closed
(other than customary weekend and holiday closings), (b) when trading in the
markets the Fund normally utilizes is restricted, or an emergency exists as
determined by the Securities and Exchange Commission so that disposal of the
Fund's investments or determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the Securities and Exchange
Commission by order may permit for protection of the shareholders of the
Fund.

DISTRIBUTOR

Pursuant to a Distribution Agreement with the Fund, Thornburg Securities
Corporation ("TSC") acts as the principal underwriter of Fund shares in a
continuous offering of those shares. The Funds do not bear selling expenses
except (i) those involved in registering shares with the Securities and
Exchange Commission and qualifying them or the issuing Fund with state
regulatory authorities, and (ii) expenses paid under the Service and
Distribution Plans and which might be considered selling expenses. Terms of
continuation, termination and assignment under the Distribution Agreement are
identical to those described above with regard to the Investment Advisory
Agreement, except that termination other than upon assignment requires six
months' notice.

H. Garrett Thornburg, Jr. President, Treasurer and a Director of the
Company, is also Director and controlling stockholder of TSC.

The following table shows the commissions and other compensation
received by TSC from each of the Funds for the most recent fiscal year ending
June 30, 1998, except for compensation or amounts paid under Rule 12b-1
plans, which are described above under the caption "Service and Distribution
Plans."

<TABLE>
Fiscal Year Ended
June 30, 1998
- -----------------
<CAPTION> Net Underwriting
Aggregate Discounts and Compensation on
Underwriting Commissions Redemptions and Brokerage Other
Commissions Paid to TSC Repurchases Commissions Compensation
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Limited Term $669,745 $104,037 $2,946 - 0 - *
National Fund
Limited Term 89,135 11,884 1,807 - 0 - *
California Fund
* See "Service and Distribution Plans."
</TABLE>

Limited Term National Fund paid aggregate underwriting commissions with
respect to sales of its shares in the fiscal years ending June 30, 1996 and
June 30, 1997 of $904,416 and $794,624, respectively; and TSC received net
underwriting commissions with respect to sales of Limited Term National Fund
shares in fiscal years ending June 30, 1996 and June 30, 1997 of $124,901 and
$110,311, respectively. Limited Term California Fund paid aggregate
underwriting commissions with respect to sales of its shares in the fiscal
years ending June 30, 1996 and June 30, 1997 of $132,164 and $117,747,
respectively; and TSC received net underwriting commissions with respect to
sales of Limited Term California Fund shares in fiscal years ending June 30,
1996 and June 30, 1997 of $16,639 and $22,159, respectively.

INDEPENDENT AUDITORS

McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, is
the independent auditor of the Funds for the fiscal year ending June 30,
1999. The financial statements of the Funds have been audited by McGladrey &
Pullen, LLP, for the periods indicated in their reports thereon.
Shareholders will receive semi-annual unaudited financial statements and
annual financial statements audited by the independent accountants.

FINANCIAL STATEMENTS

Statements of Assets and Liabilities, including Schedules of
Investments, as of June 30, 1998, Statements of Operations for the year ended
June 30, 1998 and Statements of Changes in Net Assets for the two years in
the period ended June 30, 1998, Notes to Financial Statements and Financial
Highlights, Schedules of Investments as of June 30, 1998 and Independent
Auditor's Report dated July 24, 1998, for Limited Term National Fund and
Limited Term California Fund are incorporated herein by reference from the
Funds' respective Annual Reports to Shareholders, June 30, 1997.

<PAGE>
Statement of Additional Information
for
Institutional Class Shares
of
Thornburg Limited Term Municipal Fund National Portfolio
("Limited Term National Fund")
Thornburg Limited Term Municipal Fund California Portfolio
("Limited Term California Fund")
Thornburg Intermediate Municipal Fund
("Intermediate National Fund")
Thornburg Limited Term U.S. Government Fund
("Government Fund")
Thornburg Limited Term Income Fund
("Income Fund")
Thornburg Value Fund
("Value Fund")

119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501

Thornburg Limited Term Municipal Fund National Portfolio ("Limited Term
National Fund") and Thornburg Limited Term Municipal Fund California
Portfolio ("Limited Term California Fund") are investment portfolios
established by Thornburg Limited Term Municipal Fund, Inc. (the "Company"),
and Thornburg Intermediate Municipal Fund ("Intermediate National Fund"),
Thornburg Limited Term U.S. Government Fund ("Government Fund"), Thornburg
Limited Term Income Fund ("Income Fund") and Thornburg Value Fund ("Value
Fund") are investment portfolios established by Thornburg Investment Trust
(the "Trust"). This Statement of Additional Information relates to the
investments made or proposed to be made by the Funds, investment policies
governing the Funds, the Funds' management, and other issues of interest to a
prospective purchaser of Institutional Class shares offered by the Funds.

This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Funds' Institutional Class Prospectus dated
February 1, 1999. A copy of the Institutional Class Prospectus for the Funds
and the most recent Annual and Semiannual Reports for each of the Funds may
be obtained at no charge by writing to the distributor of the Funds'
Institutional Class shares, Thornburg Securities Corporation, at 119 East
Marcy Street, Suite 202, Santa Fe, New Mexico 87501.

Prior to June 28, 1985 the Company's name was "Tax-Free Municipal Lease
Fund, Inc."; and prior to October 1, 1995, the Trust's name was "Thornburg
Income Trust."

The date of this Statement of Additional Information is February 1,
1999.

<PAGE>
TABLE OF CONTENTS

ORGANIZATION OF THE FUNDS . . . . . . . . . . . . . . . . . . .__

INVESTMENT POLICIES. . . . . . . . . . . . . . . . . . . . . . __
MUNICIPAL FUNDS. . . . . . . . . . . . . . . . . . . . . . . __
TAXABLE INCOME FUNDS . . . . . . . . . . . . . . . . . . . . __
VALUE FUND. . . . . . . . . . . . . . . . . . . . . . . . . __

INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . __
Investment Limitations - Limited Term National Fund
and Limited Term California Fund . . . . . . . . . . . . .__
Investment Limitations - Intermediate National Fund. . . . __
Investment Limitations - Government Fund . . . . . . . . . __
Investment Limitations - Income Fund . . . . . . . . . . . __
Investment Limitations - Value Fund. . . . . . . . . . . . __

YIELD AND RETURN COMPUTATION . . . . . . . . . . . . . . . . . __
Performance and Portfolio Information - Municipal
Funds and Taxable Income Funds . . . . . . . . . . . . . .__
Performance and Portfolio Information - Value Fund . . . . __

REPRESENTATIVE PERFORMANCE INFORMATION . . . . . . . . . . . . __
Representative Performance Information - Limited Term
National Fund (Institutional Class) . . . . . . . . . . . __
Representative Performance Information - Limited Term
California Fund (Institutional Class) . . . . . . . . . . __
Representative Performance Information - Intermediate
National Fund (Institutional Class) . . . . . . . . . . . __
Representative Performance Information - Government Fund
(Institutional Class) . . . . . . . . . . . . . . . . . . __
Representative Performance Information - Income Fund
(Institutional Class) . . . . . . . . . . . . . . . . . . __

TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . __
Federal Income Taxes - In General. . . . . . . . . . . . . __
Federal Income Taxation - Municipal Funds. . . . . . . . . __
State and Local Tax Aspects of the Municipal Funds . . . . __
Federal Income Taxes - Taxable Income Funds. . . . . . . . __
State and Local Income Tax Considerations - Taxable
Income Funds . . . . . . . . . . . . . . . . . . . . . . .__
Federal Income Taxes - Value Fund. . . . . . . . . . . . . __
State and Local Income Tax Considerations - Value Fund . . __

DISTRIBUTIONS AND SHAREHOLDERS ACCOUNTS. . . . . . . . . . . . __

INVESTMENT ADVISER, INVESTMENT ADVISORY AGREEMENT, AND
ADMINISTRATIVE SERVICES AGREEMENT. . . . . . . . . . . . . . . __
Investment Advisory Agreement. . . . . . . . . . . . . . . __
Administrative Services Agreement. . . . . . . . . . . . . __

SERVICE PLANS. . . . . . . . . . . . . . . . . . . . . . . . . __

i
<PAGE>
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . __
In General . . . . . . . . . . . . . . . . . . . . . . . . __
Municipal Funds and Taxable Income Funds . . . . . . . . . __
Value Fund . . . . . . . . . . . . . . . . . . . . . . . . __
Portfolio Turnover Rates . . . . . . . . . . . . . . . . . __

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . __
Limited Term National Fund and
Limited Term California Fund. . . . . . . . . . . . . . . __
Intermediate National Fund; Government Fund;
Income Fund; Value Fund . . . . . . . . . . . . . . . . . __

PRINCIPAL HOLDERS OF SECURITIES. . . . . . . . . . . . . . . . __
Limited Term National Fund . . . . . . . . . . . . . . . . __
Limited Term California Fund . . . . . . . . . . . . . . . __
Intermediate National Fund . . . . . . . . . . . . . . . . __
Government Fund. . . . . . . . . . . . . . . . . . . . . . __
Income Fund. . . . . . . . . . . . . . . . . . . . . . . . __
Value Fund . . . . . . . . . . . . . . . . . . . . . . . . __

NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . . __

DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . __

INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . __

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . __

<PAGE> ORGANIZATION OF THE FUNDS

Limited Term National Fund and Limited Term California Fund are
diversified series of Thornburg Limited Term Municipal Fund, Inc., a Maryland
corporation organized in 1984 as a diversified, open-end management
investment company (the "Company"). The Company currently offers two series
of stock, Limited Term National Fund and Limited California Fund, each in
multiple classes, and the Board of Directors is authorized to divide
authorized but unissued shares into additional series and classes.

Intermediate Municipal Fund, Government Fund and Value Fund are
diversified series of Thornburg Investment Trust, a Massachusetts business
trust (the "Trust") organized on June 3, 1987 as a diversified, open-end
management investment company under a Declaration of Trust (the
"Declaration"). The Trust currently has 14 authorized Funds, four of which
are described in this prospectus. The Trustees are authorized to divide the
Trust's shares into additional series and classes.

No Fund is liable for the liabilities of any other Fund. However,
because the Company and the Trust share a Prospectus with respect to the
Funds, there is a possibility that one of these companies could be liable for
any misstatements, inaccuracies or incomplete disclosure in the Prospectus
respecting Funds offered by the other company. The Company and the Trust do
not concede, and specifically disclaim, any such liability.

Each Fund may hold special shareholder meetings and mail proxy
materials. These meetings may be called to elect or remove Directors or
Trustees, change fundamental investment policies, or for other purposes.
Shareholders not attending these meetings are encouraged to vote by proxy.
Each Fund will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on. The number of votes you are
entitled to is based upon the number of shares you own. Shares do not have
cumulative rights or preemptive rights.

INVESTMENT POLICIES

MUNICIPAL FUNDS

The primary investment objective of Limited Term National Fund and
Intermediate National Fund is to provide for their respective shareholders as
high a level of current investment income exempt from federal income tax as
is consistent, in the view of the Funds' investment adviser, Thornburg
Management Company, Inc. ("TMC"), with preservation of capital. The primary
investment objective of Limited Term California Fund is to provide for its
shareholders as high a level of current investment income exempt from federal
income tax and California state personal income tax as is consistent, in
TMC's view, with preservation of capital. Limited Term National Fund,
Limited Term California Fund and Intermediate National Fund are sometimes
referred to in this Statement of Additional Information as the "Municipal
Funds." This objective of preservation of capital may preclude the Municipal
Funds from obtaining the highest possible yields.

Limited Term National Fund and Intermediate National Fund will each seek
to achieve their primary investment objective by investing in a diversified
portfolio of obligations issued by state and local governments the interest
on which is exempt from federal income tax ("Municipal Obligations").
Limited Term California Fund will seek to achieve its primary investment
objective by investing in a portfolio of Municipal Obligations originating
primarily in California. The Funds may invest in Municipal Obligations (or
participation interests therein) that constitute leases or installment
purchase or conditional sale contracts by state of local governments or
authorities to obtain property or equipment ("Municipal Leases").

The Limited Term National Fund and Limited Term California Fund each
will maintain a portfolio having a dollar-weighted average maturity of
normally not more than five years, with the objective of reducing
fluctuations in its net asset value relative to municipal bond portfolios
with longer average maturities while expecting lower yields than those
received on portfolios with longer average maturities. The Intermediate
National Fund will maintain a portfolio having a dollar-weighted average
maturity of normally three to ten years, with the objective of reducing
fluctuations in net asset value relative to long-term municipal bond
portfolios. The Intermediate National Fund may receive lower yields than
those received on long-term bond portfolios, while seeking higher yields and
expecting higher share price volatility than the Limited Term National Fund.

Each Municipal Fund's assets will normally consist of (1) Municipal
Obligations or participation interests therein that are rated at the time of
purchase within the four highest grades Aaa, Aa, A, Baa by Moody's Investors
Service ("Moody's"), or AAA, AA, A, BBB by Standard & Poor's Corporation
("S&P"), or Fitch Investors Service ("Fitch"), (2) Municipal Obligations or
participation interests therein that are not rated by a rating agency, but
are issued by obligors that have other comparable debt obligations that are
rated within the four highest grades by Moody's, S&P or Fitch, or in the case
of obligors whose obligations are unrated, are deemed by TMC to be comparable
with issuers having such debt ratings, and (3) a small amount of cash or
equivalents. In normal conditions, the Municipal Funds will hold cash
pending investment in portfolio securities or anticipated redemption
requirements. For an explanation of these ratings, please see "Ratings,"
page 6. To the extent that unrated Municipal Obligations may be less liquid,
there may be somewhat greater risk in purchasing unrated Municipal
Obligations than in purchasing comparable, rated Municipal Obligations. If a
Fund experienced unexpected net redemptions, it could be forced to sell such
unrated Municipal Obligations at disadvantageous prices without regard to the
Obligations' investment merits, depressing the Fund's net asset value and
possibly reducing the Fund's overall investment performance.

Except to the extent that the Municipal Funds are invested in temporary
investments for defensive purposes, each Municipal Fund will, under normal
conditions, invest 100% of its net assets in Municipal Obligations and
normally will not invest less than 80% of its net assets in Municipal
Obligations. This 80% policy is a fundamental investment policy of each of
the Municipal Funds and may be changed only with the approval of a majority
of the outstanding voting securities of a given series of the Fund. Under
normal conditions the Limited Term California Fund will invest 100%, and as a
matter of fundamental policy, will invest at least 65% of its total assets in
Municipal Obligations originating in California.

The ability of the Municipal Funds to achieve their investment
objectives is dependent upon the continuing ability of issuers of Municipal
Obligations in which the Funds invest to meet their obligations for the
payment of interest and principal when due. In addition to using information
provided by the rating agencies, TMC will subject each issue under
consideration for investment to its own credit analysis in an effort to
assess each issuer's financial soundness. This analysis is performed on a
continuing basis for all issues held by either of the Municipal Funds. TMC
subjects each issue under consideration for investment to the same or similar
credit analysis that TMC applies to rated issues.

Credit ratings are helpful in evaluating bonds, but are relevant
primarily to the safety of principal and interest payments under the bonds.
These ratings do not reflect the risk that market values of bonds will
fluctuate with changes in interest rates. Additionally, credit rating
agencies may fail to change credit ratings in a timely fashion to reflect
events subsequent to initial ratings. TMC reviews data respecting the
issuers of the Municipal Funds' portfolio assets on an ongoing basis, and may
dispose of portfolio securities upon a change in ratings or adverse events
not reflected in ratings.

Each of the Municipal Funds has reserved the right to invest up to 20%
of its net assets in "temporary investments" in taxable securities (of
comparable quality to the above tax-exempt investments) that would produce
interest not exempt from Federal income tax. Such temporary investments,
which may include repurchase agreements with dealers, banks or recognized
financial institutions that in the opinion of TMC represent minimal credit
risk, may be made due to market conditions, pending investment of idle funds
or to afford liquidity. See "Temporary Investments," at page 8. Such
investments are, like any investment, subject to market risks and
fluctuations in value. In addition, each Fund's temporary taxable
investments may exceed 20% of its net assets when made for defensive purposes
during periods of abnormal market conditions. The Municipal Funds do not
expect to find it necessary to make temporary investments.

No Municipal Fund will purchase securities if, as a result, more than
25% of the Fund's total assets would be invested in any one industry.
However, this restriction will not apply to purchase of (i) securities of the
United States Government and its agencies, instrumentalities and authorities,
or (ii) tax exempt securities issued by other governments or political
subdivisions, because these issuers are not considered to be members of any
industry. This restriction may not be changed as to any Municipal Fund
unless approved by a majority of the outstanding shares of the Fund.

The Municipal Funds' investment objectives and policies, unless
otherwise specified, are not fundamental policies and may be changed without
shareholder approval.

Municipal Obligations

Municipal Obligations include debt and lease obligations issued by
states, cities and local authorities to obtain funds for various public
purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass transportation,
schools, streets and water and sewer works. Other public purposes for which
Municipal Obligations may be issued include the refunding of outstanding
obligations, the procurement of funds for general operating expenses and the
procurement of funds to lend to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or on
behalf of public authorities to obtain funds to provide privately-operated
housing facilities, sports facilities, convention or trade show facilities,
airport, mass transit, port or parking facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Municipal Obligations have
also been issued to finance single-family mortgage loans and to finance
student loans. Such obligations are included within the term "Municipal
Obligations" if the interest paid thereon is exempt from federal income tax.

The two principal classifications of Municipal Obligations are
"general obligation" and "revenue" bonds. General obligation bonds are
secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a specific revenue source. Industrial
development bonds are in most cases revenue bonds and are generally not
secured by the pledge of the credit or taxing power of the issuer of such
bonds. There are, of course, variations in the security of Municipal
Obligations, both within a particular classification and between
classifications, depending on numerous factors.

The Municipal Funds may invest in a variety of types of Municipal
Obligations, including but not limited to bonds, notes (such as tax
anticipation and revenue anticipation notes), commercial paper and variable
rate demand instruments. Variable rate demand instruments are Municipal
Obligations or participations therein, either publicly underwritten and
traded or privately purchased, that provide for a periodic adjustment of the
interest rate paid on the instrument and permit the holder to demand payment
of the unpaid principal amount and accrued interest upon not more than seven
days' notice either from the issuer or by drawing on a bank letter of credit,
a guarantee or insurance issued with respect to such instrument. Such
letters of credit, guarantees or insurance will be considered in determining
whether a Municipal Obligation meets a Fund's investment criteria. See the
Prospectus under the caption "Investment Policies of the Municipal Funds."
The issuer of a variable rate demand instrument may have the corresponding
right to prepay the principal amount prior to maturity.

The Municipal Funds also may purchase fixed rate municipal demand
instruments either in the public market or privately. Such instruments may
provide for periodic adjustment of the interest rate paid to the holder. The
"demand" feature permits the holder to demand payment of principal and
interest prior to their final stated maturity, either from the issuer or by
drawing on a bank letter of credit, a guarantee or insurance issued with
respect to the instrument. In some cases these demand instruments may be in
the form of units, each of which consists of (i) a Municipal Obligation and
(ii) a separate put option entitling the holder to sell to the issuer of such
option the Municipal Obligation in the unit, or an equal aggregate principal
amount of another Municipal Obligation of the same issuer, issue and maturity
as the Municipal Obligation, at a fixed price on specified dates during the
term of the put option. In those cases, each unit taken as a whole will be
considered a Municipal Obligation, based upon an accompanying opinion of
counsel. A Fund will invest in a fixed rate municipal demand instrument only
if the instrument or the associated letter of credit, guarantee or insurance
is rated within the three highest grades of a nationally recognized rating
agency, or, if unrated, is deemed by TMC to be of comparable quality with
issues having such debt ratings. The credit quality of such investments will
be determined on a continuing basis by TMC for the Limited Term National Fund
under the supervision of the directors of the Company, and for the
Intermediate National Fund under the supervision of the trustees of the
Trust.

A Municipal Fund also may purchase and sell Municipal Obligations on a
when-issued or delayed delivery basis. When-issued and delayed delivery
transactions arise when securities are purchased or sold with payment and
delivery beyond the regular settlement date. (When-issued transactions
normally settle within 30-45 days.) On such transactions the payment
obligation and the interest rate are fixed at the time the buyer enters into
the commitment. The commitment to purchase securities on a when-issued or
delayed delivery basis may involve an element of risk because the value of
the securities is subject to market fluctuation, no interest accrues to the
purchaser prior to settlement of the transaction, and at the time of delivery
the market value may be less than cost. At the time a Fund makes the
commitment to purchase a Municipal Obligation on a when-issued or delayed
delivery basis, it will record the transaction and reflect the value of the
security in determining its net asset value. That Fund also will maintain
liquid assets at least equal in value to commitments for when-issued or
delayed delivery securities, such assets to be segregated by State Street
Bank & Trust Co., the Fund's custodian, specifically for the settlement of
such commitments. The value of the segregated assets will be marked to the
market daily so that the Fund will at all times maintain assets in the
segregated account equal in value to the amount of these commitments. The
Funds will only make commitments to purchase Municipal Obligations on a
when-issued or delayed delivery basis with the intention of actually
acquiring the securities, but the Funds reserve the right to sell these
securities before the settlement date if it is deemed advisable. If a
when-issued security is sold before delivery any gain or loss would not be
tax-exempt.

TMC will evaluate the liquidity of each Municipal Lease upon its
acquisition and periodically while it is held based upon factors established
for the Limited Term National Fund by the Company's directors, and for the
Intermediate National Fund by the Trust's trustees, including (i) the
frequency of trades and quotes for the obligation, (ii) the number of dealers
who will buy or sell the obligation and the potential buyers for the
obligation, (iii) the willingness of dealers to make a market for the
obligation, and (iv) the nature and timing of marketplace trades. An unrated
Municipal Lease with non-appropriation risk that is backed by an irrevocable
bank letter of credit or an insurance policy, issued by a bank or insurer
deemed by TMC to be of high quality and minimal credit risk, will not be
deemed to be "illiquid" solely because the underlying Municipal Lease is
unrated, if TMC determines that the Municipal Lease is readily marketable
because it is backed by the letter of credit or insurance policy.

The Municipal Funds will seek to reduce further the special risks
associated with investment in Municipal Leases by investing in Municipal
Leases only where, in TMC's opinion, certain factors established by the
Company's directors for the Limited Term National Fund and Limited Term
California Fund, and by the Trust's trustees for the Intermediate National
Fund, have been satisfied, including (i) the nature of the leased equipment
or property is such that its ownership or use is deemed essential to a
governmental function of the governmental issuer, (ii) the Municipal Lease
has a shorter term to maturity than the estimated useful life of the leased
property and the lease payments will commence amortization of principal at an
early date, (iii) appropriate covenants will be obtained from the
governmental issuer prohibiting the substitution or purchase of similar
equipment for a specified period (usually 60 days or more) in the event
payments are not appropriated, (iv) the underlying equipment has elements of
portability or use that enhance its marketability in the event foreclosure on
the underlying equipment was ever required, and (v) the governmental issuer's
general credit is adequate. The enforceability of the "non-substitution"
provisions referred to in (iii) above has not been tested by the courts.
Investments not meeting certain of these criteria (such as the absence of a
non-substitution clause) may be made if the Municipal Lease is subject to an
agreement with a responsible party (such as the equipment vendor) providing
warranties to the Funds that satisfy such criteria.

Municipal Leases usually grant the lessee the option to purchase the
leased property prior to maturity of the obligation by payment of the unpaid
principal amount of the obligation and, in some cases, a prepayment fee.
Such prepayment may be required in the case of loss or destruction of the
property. The prepayment of the obligation may reduce the expected yield on
the invested funds if interest rates have declined below the level prevailing
when the obligation was purchased.

No Municipal Fund will invest in illiquid securities if, as a result
of the investment, more than 10% of its net assets will be invested in
illiquid securities. For purposes of this limitation, "illiquid securities"
shall be deemed to include (1) Municipal Leases subject to non-appropriation
risk which are not rated at the time of purchase within the four highest
grades by Moody's or S&P and not subject to remarketing agreements (or not
currently subject to remarketing, pursuant to the conditions of any such
agreement then in effect, with a responsible remarketing party, deemed by TMC
to be capable of performing its obligations), (2) repurchase agreements
maturing in more than seven days, (3) securities which the Funds are
restricted from selling to the public without registration under the
Securities Act of 1933, and (4) other securities or participations not
considered readily marketable by the Funds, provided that for purposes of the
foregoing an unrated Municipal Lease which is backed by an irrevocable bank
letter of credit or an insurance policy, issued by a bank or insurer deemed
by TMC to be of high quality and minimal credit risk, will not be deemed to
be illiquid.

From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption
for interest on municipal securities. Similar proposals may be introduced in
the future. These proposals, if enacted, may have the effect of reducing the
availability of investments for the Funds. Moreover, the value of the Funds'
portfolios may be affected. The Funds could be compelled to reevaluate their
investment objectives and policies and submit possible changes in the
structure of the Funds for the approval of their respective shareholders.

The yields on Municipal Obligations are dependent on a variety of
factors, including the condition of the general market and the Municipal
Obligation market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The ratings of Moody's, S&P and
Fitch represent their opinions as to the quality of the Municipal Obligations
which they undertake to rate. See "Ratings." It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, Municipal Obligations with the same maturity, coupon and
rating may have different yields, while Municipal Obligations of the same
maturity and coupon with different ratings may have the same yield. The
market value of outstanding Municipal Obligations will vary with changes in
prevailing interest rate levels and as a result of changing evaluations of
the ability of their issuers to meet interest and principal payments. Such
variations in market value of Municipal Obligations held in a Fund's
portfolio arising from these or other factors will cause changes in the net
asset value of the Fund's shares.

Ratings

Tax-Exempt Bonds. The four highest ratings of Moody's for tax-exempt
bonds are Aaa, Aa, A and Baa. Tax-exempt bonds rated Aaa are judged to be of
the "best quality." The rating of Aa is assigned to tax-exempt bonds which
are of "high quality by all standards," but as to which margins of protection
or other elements make long-term risks appear somewhat larger than Aaa rated
tax-exempt bonds. The Aaa and Aa rated tax-exempt bonds comprise what are
generally known as "high grade bonds." Tax-exempt bonds which are rated A by
Moody's possess many favorable investment attributes and are considered
"upper medium grade obligations." Factors giving security to principal and
interest of A rated tax-exempt bonds are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. Tax-exempt bonds rated Baa are considered "medium grade"
obligations. They are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such tax-exempt bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well. The foregoing ratings are sometimes presented in parentheses preceded
with "Con." indicating the bonds are rated conditionally. Bonds for which
the security depends upon the completion of some act or the fulfillment of
some condition are rated conditionally. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of projects unseasoned
in operating experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
The parenthetical rating denotes the probable credit status upon completion
of construction or elimination of the basis of the condition.

The four highest ratings of S&P and Fitch for tax-exempt bonds are
AAA, AA, A, and BBB. Tax-exempt bonds rated AAA bear the highest rating
assigned by S&P and Fitch to a debt obligation and indicates an extremely
strong capacity to pay principal and interest. Tax-exempt bonds rated AA
also qualify as high-quality debt obligations. Capacity to pay principal and
interest is very strong, and in the majority of instances they differ from
AAA issues only in small degree. Bonds rated A have a strong capacity to pay
principal and interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions. The BBB
rating, which is the lowest "investment grade" security rating by S&P or
Fitch, indicates an adequate capacity to pay principal and interest.
Whereas BBB rated Municipal Obligations normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds
in this category than for bonds in the A category. The foregoing ratings are
sometimes followed by a "p" indicating that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, the completion.

Municipal Notes. The ratings of Moody's for municipal notes are
MIG 1, MIG 2, MIG 3 and MIG 4. Notes bearing the designation MIG 1 are
judged to be of the best quality, enjoying strong protection from established
cash flows for their servicing or from established and broad-based access to
the market for refinancing, or both. Notes bearing the designation MIG 2 are
judged to be of high quality, with margins of protection ample although not
so large as in the preceding group. Notes bearing the designation of MIG 3
are judged to be of favorable quality, with all security elements accounted
for but lacking the undeniable strength of the preceding grades. Market
access for refinancing, in particular, is likely to be less well established.
Notes bearing the designation MIG 4 are judged to be of adequate quality,
carrying specific risk but having protection commonly regarded as required of
an investment security and not distinctly or predominantly speculative.

Tax-Exempt Demand Bonds. The rating agencies may assign dual ratings
to all long term debt issues that have as part of their provisions a demand
or multiple redemption feature. The first rating addresses the likelihood of
repayment of principal and interest as due and the second rating addresses
only the demand feature. The long term debt rating symbols are used for
bonds to denote the long term maturity and the commercial paper rating
symbols are used to denote the put option (for example, "AAA/A-1+"). For
newer "demand notes" maturing in 3 years or less, the respective note rating
symbols, combined with the commercial paper symbols, are used (for example.
"SP-1+/A-1+").

Commercial Paper. The ratings of Moody's for issuers of commercial
paper are Prime-1, Prime-2 and Prime-3. Issuers rated Prime-1 are judged to
have superior ability for repayment which is normally evidenced by (i)
leading market positions in well established industries, (ii) high rates of
return on funds employed, (iii) conservative capitalization structures with
moderate reliance on debt and ample asset protection, (if) broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and (v) well established access to a range of financial markets
and assured sources of alternate liquidity. Issuers rated Prime-2 are judged
to have a strong capacity for repayment which is normally evidenced by many
of the characteristics cited under the discussion of issuers rated Prime-1
but to a lesser degree. Earnings trends, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may
be more affected by external conditions. Adequate liquidity is maintained.
Issuers rated Prime-3 are judged to have an acceptable capacity for
repayment. The effect of industry characteristics and market composition may
be more pronounced. Variability of earnings and profitability may result in
changes in the level of debt-protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.

The ratings of S&P for commercial paper are A (which is further
delineated by Categories A-1+, A-1, A-2 and A-3), B, C and D. Commercial
paper rated A is judged to have the greatest capacity for timely payment.
Commercial paper rated A-1+ is judged to possess overwhelming safety
characteristics. Commercial paper rated A-1 is judged to possess an
overwhelming or very strong degree of safety. Commercial paper rated A-2 is
judged to have a strong capacity for payment although the relative degree of
safety is not as high as for paper rated A-1. Commercial paper rated A-3 is
judged to have a satisfactory capacity for timely payment but is deemed to be
somewhat more vulnerable to the adverse changes in circumstances than paper
carrying the higher ratings. Commercial paper rated B is judged to have an
adequate capacity for timely payment but such capacity may be impaired by
changing conditions or short-term adversities.

Temporary Investments

Each Municipal Fund has reserved the right to invest up to 20% of its
net assets in "temporary investments" in taxable securities that would
produce interest not exempt from federal income tax. See "Taxes." Such
temporary investments may be made due to market conditions, pending
investment of idle funds or to afford liquidity. These investments are
limited to the following short-term, fixed-income securities (maturing in one
year or less from the time of purchase): (i) obligations of the United
States government or its agencies, instrumentalities or authorities; (ii)
prime commercial paper within the two highest ratings of Moody's or S&P;
(iii) certificates of deposit of domestic banks with assets of $1 billion or
more; and (iv) repurchase agreements with respect to the foregoing types of
securities. Repurchase agreements will be entered into only with dealers,
domestic banks or recognized financial institutions that in TMC's opinion
represent minimal credit risk. Investments in repurchase agreements are
limited to 5% of a Fund's net assets. See the next paragraph respecting
repurchase agreements. In addition, temporary taxable investments may exceed
20% of a Fund's net assets when made for defensive purposes during periods of
abnormal market conditions. None of the Municipal Funds expect to find it
necessary to make such temporary investments.

Repurchase Agreements

Each Municipal Fund may enter into repurchase agreements with respect
to taxable securities constituting "temporary investments" in its portfolio.
A repurchase agreement is a contractual agreement whereby the seller of
securities agrees to repurchase the same security at a specified price on a
future date agreed upon by the parties. The agreed upon repurchase price
determines the yield during the Fund's holding period. Repurchase agreements
may be viewed as loans collateralized by the underlying security that is the
subject of the repurchase agreement. No Municipal Fund will enter into a
repurchase agreement if, as a result, more than 5% of the value of its net
assets would then be invested in repurchase agreements. The Funds will enter
into repurchase agreements only with dealers, banks or recognized financial
institutions that in the opinion of TMC represent minimal credit risk. The
risk to a Fund is limited to the ability of the seller to pay the agreed upon
repurchase price on the delivery date; however, although the value of the
underlying collateral at the time the transaction is entered into always
equals or exceeds the agreed upon repurchase price, if the value of the
subject security declines there is a risk of loss of both principal and
interest if the seller defaults. In the event of a default, the collateral
may be sold. A Fund might incur a loss if the value of the collateral has
declined, and the Fund might incur disposition costs or experience delays in
connection with liquidating the security. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the subject security by the Fund may be delayed or limited.
The Funds' investment adviser will monitor the value of the security at the
time the transaction is entered into and at all subsequent times during the
term of the repurchase agreement in an effort to determine that the value
always equals or exceeds the agreed upon repurchase price. In the event the
value of the subject security declines below the repurchase price, TMC will
demand additional securities from the seller to increase the value of the
property held to at least that of the repurchase price.

U.S. Government Obligations

Each Fund's temporary investments in taxable securities may include
obligations of the U.S. government. These include bills, certificates of
indebtedness, notes and bonds issued or guaranteed as to principal or
interest by the United States or by agencies or authorities controlled or
supervised by and acting as instrumentalities of the U.S. government and
established under the authority granted by Congress, including, but not
limited to, the Government National Mortgage Association, the Tennessee
Valley Authority, the Bank for Cooperatives, the Farmers Home Administration,
Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land
Banks, Farm Credit Banks and the Federal National Mortgage Association. Some
obligations of U.S. government agencies, authorities and other
instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others only by the credit of the issuing agency, authority or other
instrumentality. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment, and may not be
able to assert a claim against the United States itself in the event the
agency or instrumentality does not meet its commitments.

Special Risks Affecting Limited Term California Fund

Due to Limited Term California Fund's policy of concentrating its
investments in municipal securities exempt from California personal income
taxes, this Fund will invest primarily in California state, municipal, and
agency obligations. For this reason, an investment in the Limited Term
California Fund may be considered riskier than an investment in the Limited
Term National Fund, which buys Municipal Obligations from throughout the
United States. Prospective investors should consider the risks inherent in
the investment concentration of the Limited Term California Fund before
investing.

A recession began in mid-1990 due largely to job losses in the aerospace
and defense-related industries. The 1993 unemployment rate of 9.4% was 135%
of the national rate. The recession affected California's General Fund
revenues, and increased expenditures above initial budget appropriations due
to greater health and welfare costs. The state's budget problems in recent
years have also been caused by a structural imbalance in that the largest
General Fund Programs -- K-12 education, health, welfare and corrections --
were increasing faster than the revenue base, driven by the state's rapid
population growth. These pressures are expected to continue as population
trends maintain strong demand for health and welfare services, as the school
age population continues to grow, and as the state's corrections program
responds to a "Three-Strikes" law enacted in 1994, which requires mandatory
life prison terms for certain third-time felony offenders.

* significant cuts in health and welfare program expenditures;

* transfers of program responsibilities and funding from the state to
local governments (referred to as "realignment"), coupled with some reduction
in mandates on local government;

* transfer of about $3.6 billion in local property tax revenues from
cities, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing state funding for schools under
Proposition 98;

* reduction in growth of support for higher education programs, coupled
with increases in student fees;

* maintenance of the minimum Proposition 98 funding guarantee for K-12
schools, and the disbursement of additional funds to keep a constant level of
about $4,200 per K-12 pupil;

* revenue increases (particularly in the 1991-'92 fiscal year budget),
most of which were for a short duration;

* increased reliance on aid from the federal government to offset the
costs of incarcerating, educating and providing health and welfare services
to illegal immigrants, although during this time frame most of the additional
aid requested by the administration was not received; and

* various one-time adjustments and accounting changes.

With strengthening revenues and reduced social services caseload growth
based on an improving economy, the state entered the 1995-'96 fiscal year
budget negotiations with the smallest nominal "budget gap" to be closed in
many years. Nonetheless, serious policy differences between the Governor and
Legislature prevented timely enactment of the budget. The 1995-'96 Budget
Act was signed by the Governor on August 3, 1995, 34 days after the start of
the fiscal year. Due to an economy which was stronger than expected, the
General Fund received $2.2 billion more tax revenues than planned for in the
1995-'96 budget. This allowed the state to increase school, health and
welfare spending and still post a positive balance of $685 million to the
Adjusted fund Balance as of June 30, 1996.

TAXABLE INCOME FUNDS

Government Fund and Income Fund (the "Taxable Income Funds") each has
the primary investment objective of providing, through investment in a
professionally managed portfolio of fixed income obligations as high a level
of current income as is consistent, in TMC's view, with safety of capital.
The Government Fund will seek to achieve its primary investment objective by
investing primarily in obligations issued or guaranteed by the U.S.
government or by its agencies or instrumentalities and in participations in
such obligations or in repurchase agreements secured by such obligations.
The Income Fund will seek to achieve its primary objective by investing in
primarily in investment grade short and intermediate maturity bonds and asset
backed securities such as mortgage backed securities and collateralized
mortgage obligations. The Income Fund also may invest in other securities,
and utilize other investment strategies to hedge market risks, manage cash
positions or to enhance potential gain. Additionally, each of the Taxable
Income Funds has the secondary objective of reducing fluctuations in its net
asset value compared to longer term portfolios, and will seek to attain this
objective by investing in obligations with an expected dollar-weighted
average maturity of normally not more than five years.

Determining Portfolio Average Maturity - Government Fund and Income Fund

For purposes of each Taxable Income Fund's investment policy, an
instrument will be treated as having a maturity earlier than its stated
maturity date if the instrument has technical features (such as put or demand
features) or a variable rate of interest which, in the judgment of TMC, will
result in the instrument being valued in the market as though it has an
earlier maturity.

In addition, each Taxable Income Fund may estimate the expected
maturities of certain securities it purchases in connection with achieving
its investment objectives. Certain obligations such as Treasury Bills and
Notes have stated maturities. However, certain obligations a Fund may
acquire, such as GNMA certificates, are interests in pools of mortgages or
other loans having varying maturities.

Due to prepayments of the underlying mortgage instruments or other
loans, such asset-backed securities do not have a known actual maturity (the
stated maturity date of collateralized mortgage obligations is, in effect,
the maximum maturity date). In order to determine whether such a security is
a permissible investment for a Fund (and assuming the security otherwise
qualifies for purchase by the Fund), the security's remaining term will be
deemed equivalent to the estimated average life of the underlying mortgages
at the time of purchase of the security by the Fund. Average life will be
estimated by the Fund based on TMC's evaluation of likely prepayment rates
after taking into account current interest rates, current conditions in the
relevant housing markets and such other factors as it deems appropriate.
There can be no assurance that the average life as estimated will be the
actual average life.

For example, the mortgage instruments in the pools underlying
mortgage-backed securities have original maturities ranging from 8 to 40
years. The maximum original maturity of the mortgage instruments underlying
such a security may, in some cases, be as short as 12 years. The average
life of such a security at the time of purchase by a Fund is likely to be
substantially less than the maximum original maturity of the mortgage
instruments underlying the security because of prepayments of the mortgage
instruments, the passage of time from the issuance of the security until its
purchase by a Fund and, in some cases, the wide dispersion of the original
maturity dates of the underlying mortgage instruments.

Certain securities which have variable or floating interest rates or
demand or put features may nonetheless be deemed to have remaining actual
lives which are less than their stated nominal lives. In addition, certain
asset-backed securities which have variable or floating interest rates may be
deemed to have remaining lives which are less than the stated maturity dates
of the underlying mortgages.

Purchase of Certificates of Deposit - Government Fund and Income Fund

In addition to the other securities each Taxable Income Fund may
purchase, each Taxable Income Fund is authorized to purchase bank
certificates of deposit under certain circumstances. The Government Fund may
under certain market conditions invest up to 20% of its assets in (i) time
certificates of deposit maturing in one year or less after the date of
acquisition which are issued by United States banks having assets of
$1,000,000,000 or more, and (ii) time certificates of deposit insured as to
principal by the Federal Deposit Insurance Corporation. If any certificate of
deposit (whether or not insured in whole or in part) is nonnegotiable, and it
matures in more than 7 days, it will be considered illiquid, and subject to
the Government Fund's fundamental investment restriction that no more than
10% of the Fund's net assets will be placed in illiquid investments.

The Income Fund may invest in certificates of deposit of large domestic
and foreign banks (i.e., banks which at the time of their most recent annual
financial statements show total assets in excess of one billion U.S.
dollars), including foreign branches of domestic banks, and certificates of
deposit of smaller banks as described below. Although the Income Fund
recognizes that the size of a bank is important, this fact alone is not
necessarily indicative of its creditworthiness. Investment in certificates
of deposit issued by foreign banks or foreign branches of domestic banks
involves investment risks that are different in some respects from those
associated with investment in certificates of deposit issued by domestic
banks. (See "Foreign Securities" below). The Income Fund may also invest in
certificates of deposit issued by banks and savings and loan institutions
which had at the time of their most recent annual financial statements total
assets of less than one billion dollars, provided that (i) the principal
amounts of such certificates of deposit are insured by an agency of the U.S.
Government, (ii) at no time will the Fund hold more that $100,000 principal
amount of certificates of deposit of any one such bank, and (iii) at the time
of acquisition, no more than 10% of the Fund's assets (taken at current
value) are invested in certificates of deposit of such banks having total
assets not in excess of one billion dollars.

Asset-Backed Securities - Government Fund and Income Fund

Each of the Funds may invest in asset-backed securities, which are
interests in pools in loans, described in the Prospectus.

Mortgage-Backed Securities and Mortgage Pass-Through Securities

If otherwise consistent with its investment restrictions and the
Prospectus, each Taxable Income Fund may invest in mortgage-backed
securities, which are interests in pools of mortgage loans, including
mortgage loans made by savings and loan institutions, mortgage bankers,
commercial banks and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related
and private organizations as further described below. A Fund also may invest
in debt securities which are secured with collateral consisting of mortgage
- -backed securities (see "Collateralized Mortgage Obligations"), and in other
types of mortgage-related securities.

A decline in interest rates may lead to a faster rate of repayment of
the underlying mortgages, and expose the Fund to a lower rate or return upon
reinvestment of the prepayments. Additionally, the potential for prepayments
in a declining interest rate environment will tend to limit to some degree
the increase in net asset value of the Fund because the value of the
mortgage-backed securities held by the Fund may not appreciate as rapidly as
the price of non-callable debt securities. During periods of increasing
interest rates, prepayments likely will be reduced, and the value of the
mortgage-backed securities will decline.

Interests in pools of mortgage-backed securities differ from other forms
of debt securities, which normally provide for periodic payment of interest
in fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on
their mortgage loans, net of any fees paid to the issuer or insurer of such
securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying property, or upon refinancing or
foreclosure, net of fees or costs which may be incurred. Some
mortgage-related securities (such as securities issued by the Government
National Mortgage Association) are described as "modified pass-through."
These securities entitle the holder to receive all interest and principal
payments owed on the mortgage pool, net of certain fees, on the scheduled
payment dates regardless of whether or not the mortgagor actually makes the
payment.

The principal governmental guarantor of mortgage-related securities is
the Government National Mortgage Association ("GNMA"). GNMA is a
wholly-owned United States Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the
full faith and credit of the United States government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage
bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages.
These guarantees, however, do not apply to the market value or yield of
mortgage-backed securities or to the value of Fund shares. Also, GNMA
securities often are purchased at a premium over the maturity value of the
underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.

Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). FNMA is a government-sponsored corporation owned entirely by
private stockholders. It is subject to general regulation by the Secretary
of Housing and Urban Development. FNMA purchases conventional (i.e., not
insured or guaranteed by any government agency) mortgages from a list of
approved seller/servicers which include state and federally-chartered savings
loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed
as to timely payment of principal and interest by FNMA but are not backed by
the full faith and credit of the United States Government. FHLMC is a
corporate instrumentality of the United States Government and was created by
Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the twelve Federal
Home Loan Banks. FHLMC issues Participation Certificates ("PC's") which
represent interests in conventional mortgages from FHLMC's national
portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal, but PC's are not backed by the full faith and credit
of the United States Government.

Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional mortgage loans. Such issuers may,
in addition, be the originators and/or servicers of the underlying mortgage
loans as well as the guarantors of the mortgage-related securities. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments. Such pools
may be purchased by the Income Fund, but will not be purchased by the
Government Fund. Timely payment of interest and principal of these pools may
be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of credit. The
insurance and guarantees are issued by governmental entities, private
insurers and the mortgage poolers. Such insurance and guarantees and the
creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-related security meets the Income Fund's investment
quality standards. There can be no assurance that the private insurer or
guarantors can meet their obligations under the insurance policies or
guarantee arrangements. The Income Fund may buy mortgage-related securities
without insurance or guarantees, if through an examination of the loan
experience and practices of the originators/servicers and poolers, TMC
determines that the securities meet the Income Fund's quality standards.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.

Collateralized Mortgage Obligations ("CMO's")

A CMO is a hybrid between a mortgage-backed bond and a mortgage
pass-through security. Similar to a bond, interest and prepaid principal are
paid, in most cases, semiannually. CMO's may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and
their income streams.

CMO's are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMO's provide for a modified form
of call protection through a de facto breakdown of the underlying pool of
mortgages according to how quickly the loans are repaid. Monthly payment of
principal received from the pool of underlying mortgages, including
prepayments, is first returned to investors holding the shortest maturity
class. Investors holding the longer maturity classes receive principal only
after the first class has been retired. An investor is partially guarded
against unanticipated early return of principal because of the sequential
payments.

In a typical CMO transaction, a corporation issues multiple series,
(e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgage pass-through certificates ("Collateral"). The
Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal
on the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear
current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C
Bond currently being paid off. When the Series A, B, and C Bonds are paid
in full, interest and principal on the Series Z Bond begins to be paid
currently. With some CMO's, the issuer serves as a conduit to allow loan
originators (primarily builders or savings and loan associations) to borrow
against their loan portfolios.

FHLMC Collateralized Mortgage Obligations

FHLMC CMO's are debt obligations of FHLMC issued in multiple classes
having different maturity dates which are secured by the pledge of a pool of
conventional mortgage loans purchased by FHLMC. Unlike FHLMC PC's, payments
of principal and interest on the CMO's are made semiannually, as opposed to
monthly. The amount of principal payable on each semiannual payment date is
determined in accordance with FHLMC's mandatory sinking fund schedule, which,
in turn, is equal to approximately 100% of FHA prepayment experience applied
to the mortgage collateral pool. All sinking fund payments in the CMO's are
allocated to the retirement of the individual classes of bonds in the order
of their stated maturities. Payment of principal on the mortgage loans in
the collateral pool in excess of the amount of FHLMC's minimum sinking fund
obligation for any payment date are paid to the holders of the CMO's as
additional sinking fund payments. Because of the "pass-through" nature of
all principal payments received on the collateral pool in excess of FHLMC's
minimum sinking fund requirement, the rate at which principal of the CMO's is
actually repaid is likely to be such that each class of bonds will be retired
in advance of its scheduled date.

If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.

Criteria for the mortgage loans in the pool backing the CMO's are
identical to those of FHLMC PC's. FHLMC has the right to substitute
collateral in the event of delinquencies or defaults.

Other Mortgage-Backed Securities

TMC expects that governmental, government-related or private entities
may create mortgage loan pools and other mortgage-related securities offering
mortgage pass-through and mortgage-collateralized investments in addition to
those described above. The mortgages underlying these securities may include
alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payments may vary or whose terms to maturity may differ
from customary long-term fixed rate mortgages. Neither the Government Fund
nor the Income Fund will purchase mortgage-backed securities or any other
assets which, in the opinion of TMC, are illiquid and exceed, as a percentage
of the Fund's assets, the percentage limitations on the Fund's investment in
securities which are not readily marketable, as discussed below. TMC will,
consistent with the Funds' respective investment objectives, policies and
quality standards, consider making investments in such new types of
mortgage-related securities.

Other Asset-Backed Securities

The securitization techniques used to develop mortgage-backed securities
are now being applied to a broad range of assets. Through the use of trusts
and special purpose corporations, various types of assets, including
automobile loans, computer leases and credit card receivables, are being
securitized in pass-through structures similar to the mortgage pass-through
structures described above or in structures similar to the CMO pattern.
Consistent with the Funds' respective investment objectives and policies,
each Fund may invest in these and other types of asset-backed securities that
may be developed in the future. In general, the collateral supporting these
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments with interest rate fluctuations.

Several types of asset-backed securities have already been offered to
investors, including Certificates of Automobile Receivables ("CARS"). CARS
represent undivided fractional interests in a trust whose assets consist of a
pool of motor vehicle retail installment sales contracts and security
interests in the vehicles securing the contracts. Payments of principal and
interests on CARS are passed through monthly to certificate holders, and are
guaranteed up to certain amounts and for a certain time period by a letter of
credit issued by a financial institution unaffiliated with the trustee or
originator of the trust. An investor's return on CARS may be affected by
early prepayment of principal on the underlying vehicle sales contracts. If
the letter of credit is exhausted, the trust may be prevented from realizing
the full amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage
or loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of bankruptcy laws and of a number of state and federal consumer
credit laws, many of which give such debtors the right to set off certain
amounts owed on the credit cards, thereby reducing the balance due. There is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.

Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection, and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool assets, to ensure that the receipt of payment
on the underlying pool occurs in a timely fashion. Protection against losses
results from payment of the insurance obligations on at least a portion of
the assets in the pool by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Income Fund, as a possible purchaser of such securities,
will not pay any additional or separate fees for credit support. The degree
of credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.

The Income Fund may also invest in residual interests in asset-backed
securities. In the case of asset-backed securities issued in a pass-through
structure, the cash flow generated by the underlying assets is applied to
make required payments on the securities and to pay related administrative
expenses. The residual in an asset-backed security pass-through structure
represents the interest in any excess cash flow remaining after making the
foregoing payments. The amount of the residual will depend on, among other
things, the characteristics of the underlying assets, the coupon rates on the
securities, prevailing interest rates, the amount of administrative expenses
and the actual prepayment experience on the underlying assets. Asset-backed
security residuals not registered under the Securities Act of 1933 may be
subject to certain restrictions on transferability. In addition, there may
be no liquid market for such securities.

The availability of asset-backed securities may be affected by
legislative or regulatory developments. It is possible that such
developments may require a Fund holding these securities to dispose of the
securities.

Repurchase Agreements - Government Fund and Income Fund

Either Taxable Income Fund may enter into repurchase agreements with
member banks of the Federal Reserve System or any domestic broker-dealer
which is recognized as a reporting government securities dealer if the
creditworthiness of the bank or broker-dealer has been determined by TMC to
be at least as high as that of other obligations the purchasing Fund may
purchase or at least equal to that of issuers of commercial paper rated
within the two highest grades assigned by Moody's or S&P. These transactions
may not provide the purchasing Fund with collateral marked-to-market during
the term of the commitment.

A repurchase agreement, which provides a means for a Fund to earn income
on funds for periods as short as overnight, is an arrangement under which
the Fund purchases a security ("Obligation") and the seller agrees, at the
time of sale, to repurchase the Obligation at a specified time and price.
The repurchase price may be higher than the purchase price, the difference
being interest at a stated rate due to the Fund together with the repurchase
price on repurchase. In either case, the income to the Fund is unrelated to
the interest rate on the Obligation. Obligations will be held by the Fund's
custodian or in the Federal Reserve Book Entry System.

For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the purchasing Fund to the seller of the Obligations subject to the
repurchase agreement and is therefore subject to that Fund's investment
restriction applicable to loans. It is not clear whether a court would
consider the Obligation purchased by a Fund subject to a repurchase agreement
as being owned by the Fund or as being collateral for a loan by the Fund to
the seller. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, the Fund may encounter delay and
incur costs before being able to sell the security. Delays may involve loss
of interest or decline in the price of the Obligation. If the court
characterized the transaction as a loan and the Fund has not perfected a
security interest in the Obligation, the Fund may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of
the seller. As an unsecured creditor, the Fund would be at risk of losing
some or all of the principal and income involved in the transaction. As with
any unsecured debt obligation purchased for the Fund, TMC seeks to minimize
the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the Obligation, in which case
the purchasing Fund may incur a loss if the proceeds to the Fund of the sale
to a third party are less than the repurchase price. However, if the market
value (including interest) of the Obligation subject to the repurchase
agreement becomes less than the repurchase price (including interest), the
Fund will direct the seller of the Obligation to deliver additional
securities so that the market value (including interest) of all securities
subject to the repurchase agreement will equal or exceed the repurchase
price. It is possible that the Fund will be unsuccessful in seeking to
impose on the seller a contractual obligation to deliver additional
securities.

When Issued Securities - Government Fund and Income Fund

Either Taxable Income Fund may purchase securities offered on a
"when-issued" or "forward delivery" basis. When so offered, the price, which
is generally expressed in yield terms, is fixed at the time the commitment to
purchase is made, but delivery and payment for the when-issued or forward
delivery securities take place at a later date. During the period between
purchase and settlement, no payment is made by the purchaser to the issuer
and no interest on the when-issued or forward delivery security accrues to
the purchaser. To the extent that assets of a Fund are not invested prior to
the settlement of a purchase of securities, the Fund will earn no income;
however, it is intended that each Fund will be fully invested to the extent
practicable and subject to the Fund's investment policies. While when-issued
or forward delivery securities may be sold prior to the settlement date, it
is intended that each Fund will purchase such securities with the purpose of
actually acquiring them unless sale appears desirable for investment reasons.
At the time a Fund makes the commitment to purchase a security on a
when-issued or forward delivery basis, it will record the transaction and
reflect the value of the security in determining its net asset value. The
market value of when-issued or forward delivery securities may be more or
less than the purchase price. Neither Fund believes that its net asset
value or income will be adversely affected by its purchase of securities on a
when-issued or forward delivery basis. Each Fund will establish a segregated
account for commitments for when-issued or forward delivery securities as
described above.

Reverse Repurchase Agreements - Government Fund and Income Fund

Either Taxable Income Fund may enter into reverse repurchase agreements
by transferring securities to another person in return for proceeds equal to
a percentage of the value of the securities, subject to its agreement to
repurchase the securities from the other person for an amount equal to the
proceeds plus an interest amount. Neither Fund will enter into any such
transaction if, as a result, more than 5% of the Fund's total assets would
then be subject to reverse repurchase agreements. See the "Investment
Restrictions" applicable to each Fund, below.

Dollar Roll Transactions - Government Fund and Income Fund

Either Taxable Income Fund may enter into "dollar roll" transactions,
which consist of the sale by the Fund to a bank or broker-dealer (the
"counterparty") of GNMA certificates or other mortgage-backed securities
together with a commitment to purchase from the counterparty similar, but not
identical, securities at a future date at the same price. The counterparty
receives all principal and interest payments, including prepayments, made on
the security while it is the holder. The selling Fund receives a fee from
the counterparty as consideration for entering into the commitment to
purchase. Dollar rolls may be renewed over a period of several months with a
new purchase and repurchase price fixed and a cash settlement made at each
renewal without physical delivery of securities. Moreover, the transaction
may be preceded by a firm commitment agreement pursuant to which the Fund
agrees to buy a security on a future date.

Dollar rolls are treated for purposes of the Investment Company Act of
1940 (the "1940 Act") as borrowings of the Fund entering into the transaction
because they involve the sale of a security coupled with an agreement to
repurchase, and are subject to the investment restrictions applicable to any
borrowings made by the Fund. Like all borrowings, a dollar roll involves
costs to the borrowing Fund. For example, while the Fund receives a fee as
consideration for agreeing to repurchase the security, the Fund forgoes the
right to receive all principal and interest payments while the counterparty
holds the security. These payments to the counterparty may exceed the fee
received by the Fund, thereby effectively charging the Fund interest on its
borrowing. Further, although the Fund can estimate the amount of expected
principal prepayment over the term of the dollar roll, a variation in the
actual amount of prepayment could increase or decrease the cost of the Fund's
borrowing.

Dollar rolls involve potential risks of loss to the selling Fund which
are different from those related to the securities underlying the
transactions. For example, if the counterparty becomes insolvent, the Fund's
right to purchase from the counterparty may be restricted. Additionally, the
value of such securities may change adversely before the Fund is able to
purchase them. Similarly, the Fund may be required to purchase securities in
connection with a dollar roll at a higher price than may otherwise be
available on the open market. Since, as noted above, the counterparty is
required to deliver a similar, but not identical security to the Fund, the
security which the Fund is required to buy under the dollar roll may be worth
less than an identical security. Finally, there can be no assurance that the
Fund's use of the cash that it receives from a dollar roll will provide a
return that exceeds borrowing costs.

Lending of Portfolio Securities - Government Fund and Income Fund

Each Taxable Income Fund may seek to increase its income by lending
portfolio securities. Under present regulatory policies, including those of
the Board of Governors of the Federal Reserve System and the Securities and
Exchange Commission, such loans may be made to member firms of the New York
Stock Exchange, and would be required to be secured continuously by
collateral in cash, cash equivalents or U.S. Treasury bills maintained on a
current basis at an amount at least equal to the market value and accrued
interest of the securities loaned. The lending Fund would have the right to
call a loan and obtain the securities loaned on no more than five days'
notice. During the existence of a loan, the Fund would continue to receive
the equivalent of the interest paid by the issuer on the securities loaned
and would also receive compensation based on investment of the collateral.
As with other extensions of credit there are risks of delay in recovery or
even loss of rights in the collateral should the borrower of the securities
fail financially. However, the loans would be made only to firms deemed by
TMC to be of good standing, and when, in the judgment of TMC, the
consideration which can be earned currently from securities loans of this
type justifies the attendant risk.

Other Investment Strategies - Income Fund

The Income Fund may, but is not required to, utilize various other
investment strategies as described below to hedge various market risks (such
as interest rates, currency exchange rates, and broad or specific equity
market movements), to manage the effective maturity or duration of
fixed-income securities or portfolios, or to enhance potential gain. Such
strategies are used by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new investments and
strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, the Income Fund
may purchase and sell exchange-listed and over-the-counter put and call
options on securities, financial futures, equity and fixed-income indices and
other financial instruments, purchase and sell financial futures contracts,
enter into various interest rate transactions such as swaps, caps, floors or
collars, and enter into various currency transactions such as currency
forward contracts, currency futures contracts, currency swaps or options on
currency or currency futures (collectively, all the above are called
"Strategic Transactions"). Strategic Transactions may be used to attempt to
protect against possible changes in the market value of securities held in or
to be purchased for the Income Fund's portfolio resulting from securities
markets or currency exchange rate fluctuations, to protect the Fund's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities for investment purposes, to manage the effective
maturity or duration of the Fund's portfolio, or to establish a position in
the derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to
enhance potential gain although no more than 5% of the Fund's assets will be
committed to Strategic Transactions entered into for purposes not related to
bona fide hedging or risk management. Any or all of these investment
techniques may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, as use of any
Strategic Transaction is a function of numerous variables including market
conditions. The ability of the Income Fund to utilize these Strategic
Transactions successfully will depend on TMC's ability to predict pertinent
market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments.

Strategic Transactions have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to
the extent TMC's view as to certain market movements is incorrect, the risk
that the use of such Strategic Transactions could result in losses greater
than if they had not been used. Use of put and call options may result in
losses to the Income Fund, force the sales of portfolio securities at
inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, limit the
amount of appreciation the Fund can realize on its investments or cause the
Fund to hold a security it might otherwise sell. The use of currency
transactions can result in the Fund incurring losses as a result of a number
of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency.
The use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of
the Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures
and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without
incurring substantial losses, if at all. Although the contemplated use of
these futures contracts and options thereon should tend to minimize the risk
of loss due to a decline in the value of the hedged position, at the same
time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited
to the cost of the initial premium. Losses resulting from the use of
Strategic Transactions would reduce net asset value, and possibly income, and
such losses can be greater than if the Strategic Transactions had not been
utilized.

General Characteristics of Options - Income Fund

Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument as to which the options relate. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Strategic Transactions involving
options require segregation of Income Fund assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the
underlying security, commodity, index, currency or other instrument at the
exercise price. For instance, the Income Fund's purchase of a put option on
a security might be designed to protect its holdings in the underlying
instrument (or, in some cases, a similar instrument) against a substantial
decline in the market value by giving the Fund the right to sell the
instrument at the option exercise price. A call option, upon payment of a
premium, gives the purchaser of the option the right to buy, and the seller
the obligation to sell, the underlying instrument at the exercise price. The
Fund's purchase of a call option on a security, financial future, index,
currency or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase the
instrument. An American-style put or call option may be exercised at any
time during the option period while a European-style put or call options may
be exercised only upon expiration or during a fixed period prior thereto.
The Income Fund is authorized to purchase and sell exchange listed options
and over-the-counter options ("OTC options"). Exchange listed options are
issued by a regulated intermediary such as the Options Clearing Corporation
("OCC"), which guarantees the performance of the obligations of the parties
to such options. The discussion below uses the OCC as a paradigm, but is
also applicable to other financial intermediaries.

With certain exceptions, OCC and exchange listed options generally
settle by physical delivery of the underlying security or currency, although
in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, to the
extent the option is "in-the-money" (i.e., where the value of the underlying
instrument exceeds, in the case of a call option, or is less than, in the
case of a put option, the exercise price of the option) at the time the
option is exercised. Frequently, rather than taking or making delivery of
the underlying instrument through the process of exercising the option,
listed options are closed by entering into offsetting purchase or sale
transactions that do not result in ownership of the new option.

The Income Fund's ability to close out its position as a purchaser or
seller of an OCC or exchange listed put or call option is dependent, in part,
upon the liquidity of the option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions
imposed by an exchange; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options
or underlying securities including reaching daily price limits; (iv)
interruption of the normal operations of the OCC or an exchange; (v)
inadequacy of the facilities of an exchange or OCC to handle current trading
volume; or (vi) a decision by one or more exchanges to discontinue the
trading of options (or a particular class or series of options), in which
event the relevant market for that option on that exchange would cease to
exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent
that the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options,
which generally have standardized terms and performance mechanics, all the
terms of an OTC option, including such terms as method of settlement, term,
exercise price, premium, guaranties and security, are set by negotiation of
the parties. The Income Fund will only enter into OTC options that have a
buy-back provision permitting the Fund to require the Counterparty to buy
back the option at a formula price within seven days. The Fund expects
generally to enter into OTC options that have cash settlement provisions,
although it is not required to do so.

Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails
to make or take delivery of the security, currency or other instrument
underlying an OTC option it has entered into with the Income Fund or fails to
make a cash settlement payment due in accordance with the terms of that
option, the Fund will lose any premium it paid for the option as well as any
anticipated benefit of the transaction. Accordingly, TMC must assess the
creditworthiness of each Counterparty or any guarantor or credit enhancement
of the Counterparty's credit to determine the likelihood that the terms of
the OTC option will be satisfied. The Income Fund will engage in OTC option
transactions only with United States government securities dealers recognized
by the Federal Reserve Bank in New York as "primary dealers," broker dealers,
domestic or foreign banks or other financial institutions which have received
a short-term credit rating of "A-1" from Standard & Poor's Corporation or
"P-1" from Moody's Investor Services or have been determined by TMC to have
an equivalent credit rating. The staff of the SEC currently takes the
position that the amount of the Income Fund's obligation pursuant to an OTC
option is illiquid, and is subject to the Income Fund's limitation on
investing no more than 15% its assets in illiquid instruments.

If the Income Fund sells a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the Fund's income. The sale of put options can
also provide income.

The Income Fund may purchase and sell call options on U.S. Treasury and
agency securities, foreign sovereign debt, mortgage-backed securities,
corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets and related futures
on such securities other than futures on individual corporate debt and
individual equity securities. All calls sold by the Fund must be "covered"
or must meet the asset segregation requirements described below as long as
the call is outstanding (i.e., the Fund must own the securities or futures
contract subject to the call). Even though the Fund will receive the option
premium to help protect it against loss, a call sold by the Fund exposes the
Fund during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security and may require
the Fund to hold a security which it might otherwise have sold.

The Income Fund may purchase and sell put options that relate to U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio) or futures on such securities other than futures
on individual corporate debt and individual equity securities. The Fund will
not sell put options if, as a result, more than 50% of the Fund's assets
would be required to be segregated to cover its potential obligations under
its hedging, duration management, risk management, and other Strategic
Transactions other than those with respect to futures and options thereon.
In selling put options, there is a risk that the Fund may be required to buy
the underlying security at a disadvantageous price above the market price.

General Characteristics of Futures - Income Fund

The Income Fund may purchase and sell financial futures contracts or
purchase put and call options on such futures as a hedge against anticipated
interest rate, currency or equity market changes, for duration management and
for risk management purposes. Futures are generally bought and sold on the
commodities exchanges where they are listed with payment of initial and
variation margin as described below. The sale of a futures contract creates
a firm obligation by the Fund, as seller, to deliver the specific type of
financial instrument called for in the contract at a specific future time for
a specified price (or, with respect to index futures and Eurodollar
instruments, the net cash amount). Options on futures contracts are similar
to options on securities except that an option on a futures contract gives
the purchaser the right in return for the premium paid to assume a position
in a futures contract.

The Income Fund's use of financial futures and options thereon will in
all cases be consistent with applicable regulatory requirements and in
particular the rules and regulations of the Commodity Futures Trading
Commission and will be entered into only for bona fide hedging, risk
management (including duration management) or other portfolio management
purposes. Typically, maintaining a futures contract or selling an option
thereon requires the Fund to deposit with a financial intermediary as
security for its obligations an amount of cash or other specified assets
(initial margin) which initially is typically 1% to 5% of the face amount of
the contract, but may be higher in some circumstances. Additional cash or
assets (variation margin) may be required to be deposited thereafter on a
daily basis as the mark to market value of the contract fluctuates. The
purchase of options on financial futures involves payment of a premium for
the option without any further obligation on the part of the Fund. If the
Fund exercises an option on a futures contract it will be obligated to post
initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position. Futures contracts and
options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position will be offset
prior to settlement and that delivery will not occur.

The Income Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and
options thereon would exceed 5% of the Fund's total assets (taken at current
value); however, in the case of an option that is in-the-money at the time of
the purchase, the segregation requirements with respect to futures and
options thereon are described below.

Options on Securities Indices and Other Financial Indices - Income Fund

The Income Fund also may purchase and sell call and put options on
securities indices and other financial indices and, in so doing can achieve
many of the same objectives it would achieve through the sale or purchase of
options on individual securities or other instruments. Options on securities
indices and other financial indices are similar to options on a security or
other instrument except that, rather than settling by physical delivery of
the underlying instrument, they settle by cash settlement (i.e., an option on
an index gives the holder the right to receive, upon exercise of the option,
an amount of cash if the closing level of the index upon which the option is
based exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option except if, in the case of an OTC option,
physical delivery is specified). This amount of cash is equal to the excess
of the closing price of the index over the exercise price of the option,
which also may be multiplied by a formula value. The seller of the option is
obligated, in return for the premium received, to make delivery of this
amount. The gain or loss on an option on an index depends on price movements
in the instruments making up the market, market segment, industry or other
composite on which the underlying index is based rather than price movements
in individual securities, as is the case with respect to options on
securities.

Currency Transactions - Income Fund

The Income Fund may engage in currency transactions with Counterparties
in order to hedge the value of currencies against fluctuations in relative
value. Currency transactions include forward currency contracts, exchange
listed currency futures, exchange listed and OTC options on currencies, and
currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell ( with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time
of the contract. A currency swap is an agreement to exchange cash flows
based on the notional difference among two or more currencies and operates
similarly to an interest rate swap, which is described below.

The Income Fund's dealings in forward currency contracts and other
currency transactions such as futures, options, options on futures and swaps
will be limited to hedging involving either specific transactions or
portfolio positions. Transactions hedging is entering into a currency
transaction with respect to specific assets or liabilities of the Fund, which
will generally arise in connection with the purchase or sale of its portfolio
securities. Position hedging is entering into a currency transaction with
respect to portfolio security positions denominated or generally quoted in
that currency.

The Income Fund will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended to
wholly or partially offset other transactions, than the aggregate market
value (at the time of entering into the transaction) of the securities held
in its portfolio that are denominated or generally quoted in or currently
convertible into such currency other than with respect to proxy hedging as
described below.

The Income Fund may also cross-hedge currencies by entering into
transactions to purchase or sell one or more currencies that are expected to
decline in value relative to other currencies to which the Fund has or in
which the Fund expects to have portfolio exposure.

To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Income Fund may also
engage in proxy hedging. Proxy hedging is often used when the currency to
which the Fund's portfolio is exposed is difficult to hedge or to hedge
against the dollar. Proxy hedging entails entering into a forward contract
to sell a currency whose changes in value are generally considered to be
linked to a currency or currencies in which some or all of the Fund's
portfolio securities are or are expected to be denominated, and to buy U.S.
dollars. The amount of the contract would not exceed the value of the Fund's
securities denominated in linked currencies. For example, if TMC considers
the Austrian schilling is linked to the German Deutschemark (the "D-mark"),
the Fund holds securities denominated in Austrian schillings and TMC believes
that the value of schillings will decline against the U.S. dollar, TMC may
enter into a contract to sell D-marks and buy dollars. Hedging involves some
of the same risks and considerations as other transactions with similar
instruments. Currency transactions can result in losses to the Fund if the
currency being hedged fluctuates in value to a degree or in a direction that
is not anticipated. Further, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during
the particular time that the Fund is engaging in proxy hedging. If the Fund
enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.

Risks of Currency Transactions - Income Fund

Currency transactions are subject to risks different from other
transactions. Because currency control is of great importance to the issuing
governments and influences economic planning and policy, purchases and sales
of currency and related instruments can be negatively affected by government
exchange controls, blockages, and manipulations or exchange restrictions
imposed by governments. These can result in losses to the Income Fund if it
is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
ineffective, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement
of a currency futures contract for the purchase of most currencies must occur
at a bank based in the issuing nation. Trading options on currency futures
is relatively new, and the ability to establish and close out positions on
such options is subject to the maintenance of a liquid market which may not
always be available. Currency exchange rates may fluctuate based on factors
extrinsic to the issuing country's economy.

Combined Transactions - Income Fund

The Income Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and any combination of
futures, options and currency transactions ("combined" transactions), instead
of a single Strategic Transaction, as part of a single or combined strategy
when, in the opinion of TMC, it is in the best interests of the Fund to do
so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined
transactions are normally entered into based on TMC's judgment that the
combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination
will instead increase such risks or hinder achievement of the portfolio
management objective.

Swaps, Caps, Floors and Collars - Income Fund

Among the Strategic Transactions into which the Income Fund may enter
are interest rate, currency and index swaps and the purchase or sale of
related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a
later date. The Income Fund intends to use these transactions as hedges and
not as speculative investments and will not sell interest rate caps or floors
where it does not own securities or other instruments providing the income
stream the Fund may be obligated to pay. An interest rate swap is an
agreement between two parties to exchange payments that are based on
specified interest rates and a notional amount. The exchange takes place
over a specified period of time. A currency swap is an agreement to exchange
cash flows on a notional amount of two or more currencies based on the
relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. Although swaps can take a variety of forms, typically one
party pays fixed and receives floating rate payments and the other party
receives fixed and pays floating rate payments. An interest rate cap is an
agreement between two parties over a specified period of time where one party
makes payments to the other party equal to the difference between the current
level of an interest rate index and the level of the cap, if the specified
interest rate index increases above the level of the cap. An interest rate
floor is similar except the payments are the difference between the current
level of an interest rate index and the level of the floor if the specified
interest rate index decreases below the level of the floor. An interest rate
collar is the simultaneous execution of a cap and floor agreement on a
particular interest rate index. The purchase of a cap entitles the purchaser
to receive payments on a notional principal amount from the party selling the
cap to the extent that a specified index exceeds a predetermined interest
rate or amount. Purchase of a floor entitles the purchaser to receive
payments on a notional principal amount from the party selling the floor to
the extent that a specified index falls below a predetermined interest rate
or amount. A collar is a combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates or values.

The Income Fund may enter into swaps, caps, floors or collars on either
an asset-based or liability-based basis, depending on whether it is hedging
its assets or its liabilities, and will usually enter into swaps on a net
basis, i.e., the two payment streams are netted out in a cash settlement on
the payment date or dates specified in the instrument, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Inasmuch as these swaps, caps, floors and collars are entered into
for good faith hedging purposes, TMC and the Fund believe such obligations do
not constitute senior securities under the 1940 Act and, accordingly, will
not treat them as being subject to its borrowing restrictions. The Fund will
not enter into any swap, cap, floor or collar transaction unless, at the time
of entering into the transaction, the unsecured long term debt rating of the
Counterparty combined with any credit enhancements, satisfies credit criteria
established by the Trust's trustees. If there is a default by the
Counterparty, the Fund will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and agents utilizing standardized
swap documentation. As a result, the swap market has become relatively
liquid. Caps, floors and collars are more recent innovations for which
standardized documentation has not yet been fully developed and, accordingly,
they are less liquid than swaps.

Eurodollar Instruments - Income Fund

The Income Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or
options thereon which are linked to the London Interbank Offered Rate
("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain
a fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. The Fund might use Eurodollar futures contracts and options
thereon to hedge against changes in the LIBOR, to which many interest rate
swaps and fixed income instruments are linked.

Risks of Strategic Transactions Outside the United States - Income Fund

When constructed outside the United States, Strategic Transactions may
not be regulated as rigorously as in the United States, may not involve a
clearing mechanism and related guarantees, and are subject to the risk of
governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions
also could be adversely affected by: (i) other complex foreign political,
legal and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the Income
Fund's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States, (iv) the imposition of
different exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lower trading volume and
liquidity.

Use of Segregated and Other Special Accounts - Income Fund

Some transactions which the Income Fund may enter into, including many
Strategic Transactions, require that the Income Fund segregate liquid high
grade debt assets with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. Transactions which require segregation include
reverse repurchase agreements, dollar rolls, undertakings by the Fund to
purchase when-issued securities, the Fund's sales of put or call options, the
Fund's sales of futures contracts, currency hedging transactions (including
forward currency contracts, currency futures and currency swaps) and swaps,
floors and collars to the extent of the Fund's uncovered obligation under the
transaction. In general, the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or an amount of
cash or liquid high grade debt securities at least equal to the current
amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them.
For example, a call option written by the Fund will require the Fund to hold
the securities without additional consideration or to segregate liquid
high-grade assets sufficient to purchase and deliver the securities if the
call is exercised. A call option sold by the Fund on an index will require
the Fund to own portfolio securities which correlate with the index or to
segregate liquid high grade debt assets equal to the excess of the index
value over the exercise price on a current basis. A put option written by
the Fund requires the Fund to segregate liquid, high grade assets equal to
the exercise price.

Except when the Income Fund enters into a forward contract for the
purchase or sale of a security denominated in a particular currency, which
requires no segregation, a currency contract which obligates the Fund to buy
or sell currency will generally require the Fund to hold an amount of that
currency or liquid securities denominated in that currency equal to the
Fund's obligations, or to segregate liquid high grade debt assets equal to
the amount of the Fund's obligation.

OTC options entered into by the Income Fund, including those on
securities, currency, financial instruments or indices, OCC issued and
exchange listed index options, swaps, caps, floors and collars will generally
provide for cash settlement. As a result, with respect to these instruments
the Fund will only segregate an amount of assets equal to its accrued net
obligations, as there is no requirement for payment or delivery of amounts in
excess of the net amount. These amounts will equal 100% of the exercise
price in the case of a put, or the in-the-money amount in the case of a call.
In addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate,
until the option expires or is closed out, cash or cash equivalents equal in
value to such excess. Other OCC issued and exchange listed options sold by
the Fund, other than those above, generally settle with physical delivery,
and the Fund will segregate an amount of assets equal to the full value of
the option. OTC options settling with physical delivery, if any, will be
treated the same as other options settling with physical delivery.

In the case of a futures contract or an option thereon, the Income Fund
must deposit initial margin and possible daily variation margin in addition
to segregating assets sufficient to meet its obligation to purchase or
provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such assets may consist of cash, cash
equivalents, or high grade liquid debt instruments.

With respect to swaps, the Income Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid high
grade securities having a value equal to the accrued excess. Caps, floors
and collars require segregation of assets with a value equal to the Fund's
net obligation, if any.

Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Income Fund may also enter into
offsetting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options
and Strategic Transactions. For example, the Fund could purchase a put
option if the strike price of that option is the same or higher than the
strike price of a put option sold by the Fund. Moreover, instead of
segregating assets if the Fund held a futures or forward contract, it could
purchase a put option on the same futures or forward contract with a strike
price as high or higher than the price of the contract held. Other Strategic
Transactions may also be offset in combinations. If the offsetting
transaction terminates at the time of or after the primary transaction, no
segregation is required. If it terminates prior to that time, assets equal
to any remaining obligation would need to be segregated.

The Income Fund's activities involving Strategic Transactions may be
limited by the requirements of Subchapter M of the Internal Revenue Code for
qualification as a regulated investment company. See "Taxes."

Foreign Securities - Income Fund

The Income Fund may invest in securities of foreign issuers. Investing
in foreign issuers involves certain special considerations, including those
set forth below, which are not typically associated with investing in United
States issuers. As foreign companies are not generally subject to uniform
accounting and auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic companies, there may
be less publicly available information about a foreign company than a
domestic company. Volume and liquidity in most foreign bond markets is less
than in the United States and, at times, volatility of price can be greater
than in the United States. There is generally less government supervision
and regulation of brokers and listed companies than in the United States.
Mail service between the United States and foreign countries may be slower or
less reliable than within the United States, thus increasing the risk of
delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. Securities issued or guaranteed by foreign national
governments, their agencies, instrumentalities, or political subdivisions,
may or may not be supported by the full faith and credit and taxing power of
the foreign government. The Income Fund's ability and decisions to purchase
and sell portfolio securities may be affected by laws or regulations relating
to the convertability and repatriation of assets. Further, it may be more
difficult for the Fund's agents to keep currently informed about corporate
actions which may affect the prices of portfolio securities. In addition,
with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect United States investments in those
countries, and it may be more difficult to obtain and enforce a judgment
against a foreign issuer. Foreign securities may be subject to foreign
government taxes which will reduce the yield on such securities.

VALUE FUND

The following discussion supplements the disclosures in the Prospectus
respecting Value Fund's investment policies, techniques and investment
limitations.

Illiquid Investments - Value Fund

Illiquid investments are investments that cannot be sold or disposed of
in the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Trustees, TMC determines the
liquidity of the Fund's investments and, through reports from TMC, the
Trustees monitor investments in illiquid instruments. In determining the
liquidity of the Fund's investments, TMC may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or lender features), and (5) the nature of the market place for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment).

Investments currently considered by the Fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days, over-the-counter options, and non-government
stripped fixed-rate mortgage-backed securities. Also TMC may determine some
restricted securities, government-stripped fixed-rate mortgage-backed
securities, emerging market securities, and swap agreements to be illiquid.
However, with respect to over-the-counter options the Fund writes, all or a
portion of the value of the underlying instrument may be illiquid depending
on the assets held to cover the option and the nature and terms of any
agreement the Fund any have to close out the option before expiration.

In the absence of market quotations, illiquid investments are priced at
fair value as determined utilizing procedures and methods reviewed by the
Trustees. If through a change in values, net assets, or other circumstances,
the Fund were in a position where more than 10% of its net assets was
invested in illiquid securities, it would seek to take appropriate steps to
protect liquidity.

Restricted Securities - Value Fund

Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
required, the Fund could be obligated to pay all or part of the registration
expense and a considerable period may elapse between the time it decides to
seek registration and the time it is permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to seek registration of the security.

Swap Agreements - Value Fund

Swap agreements can be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease the
Fund's exposure to long or short-term interest rates (in the U.S. or abroad),
foreign currency values, mortgage securities, corporate borrowing rates, or
other factors such as security prices or inflation rates. The Fund is not
limited to any particular form of swap agreement if TMC determines it is
consistent with the Fund's investment objective and policies.

Although swaps can take a variety of forms, typically one party pays
fixed and receives floating rate payments and the other party receives fixed
and pays floating payments. An interest rate cap is an agreement between two
parties over a specified period of time where one party makes payments to the
other party equal to the difference between the current level of an interest
rate index and the level of the cap, if the specified interest rate index
increases above the level of the cap. An interest rate floor is similar
except the payments are the difference between the current level of an
interest rate index and the level of the floor, if the specified interest
rate index decreases below the level of the floor. An interest rate collar
is the simultaneous execution of a cap and floor agreement on a particular
interest rate index. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to
the extent that a specified index exceeds a predetermined interest rate or
amount. Purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent
that a specified index falls below a predetermined interest rate or amount.
A collar is a combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates or values.

Swap agreements will tend to shift the Fund's investment exposure from
one type of investment to another. For example, if the Fund agreed to
exchange payments in dollars for payments in foreign currency, the swap
agreement would tend to decrease the Fund's exposure to U.S. interest rates
and increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on how
they are used, swap agreements may increase or decrease the overall
volatility of the Fund's investments and its share price and yield. The most
significant factor in the performance of swap agreements is the change in the
specific interest rate, currency, or other factors that determine the amounts
of payments due to and from the Fund. If a swap agreement calls for payments
by the Fund, the Fund must be prepared to make such payments when due. In
addition, if the counterparty's credit worthiness declined, the value of the
swap agreement would be likely to decline, potentially resulting in losses.
The Fund expects to be able to eliminate its exposure under swap agreements
either by assignment or other disposition, or by entering into an offsetting
swap agreement with the same party or a similarly creditworthy party.

The Fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap agreements. If
the Fund enters into a swap agreement on other than a net basis, it will
segregate assets with a value equal to the full amount of the Fund's accrued
obligations under the agreement.

Indexed Securities - Value Fund

The Fund may purchase securities whose prices are indexed to the prices
of other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically,
but not always, are debt securities or deposits whose value at maturity or
coupon rate is determined by reference to a specific instrument or statistic.
Gold-indexed securities, for example, typically provide for a maturity value
that depends on the price of gold, resulting in a security whose price tends
to rise and fall together with gold prices. Currency indexed securities
typically are short-term to intermediate-term debt securities whose maturity
values or interest rates are determined by reference to the values of one or
more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting in
a security that performs similarly to a foreign-denominated instrument, or
their maturity value may decline when foreign currencies increases, resulting
in a security whose price characteristics are similar to a put on the
underlying currency. Currency-indexed securities may also have prices that
depend on the values of a number of different foreign currencies relative to
each other.

The performance of indexed securities depends to a great extent on the
performance of the security, currency or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers
of indexed securities have included banks, corporations, and certain U.S.
government agencies. Indexed securities may be more volatile than their
underlying instruments.

Repurchase Agreements - Value Fund

In a repurchase agreement, the Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed
upon price on an agreed upon date within a number of days from the date of
purchase. The resale price reflects the purchase price plus an agreed upon
incremental amount which is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the
seller to pay the agreed upon price, which obligation is in effect secured by
the value (at least equal to the amount of the agreed upon resale price and
marked to market daily) of the underlying security. The Fund may engage in a
repurchase agreements with respect to any security in which it is authorized
to invest.

The Fund may enter into these arrangements with member banks of the
Federal Reserve System or any domestic broker-dealer if the creditworthiness
of the bank or broker-dealer has been determined by TMC to be satisfactory.
These transactions may not provide the Fund with collateral marked-to-market
during the term of the commitment.

A repurchase agreement, which provides a means for the Fund to earn
income on funds for periods as short as overnight, is an arrangement under
which the Fund purchases a security and the seller agrees, at the time of the
sale, to repurchase the security at a specified time and price. The
repurchase price may be higher than the purchase price, the difference being
interest at a stated rate due to the Fund together with the repurchase price
on repurchase.

For purposes of the Investment Company Act of 1940, a repurchase
agreement is deemed to be a loan from the Fund to the seller of the security
subject to the repurchase agreement and is therefore subject to the Fund's
investment restriction applicable to loans. It is not clear whether a court
would consider the security purchased by the Fund subject to a repurchase
agreement as being owned by the Fund or as being collateral for a loan by the
Fund to the seller. In the event of the commencement of bankruptcy or
insolvency proceedings with respect to the seller of the security before
repurchase of the security under a repurchase agreement, the Fund may
encounter delay and incur costs before being able to sell the security.
Delays may involve loss of interest or decline in the price of the underlying
security. If the court characterized the transaction as a loan and the Fund
has not perfected a security interest in the underlying security, the Fund
may be required to return the security to the seller's estate and be treated
as an unsecured creditor of principal and income involved in the transaction.
As with any unsecured debt obligation purchased for the Fund, TMC seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the security, in which case
the Fund may incur a loss if the proceeds to the Fund of the sale to a third
party are less than the repurchase price. However, if the market value
(including interest) of the security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the security to deliver additional securities so that
the market value (including interest) of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is
possible that the Fund will be unsuccessful in seeking to impose on the
seller a contractual obligation to deliver additional securities.

Reverse Repurchase Agreements - Value Fund

In a reverse repurchase agreement , the Fund sells a portfolio
instrument to another party, such as a bank or broker-dealer, in return for
cash and agrees to repurchase the instrument at a particular price and time.
While a reverse repurchase agreement is outstanding, the Fund will maintain
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The Fund will enter into reverse repurchase
agreements only with parties whose creditworthiness has been found
satisfactory by TMC. Such transactions may increase fluctuations in the
market value of the Fund's assets and may be viewed as a form of leverage.

Securities Lending - Value Fund

The Fund may lend securities to parties such as broker-dealers or
institutional investors. Securities lending allows the Fund to retain
ownership of the securities loaned and, at the same time, to earn additional
income. Since there may be delays in the recovery of loaned securities, or
even a loss of rights in collateral supplied should the borrower fail
financially, loans will be made only to parties deemed by TMC to be of good
standing. Furthermore, they will only be made if, in TMC's judgment, the
consideration to be earned from such loans would justify the risk.

TMC understands that it is the current view of the SEC Staff that the
Fund may engage in loan transactions only under the following conditions: (1)
the Fund must receive 100% collateral in the form of cash or cash equivalents
(e.g., U.S. Treasury bills or notes) from the borrower; (2) the borrower
must increase the collateral whenever the market value of the securities
loaned (determined on a daily basis) rises above the value of the collateral;
(3) after giving notice, the Fund must be able to terminate the loan at any
time; (4) the Fund must receive reasonable interest on the loan or a flat
fee from the borrower, as well as amounts equivalent to any dividends,
interest, or other distributions on the securities loaned and to any increase
in market value; (5) the Fund may pay only reasonable custodian fees in
connection with the loan; and (6) the Trustees must be able to vote proxies
on the securities loaned, either by terminating the loan or by entering into
an alternative arrangement with the borrower.

Cash received through loan transactions may be invested in any security
in which the Fund is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).

Lower-Quality Debt Securities - Value Fund

The Fund may purchase lower-quality debt securities (those rated below
Baa by Moody's Investors Service, Inc. or BBB by Standard and Poor's
Corporation, and unrated securities judged by TMC to be of equivalent
quality) that have poor protection with respect to the payment of interest
and repayment of principal, or may be in default. These securities are often
considered to be speculative and involve greater risk of loss or price
changes due to changes in the issuer's capacity to pay. The market prices of
lower-quality debt securities may fluctuate more than those of higher-quality
debt securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates.

While the market for high-yield corporate debt securities has been in
existence for may years and has weathered previous economic downturns, the
1980's brought a dramatic increase in the use of such securities to fund
highly leveraged corporate acquisitions and restructuring. Past experience
may not provide an accurate indication of the future performance of the high-
yield bond market, especially during periods of economic recession. In fact,
from 1989 to 1991, the percentage of lower-quality securities that defaulted
rose significantly above prior levels, although the default rate decreased in
1992 and 1993.

The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can adversely
affect the prices at which the former are sold. If market quotations are not
available, lower-quality debt securities will be valued in accordance with
procedures established by the Trustees, including the use of outside pricing
services. Judgment plays a greater role in valuing high-yield corporate debt
securities than is the case for securities for which more external sources
for quotations and last-sale information are available. Adverse publicity
and changing investor perceptions may affect the ability of outside pricing
services to value lower-quality debt securities and the Fund's ability to
sell these securities. Since the risk of default is higher for lower-quality
debt securities, TMC's research and credit analysis are an especially
important part of managing securities of this type held by the Fund. In
considering investments for the Fund, TMC will attempt to identify those
issuers of high-yielding securities whose financial condition is adequate to
meet future obligations, has improved, or is expected to improve in the
future. TMC's analysis focuses on relative values based on such factors as
interest or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.

The Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be
in the best interest of the Fund's shareholders.

Foreign Investments - Value Fund

Foreign investments can involve significant risks in addition to the
risks inherent in U.S. investments. The value of securities denominated in
or indexed to foreign currencies, and of dividends and interest from such
securities, can change significantly when foreign currencies strengthen or
weaken relative to the U.S. dollar. Foreign securities markets generally
have less trading volume and less liquidity than U.S. markets, and prices on
some foreign markets can be highly volatile. Many foreign countries lack
uniform accounting and disclosure standards comparable to those applicable to
U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage
commissions, and custodial costs, are generally higher than for U.S.
investments.

Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers, and securities markets may be subject to
less government supervision. Foreign security trading practices, including
those involving the release of assets in advance of payment, may involve
increased risks in the event of a failed trade or the insolvency of a broker-
dealer, and may involve substantial delays. It may also be difficult to
enforce legal rights in foreign countries.

Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse
to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention. There
may be a greater possibility of default by foreign governments or foreign
government-sponsored enterprises. Investments in foreign countries also
involve a risk of local political, economic, or social instability, military
action or unrest, or adverse diplomatic developments. There is no assurance
that TMC will be able to anticipate these potential events or counter their
effects.

The considerations noted above generally are intensified for investments
in developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.

The Fund may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject to
transfer restrictions may be marketable abroad, they may be less liquid than
foreign securities of the same class that are not subject to such
restrictions.

American Depository Receipts and European Depository Receipts (ADR's and
EDR's) are certificates evidencing ownership of shares of a foreign-based
issuer held in trust by a bank or similar financial institution. Designed
for use in U.S. and European securities markets, respectively, ADR's and
EDR's are alternatives to the purchase of the underlying securities in their
national markets and currencies.

Foreign Currency Transactions - Value Fund

The Fund may conduct foreign currency transactions on a spot (i.e.,
cash) basis or by entering into forward contracts to purchase or sell foreign
currencies at a future date and price. The Fund will convert currency on a
spot basis from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers generally do not
charge a fee for conversion, they do realize a profit based on the difference
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer. Forward contracts are generally traded in an
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. The parties to a forward contract may
agree to offset or terminate the contract before its maturity, or may hold
the contract to maturity and complete the contemplated currency exchange.
The Fund may use currency forward contracts for any purpose consistent with
its investment objective. The following discussion summarizes the principal
currency management strategies involving forward contracts that could be used
by the Fund. The Fund may also use swap agreements, indexed securities, and
options and futures contracts relating to foreign currencies for the same
purposes. When the Fund agrees to buy or sell a security denominated in a
foreign currency, it may desire to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale, for
a fixed amount of U.S. dollars, of the amount of foreign currency involved in
the underlying security transaction, the Fund will be able to protect itself
against an adverse change in foreign currency values between the date the
security is purchased or sold and the date on which payment is made or
received. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." The Fund may also enter into forward contracts to
purchase or sell a foreign currency in anticipation of future purchases or
sales of securities denominated in foreign currency, even if the specific
investments have not yet been selected by TMC.

The Fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For
example, if the Fund owned securities denominated in pounds sterling, it
could enter into a forward contract to sell pounds sterling in return for
U.S. dollars to hedge against possible declines in the pound's value. Such a
hedge, sometimes referred to as a "position hedge, " would tend to offset
both positive and negative currency fluctuations, but would not offset
changes in security values caused by other factors. The Fund could also
hedge the position by selling another currency expected to perform similarly
to the pound sterling for example, by entering into a forward contract to
sell Deutschemarks or European Currency Units in return for U.S. dollars.
This type of hedge, sometimes referred to as a "proxy hedge," could offer
advantages in terms of cost, yield, or efficiency, but generally would not
hedge currency exposure as effectively as a simple hedge into U.S. dollars.
Proxy hedges may result in losses if the currency used to hedge does not
perform similarly to the currency in which the hedged securities are
denominated.

The Fund may enter into forward contracts to shift its investment
exposure from one currency into another. This may include shifting exposure
from U.S. dollars to a foreign currency, or from one foreign currency to
another foreign currency. For example, if the Fund held investments
denominated in deutschemarks, the Fund could enter into forward contracts to
sell deutschemarks and purchase Swiss francs. This type of strategy,
sometimes known as a "cross hedge," will tend to reduce or eliminate exposure
to the currency that is sold, and increase exposure to the currency that is
purchased, much as if the Fund had sold a security denominated in one
currency and purchased an equivalent security denominated in another. Cross-
hedges protect against losses resulting from a decline in the hedged
currency, but will cause the Fund to assume the risk of fluctuations in the
value of the currency it purchases. Under certain conditions, SEC guidelines
require mutual funds to set aside appropriate liquid assets in a segregated
custodial account to cover currency forward contracts. As required by SEC
guidelines, the Fund will segregate assets to cover currency forward
contracts, if any, whose purpose is essentially speculative. The Fund will
not segregate assets to cover forward contracts entered into for hedging
purposes, including settlement hedges, position hedges, and proxy hedges.

Successful use of currency management strategies will depend on TMC's
skill in analyzing and predicting currency values. Currency management
strategies may substantially change the Fund's investment exposure to changes
in currency exchange rates, and could result in losses to the Fund if
currencies do not perform as TMC anticipates. For example, if a currency's
value rose at a time when TMC had hedged the Fund by selling that currency in
exchange for dollars, the Fund would be unable to participate in the
currency's appreciation. If TMC hedges currency exposure through proxy
hedges, the Fund could realize currency losses from the hedge and the
security position at the same time if the two currencies do not move in
tandem. Similarly, if TMC increases the Fund's exposure to a foreign
currency, and that currency's value declines, the Fund will realize a loss.
There is no assurance that TMC's use of currency management strategies will
be advantageous to the Fund or that it will hedge at an appropriate time.

Limitations on Futures and Options Transactions - Value Fund

The Fund will not: (a) sell futures contracts, purchase put options, or
write call options if, as a result, more than 25% of the Fund's total assets
would be hedged with futures and options under normal conditions; (b)
purchase futures contracts or write put options if, as a result, the Fund's
total obligations upon settlement or exercise of purchased futures contracts
and written put options would exceed 25% of its total assets; or (c) purchase
call options if, as a result, the current value of option premiums for call
options purchased by the Fund would exceed 5% of the Fund's total assets.
These limitations do not apply to options attached to or acquired or traded
together with their underlying securities, and do not apply to securities
that incorporate features similar to options.

The above limitations on the Fund's investments in futures contracts and
options, and the Fund's policies regarding futures contracts and options
discussed elsewhere in this statement of Additional Information, are not
fundamental policies and may be changed as regulatory agencies permit.

Real Estate-Related Instruments - Value Fund

Real Estate-Related Instruments include real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors such as
changes in real estate values and property taxes, interest rates, cash flow
of underlying real estate assets, over building, and the management skill and
creditworthiness of the issuer. Real estate-related instruments may also be
affected by tax and regulatory requirements, such as those relating to the
environment.

Futures Contracts - Value Fund

When the Fund purchases a futures contract, it agrees to purchase a
specified underlying instrument at a specified future date. When the Fund
sells a futures contract, it agrees to sell the underlying instrument at a
specified future date. The price at which the purchase and sale will take
place is fixed when the Fund enters into the contract. Some currently
available futures contracts are based on specific securities, such as U.S.
Treasury bonds or notes, and some are based on indices of securities prices,
such as the Standard & Poor's 500 Composite Stock Price Index (S&P 500).
Futures can be held until their delivery dates, or can be closed out before
then if a liquid secondary market is available. The value of a futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Fund's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying
instrument directly. When the Fund sells a futures contract, by contrast,
the value of its futures position will tend to move in a direction contrary
to the market. Selling futures contracts, therefore will tend to offset both
positive and negative market price changes, much as if the underlying
instrument had been sold.

Futures Margin Payments - Value Fund

The purchaser or seller of a futures contract is not required to deliver
or pay for the underlying instrument unless the contract is held until the
delivery date. However both the purchaser and seller are required to deposit
"initial margin" with a futures broker, known as a futures commission
merchant (FCM), when the contract is entered into. Initial margin deposits
are typically equal to a percentage of the contract's value. If either
party's position declines, that party will be required to make additional
"variation margin" payments to settle the change in value on a daily basis.
The party that has a gain may be entitled to receive all or a portion of this
amount. Initial and variation margin payments do not constitute purchasing
securities on margin for purposes of the Fund's investment limitations. In
the event of the bankruptcy of an FCM that holds margin on behalf of the
Fund, the Fund may be entitled to return of margin owed to it only in
proportion to the amount received by the FCM's other customers, potentially
resulting in losses to the Fund.

Purchasing Put and Call Options - Value Fund

By purchasing a put option, the Fund obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed strike
price. In return for this right, the Fund pays the current market price for
the option (known as the option premium). Options have various types of
underlying instruments, including specific securities, indices of securities
prices, and futures contracts. The Fund may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option.
If the option is allowed to expire, the Fund will lose the entire premium it
paid. If the Fund exercises the option, it completes the sale of the
underlying instrument at the strike price. The Fund may also terminate a put
option position by closing it out in the secondary market at its current
price, if a liquid secondary market exists.

The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying instrument's
price does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium paid,
plus related transaction costs).

The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost
of the option.

Writing Put and Call Options - Value Fund

When the Fund writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the
premium, the Fund assumes the obligation to pay the strike price for the
option's underlying instrument if the other party to the option chooses to
exercise it. When writing an option on a futures contract the Fund will be
required to make margin payments to an FCM as described above for futures
contracts. The Fund may seek to terminate its position in a put option it
writes before exercise by closing out the option in the secondary market at
its current price. If the secondary market is not liquid for a put option
the Fund has written, however, the Fund must continue to be prepared to pay
the strike price while the option is outstanding, regardless of price
changes, and must continue to set aside assets to cover its position.

If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received.
If security prices remain the same over time, it is likely that the writer
will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer
a loss. This loss should be less than the loss from purchasing the
underlying instrument directly, however, because the premium received for
writing the option should mitigate the effects of the decline. Writing a
call option obligates the Fund to sell or deliver the option's underlying
instrument, in return for the strike price, upon exercise of the option. The
characteristics of writing call options are similar to those of writing put
options, except that writing calls generally is a profitable strategy if
prices remain the same or fall. Through receipt of the option premium, a
call writer mitigates the effects of a price decline.

At the same time, because a call writer must be prepared to deliver the
underlying instrument in return for the strike price, even if its current
value is greater, a call writer gives up some ability to participate in
security price increases.

Combined Positions - Value Fund

The Fund may purchase and write options in combination with each other,
or in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, the Fund may
purchase a put option and write a call option on the same underlying
instrument, in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of the
written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.

Correlation of Price Changes - Value Fund

Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts available
will not match the Fund's current or anticipated investments exactly. The
Fund may invest in options and futures contracts based on securities with
different issuers, maturities, or other characteristics from the securities
in which it typically invests, which involves a risk that the options or
futures position will not track the performance of the Fund's other
investments. Options and futures prices can also diverge from the prices of
their underlying instruments, even if the underlying instruments match the
Fund's investments well. Options and futures prices are affected by such
factors as current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until
expiration of the contract, which may not affect security prices the same
way. Imperfect correlation may also result from differing levels of demand
in the options and futures markets and the securities markets, from
structural differences in how options and futures and securities are traded,
or from imposition of daily price fluctuation limits or trading halts. The
Fund may purchase or sell options and futures contracts with a greater or
lesser value than the securities it wishes to hedge or intends to purchase in
order to attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in all
cases. If price changes in the Fund's options or futures positions are
poorly correlated with its other investments, the positions may fail to
produce anticipated gains or result in losses that are not offset by gains in
other investments.

Liquidity of Options and Futures Contracts - Value Fund

There is no assurance a liquid secondary market will exist for any
particular options or futures contract at any particular time. Options may
have relatively low trading volume and liquidity if their strike prices are
not close to the underlying instrument's current price. In addition,
exchanges may establish daily price fluctuation limits for options and
futures contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when
the price fluctuation limit is reached or a trading halt is imposed, it may
be impossible for the Fund to enter into new positions or close out existing
positions. If the secondary market for a contract is not liquid because of
price fluctuation limits or otherwise, it could prevent prompt liquidation of
unfavorable positions, and potentially could require the Fund to continue to
hold a position until delivery or expiration regardless of changes in its
value. As a result, the Fund's access to other assets held to cover its
options or futures positions could also be impaired.

OTC Options - Value Fund

Unlike exchange-traded options, which are standardized with respect to
the underlying instrument, expiration date, contract size, and strike price,
the terms of over-the-counter options (options not traded on exchanges)
generally are established through negotiation with the other party to the
option contract. While this type of arrangement allows the Fund greater
flexibility to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded. The staff of
the SEC currently takes the position that OTC options are illiquid, and
investments by the Fund in those instruments are subject to the Fund's
limitation on investing no more than 10% of its assets in illiquid
instruments.

Option and Futures Relating to Foreign Currencies - Value Fund

Currency futures contracts are similar to forward currency exchange
contracts, except that they are traded on exchanges (and have margin
requirements) and are standardized as to contract size and delivery date.
Most currency futures contracts call for payment or delivery in U.S. dollars.
The underlying instrument of a currency option may be a foreign currency,
which generally is purchased or delivered in exchange for U.S. dollars, or
may be a futures contract. The purchaser of a currency call obtains the
right to purchase the underlying currency, and the purchaser of a currency
put obtains the right to sell the underlying currency.

The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed above.
The Fund may purchase and sell currency futures and may purchase and write
currency options to increase or decrease its exposure to different foreign
currencies. The Fund may also purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of
the Fund's investments. A currency hedge, for example, should protect a Yen-
denominated security from a decline in the Yen, but will not protect the Fund
against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the Fund's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to
the value of the Fund's investments exactly over time.

Asset Coverage for Futures and Options Positions - Value Fund

The Fund will comply with guidelines established by the SEC with
respect to coverage of options and futures strategies by mutual funds, and if
the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of large percentage of the
Fund's assets could impede Fund management or the Fund's ability to meet
redemption requests or other current obligations.

Short Sales - Value Fund

The Fund may enter into short sales with respect to stocks underlying
its convertible security holdings. For example, if TMC anticipates a decline
in the price of the stock underlying a convertible security the Fund holds,
it may sell the stock short. If the stock price subsequently declines, the
proceeds of the short sale could be expected to offset all or a portion of
the effect of the stock's decline on the value of the convertible security.
The Fund currently intends to hedge no more than 15% of its total assets with
short sales on equity securities underlying its convertible security holdings
under normal circumstances. When the Fund enters into a short sale, it will
be required to set aside securities equivalent in kind and amount to those
sold short (or securities convertible or exchangeable into such securities)
and will be required to continue to hold them while the short sale is
outstanding. The Fund will incur transaction costs, including interest
expense, in connection with opening, maintaining , and closing short sales.

INVESTMENT LIMITATIONS

Investment Limitations - Limited Term National Fund and
Limited Term California Fund

Thornburg Limited Term Municipal Fund, Inc. has adopted the following
fundamental investment policies applicable to each of Limited Term National
Fund and Limited Term California Fund which may not be changed unless
approved by a majority of the outstanding shares of each Fund. No Fund may:

(4) Pledge, mortgage or hypothecate its assets, except to secure
borrowings permitted by subparagraph (3) above;

(5) Issue senior securities as defined in the Investment Company Act of
1940, except insofar as the Fund may be deemed to have issued a senior
security by reason of (a) entering into any repurchase agreement; (b)
purchasing any securities on a when-issued or delayed delivery basis; or (c)
borrowing money in accordance with the restrictions described above;

(6) Underwrite any issue of securities, except to the extent that, in
connection with the disposition of portfolio securities, it may be deemed to
be an underwriter under the federal securities laws;

(7) Purchase or sell real estate and real estate mortgage loans, but
this shall not prevent the Fund from investing in Municipal Obligations
secured by real estate or interests therein;

(8) Purchase or sell commodities or commodity futures contracts or oil,
gas or other mineral exploration or development programs;

(10) Make short sales of securities or purchase any securities on
margin, except for such short-term credits as are necessary for the clearance
of transactions;

(12) Invest more than 5% of its total assets in securities of unseasoned
issuers which, together with their predecessors, have been in operation for
less than three years excluding (i) obligations of, or guaranteed by, the
United States government, its agencies, instrumentalities and authorities
and (ii) obligations secured by the pledge of the faith, credit and taxing
power of any entity authorized to issue Municipal Obligations;

(13) Invest more than 5% of its total assets in securities which the
Fund is restricted from selling to the public without registration under the
Securities Act of 1933;

(14) Purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of any such issuer
to be held by the Fund;

(15) Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;

For the purpose of applying the limitations set forth in paragraphs (2)
and (12) above, an issuer shall be deemed a separate issuer when its assets
and revenues are separate from other governmental entities and its securities
are backed only by its assets and revenues. Similarly, in the case of a
nongovernmental user, such as an industrial corporation or a privately owned
or operated hospital, if the security is backed only by the assets and
revenues of the nongovernmental user, then such nongovernmental user would be
deemed to be the sole issuer. Where a security is also guaranteed by the
enforceable obligation of another entity it shall also be included in the
computation of securities owned that are issued by such other entity. In
addition, for purposes of paragraph (2) above, a remarketing party entering
into a remarketing agreement with a Fund as described in the Prospectus or
this Statement of Additional Information shall not be deemed an "issuer" of a
security or a "guarantor" of a Municipal Lease subject to that agreement.

Neither of these Funds will purchase securities if, as a result, more
than 25% of the Fund's total assets would be invested in any one industry.
However, this restriction will not apply to purchases of (i) securities of
the United States government and its agencies, instrumentalities and
authorities, or (ii) tax exempt securities issued by different governments,
agencies, or political subdivisions, because these issuers are not considered
to be members of any one industry.

Although each of these Funds has the right to pledge, mortgage or
hypothecate its assets in order to comply with certain state statutes on
investment restrictions, a Fund will not, as a matter of operating policy
(which policy may be changed by the Board of Directors without shareholder
approval), pledge, mortgage or hypothecate its portfolio securities to the
extent that at any time the percentage of pledged securities will exceed
10%of its total assets.

In the event the Limited Term National Fund or the Limited Term
California Fund acquires disposable assets as a result of the exercise of a
security interest relating to Municipal Obligations, the Fund will dispose of
such assets as promptly as possible.

Investment Limitations - Intermediate National Fund

Thornburg Investment Trust has adopted the following fundamental
investment policies respecting the Intermediate National Fund which may not
be changed unless approved by a majority of the outstanding shares of the
Fund.

The Intermediate National Fund may not:

(2) The Intermediate National Fund may not purchase any security if, as
a result, more than 5% of its total assets would be invested in securities of
any one issuer, excluding obligations of, or guaranteed by, the United States
government, its agencies, instrumentalities and authorities;

(4) Pledge, mortgage or hypothecate its assets, except to secure
borrowings permitted by subparagraph (3) above;

(5) Issue senior securities as defined in the Investment Company Act of
1940, except insofar as the Fund may be deemed to have issued a senior
security by reason of (a) entering into any repurchase agreement; (b)
purchasing any securities on a when-issued or delayed delivery basis; or (c)
borrowing money in accordance with the restrictions described above;

(6) Underwrite any issue of securities, except to the extent that, in
connection with the disposition of portfolio securities, it may be deemed to
be an underwriter under the federal securities laws;

(7) Purchase or sell real estate and real estate mortgage loans, but
this shall not prevent the Fund from investing in Municipal Obligations
secured by real estate or interests therein;

(8) Purchase or sell commodities or commodity futures contracts or oil,
gas or other mineral exploration or development programs;

(10) Make short sales of securities or purchase any securities on
margin, except for such short-term credits as are necessary for the clearance
of transactions;

(12) Invest more than 5% of its total assets in securities of unseasoned
issuers which, together with their predecessors, have been in operation for
less than three years excluding (i) obligations of, or guaranteed by, the
United States government, its agencies, instrumentalities and authorities and
(ii) obligations secured by the pledge of the faith, credit and taxing power
of any entity authorized to issue Municipal Obligations;

(13) Invest more than 5% of its total assets in securities which the
Fund is restricted from selling to the public without registration under the
Securities Act of 1933;

(14) Purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of any such issuer
to be held by the Fund;

(15) Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;

(17) Purchase or retain the securities of any issuer other than the
securities issued by the Fund itself if, to the Fund's knowledge, those
officers and trustees of the Fund, or those officers and directors of TMC,
who individually own beneficially more than 1/2 of 1% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
outstanding securities; or

(18) Purchase the securities of any issuer if as a result more than 10%
of the value of the Fund's net assets would be invested in restricted
securities, unmarketable securities and other illiquid securities (including
repurchase agreements of more than seven days maturity and other securities
which are not readily marketable).

For the purpose of applying the limitations set forth in paragraphs (2)
and (12) above, an issuer shall be deemed a separate issuer when its assets
and revenues are separate from other governmental entities and its securities
are backed only by its assets and revenues. Similarly, in the case of a
nongovernmental user, such as an industrial corporation or a privately owned
or operated hospital, if the security is backed only by the assets and
revenues of the nongovernmental user, then the nongovernmental user would be
deemed to be the sole issuer. Where a security is also guaranteed by the
enforceable obligation of another entity it shall also be included in the
computation of securities owned that are issued by such other entity. In
addition, for purposes of paragraph (2) above, a remarketing party entering
into a remarketing agreement with the Fund as described in the Prospectus or
in this Statement of Additional Information shall not be deemed an "issuer"
of a security or a "guarantor" pursuant to the agreement.

With respect to temporary investments, in addition to the foregoing
limitations the Intermediate National Fund will not enter into a repurchase
agreement if, as a result thereof, more than 5% of its net assets would be
subject to repurchase agreements.

Although the Fund has the right to pledge, mortgage or hypothecate its
assets, in order to comply with certain state statutes on investment
restrictions, the Fund will not, as a matter of operating policy (which
policy may be changed by its Trustees without shareholder approval), pledge,
mortgage or hypothecate its portfolio securities to the extent that at any
time the percentage of pledged securities will exceed 10% of its total
assets.

In the event the Fund acquires disposable assets as a result of the
exercise of a security interest relating to Municipal Obligations, it will
dispose of such assets as promptly as possible.

Investment Limitations - Government Fund

As a matter of fundamental investment policy, the Government Fund will
not:

(1) Invest more than 20% of the Fund's total assets in securities other
than obligations issued or guaranteed by the United States Government or its
agencies, instrumentalities and authorities, or in participations in such
obligations or repurchase agreements secured by such obligations, generally
described (but not limited) under the heading "Types of Obligations the Fund
May Acquire", and then only in the nongovernmental obligations described in
the Prospectus;

(3) Borrow money, except (a) as a temporary measure, and then only in
amounts not exceeding 5% of the value of the Fund's total assets or (b) from
banks, provided that immediately after any such borrowing all borrowings of
the Fund do not exceed 10% of the Fund's total assets. The exceptions to
this restriction are not for investment leverage purposes but are solely for
extraordinary or emergency purchases or to facilitate management of the
Fund's portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio instruments is deemed to be disadvantageous. The
Fund will not purchase securities while borrowings are outstanding. For
purposes of this restriction (i) the security arrangements described in
restriction (4) below will not be considered as borrowing money, and (ii)
reverse repurchase agreements will be considered as borrowing money;

(4) Mortgage, pledge or hypothecate any assets except to secure
permitted borrowings. Arrangements to segregate assets with the Fund's
custodian with respect to when-issued and delayed delivery transactions, and
reverse repurchase agreements, and deposits made in connection with futures
contracts, will not be considered a mortgage, pledge or hypothecation of
assets;

(5) Underwrite any issue of securities, except to the extent that, in
connection with the disposition of portfolio securities, it may be deemed to
be an underwriter under federal securities laws;

(6) Purchase or sell real estate and real estate mortgage loans, but
this shall not prevent the Fund from investing in obligations of the U.S.
Government or its agencies, relating to real estate mortgages as described
generally in the Prospectus;

(7) Purchase or sell commodities or commodity futures contracts or oil,
gas or other mineral exploration or development programs. Investment in
futures contracts respecting securities and in options on these futures
contracts will not be considered investment in commodity futures contracts;

(8) Make loans, except through (a) the purchase of debt obligations in
accordance with the Fund's investment objectives and policies; (b) repurchase
agreements with banks, brokers, dealers and other financial institutions; and
(c) loans of securities;

(9) Purchase any security on margin, except for such short-term credits
as are necessary for the clearance of transactions. For purposes of this
restriction, the Fund's entry into futures contracts will not be considered
the purchase of securities on margin;

(10) Make short sales of securities;

(11) Invest more than 5% of its total assets in securities of unseasoned
issuers which, together with their predecessors, have been in operation for
less than three years excluding obligations of, or guaranteed by, the United
States government, its agencies, instrumentalities and authorities;

(12) Invest more than 5% of its total assets in securities which the
Fund is restricted from selling to the public without registration under the
Securities Act of 1933. The Fund has no present intention to purchase any
such restricted securities;

(13) Purchase securities of any issuer if the purchase at the time
thereof would cause more than 10% of the voting securities or more than 10%
of any class of securities of any such issuer to be held by the Fund;

(14) Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;

(15) Purchase securities (other than securities of the United States
government, its agencies, instrumentalities and authorities) if, as a result,
more than 25% of the Fund's total assets would be invested in any one
industry;

(16) Purchase or retain the securities of any issuer other than the
securities of the Fund if, to the Fund's knowledge, those officers and
Trustees of the Fund, or those officers and directors of TMC, who
individually own beneficially more than 1/2 of 1% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
outstanding securities;

(17) Enter into any reverse repurchase agreement if, as a result thereof,
more than 5% of its total assets would be subject to its obligations under
reverse purchase agreements at any time;

(18) Purchase or sell any futures contract if, as a result thereof, the
sum of the amount of margin deposits on the Fund's existing futures positions
and the amount of premiums paid for related options would exceed 5% of the
Fund's total assets;

(19) Purchase any put or call option not related to a futures contract;

(20) Purchase the securities of any issuer if as a result more than 10%
of the value of the Fund's net assets would be invested in securities which
are considered illiquid because they are subject to legal or contractual
restrictions on resale ("restricted securities") or because no market
quotations are readily available; or enter into a repurchase agreement
maturing in more than seven days, if as a result such repurchase agreements
together with restricted securities and securities for which there are no
readily available market quotations would constitute more than 10% of the
Fund's net assets; or

(21) Issue senior securities, as defined under the Investment Company
Act of 1940, except that the Fund may enter into repurchase agreements and
reverse repurchase agreements, lend its portfolio securities, borrow, and
enter into when-issued and delayed delivery transactions as described in the
Prospectus or this Statement of Additional Information and as limited by the
foregoing investment limitations.

Whenever an investment policy or restriction states a minimum or maximum
percentage of the Government Fund's assets which may be invested in any
security or other assets, it is intended that the minimum or maximum
percentage limitations will be determined immediately after and as a result
of the Fund's acquisition of the security or asset. Accordingly, any later
increase or decrease in the relative percentage of value represented by the
asset or security resulting from changes in asset values will not be
considered a violation of these restrictions.

Although the Government Fund has the right to pledge, mortgage or
hypothecate its assets subject to the restrictions described above, in order
to comply with certain state statutes on investment restrictions, the Fund
will not, as a matter of operating policy (which policy may be changed by the
Trustees without shareholder approval), mortgage, pledge or hypothecate its
portfolio securities to the extent that at any time the percentage of pledged
securities will exceed 10% of its total assets.

Investment Limitations - Income Fund

As a matter of fundamental policy, the Income Fund may not:

(1) with respect to 75% of its total assets taken at market value,
purchase more than 10% of the voting securities of any one issuer or invest
more than 5% of the value of its total assets in the securities of any one
issuer, except obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and except securities of other investment
companies;

(2) borrow money, except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase
agreements; provided that the Fund maintains asset coverage of 300% for all
borrowings;

(3) purchase or sell real estate (except that the Fund may invest in
(i) securities of companies which deal in real estate or mortgages, and (ii)
securities secured by real estate or interests therein and that the Fund
reserves freedom of action to hold and sell real estate acquired as a result
of the Fund's ownership of securities) or purchase or sell physical
commodities or contracts relating to physical commodities;

(4) act as underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Fund;

(5) make loans to any other person, except (a) loans of portfolio
securities, and (b) to the extent that the entry into repurchase agreements
and the purchase of debt securities in accordance with its investment
objectives and investment policies may be deemed to be loans;

(6) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except for shares of the
separate classes of a fund or series of the Trust provided that collateral
arrangements with respect to currency-related contracts, futures contracts,
options, or other permitted investments, including deposits of initial and
variation margin, are not considered to be the issuance of senior securities
for purposes of this restriction;

(7) purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase to be invested
in the securities of one or more issuers having their principal business
activities in the same industry, provided that there is no limitation with
respect to investments in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities (for the purposes of this
restriction, telephone companies are considered to be in a separate industry
from gas and electric public utilities, and wholly-owned finance companies
are considered to be in the industry of their parents if their activities are
primarily related to financing the activities of the parents).

As a matter of non-fundamental policy the Income Fund may not:

(a) purchase or retain securities of any open-end investment company,
or securities of any closed-end investment company except by purchase in the
open market where no commission or profit to a sponsor or dealer results from
such purchases, or except when such purchase, though not made in the open
market, is part of a plan of merger, consolidation, reorganization or
acquisition of assets. The Fund will not acquire any security issued by
another investment company ( the "acquired company") if the Fund thereby
would own (i) more than 3% of the total outstanding voting securities of the
acquired company, or (ii) securities issued by the acquired company having an
aggregate value exceeding 5% of the Fund's total assets, or (iii) securities
issued by investment companies having an aggregate value exceeding 10% of the
Fund's total assets;

(b) pledge, mortgage or hypothecate its assets in excess, together with
permitted borrowings, of 1/3 of its total assets;

(c) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Fund
or a member, officer, director or trustee of the investment adviser of the
Fund if one or more of such individuals owns beneficially more than one-half
of one percent (1/2%) of the outstanding shares or securities or both (taken
at market value) of such issuer and such shares or securities together own
beneficially more than 5% of such shares or securities or both;

(d) purchase securities on margin or make short sales, unless, by
virtue of its ownership of other securities, it has the right to obtain
securities equivalent in kind and amount to the securities sold and, if the
right is conditional, the sale is made upon the same conditions, except in
connection with arbitrage transactions, and except that the Fund may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities;

(e) invest more than 15% of its net assets in the aggregate in
securities which are not readily marketable, the disposition of which is
restricted under Federal securities laws, and in repurchase agreements not
terminable within 7 days provided the Fund will not invest more than 5% of
its total assets in restricted securities;

(f) purchase securities of any issuers with a record of less than three
years of continuous operations, including predecessors, except U.S.
government securities, securities of such issuers which are rated by at least
one nationally recognized statistical rating organization, municipal
obligations and obligations issued or guaranteed by any foreign government or
its agencies or instrumentalities, if such purchase would cause the
investments of the Fund in all such issuers to exceed 5% of the total assets
of the Fund taken at market value;

(g) purchase more than 10% of the voting securities of any one issuer,
except securities issued by the U.S. Government, its agencies or
instrumentalities;

(h) buy options on securities or financial instruments, unless the
aggregate premiums paid on all such options held by the Fund at any time do
not exceed 20% of its net assets; or sell put options in securities if, as a
result, the aggregate value of the obligations underlying such put options
(together with other assets then segregated to cover the Fund's potential
obligations under its hedging, duration management, risk management and other
Strategic Transactions other than those with respect to futures and options
thereon) would exceed 50% of the Fund's net assets;

(i) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial margin
with respect to all futures contracts entered into on behalf of the Fund and
the premiums paid for options on futures contracts does not exceed 5% of the
fair market value of the Fund's total assets; provided that in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount
may be excluded in computing the 5% limit;

(j) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which own or invest
in such interests);

(k) borrow money except as a temporary measure, and then not in excess
of 5% of its total assets (taken at market value) unless the borrowing is
from banks, in which case the percentage limitation is 10%; reverse
repurchase agreements and dollar rolls will be considered borrowings for this
purpose, and will be further subject to total asset coverage of 300% for such
agreements;

(l) purchase warrants if as a result warrants taken at the lower of
cost or market value would represent more than 5% of the value of the Fund's
total net assets or more than 2% of its net assets in warrants that are not
listed on the New York or American Stock Exchanges or on an exchange with
comparable listing requirements (for this purpose, warrants attached to
securities will be deemed to have no value); or

(m) make securities loans if the value of such securities loaned
exceeds 30% of the value of the Fund's total assets at the time any loan is
made; all loans of portfolio securities will be fully collateralized and
marked to market daily. The Fund has no current intention of making loans of
portfolio securities that would amount to greater than 5% of the Fund's total
assets;

(n) purchase or sell real estate limited partnership interests.

Restrictions with respect to repurchase agreements shall be construed to be
for repurchase agreements entered into for the investment of available cash
consistent with the Income Fund's repurchase agreement procedures, not
repurchase commitments entered into for general investment purposes.

Investment Limitations - Value Fund

The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of the Fund's assets that may be
invested in any security or other asset, that percentage limitation will be
determined immediately after and as a result of the Fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the Fund's investment policies and
limitations.

The Fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting securities"
(as defined in the Investment Company Act of 1940) of the Fund. THE
FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN
THEIR ENTIRETY. THE FUND MAY NOT:

(1) with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the Fund's total assets would be invested in the
securities of that issuer, or (b) the Fund would hold more than 10% of the
outstanding voting securities of that issuer;

(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;

(3) borrow money, except for temporary or emergency purposes or except
in connection with reverse repurchase agreements; in an amount not exceeding
33 1/3% of its total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that come to exceed this amount will
be reduced within three days (not including Sundays and holidays) to the
extent necessary to comply with the 33 1/3% limitation;

(4) underwrite any issue of securities (except to the extent that the
Fund may be deemed to be an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities);

(5) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total assets
would be invested in the securities of companies whose principal business
activities are in the same industry;

(6) purchase or sell real estate unless acquired as a result or
ownership of securities or other instruments (but this shall not prevent the
Fund from investing in securities or other instruments backed by real estate
or securities of companies engaged in the real estate business);

(7) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not prevent
the Fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical commodities);
or

(8) lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.

THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL:

(i) The Fund does not currently intend to sell securities short, unless
it owns or has the right to obtain securities equivalent in kind and amount
to the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.

(ii) The Fund does not currently intend to purchase securities on
margin, except that the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.

(iii) The Fund may borrow money only (a) from a bank or (b) by engaging
in reverse repurchase agreements with any party. The Fund will not purchase
any security while borrowings representing more than 5% of its total assets
are outstanding.

(iv) The Fund does not currently intend to purchase any security if, as
a result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or disposed
of in the ordinary course of business at approximately the prices at which
they are valued.

(v) The Fund does not currently intend to purchase interests in real
estate investment trusts that are not readily marketable or interests in real
estate limited partnerships that are not listed on an exchange or traded on
the NASDAQ National Market System if, as a result, the sum of such interests
and other investments considered illiquid under the limitation in the
preceding paragraph would exceed the Fund's limitations on investments in
illiquid securities.

(vi) The Fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.

(vii) The Fund does not currently intend to purchase the securities of
any issuer (other than securities issue or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5%
of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation.

(viii) The Fund does not currently intend to purchase warrants, valued
at the lower of cost or market, in excess of 5% of the Fund's net assets.
Included in that amount, but not to exceed 2% of the Fund's net assets, may
be warrants that are not listed on the New York Stock Exchange or the
American Stock exchange. Warrants acquired by the Fund in units or attached
to securities are not subject to these restrictions.

(ix) The Fund does not currently intend to invest in oil, gas or other
mineral exploration or development programs or leases.

(x) The Fund does not currently intend to purchase the securities of
any issuer if those officers and Trustees of the trust and those officers and
directors of TMC who individually own more than 1/2 of 1% of the securities
of such issuer together own more than 5% of such issuer's securities.

For the Fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions" beginning
on page 39.

YIELD AND RETURN COMPUTATION

Performance and Portfolio Information - Municipal Funds and Taxable Income
Funds

The yield and return of a Fund or any Fund class may, from time to time,
be quoted in reports, sales literature and advertisements published by the
Fund, the Distributor, or investment dealers offering the Fund. Any such
quotation must include a standardized calculation which computes yield for a
30-day or one month period by dividing net investment income per share
during the period by the maximum offering price on the last day of the
period. The standardized calculation will include the effect of semiannual
compounding and will reflect amortization of premiums for those bonds which
have a market value in excess of par. New schedules based on market value
will be computed each month for amortizing premiums. With respect to
mortgage-backed securities or other receivables-backed obligations, the Fund
will amortize the discount or premium on the outstanding principal balance,
based upon the cost of the security, over the remaining term of the security.
Gains or losses attributable to actual monthly paydowns on mortgage-backed
obligations will be reflected as increases or decreases to interest income
during the period when such gains or losses are realized. Provided that any
such quotation is also accompanied by the standardized calculation referred
to above, a Fund may also quote non-standardized performance data for a
specified period by dividing the net investment income per share for that
period by either the Fund's average public offering price per share for that
same period or the offering price per share on the first or last day of the
period, and multiplying the result by 365 divided by the number of days in
the specified period. For purposes of this non-standardized calculation, net
investment income will include accrued interest income plus or minus any
amortized purchase discount or premium less all accrued expenses. The
primary differences between the results obtained using the standardized
performance measure and any non-standardized performance measure will be
caused by the following factors: (1) The non-standardized calculation may
cover periods other than the 30-day or one month period required by the
standardized calculation; (2) The non-standardized calculation may reflect
amortization of premium based upon historical cost rather than market value;
(3) The non-standardized calculation may reflect the average offering price
per share for the period or the beginning offering price per share for the
period, whereas the standardized calculation always will reflect the maximum
offering price per share on the last day of the period; (4) The
non-standardized calculation may reflect an offering price per share other
than the maximum offering price, provided that any time the Fund's return is
quoted in reports, sales literature or advertisements using a public offering
price which is less than the Fund's maximum public offering price, the return
computed by using the Fund's maximum public offering price also will be
quoted in the same piece; (5) The non-standardized return quotation may
include the effective return obtained by compounding the monthly dividends.

Any performance quotation also must include average annual total return
quotation for the one, 5 and 10 year period ended on the date of the most
recent balance sheet included in the registration statement, computed by
finding the average annual compounded rates of return over such periods that
would equate the initial amount invested at the maximum public offering price
to the ending redeemable value. To the extent that a Fund has been in
operation less than one, 5 or 10 years, the time period during which the Fund
has been in operation will be substituted for any one, 5 or 10 year period
for which a total return quotation is not obtainable.

Any quoted performance should not be considered a representation of the
performance in the future since the performance is not fixed. Actual
performance will depend not only the type, quality and maturities of the
investments held by the Fund and changes in interest rates on such
investments, but also on changes in the Fund's expenses during the period.
In addition, a change in the Fund's net asset value will affect its
performance.

From time to time, in advertisements and other types of literature, the
performance of the Municipal Funds or the Taxable Income Funds may be
compared to other groups of mutual funds. This comparative performance may
be expressed as a ranking prepared by Lipper Analytical Services, Inc. or
other widely recognized independent services which monitor the performance of
mutual funds. These performance analyses ordinarily will include the
reinvestment of dividends and capital gains distributions, but do not take
sales charges into consideration and are prepared without regard to tax
consequences. Performance rankings and ratings reported periodically in
national financial publications such as MONEY magazine, FORBES and BARRON's
also may be used.

A Municipal Fund or a Taxable Income Fund also may illustrate
performance or the characteristics of its investment portfolio through
graphs, tabular data or other displays which describe (i) the average
portfolio maturity of the Fund's portfolio securities relative to the
maturities of other investments, (ii) the relationship of yield and maturity
of the Fund to the yield and maturity of other investments (either as a
comparison or through use of standard bench marks or indices such as the
Treasury yield curve), (iii) changes in the Fund's share price or net asset
value in some cases relative to changes in the value of other investments,
and (iv) the relationship over time of changes in the Fund's (or other
investments') net asset value or price and the Fund's (or other investments')
investment return.

Yield and return information may be used in reviewing the performance of
a Fund's investments and for providing a basis for comparison with other
investment alternatives. However, each Fund's return fluctuates, unlike
certain bank deposits or other investments which pay a fixed return for a
stated period of time.

Performance and Portfolio Information - Value Fund

The Fund may quote performance in various ways. All performance
information supplied by the Fund in advertising is historical and is not
intended to indicate future returns. The Fund's share price, yield, and
total return fluctuate in response to market conditions and other factors,
and the value of the Fund shares when redeemed may be more or less than
their original cost.

Yields for the Fund are computed by dividing the Fund's interest and
dividend income for a given 30-day or one-month period, net of expenses, by
the average number of shares entitled to receive distributions during the
period, dividing this figure by the Fund's offering price at the end of the
period, and annualizing the result (assuming compounding of income) in order
to arrive at an annual percentage rate. In addition, the Fund may use the
same method to obtain yields for 90-day or quarterly periods. Income is
calculated for purposes of yield quotations in accordance with standardized
methods applicable to all stock and bond funds. Dividends from equity
investments are treated as if they were accrued on a daily basis, solely for
the purposes of yield calculations. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and is
increased with respect to bonds trading at a discount by adding a portion of
the discount to daily income. For the Fund's investments denominated in
foreign currencies, income and expenses are calculated first in their
respective currencies, and are then converted to U.S. dollars, either when
they are actually converted or at the end of the 30-day or one month period,
whichever is earlier. Capital gains and losses generally are excluded from
the calculation as are gains and losses from currency exchange rate
fluctuations.

Income calculated for the purposes of calculating the Fund's yield
differs from income as determined for other accounting purposes. Because of
the different accounting methods used, and because of the compounding of
income assumed in yield calculations, the Fund's yield may not equal its
distribution rate, the income paid to a shareholder's account, or the income
reported in the Fund's financial statements.

Yield information may be useful in reviewing the Fund's performance and
in providing a basis for comparison with other investment alternatives.
However, the Fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.

Investors should recognize that in periods of declining interest rates
the Fund's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates the Fund's yield will tend to
be somewhat lower. Also, when interest rates are falling, the inflow of net
new money to the Fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the Fund's
holdings, thereby reducing the Fund's current yield. In periods of rising
interest rates, the opposite can be expected to occur.

Total returns quoted in advertising reflect all aspects of the Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value (NAV) over a
stated period. Average annual total returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in the
Fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example, a
cumulative total return of 100% over ten years would produce an average
annual return of 7.18%, which is the steady annual rate of return that would
equal 100% growth on a compounded basis in ten years. While average annual
returns are a convenient means of comparing investment alternatives,
investors should realize that the Fund's performance is not constant over
time, but changes from year to year, and the average annual returns represent
averaged figures as opposed to the actual year-to-year performance of the
Fund. In addition to average annual total returns, the Fund may quote
unaveraged or cumulative total returns reflecting the simple change in value
an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors and
their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis and may be quoted with or without taking the
Fund's maximum sales charge into account. Excluding the Fund's sales charge
from a total return calculation produces a higher total return figure. Total
returns, yields, and other performance information may be quoted numerically
or in a table, graph, or similar illustration.

Charts and graphs using the Fund's net asset values, adjusted net asset
values, and benchmark indices may be used to exhibit performance. An
adjusted NAV includes any distributions paid by the Fund and reflects all
elements of its return. Unless otherwise indicated, the Fund's adjusted
NAV's are not adjusted for sales charges, if any.

The Fund may illustrate performance using moving averages. A long-term
moving average is the average of each week's adjusted closing NAV or total
return for a specified period. A short-term moving average NAV is the
average of each day's adjusted closing NAV for a specified period. Moving
average activity indicators combine adjusted closing NAV's from the last
business day of each week with moving averages for a specified period the
produce indicators showing when an NAV has crossed, stayed above, or stayed
below its moving average.

The Fund commenced operations October 1, 1995. The Fund's performance
may be compared to the performance of other mutual funds in general, or to
the performance of particular types of mutual funds. These comparisons may
be expressed as mutual fund ranking prepared by Lipper Analytical Services,
Inc. (Lipper), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Lipper generally ranks funds on
the basis of total return, assuming reinvestment of distributions, but does
not take sales charges or redemption fees into consideration, and is prepared
without regard to tax consequences. In addition to the mutual fund rankings
the Fund's performance may be compared to stock, bond, and money market
mutual fund performance indices prepared by Lipper or other organizations.
When comparing these indices, it is important to remember the risk and return
characteristics of each type of investment. For example, while stock mutual
funds may offer higher potential returns, they also carry the highest degree
of share price volatility. Likewise, money market funds may offer greater
stability of principal, but generally do not offer the higher potential
returns from stock mutual funds. From time to time, the Fund's performance
may also be compared to other mutual funds tracked by financial or business
publications and periodicals. For example, the Fund may quote Morningstar,
Inc. in its advertising materials. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted performance.
Rankings that compare the performance of Thornburg funds to one another in
appropriate categories over specific periods of time may also be quoted in
advertising.

The Fund may be compared in advertising to Certificates of Deposit
(CD's) or other investments issued by banks or other depository institutions.
Mutual funds differ from bank investments in several respects. For example,
while the Fund may offer greater liquidity or higher potential returns than
CD's, the Fund does not guarantee a shareholder's principal or return, and
Fund shares are not FDIC insured.

TMC may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs bases on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of other
Thornburg mutual funds.

Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate
of inflation (based on the CPI), and combinations of various capital markets.
The performance of these capital markets is based on the returns of differed
indices.

The Value Fund may use the performance of these capital markets in order
to demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any of
these capital markets. The risks associated with the security types in the
capital market may or may not correspond directly to those of the Fund. The
Fund may also compare performance to that of other compilations or indices
that may be developed and made available in the future, and advertising,
sales literature and shareholder reports also may discuss aspects of periodic
investment plans, dollar cost averaging and other techniques for investing to
pay for education, retirement and other goals. In addition, the Fund may
quote or reprint financial or business publications and periodicals,
including model portfolios or allocations, as they relate to current economic
and political conditions, fund management, portfolio composition, investment
philosophy, investment techniques and the desirability of owning a particular
mutual fund. The Fund may present its fund number, Quotron (trademark)
number, and CUSIP number, and discuss or quote its current portfolio manager.

The Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Fund may compare these measures
to those of other funds. Measures of volatility seek to compare the Fund's
historical share price fluctuations or total returns to those of a benchmark.
Measures of benchmark correlation indicate how valid a comparative benchmark
may be. All measures of volatility and correlation are calculated using
averages of historical data. In advertising, the Fund may also discuss or
illustrate examples of interest rate sensitivity.

Momentum Indicators show the Fund's price movements over specific
periods of time. Each point on the momentum indicator represents the Fund's
percentage change in price movements over that period. The Fund may
advertise examples of the effects of periodic investment plans, including the
principle of dollar cost averaging. In such a program, an investor invests a
fixed dollar amount in a fund at periodic intervals, thereby purchasing fewer
shares when prices are high and more shares when prices are low. While such
a strategy does not assure a profit or guard against loss in a declining
market, the investor's average cost per share can be lower than if fixed
numbers of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing shares
during periods of low price levels. The Fund may be available for purchase
through retirement plans or other programs offering deferral of, or exemption
from, income taxes, which may produce superior after-tax returns over time.
For example, a $1,000 investment earning a taxable return of 10% annually
would have an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent tax-deferred
investment would have an after-tax value of $2,100 after ten years, assuming
tax was deducted at a 31% rate from the tax-deferred earnings at the end of
the ten-year period.

REPRESENTATIVE PERFORMANCE INFORMATION

Representative Performance Information - Limited Term National Fund
(Institutional Class)

Yield Computations

Standardized Method of Computing Yield. The yield of the Limited Term
National Fund Institutional Class shares for the 30-day period ended June 30,
1998, computed in accordance with the standardized calculation described
above, was 4.03%. This method of computing yield does not take into account
changes in net asset value.

Taxable Equivalent Yield. The Intermediate National Fund's taxable
equivalent yield for Institutional Class shares, computed in accordance with
the standardized method, using a maximum federal tax rate of 39.6%, was 6.67%
for the 30-day period ended June 30, 1998.

Average Annual Total Return. The Limited Term National Fund's
Institutional Class total return figures are set forth below for the period
shown ending June 30, 1998. Institutional Class shares were first offered on
July 5, 1996. These total return figures assume reinvestment of all
dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
5.52% N/A N/A 6.01%

Representative Performance Information - Limited Term California Fund
(Institutional Class)

Yield Computations

Standardized Method of Computing Yield. The yield of the Limited Term
California Fund Institutional Class shares for the 30-day period ended June
30, 1998, computed in accordance with the standardized calculation described
above, was 3.95%. This method of computing yield does not take into account
changes in net asset value.

Taxable Equivalent Yield. The Limited Term California Fund's taxable
equivalent yield for Institutional Class shares, computed in accordance with
the standardized method, using a maximum federal tax rate of 39.6% and a
maximum California tax rate of 9.3%, was 7.73% for the 30-day period ended
June 30, 1998.

Average Annual Total Return. The Limited Term California Fund's
Institutional Class total return figures are set forth below for the period
shown ending June 30, 1998. Institutional Class shares were first offered on
April 1, 1997. These total return figures assume reinvestment of all
dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
5.93% N/A N/A 6.47%

Representative Performance Information - Intermediate National Fund
(Institutional Class)

THE FOLLOWING DATA FOR INTERMEDIATE NATIONAL FUND REPRESENT PAST
PERFORMANCE, AND THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
IN THE FUND WILL FLUCTUATE. AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST.

Yield Computations

Standardized Method of Computing Yield. The yield of the Intermediate
National Fund Institutional Class shares for the 30-day period ended
September 30, 1998, computed in accordance with the standardized calculation
described above, was 4.06%. This method of computing yield does not take
into account changes in net asset value.

Taxable Equivalent Yield. The Intermediate National Fund's taxable
equivalent yield for Institutional Class shares, computed in accordance with
the standardized method described above using a maximum federal tax rate of
39.6% was 6.72% for the period ended September 30, 1998.

Average Annual Total Return. The Intermediate National Fund's
Institutional Class total return figures are set forth below for the period
shown ending September 30, 1998. Institutional Class shares were first
offered on July 5, 1996. These total return figures assume reinvestment of
all dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
7.41% N/A N/A 7.91%

Representative Performance Information - Government Fund
(Institutional Class)

THE FOLLOWING DATA FOR THE GOVERNMENT FUND REPRESENT PAST PERFORMANCE,
AND THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE. AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.

Yield Computations

Standardized Method of Computing Yield. The Government Fund's yield for
Institutional Class shares, computed for the 30-day period ended
September 30, 1998 in accordance with the standardized calculation described
above, was 5.75%. This method of computing yield does not take into account
changes in net asset value.

Average Annual Total Return. The Government Fund's total returns for
Institutional Class shares, computed in accordance with the total return
calculation described above, are displayed in the table below for the periods
shown ended September 30, 1998. The Government Fund commenced sales of
Institutional Class shares on July 5, 1996. "Total return," unlike the
standardized yield figures shown above, takes into account changes in net
asset value over the described periods. These data assume reinvestment of
all dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
9.06% N/A N/A 8.42% (7/5/96)

Total return figures are average annual total returns for the periods shown.

Representative Performance Information - Income Fund
(Institutional Class)

THE FOLLOWING DATA FOR THE INCOME FUND REPRESENT PAST PERFORMANCE, AND
THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL
FLUCTUATE. AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST.

Yield Computations

Standardized Method of Computing Yield. The Income Fund's yield for
Institutional Class shares, computed for the 30-day period ended
September 30, 1998 in accordance with the standardized calculation described
above, was 5.28%. This method of computing yield does not take into account
changes in net asset value.

Average Annual Total Return. The Income Fund's total returns for
Institutional Class shares, computed in accordance with the total return
calculation described above, are displayed in the table below for the periods
shown ended September 30, 1998. The Income Fund commenced sales of
Institutional Class shares on July 5, 1996. "Total return," unlike the
standardized yield figures shown above, takes into account changes in net
asset value over the described periods. These data assume reinvestment of
all dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
7.49% N/A N/A 8.68% (7/5/96)

Total return figures are average annual total returns for the periods shown.

TAXES

Federal Income Taxes - In General

Each Fund has elected and intends to qualify for treatment as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code").

If in any year a Fund fails to qualify for the treatment conferred by
Subchapter M of the Code, the Fund would be taxed as a corporation on its
income. Distributions to the shareholders would be treated as ordinary
income to the extent of the Fund's earnings and profits, and would be treated
as nontaxable returns of capital to the extent of the shareholders'
respective bases in their shares. Further distributions would be treated as
amounts received on a sale or exchange or property. Additionally, if in any
year the Fund qualified as a regulated investment company but failed to
distribute all of its net income, the Fund would be taxable on the
undistributed portion of its net income. Although each Fund intends to
distribute all of its net income currently, it could have undistributed net
income if, for example, expenses of the Fund were reduced or disallowed on
audit.

The Code imposes a nondeductible 4% excise tax on regulated investment
companies which do not distribute to shareholders by the end of each calendar
year the sum of (i) 98% of the company's net ordinary income realized in the
year, (ii) 98% of the company's net capital gain income for the 12-month
period ending on October 31 of that year, and (iii) the excess of (A) the sum
of the amounts in (i) and (ii) for the prior calendar year plus all amounts
from earlier years which are not treated as having been distributed under
this provision, over (B) actual distributions for the preceding calendar
years. The effect of this excise tax will be to cause each Fund to
distribute substantially all of its income during the calendar year in which
the income is earned. Shareholders will be taxed on the full amount of the
distribution declared by their Fund for each such year, including declared
distributions not actually paid until January 31 of the next calendar year.

Each shareholder will be notified annually by their Fund as to the
amount and characterization of distributions paid to or reinvested by the
shareholder for the preceding taxable year. The Fund may be required to
withhold federal income tax at a rate of 31% from distributions otherwise
payable to a shareholder if (i) the shareholder has failed to furnish the
Fund with his taxpayer identification number, (ii) the Fund is notified that
the shareholder's number is incorrect, (iii) the Internal Revenue Service
notifies the Fund that the shareholder has failed properly to report certain
income, or (iv) when required to do so, the shareholder fails to certify
under penalty of perjury that he is not subject to this withholding.

Effective for sales charges incurred after October 3, 1989 if the
shareholder disposes of shares within 90 days after purchasing them, and
later acquires shares for which the sales charge is eliminated or reduced
pursuant to a reinvestment right, then the original sales charge to the
extent of the reduction is not included in the basis of the shares sold for
determining gain or loss. Instead, the reduction is included in determining
the basis of the reinvested shares.

Distributions by a Fund result in a reduction in the net asset value of
the Fund's shares. Should distributions reduce the net asset value below a
shareholder's cost basis, the distribution would nevertheless be taxable to
the shareholder as ordinary income or capital gain as described above, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those
purchasing just prior to a distribution will then receive a partial return of
capital upon the distribution, which will nevertheless be taxable to them.

If a Fund holds zero coupon securities or other securities which are
issued at discount, a portion of the difference between the issue price and
the face amount of zero coupon securities ("original issue discount") will be
treated as ordinary income if the Fund holds securities with original issue
discount each year, although no current payments will be received by the Fund
with respect to that income. This original issue discount will comprise a
part of that investment company taxable income of the Fund which must be
distributed to shareholders in order to maintain its qualification as a
regulated investment company and to avoid federal income tax on the Fund.
Taxable shareholders of the Fund will be subject to income tax on original
issue discount, whether or not they elect to receive their distributions in
cash.

Federal Income Taxation - Municipal Funds

The Municipal Funds each intend to satisfy conditions (including
requirements as to the proportion of its assets invested in Municipal
Obligations) which will enable each Fund to designate distributions from the
interest income generated by its investments in Municipal Obligations, which
are exempt from federal income tax when received by the Fund, as Exempt
Interest Dividends. Shareholders receiving Exempt Interest Dividends will
not be subject to federal income tax on the amount of those dividends, except
to the extent the alternative minimum tax may apply. A Municipal Fund would
be unable to make Exempt Interest Dividends if, at the close of any quarter
of its taxable year, more than 50% of the value of the Fund's total assets
consisted of assets other than Municipal Obligations. Additionally, if in
any year the Fund qualified as a regulated investment company but failed to
distribute all of its net income, the Fund would be taxable on the
undistributed portion of its net income. Although each Fund intends to
distribute all of its net income currently, it could have undistributed net
income if, for example, expenses of the Fund were reduced or disallowed on
audit.

Shares of a Municipal Fund may not be an appropriate investment for
persons who are "substantial users" of facilities financed by industrial
development bonds (including any Municipal Lease that may be deemed to
constitute an industrial development bond) or persons related to such
"substantial users". Such persons should consult their own tax advisers
before investing in shares.

Distributions by each Municipal Fund of net interest income received
from certain temporary investments (such as certificates of deposit,
commercial paper and obligations of the United States government, its
agencies, instrumentalities and authorities), short-term capital gains
realized by the Fund, if any, and realized amounts attributable to market
discount on bonds, will be taxable to shareholders as ordinary income whether
received in cash or additional shares. Distributions to shareholders will
not qualify for the dividends received deduction for corporations.

Any net long-term capital gains realized by a Municipal Fund, whether or
not distributed in cash or reinvested in additional shares, must be treated
as long-term capital gains by shareholders regardless of the length of time
investors have held their shares. If a Fund should have net undistributed
capital gain in any year, the Fund would pay the tax on such gains and each
shareholder would be deemed, for federal tax purposes, to have paid his or
her pro rata share of such tax.

If a Fund has both tax-exempt and taxable interest, it will use the
"actual earned method" for determining the designated percentage that is
taxable income and designate the use of such method within 45 days after the
end of the Fund's taxable year. Under this method the ratio of taxable
income earned during the period for which a distribution was made to total
income earned during the period determines the percentage of the distribution
designated taxable. The percentages of income, if any, designated as taxable
income will under this method vary from distribution to distribution.

The Code treats interest on certain Municipal Obligations which are
private activity bonds under the code issued after August 7, 1986 (in certain
cases, after September 1, 1986) as a preference item for purposes of the
alternative minimum tax on individuals and corporations. Each Fund may
purchase private activity bonds which are subject to treatment under the Code
as a preference item for purposes of the alternative minimum tax on
individuals and corporations, although the frequency and amounts of those
purchases are uncertain. Some portion of Exempt Interest Dividends may, as a
result of such purchases, be treated as a preference item for purposes of the
alternative minimum tax on individuals and corporations. Shareholders are
advised to consult their own tax advisers as to the extent and effect of such
treatment.

In addition, the Code provides that a portion of the adjusted current
earnings of a corporation reported on its financial statement and not
otherwise included in the minimum tax base will be included for purposes of
calculating the alternative minimum tax for such years. The adjusted current
earnings of a corporation will include Exempt Interest Dividends in
calculating the alternative minimum tax on corporations to the extent that
such dividends are not otherwise treated as a preference item for the reasons
discussed above. An environmental tax is imposed on the excess of a
corporation's modified alternative minimum taxable income (minimum taxable
base, discussed above, with certain modifications) over $2 million. Modified
alternative minimum taxable income includes Exempt Interest Dividends. The
environmental tax applies with respect to taxable years beginning after
December 31, 1986 and before January 1, 1996. Exempt Interest Dividends are
included in effectively connected earnings and profits for purposes of
computing the branch profits tax on certain foreign corporations doing
business in the United States.

The foregoing is a general and abbreviated summary of the provisions of
the Code and Treasury Regulations presently in effect as they directly govern
the taxation of the Municipal Funds and their individual shareholders, and
this summary primarily addresses tax consequences to individual shareholders.
For complete provisions, reference should be made to the pertinent Code
sections and Treasury Regulations. The Code and Treasury Regulations are
subject to change by legislative or administrative action, and any such
change may be retroactive with respect to Fund transactions. Shareholders
are advised to consult their own tax advisers for more detailed information
concerning the federal taxation of the Funds and the income tax consequences
to their shareholders.

The Funds' counsel, White, Koch, Kelly & McCarthy, Professional
Association, has not made and normally will not make any review of the
proceedings relating to the issuance of the Municipal Obligations or the
basis for any opinions issued in connection therewith. In the case of
certain Municipal Obligations, federal tax exemption is dependent upon the
issuer (and other users) complying with certain ongoing requirements. There
can be no assurance that the issuer (and other users) will comply with these
requirements, in which event the interest on such Municipal Obligations could
be determined to be taxable, in most cases retroactively from the date of
issuance. Certain matters under the Code, including certain exceptions to
the foregoing, are discussed more specifically below.

State and Local Tax Aspects of the Municipal Funds

The laws of the several states and local taxing authorities vary with
respect to the taxation of such distributions, and shareholders of each Fund
are advised to consult their own tax advisers in that regard. In particular,
prospective investors who are not individuals are advised that the preceding
discussion relates primarily to tax consequences affecting individuals, and
the tax consequences of an investment by a person which is not an individual
may be very different. Each Fund will advise shareholders within 60 days of
the end of each calendar year as to the percentage of income derived from
each state in which the Fund has any Municipal Obligations in order to assist
shareholders in the preparation of their state and local tax returns.

Federal Income Taxes - Taxable Income Funds

Each of the Taxable Income Funds has elected and intends to qualify for
treatment as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Distributions representing net
interest and net short-term capital gains will be taxable as ordinary income
to the recipient shareholders, whether the distributions are actually taken
in cash or are reinvested by the recipient shareholders in additional shares.
Fund distributions will not be eligible for the dividends received deduction
for corporations. Distributions of net long-term capital gains, if any, will
be treated as long-term capital gains to the distributee shareholders,
whether the distributions are actually taken as cash or are reinvested by the
recipient shareholders in additional shares.

Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a mutual fund accrues interest or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Fund actually collects such receivables or
pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on a disposition of debt securities denominated in a
foreign currency and on disposition of certain futures contracts, forward
contracts and options, gains or losses attributable to fluctuations in the
value of foreign currency between the date of acquisition of the security or
contract and the date of disposition are also treated as ordinary gain or
loss. These gains or losses, referred to under the Code as "Section 988"
gains or losses, may increase or decrease the amount of the Income Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.

The foregoing is a general and abbreviated summary of the provisions of
the Code and Treasury Regulations presently in effect as they directly govern
the taxation of the Taxable Income Funds and their individual shareholders,
and this summary primarily addresses tax consequences to individual
shareholders. For complete provisions, reference should be made to the
pertinent Code sections and Treasury Regulations. The Code and Treasury
Regulations are subject to change by legislative or administrative action,
and any such change may be retroactive with respect to Fund transactions.
Shareholders are advised to consult their own tax advisers for more detailed
information concerning the federal and state taxation of the Fund and the
income tax consequences to its shareholders.

State and Local Income Tax Considerations - Taxable Income Funds

A portion of each Fund's dividends derived from certain U.S. Government
obligations may be exempt from state and local taxation. The income tax
treatment of the shareholders in the respective states will depend upon the
specific laws applicable in those states, and prospective investors are urged
to confer with their own tax advisers concerning their particular situations.

Federal Income Taxes - Value Fund

Gains (losses) attributable to foreign currency fluctuations are
generally taxable as ordinary income and therefore will increase (decrease)
dividend distributions. Net short-term capital gains are distributed as
dividend income. The Value Fund will send each shareholder a notice in
January describing the tax status of dividends and capital gain distributions
for the prior year.

Long-term capital gains earned by the Value Fund on the sale of
securities and distributed to shareholders are federally taxable as long-term
capital gains, regardless of the length of time shareholders have held their
shares. If a shareholder receives a long-term capital gain distribution on
shares of the Value Fund and such shares are held 12 months or less and are
sold at a loss, the portion of the loss equal to the amount of the long-term
capital gain distribution will be considered a long-term loss for tax
purposes. Net short-term capital gains distributed by the Fund are taxable
to shareholders as dividends, not as capital gains.

Redemption or resale of shares will be a taxable transaction for federal
income tax purposes and the shareholder will recognize gain or loss in an
amount equal to the difference between the shareholder's basis in the shares
and the amount realized by the shareholder on the redemption or resale. If
the redemption or resale occurs after 1997, and the shareholder held the
shares as capital assets, the gain or loss will be long-term if the shares
were held for more than 12 months, and any such long-term gain generally will
be subject to a maximum federal income tax rate of 20% to the extent that
gain exceeds any net short-term capital losses realized by the taxpayer.

Foreign governments may withhold taxes on dividends and interest paid
with respect to foreign securities typically at a rate between 10% and 35%.
Foreign governments may also impose taxes on other payments or gains with
respect to foreign securities. Because the Fund does not currently
anticipate that securities of foreign issuers will constitute more than 50%
of its total assets at the end of its fiscal year, shareholders should not
expect to claim a foreign tax credit or deduction on their federal income tax
returns with respect to foreign taxes withheld.

The foregoing is a general and abbreviated summary of the provisions of
the Code and Treasury Regulations currently in effect as they directly govern
the income taxation of Value Fund shareholders. This summary primarily
addresses income tax consequences to shareholders who are individuals. The
Code and Regulations are subject to change at any time, in some cases
retroactively. Shareholders are advised to consult their own tax advisers
for more detailed information concerning the federal tax consequences of an
investment in the Value Fund.

State and Local Income Tax Considerations - Value Fund

Shareholders may be subject to state and local taxes on Value Fund
distributions, and capital gains taxation on disposition of shares. Shares
also may be subject, in some jurisdictions, to state and local property
taxes. A portion of the Value Fund's dividends derived from certain U.S.
Government obligations may be exempt from state and local taxation.
Shareholders should consult their own tax advisers for information concerning
the state and local taxation of an investment in the Value Fund.

DISTRIBUTIONS AND SHAREHOLDERS ACCOUNTS

When an investor or the investor's financial advisor makes an initial
investment in shares of a Fund, the Transfer Agent will open an account on
the books of the Fund, and the investor or financial advisor will receive a
confirmation of the opening of the account. Thereafter, whenever a
transaction, other than the reinvestment of interest income, takes place in
the account -- such as a purchase of additional shares or redemption of
shares or a withdrawal of shares represented by certificates -- the investor
or the financial advisor will receive a confirmation statement giving
complete details of the transaction. Shareholders also will receive at least
quarterly statements setting forth all distributions of interest income and
other transactions in the account during the period and the balance of full
and fractional shares. The final statement for the year will provide
information for income tax purposes.

The monthly or quarterly distributions of interest income, net of
expenses, and the annual distributions of net realized capital gains, if any,
will be credited to the accounts of shareholders in full and fractional
shares of the Fund at net asset value on the payment or distribution date, as
the case may be. Upon written notice to the Transfer Agent, a shareholder
may elect to receive periodic distributions of net interest income in cash.
Such an election will remain in effect until changed by written notice to the
Transfer Agent, which change may be made at any time in the sole discretion
of the shareholder.

The issuance and delivery of certificates for shares is not required,
and shareholders may be relieved of the responsibility of safekeeping. Upon
written request to the Transfer Agent, a certificate will be issued for any
or all of the full shares credited to a shareholder's account, unless the
shareholder has elected the Fund's telephone redemption or systematic
withdrawal features, which are described in the Prospectus. Certificates
which have been issued to a shareholder may be returned at any time for
credit to his or her account.

INVESTMENT ADVISER, INVESTMENT ADVISORY AGREEMENT,
AND ADMINISTRATIVE SERVICES AGREEMENT

Investment Advisory Agreement

Pursuant to an Investment Advisory Agreement in respect of each Fund,
Thornburg Management Company, Inc. ("TMC"), 119 East Marcy Street, Suite 202,
Santa Fe, New Mexico 87501, acts as investment adviser for, and will manage
the investment and reinvestment of the assets of, each of the Funds in
accordance with the Funds' respective investment objectives and policies,
subject to the general supervision and control of the directors of Thornburg
Limited Term Municipal Fund, Inc. with respect to Limited Term National Fund
and Limited Term California Fund, and subject to the general supervision and
control of the trustees of Thornburg Investment Trust with respect to
Intermediate National Fund, Government Fund, Income Fund and Value Fund.

TMC is also investment adviser to Thornburg New Mexico Intermediate
Municipal Fund, Thornburg New York Intermediate Municipal Fund, Thornburg
Florida Intermediate Municipal Fund and Thornburg Global Value Fund, separate
series of Thornburg Investment Trust having assets of $153,000,000,
$25,000,000, $28,000,000 and $8,000,000, respectively, as of September 30,
1998. TMC is a subadviser to Daily Tax-Free Income Fund, Inc., a registered
investment company.

TMC is paid a fee by each Fund, in the percentage amounts described in
the Prospectus. All fees and expenses are accrued daily and deducted before
payment of dividends. In addition to the fees of TMC, each Fund will pay all
other costs and expenses of its operations. Each Fund also will bear the
expenses of registering and qualifying the Fund and its shares for
distribution under federal and state securities laws, including legal fees.

The Company's directors (including a majority of the directors who are
not "interested persons" within the meaning of the Investment Company Act of
1940) have approved the Investment Advisory Agreement applicable to each of
Limited Term National Fund and Limited Term California Fund, and the Trust's
trustees (including a majority of the trustees who are not "interested
persons") have similarly approved the Investment Advisory Agreement
applicable to each of Intermediate National Fund, Government Fund, Income
Fund and Value Fund. The shareholders of each of the Funds approved a
restatement of the Investment Advisory Agreement applicable to each Fund at
special meetings of shareholders on April 16, 1996, to reduce the advisory
fees under those agreements and to remove from those agreements the
requirement that TMC would provide certain administrative services. Instead,
those services are provided under the terms of an Administrative Services
Agreement applicable to each class of shares issued by each Fund. The
Administrative Services Agreements are described below.

The Investment Advisory Agreement applicable to each Fund may be
terminated by either party, at any time without penalty, upon 60 days'
written notice, and will terminate automatically in the event of its
assignment. Termination will not affect the right of TMC to receive payments
on any unpaid balance of the compensation earned prior to termination. The
Agreement further provides that in the absence of willful misfeasance, bad
faith or gross negligence on the part of TMC, or of reckless disregard of its
obligations and duties under the Agreement, TMC will not be liable for any
action or failure to act in accordance with its duties thereunder.

For the three most recent fiscal periods with respect to each Fund, the
amounts paid to TMC by each Fund under the Investment Advisory Agreement
applicable to each Fund were as follows:

<TABLE>
June 30, 1996 June 30, 1997 June 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Limited Term National Fund $6,584,835 $4,159,938 $4,213,345
Limited Term California Fund $748,077 $496,821 $649,445

Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Intermediate National Fund $1,446,809 $1,248,058 $1,855,808
Government Fund $678,979 $529,056 $521,022
Income Fund $150,436 $170,199 $228,636
Value Fund $105,914 $376,424 $1,214,207

TMC has waived its rights to fees in the foregoing periods as follows:
<CAPTION>
June 30, 1996 June 30, 1997 June 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Limited Term National Fund $ 0 0 0
Limited Term California Fund $75,198 $27,360 0

Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Intermediate National Fund 0 $144,709 0
Government Fund 0 0 0
Income Fund 0 0 0
Value Fund 0 0 0
</TABLE>

The foregoing figures for the time periods before July 1, 1996 reflect, in
whole or in part, fee rates applicable before restatement of the Investment
Advisory Agreement for each Fund. TMC may (but is not obligated to) waive
its rights to any portion of its fees in the future, and may use any portion
of its fee for purposes of shareholder and administrative services and
distribution of fund shares. During the fiscal year ended June 30, 1998,
Limited Term National Fund and Limited Term California Fund each reimbursed
TMC $101,150 and $13,836, respectively, for accounting expenses incurred on
behalf of each Fund, and during the fiscal year ended September 30, 1998,
Intermediate National Fund, Government Fund and Income Fund reimbursed TMC
$39,514, $15,952 and $5,309, respectively, for accounting services.

H. Garrett Thornburg, Jr., Treasurer, Director and Chairman of the Board
of Thornburg Limited Term Municipal Fund, Inc., and President and Trustee of
Thornburg Investment Trust, is also Director and controlling shareholder of
TMC.

Administrative Services Agreement

Administrative services are provided to each class of shares issued by
each of the Funds under an Administrative Services Agreement which requires
the delivery of administrative functions necessary for the maintenance of the
shareholders of the class, supervision and direction of shareholder
communications, assistance and review in preparation of reports and other
communications to shareholders, administration of shareholder assistance,
supervision and review of bookkeeping, clerical, shareholder and account
administration and accounting functions, supervision or conduct of regulatory
compliance and legal affairs, review and administration of functions
delivered by outside service providers to or for shareholders, and other
related or similar functions as may from time to time be agreed. The
Administrative Services Agreement specific to each Fund's Institutional
Class shares provides that the class will pay a fee calculated at an annual
percentage of .05% of the class's average daily net assets, paid monthly,
together with any applicable sales or similar tax. Services are currently
provided under these agreements by TMC. For the year ended June 30, 1998,
Limited Term National Fund and Limited Term California Fund paid to TMC
$27,156 and $3,420, respectively, under each Fund's Administrative Services
Plan specific to Institutional Class shares. For the year ended September
30, 1996, Intermediate National Fund, Government Fund and Income Fund paid to
TMC $57, $1 and $89, respectively, under each Fund's Administrative Services
Agreement specific to Institutional Class shares, for the year ended
September 30, 1997, Intermediate National Fund, Government Fund and Income
Fund paid to TMC $2,673, $229 and $1,212, respectively, under the same
Agreement and for the year ended September 30, 1998, Intermediate National
Fund, Government Fund and Income Fund paid to TMC $9,338, $1,907 and $2,908,
under the same Agreement. The agreements applicable to each class may be
terminated by either party, at any time without penalty, upon 60 days'
written notice, and will terminate automatically upon assignment.
Termination will not affect the service provider's right to receive fees
earned before termination. The agreements further provide that in the
absence of willful misfeasance, bad faith or gross negligence on the part of
the service provider, or reckless disregard of its duties thereunder, the
provider will not be liable for any action or failure to act in accordance
with its duties thereunder.

- ----------------------------------------------------------
Limited Term National Fund and Limited Term California Fund
- ----------------------------------------------------------
Net Assets of Fund Advisory Fee Rate Administrative Services Rate
- ------------------ ------------------ ----------------------------
0 to $500 million .50% .05%
$500 million to $1 billion .40% .05%
$1 billion to $1.5 billion .30% .05%
$1.5 billion to $2 billion .25% .05%
Over $2 billion .225% .05%

- ------------------------------------------
Intermediate National Fund and Income Fund
- -----------------------------------------
Net Assets of Fund Advisory Fee Rate Administrative Services Rate
- ------------------ ------------------ -----------------------------
0 to $500 million .50% .05%
$500 million to $1 billion .45% .05%
$1 billion to $1.5 billion .40% .05%
$1.5 billion to $2 billion .35% .05%
Over $2 billion .275% .05%

- ---------------
Government Fund
- ---------------
Net Assets of Fund Advisory Fee Rate Administrative Services Rate
- ------------------ ------------------ -----------------------------
0 to $1 billion .375% .05%
$1 billion to $2 billion .325% .05%
Over $2 billion .275% .05%

- ----------
Value Fund
- ----------
Net Assets of Fund Advisory Fee Rate Administrative Services Rate
- ------------------ ------------------ ----------------------------
0 to $500 million .875% .05%
$500 million to $1 billion .825% .05%
$1 billion to $1.5 billion .775% .05%
$1.5 billion to $2 billion .725% .05%
Over $2 billion .675% .05%
- ---------------------------------------------------------------------------

SERVICE PLANS

Each of the Funds has adopted a plan and agreement of distribution
pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("Service
Plan") which is applicable to Institutional Class shares of each Fund. The
Plan permits each Fund to pay to TMC (in addition to the management and
administration fees and reimbursements described above) an annual amount not
exceeding .25 of 1% of the Fund's Institutional Class assets to reimburse TMC
for specific expenses incurred by it in connection with certain shareholder
services and the distribution of that Fund's shares to investors. TMC may,
but is not required to, expend additional amounts from its own resources in
excess of the currently reimbursable amount of expenses. Reimbursable
expenses include the payment of amounts, including incentive compensation, to
securities dealers and other financial institutions, including banks (to the
extent permissible under the Glass-Steagall Act and other federal banking
laws), for administration and shareholder services, and in connection with
the distribution of Institutional Class shares. The nature and scope of
services provided by dealers and other entities likely will vary from entity
to entity, but may include, among other things, processing new account
applications, preparing and transmitting to the Transfer Agent information
respecting shareholder account transactions, and serving as a source of
information to customers concerning the Funds and transactions with the
Funds. TMC has no current intention to request or receive any reimbursement
under the Service Plans applicable to the Institutional Classes of any of the
Funds. The Service Plan does not provide for accrued but unpaid
reimbursements to be carried over and paid to TMC in later years.

PORTFOLIO TRANSACTIONS

In General

Municipal Funds and Taxable Income Funds

TMC reserves the right to manage other investment companies and
investment accounts for other clients which may have investment objectives
similar to those of the Funds. Subject to applicable laws and regulations,
TMC will attempt to allocate equitably portfolio transactions among the Funds
and the portfolios of its other clients purchasing securities whenever
decisions are made to purchase or sell securities by a Fund and one or more
of such other clients simultaneously. In making such allocations the main
factors to be considered will be the respective investment objectives of the
Fund and the other clients, the size of investment commitments generally held
by the Fund and the other clients and opinions of the persons responsible for
recommending investments to the Fund and such other clients. While this
procedure could have a detrimental effect on the price or amount of the
securities available to a Fund from time to time, it is the opinion of the
Funds' Directors or Trustees that the benefits available from TMC's
organization will outweigh any disadvantage that may arise from exposure to
simultaneous transactions. Each Fund's Directors or Trustees will review
simultaneous transactions.

TMC, in effecting purchases and sales of portfolio securities for the
account of each of the Municipal Funds and Taxable Income Funds, will place
orders in such manner as, in the opinion of TMC, will offer the best price
and market for the execution of each transaction. Portfolio securities
normally will be purchased directly from an underwriter or in the
over-the-counter market from the principal dealers in such securities, unless
it appears that a better price of execution may be obtained elsewhere.
Purchases from underwriters will include a commission or concession paid by
the issuer to the underwriter, and purchases from dealers will include the
spread between the bid and asked price. Given the best price and execution
obtainable, it will be the practice of each of the Funds to select dealers
which, in addition, furnish research information including credit analyses of
issuers and statistical and other services to TMC. It is not possible to
place a dollar value on information and statistical and other services
received from dealers. Since it is only supplementary to TMC's own research
efforts, the receipt of research information is not expected significantly to
reduce TMC's expenses. In selecting among the firms believed to meet the
criteria for handling a particular transaction, TMC also may give
consideration to those firms which have sold or are selling shares of the
Funds. While TMC will be primarily responsible for the placement of the
Funds' business, the policies and practices of TMC in this regard must be
consistent with the foregoing and will at all times be subject to review by
the Directors or Trustees of each Fund.

Value Fund

All orders for the purchase or sale of portfolio securities are placed
on behalf of Value Fund by TMC pursuant to authority contained in the
Investment Advisory Agreement. TMC is also responsible for the placement of
transaction orders for other investment companies for which it acts as
investment adviser. In selecting broker-dealers, subject to applicable
limitations of the federal securities laws, TMC considers various relevant
factors, including, but not limited to: the size and type of the
transaction; the nature and character of the markets for the security to be
purchased or sold; the execution efficiency, settlement capability, and
financial condition of the broker-dealer firm; the broker-dealer's execution
services rendered on a continuing basis; and the reasonableness of any
commissions; and arrangements for payment of Fund expenses. Generally
commissions for foreign investments traded will be higher than for U.S.
investments and may not be subject to negotiation. Value Fund may execute
portfolio transactions with broker-dealers who provide research and execution
services to the Fund. Such services may include advice concerning the value
of securities; the availability of securities or the purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and performance
of accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). The selection of such
broker-dealers is generally made by TMC (to the extent possible consistent
with execution considerations) in accordance with a ranking of broker-dealers
determined periodically by TMC's investment staff based upon the quality of
such research and execution services provided. The receipt of research from
broker-dealers that execute transactions on behalf of the Fund may be useful
to TMC in rendering investment management services to the Fund. The receipt
of such research has not reduced TMC's normal independent research
activities; however, it enables TMC to avoid the additional expenses that
could be incurred if TMC tried to develop comparable information through its
own efforts.

Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
Value Fund to pay such higher commissions, TMC must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers,
viewed in terms of a particular transaction or TMC's overall responsibilities
to the Fund. In reaching this determination, TMC will not attempt to place a
specific dollar value on the brokerage and research services provided, or to
determine what portion of the compensation would be related to those
services.

TMC is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance in
the distribution of shares of the Fund or shares of other Thornburg funds to
the extent permitted by law. TMC may use research services provided by and
place agency transactions with Thornburg Securities Corporation (TSC) if the
commissions are fair, reasonable, and comparable to commissions charged by
non-affiliated, qualified brokerage firms for similar services. TMC may
allocate brokerage transactions to broker-dealers who have entered into
arrangements with TMC under which the broker-dealer allocates a portion of
the commissions paid by the Fund toward payment of the Fund's expenses, such
as transfer agent fees or custodian fees. The transaction quality must,
however, be comparable to those of other qualified broker-dealers.

The Trustees of Thornburg Investment Trust periodically review TMC's
performance of its responsibilities in connection with the placement of
portfolio transactions on behalf of Value Fund and review the commissions
paid by the Fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the Fund.

From time to time the Trustees will review whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar
fees paid by the Fund on portfolio transactions is legally permissible and
advisable. The Fund may seek to recapture soliciting broker-dealer fees on
the tender of portfolio securities.

Portfolio Turnover Rates

The Funds' respective portfolio turnover rates for the two most recent
fiscal years are as follows:

Year ended Year ended
June 30, 1997 June 30, 1998
------------- -------------
Limited Term National Fund 23.39% 24.95%
Limited Term California Fund 20.44% 21.21%

Year ended Year ended
Sept. 30, 1997 Sept. 30, 1998
-------------- --------------
Intermediate National Fund 15.36% 16.28%
Government Fund 41.10% 29.81%
Income Fund 13.87% 40.75%
Value Fund 78.83% 99.55%

MANAGEMENT

Limited Term National Fund and Limited Term California Fund

Limited Term National Fund and Limited Term California Fund are separate
"series" or investment portfolios of Thornburg Limited Term Municipal Fund,
Inc., a Maryland corporation (the "Company"). The management of Limited Term
National Fund and Limited Term California Fund, including general supervision
of TMC's performance of duties under the Investment Advisory Agreement and
Administrative Services Agreements applicable to the Funds, is the
responsibility of the Board of Directors of the Company. There are five
Directors of the Company, one of whom is an "interested person" (as the term
"interested" is defined in the Investment Company Act of 1940) and four of
whom are "disinterested" persons. The names of the Directors and officers
and their principal occupations and other affiliations during the past five
years are set forth below, with those Directors who are "interested persons"
of the Company indicated by an asterisk:

H. Garrett Thornburg, Jr.,* 52, Director, Chairman and Treasurer of the
Company; Trustee of Thornburg Investment Trust since June, 1987, Chairman of
Trustees since September 1998 and President from 1987 to 1998; Chairman and
Director of Thornburg Mortgage Advisory Corporation since its formation in
1989; Chairman and Director of Thornburg Mortgage Asset Corporation (real
estate investment trust) since its formation in 1993; Executive Vice
President of Daily Tax Free Income Fund, Inc. (mutual fund) since its
formation in 1982 and a Director from 1982 to June 1993; a Director and
Treasurer of TMC since its formation in 1982 and President from 1982 to
August 1997.

J. Burchenal Ault, 70, Director of the Company; Consultant to and fundraiser
for charities, 1990 to present; Trustee of Thornburg Investment Trust since
June 1987; Director of Farrar, Strauss & Giroux (publishers) since 1968.

Eliot R. Cutler, 50, Director of the Company; Partner, Cutler & Stanfield,
Attorneys, Washington, D.C. since 1988.

James E. Monaghan, Jr., 49, Director of the Company; President, Monaghan &
Associates, Inc. and Strategies West, Inc. Denver, Colorado, (business
consultants) since 1983.

A.G. Newmyer III, 48, Director of the Company; President, from 1983 to
December 1992, and Senior Officer from January 1993, Newmyer Associates,
Inc., Washington, D.C., (business consultants).

Richard M. Curry, 57, Advisory Director of the Company; Senior Vice President
McDonald & Co., Cincinnati, Ohio (securities dealers) since May 1984.

Brian J. McMahon, 42, President of the Company since January, 1987; Vice
President of the Company from 1984 to 1987; Vice President of Thornburg
Investment Trust from June 1987 to September 1998, a Trustee from June, 1996
to August 1997 and President since September 1998; Managing Director of TMC
since December 1985, Vice President from April 1984 to July 1997 and
President from August 1997.

Steven J. Bohlin, 38, Vice President of the Company; Assistant Vice President
of the Company from July, 1985 to October 1989; Vice President of Thornburg
Investment Trust since June 1987 and Treasurer since 1989; a Managing
Director and a Vice President of TMC since 1991.

Dawn B. Fischer, 50, Secretary of the Company since its formation; Secretary
and Assistant Treasurer of Thornburg Investment Trust since June 1987;
Managing Director of TMC since December 1985 and Vice President and Secretary
of TMC since January 1984.

George Strickland, 34, Assistant Vice President of the Company since July
1992; Vice President of Thornburg Investment Trust; Associate of TMC from
1991 to 1996 and a Managing Director since 1996; Vice President of TMC since
December 1995.

Jonathan Ullrich, 28, Assistant Vice President of the Company since July
1992; Assistant Vice President of Thornburg Investment Trust since 1992;
Associate of TMC since September 1991 and Assistant Vice President since
December 1995.

Jack Lallement, 59, Assistant Vice President of the Company since September
1997; Assistant Vice President of Thornburg Investment Trust since September
1997; Fund Accountant for TMC since March 1997; Chief Financial
Officer/Controller for Zuni Rental, Inc. (equipment leasing and sales),
Albuquerque, New Mexico from February 1995 to March 1997; Chief Financial
Officer/Controller, Montgomery & Andrews, P.A. (law firm), Santa Fe, New
Mexico from March 1987 to August 1994.

Thomas Garcia, 27, Assistant Vice President of the Company since September
1997; Assistant Vice President of Thornburg Investment Trust since September
1997; Fund Accountant for TMC since 1993; BBA, University of New Mexico,
1993.

Van Billops, 32, Assistant Vice President of the Company since September
1997; Assistant Vice President of Thornburg Investment Trust since September
1997; Fund Accountant for TMC since 1992.

Leigh Moiola, 31, Assistant Vice President of the Company since June 1998;
Assistant Vice President of Thornburg Investment Trust since November 1995;
Associate of TMC since December 1991 and Vice President of TMC since November
1995.

The business address of each person listed is 119 East Marcy Street,
Suite 202, Santa Fe, New Mexico 87501. Mr. Thornburg is a Director of TSC,
and Executive Vice President of Daily Tax-Free Income Fund, Inc. Mr.
Ziesenheim is president of TSC, and Ms. Fischer is secretary of TSC.

The officers and Directors affiliated with TMC will serve without any
compensation from the Company. The Company pays each Director who is not an
employee of TMC or an affiliated company a quarterly fee of $1,000 plus a
$500 fee for each meeting of the Board of Directors attended by the Director.
In addition, the Company pays a $1,000 annual stipend to each member of the
audit committee, and reimburses all Directors for travel and out-of-pocket
expenses incurred in connection with attending such meetings.

The Company paid fees to the Directors during the year ended June 30,
1998 as follows:

J. Burchenal $7,000 0 0 $14,000
Ault

Eliot R. $6,000 0 0 $6,000
Cutler

James E. $7,000 0 0 $7,000
Monaghan, Jr.

A. G. $7,000 0 0 $7,000
Newmyer, III

Richard M. $6,000 0 0 $6,000
Curry
</TABLE>

Intermediate National Fund; Government Fund; Income Fund; Value Fund

Intermediate National Fund, Government Fund, Income Fund and Value Fund
are separate "series" or investment portfolios of Thornburg Investment Trust,
a Massachusetts business trust (the "Trust"). The management of Intermediate
National Fund, Government Fund, Income Fund and Value Fund, including the
general supervision of TMC's performance of its duties under the Investment
Advisory Agreements and Administrative Services Agreements applicable to the
Funds, is the responsibility of the Trust's Trustees. There are five
Trustees, one of whom is an "interested person" (as the term "interested" is
defined in the Investment Company Act of 1940) and four of whom are
"disinterested" persons. The names of Trustees and officers and their
principal occupations and affiliations during the past five years are set
forth below, with the Trustee who is an "interested person" of the Trust
indicated by an asterisk.

H. Garrett Thornburg, Jr.,* 52, Trustee and Chairman of Trustees; Director,
Chairman (since January of 1987) and Treasurer (since its inception in 1984)
of Thornburg Limited Term Municipal Fund, Inc.; Chairman and Director of
Thornburg Mortgage Advisory Corporation since its formation in 1989; Chairman
and Director of Thornburg Mortgage Asset Corporation (real estate investment
trust) since its formation in 1993; Executive Vice President of Daily Tax
Free Income Fund, Inc. (mutual fund) since its formation in 1982 and a
Director from 1982 to June 1993; Director and Treasurer of TMC since its
formation in 1982 and President from 1982 to August 1997.

David A. Ater, 51, Trustee of the Trust; Principal in Ater & Ater Associates,
Santa Fe, New Mexico (developer, planner and broker of residential and
commercial real estate) since 1990; owner, developer and broker for various
real estate projects; Director of Thornburg Mortgage Asset Corporation (real
estate investment trust) since 1994.

J. Burchenal Ault, 70, Trustee of the Trust; Independent Fund Raising
Counsel; Trustee, Woodrow Wilson International Center for Scholars; Director
of Thornburg Limited Term Municipal Fund, Inc. since its formation in 1984;
Director of Farrar, Strauss & Giroux (publishers) since 1968.

Forrest S. Smith, 66, Trustee of the Trust; Attorney in private practice and
shareholder Catron, Catron & Sawtell (law firm), Santa Fe, New Mexico.

James W. Weyhrauch, 38, Trustee of the Trust; Executive Vice President and
Director, Nambe' Mills, Inc. (manufacturer), Santa Fe, New Mexico.

Brian J. McMahon, 42, President and Assistant Secretary of the Trust;
President of Thornburg Limited Term Municipal Fund, Inc. since January, 1987;
Managing Director of TMC since December 1985, President of TMC since August
1997 and a Vice President from April 1984 to August 1997.

Steven J. Bohlin, 38, Vice President and Treasurer of the Trust; Vice
President of Thornburg Limited Term Municipal Fund, Inc. since November 1988;
a Managing Director and a Vice President of TMC.

Dawn B. Fischer, 50, Secretary and Assistant Treasurer of the Trust;
Secretary, Thornburg Limited Term Municipal Fund, Inc. since its formation in
1984; Vice President, Daily Tax Free Income Fund, Inc. since 1989; Managing
Director of TMC since 1985 and a Vice President since January 1984.

William Fries, 57, Vice President of the Trust; Managing Director of TMC
since May 1995 and Vice President of Thornburg Limited Term Municipal Fund,
Inc. since December 1995; Vice President of USAA Investment Management
Company from 1982 to 1995.

Ken Ziesenheim, 43, Vice President of the Trust; Managing Director of TMC
since 1995; Vice President of Thornburg Limited Term Municipal Fund, Inc.
since 1995; President of Thornburg Securities Corporation since 1995; Senior
Vice President of Financial Services, Raymond James & Associates, Inc. from
1991 to 1995.

George Strickland, 34, Vice President of the Trust; Assistant Vice President
of Thornburg Limited Term Municipal Fund, Inc. since July 1992; Associate of
TMC since July 1991 and a Managing Director commencing in 1996.

Jonathan Ullrich, 28, Assistant Vice President of the Trust; Assistant Vice
President of Thornburg Limited Term Municipal Fund, Inc. since July 1992.

Jack Lallement, 59, Assistant Vice President of the Trust; Assistant Vice
President of Thornburg Limited Term Municipal Fund, Inc. since September
1997; Fund Accountant for TMC since March 1997; Chief Financial
Officer/Controller for Zuni Rental, Inc. (equipment leasing and sales),
Albuquerque, New Mexico from February 1995 to March 1997; Chief Financial
Officer/Controller, Montgomery & Andrews, P.A. (law firm), Santa Fe, New
Mexico from March 1987 to August 1994.

Thomas Garcia, 27, Assistant Vice President of the Trust; Assistant Vice
President of Thornburg Limited Term Municipal Fund, Inc. since September
1997; Fund Accountant for TMC since 1994; BBA, University of New Mexico,
1993.

Van Billops, 32, Assistant Vice President of the Trust; Assistant Vice
President of Thornburg Limited Term Municipal Fund, Inc. since September
1997; Fund Accountant for TMC since 1993.

Dale Van Scoyk, 50, Assistant Vice President of the Trust; Assistant Vice
President of Thornburg Limited Term Municipal Fund, Inc. since September
1997; Account Manager for TMC since 1997; National Account Manager for the
Heartland Funds 1993 - 1997.

Leigh Moiola, 31, Assistant Vice President of the Trust; Vice President of
TMC since November 1995; Assistant Vice President of Thornburg Limited Term
Municipal Fund, Inc. since June 1997.

Sophia Franco, 27, Assistant Vice President of the Trust; Assistant Vice
President of Thornburg Limited Term Municipal Fund, Inc. since June 1998;
Associate of TMC since August 1994.

Claiborne Booker, 36, Assistant Vice President of the Trust; Assistant Vice
President of Thornburg Limited Term Municipal Fund, Inc. since June 1998;
Associate of TMC since February 1998; Partner, Brinson Partners, Inc., 1994 -
1997.

Kerry Lee, 31, Assistant Vice President of the Trust; Assistant Vice
President of Thornburg Limited Term Municipal Fund, Inc. since June 1998;
Associate of TMC since November 1995.

Richard Brooks, 51, Assistant Vice President of the Trust; Assistant Vice
President of Thornburg Limited Term Municipal Fund, Inc. since June 1998;
Associate of TMC since September 1994.

The business address of each person listed is 119 East Marcy Street,
Suite 202, Santa Fe, New Mexico 87501. Mr. Thornburg is a Director of TSC,
Executive Vice President of Daily Tax-Free Income Fund, Inc., and a Chairman
and Treasurer of Thornburg Limited Term Municipal Fund, Inc. Mr. Ziesenheim
and Ms. Fischer are president and secretary, respectively, of TSC.

The officers and Trustees affiliated with TMC serve without any
compensation from the Trust. The Trust pays each Trustee who is not an
employee of TMC or an affiliated person a quarterly fee of $1,000 plus $500
for each meeting of the Trustees attended by the Trustee. In addition, the
Trust pays a $1,000 annual stipend to each member of each committee
established by the Trustees, and reimburses all Trustees for travel and
out-of-pocket expenses incurred in connection with attending those meetings.
The Trustees have established one committee, the audit committee, on which
Messrs. Ater, Ault and Smith currently serve.

The Trust paid fees to the Trustees during the year ended September 30,
1998 as follows:

<TABLE>
Pension or
Retirement Estimated Total
Aggregate Benefits Annual Compensation
Compensation Accrued as Benefits from Trust and
from Part of Upon Fund Complex
Trustee Trust Fund Expenses Retirement Paid to Trustee
- -------- ------------ ------------- ------------- ---------------
<C> <C> <C> <C> <C>
David A. $7,000 0 0 $7,000
Ater

J. Burchenal $7,000 0 0 $14,000
Ault

Forrest S. $7,000 0 0 $7,000
Smith

James W. $6,000 0 0 $6,000
Weyhrauch

</TABLE>

The Trust does not pay retirement or pension benefits.

PRINCIPAL HOLDERS OF SECURITIES

Limited Term National Fund

As of August 5, 1998, Limited Term National Fund had an aggregate of
69,106,032.403 shares outstanding, of which 6,004,058.147 were Institutional
Class shares. No persons are known to have held of record or beneficially 5%
or more of Limited Term National Fund's outstanding shares on August 5, 1998.
On the same date, the officers, Directors and related persons of Thornburg
Limited Term Municipal Fund, Inc., as a group, held less than one percent of
the outstanding shares of the Fund.

Limited Term California Fund

As of August 5, 1998, Limited Term California Fund had an aggregate of
10,338,392.731 shares outstanding, of which 638,394.170 were Institutional
Class shares. No persons are known to have held of record or beneficially 5%
or more of Limited Term California Fund's outstanding shares on August 15,
1997. On the same date, the officers, Directors and related persons of
Thornburg Limited Term Municipal Fund, Inc., as a group, held less than one
percent of the outstanding shares of the Fund.

Intermediate National Fund

As of November 3, 1998, Intermediate National Fund had an aggregate of
30,021,190.690 shares outstanding, of which 1,516,799.507 were Institutional
Class shares. No persons are known to have held of record or beneficially 5%
or more of Intermediate National Fund's outstanding shares on November 3,
1998, except for BancOne Securities Corp., FBO The One Investment Solutions,
733 Green crest Drive, Westerville, Ohio 43081, which owned 3,249,535.394
shares, representing 10.82% of the Fund' issued and outstanding shares. On
the same date, the officers, Trustees and related persons of Thornburg
Investment Trust, as a group, held less than one percent of the outstanding
shares of the Fund.

Government Fund

As of November 3, 1998, Government Fund had an aggregate of
10,819,160.44 shares outstanding, of which 207,271.838 were Institutional
Class shares. No persons are known to have held of record or beneficially 5%
or more of Government Fund's outstanding shares on November 3, 1998. On the
same date, the officers, Trustees and related persons of Thornburg Investment
Trust, as a group, held less than one percent of the outstanding shares of
the Fund.

Income Fund

As of November 3, 1998, Income Fund had an aggregate of 4,078,504.68
shares outstanding, of which 661,889.374 were Institutional Class shares. No
persons are known to have held of record or beneficially 5% or more of Income
Fund's outstanding shares on November 3, 1998, except for Charles Schwab &
Co., Inc., 101 Montgomery Street, San Francisco, California, which owned
262,912.384 Class I shares, representing 6.45% of the Fund's outstanding
shares. On the same date, officers and Trustees of the Trust as a group,
together with family members, owned themselves or through affiliated persons
67,129.109 shares of the Income Fund, representing 1.65% of the Fund's issued
and outstanding shares on that date.

Value Fund

As of November 3, 1998, Value Fund had an aggregate of 10,012,312.101
shares outstanding, of which 218,859.453 were Institutional Class shares. On
the same date, the officers, Trustees and related persons owned 499,618
shares of Value Fund, representing approximately 4.99% of the Fund's issued
and outstanding shares. On November 3, 1998 the following persons owned 5%
or more of Value Fund's outstanding shares:
<TABLE>
No. of % of
Shareholder Shares Total Shares
----------- ------ ------------
<C> <C> <C>
Charles Schwab & Co. 935,047 9.34%
101 Montgomery Street
San Francisco, California 94104

</TABLE>

NET ASSET VALUE

Each Fund will calculate the net asset value at least once daily on days
when the New York Stock Exchange is open for trading, and more frequently if
deemed desirable by the Fund. Net asset value will not be calculated on New
Year's Day, Washington's Birthday (on the third Monday in February), Good
Friday, Memorial Day (on the last Monday in May), Independence Day, Labor
Day, Thanksgiving Day, Christmas Day, on the preceding Friday if any of the
foregoing holidays falls on a Saturday, and on the following Monday if any of
the foregoing holidays falls on a Sunday. Under the Investment Company Act
of 1940, net asset value must be computed at least once daily on each day (i)
in which there is a sufficient degree of trading in a fund's portfolio
securities that the current net asset value of its shares might be materially
affected by changes in the value of such securities and (ii) on which an
order for purchase or redemption of its shares is received.

DISTRIBUTOR

Pursuant to a Distribution Agreement with Thornburg Limited Term
Municipal Fund, Inc., Thornburg Securities Corporation ("TSC") acts as
principal underwriter of Limited Term National Fund and Limited Term
California Fund Institutional Class shares, and pursuant to a separate
Distribution Agreement with Thornburg Investment Trust, TSC also acts as
principal underwriter of Institutional Class shares of Intermediate National
Fund, Government Fund, Income Fund and Value Fund. The Funds do not bear
selling expenses except (i) those involved in registering its shares with the
Securities and Exchange Commission and qualifying them or the Fund with state
regulatory authorities, and (ii) expenses paid under the Service Plans and
which might be considered selling expenses. Terms of continuation,
termination and assignment under the Distribution Agreement are identical to
those described above with regard to the Investment Advisory Agreements,
except that termination other than upon assignment requires six months'
notice.

H. Garrett Thornburg, Jr., Treasurer, a Director and Chairman of the
Board of Thornburg Limited Term Municipal Fund, Inc. and President and a
Trustee of Thornburg Investment Trust, is also Director and controlling
stockholder of TSC.

INDEPENDENT AUDITORS

McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, is
the independent auditor of the Limited Term National Fund and Limited Term
California Fund for their fiscal year ending June 30, 1999, and is the
independent auditor of Intermediate National Fund, Government Fund, Income
Fund and Value Fund for their fiscal year ending September 30, 1999.

FINANCIAL STATEMENTS

Statements of Assets and Liabilities, including Schedules of
Investments, as of June 30, 1998, Statements of Operations for the year ended
June 30, 1998 and Statements of Changes in Net Assets for the two years in
the period ended June 30, 1998, Notes to Financial Statements and Financial
Highlights, and Independent Auditor's Reports dated July 24, 1998, for
Limited Term National Fund and Limited Term California Fund are incorporated
herein by reference from the Funds' Annual Reports to Shareholders, June 30,
1998.

Statements of Assets and Liabilities, including Schedules of
Investments, as of September 30, 1998, Statements of Operations for the year
ended September 30, 1998 and Statements of Changes in Net Assets for the two
years in the period ended September 30, 1998 (one year for Value Fund), Notes
to Financial Statements and Financial Highlights, and Independent Auditor's
Reports dated October 24, 1998, for Intermediate National Fund, Government
Fund, Income Fund and Value Fund, are incorporated herein by reference from
the Funds' Annual Reports to Shareholders, September 30, 1998.

<PAGE>

PART C

OTHER INFORMATION

Item 23 & 24. Financial Statements and Exhibits

(a) Financial Statements.

Statements of Assets and Liabilities as of June 30, 1998; Schedules
of Investments as of June 30, 1998; Statements of Operations for the year
ended June 30, 1998; Statements of Changes in Net Assets for the years ended
June 30, 1997 and June 30, 1998; Notes to Financial Statements; Financial
Highlights; Reports of Independent Accountants dated July 24, 1998:
incorporated by reference from the Registrant's Annual Reports for the fiscal
year ended June 30, 1998.

(b) The following Exhibits are filed herewith:

(11.1) Consent of Counsel to Registrant

(11.2) Consent of Independent Auditor

Item 24. Persons Controlled By or Under Common Control With Registrant

Not applicable.

Item 25. Indemnification

Reference is made to Article EIGHTH and paragraphs (e) and (f) of
Article SEVENTH of the Registrant's Articles of Incorporation previously
filed as Exhibit 1, to Article X of the Registrant`s By-Laws previously filed
as Exhibit 2 and to section 2-418 of the Maryland General Corporation Law.

Reference is also made to Section 7 of the Distribution Agreement
previously filed as Exhibit 6(a).

The directors and officers (the "insureds") of both the Registrant
and the Adviser are insured under a joint directors and officers liability
policy. The policy covers amounts which the insureds become legally
obligated to pay by reason of any act, error, omission, misstatement,
misleading statement or neglect or breach of duty in the performance of their
duties as directors, trustees and officers. In addition, the policy covers
the Registrant and the Adviser to the extent that they have legally
indemnified the insureds for amounts incurred by the insureds as described in
the preceding sentence. The coverage excludes amounts that the insureds
become obligated to pay by reason of conduct which constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard of the
insured's duty.

The application of the foregoing provisions is limited by the
following undertaking set forth in the rules promulgated by the Securities
and Exchange Commission:

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policies
expressed in such Act and that if a claim for indemnification
against such liabilities other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in such Act and will be
governed by the final adjudication of such issue.

Item 26. Business and Other Connections of the Investment Adviser

See "Management" in the Statement of Additional Information and
"Management of the Fund" in the Prospectus.

Item 27. Principal Underwriters

(a) The principal underwriter for the Registrant is Thornburg
Securities Corporation (the "Distributor"). The Distributor is registered as
a broker-dealer under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc. The Distributor has
been formed for the purpose of distributing the shares of the Fund and other
registered investment companies sponsored by its affiliates, and does not
currently engage in the general securities business.

(b) The address of each of the directors and officers of the
Distributor is 119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501.

Positions and Offices Positions and Offices
Name with Distributor with Registrant
- ------------------------- --------------------- ---------------------
H. Garrett Thornburg, Jr. Director Chairman, Director
and Treasurer

Kenneth Ziesenheim President

Dawn B. Fischer Secretary Secretary

Item 28. Location of Accounts and Records

All accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder are maintained at the offices of State Street Bank and Trust
Company, 470 Atlantic Avenue, Fifth Floor, Boston, Massachusetts 02210.

Item 29. Management Services

The Registrant and Thornburg Management Company, Inc. ("TMC")
have agreed that TMC will perform for the Registrant certain
telephone answering services previously performed by the
Registrant's transfer agent, National Financial Data Services,
Inc. ("NFDS"). These telephone services include answering
telephone calls placed to the Registrant or its transfer agent
by shareholders, securities dealers and others through the
Registrant's toll free number, and responding to those
telephone calls by answering questions, effecting certain
shareholder transactions described in the Registrant's current
prospectuses, and performing such other, similar functions as
the Registrant may reasonably prescribe from time to time.
The Registrant will pay one dollar for each telephone call,
which was the charge previously impose by the Registrant's
transfer agent for this service. The Registrant's transfer
agent will no longer charge for this service. The Registrant
understands that (i) the telephone answering service provided
by TMC will be superior to that previously provided by the
transfer agent because TMC will devote greater attention to
training the telephone personnel, and those personnel will
have immediate access to the Registrant's and TMC's
management, (ii) the per-call charge imposed upon the
Registrant for this service will be no greater than that
charged by the Registrant's transfer agent, and (iii) TMC will
not receive any profit from providing this service. It is not
believed that this arrangement constitutes a management-
related services agreement.

Item 30. Undertakings

Not applicable.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment No. 30 to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Santa Fe,
and State of New Mexico on the 1st day of December, 1998.

THORNBURG LIMITED TERM MUNICIPAL FUND, INC.
Registrant

By *
---------------------------------------
Brian J. McMahon, President

Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 30 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.

* *
- -------------------------------- ------------------------------------
Brian J. McMahon, President H. Garrett Thornburg, Jr., Chairman,
and Principal Executive Officer Director, Treasurer and Principal
Financial and Accounting Officer

*
- --------------------------------
J. Burchenal Ault, Director

*
- --------------------------------
Eliot R. Cutler, Director

*
- --------------------------------
James E. Monaghan, Jr., Director

*
- --------------------------------
A. G. Newmyer III, Director

* By: /s/
____________________________
Charles W. N. Thompson, Jr. December 1, 1998
As Attorney-In-Fact (Date)

INDEX TO EXHIBITS

Exhibit
Number Exhibit
- ------- -----------------------------------------------------------

11.1 Consent of Counsel to Registrant

11.2 Consent of Independent Auditor

<PAGE>
EXHIBIT 11.1

WHITE Attorneys and Counselors at Law
KOCH, KELLY William Booker Kelly Julie A. Wittenberger
& John F. McCarthy, Jr. Benjamin C. Iseman
McCARTHY Benjamin Phillips
A Professional Association David F. Cunningham
Albert V. Gonzales
Janet Clow Special Counsel
Kevin V. Reilly Paul L. Bloom
C.W.N. Thompson, Jr.
M. Karen Kilgore
Sandra J. Brinck
Aaron J. Wolf
Mary E. Walta
Rebecca Dempsey

December 1, 1998

Thornburg Limited Term Municipal Fund, Inc.
Thornburg Management Company, Inc.
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501

Re: Thornburg Limited Term Municipal Fund, Inc.

Ladies and Gentlemen:

We hereby consent to the references made to this firm in the post-
effective amendment no. 30 to the registration statement of Thornburg Limited
Term Municipal Fund, Inc. and the prospectus which is a part of that
registration statement. In giving this consent, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.

/s/ White, Koch, Kelly & McCarthy, P.A.

WHITE, KOCH, KELLY & McCARTHY, P. A.

433 Paseo de Peralta P.O. Box 787 Santa Fe, New Mexico 87504-0787
(505) 982-4374 Fax No. (505) 984-8631 e-mail:[email protected]

<PAGE>
EXHIBIT 11.2

McGLADREY & PULLEN, LLP
--------------------------------------------
Certified Public Accountants and Consultants

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the incorporation by reference of our reports
dated October 23, 1998 on the financial statements of Thornburg Limited
Term Income Fund, Thornburg Limited Term U.S. Government Fund, Thornburg
Intermediate Municipal Fund, Thornburg Florida Intermediate Municipal Fund,
Thornburg New Mexico Intermediate Municipal Fund, Thornburg Value Fund and
Thornburg Global Value Fund, series of Thornburg Investment Trust, and our
reports dated July 24, 1998 on the financial statements of the National
Portfolio and California Portfolio of Thornburg Limited Term Municipal
Fund, Inc. and the financial statements of Thornburg New York Intermediate
Municipal Fund series of Thornburg Investment Trust, referred to therein in
Post-Effective Amendment No. 36 to the Registration Statement of Thornburg
Income Trust on Form N-1A, File No. 33-14905 and Post-Effective Amendment
No. 30 to the Registration Statement of Thornburg Limited Term Municipal
Fund, Inc. on Form N-1A, File No. 2-89526 as filed with the Securities and
Exchange Commission.

We also consent to the reference to our firm in the Prospectuses under
the captions "Financial Highlights" and "Additional Information" and in the
Statements of Additional Information under the caption "Independent
Auditors."

/s/ McGladrey & Pullen, LLP

McGLADREY & PULLEN, LLP

New York, New York
December 1, 1998