THORNBURG LIMITED TERM MUNICIPAL FUND INC, 497, 1999-02-08

THORNBURG LIMITED TERM MUNICIPAL FUND INC
497, 1999-02-08

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<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 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")

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

__ Limited Term National Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of Fund
Fees and Expenses

__ Limited Term California Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of Fund
Fees and Expenses

__ Intermediate National Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of Fund
Fees and Expenses

__ Intermediate New Mexico Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of Fund
Fees and Expenses

__ Intermediate Florida Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of Fund
Fees and Expenses

__ Intermediate New York Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of Fund
Fees and Expenses

__ Management Discussion of Fund Performance and Index Comparisons

__ Additional Information About Fund Investments

__ 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>
Limited Term National Fund

Investment Goals
- ----------------

The primary investment goal of Limited Term National Fund is to obtain as
high a level of current income exempt from federal individual income tax as
is consistent, in the view of the Fund's investment adviser, with
preservation of capital. The secondary goal of the Fund is to reduce
expected changes in its share price compared to longer intermediate and
long-term bond portfolios. The Fund's primary and secondary goals are
fundamental policies, and may not be changed without a majority vote of the
Fund's shareholders.

Principal Investment Strategies
- ------------------------------

The Fund pursues its primary goal by investing in investment grade or
equivalent municipal obligations issued by states and state agencies, local
governments and their agencies and by certain United States territories and
possessions. Thornburg Management Company, Inc. (TMC) actively manages the
Fund's portfolio, and investment decisions are based upon general economic
and financial trends, outlooks for interest rates and securities markets,
the supply of debt securities, and analysis of specific securities.

The Fund seeks to enhance its income by taking advantage of yield
disparities, trends or other factors in the fixed income markets. Although
the Fund ordinarily will acquire securities for investment rather than for
realization of gains on market fluctuations, it may dispose of any security
prior to its scheduled maturity to enhance income or reduce loss, to change
the portfolio's average maturity, or to otherwise respond to current market
conditions. The objective of preserving capital may prevent the Fund from
obtaining the highest yields available.

The Fund normally invests 100% of its net assets in municipal obligations.
As a fundamental policy, the Fund normally invests at least 80% of its
assets in municipal obligations. The Fund may invest up to 20% of its net
assets in taxable securities which produce income not exempt from federal
income tax. These investments may be made due to market conditions,
pending investment of idle funds or to afford liquidity. The Fund's
temporary taxable investments may exceed 20% of its net assets when made
for defensive purposes during periods of abnormal market conditions.

Because the magnitude of changes in value of interest bearing obligations
is greater for obligations with longer terms, the Fund seeks to reduce
changes in its share value by maintaining a portfolio of investments with a
dollar-weighed average maturity normally less than five years. There is no
limitation on the maturity of any specific security the Fund may purchase.
The Fund may dispose of any security before it matures. The Fund also
attempts to reduce changes in it share value through credit analysis,
selection and diversification.

Principal Risks of Investing in the Fund
- ---------------------------------------

The value of the Fund's shares and its dividends will fluctuate in response
to changes in interest rates. When interest rates increase, the value of
the Fund's investments declines and the Fund's share value is reduced.
When interest rates decline, the value of the Fund's investments increases.
During periods of declining interest rates the Fund's dividends decline.
The value of Fund shares also could be reduced if municipal obligations
held by the Fund were downgraded by rating agencies, or went into default,
or if legislation or other government action reduces the ability of issuers
to pay principal and interest when due or changes the tax treatment of
interest on municipal obligations. 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 the Fund is not a deposit in any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

Past Performance of the Fund
- ---------------------------

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 charge was taken
into account. The figures shown in the average annual total return table
do reflect maximum sales charges imposed, assuming a redemption at the end
of each period shown. Performance in the past is not necessarily an
indication of how the Fund will perform in the future.

<The following are presented as bar graphs in the Prospectus>
Limited Term National Fund Annual Total Returns Class A Shares
- ---------------------------------------------------------------
15%

10% 9.97
7.79 8.61 8.81
5% 6.48 7.74 5.47
3.97
0%
(1.48)
- -5
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Highest quarterly results for time period shown: 4.57% (quarter ended
3/31/86).
Lowest quarterly results for time period shown: (2.10)% (quarter ended
3/31/94).

Limited Term National Fund Average Annual Total Returns
- -----------------------------------------------------
(periods ended 12/31/98)

One Year Five Years Ten Years Since Inception
-------- ---------- --------- ---------------
Class A Shares 2.16% 3.96% 5.90% 6.78%
Inception 2/84
Lehman Index 5.85% 5.36% 6.99% 7.67%

Class C Shares 3.86% N/A N/A 4.76%
Inception 9/94
Lehman Index 5.85% 5.36% 6.99% 6.28%

<PAGE>
FEES AND EXPENSES OF THE FUND

Class A Class C
------- -------
Maximum Sales Charge (Load) imposed on 2.50% none
purchases (as a percentage of offering price)
Maximum Deferred Sales Charge on Redemptions 0.50%* 0.50%**
(as a percentage of redemption proceeds or
original purchase price, whichever is lower)
* Imposed only on redemptions of purchases greater than $1 million in
the event of a redemption within 12 months of purchase.
** Imposed only on redemptions of Class C shares within 12 months
of purchase.

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

<PAGE>
Limited Term California Fund

Investment Goals
- ----------------

The primary investment goal of Limited Term California Fund is to obtain as
high a level of current income exempt from federal and California state
individual income taxes as is consistent, in the view of the Fund's
investment adviser, with preservation of capital. The secondary goal of
the Fund is to reduce expected changes in its share price compared to
longer intermediate and long-term bond portfolios. The Fund's primary and
secondary goals are fundamental policies, and may not be changed without a
majority vote of the Fund's shareholders.

Principal Investment Strategies
- ------------------------------

The Fund pursues its primary goal by investing in investment grade or
equivalent municipal obligations issued by California state and California
state agencies, local governments and their agencies and by certain United
States territories and possessions. Thornburg Management Company, Inc.
(TMC) actively manages the Fund's portfolio, and investment decisions are
based upon general economic and financial trends, outlooks for interest
rates and securities markets, the supply of debt securities, and analysis
of specific securities.

The Fund normally invests 100% of its net assets in municipal obligations.
As a fundamental policy, the Fund normally invests at least 80% of its
assets in municipal obligations. Under normal conditions the Fund invests
100% of its assets in obligations originating in California or issued by
United States territories and possessions, and as a matter of fundamental
policy, invests at least 65% of its total assets in Municipal obligations
originating in California. The Fund may invest up to 20% of its net assets
in taxable securities which would produce income not exempt from federal or
California income tax. These investments may be made due to market
conditions, pending investment of idle funds or to afford liquidity. The
Fund's temporary taxable investments may exceed 20% of its net assets when
made for defensive purposes during periods of abnormal market conditions.

Principal Risks of Investing in the Fund
- ---------------------------------------

The value of the Fund's shares and its dividends will fluctuate in response
to changes in interest rates. When interest rates increase, the value of
the Fund's investments declines and the Fund's share value is reduced.
When interest rates decline, the value of the Fund's investments increases.
During periods of declining interest rates the Fund's dividends decline.
The value of Fund shares also could be reduced if municipal obligations
held by the Fund were downgraded by rating agencies, or went into default,
or if legislation or other government action reduces the ability of issuers
to pay principal and interest when due or changes the tax treatment of
interest on municipal obligations. Because the Fund invests primarily in
obligations originating in California, the Fund's share value may be more
sensitive to adverse economic or political developments in that state. A
portion of the Fund's dividends could be subject to the federal alternative
minimum tax. 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.

An investment in a Fund is not a deposit in any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

Past Performance of the Fund
- ---------------------------

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 charge was taken
into account. The figures shown in the average annual total return table
reflect maximum sales charges imposed, assuming a redemption at the end of
each period shown. Performance in the past is not necessarily an
indication of how the Fund will perform in the future.

<The following are presented as bar graphs in the Prospectus>
Limited Term California Fund Annual Total Returns Class A Shares
- -----------------------------------------------------------------

15%

10% 8.21 10.27
7.52 7.52 7.53 5.84
5% 6.77 4.81 4.97

0%
(2.13)
- -5
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Highest quarterly results for time period shown: 3.77% (quarter ended
3/31/95).
Lowest quarterly results for time period shown: (2.08)% (quarter ended
3/31/94).

Limited Term California Fund Average Annual Total Returns
- -------------------------------------------------------
(periods ended 12/31/98)

One Year Five Years Ten Years Since Inception
-------- ---------- --------- ---------------
Class A Shares 2.35% 4.05% 5.76% 5.81%
Inception 2/84
Lehman Index 5.85% 5.36% 6.99% 6.39%

Class C Shares 4.46% N/A N/A 4.96%
Inception 9/94
Lehman Index 5.85% 5.36% 6.99% 6.28%

<PAGE>
FEES AND EXPENSES OF THE FUND

SHAREHOLDER FEES (Fees paid directly from your investment)

Limited Term Municipal Funds
Class A Class C
------- -------
Maximum Sales Charge on Purchases 2.50% none
(as a percentage of offering price)
Maximum Deferred Sales Charge on Redemptions 0.50%* 0.50%**
(as a percentage of redemption proceeds or
original purchase price, whichever is lower)
* Imposed only on redemptions of purchases greater than $1 million in
the event of a redemption within 12 months of purchase.
** Imposed only on redemptions of Class C shares within 12 months
of purchase.

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

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.

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

<PAGE>
Intermediate National Fund

Investment Goals
- ----------------

The primary investment goal of Intermediate National Fund is to obtain as
high a level of current income exempt from federal individual income tax as
is consistent, in the view of the Fund's investment adviser, with
preservation of capital. The secondary goal of the Fund is to reduce
expected changes in its share price compared to long-term bond portfolios.
The Fund's primary and secondary goals are fundamental policies, and may
not be changed without a majority vote of the Fund's shareholders.

Principal Investment Strategies
- ------------------------------

The Fund normally invests 100% of its net assets in municipal obligations.
As a fundamental policy, the Fund normally invests at least 80% of its
assets in municipal obligations. The Fund may invest up to 20% of its net
assets in taxable securities which would produce income not exempt from
federal income tax. These investments may be made due to market
conditions, pending investment of idle funds or to afford liquidity. The
Fund's temporary taxable investments may exceed 20% of its net assets when
made for defensive purposes during periods of abnormal market conditions.

Because the magnitude of changes in value of interest bearing obligations
is greater for obligations with longer terms, the Fund seeks to reduce
changes in its share value by maintaining a portfolio of investments with a
dollar-weighed average maturity of normally three to ten years. During
temporary periods the Fund's portfolio maturity may be reduced for
defensive purposes. There is no limitation on the maturity of any specific
security the Fund may purchase. The Fund may dispose of any security
before it matures. The Fund also attempts to reduce changes in its share
value through credit analysis, selection and diversification.

Principal Risks of Investing in the Fund
- -----------------------------------------

The value of the Fund's shares and its dividends will fluctuate in response
to changes in interest rates. When interest rates increase, the value of
the Fund's investments declines and the Fund's share value is reduced.
When interest rates decline, the value of the Fund's investments increases.
Dividends also will vary over time. During periods of declining interest
rates the Fund's dividends decline. The value of Fund shares also could be
reduced if municipal obligations held by the Fund were downgraded by rating
agencies, or went into default, or if legislation or other government
action reduces the ability of issuers to pay principal and interest when
due or changes the tax treatment of interest on municipal obligations. A
portion of the Fund's dividends could be subject to the federal alternative
minimum tax. 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 the Fund is not a deposit in any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

Past Performance of the Fund
- ----------------------------

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 charge was taken
into account. The figures shown in the average annual total return table
does reflect maximum sales charges imposed, assuming a redemption at the
end of each period shown. Performance in the past is not necessarily an
indication of how the Fund will perform in the future.

<The following are presented as bar graphs in the Prospectus>
Intermediate National Fund Annual Total Returns Class A Shares
- ------------------------------------------------------------

15%
12.29 13.22
10% 9.81
5.47
5%
4.45
0% 0.72
(2.48)
- -5
1992 1993 1994 1995 1996 1997 1998

Highest quarterly results for time period shown: 4.91% (quarter ended
3/31/95)
Lowest quarterly results for time period shown: (3.33)% (quarter ended
3/31/94).

Intermediate National Fund Average Annual Total Returns
- -----------------------------------------------------
(periods ended 12/31/98)

One Year Five Years Since Inception
-------- ---------- ---------------
Class A Shares 1.79% 4.70% 6.73%
Inception 7/91
Merrill Lynch Index 6.83% 6.27% 7.48%

Class C Shares 5.04% N/A 6.04%
Inception 9/94
Merrill Lynch Index 6.83% 6.27% 7.63%

<PAGE>
FEES AND EXPENSES OF THE FUND

SHAREHOLDER FEES (Fees paid directly from your investment)

Class A Class C
------- -------
Maximum Sales Charge on Purchases 3.50% none
(as a percentage of offering price)
Maximum Deferred Sales Charge on Redemptions 0.50%* 0.60%**
(as a percentage of redemption proceeds or
original purchase price, whichever is lower)
* Imposed only on redemptions of purchases greater than $1 million in
the event of a redemption within 12 months of purchase.
** Imposed only on redemptions of Class C shares within 12 months
of purchase.

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

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

<PAGE>
Intermediate New Mexico Fund

Investment Goals
- ----------------

The primary investment goal of Intermediate New Mexico Fund is to obtain as
high a level of current income exempt from federal and New Mexico state
individual income taxes as is consistent, in the view of the Fund's
investment adviser, with preservation of capital. The secondary goal of
the Fund is to reduce expected changes in its share price compared to
long-term bond portfolios. The Fund's primary and secondary goals are
fundamental policies, and may not be changed without a majority vote of the
Fund's shareholders.

Principal Investment Strategies
- --------------------------------

The Fund pursues its primary goal by investing in investment grade or
equivalent municipal obligations issued by the State of New Mexico and by
New Mexico state agencies, local governments and their agencies and by
certain United States territories and possessions. Investment decisions
are based upon general economic and financial trends, outlooks for interest
rates and securities markets, the supply of debt securities, and analysis
of specific securities.

The Fund normally invests 100% of its net assets in municipal obligations.
As a fundamental policy, the Fund normally invests at least 80% of its
assets in municipal obligations. Under normal conditions the Fund invests
100% of its assets in obligations originating in New Mexico or issued by
United States territories or possessions, and as a matter of fundamental
policy, invests at least 65% of its total assets in municipal obligations
originating in New Mexico. The Fund may invest up to 20% of its net assets
in taxable securities which produce income not exempt from federal or New
Mexico income tax. These investments may be made due to market conditions,
pending investment of idle funds or to afford liquidity. The Fund's
temporary taxable investments may exceed 20% of its net assets when made
for defensive purposes during periods of abnormal market conditions.

Because the magnitude of changes in value of interest bearing obligations
is greater for obligations with longer terms, the Fund seeks to reduce
changes in its share value by maintaining a portfolio of investments with a
dollar-weighed average maturity of normally three to ten years. During
temporary periods the Fund's portfolio maturity may be reduced for
defensive purposes. There is no limitation on the maturity of any specific
security the Fund may purchase. The Fund may dispose of any security
before it matures. The Fund also attempts to reduce changes in it share
value through credit analysis, selection and diversification.

Principal Risks of Investing in the Fund
- ---------------------------------------

The value of the Fund's shares and its dividends will fluctuate in response
to changes in interest rates. When interest rates increase, the value of
the Fund's investments declines and the Fund's share value is reduced.
When interest rates decline, the value of the Fund's investments increases.
During periods of declining interest rates the Fund's dividends decline.
The value of Fund shares also could be reduced if municipal obligations
held by the Fund were downgraded by rating agencies, or went into default,
or if legislation or other government action reduces the ability of issuers
to pay principal and interest when due or changes the tax treatment of
interest on municipal obligations. Because the Fund invests primarily in
obligations originating in New Mexico, the Fund's share value may be more
sensitive to adverse economic or political developments in that state. A
portion of the Fund's dividends could be subject to the federal alternative
minimum tax. 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 the Fund is not a deposit in any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

The Fund is a nondiversified investment company, and 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 such an issuer could cause the Fund's share price to decline to a
greater degree.

Past Performance of the Fund
- ---------------------------

<The following are presented as bar graphs in the Prospectus>
Intermediate New Mexico Fund Annual Total Returns Class A Shares
- --------------------------------------------------------------
15%
10.31 11.15
10%
8.63 6.49
5% 4.89

0% 0.42

- -5 (1.19)
1992 1993 1994 1995 1996 1997 1998

Highest quarterly results for time period shown: 4.43% (quarter ended
3/31/95).
Lowest quarterly results for time period shown: (2.91)% (quarter ended
3/31/94).

Intermediate New Mexico Fund Average Annual Total Returns
- -------------------------------------------------------
(periods ending 12/31/98)

One Year Five Years Since Inception
(6/21/91)
-------- ---------- --------------
Class A Shares 1.25% 4.14% 6.07%
M-L Bond Index 6.83% 6.27% 7.32%

<PAGE>
FEES AND EXPENSES OF THE FUND

SHAREHOLDER FEES (Fees paid directly from your investment)

Class A
-------
Maximum Sales Charge on Purchases 3.50%
(as a percentage of offering price)
Maximum Deferred Sales Charge on Redemptions 0.50%*
(as a percentage of redemption proceeds or
original purchase price, whichever is lower)
* Imposed only on redemptions of purchases greater than $1 million in
the event of a redemption within 12 months of purchase.

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

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

<PAGE>
Intermediate Florida Fund

Investment Goals
- ----------------

The primary investment goal of Intermediate Florida Fund is to obtain as
high a level of current income exempt from federal individual income tax as
is consistent, in the view of the Fund's investment adviser, with
preservation of capital. The Fund also seeks exemption of its shares from
the Florida "intangibles" tax on securities owned by individuals. The
secondary goal of the Fund is to reduce expected changes in its share price
compared to long-term bond portfolios. The Fund's primary and secondary
goals are fundamental policies, and may not be changed without a majority
vote of the Fund's shareholders.

Principal Investment Strategies
- ------------------------------

The Fund pursues its primary goal by investing in investment grade or
equivalent municipal obligations issued by the State of Florida and Florida
State agencies, local governments and their agencies and by certain United
States territories and possessions. Thornburg Management Company, Inc.
(TMC) actively manages the Fund's portfolio, and investment decisions are
based upon general economic and financial trends, outlooks for interest
rates and securities markets, the supply of debt securities, and analysis
of specific securities.

The Fund seeks to enhance its income by taking advantage of yield
disparities, trends or other factors in the fixed income markets. Although
the Fund ordinarily will acquire securities for investment rather than for
realization of gains on market fluctuations, it may dispose of any security
prior to its scheduled maturity to enhance income or reduce loss, to change
the portfolio's average maturity, or to otherwise respond to current market
conditions. The objective of preserving capital may preclude the Fund from
obtaining the highest yields available.

The Fund normally invests 100% of its net assets in municipal obligations.
As a fundamental policy, the Fund normally invests at least 80% of its
assets in municipal obligations. Under normal conditions the Fund invests
100% of its total assets in municipal obligations originating in Florida or
issued by United States territories and possessions. As a matter of
fundamental policy, the Fund invests at least 65% of its total assets in
municipal obligations originating in Florida. The Fund may invest up to
20% of its net assets in taxable securities which would produce income not
exempt from federal income tax. These investments may be made due to
market conditions, pending investment of idle funds or to afford liquidity.
The Fund's temporary taxable investments may exceed 20% of its net assets
when made for defensive purposes during periods of abnormal market
conditions.

Because the magnitude of changes in value of interest bearing obligations
is greater for obligations with longer terms, the Fund seeks to reduce
changes in its share value by maintaining a portfolio of investments with a
dollar-weighed average maturity of normally three to ten years. During
temporary periods the Fund's portfolio maturity may be reduced for
defensive purposes. There is no limitation on the maturity of any specific
security the Fund may purchase. The Fund may dispose of any security
before it matures. The Fund also attempts to reduce changes in its share
value through credit analysis, selection and diversification.

Principal Risks of Investing in the Fund
- ---------------------------------------

The value of the Fund's shares and its dividends will fluctuate in response
to changes in interest rates. When interest rates increase, the value of
the Fund's investments declines and the Fund's share value is reduced.
When interest rates decline, the value of the Fund's investments increases.
During periods of declining interest rates the Fund's dividends decline.
The value of Fund shares also could be reduced if municipal obligations
held by the Fund were downgraded by rating agencies, or went into default,
or if legislation or other government action reduces the ability of issuers
to pay principal and interest when due or changes the tax treatment of
interest on municipal obligations. Because the Fund invests primarily in
obligations originating in Florida, the Fund's share value may be more
sensitive to adverse political or economic developments in that state. A
portion of the Fund's dividends may be subject to the federal alternative
minimum tax. 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 the Fund is not a deposit in any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

Past Performance of the Fund
- ---------------------------

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

<The following are presented as bar graphs in the Prospectus>
Intermediate Florida Fund Annual Total Returns Class A Shares
- -----------------------------------------------------------
15%
12.19
10%
7.28
5% 5.81
4.67
0%

- -5
1995 1996 1997 1998

Highest quarterly results for time period shown: 4.68% (quarter ended
3/31/95).
Lowest quarterly results for time period shown: (3.09)% (quarter ended
3/31/94).

Intermediate Florida Fund Average Annual Total Returns
- ----------------------------------------------------
(periods ended 12/31/98)

One Year Since Inception
(2/1/94)
-------- --------------
Class A Shares 1.53% 4.67%
M-L Bond Index 6.83% 6.18%

SHAREHOLDER FEES (Fees paid directly from your investment)

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

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

<PAGE>
Intermediate New York Fund

Investment Goals
- ----------------

The primary investment goal of Intermediate New York Fund is to obtain as
high a level of current income exempt from federal, New York State and New
York City individual income taxes as is consistent, in the view of the
Fund's investment adviser, with preservation of capital. The secondary
goal of the Fund is to reduce expected changes in its share price compared
to long-term bond portfolios. The Fund's primary and secondary goals are
fundamental policies, and may not be changed without a majority vote of the
Fund's shareholders.

Principal Investment Strategies
- -------------------------------

The Fund pursues its primary goal by investing in investment grade or
equivalent municipal obligations issued by New York State and by New York
State agencies, local governments and their agencies and by certain United
States territories and possessions. Thornburg Management Company, Inc.
(TMC) actively manages the Fund's portfolio, and investment decisions are
based upon general economic and financial trends, outlooks for interest
rates and securities markets, the supply of debt securities, and analysis
of specific securities.

The Fund normally invests 100% of its net assets in municipal obligations.
As a fundamental policy, the Fund normally invests at least 80% of its
assets in municipal obligations. Under normal conditions the Fund invests
100% of its total assets in Municipal obligations originating in New York
or issued by United States territories and possessions, and as a matter of
fundamental policy, invests at least 65% of its total assets in municipal
obligations originating in New York. The Fund may invest up to 20% of its
net assets in taxable securities which would produce income not exempt from
federal or New York income tax. These investments may be made due to
market conditions, pending investment of idle funds or to afford liquidity.
The Fund's temporary taxable investments may exceed 20% of its net assets
when made for defensive purposes during periods of abnormal market
conditions.

Because the magnitude of changes in value of interest bearing obligations
is greater for obligations with longer terms, the Fund seeks to reduce
changes in its share value by maintaining a portfolio of investments with a
dollar-weighed average maturity of normally three to ten years. During
temporary periods the Fund's portfolio maturity may be reduced for
defensive purposes. There is no limitation on the maturity of any specific
security the Fund may purchase. The Fund may dispose of any security
before it matures. The Fund also attempts to reduce changes in it share
value through credit analysis, selection and diversification.

Principal Risks of Investing in the Fund
- ----------------------------------------

The value of the Fund's shares and its dividends will fluctuate in response
to changes in interest rates. When interest rates increase, the value of
the Fund's investments declines and the Fund's share value is reduced.
When interest rates decline, the value of the Fund's investments increases.
During periods of declining interest rates the Fund's dividends decline.
The value of Fund shares also could be reduced if municipal obligations
held by the Fund were downgraded by rating agencies, or went into default,
or if legislation or other government action reduces the ability of issuers
to pay principal and interest when due or changes the tax treatment of
interest on municipal obligations. Because the Fund invests primarily in
obligations originating in New York, the Fund's share value may be more
sensitive to adverse economic or political developments in that state. A
portion of the Fund's dividends could be subject to the federal alternative
minimum tax. 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.

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.

Past Performance of the Fund
- ----------------------------

<The following are presented as bar graphs in the Prospectus>
Intermediate New York Fund Annual Total Returns Class A Shares
- -------------------------------------------------------------

15%

10%

5% 5.88

- -5
1998

Highest quarterly results for time period shown: 2.61% (quarter ended
9/30/98).
Lowest quarterly results for time period shown: 0.42% (quarter ended
12/31/98).

Intermediate New York Fund Average Annual Total Returns
- ------------------------------------------------------
(periods ended 12/31/98)

One Year Since Inception
(9/4/97)
-------- --------------
Class A Shares 2.17% 4.12%
M-L Bond Index 6.83% 8.21%

FEES AND EXPENSES OF THE FUND

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

SHAREHOLDER FEES (Fees paid directly from your investment)

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

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

MANAGEMENT DISCUSSION OF 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): 1.25%
5 Years: 4.14%
From Inception (6/21/91): 6.07%

<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>
ADDITIONAL INFORMATION ABOUT FUND 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.

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. 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.

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.

YEAR 2000

The inability of some computer systems to recognize dates after December 31,
1999 could cause some disruptions in the securities industry.

Thornburg Fund's Transfer Agent and Custody Bank National Financial Data
Services/DST (Transfer Agent) and State Street Bank (Custodian) have been
preparing for year 2000 conversion since 1988. Beta testing has been done
using 1999/2000 conversions all the way out to 2009/2010 conversions
(including leap year calculations). Firewalls have been built to isolate
non-complaint third party transmissions and testing has begun with all third
party electronic communicators. Detailed Y2K information is available over
the Internet at www.dstsystems.com. DST's stated goal is to be Y2K Ready by
the end of 1998.

The Funds' internal systems take no electronic downloads other than from DST
Systems. We do, however, purchase information and research delivered
electronically. We also use analytical programs provided by such vendors,
e.g. bond analytics. Failure of such externally supplied services would
impact our efficiency, and that of our entire industry. It would not,
however, preclude our ability to analyze securities or monitor and adjust
portfolios.

In addition, although we don't expect it to be the case, issuers of
securities owned by the Funds might have difficulties that would delay or
disrupt their payments of interest or dividends to the Funds.

PORTFOLIO TURNOVER

Each Fund anticipates that is annual portfolio turnover rate will be less
than 100%. TMC does not consider portfolio turnover rate a limiting factor
in making investment decisions. High rates of turnover may result in
increased transaction costs, and could result in increased capital gains
distributions to shareholders.

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

Florida does not currently impose an income tax on individuals. 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.

The minimum account size is $1,000. Each Fund reserves the right to redeem
the shares of any shareholder whose shares have a net asset value of less
than $1,000. The Fund will notify the shareholder before performing the
redemption.

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, 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 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 AND MANAGEMENT FEES

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 percentage 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 percentage 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 $2.2 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

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")

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- MAY LOSE
VALUE
INSURED NO BANK
GUARANTEE

<PAGE>
TABLE OF CONTENTS

__ The Funds
Limited Term National Fund
Limited Term California Fund
Intermediate National Fund
Limited Term U.S. Government Fund
Limited Term Income Fund
Value Fund

<PAGE>

Limited Term National Fund

Investment Goals
- ----------------

The primary investment goal of Limited Term National Fund is to obtain as
high a level of current income exempt from federal income tax as is
consistent, in the view of the Fund's investment adviser, with preservation
of capital. The secondary goal of the Fund is to reduce expected changes in
its share price compared to longer intermediate and long-term bond
portfolios. The Fund's primary and secondary goals are fundamental policies,
and may not be changed without a majority vote of the Fund's shareholders.

Principal Investment Strategies
- ------------------------------

The Fund pursues its primary goal by investing in investment grade or
equivalent municipal obligations issued by states and state agencies, local
governments and their agencies and by certain United States territories and
possessions. Thornburg Management Company, Inc. (TMC) actively manages the
Fund's portfolio, and investment decisions are based upon general economic
and financial trends, outlooks for interest rates and securities markets, the
supply of debt securities, and analysis of specific securities.

The Fund normally invests 100% of its net assets in municipal obligations. As
a fundamental policy, the Fund normally invests at least 80% of its assets in
municipal obligations. The Fund may invest up to 20% of its net assets in
investment grade or equivalent taxable securities which produce income not
exempt from federal income tax. These investments may be made due to market
conditions, pending investment of idle funds or to afford liquidity. The
Fund's temporary taxable investments may exceed 20% of its net assets when
made for defensive purposes during periods of abnormal market conditions.

Because the magnitude of changes in value of interest bearing obligations is
greater for obligations with longer terms, the Fund seeks to reduce changes
in its share value by maintaining a portfolio of investments with a
dollar-weighed average maturity normally less than five years. There is no
limitation on the maturity of any specific security the Fund may purchase.
The Fund may dispose of any security before it matures. The Fund also
attempts to reduce changes in it share value through credit analysis,
selection and diversification.

Principal Risks of Investing in the Fund
- ---------------------------------------

The value of the Fund's shares and its dividends will fluctuate in response
to changes in interest rates. When interest rates increase, the value of the
Fund's investments declines and the Fund's share value is reduced. When
interest rates decline, the value of the Fund's investments increases. During
periods of declining interest rates the Fund's dividends decline. The value
of Fund shares also could be reduced if municipal obligations held by the
Fund were downgraded by rating agencies, or went into default, or if
legislation or other government action reduces the ability of issuers to pay
principal and interest when due or changes the tax treatment of interest on
municipal obligations. 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 the 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.

Past Performance of the Fund
- -----------------------------

The following information shows how the Fund's investment results vary. The
bar chart shows how the annual total returns for Class I shares have been
different in each full year shown, and the average annual total return
figures compare Class I share performance to the Lehman Five-Year General
Obligation Bond Index, a broad measure of market performance. Performance in
the past is not necessarily an indication of how the Fund will perform in the
future.

<The following are presented as bar graphs in the Prospectus>
Limited Term National Fund Annual Total Returns Class I Shares
- ----------------------------------------------------------------
15%

10%

5% 5.86 5.81

- -5
1997 1998

Highest quarterly results for time period shown: 2.20% (quarter ended
9/30/96).
Lowest quarterly results for time period shown: 0.51% (quarter ended
3/31/97).

Limited Term National Fund Average Annual Total Returns
Class I Shares (periods ending 12/31/98)
- -----------------------------------------------------
Inception
One Year (7/5/96)
-------- ---------
Class I Shares 5.18% 6.01%
Lehman Bond Index 5.85% 6.49%

FEES AND EXPENSES OF THE FUND

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

Limited Term California Fund

Investment Goals
- -----------------

The primary investment goal of Limited Term California Fund is to obtain as
high a level of current income exempt from federal and California state
individual income taxes as is consistent, in the view of the Fund's
investment adviser, with preservation of capital. The secondary goal of the
Fund is to reduce expected changes in its share price compared to longer
intermediate and long-term bond portfolios. The Fund's primary and secondary
goals are fundamental policies, and may not be changed without a majority
vote of the Fund's shareholders.

Principal Investment Strategies
- --------------------------------

The Fund pursues its primary goal by investing in investment grade or
equivalent municipal obligations issued by California state and California
state agencies, local governments and their agencies and by certain United
States territories and possessions. Thornburg Management Company, Inc. (TMC)
actively manages the Fund's portfolio, and investment decisions are based
upon general economic and financial trends, outlooks for interest rates and
securities markets, the supply of debt securities, and analysis of specific
securities.

The Fund normally invests 100% of its net assets in municipal obligations. As
a fundamental policy, the Fund normally invests at least 80% of its assets in
municipal obligations. Under normal conditions the Fund invests 100% of its
assets in obligations originating in California or issued by United States
territories and possessions, and as a matter of fundamental policy, invests
at least 65% of its total assets in Municipal obligations originating in
California. The Fund may invest up to 20% of its net assets in investment
grade or equivalent taxable securities which would produce income not exempt
from federal and California income tax. These investments may be made due to
market conditions, pending investment of idle funds or to afford liquidity.
The Fund's temporary taxable investments may exceed 20% of its net assets
when made for defensive purposes during periods of abnormal market
conditions.

Because the magnitude of changes in value of interest bearing obligations is
greater for obligations with longer terms, the Fund seeks to reduce changes
in its share value by maintaining a portfolio of investments with a
dollar-weighed average maturity normally less than five years. There is no
limitation on the maturity of any specific security the Fund may purchase.
The Fund may dispose of any security before it matures. The Fund also
attempts to reduce changes in it share value through credit analysis,
selection and diversification.

Principal Risks of Investing in the Fund
- -----------------------------------------

The value of the Fund's shares and its dividends will fluctuate in response
to changes in interest rates. When interest rates increase, the value of the
Fund's investments declines and the Fund's share value is reduced. When
interest rates decline, the value of the Fund's investments increases. During
periods of declining interest rates the Fund's dividends decline. The value
of Fund shares also could be reduced if municipal obligations held by the
Fund were downgraded by rating agencies, or went into default, or if
legislation or other government action reduces the ability of issuers to pay
principal and interest when due or changes the tax treatment of interest on
municipal obligations. Because the Fund invests primarily in obligations
originating in California, the Fund's share value may be more sensitive to
adverse economic or political developments in that state. A portion of the
Fund's dividends could be subject to the federal alternative minimum tax.
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.

An investment in the Fund is not a deposit in any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

Past Performance of the Fund
- -----------------------------

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

10%

5% 5.25

- -5%
1998

Highest quarterly results for time period shown: 2.38% (quarter ended
9/30/98).
Lowest quarterly results for time period shown: 0.64% (quarter ended
12/31/98).

Limited Term California Fund Average Annual Total Returns
Class I Shares
- ---------------------------------------------------------
Since Inception
One Year (4/1/97)
-------- --------------
Class I Shares 5.25% 6.37%
Lehman Bond Index 5.83% 7.16%

FEES AND EXPENSES OF THE FUND

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

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%.
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

Intermediate National Fund

Investment Goals
- ----------------

The primary investment goal of Intermediate National Fund is to obtain as
high a level of current income exempt from federal income tax as is
consistent, in the view of the Fund's investment adviser, with preservation
of capital. The secondary goal of the Fund is to reduce expected changes
in its share price compared to long-term bond portfolios. The Fund's
primary and secondary goals are fundamental policies, and may not be
changed without a majority vote of the Fund's shareholders.

Principal Investment Strategies
- ------------------------------

The Fund normally invests 100% of its net assets in municipal obligations.
As a fundamental policy, the Fund normally invests at least 80% of its
assets in municipal obligations. The Fund may invest up to 20% of its net
assets in investment grade or equivalent taxable securities which would
produce income not exempt from federal income tax. These investments may
be made due to market conditions, pending investment of idle funds or to
afford liquidity. The Fund's temporary taxable investments may exceed 20%
of its net assets when made for defensive purposes during periods of
abnormal market conditions.

Because the magnitude of changes in value of interest bearing obligations
is greater for obligations with longer terms, the Fund seeks to reduce
changes in its share value by maintaining a portfolio of investments with a
dollar-weighed average maturity of normally three to ten years. During
temporary periods the Fund's portfolio maturity may be reduced for
defensive purposes. There is no limitation on the maturity of any specific
security the Fund may purchase. The Fund may dispose of any security
before it matures. The Fund also attempts to reduce changes in it share
value through credit analysis, selection and diversification.

Principal Risks of Investing in the Fund
- -----------------------------------------

The value of the Fund's shares and its dividends will fluctuate in response
to changes in interest rates. When interest rates increase, the value of
the Fund's investments declines and the Fund's share value is reduced.
When interest rates decline, the value of the Fund's investments increases.
Dividends also will vary over time. During periods of declining interest
rates the Fund's dividends decline. The value of Fund shares also could be
reduced if municipal obligations held by the Fund were downgraded by rating
agencies, or went into default, or if legislation or other government
action reduces the ability of issuers to pay principal and interest when
due or changes the tax treatment of interest on municipal obligations. A
portion of the Fund's dividends could be subject to the federal alternative
minimum tax. 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.

An investment in the Fund is not a deposit in any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

Past Performance of the Fund
- -----------------------------

The following information shows how the Fund's investment results vary.
The bar chart shows how the annual total returns for Class I shares have
been different in each full year shown, and the average annual total return
figures compare Class I share performance to the Merrill Lynch Municipal
Bond (7-12 year) Index, a broad measure of market performance. Performance
in the past is not necessary an indication of how the Fund will perform in
the future.

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

10%
7.38
5% 5.79

- -5%
1997 1998

Highest quarterly results for time period shown: 3.11% (quarter ended
9/30/96).
Lowest quarterly results for time period shown: 0.28% (quarter ended
3/31/97).

Intermediate National Fund Average Annual Total Returns
Class I Shares (periods ending 12/31/98)
- ---------------------------------------------------------
Since Inception
One Year (7/5/96)
-------- --------------
Class I Shares 5.79% 7.32%
Merrill Index 6.83% 8.20%

FEES AND EXPENSES OF THE FUND

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

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.

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

Limited Term U.S. Government Fund

Investment Goals
- -----------------

The primary goal of Government Fund is to provide as high a level of
current income as is consistent, in the view of The Fund's investment
adviser, with safety of capital. As a secondary goal, the Fund seeks to
reduce changes in its share price compared to longer term portfolios. The
Fund's primary and secondary goals are fundamental Fund policies, and may
not be changed without a majority vote of the Fund's shareholders.

Principal Investment Strategies
- ---------------------------------

Thornburg Management Company, Inc. (TMC) actively manages the Fund's
investments in pursuing the Fund's primary investment goal. 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 Fund's investments are determined by
individual security analyses.

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. 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.

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.

Because the magnitude of changes in the value of interest bearing
obligations is greater for obligations with longer terms, the Fund seeks to
reduce changes in its share value by maintaining a portfolio of investments
with a dollar-weighed average maturity or expected life normally less than
five years. There is no limitation on the maturity of any specific
security the Fund may purchase, and the Fund may sell any security before
it matures. The Fund also attempts to reduce changes in share value
through credit analysis, selection and diversification.

Principal Risks of Investing in the Fund
- -----------------------------------------

The value of the Fund's shares and its dividends will change in response to
changes in market interest rates. When interest rates increase, the value
of the 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. Value changes in response to interest
rate changes may be more pronounced for mortgage backed securities owned by
the Fund. Additionally, decreases in market interest rates may result in
prepayments of certain obligations the Fund will acquire. These
prepayments may require the Fund to reinvest at a lower rate of return, and
may reduce the Fund's share price because the value of those securities may
depreciate or may not appreciate as rapidly as debt securities which cannot
be prepaid.

An investment in the 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 Fund may not be suitable for you because the Fund's share value will
move up and down as interest rates change. Investors whose sole objective
is preservation of capital may wish to consider a high quality money market
fund.

Past Performance of the Fund
- -----------------------------

The following information shows how the Fund's investment results vary.
The bar chart shows how the annual total returns for Class I shares have
been different in each full year shown, and the average annual total return
figures compare Class I share performance to the Lehman Intermediate
Government Bond Index, a broad measure of market performance. Performance
in the past is not necessarily an indication of how the Fund will perform
in the future.

<The following are presented as bar graphs in the Prospectus>
Limited Term U.S. Government Fund Annual Total Returns Class I Shares
- ----------------------------------------------------------------------
15%

10%
6.97 7.29
5%

- -5
1997 1998

Highest quarterly results for time period shown: 3.84% (quarter ended
9/30/98).
Lowest quarterly results for time period shown: 0.21% (quarter ended
12/31/98).

Government Fund Average Annual Total Returns
Class I Shares (periods ending 12/31/98)
- ---------------------------------------------

Inception
One Year (7/5/96)
-------- ---------
Class I Shares 7.29% 7.63%
Lehman Bond Index 8.49% 8.26%

FEES AND EXPENSES OF THE FUND

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

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.

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

Limited Term Income Fund

Investment Goals
- ----------------

The primary goal of Income Fund is to provide as high a level of current
income as is consistent, in the view of the Fund's investment adviser, with
safety of capital. As a secondary goal, the Fund seeks to reduce changes
in its share prices compared to longer term portfolios. The Fund's primary
and secondary goals are fundamental Fund policies, and may not be changed
without a majority of the Fund's shareholders.

Principal Investment Strategies
- ------------------------------

Thornburg Management Company, Inc. (TMC) actively manages the Fund's
portfolio in attempting to meet the Fund's primary investment goal.
Investment decisions are based upon general economic and financial trends
such as domestic and international economic development, outlooks for
securities markets, interest rates and inflation, the supply and demand for
debt securities, and other factors. The Fund's investments are determined
by individual security analyses. The Fund seeks to enhance its income by
taking advantage of yield disparities, trends or other factors in the fixed
income markets. Although the Fund ordinarily will acquire securities for
investment rather than for realization of gains on market fluctuations, it
may dispose of any security prior to its scheduled maturity to enhance
income or reduce loss, to change the portfolio's average maturity, or to
otherwise respond to current market conditions.

The Fund will invest at least 65% of its net assets in (i) obligations of
the U.S. Government, and its agencies and instrumentalities, and (ii) debt
securities rated investment grade, or if not rated, judged to be of
comparable quality by TMC. Debt securities the Fund may purchase include
corporate debt obligations, mortgage backed securities, other asset-backed
securities, municipal securities, and commercial paper and bankers'
acceptances. The Fund emphasizes investments in U.S. Government securities
and other issuers domiciled in the United States, but may purchase foreign
securities of the same types and quality as the domestic securities it
purchases, when TMC anticipates foreign securities offer more investment
potential.

Because the magnitude of changes in the value of interest bearing
obligations is greater for obligations with longer terms, the Fund seeks to
reduce changes in its share value by maintaining a portfolio of investments
with a dollar-weighted average maturity or expected life normally less than
five years. There is no limitation on the maturity of any specific
security the Fund may purchase, and the Fund may sell any security before
it matures. The Fund also attempts to reduce changes in share value
through credit analysis, selection and diversification.

Principal Risks of Investing in the Fund
- ---------------------------------------

The value of the Fund's shares and its dividends will change in response to
changes in market interest rates. When interest rates increase, the value
of the Fund's investments declines and the Fund's share value is reduced.
When interest rates decline, the value of the Fund's investments increases.
Value changes in response to interest rate changes may be more pronounced
for mortgage and asset backed securities owned by the Fund. Additionally,
decreases in market interest rates may result in prepayments of certain
obligations the Fund will acquire. These prepayments may require the Fund
to reinvest at a lower rate of return, and may reduce the Fund's share price
because the value of those securities may depreciate or may not appreciate
as rapidly as debt securities which cannot be prepaid.

Some investments owned by the Fund may be subject to default or delays in
payment, or could be downgraded by rating agencies, reducing the value of
the Fund's shares. A fall in worldwide demand for U.S. Government
Securities or general economic decline could lower the value of these
Securities. Additionally, foreign securities the Fund may purchase are
subject to additional risks, including changes in currency exchange rates
which may adversely affect the Fund's investments, political instability,
confiscation, inability to sell foreign investments and reduced legal
protections for investments.

An investment in the 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 Fund may not be suitable for you because the Fund's share value will
move up and down as interest rates change. Investors whose sole objective
is preservation of capital may wish to consider a high quality money market
fund.

Past Performance of the Fund
- -----------------------------

The following information shows how the Fund's investment results vary.
The bar chart shows how the annual total returns for Class I shares have
been different in each full year shown, and the average annual total return
figures compare Class I share performance to the Lehman Intermediate
Government/Corporate Index, a broad measure of market performance.

<The following are presented as bar graphs in the Prospectus>
Limited Term Income Fund Annual Total Returns Class I Shares
- ----------------------------------------------------------------------
15%

10%
6.72
5% 5.91

- -5
1997 1998

Highest quarterly results for time period shown: 3.97% (quarter ended
9/30/86).
Lowest quarterly results for time period shown: (0.56)% (quarter ended
3/31/97).

Limited Term Income Fund Average Annual Total Returns
Class I Shares (periods ending 12/31/98)
- ------------------------------------------------------

Inception
One Year (7/5/96)
-------- ---------
Class I Shares 6.72% 8.06%
Lehman Bond Index 8.45% 8.26%

FEES AND EXPENSES OF THE FUND

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

Government 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.

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

Thornburg Value Fund

Investment Goals of Value Fund
- ------------------------------

The 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 secondary,
nonfundmental goal of the Fund is to seek some current income.

Principal Investment Strategies of Value Fund
- -------------------------------------------

Value Fund expects to invest primarily in domestic equity securities
selected on a value basis. However, the Fund may own a variety of
securities, including foreign equity and debt securities, domestic debt
securities and securities that are not currently paying dividends, which in
the opinion of the Fund's investment adviser offer prospects for capital
appreciation or income.

The Fund's investment adviser, Thornburg Management Company, Inc. (TMC)
intends to invest on an opportunistic basis, where it believes there is
intrinsic value. The 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. The
relative proportions of these different types of securities will vary over
time. The Fund ordinarily reflects a bias towards stocks or industries when
those stocks or industries are depressed, reflecting unfavorable market
perceptions of company or industry fundamentals. TMC believes that
investments in undervalued stocks, in addition to offering potential capital
appreciation, will help limit loss in adverse markets. TMC anticipates that
the Fund ordinarily will have a weighed average dividend yield, before Fund
expense, that is higher than the yield of the Standard & Poor's Composite
Index of 500 Stocks.

TMC primarily uses individual company and industry analysis to make
investment decisions. The Fund typically makes 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. This type of company
is often cyclical, and generally does well when the economy or its industry
is doing well. TMC's judgment in evaluating these companies will likely be
contrary to the popular perception of the moment.

Consistent growth companies when they are selling at valuations below
historic norms. Stocks in this category generally sell at premium
valuations and show steady earnings and dividend growth. These companies
may have less 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. Under
normal conditions the proportion of the Fund invested in companies of this
type will be modest.

The Fund selects foreign securities issued by companies domiciled in
countries whose currencies are freely convertible into U.S. dollars, or in
companies in other countries whose business is conducted primarily in U.S.
dollars (which could include developing counties).

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

Principal Investment Risks of Value Fund
- ---------------------------------------

The value of the 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 can be reduced by unsuccessful investment
strategies and risks affecting foreign securities. Principal foreign
investment risks are changes in currency exchange rates which may adversely
affect the Fund's investments, economic and political instability,
confiscation, inability to sell foreign investments, and reduced legal
protections for investments. Debt securities owned by the Fund may
decrease in value because of interest rate increases, defaults, or
downgrades by rating agencies. 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 the Fund is not a deposit in any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.

Past Performance of the Fund
- -----------------------------

The following information shows how the Fund's investment results vary.
The bar chart shows how the annual total returns for Class A shares have
been different in each full year shown, and the average annual total return
figures compare Class A share performance to the Standard & Poor's
Composite Index of 500 Stocks, a broad measure of market performance. The
returns reflected in the bar chart 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.

<The following are presented as bar graphs in the Prospectus>
Value Fund Annual Total Returns Class A Shares
- -------------------------------------------------
40%
37.82
30% 33.70

20% 22.25

10%

0%
1996 1997 1998

Highest quarterly results for time period shown: 19.98% (quarter ended
12/31/98).
Lowest quarterly results for time period shown: (13.59)% (quarter ended
9/30/98).

Value Fund Average Annual Total Returns
Class A Shares (periods ending 12/31/98)
- -----------------------------------------
Since
Inception
One Year (10/2/95)
-------- ---------
Class A Shares 16.73% 26.39%
Standard & Poor's
500 Index 28.55% 28.03%

FEES AND EXPENSES OF THE FUND

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

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.

1 Year 3 Years
------ -------
Class I Shares $102 $317

FUND PERFORMANCE AND INDEX COMPARISONS

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. No data is given for Value Fund, which
commenced its offering of Class I shares on November 2, 1998.

Management Discussion of Fund Performance. Limited Term, National Fund,
Limited Term California Fund, Intermediate National Fund, Government Fund
and Income Fund.

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%

<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%

ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS

Additional Information About the Municipal Funds' 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 "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.

ADDITIONAL INFORMATION ABOUT THE TAXABLE INCOME FUNDS' INVESTMENTS

U.S. Government Securities. Either 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.

GNMA Certificates. Either taxable Income Fund may purchase 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, CMOs. To facilitate its investment in any of the types of
obligations which the Funds may acquire, a 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, in the case of Income Fund,
mortgage loans. A 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 a 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.

Either Fund may enter into reverse repurchase agreements to obtain short-
term liquidity. In such a transaction the Fund sells 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.

Securities Ratings. 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.

See "Securities Ratings and Credit Quality," Below.

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. Income Fund may 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. 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.

In addition to its investments in foreign securities, Income Fund may 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. 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.

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.

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.

ADDITIONAL INFORMATION ABOUT VALUE FUND'S INVESTMENTS

The following discussion contains more detailed information about types of
investments Value Fund may make. 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 goals. 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.

Equity Securities. 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.

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.

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.

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 the Fund may purchase 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.

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.

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.

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

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. Debt securities are ordinarily valued using prices obtained from
independent valuation services. Equity securities are valued primarily on
the basis of market quotations from the primary market on which the
securities are traded. If quotations are not available, or if values have
been materially affected after the close of foreign markets, assets are
valued by a method that the Trustees of the Fund believe accurately reflects
fair value. 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 47.

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.

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.

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.

Investors may be charged a fee if they effect transactions in Fund shares
through a broker or agent.

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.

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.

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.

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.

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.

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 - 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

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.

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 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

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.

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.

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.

<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>
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 Funds' 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 same 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"). Each 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.

Each Fund has reserved the right to invest up to 20% of its net assets
in "temporary" investments in taxable securities, but 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 100%. 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 100% 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 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. 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 Funds. Moreover, the value of the
Fund's portfolio may be affected. Each of the Funds might be compelled to
reevaluate its investment objective and policies and submit possible changes
in the structure of the Funds for the approval of their shareholders.

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

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

Ratings

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

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

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

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

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

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

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

Temporary Investments

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

Repurchase Agreements

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

U.S. Government Obligations

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

INVESTMENT LIMITATIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

PERFORMANCE

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.

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.

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, and revenues and transfers for the state in the
most recent fiscal year continued to expand so that the State is enjoying a
current surplus. 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.

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 the
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.

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 eight separate funds, four 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,
Vice President of TMC since November 1995, and Managing Director since
December 1998.

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.

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. . . . . . . . . . . . . . . . . . . . . . . . . __

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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.

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.

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.

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;

(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 and a Managing Director since December 1998;
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.