THORNBURG LIMITED TERM INCOME FUNDS
February 1, 1996
PROSPECTUS
Table of Contents
Fees and Expenses
Financial Highlights
Management Discussion of Fund Performance
Investment Objectives and Policies
Description of Share Classes
How to Purchase Fund Shares
How Redeem Shares
Management of the Funds
Service and Distribution Plans
Distributions and Taxes
Supplementary Information
PROSPECTUS
Thornburg Limited Term Income Funds (the "Funds") are series of Thornburg
Investment Trust (formerly Thornburg Income Trust) (the "Trust"), each with
a separate investment portfolio, and each having its own series of shares:
Thornburg Limited Term U.S. Government Fund ("Government Fund")
Thornburg Limited Term Income Fund ("Income Fund")
Each Fund 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 the view of the Funds'
investment adviser, 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 United States 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 investment objective by investing 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 or utilize other investment strategies to
hedge market risks, manage cash positions or to enhance potential gain. See
"Income Fund" and "Other Investment Strategies", below.
Additionally, each Fund will seek to reduce fluctuations in its net asset
value compared to longer term portfolios by investing in obligations with an
expected dollar-weighted average maturity of normally not more than five
years. If your sole objective is preservation of capital, then the Funds may
not be suitable for you because their net asset values will vary as market
interest rates fluctuate. Investors whose sole objective is preservation of
capital may wish to consider a high quality money market fund. Each of the
Funds are divided into multiple classes. See "Your Account."
This Prospectus concisely sets forth the information a prospective investor
should know about the Funds before investing. It should be retained for
future reference.
Additional information about the Funds is contained in a Statement of
Additional Information dated February 1, 1996, which has been filed with the
Securities and Exchange Commission. The Statement of Additional Information
may be obtained at no charge by contacting Thornburg Securities Corporation,
119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501, (800) 847-0200.
This Prospectus incorporates by reference the entire Statement of Additional
Information.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
FUND SHARES INVOLVE INVESTMENT RISKS (INCLUDING POSSIBLE LOSS OF PRINCIPAL),
AND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, AND ARE
NOT INSURED BY, ANY BANK, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY GOVERNMENT AGENCY.
EXPENSE INFORMATION
<TABLE>
SHAREHOLDER TRANSACTION COSTS
<CAPTION>
Class A Class C
------- -------
<S> <C> <C>
Maximum sales charge on sales 2.50% none
(as a percentage of offering price)
Maximum deferred sales charge on
redemptions 0.50% <F1> 0.50 <F2>
(as a percentage of redemption proceeds
or original price, whichever is lower)
<FN>
<F1> Imposed only on redemptions of purchases greater than $1 million in the
event of a redemption within 12 months of purchase.
<F2> Imposed only on redemptions within 12 months of purchase, for Class C
shares purchased on or after October 2, 1995.
</FN>
</TABLE>
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<CAPTION>
GOVERNMENT FUND Class A Class C
- --------------- ------- -------
<S> <C> <C>
Management Fees .50% .50%
12b-1 Fees
(after fee waiver for Class C) .25% .50%
Other Expenses .25% .40%
Total Fund Operating Expenses 1.00% 1.40%
Amounts shown have been restated to reflect current fees. Amounts shown for
Class C shares of the Government Fund are based upon a waiver of a portion of
the Class C distribution fees and assumption of certain operating expenses.
Had TMC not undertaken such action, the Class C 12b-1 fees and operating
expenses would have been 1.00% and 1.05%, respectively, and the total fund
operating expenses would have been 2.55% for the Class C shares.
<CAPTION>
INCOME FUND Class A Class C
- ----------- ------- -------
<S> <C> <C>
Management Fees (after fee waiver) .50% .50%
12b-1 Fees
(after fee waiver for Class C) .25% .75%
Other Expenses (after reimbursement) .25% .25%
Total Fund Operating Expenses 1.00% 1.50%
Amounts shown have been restated to reflect current fees. Amounts shown for
Class A of the Income Fund are based upon a management fee waiver and
assumption of certain operating expenses. Had TMC not undertaken such
action, the management fee and the fund operating expenses would have been
.63% and .73%, respectively, and the total Fund operating expenses would have
been 1.61%. Amounts shown for Class C shares of the Income Fund are based
upon a management fee waiver, a waiver of a portion of the Class C 12b-1
fees, and assumption of certain Class C operating expenses. Had TMC not
undertaken such action, the Class C management fees, 12b-1 fees and operating
expenses would have been .63%, 1.00% and 3.50%, respectively, and total Fund
operating expenses would have been 5.13%.
</TABLE>
<TABLE>
EXAMPLES OF EXPENSES
Assuming that the expense percentage ratios in the Annual Fund Operating
Expenses table remain the same in the future, an investor who makes a $1,000
investment would pay the following expenses, assuming a 5% annual return:
<CAPTION>
Government Fund 1 Year 3 Years 5 Years 10 Years
- --------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A shares $35 $56 $78 $143
Class C shares $19 N/A N/A N/A
(assuming redemption at end
of each period)
Class C shares $14 $43 $74 $162
(assuming no redemptions)
Income Fund 1 Year 3 Years 5 Years 10 Years
- ----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A shares $35 $56 $79 $144
Class C shares $19 N/A N/A N/A
(assuming redemption at end
of each period)
Class C shares $14 $43 $74 $162
(assuming no redemptions)
EXPLANATION OF TABLES
The expense figures shown above are presented pursuant to regulatory
requirements for the purpose of illustrating the cumulative effect over
various time periods of the annual Fund operating expense ratios shown above.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAT THOSE SHOWN. the Funds'
investment adviser may not waive its fee or assume Fund expenses in the
future. The Class A examples for both Funds assume payment of the maximum
sales charge by the investor.
</TABLE>
THE FUNDS
The Funds seek as high a level of current income as is consistent with safety
of capital. The Government Fund will attempt to realize this objective by
investing primarily in obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities, and in participations in
such obligations or in repurchase agreements secured by such obligations.
The Income Fund will attempt to realize this objective by investing primarily
in investment grade short and intermediate maturity bonds and in asset backed
securities. The Income Fund also may invest in or utilize other investment
strategies to hedge market risks, manage cash positions or to enhance
potential gain. No assurance can be given that the Funds will achieve this
objective.
Each Fund's name derives from its policy of maintaining an overall portfolio
of investments with a dollar-weighted average maturity of normally not more
than five years, with the objective of reducing fluctuations in the Fund's
net asset value per share compared to longer maturity portfolios. Normally,
the Funds expect to offer greater price stability than a higher yielding
long-term bond fund and higher yields than most short-term investments.
Historically, intermediate-term government bonds enjoyed higher returns,
compounded annually over the period 1926-1994, as compared to long-term
government bonds and 90-day U.S. Treasury Bills. Intermediate-term bonds
outperformed longer-term issues because intermediate-term bonds did not
suffer the large capital losses which befell higher yielding long-term bonds
when bond yields rose. Intermediate-term bonds, which have less price
stability than short-term obligations, nonetheless outperformed short-term
bills because the yield on intermediate-term obligations typically is higher
than the yield on short-term obligations. The combination of price stability
and relatively high yield enjoyed by intermediate-term bonds caused these
bonds to out perform normally higher yielding long-term bonds and normally
more stable short-term bills during the periods described. The relationship
between interest rates and the values of obligations, as shown by the
foregoing study, applies to all types of debt securities and has been
consistently demonstrated in the portfolios managed by the Funds' investment
adviser and the markets observed by the Adviser. However, no assurance can
be given that each Fund's short and intermediate-term obligations will
perform as well in the future as intermediate-term government bonds have in
the past.
The Funds' investment policies may involve special considerations for an
investor. For example, each Fund's net asset value will fluctuate in
response to changes in short-term interest rates, although these changes
should be less than the changes in values of obligations which have
maturities longer than the five year dollar-weighted average the Funds will
seek to maintain. No assurance can be given that the fluctuations in each
Fund's net asset value will be less than those experienced by longer term
portfolios. Additionally, variations in interest rates may result in
prepayment of certain obligations the Funds will acquire. These prepayments
could require a Fund to reinvest at a lower rate of return; and the
prepayment right of obligors may reduce a Fund's net asset value because the
value of such securities may not appreciate as rapidly as the price of
non-callable debt securities. See "INVESTMENT OBJECTIVES AND POLICIES,"
beginning on page 41.
On any day on which the New York Stock Exchange, Inc. is open for trading
("Fund Business Day"), investors may initiate purchases and redemptions of a
Fund's shares at its next determined public offering price, which will be
determined daily. (See "BUYING FUND SHARES IN GENERAL," page __ and "SELLING
FUND SHARES," page 47.) For classes of investors who may purchase shares at
reduced sales charges, see "BUYING CLASS A SHARES," page 47. Dividends from
accumulated net income are declared by the Funds on each Fund Business Day.
The Funds pay interest dividends monthly, normally on the last day of each
month, or if the last day is not a Fund Business Day, on the previous Fund
Business Day. Interest dividends are automatically invested in additional
shares of the appropriate Fund at the next determined net asset value unless
a shareholder has elected by written notice to the Fund to receive monthly
dividend distributions in cash. Net capital gains, if any, will be
distributed annually, normally within 45 days after the end of each Fund's
fiscal year. All distributions of capital gains are automatically invested
in additional shares of the appropriate Fund at the next determined net asset
value or at the shareholder's option, paid in cash. (See "DISTRIBUTIONS AND
TAXES," page 52.)
The Funds are diversified series of Thornburg Investment Trust, an open-end
investment company organized as a Massachusetts business trust. Each of a
Fund's shares represents an equal undivided interest in that Fund's assets.
The Funds' principal office is located at Thornburg Management Company, Inc.,
119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501. (Telephone
(505) 984-0200 or (800) 847-0200.)
FINANCIAL HIGHLIGHTS
The following information through September 30, 1995 has been audited by
McGladrey & Pullen, LLP independent auditors, whose report is incorporated by
reference in the Funds' registration statement. This information should be
read in conjunction with the 1995 Annual Report for each Fund.
<TABLE>
Thornburg Limited Term U.S. Government Fund
Per share operating performance
(for share outstanding throughout period)
<CAPTION>
9 Mos. Year
Year Ended Ended Ended
Sept. 30, Sept. 30, Dec. 30
1995 1994 1993 1992 1991 1990
---------------------------- ---------------------------- -------- -------- -------- -------
Class of Shares A B <F1> C A B <F2> C <F2> A A A A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.03 $12.07 $12.08 $12.92 $12.21 $12.21 $12.83 $12.36 $12.08 $12.04
Income from investment operations:
Net investment income .75 .69 .69 .67 .06 .06 .73 .84 .71 .99
Net realized and unrealized
gain (loss) on investments .37 .35 .37 (.89) (.14) (.13) .09 .47 .28 .04
---- ---- ---- ----- ----- ----- ---- ---- ---- ----
Total from investment operations 1.12 1.04 1.06 (.22) (.08) (.07) .82 1.31 .99 1.03
Less distributions from:
Net investment income (.75) (.69) (.69) (.67) (.06) (.06) (.73) (.84) (.71) (.99)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Change in net asset value .37 .35 .37 (.89) (.14) (.13) .09 .47 .28 .04
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $12.40 $12.42 $12.45 $12.03 $12.07 $12.08 $12.92 $12.83 $12.36 $12.08
TOTAL RETURN <F3> 9.66% 9.19% 9.07% (1.72%) (.60%) (.50%) 6.61% 11.01% 8.41% 8.95%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Net investment income 6.23% 5.70% 5.68% 5.38% 5.63%<F4> 5.45%<F4> 5.61% 6.56% 7.70%<F4> 8.20%
Expenses, after expense reductions .99% 1.51% 1.52% .95% 1.43%<F4> 1.63%<F4> 1.01% 1.00% 1.00%<F4> 1.00%
Expenses, before exp. reductions .99% 3.79% 2.30% .95% 1.43%<F4> 1.63%<F4> 1.01% 1.10% 1.20%<F4> 1.25%
Portfolio turnover rate 28.31% 28.31% 28.31% 80.58% 80.58% 80.58% 38.88% 34.82% 33.15% 69.42%
Net assets at end of -------- -------- -------- -------- -------- -------- -------- -------- -------- -------
period ('000's) $142,849 $0 $2,217 $177,439 $27 $1,005 $201,443 $126,095 $49,876 $33,607
<FN>
<F1> Class B shares are no longer offered by the Funds, and on
September 28, 1995 all outstanding Class B shares were
converted into Class A shares.
<F2> Commencement of operations.
<F3> Sales charges are not reflected in computing total return,
which is not annualized for periods less than one year.
<F4> Annualized.
</FN>
Thornburg Limited Term U.S. Government Fund
Per share operating performance
(for share outstanding throughout period)
<CAPTION>
Year Ended Period from
December 31, 11/18/87 <F5>
1989 1988 to 12/31/87
-------- -------- -------------
Class of Shares A A A
<S> <C> <C> <C>
Net asset value,
beginning of period $11.87 $12.17 $12.22
Income from investment operations:
Net investment income 1.03 1.02 0.13
Net realized and unrealized
gain (loss) on investments .17 (0.30) (0.05)
---- ---- ----
Total from investment operations 1.20 0.72 0.08
Less distributions from:
Net investment income (1.03) (1.02) (0.13)
----- ----- -----
Change in net asset value .17 (0.30) (0.05)
------- ------- -------
Net asset value, end of period $12.04 $11.87 $12.17
TOTAL RETURN <F3> 10.58% 6.14% 0.62%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Net investment income 9.61% 9.14% 6.66% <F4>
Expenses, after expense reductions 1.00% 0.90% 0.54%
Expenses, before exp. reductions 1.51% 1.52% 1.50%
Portfolio turnover rate 101.66% 217.11% 44.19% <F4>
Net Assets at end of -------- -------- --------
period ('000's) $25,336 $17,336 $2,122
<FN>
<F1> On September 28, 1995, all Class B shares were converted into
Class A shares.
<F2> Sales of Class B and Class C shares commenced on September 1, 1994.
<F3> Sales loads are not reflected in computing total return, which
is not annualized for periods less than one year.
<F4> Annualized.
<F5> Commencement of Operations.
</FN>
Thornburg Limited Term Income Fund
Per share operating performance
(for share outstanding throughout period)
<CAPTION>
Year Ended
Sept. 30,
1995 1994 1993
---------------------------- ---------------------------- --------
Class of Shares A B <F1> C A B <F2> C <F2> A
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.83 $11.82 $11.78 $12.55 $11.92 $11.92 $12.22
Income from investment operations:
Net investment income .76 .72 .70 .67 .06 .06 .77
Net realized and unrealized
gain (loss) on investments .28 .28 .30 (.69) (.10) (.14) .33
---- ---- ---- ----- ----- ----- ----
Total from investment operations 1.04 1.00 1.00 (.02) (.04) (.08) 1.10
Less distributions from:
Net investment income (.76) (.72) (.70) (.67) (.06) (.06) (.77)
Realized Capital Gain (.03)
----- ----- ----- ----- ----- ----- -----
Change in net asset value .28 .28 .30 (.72) (.10) (.14) .33
------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $12.11 $12.10 $12.08 $11.83 $11.82 $11.78 $12.55
TOTAL RETURN <F3> 9.22% 9.22% 8.87% (.14%) (.37%) (.72%) 9.35%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Net investment income 6.50% 5.95% 6.03% 5.51% 5.13%<F4> 5.14%<F4> 5.85%
Expenses, after expense reductions .83% 1.40% 1.36% .66% 1.14%<F4> 1.20%<F4> .37%
Expenses, before exp. reductions 1.48% 19.72% 4.75% 1.47% 1.14%<F4> 1.20%<F4> 2.10%
Portfolio turnover rate 43.12% 43.12% 43.12% 84.35% 84.35% 84.35% 93.88%
Net assets at end of -------- -------- -------- -------- -------- -------- --------
period ('000's) $23,222 $0 $1,032 $21,683 $10 $53 $20,065
<FN>
<F1> Class B shares are no longer offered by the Funds, and on
September 28, 1995 all outstanding Class B shares were converted into
Class A shares.
<F2> Commencement of operations.
<F3> Sales charges are not reflected in computing total return, which
is not annualized for periods less than one year.
<F4> Annualized.
</FN>
</TABLE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
The graphs below compare how $10,000 would have appreciated if invested in
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.
The Class A total return figures assume a shareholder purchases shares at the
public offering price applicable to investments 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 below 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.
GOVERNMENT FUND
Index Comparison
Compares performance of the Government Fund Class A shares, the Lehman
Brothers Intermediate Government Bond Index, and the Consumer Price Index for
the period November 16, 1987 to September 30, 1995. On September 30, 1995,
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 3.8 years and 3.5 years, respectively. Class C
shares became available on September 1, 1994. Past performance of the Index
and the Fund may not be indicative of future performance.
<TABLE> <In the prospectus, this table appears as a graph>
Thornburg Limited Term U.S. Government Fund A Shares
<CAPTION>
FUND Lehman CPI
A Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
10/87 $ 9,750 $10,000 $10,000
2/88 10,127 10,520 10,110
6/88 10,202 10,577 10,263
10/88 10,554 10,890 10,397
2/89 10,465 10,868 10,533
6/89 11,026 11,645 10,734
10/89 11,357 12,024 10,799
2/90 11,552 12,148 11,071
6/90 11,918 12,545 11,249
10/90 12,255 12,965 11,545
2/91 12,745 13,563 11,684
6/91 13,046 13,866 11,778
10/91 13,755 14,690 11,908
2/92 14,068 15,124 12,015
6/92 14,523 15,648 12,160
10/92 14,946 16,137 12,282
2/93 15,569 16,825 12,418
6/93 15,847 17,219 12,517
10/93 16,136 17,624 12,618
2/94 16,069 17,540 12,719
6/94 15,917 17,187 12,834
10/94 15,816 17,322 12,950
2/95 16,298 17,924 13,067
6/95 17,037 18,866 13,198
9/95 17,353 19,161 13,237
</TABLE> <In the prospectus, this table appears as a graph>
<TABLE>
Thornburg Limited Term U.S. Government Fund C Shares
<CAPTION>
FUND Lehman CPI
C Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
8/94 $10,000 $10,000 $10,000
9/94 9,950 9,917 10,020
10/94 9,938 9,919 10,030
11/94 9,884 9,875 10,040
12/94 9,891 9,908 10,060
1/95 10,041 10,069 10,090
2/95 10,223 10,264 10,121
3/95 10,274 10,320 10,141
4/95 10,374 10,440 10,181
5/95 10,619 10,734 10,212
6/95 10,668 10,803 10,222
7/95 10,683 10,808 10,232
8/95 10,750 10,897 10,243
9/95 10,852 10,972 10,253
</TABLE>
Average Annual Total Return
A Shares
One Year: (12 mos. ended 9/30/95): 6.92%
Five Years: 6.88%
From Inception (11/16/87): 7.25%
C Shares
One Year (12 mos. ended 9/30/95): 9.07%
From Inception (9/1/94): 7.87%
INCOME FUND
Index Comparison
Compares performance of the Income Fund, the Lehman Brothers Intermediate
Government Corporate Bond Index, and the Consumer Price Index for the period
October 1, 1992 to September 30, 1995. On September 30, 1995, 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 4.2 years and 4.8 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> <In the prospectus, this table appears as a graph>
Thornburg Limited Income Fund A Shares
<CAPTION>
FUND Lehman CPI
A Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
9/92 $ 9,750 $10,000 $10,000
12/92 9,778 9,964 10,090
3/93 10,168 10,359 10,171
6/93 10,374 10,583 10,232
9/93 10,661 10,821 10,284
12/93 10,715 10,839 10,366
3/94 10,550 10,544 10,428
6/94 10,506 10,480 10,491
9/94 10,646 10,566 10,575
12/94 10,385 10,554 10,618
3/95 10,802 11,017 11,017
6/95 11,328 11,568 10,789
9/95 11,627 11,759 10,821
</TABLE>
<TABLE> <In the prospectus, this table appears as a graph>
Thornburg Limited Income Fund C Shares
<CAPTION>
FUND Lehman CPI
A Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
8/94 $10,000 $10,000 $10,000
9/94 9,928 9,908 10,020
10/94 9,851 9,907 10,030
11/94 9,748 9,862 10,040
12/94 9,688 9,896 10,060
1/95 9,772 10,064 10,090
2/95 10,004 10,273 10,121
3/95 10,065 10,331 10,141
4/95 10,221 10,459 10,181
5/95 10,483 10,775 10,212
6/95 10,543 10,847 10,222
7/95 10,542 10,848 10,232
8/95 10,720 10,947 10,243
9/95 10,808 11,027 10,253
</TABLE>
Average Annual Total Return
A Shares
One Year: (12 mos. ended 9/30/95): 6.49%
From Inception (10/01/92): 5.16%
C Shares
One Year: (12 mos. ended 9/30/95): 8.87%
From Inception: (9/1/94): 7.47%
Subject to keeping the average portfolio maturity within five years, each
Fund "ladders" or arrays the maturities of its bonds so that some investments
mature in each of the succeeding ten years.
The net asset values of Limited Term U. S. Government Fund and Limited Term
Income Fund increased by 3.08% and 2.37%, respectively over the year ending
September 30, 1995. Corporate and municipal bond prices fluctuated across
the spectrum of maturities as market yields on corporate and municipal bonds
increased in 1994, before falling in 1995.
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of each Fund is to provide for its
shareholders as high a level of current income as is consistent with safety
of capital. The secondary investment objective of each Fund is to reduce
fluctuations in the Fund's net asset value per share compared to longer
maturity bond portfolios. However, no assurance can be given that the Funds
will realize either of these investment objectives.
The Government Fund will seek to achieve its primary objective by investing
in obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities, and in readily marketable participations in
such obligations or in repurchase agreements secured by such obligations. The
Income Fund will seek to achieve its primary objective by investing primarily
in investment grade, short and intermediate maturity bonds and other income
securities which are described below under "Income Fund" beginning on page
11. The object of preserving a Fund's capital may preclude that Fund from
obtaining the highest possible yields available.
Thornburg Management Company, Inc. ("TMC") actively manages the Funds'
portfolios in attempting to meet the Funds' primary investment objective.
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 Funds' portfolios are determined by
individual security analyses, and TMC's credit analysts actively monitor the
credit quality of the Funds' portfolios.
The Funds will seek to achieve their secondary objective of reducing
fluctuations in the Fund's net asset value per share primarily by maintaining
portfolios of obligations with a dollar-weighted average maturity or
estimated average life which normally will be not more than five years.
There is no limitation on the maturity of any specific security a Fund may
purchase, subject to the five-year limitation of the preceding sentence.
"Estimated average life" is the estimated maturity of a mortgage backed
security, and ordinarily will be substantially shorter than the security's
stated maturity because of estimated mortgage prepayments. Because the
magnitude of the changes in market value of interest bearing obligations
ordinarily is greater for obligations of longer terms, each Fund believes
that it can reduce the magnitude of fluctuations in the values of its assets
by investing in a portfolio of obligations normally having a dollar-weighted
average maturity or estimated average life of not more than five years.
However, the trustees may lower each Fund's dollar-weighted average maturity
for temporary defensive purposes if conditions or expectations for the
behavior of interest rates indicate that lower average maturity will be
advantageous. Such conditions could include increasing inflation or a market
in which short-term obligations temporarily have higher yields than
longer-term obligations. TMC also will attempt to minimize principal
fluctuations in the Funds' portfolios through, among other things,
diversification, careful credit analyses and security selection.
Changes in the values of a Fund's assets will tend to be less than the
changes in values of obligations which have maturities longer than the five
year dollar-weighted average maturity each Fund will seek to maintain.
However, because each Fund's net asset value will fluctuate in response to
changes in short-term interest rates, increasing in value if rates decrease
and decreasing if rates increase, the Funds may not be suitable for persons
seeking a short-term money market investment.
Each Fund's primary and secondary investment objective is a fundamental
policy which may be changed only by a majority vote of that Fund's
shareholders. Any other investment policy, technique or limitation described
in this Prospectus or the Statement of Additional Information, unless
identified as a "fundamental policy," may be changed by the trustees without
a shareholders' vote.
Each Fund will seek to enhance its income by taking advantage of yield
disparities, trends or other factors in the fixed income markets. Although
each Fund ordinarily will acquire securities for investment rather than for
realization of gains on market fluctuations, a Fund may dispose of any
security prior to its scheduled maturity to enhance income or reduce loss, to
change the portfolio's average maturity, or to otherwise respond to current
market conditions. In addition, the Funds may utilize other techniques,
discussed below, to enhance a Fund's investment income.
TYPES OF OBLIGATIONS EACH FUND INTENDS TO ACQUIRE; INVESTMENT POLICIES
GOVERNMENT FUND
The Government Fund will invest at least 65% of its total assets in
obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities, and will invest at least 80% of its total
assets in such obligations and in readily marketable participations in such
obligations or in repurchase agreements secured by such obligations. See
"Repurchase Agreements," below. Although the Fund will acquire obligations
issued or guaranteed by the U.S. Government and its agencies and
instrumentalities, neither the Fund's net asset value nor its dividends are
so guaranteed.
U.S. Government securities 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.
Government National Mortgage Association 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 Funds' policy of maintaining a portfolio normally having a
dollar-weighted average maturity or estimated average life of not more than
five years.
U.S. Government agency obligations the Government Fund may purchase, in
addition to GNMA certificates, include, but may not be limited to,
obligations issued by the Banks for Cooperatives; the Export-Import Bank of
the U.S.; the Farmers Home Administration; the Federal Deposit Insurance
Corporation; the Federal Financing Bank; the Federal Home Loan Banks; the
Federal Home Loan Mortgage Corporation; the Federal Housing Administration;
the Federal Intermediate Credit Banks; the Federal Land Banks; the Federal
National Mortgage Association; and the General Services Administration; the
Small Business Administration; the Student Loan Marketing Association; and
the U.S. Maritime Administration. Obligations issued by the Farmers Home
Administration, Federal Financing Bank, General Services Administration, and
the Small Business Administration are backed by the full faith and credit of
the United States or the agency has the authority to borrow from the U. S.
Treasury. Other agency obligations are supported by discretionary authority
of the Treasury to purchase obligations of the agency.
Participations, CMOs. To facilitate its investment in any of the types
of obligations which the Fund may acquire, the Fund may purchase
"participations" in any of these obligations. Participations are undivided
interests in pools of securities which are assembled by certain banks or
other responsible persons, such as securities broker/dealers and investment
banking houses, where the underlying government credit support passes through
or is otherwise available to the participants or the trustee for all
participants. Similarly, the Fund may acquire collateralized mortgage
obligations ("CMOs"), which are obligations issued by a trust or other entity
organized to hold a pool of U.S. Government insured mortgage-backed
securities (such as GNMA certificates) or mortgage loans. The Fund will
acquire a CMO when TMC believes that the CMO is more attractive than the
underlying securities in pursuing the Fund's primary and secondary investment
objectives. Participations and privately issued CMO's 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.
Other Securities. The Government Fund may under certain market conditions
invest up to 20% of its assets in (i) time certificates of deposit maturing
in one year or less after the date of acquisition which are issued by United
States banks having assets of one billion dollars or more, or (ii) time
certificates of deposit insured as to principal by the Federal Deposit
Insurance Corporation. If any certificate of deposit (whether insured in
whole or in part) is nonnegotiable, and it matures in more than seven days,
it will be considered illiquid and subject to the Fund's fundamental
investment restriction that no more than 10% of the Fund's net assets will be
placed in illiquid investments.
Repurchase Agreements. When the Government Fund purchases securities, it may
enter into a repurchase agreement with the seller in which the seller agrees,
at the time of sale, to repurchase the security at a mutually agreed-upon
time and price. The resale price will be in excess of the purchase price
reflecting an agreed-upon market rate effective for the period of time the
Fund's money will be invested in the securities, and will not be related to
the coupon rate of the purchased securities. At the time the Fund enters
into a repurchase agreement, the value of the underlying securities,
including accrued interest, will be equal to or exceed the value of the
repurchase agreement, and, for repurchase agreements which mature in more
than one day, the seller will agree to furnish additional security if the
value of the underlying security falls below the value of the repurchase
agreement. 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.
Securities Lending. The Fund may from time to time lend securities on a
short-term basis to banks, brokers, dealers and certain financial
institutions and receive as collateral cash, government securities, or
irrevocable bank letters of credit. The borrowers will be required to
deposit and maintain collateral at least equal to 102% of the current value
of the loaned securities plus accrued interest. Securities loans will not be
made by the Fund if as a result the aggregate of all such outstanding loans
exceeds one-third of the value of the Fund's total assets. The Fund will
continue to be entitled to the interest payable on the loaned securities and
will either receive as income a portion of the interest on the investment of
any cash loan collateral or, in the case of collateral other than cash, a fee
negotiated with the borrower. The terms of these loans will provide that
they are terminable at any time. Loans of securities involve risks of delay
in receiving additional collateral or in recovering the securities loaned or
even loss of rights in the collateral in the event of the insolvency of the
borrower of the securities.
When-Issued and Delayed Delivery Transactions. The Fund may purchase or sell
government securities in when-issued or delayed delivery transactions. In
such transactions, instruments are bought or sold with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price to the Fund at the time of entering into the
transactions. In such transactions, the payment obligation and the interest
rate are fixed at the time the buyer enters into the commitment, although no
interest accrues to the purchaser prior to settlement of the transaction.
Because the value of the security may be more or less than the transaction
price at the time of the delivery of the security, depending upon interest
rate fluctuations prior to the settlement date, the Fund will maintain
designated high grade liquid debt assets in a segregated account with the
Custodian at least equal in value to its purchase commitments for when-issued
or delayed delivery transactions, which assets will be earmarked specifically
for the settlement of such commitments. The Fund will only make commitments
to purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities and not for the purpose of
investment leverage, but the Fund reserves the right to sell the securities
before the settlement date if it is deemed advisable.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements to obtain short-term liquidity. In such a transaction the Fund
would sell a security to a purchaser and agree to repurchase the security in
the future. The Fund will enter into reverse repurchase agreements only with
dealers, banks or recognized financial institutions. These agreements are
subject to the risk that the underlying security will decline in value during
the period when the Fund is obligated to repurchase it. If the Fund enters
into any such transaction, it will deposit high grade liquid debt assets in
a segregated account with its Custodian in an amount sufficient to meet the
Fund's obligations to the purchaser. The Fund will not enter into any
reverse repurchase agreement if, as a result, more than 5% of its total
assets would be subject to such obligations.
Dollar Roll Transactions. The Fund may enter into dollar roll transactions
with selected banks and broker-dealers. Dollar roll transactions are treated
as reverse repurchase agreements for purposes of the Fund's borrowing
restrictions and consist of the sale by the Fund of mortgage-backed
securities, together with a commitment to purchase similar, but not
identical, securities at a future date, at the same price. If the Fund
enters into any such transaction, it will deposit high grade liquid assets
in a segregated account with the custodian in an amount sufficient to meet
the Fund's obligations to the purchaser. The Fund is paid a fee as
consideration for entering into the commitment to purchase. If the
broker-dealer to whom the Fund sells the security underlying a dollar roll
transaction becomes insolvent, the Fund's right to purchase or repurchase the
security may be restricted. Additionally, the value of the security may
change adversely over the term of the dollar roll and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.
INCOME FUND
In general, the Income Fund may purchase securities permissible for the
Government Fund, except that the Income Fund may not enter into a repurchase
agreement or purchase any security deemed illiquid if as a result, more than
15% of the value of its net assets would be invested in repurchase agreements
maturing in more than seven days and other securities which are considered
illiquid. The Income Fund also may invest in other types of debt securities,
such that at least 65% of its net assets are invested in a managed portfolio
of securities consisting of:
* U.S. Government securities, including bonds, notes, and bills issued by
the U.S. Treasury, and securities issued or guaranteed by agencies and
instrumentalities of the U.S. Government;
* Corporate debt securities, such as bonds, notes and debentures;
* Mortgage-backed securities;
* Other asset-backed securities;
* Municipal securities;
* Money market instruments which are comprised of commercial paper, bank
obligations (i.e., certificates of deposit and bankers' acceptances) and
repurchase agreements;
* Privately-placed securities (restricted securities); and
* Foreign securities, including non-U.S. dollar-denominated securities and
U.S. dollar-denominated debt securities issued by Foreign issuers and
foreign branches of U.S. banks.
In addition, the Income Fund may use investment techniques such as purchasing
securities on a when-issued or forward delivery basis; entering into
interest-rate, securities-index, and currency futures contracts, and
purchasing and selling options thereon; purchasing and selling options on
securities and currencies, and entering into forward contracts. See "Other
Investment Strategies," page 44, for more information.
The Income Fund's securities generally offer less current yield than
securities of lower quality (rated below BBB/Baa) or longer maturity, but
lower-quality securities generally have less liquidity. Both lower quality
securities and longer maturity securities have greater credit and market
risk, and consequently more price volatility than higher quality securities
or shorter maturity securities.
U.S. Government Securities. The Income Fund may invest in government
securities as described before under "Investment Objectives and Policies -
Government Fund".
Mortgage and Other Asset-Backed Securities. The Fund may also invest in
mortgage-backed securities which are securities representing interests in
pools of mortgage loans. The securities provide shareholders with payments
consisting of both interest and principal as the mortgages in the underlying
mortgage pools are paid off. See description under "Investment Objectives and
Policies-Government Fund". The Fund may agree to purchase or sell these
securities with payment and delivery taking place on a future date. 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 other 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 activities may suffer capital depreciation
because of decreased prepayments.
Municipal Securities. The Income Fund may invest in municipal securities,
which include obligations issued by states, territories and possessions of
the United States, and their political subdivisions, agencies and
instrumentalities. Municipal securities may be "general obligation" bonds or
"revenue bonds." General obligation bonds are backed by the credit of the
issuing political subdivision or agency, and revenue bonds are repaid from
the revenues derived from a specific project such as a waste treatment plant
or stadium. Although investments in municipal obligations will be made
subject to the Fund's emphasis on purchases of investment grade securities (
described below under "Securities Ratings"), municipal obligations are
subject to the provisions of bankruptcy, insolvency and other laws affecting
the rights and remedies of creditors. In addition, these obligations could
become subject to actions by state legislatures or voter referenda extending
the time for repayment of principal or imposing other constraints upon
enforcement of the obligations or upon political subdivisions to levy taxes
to pay the obligations.
Foreign Securities. While the Income Fund generally emphasizes investments in
U.S. Government securities and other issuers domiciled in the United States,
it may invest in foreign securities of the same types and quality as the
domestic securities in which the Income Fund may invest when the anticipated
performance of foreign securities is believed by TMC to offer more potential
than domestic alternatives in keeping with the investment objectives of the
Income Fund. Foreign securities may be denominated either in U.S. dollars or
foreign currencies.
The Income Fund may also invest in instruments offered by brokers which
combine forward contracts, options and securities in order to reduce foreign
currency exposure. The Income Fund may enter into multiple futures, options
and foreign currency transactions or a combination of these transactions,
instead of a single transaction, as part of a hedging strategy.
Investments in foreign securities involve special risks due to more limited
information, higher brokerage costs, different accounting standards, thinner
trading markets and the likely impact of foreign taxes on the yield from debt
securities. They may also entail other risks, such as the possibility of one
or more of the following: imposition of dividend or interest withholding or
confiscatory taxes; currency blockages or transfer restrictions;
expropriation, nationalization or other adverse political or economic
developments; less government supervision and regulation of securities
exchanges, brokers and listed companies; and the difficulty of enforcing
obligations in other countries. Purchases of foreign securities are usually
made in foreign currencies and, as a result, the Income Fund may incur
currency conversion costs and may be affected favorably or unfavorably by
changes in the value of foreign currencies against the U.S. dollar. Further,
it may be more difficult for the Income Fund's agents to keep currently
informed about corporate actions which may affect the prices of portfolio
securities. Communications between the United States and foreign countries
may be less reliable than within the United States, thus increasing the risk
of delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. The Income Fund's ability and decisions to purchase
and sell portfolio securities may be affected by laws or regulations relating
to the convertibility and repatriation of assets. These risks may be more
acute in the case of developing countries.
Securities Ratings. The Income Fund emphasizes "investment grade"
investments. At least 65% of the Income Fund's net assets will be invested
in (1) obligations of the U.S. Government, its agencies, or instrumentalities
and in (2) debt securities rated at the time of purchase in one of the three
highest categories of Standard & Poor's Corporation (AAA, AA, or A) or
Moody's Investors Service, Inc. (Aaa, Aa, or A) or, if not rated, judged to
be of comparable quality by TMC. In addition, the Fund will not invest in any
debt security rated at the time of purchase lower than BBB by Standard &
Poor's or Baa by Moody's, or of equivalent quality as determined by TMC.
Should the rating of a portfolio security be downgraded TMC will determine
whether it is in the best interest of the Income Fund to retain or dispose of
the security.
Securities rated BBB by Standard & Poor's or Baa by Moody's are neither
highly protected nor poorly secured. These securities normally pay higher
yields but involve potentially greater price variability than higher-quality
securities. These securities are regarded as having adequate capacity to
repay principal and pay interest, although adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to do
so. Such securities may have speculative elements as well as
investment-grade characteristics.
Other Investment Strategies. The Income Fund may, but is not required to,
utilize various other investment strategies described below to hedge various
market risks such as the effective maturity or duration of fixed-income
securities, or to enhance potential gain. Such strategies are generally
accepted by modern portfolio managers and are regularly utilized by many
mutual funds and other institutional investors. Techniques and instruments
may change over time as new instruments and strategies are developed or
regulatory changes occur.
Strategic Positions. 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 Positions"). Strategic Positions 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 Income 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 Income Fund's
portfolio, or to establish a position in the derivatives markets as a
temporary substitute for purchasing or selling particular securities. The
Fund may manage its portfolio maturity or duration by using options, futures
and swaps to acquire and dispose of specific securities having maturities
which are then considered desirable in managing the Fund's maturity or
duration. "Duration" is a measure of an obligation's life, based upon the
present value of the obligor's payments of principal and interest, and is
usually shorter than the obligation's maturity. Some Strategic Positions may
also be used to enhance potential gain, although 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. 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, because use of any Strategic Transaction is a
function of numerous variables including market conditions. The ability of
the Income Fund to utilize these Strategic Positions successfully will depend
on TMC's ability to predict pertinent market movements, which cannot be
assured. The Income Fund will comply with applicable regulatory requirements
when implementing these strategies, techniques and instruments.
Strategic Positions involve certain risks 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 Positions 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 purchase or sale 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 Income Fund can realize on its investments or cause the Income Fund to
hold a security it might otherwise sell. The use of currency transactions
can result in the Income 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 a
futures contract and price movements in the related portfolio position of the
Income Fund creates the possibility that losses on the hedging instrument may
be greater than gains in the value of the Income Fund's position.
In addition, futures and options markets may not be liquid in all
circumstances, and over-the-counter options and certain other Strategic
Positions (e.g. caps and floors) are considered to be illiquid securities. As
a result, in certain markets, the Income 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 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 resulting
from an increase in the position's value. The Income Fund will not invest in
any over-the-counter option, cap, rate swap, currency swap, floor or other
illiquid security, if, as a result of that investment, more than 15% of its
net assets would be invested in securities which are not readily marketable
by the Income Fund. The Fund will segregate cash or high grade liquid debt
assets sufficient to meet its obligation to purchase and deliver securities
or currencies under any futures contract or option or to pay any amount owed
upon the expiration of an index-based futures contract. Finally, the daily
margin requirements for futures contracts may 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 Positions would reduce net asset value, and possibly income, and
such losses can be greater than if the Strategic Positions had not been
utilized. The Strategic Positions that the Fund may use and some of their
risks are described more fully in the Income Fund's Statement of Additional
Information.
When-Issued Securities. The Income Fund may purchase securities on a
when-issued or forward delivery basis, for payment and delivery at a later
date. The price and yield are generally fixed on the date of commitment to
purchase. During the period between purchase and settlement, no interest
accrues to the Fund. At the time of settlement, the market value of the
security may be more or less than the purchase price.
Covered Short Sales. The Income Fund may make short sales of securities, but
will only do so in circumstances where it owns securities of the type sold,
or the Income Fund owns securities giving it 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.
Repurchase Agreements. As a means of earning income for periods as short as
overnight, the Income Fund may enter into repurchase agreements with selected
banks and broker-dealers. See description under "Investment Objectives and
Policies - Government Fund".
Reverse Repurchase Agreements and Dollar Roll Transactions. The Income Fund
may enter into reverse repurchase agreements and dollar roll transactions
with selected banks and broker-dealers. See description under "Investment
Objectives and Policies - Government Fund".
Securities Lending. The Income Fund may seek to increase its income by
lending portfolio securities on a short-term basis to certain banks, brokers,
dealers and financial institutions. See the description of securities lending
under " Investment Objectives and Policies-Government Fund. " These loans
will be made only to borrowers believed by TMC to be of good financial
standing, and the value of securities loaned will not exceed 30% of the value
of the Income Fund's total assets at the time any loan is made.
Segregated Accounts. The Income Fund may be required to segregate high grade
debt assets in order to provide coverage consistent with applicable
regulatory policies on reverse repurchase agreements, covered call and put
options written by the Fund, to cover forward foreign currency exchange
contracts that require the Fund to purchase or sell foreign currency for
hedging purposes, or in an amount equal to the value of the instruments
underlying any futures contracts and options on futures.
CERTAIN INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions which, as described
in more detail in the Statement of Additional Information, may generally be
changed only with the approval of the holders of a majority of that Fund's
outstanding shares. For a more complete description of the investment
restrictions summarized below and the other investment restrictions to which
a Fund is subject, please see the Statement of Additional Information.
The Funds have the authority to borrow money from banks and other persons as
a temporary measure, and then only in amounts not exceeding 5% of the value
of a Fund's total assets unless the borrowing is from banks, in which case
the percentage limitation is 10% . For this purpose, reverse repurchase
agreements are considered as borrowings by a Fund. In connection with such
borrowing, a Fund may pledge, hypothecate, or otherwise encumber its assets.
The Funds do not intend to borrow for investment leverage purposes but solely
for extraordinary or emergency purposes or to facilitate management of a Fund
by enabling that Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be disadvantageous or not possible.
DESCRIPTION OF POTENTIAL INVESTORS AND ADVANTAGES
The Funds are designed as a convenient and economic vehicle for investors
seeking to obtain the yields available on intermediate and short-term
securities. Although the Funds are particularly designed for individual
investors, the Funds also may be appropriate for the investment of funds held
or managed by corporations, employee benefit plans, insurance companies,
investment counselors, savings and loan associations, credit unions,
educational, religious and charitable organizations, municipalities,
investment bankers, brokers and others. In each case, prospective
shareholders should determine if an investment in a Fund is consistent with
their investment objectives through consultation with their advisers and
investigation of applicable state and federal laws and regulations.
Counsel to the Funds has advised that in their view shares of the 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 Fund's Statement of Additional
Information, and upon counsel's receipt of undertakings by TMC and the
Government Fund respecting investment policies. In addition, the Government
Fund 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.
Investment in a Fund relieves the investor of many investment management and
administrative burdens usually associated with the direct purchase and sale
of fixed income debt securities. These include: (i) selection of portfolio
investments; (ii) surveying the market for the best price at which to buy and
sell; (iii) valuation of portfolio securities; (iv) selecting and scheduling
of maturities and reinvestments; (v) receipt, delivery and safekeeping of
securities; and (vi) portfolio recordkeeping.
In addition, each Fund gives smaller investors access to investments in
certain obligations, such as GNMA certificates, which these smaller investors
would not otherwise have because of the relatively high minimum purchase
amounts for such securities. In the same regard, investment in a Fund
permits the smaller investor to diversify an investment among a variety of
obligations.
PORTFOLIO TURNOVER
For its fiscal year ended September 30, 1995, the Government Fund's portfolio
turnover rate was 28.31%. The Income Fund's portfolio turnover rate was
43.12%. 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 in the portfolio 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. However, a higher rate
of portfolio turnover may result in increased transaction costs to that Fund.
YOUR ACCOUNT
BUYING FUND SHARES IN GENERAL
Each Fund offers two classes of shares with varying annual expenses and
sales charge structures. Class A shares are sold subject to a sales charge
which is deducted at the time you purchase your shares. This class also pays
a service fee. Class C shares are sold at net asset value, subject to payment
of a sales charge if redeemed within one year of purchase. They also pay both
a service and a distribution fee. The various service or service and
distribution fees are Fund expenses which are deducted from each class'
annual income. Each Fund also may allocate among its classes certain
expenses, to the extent allocable to specific classes. 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. The Funds and TSC reserve the right to
refuse any order in whole or in part.
NET ASSET VALUE
The net asset value (NAV) stated for each class of each Fund is the value of
a single share of that class. The NAV is computed at least once each day the
Fund conducts business, by adding the value of the class' investments, cash,
and other assets, subtracting its liabilities, and then dividing the result
by the number of shares outstanding. Shares are purchased at the next share
price calculated after your investment is received and accepted. Share price
is normally calculated at 4 p.m. Eastern time.
BUYING CLASS A SHARES
When you buy Class A shares the sales charge applicable to your investment is
deducted from the price you pay and the balance is invested at NAV. The sales
charge is shown in the table below.
Because the fees for Class A shares of each Fund are lower than the fees for
Class C shares of the same Fund, Class A shares of each Fund pay higher
dividends than Class C shares of the same Fund. The deduction of the initial
sales charge, however, means that you purchase fewer Class A shares than
Class C shares of each Fund for a given amount invested.
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 Dealer Concession
Total Sales Charge or Agency Commission
As Percentage As Percentage As Percentage
of Offering Price of Net Asset Value of Offering Price
<S> <C> <C> <C>
Less than $50,000.00 2.50% 2.56% 2.10%
$50,000 to 99,999.99 2.25% 2.30% 1.85%
$100,000 to 249,999.99 1.75% 1.78% 1.50%
$250,000 to 499,999.99 1.50% 1.52% 1.25%
$500,000 to 999,999.99 1.00% 1.01% 0.85%
$1,000,000 to 1,999,999.99 0.625% 0.625% 0.625%
$2,000,000 and up 0.50% 0.50% 0.50%
</TABLE>
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
on page 47, the amount of your new investment in excess of the breakpoint
will be charged the reduced sales charge applicable to that range.
WAIVERS. You may purchase Class A shares of each Fund with no sales charge if
you notify TSC or the Funds' transfer agent, NFDS, at the time you purchase
shares that you belong to one of the categories below. If you do not provide
such notification at the time of purchase, your purchase will not qualify for
the waiver of sales charge.
A SHAREHOLDER WHO REDEEMED CLASS A SHARES OF A THORNBURG FUND. For two years
after such a redemption you will pay no sales charge on amounts that you
reinvest in Class A shares of one of the Funds covered by this prospectus, up
to the amount you previously redeemed.
AN OFFICER, TRUSTEE, DIRECTOR, OR EMPLOYEE OF TMC (or any investment company
managed by TMC), TSC, any affiliated Thornburg Company, the Fund's Custody
Bank or Transfer Agent and members of their families.
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 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 and
investment advisors who charge a fee for service, including investment
dealers who utilize wrap fee arrangements.
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 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 FUND provided that 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), 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 a 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 Fund
without notice.
BUYING CLASS C SHARES
You can buy Class C shares at NAV but you will pay a contingent deferred
sales charge (CDSC) of 1/2 of 1% if you redeem your shares within one year of
purchase. The CDSC applies only to Class C shares purchased on or after
October 2, 1995. The CDSC will be imposed upon the lower of the purchase
price or net asset value at redemption of each share redeemed. The CDSC is
not imposed upon shares you buy by reinvesting dividends or capital gain
distributions. Maximum purchase amount for Class C shares is less than $1
million. Class C shares are charged higher annual expenses than Class A
shares.
If your investment horizon is relatively short and you do not qualify to
purchase Class A shares at a reduced sales charge, you should consider
purchasing Class C shares.
OPENING AN ACCOUNT
___________________________________________________________________________
Buying Shares To Open an Account To Add to an Account
- ---------------------------------------------------------------------------
In Minimum Minimum
- -- ------- -------
Regular Accounts $5,000 $ 100
Automatic Investment
Plans $ 100 $ 100
Through Your Financial Consult with your Consult with your
Advisor financial advisor. financial advisor
By Telephone Exchange from another Exchange from another
1-800-847-0200 Thornburg Fund account Thornburg Fund account
with the same registra- with the same registra-
tion, including name, tion, including name,
address, and taxpayer address, and taxpayer
ID number. ID number.
By Mail Complete and sign the Make your check payable
application. Make your to the applicable
check payable to the Thornburg Fund. Indicate
applicable Thornburg your Fund account number
Fund. Mail to the on your check and mail to
address indicated on the the address printed on
application. your account statement.
Automatic Investment Use one of the above Use Automated Clearing
Plan procedures to open your House funds. Sign up for
account. Obtain an this service when opening
Automatic Investment your account, or call
Plan form to sign up 1-800-847-0200 to add
for this service. to it.
- ----------------------------------------------------------------------------
Complete and sign an account application and give it, along with your check,
to your financial advisor. You may also open your account by wire or mail as
described above. If there is no application accompanying this prospectus,
call 1-800-847-0200.
If you buy shares by check and then redeem those shares, the payment may be
delayed for up to 15 business days to ensure that your previous investment
has cleared.
STREET NAME OWNERSHIP OF SHARES
Some securities dealers offer to act as owner of record of Fund shares as a
convenience to investors who are clients of those firms and shareholders of
an individual Fund. Neither the Fund nor the Transfer Agent can be
responsible for failures or delays in crediting shareholders for dividends or
redemption proceeds, or for delays in reports to shareholders if a
shareholder elect s to hold Fund shares in street-name through a brokerage
firm account rather than directly in the shareholder's own name. Further,
neither the Fund nor the Transfer Agent will be responsible to the investor
for any loss to the investor due to the brokerage firm's failure, its loss of
property or funds, or its acts or omissions. Prospective investors are urged
to confer with their financial advisor to learn about the different options
available for owning mutual fund shares. You may receive share certificates
or hold shares in your name with the Transfer Agent upon request.
SELLING FUND SHARES
You can withdraw money from your Fund account at any time by redeeming some
or all of your shares (by selling them back to the Fund or by selling the
shares through you r financial advisor). Your shares will be purchased by the
Fund at the next share price (NAV) calculated after your order is received in
proper form and accepted. The amount of the CDSC, if any, will be deducted
and the remaining proceeds sent to you. No CDSC is imposed on the amount by
which the value of a share may have appreciated. Similarly, no CDSC is
imposed on shares obtained through reinvestment of dividends or capital
gains. Shares not subject to a CDSC will be redeemed first. Share price is
normally calculated at 4 p.m. Eastern time.
To sell shares in an account, you may use any of the methods described on the
following page.
If you are selling some but not all of your shares, leave at least $1,000
worth of shares in the account to keep it open.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and your Fund from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
* You wish to redeem more than $10,000 worth of shares,
* Your account registration has changed within the last 30 days,
* The check is being mailed to a different address than the one on your
account (record address),
* The check is being made payable to someone other than the account owner,
or
* The redemption proceeds are being transferred to a Thornburg account with
a different registration.
You should be able to obtain a signature guarantee from a bank, broker
dealer, credit union (if authorized under state law), securities exchange or
association, clearing agency, savings association or participant in the
Securities Transfer Agent Medallion Program (STAMP). A notary public cannot
provide a signature guarantee.
TELEPHONE REDEMPTION. If you completed the telephone redemption section of
your application when you first purchased your shares, you may easily redeem
any class of shares of any Fund by telephone simply by calling a Fund
Customer Service Representative. Money can be wired directly to the bank
account designated by you on the application or sent to you in a check. The
Funds' Transfer Agent may charge a fee for a bank wire. This fee will be
deducted from the amount wired.
If you did not complete the telephone redemption section of your application,
you may add this feature to your account by calling the Fund for a telephone
redemption application. Once you receive it, please fill it out, have it
signature guaranteed and send it to:
NFDS
c/o Thornburg Funds
P.O. Box 419017
Kansas City, MO 64141-6017
The Funds, TSC, TMC and the Funds' Transfer Agent are not responsible for,
and will not be liable for, the authenticity of withdrawal instructions
received by telephone or the delivery or transmittal of the redemption
proceeds if they follow instructions communicated by telephone that they
reasonably believe to be genuine. By electing telephone redemption you are
giving up a measure of security you otherwise may have by redeeming shares
only with written instructions, and you may bear the risk of any losses
resulting from telephone redemption. The Funds' Transfer Agent will attempt
to implement reasonable procedures to prevent unauthorized transactions and
the Funds or their Transfer Agent could be liable if these procedures are not
employed. These procedures will include recording of telephone transactions,
providing written confirmation of such transactions within 5 days, and
requesting certain information to better confirm the identity
of the caller at the time of the transaction.
____________________________________________________________________________
Redeeming Shares Account Type Special Requirements
- ----------------------------------------------------------------------------
Through Your Financial All account types Consult with your financial
Advisor advisor. Your financial
advisor may charge a fee.
By Mail Individual, Joint The letter of instruction
Tenant, Sole Pro- must be signed by all
prietorship, UGMA, persons required to sign
UTMA for transactions, exactly as
Send to: NFDS their names appear on the
c/o Thornburg Funds account, and must include:
P.O. Box 419017 * Your name,
Kansas City, MO * The Fund's name,
64141-6017 * Your Fund account number,
* The dollar amount or
number of shares to be
redeemed,
* Any other applicable
requirements listed
above,
* Signature guarantee, if
required.
Trust In addition to the above
requirements, the trustee
must sign the letter
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a copy
of the trust document
certified within the last 60
days.
Business or In addition to the above
Organization requirements, at least one
person authorized by
corporate resolution to act
on the account must sign the
letter which must be
signature guaranteed.
Include a corporate
resolution with corporate
seal.
Executor, Call 1-800-847-0200 for
Administrator, instructions.
Conservator, Guardian
By Telephone All account types You must sign up for the
1-800-847-0200 except Street-Name telephone redemption feature
before using it.
Minimum Wire $1,000
Minimum Check $50.00
By Systematic Withdrawal All account types You must sign up for this
Plan feature to use it.
Minimum Account Balance
$10,000
Minimum Check $50.00
- ----------------------------------------------------------------------------
INVESTOR SERVICES
Thornburg Funds provide a variety of services to help you manage your
account.
Information Services
Thornburg Funds' telephone representatives are available Monday through
Friday from 9:30 am to 6:30 pm Eastern time. Whenever you call, you can speak
with someone equipped to provide the information or service you need.
Thornburg Funds' Audio Response system is available 24 hours a day, 365 days
a year. This computerized system gives you instant access to your account
information and up-to-date figures on all of the Thornburg Funds.
Statements and reports that Thornburg Funds send to you include the
following:
* Account statements after every transaction affecting your account
* Monthly account statements
* Financial reports (every six months)
* Cost basis statement (at the end of any year in which you redeem shares)
Individual Retirement Accounts and Retirement Plans
Shares of the Funds may be purchased by retirement plans and in connection
with individual retirement plans ("IRA's"). The purchase of shares may be
limited by the governing instrument of any such plan. The minimum initial
investment imposed by the Funds in connection with an IRA is $2,000.
A standardized IRA is available through TSC for individuals wishing to open
an IRA. The cost to open an IRA under this program is $10, and the annual
fee is $10. State Street Bank and Trust Company, as custodian for the
program, may amend the provisions of the IRA's opened through the program to
assure continued qualification under the Internal Revenue Code or for other
reasons.
If you are considering establishing a retirement plan or purchasing a Fund's
shares in connection with a retirement plan, you should consult with your
attorney or tax adviser with respect to plan requirements and tax aspects
pertaining to you.
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 Income 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 55.
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.
SHAREHOLDER AND ACCOUNT POLICIES
Dividends, Capital Gains, and Taxes
The Funds distribute substantially all of their net income and realized
capital gains, if any, to shareholders each year. Each Fund declares its net
investment income daily and distributes it monthly. Each Fund will distribute
net realized capital gains, if any, at least annually. Capital gain
distributions normally will be declared and payable in December.
Distribution Options
Each Fund earns interest from bond, money market, and other investments.
These are passed along as dividend distributions. Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them.
These are passed along as capital gain distributions.
When you open an account, specify on your application how you want to receive
your distributions. Each Fund offers four options, (which you can change at
any time).
Dividends
1. Reinvestment Option. Your dividend distributions will be automatically
invested in additional shares of your Fund. If you do not indicate a
choice on your application, you will be assigned this option. You may also
instruct the Fund to invest your dividends in the shares of any other
Thornburg Fund.
2. Cash Option. You will be sent a check for your dividend distributions.
Cash distribution checks are normally mailed on the third business day
after the month-end.
Capital Gain
1. Reinvestment Option. Your capital gain distributions, if any, will be
automatically reinvested in additional shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
You may also instruct the Fund to re invest your capital gain
distributions in shares of any other Thornburg Fund.
2. Cash Option. You will be sent a check for any capital gain distributions.
Shares of any Thornburg Fund purchased through reinvestment of dividend and
capital gain distributions are not subject to sales charges or contingent
deferred sales charges.
Turnover and Capital Gains
The Funds do not intend to engage in short-term trading for profits.
Nevertheless, when a Fund believes that a security will no longer contribute
towards its reaching its goal, it will normally sell that security.
When a Fund sells a security at a profit it realizes a capital gain. When it
sells a security at a loss it realizes a capital loss. A fund must, by law,
distribute capital gains, net of any losses, to its shareholders. Whether you
reinvest your capital gain distributions or take them in cash, the
distribution is taxable.
To minimize taxable capital gain distributions, each Fund will realize
capital losses, if available, when, in the judgment of the portfolio manager,
the integrity and income generating aspects of the portfolio would be
unaffected by doing so.
TAXES
Federal Taxes
The Funds have elected and intend to continue qualification as regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986
(the "Code"). Distributions 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 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,
regardless of the length of time the shareholder has owned the shares, and
whether received as cash or in additional shares.
Redemption or resale of shares by a shareholder will be a taxable transaction
for federal income tax purposes, and the shareholder will recognize a 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.
Each shareholder will be notified annually by the shareholder's Fund as to
the amount and characterization of distributions paid to or reinvested by the
shareholder for the preceding taxable year. A 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 that
Fund with his or her taxpayer identification number, (ii) that Fund is
notified that the shareholder's number is incorrect, (iii) the Internal
Revenue Service notifies that 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.
The tax discussion set forth above is for general information only.
Prospective investors should consult their own tax advisers regarding the
federal, state, local and other tax consequences to investors of investment
in the Funds.
SERVICE AND DISTRIBUTION PLANS
Service Plan - Both Classes. Each class of each Fund has adopted a Service
Plan under which TMC makes payments to securities dealers and other financial
institutions and organizations to obtain various shareholder related
services. The Service Plans applicable to the Funds permit each of these
Funds to reimburse TMC for these payments at annual rates up to .25% of each
class's net assets. No assets of any class of any Fund will be used to
reimburse expenses attributable to any other class of the same, or any other
Fund.
Class C Distribution Plan. Each Fund has adopted a Class C Distribution Plan
applicable to Class C shares, under which the Fund will pay to TSC on a
monthly basis an annual distribution fee of up to .75% of the average daily
net assets attributable to Class C shares of the Fund. This distribution fee
is an addition to the service fee described above under "Service Plan - Both
Classes" and is charged to and reduces the income allocated to Class C
shares. TSC intends to use these amounts principally to compensate
dealers (including banks) who sell Class C shares. TSC also will engage in
other distribution related activities, including advertising and other
promotional activities. However, the distribution fee paid to TSC is not
computed with respect to TSC's actual expenses, and the fees received by TSC
may be more or less than its actual distribution expenses. TSC may, but is
not obligated to, waive any part or all of its compensation provided for
under the Class C Distribution Plan.
The Glass-Steagall Act prohibits certain banks from underwriting mutual fund
shares. The Funds do not believe that this prohibition will apply to the
commissions described beginning on page 16 or to the plans described above.
However, no assurance can be given that the Glass-Steagall Act will not be
interpreted so as to prohibit these arrangements. In that event, the ability
of the Funds to market their shares could be impaired to a small extent. In
addition, state securities laws on this issue may differ from
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law.
TRANSACTION DETAILS
The Funds are open for business each day the New York Stock Exchange (NYSE)
is open. Each class of shares of the Fund normally calculates its NAV (and
offering price for Class A shares) as of the close of business of the NYSE,
normally 4 p.m. Eastern time. Each Fund's assets are valued on the basis of
valuations obtained from independent pricing services.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require your 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 25. 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 and accepted. 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 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.
When you place an order to sell shares, your shares will be sold at the next
NAV calculated after your request is received and accepted. (Except that a
CDSC will be deducted from Class C shares purchased on or after October 2,
1995 and sold within one year of purchase, and a CDSC of 1/2 of 1% will be
deducted from redemptions of Class A shares within one year of purchase where
no sales charge was imposed on the purchase because it exceeded $1,000,000).
Note the following:
* Consult your financial advisor for procedures governing redemption through
his or her firm.
* If you redeem by mail the proceeds will normally be mailed to you on the
next business day, but if making immediate payment could adversely affect
your Fund, it may take up to 7 days to pay you.
* Telephone redemptions over the wire generally will be credited to your
bank account on the business day after your phone call.
* Each Fund may hold payment on redemptions until it is reasonably satisfied
that investments previously made by check have been collected, which can
take up to 15 business days.
* Redemptions may be suspended or payment dates postponed when the NYSE is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
* To the extent consistent with state and federal law, a Fund may make
payments of the redemption price either in cash or in kind. The Funds have
elected to pay in cash all requests for redemption by any shareholder.
They may, however, limit such cash in respect to each shareholder during
any 90 day period to the lesser of $250,000 or 1% of the net asset value
of a Fund at the beginning of such period. This election has been made
pursuant to Rule 18f-1 under the Investment Company Act of 1940 and is
irrevocable while the Rule is in effect unless the Securities and Exchange
Commission, by order, permits its withdrawal. In the case of a redemption
in kind, securities delivered in payment for shares would be valued at the
same value assigned to them in computing the net asset value per share of
the Fund. A shareholder receiving such securities would incur brokerage
costs when selling the securities.
EXCHANGE RESTRICTIONS
* 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 h ave 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 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.
PERFORMANCE
YIELD COMPUTATION AND TOTAL RETURN
The Funds may quote their yields and returns in reports, sales literature and
advertisements. Yield and return information are computed separately for
Class A and Class C shares. Yield and return for Class C shares of a Fund
ordinarily will be less than t hat of Class A shares of the same Fund because
of the additional distribution fees imposed upon Class C shares.
Additionally, yield and return could differ in minor respects among classes
of the same Fund because of allocation of certain expenses to one or more
specific classes to which the expenses relate. Any return quoted should not
be considered a representation of the return in the future since return
figures are based upon historical earnings. Actual performance will vary.
Current yield quotations will include a standardized calculation which
computes yield for a 30-day or one-month period by dividing a Fund's net
investment income per share during the period by the maximum offering price
on the last day of the period and annualizing the result. Provided that any
such quotation is also accompanied by the standardized calculation referred
to above, any of the Funds also may quote non-standardized yields for a
specified period by dividing the net investment income per share of that Fund
f or that period by either the Fund's average public offering price per share
for that same period or the offering price per share on the first or last day
of the period and annualizing the result. The primary differences between the
yield calculations obtain ed using the standardized performance measure and
any non-standardized performance measure will be caused by the following
factors: (1)The non-standardized calculation may cover periods other than the
30-day or one month period required by the standardize d calculation; (2)The
non-standardized calculations may reflect amortization of premium based upon
historical cost rather than market value; (3)The non-standardized calculation
may reflect the average offering price per share for the period or the
beginning offering price per share for the period, whereas the standardized
calculation will always reflect the maximum offering price per share on the
last day of the period; (4)The non-standardized calculation may reflect an
offering price per share other than the maximum offering price, provided
that any time any Fund's return is quoted in reports, sales literature or
advertisements using a public offering price which is less than the Fund's
maximum public offering price, the return computed by using the Fund's
maximum public offering price also will be quoted in the same piece; (5)The
non-standard return quotation may include the effective return obtained by
compounding the monthly dividends.
Average annual total return quotations show the average annual percentage
change in value of $1,000 for one, five and ten-year periods unless the class
has been in existence for a shorter period. Average annual total return
includes the effect of paying the maximum sales charge (Class A shares) or
the deduction of the applicable CDSC (Class C shares) and assumes the
reinvestment of all dividends. The Funds also may furnish average annual
total return quotations for other periods, or based upon investments at
various sales charge levels or at net asset value. Total return quotations
show the total of all income and capital gain paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in the value of
the original investment, expressed as a percentage of the purchase price.
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.
ORGANIZATION OF THE FUNDS
Each of the Funds is a 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 Funds are managed by their investment adviser, Thornburg
Management Company, Inc. (TMC) under the supervision of the Trust's Trustees.
The Trust currently has 12 authorized Funds, two of which are described in
this Prospectus. The Trustees are authorized to divide the Trust's 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 Trustees, change fundamental
investment policies, or for other purposes. Shareholders not attending these
meetings are encouraged to vote by proxy. Each Fund will mail proxy materials
in advance, including a voting card and information about the proposals to be
voted on. The number of votes you are entitled to is based upon the number of
shares you own. Shares do not have cumulative voting rights or preemptive
rights.
TMC and TSC
The Funds are managed by Thornburg Management Company, Inc., ("TMC") which
chooses each Fund's investments and handles its business affairs. TMC was
established in 1982. Today, the Thornburg Funds include Thornburg Value Fund,
Thornburg Limited Term Municipal Fund National Portfolio and Thornburg
Limited Term Municipal Fund California Portfolio, Thornburg Intermediate
Municipal Fund, Thornburg New Mexico Intermediate Municipal Fund, and
Thornburg Florida Intermediate Municipal Fund in addition to the Funds
covered by this Prospectus. The Thornburg Funds total over $1.6 billion in
assets. Thornburg Management Company Inc. is known as a provider of
conservative investment products. For more than a decade the Thornburg Funds
have been committed to preserving and increasing the real wealth of their
shareholders. The key to growing real wealth is increasing buying power after
taxes, inflation, and investment related expenses.
For each of the Funds, TMC receives a management fee computed according to
the following scale and paid monthly as a percentage of each Fund's average
daily assets.
<TABLE>
U.S. Government Fund Income Fund
Net Assets Annual Rate Annual Rate
<S> <C> <C>
0 to $500 million .50% .625%
$500 million to $1 billion .50% .575%
$1 billion to $1.5 billion .45% .525%
$1.5 billion to $2 billion .45% .475%
Over $2 billion .40% .400%
</TABLE>
Steven J. Bohlin, a Managing Director of TMC, has primary responsibility for
the day-to-day management of each of the Fund portfolios. He has held this
responsibility since 1988 for the Government Fund and since the inception of
the Income Fund in 1992. Mr. Bohlin is assisted by other employees of TMC in
managing the Funds.
TMC may, from time to time, agree to waive its fees or to reimburse any Fund
for expenses above a specified percentage of average daily net assets. TMC
retains the ability to be repaid by the Fund receiving these reimbursements
for these expense reimbursements if expenses fall below the limit prior to
the end of the fiscal year. Fee waivers or expenses by the Fund will lower
its yield.
In addition to TMC's fees, each Fund will pay all other costs and expenses of
its operations. Funds will not bear any costs of sales or promotion incurred
in connection with the distribution of their shares, except as provided for
under the service and distribution plans applicable to each Fund class, as
described above under "Service and Distribution Plans."
Thornburg Securities Corporation (TSC) distributes and markets the Thornburg
Funds.
H. Garrett Thornburg, Jr., a Trustee and President of the Trust, is the
controlling stockholder of both TMC and TSC.
Thornburg Funds provides shareholders account inquiry service 24 hours a day,
365 days a year, through its Audio Response telephone service. To reach
Thornburg Funds for general information, please call 1-800-847-0200. If you
would prefer to speak with a Thornburg Funds representative, please call
during business hours and follow the simple instructions you will receive.
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
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
