THORNBURG INVESTMENT TRUST, 497, 1997-08-06

THORNBURG INVESTMENT TRUST
497, 1997-08-06

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<LOGO> IVY MACKENZIE

MACKENZIE SERIES TRUST
(Mackenzie National Municipal Fund)
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432

August 1, 1997

Dear Shareholder:

A special meeting of shareholders of Mackenzie National Municipal Fund
("Mackenzie Fund"), a series of Mackenzie Series Trust ("Mackenzie Trust"),
has been called for September 4, 1997, at which the shareholders of Mackenzie
Fund will be asked to consider a proposal for combining the assets of
Mackenzie Fund with the assets of Thornburg Intermediate Municipal Fund
("Thornburg Fund"), which has investment objectives and policies similar to
those of Mackenzie Fund. The proposal was reviewed and unanimously endorsed
by the Trustees of Mackenzie Trust, on behalf of Mackenzie Fund, as being in
the best interests of Mackenzie Fund and its shareholders.

As a result of the proposed transaction, Mackenzie Fund would be combined
with Thornburg Fund, and you would become a shareholder of Thornburg Fund.
As a Mackenzie Fund shareholder, you will receive Class A shares of Thornburg
Fund regardless of the class(es) of Mackenzie Fund shares you now own, and
the net asset value of the Thornburg Fund shares you receive will be equal to
the net asset value of your Mackenzie Fund shares. No sales charge will be
imposed on the transaction, and the closing of the transaction will be
conditioned upon receiving an opinion of counsel that the reorganization will
qualify as a tax-free reorganization for federal income tax purposes. WE
STRONGLY URGE YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY AS SOON AS
POSSIBLE.

Detailed information about the proposed transaction and the reasons for it
are contained in the enclosed materials. Please exercise your right to vote
by completing, dating, signing and returning the enclosed proxy card. A
self-addressed, postage-paid envelope has been enclosed for your convenience.
IT IS VERY IMPORTANT THAT YOU VOTE AND THAT YOUR VOTING INSTRUCTIONS BE
RECEIVED BY NO LATER THAN September 3, 1997.

NOTE: You may receive more than one proxy package if you hold shares of
Mackenzie Fund in more than one account. You must return separate proxy
cards for separate holdings. We have provided postage-paid return envelopes
for each.

Sincerely,

/s/ Michael Landrey
President and Trustee
Mackenzie Series Trust
<PAGE>
<PAGE> <LOGO> IVY MACKENZIE

MACKENZIE SERIES TRUST
(Mackenzie New York Municipal Fund)
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432

August 1, 1997

Dear Shareholder:

A special meeting of shareholders of Mackenzie New York Municipal Fund
("Mackenzie Fund"), a series of Mackenzie Series Trust ("Mackenzie Trust"),
has been called for September 4, 1997, at which the shareholders of Mackenzie
Fund will be asked to consider a proposal for combining the assets of
Mackenzie Fund with the assets of Thornburg New York Intermediate Municipal
Fund ("Thornburg Fund"), which has investment objectives and policies similar
to those of Mackenzie Fund. The proposal was reviewed and unanimously
endorsed by the Trustees of Mackenzie Trust, on behalf of Mackenzie Fund, as
being in the best interests of Mackenzie Fund and its shareholders.

Sincerely,

/s/ Michael Landry
President and Trustee
Mackenzie Series Trust

MACKENZIE SERIES TRUST
(MACKENZIE NATIONAL MUNICIPAL FUND)
Via Mizner Financial Plaza, 700 South Federal Highway, Boca Raton, Florida 33432

NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 4, 1997

To the Shareholders of
Mackenzie National Municipal Fund

Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Mackenzie National Municipal Fund ("Mackenzie Fund"), a series of
Mackenzie Series Trust (the "Trust"), a Massachusetts business trust, will be
held at the offices of Mackenzie Fund, Via Mizner Financial Plaza, 700 South
Federal Highway, Boca Raton, Florida 33432, on September 4, 1997, at 10:00 a.m.
Eastern time, for the following purposes:

1. To consider and act upon an Agreement and Plan of Reorganization
providing for: the transfer of all of the assets of Mackenzie Fund to Thornburg
Intermediate Municipal Fund ("Thornburg Fund"), a separate series of Thornburg
Investment Trust, in exchange solely for Class A voting shares of Thornburg
Fund, and for the distribution of those Class A shares to the shareholders of
Mackenzie Fund and the subsequent liquidation of Mackenzie Fund; and

2. To transact such other business as may properly come before the
meeting.

The Trustees of the Trust have fixed the close of business on July 18, 1997
as the record date for shareholders entitled to notice of and to vote at the
meeting.

A complete list of the shareholders of Mackenzie Fund entitled to vote at
the Meeting will be available and open to the examination of any shareholder of
Mackenzie Fund for any purpose germane to the Meeting during ordinary business
hours at Mackenzie Fund's offices, Via Mizner Financial Plaza, 700 South Federal
Highway, Boca Raton, Florida 33432.

SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE
REQUESTED TO DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN
THE ENVELOPE PROVIDED FOR THAT PURPOSE. INSTRUCTIONS FOR THE PROPER EXECUTION
OF PROXIES ARE SET OUT ON THE INSIDE COVER.

By Order of the Trustees,

C. William Ferris
-------------------------
Secretary

YOUR PROMPT ATTENTION TO THE ENCLOSED FORM OF PROXY WILL HELP TO AVOID THE
EXPENSE OF FURTHER SOLICITATION.

INSTRUCTIONS FOR SIGNING PROXY CARDS

The following general rules for signing proxy cards may be of assistance
to you and may help avoid the time and expense involved in validating your vote
if you fail to sign your proxy card properly.

1. INDIVIDUAL ACCOUNTS: sign your name exactly as it appears in the
registration on the proxy card.

2. JOINT ACCOUNTS: either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration on the proxy
card.

3. ALL OTHER ACCOUNTS: the capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration.

<PAGE>
<PAGE>
PROSPECTUS AND PROXY STATEMENT RELATING TO THE ACQUISITION OF THE ASSETS OF
MACKENZIE NATIONAL MUNICIPAL FUND
a separate series of
MACKENZIE SERIES TRUST
Via Mizner Financial Plaza, 700 South Federal Highway, Boca Raton, Florida 33432
(800) 456-5111

BY AND IN EXCHANGE FOR SHARES OF THORNBURG INTERMEDIATE MUNICIPAL FUND
a separate series of
THORNBURG INVESTMENT TRUST
119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501, (800) 847-0200

This prospectus/proxy statement relates to the proposed transfer of
substantially all of the assets of Mackenzie National Municipal Fund ("Mackenzie
Fund") to Thornburg Intermediate Municipal Fund ("Thornburg Fund") in exchange
solely for Class A voting shares of Thornburg Fund. Mackenzie Fund and
Thornburg Fund each seek as high a level of interest income exempt from federal
income taxes as is consistent, in the view of their respective investment
advisers, with the preservation of shareholders' capital. As a result of the
proposed transaction, each shareholder of Mackenzie Fund will receive a number
of shares of Thornburg Fund equal in value at the date of the exchange to the
value of that shareholder's shares of Mackenzie Fund. The terms and conditions
of these transactions are more fully described in this prospectus/proxy
statement and in the Agreement and Plan of Reorganization attached hereto as
Exhibit A.

This prospectus/proxy statement, which should be retained for future
reference, sets forth concisely the information about Thornburg Fund that a
prospective investor should know before investing. A Statement of Additional
Information dated February 1, 1997, as revised May 6, 1997 (the "Statement of
Additional Information") containing additional information about Thornburg Fund
has been filed with the Securities and Exchange Commission and is incorporated
by reference into this prospectus/proxy statement. A copy of the Statement of
Additional Information may be obtained without charge by writing to Thornburg
at its address noted above or by calling 1-800-847-0200. Copies of Mackenzie
Fund's current prospectus dated October 25, 1996 and statement of additional
information dated October 25, 1996 may be obtained without charge by writing to
Mackenzie at its address noted above or by calling 1-800-546-5111.

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROSPECTUS AND PROXY
STATEMENT AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THORNBURG INVESTMENT TRUST OR MACKENZIE SERIES
TRUST.

INVESTMENTS IN THORNBURG FUND ARE SUBJECT TO RISK, INCLUDING POSSIBLE RISK
OF PRINCIPAL, AND WILL FLUCTUATE IN VALUE. SHARES OF THORNBURG FUND ARE NOT
BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, AND ARE NOT
INSURED BY, ANY BANK, FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY GOVERNMENTAL AGENCY.

The date of this prospectus/proxy statement is July 28, 1997.

<PAGE>
TABLE OF CONTENTS

5. Summary of the Proposed Reorganization

6. Investment Advisers and Distributors of Mackenzie Fund and Thornburg Fund

6. Comparison of Investment Objectives, Policies and Restrictions of Mackenzie
Fund and Thornburg Fund

10. Principal Risk Factors

10. Fees and Expenses of Mackenzie Fund and Thornburg Fund

13. Performance Information

13. Purchase, Redemption and Exchange Procedures for Mackenzie Fund and
Thornburg Fund

15. Dividend Policies of Mackenzie Fund and Thornburg Fund

15. Comparative Information on Shareholder Rights

16. Additional Information About Shareholder Accounts

16. Information About the Reorganization

19. Capitalization

19. Additional Information About Mackenzie Fund and Thornburg Fund

20. Voting Information

22. Exhibit A: Agreement and Plan of Reorganization

Enclosed: Exhibit B: Thornburg Municipal Funds Prospectus

For detailed information about Thornburg Fund, see Thornburg Municipal Funds
Prospectus dated February 1, 1997, included with this prospectus/proxy
statement.

<PAGE> 5

SUMMARY OF THE PROPOSED REORGANIZATION
--------------------------------------

The Trustees of Mackenzie Series Trust ("Mackenzie Trust"), including the
Trustees who are not "interested persons" of Mackenzie Trust (the "Independent
Trustees"), as defined in the Investment Company Act of 1940, have reviewed and
unanimously approved an agreement and plan of reorganization (the "Agreement")
between Mackenzie Trust on behalf of Mackenzie National Municipal Fund
("Mackenzie Fund") and Thornburg Investment Trust ("Thornburg Trust"), on behalf
of Thornburg Intermediate Municipal Fund ("Thornburg Fund") providing for the
acquisition of substantially all of the assets of Mackenzie Fund, a separate
series of Mackenzie Trust, by Thornburg Fund, a separate series of Thornburg
Trust in exchange solely for Class A voting shares of Thornburg Fund. The
aggregate net asset value of the Class A shares of the acquiring Thornburg Fund
issued in the exchange will equal the aggregate net asset value of the shares
outstanding for the acquired Mackenzie Fund. In connection with the
transaction, Class A shares of Thornburg Fund will then be distributed to
shareholders of Mackenzie Fund on a pro rata basis and Mackenzie Fund will be
terminated. These transactions are referred to as the "reorganization."

As a result of the reorganization, each shareholder of Mackenzie Fund will
become a shareholder of Thornburg Fund, receiving Class A shares of Thornburg
Fund having an aggregate net asset value equal to the net asset value of that
shareholder's shares in Mackenzie Fund. No sales charge will be imposed on the
transaction. As a condition to the closing, Thornburg Trust and Mackenzie Trust
will obtain an opinion of Dechert Price & Rhoads to the effect that, based upon
certain facts, assumptions and representations, the reorganization will qualify
as a tax-free reorganization for federal income tax purposes. See "Information
About the Reorganization." Persons receiving Thornburg Fund shares in the
reorganization will remain free to redeem their shares after the reorganization.

Mackenzie Fund and Thornburg Fund have substantially similar investment
objectives and policies, except that Thornburg Fund's secondary objective is to
reduce fluctuations in the net asset value of its shares relative to the
fluctuations of municipal bond portfolios with longer average maturities (which
may have higher yields) by investing in a portfolio of securities normally
having a weighted average maturity of three to ten years. The risks of
investing in Thornburg Fund are similar to the risks of investing in Mackenzie
Fund, except that Thornburg Fund may experience less fluctuation in its net
asset value, and possibly lower yields. See "Principal Risk Factors" below.
The Funds have substantially similar distribution, purchase and redemption
procedures.

For the reasons set forth below, the Trustees of Mackenzie Trust, including
all of the Independent Trustees, have unanimously concluded that the
reorganization is in the best interests of the shareholders of Mackenzie Fund.
The Trustees of Mackenzie Trust therefore have submitted the Agreement for
approval by the shareholders of Mackenzie Fund at a special meeting of
shareholders to be held on September 4, 1997 (the "Meeting"). Approval of the
reorganization with respect to Mackenzie Fund requires a vote of a majority of
the outstanding voting securities of the Class A shares of Mackenzie Fund and
a majority of the outstanding voting securities of the Class B shares of
Mackenzie Fund.

At or about the same time that substantially all of the assets of Mackenzie
Fund are acquired by Thornburg Fund, Thornburg New York Intermediate Municipal
Fund will acquire substantially all of the assets of Mackenzie New York
Municipal Fund, Thornburg Limited Term Municipal Fund National Portfolio will
acquire substantially all of the assets of Mackenzie Limited Term Municipal
Fund, and Thornburg Limited Term Municipal Fund California Portfolio will
acquire substantially all of the assets of Mackenzie California Municipal Fund.
Each of these transactions has been approved by the Board of Trustees of the
respective Mackenzie Fund. The acquisitions of substantially all of the assets
of Mackenzie Fund, Mackenzie California Municipal Fund, Mackenzie National
Municipal Fund and Mackenzie New York Municipal Fund are referred to
collectively herein as the "Related Acquisitions." Completion of the
reorganization is contingent upon proper shareholder approval being received for
each of the Related Acquisitions, the satisfaction of all other conditions to
closing the Related Acquisitions and the acquisition of certain assets of
Mackenzie Investment Management, Inc. by Thornburg Management Company, Inc.
pursuant to an asset purchase agreement. There can be no assurance such
shareholder approval can be obtained for each Related Acquisition or that the
conditions of the other Related Acquisitions will be satisfied. If shareholders
of Mackenzie Fund approve the reorganization and the other Related Acquisitions
are not approved, the Board of Trustees of Mackenzie Fund will consider the
alternatives available to it with respect to Mackenzie Fund, including
completion of the reorganization respecting Mackenzie Fund. See "Voting
Information."

<PAGE> 6

The Trustees of Mackenzie Trust have approved the reorganization because
they believe it would benefit Mackenzie Fund given Thornburg Fund's larger size
and expected greater concentration on managing mutual funds that invest in fixed
income securities. In that connection, the Trustees considered the fact that
Thornburg Fund's investment adviser has many years of experience in managing
portfolios of municipal obligations. As discussed below, Thornburg Fund's
investment adviser, Thornburg Management Company, Inc. (sometimes "TMC"),
manages a family of mutual fund portfolios with assets of approximately $1.6
billion as of March 31, 1997. As members of this family of funds, shareholders
of Mackenzie Fund would enjoy all the same services and privileges as other
shareholders of Thornburg Fund, including the opportunity to exchange into funds
with a variety of investment objectives and policies.

The Mackenzie Trustees also took into account a variety of other factors
discussed below. See "Information About the Reorganization."

THE TRUSTEES OF MACKENZIE TRUST, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION.

INVESTMENT ADVISERS AND DISTRIBUTORS OF MACKENZIE FUND AND THORNBURG FUND
-------------------------------------------------------------------------

The investment adviser to Mackenzie Fund is Mackenzie Investment Management
Inc. ("MIMI"), whose address is Via Mizner Financial Plaza, 700 South Federal
Highway, Suite 300, Boca Raton, Florida 33432. MIMI, a Delaware corporation,
has approximately 10% of its outstanding common stock listed for trading on the
Toronto Stock Exchange. MIMI is a subsidiary of Mackenzie Financial
Corporation, 150 Bloor Street West, Toronto, Ontario, Canada, a public
corporation organized under the laws of Ontario and whose shares are listed for
trading on The Toronto Stock Exchange. In addition to providing investment
management services to Mackenzie Fund, MIMI provides certain business management
services to Mackenzie Fund, including coordinating services furnished to
Mackenzie Fund by service providers, providing office space, providing
administrative and clerical services, supervising the maintenance of books and
records, and certain other services. Fees charged by MIMI for these services
are described below under "Fees and Expenses of Mackenzie and Thornburg Funds."
The distributor of Mackenzie Fund's shares is Ivy Mackenzie Distributors, Inc.,
Via Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton,
Florida 33432.

The investment adviser to Thornburg Fund is Thornburg Management Company,
Inc. ("TMC"), 119 East Marcy Street, Santa Fe, New Mexico 87501. The
controlling shareholder of TMC is H. Garrett Thornburg, Jr. TMC is also
investment adviser to five other series of Thornburg Trust, two of which seek
current income from investment in municipal obligations, two of which seek
current income from investments in government and other fixed income securities,
and one of which seeks capital appreciation through investment in stocks and
other securities. TMC also is investment adviser to Thornburg Limited Term
Municipal Fund, Inc., an investment company with two series which seek current
income from investments in municipal obligations. TMC also furnishes to each
mutual fund under its management supervision, administration and performance of
certain administrative services necessary for maintenance of shareholder
services. Fees charged by TMC for these services are described below under
"Fees and Expenses for Mackenzie and Thornburg Funds."

COMPARISON OF INVESTMENT OBJECTIVES, POLICIES
AND RESTRICTIONS OF MACKENZIE FUND AND THORNBURG FUND
-----------------------------------------------------

Investment Objectives of the Funds
- ----------------------------------

Mackenzie Fund.
-------------- Mackenzie Fund seeks as high a level of interest income
exempt from federal personal income taxes as is consistent, in MIMI's view, with
the preservation of shareholders' capital. Mackenzie Fund seeks to achieve this
objective by investing primarily in debt securities, the interest on which is
exempt from federal personal income taxes. Mackenzie Fund's dollar-weighted
average maturity was 15.6 years on June 30, 1997, and averaged 18.2 years over
the 12 months ending on the same date. Mackenzie Fund is not limited in the
average portfolio

<PAGE> 7

maturity it may maintain, but it will not invest more than 20% of its total
assets in securities maturing in less than one year, except during periods when
it is in a temporary defensive position.

Thornburg Fund.
-------------- Thornburg Fund's primary investment objective is to obtain
as high a level of current income exempt from federal personal income taxes as
is consistent, in TMC's view, with preservation of capital. Thornburg Fund's
secondary objective is minimizing expected fluctuations in net asset value
relative to long-term bond portfolios. Thornburg Fund pursues its primary
objective by investing in a portfolio of municipal securities, the interest on
which is exempt from federal income taxes. Thornburg Fund seeks to achieve its
secondary objective of reducing fluctuations in net asset value by maintaining
a portfolio of investments with a dollar-weighted average maturity normally
three to ten years. Thornburg Fund believes its policy on limiting its average
portfolio maturity will cause the Fund to experience less change in its net
asset value in response to interest rate changes than a longer term portfolio
might experience.

Securities in Which the Funds Invest
- ------------------------------------

Mackenzie Fund.
-------------- As a fundamental policy, at least 80% of Mackenzie Fund's
total assets are invested during normal market conditions in tax-exempt
municipal securities. The tax-exempt securities in which Mackenzie Fund may
invest include debt obligations issued by or on behalf of the 50 states, the
District of Columbia and their political subdivisions, agencies, authorities and
instrumentalities and the governments of Puerto Rico and Guam, except that the
Fund will not invest more than 5% of its net assets in obligations of each of
Puerto Rico and Guam. Mackenzie Fund may invest more than 20% of its total
assets in taxable investments for temporary defensive purposes. Taxable
investments may include obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, commercial paper, corporate obligations,
certificates of deposit or bankers' acceptances or other short-term obligations
of domestic banks or thrifts, or repurchase agreements with banks or broker
dealers. Mackenzie Fund may purchase a variety of municipal securities
including both general obligation bonds and revenue bonds, and the Fund is
permitted to buy variable interest securities and repurchase agreements. The
Fund may purchase securities on a when-issued basis. Some securities owned by
the Fund may pay interest which is subject to the federal alternative minimum
tax. Mackenzie Fund may invest without limit in securities depending for
repayment upon revenues from similar projects. Mackenzie Fund may purchase or
write options and enter into futures contracts, but has no current intention to
do so.

Thornburg Fund.
-------------- Except to the extent that Thornburg Fund is invested in
temporary investments for defensive purposes, it will under normal conditions
invest 100% of its assets in municipal obligations, and as a fundamental policy
which may not be changed without a shareholder vote, will normally invest at
least 80% of its net assets in municipal obligations. Thornburg Fund may invest
up to 20% of its assets in temporary investments in taxable securities because
of market conditions, pending investment of idle funds, or to afford liquidity.
Temporary investments in taxable securities could exceed 20% of the Fund's net
assets when made for defensive purposes during periods of abnormal market
conditions, but Thornburg Fund does not expect to find it necessary to make
temporary investments in taxable securities. Any temporary investments would
be in taxable securities of comparable quality to the tax-exempt securities that
Thornburg Fund may purchase. Thornburg Fund may purchase a variety of municipal
securities including general obligation bonds, revenue bonds and municipal
leases. Thornburg Fund is permitted to buy variable interest securities and
repurchase agreements. The Fund may purchase securities on a when-issued basis.
The Fund is permitted to purchase securities which pay interest subject to the
federal alternative minimum tax. Thornburg Fund may invest without limit in
securities depending for repayment upon revenues from similar projects; however,
the Fund has maintained a diversified portfolio in the past and expects to
continue to do so in the future.

Securities Ratings
- ------------------

Mackenzie Fund.
-------------- Mackenzie Fund seeks to achieve its investment objective
by investing primarily in tax-exempt municipal securities rated within the four
highest rating categories of Moody's Investors Services, Inc. ("Moody's") or
Standard & Poor's Corporation ("Standard & Poor's"), or in

<PAGE> 8

unrated municipal securities which are (i) guaranteed as to principal and
interest by the U.S. Government, (ii) having a maturity of less than one year
issued by issuers having other outstanding securities having one of the four
highest ratings, or (iii) comparable in quality, in the opinion of MIMI, to
securities within the four highest ratings. Corporate obligations purchased by
Mackenzie Fund will be rated Aaa or Aa by Moody's or AAA or AA by Standard &
Poor's.

Thornburg Fund.
-------------- Thornburg Fund will invest in municipal obligations which
are rated at the time of purchase within the four highest grades by Moody's,
Fitch Investors Service, or Standard & Poor's, or which are not rated but are
issued by obligors who have comparable debt securities outstanding or who are
deemed by TMC to be comparable with issuers having such debt ratings. Any
temporary taxable investments by Thornburg Fund will be securities of comparable
quality to the municipal securities Thornburg Fund may purchase.

Investment Restrictions of the Funds
- ------------------------------------

Mackenzie Fund and Thornburg Fund are each subject to fundamental and non-
fundamental investment restrictions. Fundamental restrictions may be changed
only upon a vote of the shareholders, while non-fundamental restrictions may be
changed by the trustees or directors of a mutual fund. The investment
restrictions of the Funds are compared below.

Fundamental Investment Restrictions
-----------------------------------
Neither Mackenzie Fund nor Thornburg Fund may purchase securities of any
one issuer (except U.S. Government securities) if, as a result, more than 5% of
the Fund's total assets would be invested in that issuer or the Fund would own
more than 10% of the outstanding voting securities of that issuer, except that
up to 25% of the value of Mackenzie Fund's total assets may be invested without
regard to these restrictions.

Neither Mackenzie Fund nor Thornburg Fund may invest in real estate, real
estate mortgage loans, commodities, commodity futures contracts or oil, gas or
other mineral exploration or development programs, except that either Fund may
invest in municipal securities that are secured by real estate. In addition,
Mackenzie Fund may invest in securities of issuers that invest in or deal in
real estate, and also may invest in futures contracts as described in Mackenzie
Fund's prospectus.

Mackenzie Fund and Thornburg Fund are each subject to restrictions on
borrowing money and pledging assets. Mackenzie Fund may borrow amounts up to
10% of its total assets (taken at the lower of cost or market value), and then
only from banks as a temporary measure for extraordinary or emergency purposes.
Mackenzie Fund may pledge its assets only to secure permitted borrowings (and
then not in excess of 20% of its total assets) or for escrow, collateral or
margin arrangements in connection with the Fund's use of options, short sales,
futures contracts and options on futures contracts. Thornburg Fund may borrow
amounts not exceeding 5% of its total assets, but only for temporary or
emergency purposes. Thornburg Fund is not permitted to pledge assets, except
to secure these permitted borrowings.

Neither Mackenzie Fund nor Thornburg Fund may make loans. However,
Mackenzie Fund may lend portfolio securities and enter into repurchase
agreements, and this restriction does not prohibit Mackenzie Fund from
purchasing publicly issued debt instruments as described in its prospectus.
Similarly, Thornburg Fund is not prohibited by this restriction from purchasing
the debt obligations described in its prospectus, and it also may invest in
repurchase agreements.

Neither Mackenzie Fund nor Thornburg Fund may purchase securities on
margin, except such short-term credits as are necessary for the clearance of
transactions, and except that Mackenzie Fund does not consider initial or
variation margin in connection with futures contracts or related options to be
a margin purchase of securities.

<PAGE> 9

investment restriction prohibiting it from writing or purchasing puts, calls,
straddles or spreads, except to the extent it may purchase securities pursuant
to demand or remarketing agreements with dealers as described in its prospectus.
Neither Fund is permitted to make short sales of securities.

Neither Mackenzie Fund nor Thornburg Fund will act as an underwriter of
securities, and neither Fund will issue senior securities, except insofar as it
may be deemed to have done so in connection with entering into any repurchase
agreement, purchasing any securities on a when-issued or delayed delivery basis,
or permitted borrowing.

Both Funds are subject to the restriction that neither Fund will purchase
securities if, as a result, more than 25% of the Fund's total assets would be
invested in any one industry. This limitation does not apply to U.S. Government
securities, or in the case of Thornburg Fund, tax exempt securities issued by
state governments or their agencies and political subdivisions.

Mackenzie Fund also has adopted fundamental investment restrictions against
investing in securities for the purpose of exercising control over or management
of the issuer, and against participation in a joint or a joint and several basis
in any trading account. Thornburg Fund does not currently have comparable
restrictions.

Thornburg Fund has adopted fundamental restrictions against investing more
than 5% of its total assets in unseasoned issuers or in securities it is
restricted from selling to the public without registration, and against
purchasing securities of other investment companies unless the purchase is made
in connection with a merger, consolidation or acquisition of assets. Mackenzie
Fund is similarly restricted from investing more than 5% of its assets in
unseasoned issuers less than three years old, but this is a non-fundamental
restriction which may be changed by its Board of Trustees. Mackenzie Fund is
not specifically prohibited from purchasing unregistered securities, but must
count them as illiquid under its non-fundamental liquidity policy described
below. Thornburg Fund has adopted the further restriction that it will not
purchase or retain securities of any issuer if, to its knowledge, officers or
directors of the Fund or TMC who individually own more than 1/2 of 1% of the
issuer's securities, together own more than 5% of the issuer's outstanding
securities. Mackenzie Fund has a similar, but non-fundamental, policy.

Thornburg Fund will not purchase the securities of any issuer if, as a
result, more than 10% of the value of the Fund's net assets would be invested
in restricted securities (including repurchase agreements of more than seven
days maturity and other securities which are not readily marketable). Mackenzie
Fund has a comparable, non-fundamental policy, which is described below, under
the caption "Non-fundamental Policies."

Non-fundamental Policies
------------------------
In addition to the policies described above, Mackenzie Fund and Thornburg
Fund have adopted other, non-fundamental policies which may be changed by the
Trustees of a Fund without a shareholder vote.

Mackenzie Fund has adopted the policy that it will not invest more than 10%
of its net assets in illiquid securities. Illiquid securities may include
securities subject to resale restrictions or other factors reducing liquidity,
securities for which market quotations are not readily available, repurchase
agreements maturing in more than seven days, and certain over-the-counter
options and securities used to cover options Mackenzie Fund has written.

Mackenzie Fund has adopted the non-fundamental investment restrictions that
it will not purchase or sell real estate limited partnership interests or
interests in oil, gas and mineral leases (other than securities of companies
that invest in or sponsor such programs). Thornburg Fund also has adopted the
non-fundamental restrictions that it will invest no more than 5% of its assets
in repurchase agreements, and will invest no more than 10% of its total assets
in securities, known as inverse floaters, the interest rates on which vary
inversely with market rates of interest. Mackenzie Fund does not have
comparable restrictions.

<PAGE> 10

PRINCIPAL RISK FACTORS
----------------------

Because of similarities in investment objectives and policies, the risks
of investing in Thornburg Fund are substantially similar to the risks of
investing in Mackenzie Fund.

The net asset value of municipal funds investing in municipal securities
will vary as market interest rates fluctuate, although municipal bond portfolios
which maintain shorter average portfolio maturities tend to experience smaller
fluctuations in net asset value relative to municipal bond portfolios which
maintain longer average portfolio maturities. Thornburg Fund typically
maintains a shorter average portfolio maturity than Mackenzie Fund. Issuers may
prepay municipal securities in periods of low interest rates, reducing the
expected return on securities held by either Fund. Portfolio securities held
by either Mackenzie Fund or Thornburg Fund also may be subject to bankruptcy or
other laws protecting debtors or legislative action or referenda which may
adversely affect the ability of issuers of municipal obligations to pay
principal and interest when due, or reductions in value because of the issuer's
inability to pay timely the obligation or because of downgrading of securities
by rating agencies.

Investment techniques which may be utilized by either Mackenzie Fund or
Thornburg Fund may have associated risks. Purchasing securities on a when-
issued or firm commitment basis could result in a loss if the value of the
securities to be purchased declines before the settlement date. Investing in
repurchase agreements could result in a loss or delay in obtaining repayment if
the other party defaults of becomes insolvent. Borrowing by either Fund could
exaggerate the effects on the Fund's net asset value of any increase or decrease
in the value of the Fund's portfolio securities. Variable rate securities with
interest rates which change inversely with market rates of interest may
experience more volatile changes in value during periods when interest rates are
changing.

For a further discussion of the investment objectives, policies and
restrictions applicable to Thornburg Fund, please see the accompanying Thornburg
Municipal Funds Prospectus.

FEES AND EXPENSES OF MACKENZIE FUND AND THORNBURG FUND
------------------------------------------------------

Advisory and Administration Fees and Fund Expenses
- --------------------------------------------------

Mackenzie Fund
- -------------- Mackenzie Fund is contractually obligated to pay MIMI an
investment management fee at an annual rate of .55% of average daily net assets,
and an administrative services fee at an annual rate of .10% of average daily
net assets, together with the Fund's other expenses and costs of operation.
Mackenzie Fund also has adopted plans and agreements pursuant to Rule 12b-1
under the Investment Company Act applicable to its Class A and Class B shares,
under which Class A shareholders pay a distribution fee at an annual rate of
.25% of average daily net assets and Class B shareholders pay a distribution fee
of 1.00% of average daily net assets.

Mackenzie Fund's total operating expense ratios for Class A shares and
Class B were 1.10% and 1.85% respectively, for the year ended June 30, 1996,
after taking into account voluntary waivers of fees and reimbursements of
expenses by MIMI. Absent these fee waivers and reimbursements, Class A and
Class B expense ratios would have been 1.52% and 2.27%, respectively. MIMI is
not obligated to continue its waivers of fees in the future.

Thornburg Fund
- -------------- Thornburg Fund is contractually obligated to pay TMC an
investment management fee which varies based upon the Fund's assets. The fee
is computed on average daily net assets at an annual rate of .50% of the first
$500 million of net assets, .45% of net assets of $500 million to $1 billion,
.40% of net assets of $1 billion to $1.5 billion, .35% of net assets of $1.5
billion to $2 billion, and .275% on net assets over

<PAGE> 11

$2 billion. The current fee rate is .50%. The Fund pays TMC an administrative
services fee with respect to its Class A shares at an annual rate of .125% of
average daily net assets, together with the Fund's other expenses and costs of
operation. Thornburg Fund also has adopted a service plan pursuant to Rule
12b-1 under the Investment Company Act, applicable to its Class A shares, under
which Class A shareholders pay a service fee of up to .25% of average daily net
assets.

Thornburg Fund's total operating expense ratio for Class A shares was 1.00%
for the year ended September 30, 1996, after taking into account a voluntary
assumption of certain fund expenses by TMC. Absent the assumption of expenses,
the Class A expense ratio would have been 1.09%. TMC is not obligated to
continue this assumption of expenses in the future.

The total operating expenses for Mackenzie Fund are slightly higher than
those of Thornburg Fund after taking into account MIMI's waivers of fees. There
can be no assurance that those waivers and reimbursements will continue for
Mackenzie Fund if the reorganization is not completed.

The tables below sets forth (i) shareholder transaction expenses upon
purchase or redemption of shares, (ii) the fees and expenses paid by Mackenzie
Fund for the year ended June 30, 1996, (iii) fees and expenses paid by Thornburg
Fund for the year ended September 30, 1996, and (iv) where applicable, pro forma
expenses for the combined Funds. No sales charges will be imposed on Mackenzie
Fund shares surrendered in the reorganization or on Thornburg Fund shares issued
to former Mackenzie Fund shareholders by Thornburg Fund. Because Mackenzie Fund
Class B shareholders will receive Thornburg Fund Class A shares in the
reorganization, Thornburg Fund Class A figures apply both to Class A and Class B
shareholders of Mackenzie Fund upon completion of the reorganization. No sales
charges will be imposed on Mackenzie Fund shares exchanged by Mackenzie Fund
shareholders in the reorganization, or on Thornburg Fund shares issued to
Mackenzie Fund shareholders in the reorganization.

<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------
<CAPTION>
Mackenzie Fund Thornburg Fund
Class A Class B Class A
------- ------- --------------
<S> <C> <C> <C>
Maximum Sales Charge on
Purchase (as a percentage
of offering price) 4.75% none 3.50% <FN2>

Maximum Deferred Sales
Charge on Redemptions
(as a percentage of
redemption proceeds or
original purchase price,
whichever is lower) none 5.00% <FN1> none <FN3>

<FN>
<FN1> The maximum Mackenzie Fund Class B sales charge is imposed on
redemptions within one year of purchase, declines to 4% in the
second year, 3% the third and fourth years, 2.0% the fifth year
and 1% the sixth year. This sales charge will not be imposed on
shares exchanged for Thornburg Fund shares in the reorganization.

<FN2> This sales charge will not be imposed on Thornburg Fund shares
issued in the reorganization.

<FN3> Thornburg Fund imposes a contingent deferred sales charge of 1/2 of
1% on redemptions of purchases greater than $1 million in the event
of a redemption within 12 months of purchase. This charge will not
apply to Thornburg Fund shares issued in the reorganization.
</FN>
</TABLE>

<PAGE> 12

<TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<CAPTION>
Mackenzie Fund Thornburg Fund Thornburg Fund
Class A Class B Class A Pro Forma
------- ------- -------------- --------------
<S> <C> <C> <C> <C>
Management Fees .13% <FN1> .13% <FN1> .50% .50%
Rule 12b-1 Fees .25% 1.00% .25% .25%
Other Expenses .72% .72% .25% <FN2> .25% <FN2>
----- ----- ----- -----
Total Fund Operating
Expenses 1.10% <FN1> 1.85% <FN1> 1.00% <FN2> 1.00% <FN2>

<FN2> TMC currently limits Thornburg Fund's total operating expenses.
Absent TMC's assumption of certain fund operating expenses, the
other expenses for Thornburg Fund would have been .34%, and
total fund operating expenses would have been 1.09%. TMC is under
no obligation to waive fees or assume expenses in the future.
</FN>

EXAMPLES You would pay the following expenses on a $1,000 investment, assuming
the maximum sales charge is deducted each Fund's expense ratio remains the same,
a 5% annual return, and redemption at the end of each time period:
<CAPTION>

Mackenzie Fund Thornburg Fund Thornburg Fund
Class A Class B Class A Class A Pro Forma
------- ------- -------------- -----------------
<S> <C> <C> <C> <C>
One Year $58 $69 $45 $45
Three Years $81 $88 $66 $66
Five Years $105 $120 $89 $89
Ten Years $175 $197 $154 $154

You would pay the following expenses on the same $1,000 investment, assuming no
redemption at the end of each time period:
<CAPTION>

Mackenzie Fund Thornburg Fund Thornburg Fund
Class A Class B Class A Class A Pro Forma
------- ------- -------------- -----------------
<S> <C> <C> <C> <C>
One Year $58 $19 $45 $45
Three Years $81 $58 $66 $66
Five Years $105 $100 $89 $89
Ten Years $175 $197 $154 $154
</TABLE>

The set of examples which assumes redemption at the end of each time period also
assumes deduction of the maximum sales charge on purchase of Class A shares and
deduction of the applicable Class B contingent deferred sales charge upon
redemption at the end of each time period. The set of examples which assumes
no redemption also assumes deduction of the maximum sales charge on purchase of
Class A shares, but does not reflect any contingent deferred sales charge on
Class B shares because no redemption is deemed to occur.

The expense figures in the tables above are presented to assist the investor in
understanding the costs that an investor will bear, directly or indirectly. THE
INFORMATION IN THE TABLES ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSE, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE
SHOWN.
<PAGE> 13

PERFORMANCE INFORMATION
-----------------------

The following table presents comparative performance information for
Mackenzie Fund and Thornburg Fund. Performance figures for Class A shares
assume that the maximum sales charge was paid on purchase. Figures for Class B
shares assume that the shares were redeemed at the end of the period shown and
the applicable contingent deferred sales charge was paid. Sales charges do not,
however, apply to Mackenzie Fund shares exchanged by Mackenzie Fund shareholders
in the reorganization, or to Thornburg Fund shares distributed to Mackenzie Fund
shareholders in the reorganization.

<TABLE>
Mackenzie Fund Thornburg Fund
Class A Class B Class A
------- ------- --------------
Before After Before After Before After
Reimb. Reimb. Reimb. Reimb. Reimb. Reimb.
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Average annual total return
after the deduction of
maximum sales charge
for following periods
ending on June 30, 1997
One Year 3.66% 4.18% 2.97% 3.52% 3.10% 3.15%
Five Years 4.91% 5.23% NA NA 5.85% 6.13%
Ten Years NA NA NA NA NA NA
Since Inception* 5.50% 6.54% 5.14% 5.53% 6.38% 6.78%

* April 15, 1988 and April 1, 1994 for Class A and Class B shares, respectively,
of Mackenzie Fund; July 23, 1991 for Class A shares of Thornburg Fund.

</TABLE>

From time to time MIMI has waived fees or reimbursed fund expenses incurred by
Mackenzie Fund. TMC similarly has waived fees or reimbursed fund expenses for
Thornburg Fund. Average annual total return figures in each column under the
caption "Before Expense Reimb." are the Fund's performance figures assuming no
such waiver or reimbursement occurred; figures in each column under the caption
"After Expense Reimb." are the performance figures after taking into account any
waivers or reimbursements. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE
PERFORMANCE.

<PAGE>
PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES
FOR MACKENZIE FUND AND THORNBURG FUND
--------------------------------------------
Mackenzie Fund - Purchasing Shares
- ----------------------------------

Class A shares of Mackenzie Fund are sold at net asset value plus a
sales charge imposed at the rates shown in the table below.
<TABLE>
Dealer Concession
Total Sales Charge or Agency Commission
As Percentage As Percentage As Percentage
of Offering Price of Net Asset Value of Offering Price
<S> <C> <C> <C>
Less than $100,000.00 4.75% 4.99% 4.00%
$100,000 to 249,999.99 3.75% 3.90% 3.00%
$250,000 to 499,999.99 2.50% 2.56% 2.00%
$500,000 and up 0.00% * 0.00% 0.00%

* No sales charge is imposed on investments of $500,000 or more in
Class A shares by a purchaser. A contingent deferred sales charge
of 1.00% is imposed on redemptions of any portion of such a
purchase within 24 months of purchase.

<PAGE> 14

Class A shares also are sold to specified classes of investors at
reduced or no sales charges (but subject in some cases to a contingent
deferred sales charge) as described in Mackenzie Fund prospectus.

Class B shares are sold at net asset value, but are subject to a
contingent deferred sales charge at the rates shown below if redeemed within
six years of purchase. This charge is not applicable to Mackenzie Fund
shares exchanged for Thornburg Fund shares in the reorganization.

Sales Charge as a
Year Since Percentage of Dollar
Purchase Amount Subject to Charge
---------- ------------------------
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter 0%

The charge is imposed on the lesser of the current market value or the
original cost of the shares. In determining any sales charge applicable to
a redemption, it is assumed shares held for more than six years are redeemed
first, then shares acquired through reinvestment of dividends are redeemed
next, and then shares held for the longest period are redeemed.

Thornburg Fund - Purchasing Shares
- ----------------------------------

Class A shares of Thornburg Fund are sold at net asset value plus a
sales charge imposed at the rates shown in the table below:

</TABLE>
<TABLE>
Dealer Concession
Total Sales Charge or Agency Commission
As Percentage As Percentage As Percentage
of Offering Price of Net Asset Value of Offering Price
<S> <C> <C> <C>
Less than $50,000.00 3.50% 3.63% 3.00%
$50,000 to 99,999.99 3.00% 3.09% 2.75%
$100,000 to 249,999.99 2.50% 2.56% 2.25%
$250,000 to 499,999.99 2.00% 2.04% 1.75%
$500,000 to 999,999.99 1.50% 1.52% 1.25%
$1,000,000 and up 0.00% 0.00% *

* No sales charge is payable at the time of purchase on investments of
$1 million or more made by a purchaser. A contingent deferred sales
charge will be imposed on any portions of such investments redeemed
within one year of purchase, at a rate of .5% of the amount redeemed.
This charge is not applicable to Thornburg Fund shares received in
exchange for Mackenzie Fund shares in the reorganization.

Class A shares also are sold to specified classes of investors at reduced or
no sales charges. For example, a shareholder who redeems Class A shares may
reinvest with no sales charge within 2 years of the redemption.
Additionally, each time the value of a shareholder's account plus the amount
of a new investment passes one of the breakpoints in the table above, the
portion of new investments in excess of the

<PAGE> 15

breakpoint will be subject to the reduced sales charge. These privileges,
and other opportunities for purchase at reduced or no sales charge are
described in the accompanying Thornburg Fund prospectus.

Thornburg also offers other classes of shares. Class C shares are
described in the accompanying Thornburg Fund prospectus, but will not be
issued in the reorganization.

Mackenzie Fund and Thornburg Fund - Exchange Privileges
- -------------------------------------------------------

If elected by a shareholder, Class A shares and Class B shares of
Mackenzie Fund may be exchanged for Class A or Class B shares, respectively,
of other funds offered by Mackenzie Trust or by the Ivy Funds, subject to
certain conditions described in Mackenzie Fund's prospectus. Similarly,
Class A shares of Thornburg Fund may be exchanged for Class A shares of other
Thornburg mutual funds managed by TMC. Thornburg Fund's exchange privilege
is subject to conditions stated in its prospectus, including the requirement
that if you exchange into a Fund with a higher sales charge, you must pay the
difference between that Fund's sales charge and the sales charge you paid on
the shares you are exchanging. This charge is not applicable to exchanges of
Thornburg Fund shares received in the reorganization, and it is not necessary
to elect the exchange privilege with Thornburg Fund. Each of the Funds
permits exchanges by telephone if the telephone exchange privilege has been
elected by the shareholder. Mackenzie Fund shareholders who previously
elected the telephone exchange privilege will be deemed to have elected the
similar Thornburg Fund exchange privilege if the reorganization is completed.

Mackenzie Fund and Thornburg Fund - Redemptions
- -----------------------------------------------

Shares of Mackenzie Fund and Thornburg Fund properly presented for
redemption may be redeemed at the next determined net asset value per share,
subject to a contingent deferred sales charge "CDSC" in specific
circumstances. Class B shares of Mackenzie Fund held less than seven years,
and certain Mackenzie Fund Class A shares purchased at reduced sales charges
may be subject to a contingent deferred sales charge described in Mackenzie
Fund's prospectus. Thornburg Fund imposes a CDSC of 1/2 of 1% on redemptions
of part or all of any purchase of $1 million or more in the event of a
redemption within 12 months of purchase. Neither Mackenzie Fund shares
exchanged in the reorganization, nor Class A shares issued by Thornburg Fund
in the reorganization, will be subject to any CDSC. Thornburg Fund does not
currently provide a check writing privilege for redeeming shares. Mackenzie
Fund shareholders who previously elected the telephone redemption privilege
will be deemed to have elected Thornburg Fund's telephone redemption
privilege if the reorganization is completed.

DIVIDEND POLICIES OF MACKENZIE FUND AND THORNBURG FUND
------------------------------------------------------

Mackenzie Fund declares and pays monthly dividends on any net investment
income. Net investment income generally is the income from interest on the
Fund's operations. At the end of each fiscal year, Mackenzie Fund intends to
distribute any undistributed net investment income and any net realized
short-term and long-term capital gains. Mackenzie Fund may make an
additional distribution of any net capital gains at the end of each calendar
year. Distributions are reinvested in Fund shares unless the shareholder
elects to receive them in cash.

Thornburg Fund distributes substantially all of its net investment
income and realized capital gains to its shareholders. The Fund declares net
income dividends daily and distributes those dividends monthly. Any net
realized capital gains are distributed at least annually, usually in
December. Distributions are reinvested in Fund shares unless the shareholder
elects to receive them in cash.

COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS
---------------------------------------------

Mackenzie Fund is a diversified series of Mackenzie Trust, a
Massachusetts business trust organized in 1985. Mackenzie Trust is governed
by applicable Massachusetts and federal law, its declaration of trust, as
amended, and its bylaws. The business of Mackenzie Trust is supervised by
Mackenzie Trust's Board of Trustees.

<PAGE> 16

Thornburg Fund is a diversified series of Thornburg Trust, a
Massachusetts business trust organized in 1987. As a Massachusetts business
trust, Thornburg Trust is governed by applicable Massachusetts and federal
law, its declaration of trust, as amended, and its bylaws. The business of
Thornburg Trust is supervised by Thornburg Trust's Trustees.

Mackenzie Trust and Thornburg Trust are each authorized to create an
unlimited number of series, and with respect to each series, to issue an
unlimited number of full and fractional shares of one or more classes and to
divide or combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests in the
series. All of the shares of Mackenzie Trust and of Thornburg Trust,
respectively, have equal voting rights with each other, except that only
shares of the respective series or separate classes within a series are
entitled to vote on matters concerning only that series or class. Neither
Mackenzie Trust nor Thornburg Trust permits cumulative voting.

Neither Mackenzie Trust nor Thornburg Trust holds annual shareholder
meetings. There normally will not be any meetings of shareholders of
Mackenzie Trust, Thornburg Trust or either of the Funds to elect trustees
unless fewer than a majority of the trustees then holding office have been
elected by shareholders. However, the trustees of Mackenzie Trust or of
Thornburg Trust may call special meetings from time to time to seek
shareholder approval of certain matters, and meetings of shareholders of
either Mackenzie Trust or Thornburg Trust will be called upon written
requests of shareholders holding in the aggregate not less than 10% of the
outstanding shares of any affected series or class having voting rights.

Under Massachusetts law, there is a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable for the obligations of such a trust. The amended and restated
declaration of trust for Mackenzie Trust and the declaration of trust for
Thornburg Trust each contain provisions intended to limit any such liability
and to provide indemnification out of Fund property for any shareholder
charged or held personally liable for obligations or liabilities of the
shareholder's Fund solely by reason of being or having been a shareholder of
the Fund and not because of the shareholder's acts or omissions or for some
other reason. Consequently, the risk of a shareholder of either Fund
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its
obligations.

ADDITIONAL INFORMATION ABOUT SHAREHOLDER ACCOUNTS
-------------------------------------------------

If the reorganization is approved, Thornburg Fund will establish an
account for each Mackenzie Fund shareholder. See "Description of Securities
to be Issued" and "Continuation of Shareholder accounts," below.

No further purchases of Mackenzie Fund shares may be made after the date
on which the shareholders of Mackenzie Fund approve the reorganization, and
the share transfer books of Mackenzie Fund will be permanently closed as of
the date of Closing. Only redemption requests and transfer instructions
received in proper form by the close of business on the day before the date
of Closing will be fulfilled by Mackenzie Fund. Redemption requests or
transfer instructions received by Mackenzie Fund after that date will be
treated by Mackenzie Fund as requests for the redemption or instructions for
transfer of Thornburg Fund shares credited to the accounts of Mackenzie Fund
shareholders. Accordingly, those redemption requests or transfer
instructions after the close of business on the day before Closing will be
forwarded to Thornburg Fund. For a complete description of redemption
procedures for Thornburg Fund, see the sections of the accompanying Thornburg
Municipal Funds prospectus under the captions "Selling Fund Shares,"
"Investor Services and Transaction Services," and "Shareholder and Account
Policies."

INFORMATION ABOUT THE REORGANIZATION
------------------------------------

Agreement and Plan of Reorganization
- ------------------------------------

The following summary of the proposed Agreement and Plan of
Reorganization (the "Agreement") is qualified in its entirety by reference to
the Agreement attached to this prospectus and proxy statement as Exhibit A.

<PAGE> 17

The Agreement provides that Thornburg Fund will acquire substantially
all of the assets of Mackenzie Fund in exchange solely for Class A voting
shares of Thornburg Fund on the earliest practicable date following
shareholder approval of the reorganization (the "Closing Date"). The number
of full and fractional shares of Thornburg Fund to be issued to shareholders
of Mackenzie Fund will be determined on the basis of the relative net asset
values per share and aggregate net assets of Thornburg Fund and Mackenzie
Fund computed immediately after the closing of business on the New York Stock
Exchange (currently 4:00 p.m., Eastern time) on the last business day before
the Closing Date (the "Valuation Date"). The net asset value per share for
both Thornburg Fund and Mackenzie Fund will be determined by dividing each
Fund's respective assets, less its respective liabilities, by the total
number of its respective outstanding shares. Portfolio securities of both
Thornburg Fund and Mackenzie Fund will be valued in accordance with the
valuation practices of Thornburg Fund as described in the prospectus of
Thornburg Fund, which is incorporated by reference herein. Valuation
procedures of Thornburg Fund are substantially the same as the valuation
procedures of Mackenzie Fund.

Immediately after the transfer of Mackenzie Fund's assets to Thornburg
Fund on the Closing Date, Mackenzie Fund will distribute pro rata to its
shareholders of record as of the close of business on the Valuation Date the
full and fractional shares of Thornburg Fund received by Mackenzie Fund and
will be dissolved as soon thereafter as reasonably practicable. The
distribution will be accomplished by the establishment of accounts on the
share records of Thornburg Fund in the name of each Mackenzie Fund
shareholder, each representing the respective pro rata number of full and
fractional shares of Thornburg Fund due each of those shareholders.
Following the reorganization, shareholders will own Class A shares of
Thornburg Fund. Certificates for Thornburg Fund shares will be issued to
shareholders upon written request.

The consummation of the reorganization is subject to the conditions set
forth in the Agreement. The reorganization is also subject to approval by
Mackenzie Fund's Class A and Class B shareholders. Approval requires the
affirmative vote of the holders of a majority of each of the Class A and
Class B shares of Mackenzie Fund. Further, completion of the reorganization
is subject to shareholder approval of the "Related Acquisitions," which are
proposed transactions in which Thornburg Limited Term Municipal Fund National
Portfolio will acquire substantially all of the assets of Mackenzie Limited
Term Municipal Fund, Thornburg Limited Term Municipal Fund California
Portfolio will acquire substantially all of the assets of Mackenzie
California Municipal Fund, and Thornburg New York Intermediate Municipal Fund
will acquire substantially all of the assets of Mackenzie New York Municipal
Fund. If shareholders of Mackenzie Fund approve the reorganization, but one
or more of the Related Acquisitions are not approved, the Trustees of
Mackenzie Fund will consider the available alternatives. The Agreement may
be terminated and the reorganization abandoned prior to the Closing Date,
before or after approval by shareholders of Mackenzie Fund, by resolution of
the Board of Trustees of Mackenzie Fund or the Trustees of Thornburg Trust,
under circumstances specified in the Agreement.

The investment advisers of the respective Funds have agreed to pay all
expenses of the Funds related to the reorganization, so that shareholders of
Mackenzie Fund will not be required to bear any such expenses. Mackenzie
Fund will, however, pay the costs of its dissolution and deregistration with
the Securities and Exchange Commission following the reorganization. MIMI
and TMC have also entered into agreements, contingent upon completion of the
reorganization and each Related Acquisition, in which TMC will pay to MIMI
approximately $2,102,000 in two installments in connection with the
reorganization and each Related Acquisitions, subject to adjustment for
redemptions of shares issued in the transactions, and MIMI has agreed (i) to
sell certain assets to TMC, (ii) to perform certain services, and (iii) not
to serve as the investment adviser or subadviser to another mutual fund
comparable to Mackenzie Fund for a period of one year, except under certain
limited circumstances. MIMI and TMC have each agreed to pay Roberto de
Guardiola Company, L.L.C. one-half of that firm's fee for assisting in the
consummation of the transactions contemplated by the asset purchase
agreement. Under the asset purchase agreement, Thornburg has also agreed to
comply, until the third anniversary of the Closing Date, with Rule 15f under
the 1940 Act, which compliance includes, without limitation, the following
requirements for the minimum time periods specified in Rule 15f of the 1940
Act: (i) at least 75% of the Trustees of Thornburg Trust shall not be
"interested persons" (as that term is defined in the 1940 Act) of TMC or
MIMI, or any "interested person" thereof; (ii) no "unfair burden" (as that
term is defined in Section (f)(2)(B)) shall be imposed; and (iii) all
vacancies in the complement of Trustees of Thornburg Trust (other than
vacancies created by the death, disqualification

<PAGE> 18

or resignation of any Trustee interested in Thornburg or MIMI) shall be
filled by a person who is not an interested person of Thornburg or MIMI who
has been selected and proposed for election by a majority of the Trustees who
are not such interested persons.

The Trustees of Mackenzie Fund have determined that participation in the
reorganization is in the best interests of Mackenzie Fund shareholders.

Full and fractional shares of beneficial interest of Thornburg Fund will
be issued to shareholders of Mackenzie Fund in accordance with the procedures
under the Agreement described above. Each share will be fully paid and
non-assessable by Thornburg Fund when issued, will be transferable without
restrictions, and will have no preemptive or conversion rights. See
comparative information on shareholder rights, below, for additional
information with respect to the shares of Thornburg Fund.

Considerations of the Mackenzie Fund Trustees
- ---------------------------------------------

As discussed above, the Board of Trustees of Mackenzie Trust has
approved the reorganization for various reasons. In addition to the reasons
noted above, the Trustees took into account that Thornburg Fund enjoys a
slightly lower expense ratio without the need for expense limitations of the
magnitude MIMI currently provides, but is not obligated to provide in the
future. The Trustees believe that this will reduce the risk that
shareholders will be exposed to higher expenses in the future. In the same
regard, the Trustees considered that the combined fund will be significantly
larger than the existing Mackenzie Fund, which tends to permit economies of
scale not currently realizable by Mackenzie Fund. The Trustees further
considered that the combined fund will be one mutual fund in a family of
municipal bond funds which are actively managed and promoted by TMC, and this
may increase the likelihood of the combined Fund's growth and the economies
of scale which can accompany that growth.

In determining whether to recommend approval of the reorganization to
shareholders of Mackenzie Fund, the Board of Trustees of Mackenzie Trust also
considered, among other factors, (1) MIMI's intention to concentrate its
marketing efforts on the sale of mutual funds which specialize in the
expanding international and emerging growth area; (2) the terms and
conditions of the Agreement; (3) the sufficient financial, operational and
personnel resources and capabilities of TMC and the Thornburg service
providers; (4) the lower expense ratios, and the similarity of the fees and
expenses of the two Funds; (5) the similarity of the investment objectives,
policies and restrictions of Mackenzie Fund to those of Thornburg Fund;
(6) the operating policies of Thornburg Fund, including its method of valuing
portfolio securities; (7) that shareholders of Mackenzie Fund will not bear
the costs of the reorganization; and (8) the absence of adverse tax
consequences of the reorganization. In reaching a decision to recommend that
the shareholders of Mackenzie Fund vote to approve the reorganization, the
Board of Trustees of Mackenzie Trust concluded that participation of
Mackenzie Fund in the reorganization is in the best interests of its
shareholders and that the interests of existing shareholders of Mackenzie
Fund will not be diluted as a result of the reorganization.

Federal Income Tax Consequences
- -------------------------------

The reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization under Section 368 of the Internal
Revenue Code of 1986, as amended, with no taxable gain or loss recognized by
Mackenzie Fund, Thornburg Fund, or shareholders of either Fund as a
consequence of the reorganization. As a condition to the closing of the
reorganization, Mackenzie Fund and Thornburg Fund will receive an opinion
from Dechert Price & Rhoads to that effect based on certain assumptions and
representations made by Mackenzie Fund and Thornburg Fund.

Shareholders of Mackenzie Fund should consult their tax advisers
regarding the effect, if any, of the proposed reorganization in light of
their individual circumstances. In particular, shareholders of Mackenzie
Fund should also consult their tax advisers as to the state, local and other
tax consequences, if any, of the reorganization.

<PAGE> 19

CAPITALIZATION
--------------

The following table sets forth the capitalization of each Fund
(unaudited) as of December 31, 1996 and the pro forma capitalization of the
combined fund (unaudited) as if the reorganization had occurred on that date.
These numbers will differ at the time of Closing.

</TABLE>
<TABLE>
Mackenzie Fund Thornburg Fund Pro Forma
-------------- -------------- ------------
<S> <C> <C> <C>
NET ASSETS
- --------------
Class A shares $21,788,762 $254,022,888 $277,012,703
Class B shares 1,201,053 - -
Class C shares N/A 7,937,132 7,937,132
Class I shares N/A 793,062 793,062
--------------- --------------- ------------
TOTAL $22,989,815 $262,753,082 $285,742,897
=============== =============== ============

NET ASSET VALUE PER SHARE
- -------------------------
Class A shares $9.94 $13.39 $13.29
Class B shares 9.93 - -
Class C shares N/A 13.31 13.31
Class I shares N/A 13.29 13.29

SHARES OUTSTANDING
- ------------------
Class A shares 2,192,869 19,115,663 20,843,695
Class B shares 120,953 - -
Class C shares N/A 596,511 596,511
Class I shares N/A 59,679 59,679
--------------- --------------- ------------
TOTAL 2,313,822 19,771,853 21,499,885
=============== =============== ============

SHARES AUTHORIZED
- -----------------
Class A shares unlimited unlimited unlimited
Class B shares unlimited unlimited unlimited
Class C shares N/A unlimited unlimited
Class I shares N/A unlimited unlimited
</TABLE>

ADDITIONAL INFORMATION ABOUT MACKENZIE FUND AND THORNBURG FUND
--------------------------------------------------------------

Information concerning the operation and management of Thornburg Fund is
incorporated herein by reference from the Thornburg Fund's prospectus dated
February 1, 1997, a copy of which is included herewith and is incorporated by
reference herein. Additional information concerning Thornburg Fund is
included in the Statement of Additional Information for the Thornburg
Intermediate Municipal Funds ("SAI") dated February 1, 1997, as revised May
6, 1997, which has been filed with the Securities and Exchange Commission and
is incorporated by reference in its prospectus included herewith. Additional
information is also included in the SAI dated July 28, 1997 related to this
transaction which has been filed with the SEC and is incorporated by
reference herein. A copy of each SAI is available upon request and without
charge by calling (800) 847-0200.

<PAGE> 20

Information about Mackenzie Fund is included in its current prospectus
dated October 25, 1996, copies of which are available upon request and
without charge by calling MIMI at (800) 456-5111. Additional information is
included in Mackenzie Fund's SAI dated October 25, 1996, copies of which are
available upon request and without charge by calling MIMI at (800) 456-5111.

Reports and other information filed by Mackenzie Trust and Thornburg
Trust, including charter documents, can be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at
450 Fifth Street, NW, Washington, D.C. 20549 and the Northeast Regional
Office of the Securities and Exchange Commission, 7 World Trade Center, Suite
1300, New York, New York 10048 and the Pacific Regional Office of the
Securities and Exchange Commission, 5670 Wilshire Blvd., 11th Floor, Los
Angeles, California 90036. Copies of these materials also may be obtained
from the public reference branch, Officer of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20459 at
prescribed rates.

VOTING INFORMATION
------------------

Proxies for the meeting are being solicited from the shareholders of
Mackenzie Fund by the trustees of Mackenzie Trust. A proxy may be revoked at
any time at or before the meeting by oral or written notice to the secretary
of Mackenzie Trust, Via Mizner Financial Plaza, 700 South Federal Highway,
Suite 300, Boca Raton, Florida 33432, (800) 456-5111. Unless revoked, all
valid proxies will be voted in accordance with the specifications thereon or,
in the absence of specifications, for approval of the reorganization.

Additional solicitations may be made by telephone, telegraph, facsimile
or personal contact by officers or employees of MIMI and its affiliates or by
a professional proxy solicitation firm or firms. Expenses of proxy
solicitation will be borne by TMC. TMC has engaged the proxy solicitation
firm of Shareholder Communications Corporation to assist in soliciting
proxies for the meeting at an estimated cost of $1,660.

Class A shares and Class B shares of Mackenzie Fund of record at the
close of business on July 18, 1997 (the "Record Date") will be entitled to
vote at the meeting or any adjournment thereof. The holders of a majority of
the Class A and Class B shares of Mackenzie Fund outstanding at the close of
business on the record date present in person or represented by proxy will
constitute a quorum of the Class A shareholders and Class B shareholders,
respectively, for the meeting. Shareholders are entitled to one vote for
each share held, and each fractional share will be entitled to a
proportionate fractional vote. Approval of the reorganization requires the
affirmative vote of a majority of each of Mackenzie Fund's Class A and Class
B shares of beneficial interest outstanding and entitled to vote at the
meeting. As of July 18, 1997, there were issued and outstanding
1,894,610.587 Class A shares and 121,976.079 Class B shares of beneficial
interest of Mackenzie Fund. As of the same date, no person is known to have
owned more than 5% of the outstanding shares of Mackenzie Fund.

As of the July 18, 1997 there were issued and outstanding 20,636,937.437
Class A shares of beneficial interest of Thornburg Fund. As of that date, no
persons were known to own more than 5% of that Fund's outstanding shares, and
as of the same date, Trustees and officers of Thornburg Trust as a group
owned less than 1% of Thornburg Fund's outstanding shares.

In the event that a quorum is not present at the meeting, or a quorum is
present at the meeting but sufficient votes to approve the reorganization are
not received, the persons named as proxies may propose one or more
adjournments of the meeting to permit further solicitation of proxies. Any
such adjournment will require the affirmative vote of a majority of those
shares represented at the meeting in person or by proxy. If a quorum is not
present, the persons named as proxies will vote those proxies which they are
entitled to vote for the reorganization in favor of such an adjournment and
will vote those proxies required to be voted against the reorganization
against any such adjournment.

<PAGE> 21

non-votes will be counted as shares present for purposes of determining
whether a quorum is present but will not be voted for or against any
adjournment or a proposal. Accordingly, abstentions and broker non-votes
effectively will be a vote against adjournment and against the proposal
because the required vote is a percentage of the shares outstanding.

THE BOARD OF TRUSTEES, INCLUDING ALL OF THE INDEPENDENT TRUSTEES,
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE REORGANIZATION.

Submission of Shareholder Proposals
- -----------------------------------

Mackenzie Fund does not hold regular shareholder meetings. Shareholders
wishing to submit proposals for inclusion in a proxy statement for a
subsequent shareholder meeting should send their written proposals to the
secretary of Mackenzie Trust at Via Mizner Financial Plaza, 700 South Federal
Highway, Suite 300, Boca Raton, Florida 33432.

Other Matters to Come Before the Meeting
- ----------------------------------------

The Trustees of Mackenzie Trust know of no other business to be brought
before the meeting. However, if any other matters properly come before the
meeting, proxies will be voted in accordance with the judgment of the
trustees.

<PAGE> 22

EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of the 13th day of June, 1997, by and between THORNBURG INVESTMENT TRUST, a
Massachusetts business trust ("Thornburg Trust"), in respect of Thornburg
Intermediate Municipal Fund ("Thornburg Fund"), a separate series of
Thornburg Trust, and MACKENZIE SERIES TRUST, a Massachusetts business trust
("Mackenzie Trust"), in respect of Mackenzie National Municipal Fund
("Mackenzie Fund"), a separate series of Mackenzie Trust.

This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization will consist of (i) the transfer of substantially all of the
Assets (hereinafter defined) of Mackenzie Fund to Thornburg Fund in exchange
solely for Class A voting shares of beneficial interest of Thornburg Fund
having no par value (the "Thornburg Fund Shares") and (ii) the distribution
on the Closing Date (hereinafter defined) of the Thornburg Fund Shares to the
shareholders of Mackenzie Fund in complete liquidation of Mackenzie Fund as
provided herein, all upon the terms and conditions hereinafter set forth in
this Agreement. All actions required to be taken by Thornburg Trust pursuant
to this Agreement, and all representations, warranties and covenants of
Thornburg Trust hereunder, are taken and made on behalf of Thornburg Fund.
All actions required to be taken by Mackenzie Trust pursuant to this
Agreement, and all representations, warranties and covenants of Mackenzie
Trust hereunder, are taken and made on behalf of Mackenzie Fund.

THEREFORE, in consideration of the premises and of the covenants and
agreements hereafter described, the parties hereto covenant and agree as
follows.

1. Procedure for Reorganization.
----------------------------
(a) Subject to the terms and conditions herein set forth and on
the basis of the representations and warranties contained herein, Mackenzie
Trust agrees to transfer the Assets of Mackenzie Fund as set forth in
paragraph (b) to Thornburg Fund, and Thornburg Trust agrees to deliver to
Mackenzie Fund in exchange therefor the number of Thornburg Fund Shares,
determined by dividing the value of the Assets computed in the manner and as
of the time and date set forth in paragraph 2(a), by the net asset value of
one Thornburg Fund Share computed in the manner and as of the time and date
set forth in paragraph 2(b). These transactions shall take place at the
closing provided for in paragraph 3(a) (the "Closing").

(b) The Assets to be acquired by Thornburg Fund shall consist of
all cash, portfolio securities and due bills for dividends, interest, or
other receivables or rights to receive any of the foregoing, receivables for
shares sold, and any claims or rights with respect to portfolio securities,
whether or not arising from contract, which are owned by Mackenzie Fund on
the closing date provided in paragraph 3(a) (the "Closing Date"). Mackenzie
Fund will retain cash and cash equivalents in an amount reasonably estimated
by it to be sufficient to discharge: (i) obligations incurred in the ordinary
course of its business, which could not reasonably be paid before Closing and
are not otherwise borne by any other person; and (ii) costs resulting from
the dissolution and deregistration of Mackenzie Fund or Mackenzie Trust not
to exceed $15,000 in the aggregate for all series of Mackenzie Trust. The
Assets will not include any rights in and to the "Mackenzie" name or any
variant thereof. Mackenzie Fund has provided Thornburg Fund with a list of
the current securities holdings of Mackenzie Fund as of the date of execution
of this Agreement. Mackenzie Trust and Mackenzie Fund reserve the right to
sell any of these securities in the ordinary course of business but will not,
without prior notification to Thornburg Trust, acquire any additional
securities for Mackenzie Fund other than securities of the type in which
Thornburg Fund is permitted to invest.

(c) On the Closing Date, Mackenzie Trust will cause Mackenzie Fund
to be liquidated and to distribute pro rata to Mackenzie Fund's shareholders
of record (the "Mackenzie Fund Shareholders"), determined on and as of the
close of business on the Valuation Date specified in paragraph 2(a), the
Thornburg Fund Shares received by Mackenzie Trust pursuant to paragraph (a).
The liquidation and distribution will be accomplished by the transfer of the
Thornburg Fund Shares then credited to the account of Mackenzie Fund on the
books of Thornburg Fund, to open accounts on the share records of Thornburg
Fund in the names of the Mackenzie Fund Shareholders and representing the
respective pro rata number of Thornburg Fund Shares due the Mackenzie Fund
Shareholders.

(d) As of the Closing Date, any physically-issued share
certificates held by former Mackenzie Fund Shareholders and relating to
Mackenzie Fund shares exchanged for Thornburg Fund Shares in accordance with
the preceding paragraph (c) will represent only the right to receive the
appropriate number of Thornburg Fund Shares. As of the Closing Date, persons
holding those certificates will be requested to surrender their certificates.
No redemption or repurchase of any Thornburg Fund Shares credited to former
Mackenzie Fund Shareholders in place of Mackenzie Fund shares represented by
unsurrendered certificates will be permitted until those certificates have
been surrendered for cancellation. Any Mackenzie Fund Shareholder who wishes
to receive a certificate from Thornburg Fund representing his or her
Thornburg Fund Shares must submit a written request therefor, in form
reasonably required by Thornburg Fund, together with any Mackenzie Fund
certificates for those shares.

(e) Any transfer taxes payable upon issuance of Thornburg Fund
Shares in a name other than that of the registered holder of the Thornburg
Fund Shares on the books of Mackenzie Fund as of the Closing Date shall, as
a condition of such issuance and transfer, be paid by the person to whom the
Thornburg Fund Shares are to be issued and transferred.

(f) Mackenzie Fund shall be dissolved as soon as reasonably
practicable following the Closing Date in accordance with the provisions of
the Declaration of Trust of Mackenzie Trust. Mackenzie Trust will deregister
with the Securities and Exchange Commission (the "Commission") in accordance
with the Investment Company Act of 1940, as amended (the "1940 Act").

(g) Thornburg Trust will not assume any liability of Mackenzie
Trust, or acquire any Asset subject to any liability, in connection with the
transactions contemplated by this Agreement, except that Thornburg Fund will
assume the obligation to pay for any portfolio securities purchased by
Mackenzie Fund before the Closing Date in the ordinary course of its business
and the purchase of which was disclosed to Thornburg Fund by Mackenzie Fund
when the commitment to purchase arose.

2. Valuation.
---------
(a) The value of Mackenzie Fund Assets to be acquired by Thornburg
Fund hereunder shall be the value of those assets computed as of the close of
business on the New York Stock Exchange and after the declaration of any
dividends on the business day next preceding the Closing Date (the time and
date being hereinafter called the "Valuation Date"). The value of the
portion of Mackenzie Fund Assets consisting of portfolio securities will be
computed by Kenny Information Systems, subject to adjustment by the amount,
if any, agreed to by Thornburg Fund and Mackenzie Fund. In determining the
value of the Assets, each portfolio security and other portfolio asset shall
be priced by Kenny Information Systems in accordance with the policies and
procedures of Thornburg Fund (subject to the third sentence hereafter) as set
forth in the then current prospectus and statement of additional information
applicable to Class A shares of Thornburg Fund, subject to adjustments agreed
to by Mackenzie Fund and Thornburg Fund. At Mackenzie Fund's option and
expense, Thornburg Fund will cause Kenny Information Systems to perform a
trial valuation of all or a portion of Mackenzie Fund's portfolio securities
five to seven days before the Closing Date, and will furnish the trial
valuations to Mackenzie Fund upon its receipt of the information from Kenny
Information Systems. All computations shall be made by Kenny Information
Systems. In the event of a dispute with respect to the valuation of any
portfolio security or other portfolio asset of Mackenzie Fund, Thornburg Fund
and Mackenzie Fund shall, by mutual consent, select an independent third
party to resolve the matter, and the determination of the independent party
will bind the Funds.

(b) The net asset value of each Thornburg Fund Share shall be the
net asset value per share computed as of the close of business on the New
York Stock Exchange and after the declaration of any dividends on the
Valuation Date, using the valuation procedures set forth in Thornburg Fund's
then current prospectus and statement of additional information.

(c) The number of Thornburg Fund Shares to be issued (including
fractional shares, if any) in exchange for Mackenzie Fund Assets shall be
determined by dividing the value of those assets determined in accordance
with paragraph 2(a) by the net asset value of a Thornburg Fund Share
determined in accordance with paragraph 2(b).

3. Closing and Closing Date.
------------------------
(a) The Closing Date shall be as soon as practicable after
approval of the transactions contemplated in this Agreement by the Mackenzie
Fund Shareholders has been obtained; however, in no event will the Closing
Date be later than October 31, 1997. The Closing will be held at 119 East
Marcy Street, Suite 202, Santa Fe, New Mexico 87501, in the offices of
Thornburg Management Company, Inc., or at such other place as the parties may
agree. The time of Closing will be 8:00 a.m. New York time on the Closing
Date. All acts taking place at the Closing will be deemed to occur
simultaneously as of the time of the Closing on the Closing Date.

(b) Mackenzie Fund's portfolio securities shall be available for
inspection by Thornburg Fund, its custodian bank or such other agents of
Thornburg Trust as Thornburg Trust shall reasonably designate, at the offices
of Mackenzie Fund's custodian, Brown Brothers Harriman & Co., Boston,
Massachusetts, no later than five business days preceding the Valuation Date,
and Mackenzie Fund will immediately notify Thornburg Fund's investment
adviser of any portfolio security thereafter acquired or sold by Mackenzie
Fund. Mackenzie Fund portfolio securities and cash shall be delivered by
Mackenzie Trust to State Street Bank & Trust Company, Boston, MA 02205-9087,
as custodian for Thornburg Fund for the account of Thornburg Fund on the
Closing Date, duly endorsed in proper form for transfer in such condition as
to constitute good delivery thereof in accordance with the custom of brokers.
The cash delivered shall be in the form of currency or certified or official
bank checks, or completed federal funds wire, payable to the order of "State
Street Bank & Trust Co., Custodian for Thornburg Intermediate Municipal
Fund." Mackenzie Fund will cause its custodian to deliver at Closing a
certificate of an authorized officer of the Custodian stating that Mackenzie
Fund's Assets have been delivered in proper form to Thornburg Fund's
custodian on or before the Closing Date.

(c) In the event that on the Valuation Date (i) the New York Stock
Exchange is closed to trading, or (ii) trading or the reporting of trading in
securities generally is disrupted so that accurate appraisal of the value of
the net assets of Thornburg Fund or Mackenzie Fund is impracticable, the
Closing Date shall be postponed until the first business day after the day
when trading is fully resumed and reporting is restored.

(d) Mackenzie Trust shall deliver to Thornburg Trust shareholder
and shareholder account information as of the close of business on the
Valuation Date as reasonably requested by Thornburg Trust. Thornburg Fund
shall issue and deliver a confirmation to Mackenzie Fund at the Closing
stating the number of Thornburg Fund Shares to be credited on the Closing
Date to Mackenzie Fund, and stating the number of Thornburg Fund Shares
credited to Mackenzie Fund's account on the books of Thornburg Fund.
Thornburg Trust shall issue and deliver to each former Mackenzie Fund
Shareholder, after the Closing, a confirmation stating the number of
Thornburg Fund Shares credited to the shareholder's account. At the Closing,
each party shall deliver to the other such bills of sale, checks,
assignments, stock certificates, receipts or other documents as such other
party or its counsel may reasonably request.

4. Representations and Warranties.
------------------------------
(a) Mackenzie Trust represents and warrants to Thornburg Trust as
follows:

(i) Mackenzie Fund is a series of Mackenzie Trust, which is
a business trust duly formed and validly existing under the laws of
the Commonwealth of Massachusetts;

(ii) Mackenzie Trust is a duly registered open-end
management investment company, and its registration with the
Commission as an investment company under the 1940 Act is in full
force and effect;

(iii) The current prospectus and statement of additional
information of Mackenzie Fund, each dated October 25, 1996, conform in
all material respects to the applicable requirements of the Securities
Act of 1933 (the "1933 Act") and the rules and regulations of the
Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;

(iv) To the knowledge of Mackenzie Trust, no consent,
approval, authorization or order of any court or governmental
authority is required for the consummation by Mackenzie Fund of the
transactions contemplated by this Agreement, except as may be required
under the 1933 Act, the Securities Exchange Act of 1934, as amended
(the "1934 Act"), the 1940 Act, or the rules and regulations under
those Acts, all of which shall have been received prior to the Closing
Date, except for such consents, approvals, authorizations or orders as
may be required subsequent to the Closing Date;

(v) The execution, delivery and performance of this
Agreement will not result in a material violation of Mackenzie Trust's
Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which Mackenzie
Fund or Mackenzie Trust is a party or by which it is bound;

(vi) Mackenzie Fund has valued, and will continue to value
its portfolio securities and other assets in accordance with
applicable legal requirements;

(vii) All material contracts or other commitments (other than
this Agreement) to which Mackenzie Fund is a party will be terminated
without liability to Mackenzie Fund or Thornburg Fund on or before the
Closing Date;

(viii) No litigation or administrative proceeding or
investigation of or before any court or governmental body or self
regulatory organization is presently pending or threatened against
Mackenzie Fund or any of its properties or assets. Mackenzie Trust
knows of no facts which might form the basis for the institution of
such proceedings, and neither Mackenzie Trust nor Mackenzie Fund is a
party to or subject to the provisions of any order, decree or judgment
of any court or governmental body or self regulatory organization
which materially and adversely affects their business or their ability
to consummate the transactions herein contemplated;

(ix) The statement of assets and liabilities, the statement
of operations, and the statement of changes in net assets of Mackenzie
Fund at June 30, 1996 have been audited by Coopers & Lybrand, LLP,
independent certified public accountants, and those statements,
together with the statements of assets and liabilities, the statements
of operations, and the statements of changes in net assets at
December 31, 1996, and, when issued, at June 30, 1997, fairly reflect,
or in the case of the June 30, 1997 statements will fairly
reflect, in all material respects the assets, financial condition,
results of operations, and changes in net assets of Mackenzie Fund as
of and for the periods ended on those dates and have, or in the case
of the June 30, 1997 statements, shall have been prepared in
accordance with generally accepted accounting principles consistently
applied; and there are no known liabilities of Mackenzie Fund other
than liabilities disclosed or provided for in the foregoing
statements;

(x) Since December 31, 1996, there has been no material
adverse change in Mackenzie Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business; and Mackenzie Fund has not incurred any
indebtedness maturing more than one year from the date such
indebtedness was incurred except as disclosed in Exhibit A. For the
purposes of this subparagraph (x), a decline in net asset value per
share of Mackenzie Fund Shares is not a material adverse change;

(xi) At the Closing Date, all material federal and other tax
returns and reports of Mackenzie Fund required by law then to be filed
(including any extensions) shall have been filed, and all federal and
other taxes shall have been paid so far as due, or provision shall
have been made for the payment thereof, and to the best of Mackenzie
Trust's knowledge no such return of or relating to Mackenzie Fund is
currently under audit, and no assessment has been asserted with
respect to Mackenzie Fund;

(xii) Mackenzie Fund has met the requirements of Subchapter M
of the Code and has elected to be treated as a regulated investment
company for each taxable year of its operations since its inception,
and will so qualify for the taxable year ending on the Closing Date;

(xiii) Mackenzie Trust is authorized to issue an unlimited
number of shares of beneficial interest, no par value per share, at
the date hereof. All issued and outstanding shares of Mackenzie Fund
have been offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and state
securities laws. All issued and outstanding Mackenzie Fund shares
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable by Mackenzie Trust, except
to the extent that shareholders of Mackenzie Trust may be held
personally liable for the obligations of Mackenzie Trust. All of the
issued and outstanding Mackenzie Fund Shares will, at the time of
Closing, be held by shareholder accounts in the amounts set forth in
the list of shareholder's accounts submitted to Thornburg Trust
pursuant to paragraph 3(d). Mackenzie Fund does not have outstanding
any options, warrants or other rights to subscribe for or purchase any
Mackenzie Fund Shares, except that Class B shares may convert to Class
A shares in accordance with the applicable Mackenzie Fund's
prospectus;

(xiv) At the Closing Date, Mackenzie Fund will have good and
marketable title to the Assets to be transferred to Thornburg Fund
pursuant to paragraph 1(b), subject to no lien, encumbrance or
competing interest in any person, and full right, power, and authority
to sell, assign, transfer and deliver the Assets hereunder, and upon
delivery and payment for those Assets, Thornburg Fund will acquire
good and marketable title thereto, subject to no restriction on the
full transfer thereof, including such restrictions as might arise
under the 1933 Act other than as disclosed in writing to Thornburg
Fund;

(xv) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary actions on the part of Mackenzie Trust's trustees, and
this Agreement constitutes a valid and binding obligation of Mackenzie
Trust, enforceable in accordance with its terms, subject to the
approval of the Mackenzie Fund Shareholders, and further subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights and subject to
general equity principles;

(xvi) The information furnished by Mackenzie Trust for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the
transactions contemplated hereby is and shall be accurate and complete
in all material respects and shall comply in all material respects
with federal securities and other laws and regulations thereunder
applicable thereto;

(xvii) The registration statement filed by Thornburg Fund on
Form N-14 relating to the Thornburg Fund Shares that will be
registered with the Commission pursuant to this Agreement, which shall
include the proxy statement of Mackenzie Trust in respect of Mackenzie
Fund and prospectus of Thornburg Fund with respect to the transactions
contemplated by this Agreement, and any supplement or amendment
thereto or to the documents contained or incorporated therein by
reference (the "N-14 Registration Statement"), and (ii) the proxy
materials of Mackenzie Trust in respect of Mackenzie Fund included in
the N-14 Registration Statement and filed with the Commission pursuant
to Section 14 of the 1934 Act with respect to the transactions
contemplated by this Agreement, and any supplement or amendment
thereto or the documents appended thereto (the "Reorganization Proxy
Materials"), from their effective dates with the Commission, through
the time of the meeting of shareholders of Mackenzie Fund contemplated
therein (the "Shareholders Meeting") and at the Closing Date: (a)
shall comply in all material respects with the provisions of the 1933
Act, 1934 Act and the 1940 Act, the rules and regulations thereunder,
and applicable state securities laws, and (b) shall not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, that the representations and
warranties in this subparagraph shall only apply to statements in or
omissions from the N-14 Registration Statement or Reorganization Proxy
Materials made by, or in reliance upon and in conformity with
information furnished by or on behalf of Mackenzie Trust.

(b) Thornburg Trust represents and warrants to Mackenzie Trust as
follows:

(i) Thornburg Fund is a series of Thornburg Trust, which is
a business trust duly formed and validly existing under the laws of
the Commonwealth of Massachusetts;

(ii) Thornburg Trust is a duly registered open-end
management investment company and its registration with the Commission
as an investment company under the 1940 Act is in full force and
effect;

(iii) The current prospectus and statement of additional
information for Class A shares of Thornburg Fund, each dated
February 1, 1997, conform in all material respects to the applicable
requirements of the 1933 Act and the rules and regulations of the
Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;

(iv) To the knowledge of Thornburg Trust, no consent,
approval, authorization or order of any court or governmental
authority is required for the consummation by Thornburg Fund of the
transactions contemplated by this Agreement, except as may be required
under the 1933 Act, the 1934 Act, the 1940 Act, or the rules and
regulations under those Acts, all of which shall have been received
prior to the Closing Date, except for such consents, approvals,
authorizations or orders as may be required subsequent to the Closing
Date;

(v) The execution, delivery and performance of this
Agreement will not result in a material violation of Thornburg
Trust's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which
Thornburg Fund or Thornburg Trust is a party or by which it is bound;

(vi) Thornburg Fund has valued, and will continue to value,
its portfolio securities and other assets in accordance with
applicable legal requirements;

(vii) No litigation or administrative proceeding or
investigation of or before any court or governmental body or self
regulatory organization is presently pending or threatened against
Thornburg Fund or any of its properties or assets. Thornburg Trust
knows of no facts which might form the basis for the institution of
such proceedings, and neither Thornburg Trust nor Thornburg Fund is a
party to or subject to the provisions of any order, decree or judgment
of any court or governmental body or self regulatory organization
which materially and adversely affects their business or their ability
to consummate the transactions herein contemplated;

(viii) The statement of assets and liabilities, the statement
of operations and the statement of changes in net assets of Thornburg
Fund at September 30, 1996 have been audited by McGladrey & Pullen,
LLP, certified public accountants, and those statements together with
the statement of assets and liabilities, the statement of operations
and the statement of changes in net assets at March 31, 1997, fairly
and accurately reflect the assets and financial condition of Thornburg
Fund as of and for the periods ended on those dates, and have been
prepared in accordance with generally accepted accounting principles
consistently applied and there are no known liabilities of Thornburg
Fund other than liabilities disclosed or provided for in the foregoing
statements;

(ix) Since March 31, 1997, there has not been any material
adverse change in Thornburg Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, and Thornburg has not incurred any indebtedness
maturing more than one year from the date such indebtedness was
incurred. For the purposes of this subparagraph (ix), a decline in
net value per share of Thornburg Fund Shares is not a material adverse
change;

(x) At the Closing Date, all federal and other tax returns
and reports of Thornburg Fund required by law then to be filed shall
have been filed, and all federal and other taxes shall have been paid
for as due or provision shall have been made for the payment thereof
and, to the best of Thornburg Trust's knowledge, no such return of or
relating to Thornburg Fund is currently under audit, and no assessment
has been asserted with respect to Thornburg Fund;

(xi) Thornburg Fund has met the requirements of Subchapter M
of the Code, and has elected to be treated as a regulated investment
company for each taxable fiscal year of its operation since its
inception and will so qualify for the taxable year including the
Closing Date;

(xii) Thornburg Trust is authorized to issue an unlimited
number of Class A shares of beneficial interest having no par value.
All issued and outstanding shares of Thornburg Fund have been offered
and sold in every state and the District of Columbia in compliance in
all material respects with applicable registration requirements of the
1933 Act and state securities laws. All issued and outstanding
Thornburg Fund Shares are at the date hereof, and at the Closing Date
will be, duly and validly issued and outstanding, fully paid and non
-assessable. Thornburg Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any Thornburg
Fund Shares, nor is there outstanding any security convertible into
Thornburg Fund Shares (except as the trustees of Thornburg Trust may
convert shares of other classes of shares to Class A shares in
accordance with Thornburg Trust's Declaration of Trust, as amended);

(xiii) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary actions on the part of Thornburg Trust's trustees, and
this Agreement constitutes a valid and binding obligation of Thornburg
Trust enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights and subject to
general equity principles;

(xiv) Thornburg Fund Class A Shares to be issued and
delivered to Mackenzie Fund pursuant to the terms of this Agreement
will at the Closing Date have been duly authorized and, when so issued
and delivered, will be duly and validly issued Thornburg Fund Shares,
and will be fully paid and non-assessable by Thornburg Trust, except
to the extent that shareholders of Thornburg Trust may be held
personally liable for obligations of Thornburg Trust;

(xv) The N-14 Registration Statement and the Reorganization
Proxy Materials, from their effective dates with the Commission,
through the time of the Shareholders Meeting and at the Closing Date:
(a) shall comply in all material respects with the provisions of the
1933 Act, 1934 Act and the 1940 Act, the rules and regulations
thereunder, and applicable state securities laws, and (b) shall not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements made therein not misleading; provided, that the
representations and warranties in this subparagraph shall only apply
to statements in or omissions from the N-14 Registration Statement or
the Reorganization Proxy Materials made in reliance upon and in
conformity with information furnished by or on behalf of Thornburg
Trust;

(xvi) At the Closing Date, Thornburg Fund will have good and
marketable title to its assets, subject to no lien, encumbrance or
competing interest in any person, and full right, power and authority
to sell, assign, transfer and deliver those assets other than as
disclosed in writing to Mackenzie Fund; and

(xvii) The information furnished by Thornburg Trust for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the
transactions contemplated hereby is and shall be accurate and complete
in all material respects and shall comply in all material respects
with federal securities and other laws and regulations thereunder
applicable thereto.

5. Covenants of the Parties.
------------------------
(a) Thornburg Fund and Mackenzie Fund each will operate its
business in the ordinary course between the date hereof and the Closing Date,
it being understood that the ordinary course of business will include
customary dividends and distributions and any other distribution that may be
advisable.

(b) Mackenzie Trust will call a meeting of the shareholders of
Mackenzie Fund to be held as promptly as practicable to consider and act upon
this Agreement and to take all other action necessary to obtain approval of
the transactions contemplated herein.

(c) Mackenzie Trust covenants that the Thornburg Fund Shares to be
issued hereunder will not be sold or distributed other than in accordance
with the terms of this Agreement.

(d) Mackenzie Trust will furnish to Thornburg Trust all
information reasonably requested and that is within its control for the
preparation of the N-14 Registration Statement, the preparation and
distribution of the Reorganization Proxy Materials, and for effectuating the
transactions contemplated herein. Mackenzie Trust will furnish, or cause its
transfer agent to furnish, to Thornburg Trust all information reasonably
requested respecting the beneficial ownership of Mackenzie Fund shares,
shareholders and shareholder accounts for the mailing of the Reorganization
Proxy Materials and for the establishment of Thornburg Fund accounts for
Mackenzie Fund Shareholders in accordance with paragraph 1(c). Mackenzie
Trust will furnish, or cause its custodian or other agents to furnish, all
portfolio asset information reasonably requested by Thornburg Trust in
connection with, and to facilitate, the transactions contemplated by this
Agreement.

(e) Subject to the provisions of this Agreement, Thornburg Trust
and Mackenzie Trust will each take, or cause to be taken, all actions, and do
or cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this
Agreement.

(f) Mackenzie Trust shall furnish to Thornburg Trust within 30
days after the Closing Date a detailed trial balance of Mackenzie Fund's
assets and liabilities and computations showing amortization of premium on
portfolio securities. Mackenzie Trust shall furnish to Thornburg Trust when
available the final federal income tax return for Mackenzie Fund.

(g) Mackenzie Trust will, as promptly as practicable after the
Closing, wind up the business of Mackenzie Fund, deregister Mackenzie Fund
under applicable federal securities laws, file final reports with the state
securities regulators requiring any such reports, prepare and distribute
final account statements and tax statements to persons who were formerly
Mackenzie Fund shareholders, and file any necessary federal and state tax
returns.

(h) Thornburg Trust will prepare and file the N-14 Registration
Statement, will file the Reorganization Proxy Materials with applicable
regulatory authorities, and will use all reasonable efforts to obtain
clearance or effectiveness of the N-14 Registration Statement and the
Reorganization Proxy Materials, all in accordance with the 1933 Act, the 1934
Act, and the 1940 Act, and applicable regulations and rulings thereunder, and
in accordance with any applicable state statutes and regulations.

(i) Thornburg Trust agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1934 Act, the
1940 Act and such of the state securities laws as are necessary or
appropriate in order to continue its operations after the Closing Date.

6. Conditions Precedent to Obligations of Mackenzie Trust.
------------------------------------------------------
The obligations of Mackenzie Trust to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
Thornburg Trust of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:

(a) All representations and warranties of Thornburg Trust
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date;

(b) Thornburg Trust shall have delivered to Mackenzie Trust a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in form and substance satisfactory to
Mackenzie Trust and dated as of the Closing Date, certifying that the
representations and warranties of Thornburg Trust made in this Agreement are
true and correct at and as of the Closing Date;

(c) Mackenzie Trust shall have received on the Closing Date a
favorable opinion of White, Koch, Kelly & McCarthy, P.A., counsel to
Thornburg Trust, dated as of the Closing Date, in form and substance
satisfactory to Mackenzie Trust's counsel, covering the following points:

(i) Thornburg Trust is a business trust duly formed and
validly existing under the laws of the Commonwealth of Massachusetts
and has power to own all of its properties and assets and, to the
knowledge of such counsel, to carry on its business as presently
conducted;

(ii) This Agreement has been duly authorized, executed and
delivered by Thornburg Trust and, assuming due authorization,
execution and delivery of the Agreement by Mackenzie Trust, is a valid
and binding obligation of Thornburg Trust enforceable against
Thornburg Trust in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and general equitable
principles;

(iii) The Thornburg Fund Shares to be issued to Mackenzie
Fund Shareholders as provided by this Agreement are duly authorized
and upon such delivery will be validly issued and outstanding and will
be fully paid and non-assessable by Thornburg Trust, except to the
extent that shareholders of Thornburg Trust may be held personally
liable for the obligations of Thornburg Trust;

(iv) The execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will not,
violate Thornburg Trust's Agreement and Declaration of Trust or By
-Laws, or any provision of any agreement (known to such counsel) to
which Thornburg Trust is a party or by which it is bound or, to the
knowledge of such counsel, result in the acceleration of any
obligation or the imposition of any penalty, under any agreement,
judgment, or decree to which Thornburg Trust is a party or by which it
is bound;

(v) To the knowledge of counsel, no consent, approval,
authorization or order of any court or governmental authority is
required for the consummation by Thornburg Trust of the transactions
contemplated herein, except such as have been obtained under the 1933
Act, the 1934 Act and the 1940 Act, and such as may be required under
state securities laws;

(vi) In the ordinary course of counsel's representation of
Thornburg Trust or Thornburg Fund, and without having made any
investigation, counsel is not aware of any legal or governmental
proceedings insofar as they relate to Thornburg Trust or Thornburg
Fund, required to be described in the N-14 Registration Statement
which are not described as required;

(vii) Thornburg Trust is a duly registered management
investment company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect; and

(viii) In the ordinary course of counsel's representation of
Thornburg Trust or Thornburg Fund, and without having made any
investigation, counsel is not aware of any litigation or
administrative proceeding or investigation of or before any court or
governmental body or self regulatory organization which is presently
pending or threatened as to Thornburg Trust or Thornburg Fund or any
of its properties or assets and neither Thornburg Trust nor Thornburg
Fund is a party to or subject to the provisions of any order, decree
or judgment of any court or governmental body or self regulatory
organization, which materially and adversely affects its business.

7. Conditions Precedent to Obligations of Thornburg Trust.

The obligations of Thornburg Trust to complete the transactions provided
for herein shall be subject, at its election, to the performance by Mackenzie
Trust of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:

(a) All representations and warranties of Mackenzie Trust
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date;

(b) Mackenzie Trust shall have delivered to Thornburg Trust the
following information prepared as of the Closing Date: (i) net asset value
pricing sheet of Mackenzie Fund, with a portfolio listing of each portfolio
security including the principal amount, identification of issue, cost, tax
lot cost, market price per unit and market value; (ii) trial balance of
Mackenzie Fund's general ledger; (iii) supporting schedules with the details
for accounts receivable and accounts payable; (iv) certification from
Mackenzie Fund's custodian that it has delivered to Thornburg Fund's
custodian the Assets acquired by Thornburg Fund; and (v) confirmation from
Mackenzie Fund's transfer agent of the aggregate number of Mackenzie Fund
Shares outstanding and a reconciliation of that number to the number of
shares shown in the pricing sheet referred to in (i) above.

(c) Mackenzie Trust shall have delivered to Thornburg Trust a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in form and substance satisfactory to
Thornburg Trust and dated as of the Closing Date, certifying that the
representations and warranties of Mackenzie Trust made in this Agreement are
true and correct at and as of the Closing Date;

(d) Thornburg Trust shall have received on the Closing Date a
favorable opinion of Dechert, Price & Rhoads, counsel to Mackenzie Trust,
dated as of the Closing Date, in form and substance satisfactory to Thornburg
Trust's counsel, covering the following points:

(i) Mackenzie Trust is a business trust duly formed and
validly existing under the laws of the Commonwealth of Massachusetts
and has power to own all of its properties and assets and, to the
knowledge of such counsel, to carry on its business as presently
conducted;

(ii) This Agreement has been duly authorized, executed and
delivered by Mackenzie Trust and, assuming due authorization,
execution and delivery of the Agreement by Thornburg Trust, is a valid
and binding obligation of Mackenzie Trust enforceable against
Mackenzie Trust in accordance with its terms, except as the same may
be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and general equitable
principles;

(iii) The execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated hereby will
not, violate Mackenzie Trust's Declaration of Trust or By-Laws, or any
provision of any agreement (known to such counsel) to which Mackenzie
Trust is a party or by which it is bound or, to the knowledge of such
counsel, result in the acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree to
which Mackenzie Trust is a party or by which it is bound;

(iv) To the knowledge of counsel, no consent, approval,
authorization or order of any court or governmental authority, other
than the filings required to be made after the Closing under
applicable laws, is required for the consummation by Mackenzie Trust
of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act;

(v) This Agreement was duly approved by the Mackenzie Fund
Shareholders in accordance with applicable law;

(vi) In the ordinary course of counsel's representation of
Mackenzie Trust or Mackenzie Fund, and without having made any
investigation, counsel is not aware of any legal or governmental
proceedings, insofar as they relate to Mackenzie Trust or Mackenzie
Fund, required to be described in the N-14 Registration Statement
which are not described as required;

(vii) Mackenzie Trust is a duly registered management
investment company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect; and

(viii) In the ordinary course of counsel's representation of
Mackenzie Trust or Mackenzie Fund, and without having made any
investigation, counsel is not aware of any litigation or
administrative proceeding or investigation of or before any court or
governmental body or self regulatory organization which is presently
pending or threatened as to Mackenzie Trust or Mackenzie Fund or any
of its properties or assets and neither Mackenzie Trust nor Mackenzie
Fund is a party to or subject to the provisions of any order, decree
or judgment of any court or governmental body or self regulatory
organization, which materially and adversely affects its business.

(e) The Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the outstanding
shares of Mackenzie Fund in accordance with applicable law and evidence of
the approval shall have been delivered to Thornburg Trust;

(f) The parties shall have received a favorable opinion of
Dechert, Price & Rhoads, satisfactory to Mackenzie Trust and Thornburg Trust,
substantially to the effect that, based upon certain facts, assumptions and
representations, the transactions contemplated by this Agreement constitute
a tax-free reorganization described in Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended, for federal income tax purposes. The
delivery of such opinion is conditioned upon receipt by Dechert, Price &
Rhoads of representations it shall request of Thornburg Trust and Mackenzie
Trust.

8. Further Conditions Precedent to Obligations
of Thornburg Trust and Mackenzie Trust.
-------------------------------------------
Each party's obligations hereunder are, at its election, subject to the
further conditions that:

(a) On the Closing Date, no action, suit or other proceeding shall
be pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;

(b) On or before the Closing Date, all consents of other parties
and all other consents, orders and permits of federal, state and local
regulatory authorities (including those of the Commission and of state
securities authorities, including "no-action" positions of such federal or
state authorities) deemed necessary by Thornburg Trust or Mackenzie Trust to
permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain
any such consent, order or permit would not involve a risk of a material
adverse effect on the business assets or properties of Thornburg Trust or
Mackenzie Trust;

(c) On or before the Closing Date, the N-14 Registration Statement
shall have become effective under the 1933 Act and no stop orders suspending
the effectiveness thereof shall have been issued and, to the best knowledge
of the parties hereto, no investigation or proceeding for that purpose shall
have been instituted or be pending, threatened or contemplated under the 1933
Act.

9. Responsibility for Fees and Expenses.
------------------------------------
(a) Thornburg Trust and Mackenzie Trust each represents and
warrants to the other that it has not engaged any broker or finder entitled
to receive any payments in connection with the transactions provided for
herein.

(b) Neither Thornburg Fund nor Mackenzie Fund shall ultimately
bear any expenses incurred in connection with the entering into and carrying
out of the provisions of this Agreement, whether or not the transactions
contemplated are consummated. Specifically, the investment advisers to each
respective Fund have agreed pursuant to an agreement dated June 13, 1997, to
assume and share between themselves all such expenses including the expenses
of preparing and filing the N-14 Registration Statement, the costs of
distributing the prospectus and proxy materials, proxy solicitation costs,
and other special costs incurred by either Fund; provided, however, that any
expenses so borne by either investment adviser shall be solely and directly
related to the reorganization contemplated by this Agreement, within the
meaning of Revenue Ruling 73-54, 1973-1 C.B. 187.

10. Massachusetts Business Trusts.
-----------------------------
(a) Mackenzie Trust is organized as a Massachusetts business
trust, and references in this Agreement to Mackenzie Trust mean and refer to
the Trustees of Mackenzie Trust from time to time serving under its
Declaration of Trust on file with the Secretary of State of the Commonwealth
of Massachusetts, as the same may be amended from time to time, pursuant to
which Mackenzie Trust conducts its business. It is expressly agreed that the
obligations of Mackenzie Trust hereunder shall not be binding upon any of
Mackenzie Trust's Trustees, shareholders, nominees, officers, agents, or
employees of Mackenzie Trust, or Mackenzie Fund personally, but bind only the
property of Mackenzie Fund, as provided in Mackenzie Trust's Declaration of
Trust. Moreover, no series of Mackenzie Trust other than Mackenzie Fund
shall be responsible for the obligations of Mackenzie Trust hereunder, and
all persons shall look only to the respective assets of Mackenzie Fund to
satisfy the obligations of Mackenzie Trust hereunder. The execution and
delivery of this Agreement have been authorized by Mackenzie Trust's Board of
Trustees, on behalf of Mackenzie Fund, and this Agreement has been signed by
authorized officers of Mackenzie Fund acting as such, and neither such
authorization by such Trustees, nor such execution and delivery by such
officers, shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the
respective property of Mackenzie Fund, as provided in Mackenzie Trust's
Declaration of Trust.

(b) Thornburg Trust is organized as a Massachusetts business
trust, and references in this Agreement to Thornburg Trust mean and refer to
the Trustees of Thornburg Trust from time to time serving under its
Declaration of Trust on file with the Secretary of State of the Commonwealth
of Massachusetts, as the same may be amended from time to time, pursuant to
which Thornburg Trust conducts its business. It is expressly agreed that the
obligations of Thornburg Trust hereunder shall not be binding upon any of
Thornburg Trust's Trustees, shareholders, nominees, officers, agents, or
employees of Thornburg Trust, or Thornburg Fund personally, but bind only the
property of Thornburg Fund, as provided in Thornburg Trust's Declaration of
Trust. Moreover, no series of Thornburg Trust other than Thornburg Fund
shall be responsible for the obligations of Thornburg Trust hereunder, and
all persons shall look only to the respective assets of Thornburg Fund to
satisfy the obligations of Thornburg Trust hereunder. The execution and
delivery of this Agreement have been authorized by Thornburg Trust's
Trustees, on behalf of Thornburg Fund, and this Agreement has been signed by
authorized officers of Thornburg Fund acting as such, and neither such
authorization by such Trustees, nor such execution and delivery by such
officers, shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the
respective property of Thornburg Fund, as provided in Thornburg Trust's
Declaration of Trust.

11. Indemnification.
---------------
(a) Thornburg Fund agrees to indemnify and hold harmless Mackenzie
Fund and each of Mackenzie Fund's Trustees and officers from and against any
and all losses, claims, damages, liabilities or expenses (including without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, Mackenzie Fund or any of its
Trustees or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of
or is based on any breach by Thornburg Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.

(b) Mackenzie Fund agrees to indemnify and hold harmless Thornburg
Fund and each of Thornburg Fund's Trustees and officers from and against any
and all losses, claims, damages, liabilities or expenses (including without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, Thornburg Fund or any of its
Trustees or officers may become subject insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of
or is based on any breach by Mackenzie Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.

12. Entire Agreement; Survival of Warranties.
----------------------------------------
(a) Thornburg Trust and Mackenzie Trust agree that neither party
has made any representation, warranty or covenant not set forth herein and
that this Agreement constitutes the entire agreement between the parties.

(b) The representations, warranties and covenants contained in
this Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
hereunder.

13. Termination.
-----------
(a) This Agreement may be terminated by the mutual agreement of
Thornburg Trust and Mackenzie Trust. In addition, either Thornburg Trust or
Mackenzie Trust may at its option terminate this Agreement at or before the
Closing Date because:

(i) of a material breach by the other of any
representation, warranty or agreement contained herein to be performed
at or before the Closing Date; or

(ii) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met.

(b) In the event of any such termination, there shall be no
liability for damages on the part of either Thornburg Trust or Mackenzie
Trust, or their respective trustees or officers, to the other party or its
trustees or officers, but each shall bear, except as otherwise provided in
paragraph 9(b), the expenses incurred by them incidental to the preparation
and carrying out of this Agreement.

14. Amendments.
----------
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of
Mackenzie Trust and Thornburg Trust; provided, however, that following the
shareholders' meeting called by Mackenzie Fund pursuant to this Agreement, no
such amendment may have the effect of changing the provisions for determining
the number of Thornburg Fund Shares to be issued to the Mackenzie Fund
shareholders under this Agreement to the detriment of those shareholders
without their further approval.

15. Notices.
-------
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by
prepaid telegraph, telecopy or certified mail addressed to Thornburg Trust,
119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501, Attention:
Brian J. McMahon and Mackenzie Trust, Via Mizner Financial Plaza, Suite 300,
700 South Federal Highway, Boca Raton, Florida 33432, Attention: C. William
Ferris.

16. Headings; Counterparts; Governing Law; Assignment.
-------------------------------------------------
(a) The section and paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement.

(b) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.

(c) This Agreement shall be governed by and construed in
accordance with the substantive laws of the Commonwealth of Massachusetts,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act or the Advisers Act (as the same Acts shall have been or will be
amended) or rules, orders or regulations of such governmental bodies or
authorities having authority with respect to such Acts.

(d) This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no assignment
or transfer hereof or of any rights or obligations hereunder shall be made by
any party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation, other than the parties hereto and their
respective administrators, executors, legal representatives, heirs,
successors and permitted assigns, any rights or remedies under or by reason
of this Agreement.

<PAGE> 35

(e) In the event of any litigation respecting this Agreement or
its subject matter, the prevailing party will be entitled to reimbursement
from the losing party for the prevailing party's cost of suit, including
reasonable attorneys' fees.

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its President or Vice President and attested to by its
Secretary or Assistant Secretary.

Attest: THORNBURG INVESTMENT TRUST on behalf of
THORNBURG INTERMEDIATE MUNICIPAL FUND

/s/ Dawn B. Fischer /s/ Brian J. McMahon
_________________________ By:__________________________________________
Secretary Vice President

Attest: MACKENZIE SERIES TRUST on behalf of MACKENZIE
NATIONAL MUNICIPAL FUND

/s/ Deborah P. Mason /s/ C. William Ferris
_________________________ By:__________________________________________
Assistant Secretary Secretary/Treasurer

EXHIBIT A to Agreement and Plan of Reorganization dated June 13, 1997 between
Thornburg Investment Trust (on behalf of Thornburg Intermediate Municipal
Fund) and Mackenzie Series Trust (on behalf of Mackenzie National Municipal
Fund)

Subparagraph 4(a)(x): None.

<PAGE>
MACKENZIE SERIES TRUST
(MACKENZIE NEW YORK MUNICIPAL FUND)
Via Mizner Financial Plaza, 700 South Federal Highway, Boca Raton, Florida 33432

NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 4, 1997

To the Shareholders of
Mackenzie New York Municipal Fund

Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Mackenzie New York Municipal Fund ("Mackenzie Fund"), a series of
Mackenzie Series Trust (the "Trust"), a Massachusetts business trust, will be
held at the offices of Mackenzie Fund, Via Mizner Financial Plaza, 700 South
Federal Highway, Boca Raton, Florida 33432, on September 4, 1997, at 10:00 a.m.
Eastern time, for the following purposes:

1. To consider and act upon an Agreement and Plan of Reorganization
providing for the transfer of substantially all of the assets of Mackenzie Fund
to Thornburg New York Intermediate Municipal Fund ("Thornburg Fund"), a separate
series of Thornburg Investment Trust, in exchange solely for Class A voting
shares of Thornburg Fund, and for the distribution of those Class A shares to
the shareholders of Mackenzie Fund and the subsequent liquidation of Mackenzie
Fund; and

2. To transact such other business as may properly come before the
meeting.

The Trustees of the Trust have fixed the close of business on July 18, 1997
as the record date for shareholders entitled to notice of and to vote at the
meeting.

By Order of the Trustees,

C. William Ferris
-------------------------
Secretary

YOUR PROMPT ATTENTION TO THE ENCLOSED FORM OF PROXY WILL HELP TO AVOID THE
EXPENSE OF FURTHER SOLICITATION.

<PAGE>

INSTRUCTIONS FOR SIGNING PROXY CARDS

The following general rules for signing proxy cards may be of assistance
to you and may help avoid the time and expense involved in validating your vote
if you fail to sign your proxy card properly.

1. INDIVIDUAL ACCOUNTS: sign your name exactly as it appears in the
registration on the proxy card.

2. JOINT ACCOUNTS: either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration on the proxy
card.

3. ALL OTHER ACCOUNTS: the capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration.

<PAGE>
PROSPECTUS AND PROXY STATEMENT RELATING TO THE ACQUISITION OF THE ASSETS OF
MACKENZIE NEW YORK MUNICIPAL FUND
a separate series of
MACKENZIE SERIES TRUST
Via Mizner Financial Plaza, 700 South Federal Highway, Boca Raton, Florida
33432
(800) 456-5111

BY AND IN EXCHANGE FOR SHARES OF THORNBURG NEW YORK INTERMEDIATE MUNICIPAL FUND
a separate series of
THORNBURG INVESTMENT TRUST
119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501, (800) 847-0200

This prospectus/proxy statement relates to the proposed transfer of
substantially all of the assets of Mackenzie New York Municipal Fund ("Mackenzie
Fund") to Thornburg New York Intermediate Municipal Fund ("Thornburg Fund"), in
exchange solely for Class A voting shares of Thornburg Fund. Mackenzie Fund and
Thornburg Fund each seek as high a level of interest income exempt from federal
and New York State and City personal income taxes as is consistent, in the view
of their respective investment advisers, with the preservation of shareholders'
capital. As a result of the proposed transaction, each shareholder of Mackenzie
Fund will receive a number of shares of Thornburg Fund equal in value at the
date of the exchange to the value of that shareholder's shares of Mackenzie
Fund. The terms and conditions of these transactions are more fully described
in this prospectus/proxy statement and in the Agreement and Plan of
Reorganization attached hereto as Exhibit A.

This prospectus/proxy statement, which should be retained for future
reference, sets forth concisely the information about Thornburg Fund that a
prospective investor should know before investing. A Statement of Additional
Information dated June 1, 1997 (the "Statement of Additional Information")
containing additional information about Thornburg Fund has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
prospectus/proxy statement. A copy of the Statement of Additional Information
may be obtained without charge by writing to Thornburg at its address noted
above or by calling 1-800-847-0200. Copies of Mackenzie Fund's current
prospectus dated October 25, 1996 and statement of additional information dated
October 25, 1996 may be obtained without charge by writing to Mackenzie at its
address noted above or by calling 1-800-546-5111.

INVESTMENTS IN THORNBURG FUND ARE SUBJECT TO RISK, INCLUDING POSSIBLE RISK
OF PRINCIPAL, AND WILL FLUCTUATE IN VALUE. SHARES OF THORNBURG FUND ARE NOT
BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, AND ARE NOT
INSURED BY, ANY BANK, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY GOVERNMENTAL AGENCY.

The date of this prospectus/proxy statement is July 28, 1997.

<PAGE>
<PAGE>
TABLE OF CONTENTS

5. Summary of the Proposed Reorganization

6. Investment Advisers and Distributors of Mackenzie Fund and Thornburg Fund

7. Comparison of Investment Objectives, Policies and Restrictions of Mackenzie
Fund and Thornburg Fund

10. Principal Risk Factors

10. Fees and Expenses of Mackenzie Fund and Thornburg Fund

13. Purchase, Redemption and Exchange Procedures of Mackenzie Fund and
Thornburg Fund

15. Dividend Policies of Mackenzie Fund and Thornburg Fund

15. Comparative Information on Shareholder Rights

16. Additional Information About Shareholder Accounts

16. Information About the Reorganization

19. Capitalization

19. Additional Information About Mackenzie Fund and Thornburg Fund

20. Voting Information

22. Exhibit A: Agreement and Plan of Reorganization

Enclosed: Exhibit B: Thornburg New York Intermediate Municipal Fund Prospectus

For detailed information about Thornburg Fund, see the Thornburg New York
Intermediate Municipal Fund Prospectus included with this prospectus/proxy
statement

<PAGE>
<PAGE> 5

SUMMARY OF THE PROPOSED REORGANIZATION
--------------------------------------

The Trustees of Mackenzie Series Trust ("Mackenzie Trust"), including the
Trustees who are not "interested persons" of Mackenzie Trust (the "Independent
Trustees"), as defined in the Investment Company Act of 1940, have reviewed and
unanimously approved an Agreement and Plan of Reorganization between Mackenzie
Trust, on behalf of Mackenzie New York Municipal Fund ("Mackenzie Fund") and
Thornburg Investment Trust ("Thornburg Trust"), on behalf of Thornburg New York
Intermediate Municipal Fund ("Thornburg Fund") (the "Agreement") providing for
the acquisition of substantially all of the assets of Mackenzie Fund, a separate
series of Mackenzie Trust, by Thornburg Fund, a newly created separate series
of Thornburg Trust, in exchange solely for Class A voting shares of Thornburg
Fund. The aggregate net asset value of the Class A shares of the acquiring
Thornburg Fund issued in the exchange will equal the aggregate net asset value
of the shares outstanding for the acquired Mackenzie Fund. In connection with
these transactions, Class A shares of Thornburg Fund will then be distributed
to shareholders of Mackenzie Fund on a pro rata basis and Mackenzie Fund will
be liquidated. These transactions are hereinafter referred to as the
"reorganization."

Mackenzie Fund and Thornburg Fund have substantially similar investment
objectives and policies, except that Thornburg Fund's secondary objective is to
reduce fluctuations in the net asset value of its shares relative to the
fluctuations of municipal bond portfolios with longer average maturities (which
may have higher yields) by investing in a portfolio of securities normally
having a weighted average maturity of three to ten years. The risks of
investing in Thornburg Fund are similar to the risks of investing in Mackenzie
Fund, except that Thornburg Fund may experience less fluctuation in its net
asset value. See "Principal Risk Factors" below. The Funds have substantially
similar distribution, purchase and redemption procedures.

For the reasons set forth below, the Trustees of Mackenzie Trust, including
all of the Independent Trustees, have unanimously concluded that the
reorganization is in the best interests of the shareholders of Mackenzie Fund.
The Trustees of Mackenzie Trust therefore have submitted the Agreement for
approval by the shareholders of Mackenzie Fund at a special meeting of
shareholders to be held on September 4, 1997 (the "Meeting"). Approval of the
reorganization with respect to Mackenzie Fund requires a vote of a majority of
the outstanding Class A shares of Mackenzie Fund and a majority of the
outstanding Class B shares of Mackenzie Fund.

At or about the same time that substantially all of the assets of Mackenzie
Fund are acquired by Thornburg Fund, Thornburg Intermediate Municipal Fund will
acquire substantially all of the assets of Mackenzie National Municipal Fund,
Thornburg Limited Term Municipal Fund National Portfolio will acquire
substantially all of the assets of Mackenzie Limited Term Municipal Fund, and
Thornburg Limited Term Municipal Fund California Portfolio will acquire
substantially all of the assets of Mackenzie California Municipal Fund. Each
of these transactions has been approved by the Board of Trustees of the
respective Mackenzie Fund. The acquisitions of substantially all of the assets
of Mackenzie Fund, Mackenzie California Municipal Fund, Mackenzie National
Municipal Fund and Mackenzie New York Municipal Fund are referred to
collectively herein as the "Related Acquisitions." Completion of the
reorganization is contingent upon proper shareholder approval being received for
each of the Related Acquisitions, the satisfaction of all other conditions to
closing the Related Acquisitions and the acquisition of certain assets of
Mackenzie Investment Management Inc. (MIMI) by Thornburg Management Company,
Inc. pursuant to an asset purchase agreement. There can be no assurance such
shareholder approval can be obtained for each Related Acquisition or that the
conditions of the other Related Acquisitions will be satisfied. If shareholders
of Mackenzie Fund approve the reorganization and the other Related Acquisitions
are not approved, the Board of Trustees of Mackenzie Fund will consider the
alternatives available to it with respect to Mackenzie Fund, including
completion of the reorganization respecting Mackenzie Fund. See "Voting
Information."

<PAGE> 6

The Trustees of Mackenzie Trust have approved the reorganization because
they believe it would benefit the current shareholders of Mackenzie Fund.
Although newly created, Thornburg Fund is one of six mutual funds investing in
municipal securities which are actively managed and promoted by Thornburg Fund's
investment adviser, TMC. The five other funds have established solid
performance records with below average price volatility. As one of a family of
municipal bond mutual funds, Thornburg Fund is likely to have a greater
concentration on managing mutual funds that invest in fixed income securities.
In this connection, the Trustees considered the fact that Thornburg Fund's
investment adviser has many years of experience in managing portfolios of
municipal obligations including several single state municipal bond funds. As
discussed below, Thornburg Fund's investment adviser, Thornburg Management
Company, Inc., manages a family of mutual fund portfolios with assets of
approximately $1.6 billion as of March 31, 1997. As members of the Thornburg
family of funds, shareholders of Mackenzie Fund would enjoy all the same
services and privileges as other shareholders of Thornburg Fund, including the
opportunity to exchange into funds with a variety of investment objectives and
policies.

The Mackenzie Trustees also took into account a variety of other factors
discussed below. See "Information About the Reorganization."

THE TRUSTEES OF MACKENZIE TRUST, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMEND APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION.

INVESTMENT ADVISERS AND DISTRIBUTORS OF MACKENZIE FUND AND THORNBURG FUND
-------------------------------------------------------------------------

The investment adviser to Mackenzie Fund is Mackenzie Investment Management
Inc. ("MIMI"), whose address is Via Mizner Financial Plaza, 700 South Federal
Highway, Suite 300, Boca Raton, Florida 33432. MIMI, a Delaware corporation has
approximately 10% of its outstanding common stock listed for trading on the
Toronto Stock Exchange. MIMI is a subsidiary of Mackenzie Financial
Corporation, 150 Bloor Street West, Toronto, Ontario, Canada, a public
corporation organized under the laws of Ontario and whose shares are listed for
trading on The Toronto Stock Exchange. In addition to providing investment
management services to Mackenzie Fund, MIMI provides certain business management
services to Mackenzie Fund, including coordinating services furnished to
Mackenzie Fund by service providers, providing office space, providing
administrative and clerical services, supervising the maintenance of books and
records, and certain other services. Fees charged by MIMI for these services
are described below under "Fees and Expenses of Mackenzie Fund and Thornburg
Fund." The distributor of Mackenzie Fund shares is Ivy Mackenzie Distributors,
Inc., Via Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca
Raton, Florida 33432.

The investment adviser to Thornburg Fund is Thornburg Management Company,
Inc. ("TMC"), 119 East Marcy Street, Santa Fe, New Mexico 87501. As investment
adviser, TMC selects investments for the Fund, monitors those investments and
the markets generally, and performs related services. The controlling
shareholder of TMC is H. Garrett Thornburg, Jr. TMC is also investment adviser
to six other series of Thornburg Trust, three of which seek current income from
investment in municipal obligations, two of which seek current income from
investments in government and other fixed income securities, and one of which
seeks capital appreciation through investment in stocks and other securities.
TMC is investment adviser to Thornburg Limited Term Municipal Fund, Inc., an
investment company with two series which seek current income from investments
in municipal obligations. TMC also performs administrative services specific
to each class of shares offered by Thornburg Fund under an administrative
services agreement which requires TMC to supervise, administer and perform
certain administrative services necessary for the maintenance of shareholder
accounts. Fees charged by TMC for these services are described below under
"Fees and Expenses of Mackenzie Fund and Thornburg Fund." The principal
underwriter of Thornburg Fund's shares is Thornburg Securities Corporation
("TSC"), 119 East Marcy Street, Santa Fe, New Mexico 87501. H. Garrett
Thornburg, Jr. is the controlling shareholder of TSC.

<PAGE> 7

COMPARISON OF INVESTMENT OBJECTIVES, POLICIES
AND RESTRICTIONS OF MACKENZIE FUND AND THORNBURG FUND
-----------------------------------------------------

Investment Objectives of Funds
- ------------------------------

Mackenzie Fund.
-------------- Mackenzie Fund seeks as high a level of interest income
exempt from federal, New York State and New York City personal income taxes as
is consistent, in MIMI's view, with the preservation of shareholders' capital.
Mackenzie Fund seeks to achieve this objective by investing primarily in debt
securities, the interest on which is exempt from federal, New York State and New
York City personal income taxes. Mackenzie Fund's dollar-weighted average
portfolio maturity was 16.2 years on June 30, 1997, and averaged 16.7 years over
the 12 months ending on the same date. Mackenzie Fund has no stated policy
respecting the dollar-weighted average portfolio maturity or duration of its
portfolio.

Thornburg Fund.
-------------- Thornburg Fund's primary investment objective is to obtain
as high a level of current income exempt from federal, New York State and New
York City personal income taxes as is consistent, in TMC's view, with
preservation of capital. Thornburg Fund's secondary objective is minimizing
expected fluctuations in net asset value relative to long-term bond portfolios.
Thornburg Fund pursues its primary objective by investing in a portfolio of
municipal securities, the interest on which is exempt from federal, New York
State and New York City income taxes. Thornburg Fund seeks to achieve its
secondary objective of minimizing fluctuations in net asset value by maintaining
a portfolio of investments with a dollar-weighted average maturity of normally
three to ten years. Thornburg Fund believes its policy on limiting its average
portfolio maturity will cause the Fund to experience less change in its net
asset value in response to interest rate changes than a longer term portfolio
might experience. Thornburg Fund, unlike Mackenzie Fund, is non-diversified.
As such, it may invest more than 5% of its total assets in the securities of a
single issuer.

Securities in Which the Funds Invest
- ------------------------------------

Mackenzie Fund.
-------------- As a fundamental policy, at least 80% of Mackenzie Fund's
assets are invested during normal market conditions in tax-exempt municipal
securities with at least 65% of those securities being New York municipal
securities. Mackenzie Fund may invest more than 20% of its total assets in
taxable investments for temporary defensive purposes. Taxable investments may
include obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, commercial paper, corporate obligations, certificates of
deposit or bankers' acceptances or other short-term obligations of domestic
banks or thrifts, or repurchase agreements with banks or broker dealers.
Mackenzie Fund may purchase a variety of municipal securities including both
general obligation bonds and revenue bonds, and the Fund is permitted to buy
variable interest securities and repurchase agreements. The Fund may purchase
securities on a when-issued basis. Some securities owned by the Fund may pay
interest which is subject to the federal alternative minimum tax. Mackenzie
Fund may invest without limit in securities depending for repayment upon
revenues from similar projects. Mackenzie Fund may purchase or write options
and enter into futures contracts, but has no current intention to do so.

Thornburg Fund.
-------------- Except to the extent Thornburg Fund is invested in
temporary investments for defensive purposes, it will under normal conditions
invest 100% of its assets in municipal securities, and as a fundamental policy
which may not be changed without a shareholder vote, will normally invest at
least 80% of its net assets in municipal securities. Under normal conditions,
Thornburg Fund will invest 100%, and as a matter of fundamental policy, will
invest at least 65% of its total assets in municipal securities originating in
New York. Thornburg Fund may invest up to 20% of its assets in temporary
investments in taxable securities because of market conditions pending
investment of idle funds or to afford liquidity. Temporary investments in
taxable securities could exceed 20% of its net assets when made for defensive
purposes during periods of abnormal market conditions, but Thornburg Fund does
not expect to find it necessary to make temporary investments in taxable
securities. Any temporary investments would be in taxable securities of
comparable quality to tax-exempt securities Thornburg Fund may

<PAGE> 8

purchase. Thornburg Fund purchases a variety of municipal securities including
general obligation bonds, revenue bonds, and municipal leases. The Fund is
permitted to buy variable interest securities and repurchase agreements. The
Fund may purchase securities on a when-issued basis. The Fund is permitted to
purchase securities which pay interest subject to the federal alternative
minimum tax. Thornburg Fund may invest without limit in securities depending
for repayment upon revenues from similar projects; however, the Fund anticipates
that it will maintain a diversified portfolio.

Securities Ratings
- ------------------

Mackenzie Fund.
-------------- Mackenzie Fund purchases municipal securities rated within
the four highest rating categories of Moody's Investors Services, Inc.
("Moody's") or Standard & Poor's Corporation ("Standard & Poor's"), or unrated
municipal securities which are (i) guaranteed as to principal and interest by
the U.S. Government, (ii) securities having a maturity of less than one year
issued by issuers having other outstanding securities having one of the four
highest ratings, or (iii) comparable in quality, in the opinion of MIMI, to
securities within the four highest ratings categories of the rating services
identified above. Corporate obligations Mackenzie Fund may purchase as
temporary investments will be rated Aaa or Aa by Moody's or AAA or AA by
Standard & Poor's.

Investment Restrictions of the Funds
- ------------------------------------

Mackenzie Fund and Thornburg Fund are each subject to fundamental and non-
fundamental investment restrictions. Fundamental restrictions may be changed
only upon a vote of the shareholders, while non-fundamental restrictions may be
changed by the trustees or directors without a shareholder vote. The investment
restrictions of the Funds are compared below.

Fundamental Investment Restrictions
-----------------------------------
Mackenzie Fund may not purchase securities of any one issuer (except U.S.
Government securities) if, as a result, more than 5% of the Fund's total assets
would be invested in that issuer or the Fund would own more than 10% of the
outstanding voting securities of that issuer, except that up to 25% of the value
of Mackenzie Fund's total assets may be invested without regard to these
restrictions. Thornburg Fund may invest more than 5% of its total assets in any
issuer, but may not purchase securities of any issuer if it would then own more
than 10% of the outstanding voting securities of that issuer.

<PAGE> 9

Mackenzie Fund may engage in transactions in certain types of financial
futures and related options and options on individual securities and bond
indices, although it has not done so in the last year and has no current
intention to do so. Thornburg Fund has a fundamental investment restriction
prohibiting it from writing or purchasing puts, calls, straddles or spreads,
except to the extent it may purchase securities pursuant to demand or
remarketing agreements with dealers as described in the Fund's prospectus.
Neither Fund is permitted to make short sales of securities.

Neither Mackenzie Fund nor Thornburg Fund will act as an underwriter of
securities, and neither Fund will issue senior securities, except insofar as it
may be deemed to have done so in connection with entering into any repurchase
agreement, purchasing any security on a when-issued or delayed delivery basis,
or permitted borrowing.

Mackenzie Fund also has adopted fundamental investment restrictions against
investing in securities for the purpose of exercising control over or management
of the issuer, and against participation on a joint or a joint and several basis
in any trading account. Thornburg Fund does not currently have comparable
restrictions.

Thornburg Fund will not purchase the securities of any issuer if, as a
result, more than 10% of the value of the Fund's net assets would be invested
in restricted securities, unmarketable securities and other illiquid securities
(including repurchase agreements of more than seven days maturity and other
securities which are not readily marketable). Mackenzie Fund has a comparable,
non-fundamental policy, which is described below, under the caption "Non-
fundamental Policies."

<PAGE> 10

PRINCIPAL RISK FACTORS
----------------------

Because of similarities in investment objectives and policies, the risks
of investing in Thornburg Fund are substantially similar to the risks of
investing in Mackenzie Fund.

The net asset value of mutual funds investing in municipal obligations will
vary as market interest rates fluctuate, although municipal bond portfolios
which maintain lower average portfolio maturities tend to experience smaller
fluctuations in net asset value relative (and may have lower yields) than
municipal bond portfolios which maintain higher average portfolio maturities.
Issuers of municipal securities may prepay those securities in periods of low
interest rates, reducing the expected returns on securities held by either
Mackenzie Fund or Thornburg Fund as the Fund reinvests in securities having
lower interest rates. Portfolio securities held by either Mackenzie Fund or
Thornburg Fund also may be subject to bankruptcy or other laws protecting
debtors or legislative action or voter referenda which may adversely affect the
ability of issuers to pay principal and interest when due, or reduction in value
because of inability of the issuer to pay the obligation or because of
downgrading by rating agencies.

Because each Fund will purchase primarily municipal securities of New York
obligors, an investment in either Fund may be riskier than an investment in a
portfolio of municipal securities from throughout the United States.

Investment techniques which may be utilized by either Mackenzie Fund or
Thornburg Fund may have associated risks. Purchasing securities on a when-
issued or firm commitment basis could result in a loss if the value of the
securities to be purchased declines before the settlement date. Investing in
repurchase agreements could result in a loss or delay in obtaining repayment if
the other party defaults or becomes insolvent. Borrowing by either Fund could
exaggerate the effects on the Fund's net asset value of any increase or decrease
in the value of the Fund's portfolio securities. Variable rate securities with
interest rates which change inversely with market rates of interest may
experience more volatile changes in value during periods when interest rates are
changing.

For a further discussion of the investment objectives, risks, policies and
restrictions applicable to Thornburg Fund, please see the accompanying Thornburg
New York Intermediate Municipal Fund Prospectus.

FEES AND EXPENSES OF MACKENZIE FUND AND THORNBURG FUND
------------------------------------------------------

Advisory and Administration Fees and Fund Expenses - Mackenzie Fund
- -------------------------------------------------------------------

Mackenzie Fund is contractually obligated to pay MIMI an investment
management fee at an annual rate of .55% of average daily net assets, and an
administrative services fee at an annual rate of .10% of average daily net
assets, together with the Fund's other expenses and

<PAGE> 11

costs of operation. Mackenzie Fund also has adopted plans and agreements
pursuant to Rule 12b-1 under the Investment Company Act applicable to its
Class A and Class B shares, under which Class A shareholders pay a distribution
fee at an annual rate of .25% of average daily net assets and Class B
shareholders pay a distribution fee of 1.00% of average daily net assets.

The Fund's total operating expense ratios for Class A shares and Class B
were 1.10% and 1.85% respectively, for the year ended June 30, 1996, after
taking into account voluntary waivers of fees and reimbursements of expenses by
MIMI. Absent these fee waivers and reimbursements, Class A and Class B expense
ratios would have been 1.33% and 2.08%, respectively. MIMI is not obligated to
continue its waivers of fees and reimbursement of expenses.

Advisory and Administrative Fees and Fund Expenses - Thornburg Fund
- -------------------------------------------------------------------

Thornburg Fund is contractually obligated to pay TMC an investment fee
which varies based upon the Fund's assets. The fee is computed on average daily
net assets at an annual rate of .50% of the first $500 million of net assets,
.45% of net assets of $500 million to $1 billion, .40% of net assets of $1
billion to $1.5 billion, .35% of net assets of $1.5 billion to $2 billion, and
.275% of net assets over $2 billion. The current fee rate is .50%. The Fund
pays an administrative services fee with respect to its Class A shares at an
annual rate of .125% of average daily net assets, together with the Fund's other
expenses and costs of operation. Thornburg Fund also has adopted a service plan
pursuant to Rule 12b-1 under the Investment Company Act, applicable to its
Class A shares, under which Class A shareholders pay up to .25% of average daily
net assets to TMC as a reimbursement for amounts TMC pays to dealers and other
persons to obtain certain shareholder services.

Because Thornburg Fund is newly created, it does not have an expense ratio
history. Thornburg Trust estimates, however, based upon past experience with
similar mutual funds, that Thornburg Fund will have expense ratios approximating
those shown in the tables below. These estimates are based, in part, on an
assumption of certain operating expenses by TMC, but TMC is not obligated to
assume expenses in the future.

The tables below set forth (i) shareholder transaction expenses on purchase
or redemption of shares of each of the Funds, (ii) the fees and expenses paid
by Mackenzie Fund for the year ended June 30, 1996, and (iii) estimated pro
forma fees and expenses for Thornburg Fund for the current fiscal year. Because
Mackenzie Fund Class B shareholders will receive Thornburg Fund Class A shares
in the reorganization, the estimates of Thornburg Fund Class A figures apply
both to Class A and Class B shareholders upon completion of the reorganization.
No sales charges will be imposed on Mackenzie Fund shares exchanged by Mackenzie
Fund shareholders in the reorganization, or on Thornburg Fund shares issued to
Mackenzie Fund shareholders in the reorganization.

Maximum Deferred Sales
Charge on Redemptions
(as a percentage of
redemption proceeds or
original purchase price,
whichever is lower) none 5.00% <FN1> none <FN3>

<FN>
<FN1> The maximum Mackenzie Fund Class B sales charge is imposed on
redemptions within one year of purchase, declines to 4% in the
second year, 3% in the third and fourth years, 2.0% the fifth
year and 1% in the sixth year. This sales charge will not be
imposed on Mackenzie Fund shares exchanged for Thornburg Fund shares
in the reorganization.

<FN2> The sales charge will not apply to Thornburg Fund shares issued in
the reorganization.

<FN3> Thornburg Fund imposes a contingent deferred sales charge of 0.5%
on redemptions of purchases greater than $1 million in the event of
a redemption within 12 months of purchase. This charge will not apply
to Thornburg Fund shares issued in the reorganization.
</FN>
</TABLE>

<PAGE> 12

<TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<CAPTION>
Thornburg Fund
Mackenzie Fund Class A
Class A Class B Pro Forma
------- ------- --------------
<S> <C> <C> <C>
Management Fees .32% <FN1> .32% <FN1> .50%
Rule 12b-1 Fees .25% 1.00% .25%
Other Expenses .53% .53% .25% <FN2>
---- ----- -----
Total Fund Operating
Expenses 1.10% <FN1> 1.85% <FN1> 1.00% <FN2>

<FN>
<FN1> MIMI currently limits Mackenzie Fund's total operating expenses
(excluding taxes, Rule 12b-1 fees, and certain other expenses).
Without expense reimbursements, management fees would have been .55% for
Class A and Class B shares, and total fund operating expenses would
have been 1.33% and 2.08%, respectively, for Class A and Class B
shares. MIMI is under no obligation to waive fees or reimburse
expenses in the future. Class B shareholders may pay more than the
economic equivalent of the maximum front-end sales change permitted
by the National Association of Securities Dealers, Inc.
<FN2> The expense ratios for Thornburg Fund are estimated for the current
year, and assume an assumption of certain expenses by TMC. Absent
this assumption of expenses, the other expenses are estimated to be
.59% and the total fund operating expenses would be 1.34%. TMC is
under no obligation to assume expenses in the future.
</FN>

EXAMPLES You would pay the following expenses on a $1,000 investment, assuming
each Fund's expense ratio remains the same, the maximum sales charge is
deducted, a 5% annual return, and redemption at the end of each time period:
<CAPTION>
Thornburg Fund
Mackenzie Fund Class A
Class A Class B Pro Forma
------- ------- --------------
<S> <C> <C> <C>
One Year $58 $69 $45
Three Years $81 $88 $66
Five Years $105 $120 $89
Ten Years $175 $197 $154

You would pay the following expenses on the same $1,000 investment, assuming no
redemption at the end of each time period:
<CAPTION>
Thornburg Fund
Mackenzie Fund Class A
Class A Class B Pro Forma
------- ------- --------------
<S> <C> <C> <C>
One Year $58 $19 $45
Three Years $81 $58 $66
Five Years $105 $100 $89
Ten Years $175 $197 $154
</TABLE>

PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES
FOR MACKENZIE FUND AND THORNBURG FUND
--------------------------------------------

Mackenzie Fund - Purchasing Shares
- ----------------------------------

Class A shares of Mackenzie Fund are sold at net asset value plus a
sales charge imposed at the rates shown in the table below.

<TABLE>
Dealer Concession
Total Sales Charge or Agency Commission
As Percentage As Percentage As Percentage
of Offering Price of Net Asset Value of Offering Price
<S> <C> <C> <C>
Less than $100,000.00 4.75% 4.99% 4.00%
$100,000 to 249,999.99 3.75% 3.90% 3.00%
$250,000 to 499,999.99 2.50% 2.56% 2.00%
$500,000 and up 0.00% * 0.00% 0.00%

Class A shares also are sold to specified classes of investors at reduced or
no sales charges (but subject in some cases to a contingent deferred sales
charge) as described in Mackenzie Fund's prospectus.

Class B shares are sold at net asset value, but are subject to a
contingent deferred sales charge at the rates shown below if redeemed within
six years of purchase. This sales charge is not applicable to Mackenzie Fund
shares exchanged for Thornburg Fund shares in the reorganization.

<PAGE> 14

Thornburg Fund - Purchasing Shares
- ----------------------------------

Class A shares of Thornburg Fund are sold at net asset value plus a
sales charge imposed at the rates shown in the table below:

* No sales charge is payable at the time of purchase on investments of
$1 million or more made by a purchaser. A contingent deferred sales
charge will be imposed on any portions of such investments redeemed
within one year of purchase, at a rate of .5% of the amount redeemed.
This charge is not applicable to Thornburg Fund shares issued in
exchange for Mackenzie Fund shares in the reorganization.

Certain purchasers may purchase shares of Thornburg Fund at reduced or
no sales charge as described in the accompanying Thornburg New York
Intermediate Municipal Fund Prospectus.

Mackenzie Fund and Thornburg Fund - Exchange Privileges
- -------------------------------------------------------

If elected by a shareholder, Class A shares and Class B shares of
Mackenzie Fund may be exchanged for Class A or Class B shares, respectively,
of other funds offered by Mackenzie Trust or by the Ivy Funds, subject to
certain conditions described in Mackenzie Fund prospectus. Similarly,
Class A shares of Thornburg Fund may be exchanged for Class A shares of other
Thornburg mutual funds managed by TMC. Thornburg Fund's exchange privilege
is subject to the conditions described in its accompanying prospectus,
including the requirement that if you exchange into a Fund with a higher
sales charge, you must pay the difference between that fund's sales charge
and the sales charge you paid on the shares you are exchanging. This charge
is not applicable to exchanges of Thornburg Fund shares received in the
reorganization, and it is not necessary to elect the exchange privilege with
Thornburg Fund. Each of the Funds permits exchanges by telephone if the
telephone exchange privilege has been elected by the shareholder. Mackenzie
Fund shareholders who previously elected the telephone exchange privilege
will be deemed to have elected the similar Thornburg Fund exchange privilege
if the reorganization is completed.

Mackenzie Fund and Thornburg Fund - Redemptions
- -----------------------------------------------

Shares of Mackenzie Fund and Thornburg Fund properly presented for
redemption may be redeemed at the next determined net asset value per share,
subject to a contingent deferred sales charge ("CDSC") in specified
circumstances. Class B shares of Mackenzie Fund held less than seven years,
and certain Mackenzie Fund Class A shares purchased at reduced sales charges
may be subject to a contingent deferred sales charge described in Mackenzie
Fund's prospectus. Thornburg Fund imposes a CDSC of 1/2 of 1% on redemptions
of part or all of any purchase over $1 million in the event of a redemption
within 12 months of purchase. Neither Mackenzie Fund shares exchanged in the
reorganization, nor Class A shares issued by Thornburg Fund in the
reorganization, will be subject to any CDSC. Mackenzie Fund shareholders who
previously elected the telephone redemption privilege will be deemed to have
elected Thornburg Fund's telephone redemption privilege if the reorganization
is completed.

<PAGE> 15

DIVIDEND POLICIES OF MACKENZIE FUND AND THORNBURG FUND
------------------------------------------------------

Mackenzie Fund declares and pays monthly dividends on any net investment
income. Net investment income generally is the income from interest on the
Fund's operations. At the end of each fiscal year, Mackenzie Fund intends to
distribute any undistributed net investment income and any net realized
short-term and long-term capital gains. The Fund may make an additional
distribution of any net capital gains at the end of each calendar year.
Distributions are reinvested in Fund shares unless the shareholder elects to
receive them in cash.

COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS
---------------------------------------------

Mackenzie Fund is a diversified series of Mackenzie Trust, a
Massachusetts business trust organized in 1985. As a Massachusetts business
trust, Mackenzie Trust is governed by applicable Massachusetts and federal
law, its declaration of trust, as amended, and its bylaws. The business of
Mackenzie Trust is supervised by Mackenzie Trust's Board of Trustees.

Thornburg Fund is a non-diversified series of Thornburg Trust, a
Massachusetts business trust organized in 1987. As a Massachusetts business
trust, Thornburg Trust is governed by applicable Massachusetts and federal
law, its declaration of trust, as amended, and its bylaws. The business of
Thornburg Trust is supervised by Thornburg Trust's Trustees.

Mackenzie Trust and Thornburg Trust are each authorized to create an
unlimited number of series, and with respect to each series, to issue an
unlimited number of full and fractional shares of one or more classes and to
divide or combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests in the
series. All of the shares of Mackenzie Trust and of Thornburg Trust
respectively, have equal voting rights with each other, except that only
shares of the respective series or separate classes within a series are
entitled to vote on matters concerning only that series or class.

Under Massachusetts law, there is a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable for the obligations of such a trust. The amended and restated
declaration of trust for Mackenzie Trust and the declaration of trust for
Thornburg Trust each contain provisions intended to limit any such liability
and to provide indemnification out of Fund property for any shareholder
charged or held personally liable for obligations or liabilities of the
shareholders' Fund solely by reason of being or having been a shareholder of
the Fund and not because of the shareholder's acts or omissions or for some
other reason. Consequently, the risk of a shareholder of either Fund
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its
obligations.

<PAGE> 16

ADDITIONAL INFORMATION ABOUT SHAREHOLDER ACCOUNTS
-------------------------------------------------

If the reorganization is approved, Thornburg Fund will establish an
account for each Mackenzie Fund shareholder.

No further purchases of Mackenzie Fund shares may be made after the date
on which the shareholders of Mackenzie Fund approve the reorganization, and
the share transfer books of Mackenzie Fund will be permanently closed as of
the date of Closing. Only redemption requests and transfer instructions
received in proper form by the close of business on the day before the date
of Closing will be fulfilled by Mackenzie Fund. Redemption requests or
transfer instructions received by Mackenzie Fund after that date will be
treated by Mackenzie Fund as requests for the redemption or instructions for
transfer of the shares of Thornburg Fund credited to the accounts of
Mackenzie Fund shareholders. Accordingly, those redemption requests or
transfer instructions after the close of business on the day before Closing
will be forwarded to Thornburg Fund. For a complete description of
redemption procedures for Thornburg Fund, see the sections of the
accompanying Thornburg Fund's prospectus under the captions "Selling Fund
Shares," "Investor Services and Transaction Services," and "Shareholder and
Account Policies."

INFORMATION ABOUT THE REORGANIZATION
------------------------------------

Agreement and Plan of Reorganization
- ------------------------------------

The following summary of the proposed Agreement and Plan of
Reorganization (the "Agreement") is qualified in its entirety by reference to
the Agreement accompanying this prospectus and proxy statement as Exhibit A.

The Agreement provides that Thornburg Fund will acquire substantially
all of the assets of Mackenzie Fund in exchange solely for Class A voting
shares of Thornburg Fund on the earliest practicable date (the "Closing
Date") following shareholder approval of the reorganization. The number of
full and fractional shares of Thornburg Fund to be issued to shareholders of
Mackenzie Fund will be determined on the basis of the relative net asset
values per share and aggregate net assets of Thornburg Fund and Mackenzie
Fund computed immediately after the closing of business on the New York Stock
Exchange (currently 4:00 p.m., Eastern time) on the last business day before
the Closing Date (the "Valuation Date"). The net asset value per share for
both Thornburg Fund and Mackenzie Fund will be determined by dividing each
Fund's respective assets, less its respective liabilities, by the total
number of its respective outstanding shares. Portfolio securities of both
Thornburg Fund and Mackenzie Fund will be valued in accordance with the
valuation practices of Thornburg Fund as described in the prospectus of
Thornburg Fund, which is incorporated by reference herein. Valuation
procedures of Thornburg Fund are substantially the same as the valuation
procedures of Mackenzie Fund.

The consummation of the reorganization is subject to the conditions set
forth in the Agreement. The reorganization is also subject to approval by
Mackenzie Fund's Class A and Class B shareholders. Further, completion of
the reorganization is subject to shareholder approval of the "Related
Acquisitions," which are proposed transactions in which Thornburg Limited
Term Municipal Fund National Portfolio will acquire substantially all of the
assets of Mackenzie Limited Term Municipal Fund, Thornburg Limited Term
Municipal Fund California

<PAGE> 17

Portfolio will acquire substantially all of the assets of Mackenzie
California Municipal Fund, and Thornburg Intermediate Municipal Fund will
acquire substantially all of the assets of Mackenzie National Municipal Fund.
If shareholders of Mackenzie Fund approve the reorganization but one or more
of the Related Acquisitions are not approved, the Trustees of Mackenzie Trust
will consider the available alternatives. The Agreement may be terminated
and the reorganization abandoned prior to the Closing Date, before or after
approval by shareholders of Mackenzie Fund, by resolution of the Board of
Trustees of Mackenzie Fund or the Trustees of Thornburg Trust, under
circumstances specified in the Agreement.

The investment advisers of the respective Funds have agreed to pay all
expenses of the Funds related to the reorganization, so that shareholders of
Mackenzie Fund will not be required to bear any such expenses. Mackenzie
Fund will, however, pay the costs its dissolution and deregistration with the
Securities and Exchange Commission following the reorganization. MIMI and
TMC have also entered into an asset purchase agreement, contingent upon
completion of the reorganization and each Related Acquisition, in which TMC
will pay to MIMI approximately $2,102,000 in two installments in connection
with the reorganization and the Related Acquisitions, subject to adjustment
for redemptions of shares issued in the transactions, and MIMI has agreed (i)
to sell certain assets to TMC, (ii) to perform certain services, and (iii)
not to serve as the investment adviser or subadviser to another mutual fund
comparable to Mackenzie Fund for a period of one year, except under certain
limited circumstances. MIMI and TMC have each agreed to pay Roberto de
Guardiola Company, L.L.C. one-half of that firm's fee for assisting in the
consummation of the transactions contemplated by the asset purchase
agreement. Under the asset purchase agreement, TMC has also agreed to
comply, until the third anniversary of the Closing Date, with Rule 15f of the
1940 Act, which compliance includes, without limitation, the following
requirements for the minimum time periods specified in Rule 15f of the 1940
Act: (i) at least 75% of the Trustees of Thornburg Trust shall not be
"interested persons" (as that term is defined in the 1940 Act) of Thornburg
or MIMI, or any "interested person" thereof; (ii) no "unfair burden" (as that
term is defined in Section (2)(B) of Rule 15f) shall be imposed; and (iii)
all vacancies in the complement of Trustees of Thornburg Trust (other than
vacancies created by the death, disqualification or resignation of any
Trustee interested in Thornburg or MIMI) shall be filled by a person who is
not an interested person of Thornburg or MIMI who has been selected and
proposed for election by a majority of the Trustees who are not such
interested persons.

The Trustees of Mackenzie Fund have determined that participation in the
reorganization is in the best interests of Mackenzie Fund shareholders.

Approval of the reorganization will require the affirmative vote of the
holders of a majority of each of the Class A and Class B shares of Mackenzie
Fund. If the reorganization is not so approved, the Board of Trustees of
Mackenzie Trust will consider other possible courses of action, including
continuation of the present operations of Mackenzie Fund.

Considerations of the Mackenzie Fund Trustees
- ---------------------------------------------

As discussed above, the Board of Trustees of Mackenzie Trust has
approved the reorganization for various reasons. In addition to the reasons
noted above, the Trustees considered that Thornburg Fund is one mutual fund
in a family of municipal bond funds which are actively managed and promoted
by TMC, which may increase the likelihood of the Fund's growth and the
economies of scale which can accompany <that growth.>

<PAGE> 18

In determining whether to recommend approval of the reorganization to
shareholders of Mackenzie Fund, the Board of Trustees of Mackenzie Trust also
considered, among other factors, (1) MIMI's intention to concentrate its
marketing efforts on the sale of mutual funds which specialize in the
expanding international and emerging growth area; (2) the terms and
conditions of the Agreement; (3) the sufficient financial, operational and
personnel resources and capabilities of TMC and the Thornburg service
providers; (4) the lower pro forma expense ratio and the overall similarity
of the fees and expenses of the two Funds; (5) the similarity of the
investment objectives, policies and restrictions of Mackenzie Fund to those
of Thornburg Fund; (6) the operating policies of Thornburg Fund, including
its method of valuing portfolio securities; (7) that shareholders of
Mackenzie Fund will not bear the costs of the reorganization; and (8) the
absence of adverse tax consequences of the reorganization. In reaching a
decision to recommend that the shareholders of Mackenzie Fund vote to approve
the reorganization, the Board of Trustees of Mackenzie Trust concluded that
participation of Mackenzie Fund in the reorganization is in the best
interests of its shareholders.

Federal Income Tax Consequences
- -------------------------------

The reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization under Section 368 of the Internal
Revenue Code of 1986, as amended, with no taxable gain or loss recognized by
Mackenzie Fund, Thornburg Fund, or shareholders of Mackenzie Fund as a
consequence of the reorganization. As a condition to the closing of the
reorganization, Mackenzie Fund and Thornburg Fund will receive an opinion
from Dechert Price & Rhoads to that effect based on certain assumptions and
representations made by Mackenzie Fund and Thornburg Fund.

(This space intentionally left blank)

<PAGE> 19

CAPITALIZATION
--------------
The following table sets forth the capitalization of Mackenzie Fund and
Thornburg Fund as of December 31, 1996 and the pro forma capitalization of
the combined fund as if the reorganization had occurred on that date. These
numbers will differ at the time of Closing.

</TABLE>
<TABLE>
Mackenzie Fund Thornburg Fund Pro Forma
-------------- -------------- ------------
<S> <C> <C> <C>
NET ASSETS
- --------------
Class A shares $34,145,073 - 0 - $36,611,206
Class B shares 2,446,133 - -
Class C shares N/A - 0 - - 0 -
Class I shares N/A - 0 - - 0 -
--------------- --------------- ------------
TOTAL $36,611,206 - 0 - $36,611,206
=============== =============== ============

NET ASSET VALUE PER SHARE
- -------------------------
Class A shares $9.86 - 0 - $12.50
Class B shares 9.86 - -
Class C shares N/A - 0 - - 0 -
Class I shares N/A - 0 - - 0 -

SHARES OUTSTANDING
- ------------------
Class A shares 3,463,320 - 0 - 2,928,896
Class B shares 250,106 - -
Class C shares N/A - 0 - - 0 -
Class I shares N/A - 0 - - 0 -
--------------- --------------- ------------
TOTAL 3,713,426 - 0 - 2,928,896
=============== =============== ============

ADDITIONAL INFORMATION ABOUT MACKENZIE FUND AND THORNBURG FUND
--------------------------------------------------------------

Additional information concerning Thornburg Fund is included in the
Statement of Additional Information for the Thornburg New York Intermediate
Municipal Fund ("SAI") dated June 1, 1997, which has been filed with the
Securities and Exchange Commission and is incorporated by reference in its
prospectus included herewith. Additional information is also included in the
SAI dated July 28, 1997 related to this transaction which has been filed with
the SEC and is incorporated by reference herein. A copy of each SAI is
available upon request and without charge by calling (800) 847-0200.

<PAGE> 20

Information about Mackenzie Fund is included in its current prospectus
dated October 25, 1996, copies of which are available upon request and
without charge by calling MIMI at (800) 456-5111. Additional information is
included in Mackenzie Fund's SAI dated October 25, 1996 copies of which are
available upon request and without charge by calling MIMI at (800) 456-5111.
The prospectus and statement of additional information have been filed with
the Securities and Exchange Commission and are incorporated by reference
herein.

VOTING INFORMATION
------------------

Class A shares and Class B shares of Mackenzie Fund of record at the
close of business on July 18, 1997 (the "Record Date") will be entitled to
vote at the meeting or any adjournment thereof. The holders of a majority of
the Class A and Class B shares of Mackenzie Fund outstanding at the close of
business on the record date present in person or represented by proxy will
constitute a quorum of the Class A shareholders and Class B shareholders,
respectively, for the meeting. Shareholders are entitled to one vote for
each share held, and each fractional share will be entitled to a
proportionate fractional vote. Approval of the reorganization requires the
affirmative vote of each of Mackenzie Fund's Class A and Class B shares of
beneficial interest outstanding and entitled to vote at the meeting. As of
July 18, 1997, there were issued and outstanding 3,093,993.376 Class A and
233,479.067 Class B shares of beneficial interest of Mackenzie Fund. As of
the same date, no person is known to have owned more than 5% of the
outstanding shares of Mackenzie Fund.

As of the same date, there were no outstanding Class A shares of
beneficial interest of Thornburg Fund.

In the event that a quorum is not present at the meeting, or a quorum is
present at the meeting but sufficient votes to approve the reorganization are
not received, the persons named as proxies may propose one or more
adjournments of the meeting to permit further solicitation of proxies. Any
such adjournment will require the affirmative vote of a majority of those
shares represented at the meeting in person or by proxy. If a quorum is not
present, the persons named as proxies will vote those proxies which they are
entitled to vote for the Plan in favor of such an adjournment and will vote
those proxies required to be voted against the Plan against any such
adjournment.

"Broker non-votes" are shares held in a broker's street name for which
the broker indicates that instructions have not been received from the
beneficial owners or other persons entitled to vote, and the broker does not
have discretionary voting authority. Abstentions and broker non-votes will
counted as shares present for purposes of determining whether a quorum is
present but will not be voted for or against any adjournment or a proposal.
Accordingly, abstentions and broker non-votes effectively will be a vote
against adjournment and against the proposal because the required vote is a
percentage of the shares outstanding.

<PAGE> 21

THE BOARD OF TRUSTEES, INCLUDING ALL OF THE INDEPENDENT TRUSTEES,
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE REORGANIZATION.

Submission of Shareholder Proposals
- -----------------------------------

Mackenzie Fund does not hold regular shareholder's meetings.
Shareholders wishing to submit proposals for inclusion in a proxy statement
for a subsequent shareholder's meeting should send their written proposals to
the secretary of Mackenzie Trust at Via Mizner Financial Plaza, 700 South
Federal Highway, Suite 300, Boca Raton, Florida 33432.

Other Matters to Come Before the Meeting
- ----------------------------------------

<PAGE> 22
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of the 13th day of June, 1997, by and between THORNBURG INVESTMENT TRUST, a
Massachusetts business trust ("Thornburg Trust"), in respect of Thornburg New
York Intermediate Municipal Fund ("Thornburg Fund"), a separate series of
Thornburg Trust, and MACKENZIE SERIES TRUST, a Massachusetts business trust
("Mackenzie Trust"), in respect of Mackenzie New York Municipal Fund
("Mackenzie Fund"), a separate series of Mackenzie Trust.

THEREFORE, in consideration of the premises and of the covenants and
agreements hereafter described, the parties hereto covenant and agree as
follows.

(b) Mackenzie Fund's portfolio securities shall be available for
inspection by Thornburg Fund, its custodian bank or such other agents of
Thornburg Trust as Thornburg Trust shall reasonably designate, at the offices
of Mackenzie Fund's custodian, Brown Brothers Harriman & Co., Boston,
Massachusetts, no later than five business days preceding the Valuation Date,
and Mackenzie Fund will immediately notify Thornburg Fund's investment
adviser of any portfolio security thereafter acquired or sold by Mackenzie
Fund. Mackenzie Fund portfolio securities and cash shall be delivered by
Mackenzie Trust to State Street Bank & Trust Company, Boston, MA 02205-9087,
as custodian for Thornburg Fund for the account of Thornburg Fund on the
Closing Date, duly endorsed in proper form for transfer in such condition as
to constitute good delivery thereof in accordance with the custom of brokers.
The cash delivered shall be in the form of currency or certified or official
bank checks, or completed federal funds wire, payable to the order of "State
Street Bank & Trust Co., Custodian for Thornburg New York Intermediate
Municipal Fund." Mackenzie Fund will cause its custodian to deliver at
Closing a certificate of an authorized officer of the Custodian stating that
Mackenzie Fund's Assets have been delivered in proper form to Thornburg
Fund's custodian on or before the Closing Date.

4. Representations and Warranties.
------------------------------
(a) Mackenzie Trust represents and warrants to Thornburg Trust as
follows:

(i) Mackenzie Fund is a series of Mackenzie Trust, which is
a business trust duly formed and validly existing under the laws of
the Commonwealth of Massachusetts;

(ii) Mackenzie Trust is a duly registered open-end
management investment company, and its registration with the
Commission as an investment company under the 1940 Act is in full
force and effect;

(iii) current prospectus and statement of additional
information of Mackenzie Fund, each dated October 25, 1996, conform in
all material respects to the applicable requirements of the Securities
Act of 1933 (the "1933 Act") and the rules and regulations of the
Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;

(vi) Mackenzie Fund has valued, and will continue to value
its portfolio securities and other assets in accordance with
applicable legal requirements;

(ix) The statement of assets and liabilities, the statement
of operations, and the statement of changes in net assets of Mackenzie
Fund at June 30, 1996 have been audited by Coopers & Lybrand, LLP,
independent certified public accountants, and those statements,
together with the statements of assets and liabilities, the statements
of operations, and the statements of changes in net assets at
December 31, 1996, and, when issued, at June 30, 1997, fairly reflect,
or in the case of the June 30, 1997 statements will fairly reflect, in
all material respects the assets, financial condition, results of
operations, and changes in net assets of Mackenzie Fund as of and for
the periods ended on those dates and have, or in the case of the
June 30, 1997 statements, shall have been prepared in accordance with
generally accepted accounting principles consistently applied; and
there are no known liabilities of Mackenzie Fund other than
liabilities disclosed or provided for in the foregoing statements;

(b) Thornburg Trust represents and warrants to Mackenzie Trust as
follows:

(i) Thornburg Fund is a series of Thornburg Trust, which is
a business trust duly formed and validly existing under the laws of
the Commonwealth of Massachusetts;

(ii) Thornburg Trust is a duly registered open-end
management investment company and its registration with the Commission
as an investment company under the 1940 Act is in full force and
effect;

(iii) The current prospectus and statement of additional
information for Class A shares of Thornburg Fund, each dated June 1,
1997, conform in all material respects to the applicable requirements
of the 1933 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;

(vi) Thornburg Fund has valued, and will continue to value,
its portfolio securities and other assets in accordance with
applicable legal requirements;

(viii) Since March 31, 1997, there has not been any material
adverse change in Thornburg Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, and Thornburg has not incurred any indebtedness
maturing more than one year from the date such indebtedness was
incurred. For the purposes of this subparagraph (ix), a decline in
net value per share of Thornburg Fund Shares is not a material adverse
change;

(ix) At the Closing Date, all federal and other tax returns
and reports of Thornburg Fund required by law then to be filed shall
have been filed, and all federal and other taxes shall have been paid
for as due or provision shall have been made for the payment thereof
and, to the best of Thornburg Trust's knowledge, no such return of or
relating to Thornburg Fund is currently under audit, and no assessment
has been asserted with respect to Thornburg Fund;

(x) Thornburg Fund has met the requirements of Subchapter M
of the Code, and has elected to be treated as a regulated investment
company for each taxable fiscal year of its operation since its
inception and will so qualify for the taxable year including the
Closing Date;

(xi) Thornburg Trust is authorized to issue an unlimited
number of Class A shares of beneficial interest having no par value.
All issued and outstanding shares of Thornburg Fund have been offered
and sold in every state and the District of Columbia in compliance in
all material respects with applicable registration requirements of the
1933 Act and state securities laws. All issued and outstanding
Thornburg Fund Shares are at the date hereof, and at the Closing Date
will be, duly and validly issued and outstanding, fully paid and non
-assessable. Thornburg Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any Thornburg
Fund Shares, nor is there outstanding any security convertible into
Thornburg Fund Shares (except as the trustees of Thornburg Trust may
convert shares of other classes of shares to Class A shares in
accordance with Thornburg Trust's Declaration of Trust, as amended);

(xii) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by
all necessary actions on the part of Thornburg Trust's trustees, and
this Agreement constitutes a valid and binding obligation of Thornburg
Trust enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights and subject to
general equity principles;

(xiii) Thornburg Fund Class A Shares to be issued and
delivered to Mackenzie Fund pursuant to the terms of this Agreement
will at the Closing Date have been duly authorized and, when so issued
and delivered, will be duly and validly issued Thornburg Fund Shares,
and will be fully paid and non-assessable by Thornburg Trust, except
to the extent that shareholders of Thornburg Trust may be held
personally liable for obligations of Thornburg Trust;

(xiv) The N-14 Registration Statement and the Reorganization
Proxy Materials, from their effective dates with the Commission,
through the time of the Shareholders Meeting and at the Closing Date:
(a) shall comply in all material respects with the provisions of the
1933 Act, 1934 Act and the 1940 Act, the rules and regulations
thereunder, and applicable state securities laws, and (b) shall not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements made therein not misleading; provided, that the
representations and warranties in this subparagraph shall only apply
to statements in or omissions from the N-14 Registration Statement or
the Reorganization Proxy Materials made in reliance upon and in
conformity with information furnished by or on behalf of Thornburg
Trust;

(xv) At the Closing Date, Thornburg Fund will have good and
marketable title to its assets, subject to no lien, encumbrance or
competing interest in any person, and full right, power and authority
to sell, assign, transfer and deliver those assets other than as
disclosed in writing to Mackenzie Fund; and

(xvi) The information furnished by Thornburg Trust for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the
transactions contemplated hereby is and shall be accurate and complete
in all material respects and shall comply in all material respects
with federal securities and other laws and regulations thereunder
applicable thereto.

(c) Mackenzie Trust covenants that the Thornburg Fund Shares to be
issued hereunder will not be sold or distributed other than in accordance
with the terms of this Agreement.

(a) All representations and warranties of Thornburg Trust
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date;

(vii) Thornburg Trust is a duly registered management
investment company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect; and

7. Conditions Precedent to Obligations of Thornburg Trust.
------------------------------------------------------
The obligations of Thornburg Trust to complete the transactions provided
for herein shall be subject, at its election, to the performance by Mackenzie
Trust of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:

(a) All representations and warranties of Mackenzie Trust
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date;

(iii) The execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will not,
violate Mackenzie Trust's Declaration of Trust or By-Laws, or any
provision of any agreement (known to such counsel) to which Mackenzie
Trust is a party or by which it is bound or, to the knowledge of such
counsel, result in the acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree to
which Mackenzie Trust is a party or by which it is bound;

(v) This Agreement was duly approved by the Mackenzie Fund
Shareholders in accordance with applicable law;

(vii) Mackenzie Trust is a duly registered management
investment company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect; and

11. Indemnification
---------------
(a) Thornburg Fund agrees to indemnify and hold harmless Mackenzie
Fund and each of Mackenzie Fund's Trustees and officers from and against any
and all losses, claims, damages, liabilities or expenses (including without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally, Mackenzie Fund or any of its
Trustees or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of
or is based on any breach by Thornburg Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.

(i) of a material breach by the other of any
representation, warranty or agreement contained herein to be performed
at or before the Closing Date; or

(ii) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met.

(b) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.

<PAGE> 35

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its President or Vice President and attested to by its
Secretary or Assistant Secretary.

Attest: THORNBURG INVESTMENT TRUST on behalf of
THORNBURG NEW YORK INTERMEDIATE MUNICIPAL
FUND

/s/ Dawn B. Fischer /s/ Brian J. McMahon
____________________ By:__________________________________________
Secretary Vice President

Attest: MACKENZIE SERIES TRUST on behalf of
MACKENZIE NEW YORK MUNICIPAL FUND

/s/ Deborah P. Mason /s/ C. William Ferris
____________________ By:__________________________________________
Assistant Secretary Secretary/Treasury

EXHIBIT A to Agreement and Plan of Reorganization dated June 13, 1997 between
Thornburg Investment Trust (on behalf of Thornburg New York Intermediate
Municipal Fund) and Mackenzie Series Trust (on behalf of Mackenzie New York
Municipal Fund)

Subparagraph 4(a)(x): None.

STATEMENT OF ADDITIONAL INFORMATION
Relating to the Acquisition of the Assets of
MACKENZIE NATIONAL MUNICIPAL FUND,
a series of MACKENZIE SERIES TRUST
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
by and in exchange solely for Class A voting shares of
THORNBURG INTERMEDIATE MUNICIPAL FUND,
a series of THORNBURG INVESTMENT TRUST
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
(800) 847-0200

This Statement of Additional Information, relating specifically to the
proposed acquisition of substantially all of the assets of Mackenzie National
Municipal Fund ("Mackenzie Fund"), a series of Mackenzie Series Trust, by
Thornburg Intermediate Municipal Fund ("Thornburg Fund"), a series of
Thornburg Investment Trust, in exchange solely for Class A voting shares of
Thornburg Fund, consists of this cover page and the following documents, each
of which is attached hereto and incorporated by reference herein:

1. Thornburg Intermediate Municipal Funds Statement of Additional
Information dated February 1, 1997, as revised May 6, 1997;

2. Mackenzie Series Trust Statement of Additional Information dated
October 25, 1996;

3. Thornburg Intermediate Municipal Fund Annual Report, September 30,
1996;

4. Thornburg Intermediate Municipal Fund Semiannual Report, March 31,
1997;

5. Mackenzie National Municipal Fund Annual Report, June 30, 1996; and

6. Mackenzie National Municipal Fund Semiannual Report, December 31,
1996.

The financial statements of Mackenzie National Municipal Fund contained
in its Annual Report to shareholders for the fiscal year ended June 30, 1996
have been audited by Coopers & Lybrand, L.L.P., that Fund's independent
auditors. The financial statements of Thornburg Intermediate Municipal Fund
contained in its Annual Report to shareholders for the fiscal year ended
September 30, 1996 have been audited by McGladrey & Pullen, LLP, that Fund's
independent auditors.

This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated July 28, 1997 relating to the above
referenced acquisition may be obtained from Thornburg Investment Trust at the
number and address shown above. This Statement of Additional Information
relates to, and should be read with, the Prospectus/Proxy Statement.

The date of this Statement of Additional Information is July 28, 1997.

<PAGE>
<PAGE> THORNBURG INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
for
THORNBURG INTERMEDIATE MUNICIPAL FUNDS
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501

Thornburg Intermediate Municipal Funds (the "Funds") are series of
Thornburg Investment Trust (the "Trust"), each with a separate investment
portfolio and each having one or more classes of shares:

Thornburg Alabama Intermediate Municipal Fund
("Intermediate Alabama Fund")

Thornburg Arizona Intermediate Municipal Fund
("Intermediate Arizona Fund")

Thornburg Florida Intermediate Municipal Fund
("Intermediate Florida Fund")

Thornburg Intermediate Municipal Fund
("Intermediate National Fund")

Thornburg New Mexico Intermediate Municipal Fund
("Intermediate New Mexico Fund")

Thornburg Pennsylvania Intermediate Municipal Fund
("Intermediate Pennsylvania Fund")

Thornburg Tennessee Intermediate Municipal Fund
("Intermediate Tennessee Fund")

Thornburg Texas Intermediate Municipal Fund
("Intermediate Texas Fund")

Thornburg Utah Intermediate Municipal Fund
("Intermediate Utah Fund")

The Funds' investment adviser is Thornburg Management Company, Inc.
(TMC).

This Statement of Additional Information relates to the investments
proposed to be made by the Funds, investment policies governing the Funds,
the Funds' management, and other issues of interest to a prospective
purchaser of shares in the Funds.

This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Funds' Prospectus dated February 1, 1997. A
copy of the Prospectus may be obtained at no charge by writing to the
distributor of the Funds' shares, Thornburg Securities Corporation (TSC), at
119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501.

The Trust's name was "Thornburg Income Trust" until October 1, 1995.

The date of this Statement of Additional Information is February 1,
1997, as revised May 6, 1997.
<PAGE>
TABLE OF CONTENTS

Page
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INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . 1
Municipal Obligations . . . . . . . . . . . . . . . . . . 3
Ratings . . . . . . . . . . . . . . . . . . . . . . . . . 6
Temporary Investments . . . . . . . . . . . . . . . . . . 8
Repurchase Agreements . . . . . . . . . . . . . . . . . . 8
U.S. Government Obligations . . . . . . . . . . . . . . . 9

INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . 9

YIELD AND RETURN COMPUTATION:
Performance and Portfolio Information . . . . . . . . . . . . 12
Computation of Yield and Return - In General . . . . . . 12
Additional Portfolio and Performance Information . . . . 13

REPRESENTATIVE PERFORMANCE INFORMATION . . . . . . . . . . . .14
Thornburg Intermediate Municipal Fund
(Classes A and C) . . . . . . . . . . . . . . .14
Thornburg New Mexico Intermediate Municipal Fund
(Class A) . . . . . . . . . . . . . . . . . . .15
Thornburg Florida Intermediate Municipal Fund
(Class A) . . . . . . . . . . . . . . . . . . .16

DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . . . 18
Distributions . . . . . . . . . . . . . . . . . . . . . .18
Federal Income Tax Matters . . . . . . . . . . . . . . . 18
State and Local Tax Aspects . . . . . . . . . . . . . . .21
Accounts of Shareholders . . . . . . . . . . . . . . . . 22

INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS . .22
Investment Advisory Agreement . . . . . . . . . . . . . .22
Administrative Services Agreement . . . . . . . . . . . .24

SERVICE AND DISTRIBUTION PLANS . . . . . . . . . . . . . . . .25
Service Plans - All Classes . . . . . . . . . . . . . . .25
Class C Distribution Plan . . . . . . . . . . . . . . . .26

PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . .27

MANAGEMENT AND HOLDERS OF SECURITIES . . . . . . . . . . . . .28

HOW TO PURCHASE FUND SHARES . . . . . . . . . . . . . . . . . 32

NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . 35

REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . .35

DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . 35

INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . .36

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . .36
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

The primary investment objective of each of the Funds is to provide for
its shareholders as high a level of current income exempt from Federal income
tax as is consistent, in the view of the Funds' investment adviser, TMC, with
preservation of capital. The Alabama, Arizona, New Mexico, Pennsylvania and
Tennessee Funds also seek to provide as high a level of current income exempt
from state individual income taxes as is consistent, in the view of TMC, with
preservation of capital. The Florida and Pennsylvania Funds seek exemption
from those states' imposition of taxes on intangible personal property. A
secondary investment objective of the Funds is reducing fluctuations in net
asset value per share relative to long-term municipal bond portfolios, by
maintaining a portfolio with a dollar-weighted average maturity that will
normally not exceed three to ten years. There is a risk in all investments,
however, and there can be no assurance that the Funds' objectives will be
achieved. The objective of preservation of capital may preclude the Funds
from obtaining the highest available yields. The National, New Mexico and
Texas Funds were organized on June 4, 1991. The Arizona Fund was organized
on January 24, 1994. The other Funds were organized on October 4, 1993.

The New Mexico Fund commenced investment operations on June 21, 1991,
and the National Fund commenced investment operations on July 23, 1991. The
Florida Fund commenced investment operations on February 1, 1994.

The dollar-weighted average effective maturity of the Funds' portfolios
normally will not exceed three to ten years. Price changes in the Funds'
shares therefore can be expected to be more moderate than the per share
fluctuations of portfolios with longer-term bonds.

The Intermediate National Fund will seek to achieve its objectives by
investing in a diversified portfolio of obligations issued by state and local
governments. Each single state Fund will acquire Municipal Obligations
issued principally by the state having the same name as the Fund, and the
political subdivisions and the agencies thereof. Any Fund may invest in
obligations of United States possessions and territories or their agencies
and instrumentalities. Each single state Fund may invest more than 5% of its
portfolio assets in the securities of a single issuer provided that it may
not purchase any security (other than certain United States Government
securities) if, as a result, more than 5% of the Trust's total assets would
be invested in securities of a single issuer. See the discussion under the
caption "Investment Limitations."

Each Fund's assets will normally consist of (1) Municipal Obligations or
participation interests therein that are rated at the time of purchase within
the four highest grades Aaa, Aa, A, Baa by Moody's Investors Service
("Moody's"), or AAA, AA, A, BBB of Standard & Poor's Corporation ("S&P"), or
Fitch Investors Service ("Fitch"), (2) Municipal Obligations or participation
interests therein that are not rated by a rating agency, but are issued by
obligors that either have other comparable debt obligations that are rated
within the four highest grades by Moody's S&P or Fitch, or, in the case of
obligors whose obligations are unrated, are deemed by TMC to be comparable
with issuers having such debt ratings, and (3) a small amount of cash or
equivalents. In normal conditions, the Funds will hold cash pending
investment in portfolio securities or anticipated redemption requirements.
For an explanation of these ratings, please see "Ratings," page 6. to the
extent that unrated Municipal Obligations may be less liquid, there may be
somewhat greater risk in purchasing unrated Municipal Obligations than in
purchasing comparable, rated Municipal Obligations. If a Fund experienced
unexpected net redemptions, it could be forced to sell such unrated Municipal
Obligations at disadvantageous prices without regard to the Obligations'
investment merits, depressing the Fund's net asset value and possibly
reducing the Fund's overall investment performance.

Except to the extent that the Funds are invested in temporary
investments for defensive purposes, each Fund will, under normal conditions,
invest 100% of its net assets in Municipal Obligations and normally will not
invest less than 80% of its net assets in Municipal Obligations. This 80%
policy is a fundamental investment policy of the Funds and may be changed
only with the approval of a majority of the outstanding voting securities of
a given series of the Fund. Under normal conditions, each single state Fund
will attempt to invest 100%, and as a matter of fundamental policy, will
invest at least 65% of its net assets in Municipal Obligations which
originate in the state having the same name as the Fund.

The ability of the Funds to achieve their investment objectives is
dependent upon the continuing ability of issuers of Municipal Obligations in
which the Funds invest to meet their obligations for the payment of interest
and principal when due. In addition to using information provided by the
rating agencies, TMC will subject each issue under consideration for
investment to its own credit analysis in an effort to assess each issuer's
financial soundness. This analysis is performed on a continuing basis for
all issues held by the Funds. TMC subjects each issue under consideration
for investment to the same or similar credit analysis that TMC applies to
rated issues.

Credit ratings are helpful in evaluating bonds, but are relevant
primarily to the safety of principal and interest payments under the bonds.
These ratings do not reflect the risk that market values of bonds will
fluctuate with changes in interest rates. Additionally, credit rating
agencies may fail to change credit ratings in a timely fashion to reflect
events subsequent to initial ratings. The Funds' investment adviser, TMC,
reviews data respecting the issuers of the Funds' portfolio assets on an
ongoing basis, and may dispose of portfolio securities upon a change in
ratings or adverse events not reflected in ratings.

The Funds have reserved the right to invest up to 20% of each Fund's net
assets in "temporary investments" in taxable securities (of comparable
quality to the above tax-exempt investments) that would produce interest not
exempt from Federal income tax. Such temporary investments, which may
include repurchase agreements with dealers, banks or recognized financial
institutions that in the opinion of TMC represent minimal credit risk, may be
made due to market conditions, pending investment of idle funds or to afford
liquidity. See "Temporary Investments," at page 8. Such investments are,
like any investment, subject to market risks and fluctuations in value. In
addition, each Fund's temporary taxable investments may exceed 20% of its net
assets when made for defensive purposes during periods of abnormal market
conditions. The Funds do not expect to find it necessary to make temporary
investments in taxable investments.

No Fund will purchase securities if, as a result, more than 25% of the
Fund's total assets would be invested in any one industry. However, this
restriction will not apply to purchase of (i) securities of the United States
Government and its agencies, instrumentalities and authorities, or (ii) tax
exempt securities issued by other governments or political subdivisions,
because these issuers are not considered to be members of any industry. This
restriction may not be changed as to any Fund unless approved by a majority
of the outstanding shares of the Fund.

The Funds' investment objectives and policies, unless otherwise
specified, are not fundamental policies and may be changed by the Trustees
without shareholder approval.

Municipal Obligations

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

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

The Funds may invest in a variety of types of Municipal Obligations,
including but not limited to bonds, notes (such as tax anticipation and
revenue anticipation notes), commercial paper and variable rate demand
instruments. Variable rate demand instruments are Municipal Obligations or
participations therein, either publicly underwritten and traded or privately
purchased, that provide for a periodic adjustment of the interest rate paid
on the instrument and permit the holder to demand payment of the unpaid
principal amount and accrued interest upon not more than seven days' notice
either from the issuer or by drawing on a bank letter of credit, a guarantee
or insurance issued with respect to such instrument. Such Letters of Credit,
guarantees or insurance will be considered in determining whether a Municipal
Obligation meets a Fund's investment criteria. See the Prospectus under the
caption "Investment Objectives and Policies - Municipal Obligations." The
issuer of a variable rate demand instrument may have the corresponding right
to prepay the principal amount prior to maturity.

The Funds also may purchase fixed rate municipal demand instruments
either in the public market or privately. Such instruments may provide for
periodic adjustment of the interest rate paid to the holder. The "demand"
feature permits the holder to demand payment of principal and interest prior
to their final stated maturity, either from the issuer or by drawing on a
bank letter of credit, a guarantee or insurance issued with respect to the
instrument. In some cases these demand instruments may be in the form of
units, each of which consists of (i) a Municipal Obligation and (ii) a
separate put option entitling the holder to sell to the issuer of such option
the Municipal Obligation in such unit, or an equal aggregate principal amount
of another Municipal Obligation of the same issuer, issue and maturity as
such Municipal Obligation, at a fixed price on specified dates during the
term of the put option. In those cases, each unit taken as a whole will be
considered a Municipal Obligation, based upon an accompanying opinion of
counsel. A Fund will invest in a fixed rate municipal demand instrument only
if the instrument or the associated letter of credit, guarantee or insurance
is rated within the three highest grades of a nationally recognized rating
agency, or, if unrated, is deemed by TMC to be of comparable quality with
issues having such debt ratings. The credit quality of such investments will
be determined on a continuing basis by TMC under the supervision of the
Trustees.

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

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

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

Municipal Leases usually grant the lessee the option to purchase the
leased property prior to maturity of the obligation by payment of the unpaid
principal amount of the obligation and, in some cases, a prepayment fee.
Such prepayment may be required in the case of loss or destruction of the
property. The prepayment of the obligation may reduce the expected yield on
the invested funds if interest rates have declined below the level prevailing
when the obligation was purchased.

A Fund will not invest in illiquid securities if, as a result of the
investment, more than 10% of its net assets will be invested in illiquid
securities. For purposes of this limitation, "illiquid securities" shall be
deemed to include (1) Municipal Leases subject to non-appropriation risk
which are not rated at the time of purchase within the four highest grades by
Moody's or S&P and not subject to remarketing agreements (or not currently
subject to remarketing, pursuant to the conditions of any such agreement then
in effect, with a responsible remarketing party, deemed by TMC to be capable
of performing its obligations), (2) repurchase agreements maturing in more
than seven days, (3) securities which the Funds are restricted from selling
to the public without registration under the Securities Act of 1933, and
(4) other securities or participations not considered readily marketable by
the Funds, provided that for purposes of the foregoing an unrated Municipal
Lease which is backed by an irrevocable bank letter of credit or an insurance
policy, issued by a bank or insurer deemed by TMC to be of high quality and
minimal credit risk, will not be deemed to be illiquid.

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

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

Ratings

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

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

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

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

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

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

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

Temporary Investments

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

Repurchase Agreements

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

U.S. Government Obligations

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

INVESTMENT LIMITATIONS

The Funds have adopted the following fundamental investment policies
which may not be changed unless approved by a majority of the outstanding
shares of each Fund or "series" of shares that would be affected by such
change. Under the Investment Company Act of 1940 (the "Act"), a "vote of the
majority of the outstanding voting securities" of a particular series means
the affirmative vote of the lesser of (1) more than 50% of the outstanding
shares of such series or (2) 67% or more of the shares of such series present
at a shareholders' meeting if more than 50% of the outstanding shares of such
series are represented at the meeting in person or by proxy.

A Fund may not:

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

(2) The Intermediate National Fund may not purchase any security if,
as a result, more than 5% of its total assets would be invested in securities
of any one issuer, excluding obligations of, or guaranteed by, the United
States government, its agencies, instrumentalities and authorities. Any
single state Fund may invest more than 5% of its portfolio assets in the
securities of a single issuer provided that it may not purchase any security
(other than securities issued or guaranteed as to principal or interest by
the United States or its instrumentalities) if, as a result, more than 5% of
the Trust's total assets would be invested in securities of a single issuer;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(18) Purchase the securities of any issuer if as a result more than 10%
of the value of the Fund's net assets would be invested in restricted
securities, unmarketable securities and other illiquid securities (including
repurchase agreements of more than seven days maturity and other securities
which are not readily marketable).

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

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

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

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

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

YIELD AND RETURN COMPUTATION:
Performance and Portfolio Information

Computation of Yield and Return - In General

The return or yield of any Fund (or class of any Fund) of the Trust may,
from time to time, be quoted in reports, sales literature and advertisements
published by a Fund, the Funds' principal underwriter, or investment dealers
offering shares issued by the Trust. Any such quotation must include a
standardized calculation which computes yield for a 30-day or one month
period by dividing a portfolio's net investment income per share during the
period by the maximum offering price on the last day of the period. The
standardized calculation may include the effect of semiannual compounding and
will reflect amortization of premiums for those bonds which have a market
value in excess of par. New schedules based on market value will be computed
each month for amortizing premiums. Provided that any such quotation also is
accompanied by the standardized calculation referred to above, any Fund of
the Trust also may quote non-standardized performance data of its classes for
a specified period by dividing the net investment income per share for that
period by either the Fund's average public offering price per share for that
same period or the offering price per share on the first or last day of the
period, and multiplying the result by 365 divided by the number of days in
the specified period. For purposes of this non-standardized calculation net
investment income will include accrued interest income plus or minus any
amortized purchases discount or premium less accrued expenses. The primary
differences between the yield calculations obtained using the standardized
performance measure and any non-standardized performance measure will be
caused by the following factors: (1) The non-standardized calculation may
cover periods other than the 30-day or one month period required by the
standardized calculation; (2) The non-standardized calculation may reflect
amortization of premium based upon historical cost rather than market value.
Amortization of premium based upon historical cost is required by the
Internal Revenue Service for tax reporting purposes; (3) The non-standardized
calculation may reflect the average offering price per share for the period
of the beginning offering price per share for the period, whereas the
standardized calculation will always reflect the maximum offering price per
share on the last day of the period; (4) the non-standardized calculation may
reflect an offering price per share other than the maximum offering price;
provided that any time any Fund's performance is quoted in reports, sales
literature or advertisements using a public offering price, the performance
computed by using the Fund's maximum public offering price also will be
quoted in the same piece; (5) The non-standardized performance quotation may
include the effective return obtained by compounding the monthly dividends.

Any performance computation also must include average annual total
return quotations for the 1, 5 and 10 year periods ended on the date of the
most recent balance sheet included in the registration statement, computed by
finding the average annual compounded rates of return over such periods which
would equate the initial amount invested at the maximum public offering price
to the ending redeemable value. To the extent that a Fund or a class has
been in operation less than 1, 5 and 10 years, the time period during which
the Fund or the class has been in operation will be substituted for any 1, 5
or 10 year period for which a total return quotation is not obtainable.

Yield or total return quotations described in this section also may be
quoted on a "taxable equivalent yield" basis, provided that the following
information is furnished: (1) a standardized taxable equivalent yield based
on a 30-day or one month period ended on the date of the most recent balance
sheet included in the registration statement; (2) the length of and the last
day of the base period used in computing the quotation; and (3) a description
of the method by which the quotation is computed.

Additional Portfolio and Performance Information

Any of the Funds also may illustrate performance or the characteristics
of its investment portfolio or classes of the Fund through graphs, tabular
data or other displays which describe (i) the average portfolio maturity of
the Fund's portfolio securities relative to the maturities of other
investments, (ii) the relationship of yield and maturity of the Fund to the
yield and maturity of other investments (either as a comparison through use
of standard bench marks or indices such as the Treasury yield curve), (iii)
changes in the Fund's share price or net asset value relative to changes in
the value of other investments, and (iv) the relationship over time of
changes in the Fund's (or other investments') net asset value or price and
the Fund's (or other investments') investment return.

REPRESENTATIVE PERFORMANCE INFORMATION

Thornburg Intermediate Municipal Fund (Classes A and C)

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

Standardized Method of Computing Yield. The yields of the Intermediate
National Fund Class A and Class C shares for the one month period ended
September 30, 1996, computed in accordance with the standardized calculation
described above, were 4.62% and 4.39% for Class A shares and Class C shares,
respectively. This method of computing yield does not take into account
changes in net asset value.

Non-standardized Method of Computing Yield. The Intermediate National
Fund's nonstandardized yields, for Class A and Class C shares computed in
accordance with its non-standardized method for the 7-day period ended
September 30, 1996, were 5.01% and 4.80% for Class A shares and Class C
shares, respectively. This nonstandardized method differs from the
standardized method of computing yield in that the nonstandardized yield is
computed for the 7-day period rather than a 30-day or one month period, the
nonstandardized yield reflects amortization of premium based upon historical
cost rather than market value, and the nonstandardized yield is computed by
compounding dividends monthly rather than semiannually. This method of
computing performance does not take into account changes in net asset value.

Taxable Equivalent Yield. The Intermediate National Fund's taxable
equivalent yields for Class A and Class C shares, computed in accordance with
the methods described above using a maximum federal tax rate of 39.6%, are
shown below for each of the indicated periods ending September 30, 1996:

<TABLE>
Taxable
Equivalent
Yield Yield
----- ----------
<S> <C> <C>
Standardized Method
30 days ended 09/30/96
Class A 4.62% 7.65%
Class C 4.39% 7.27%

Non-standardized Method
7 days ended 09/30/96
Class A 5.01% 8.29%
Class C 4.80% 7.95%
30 days ended 09/30/96
Class A 4.99% 8.26%
Class C 4.78% 7.91%
</TABLE>

The nonstandardized method of computation differs from the standardized
method in that the nonstandardized yield for the 7-day period is computed on
a basis of seven days rather than the standard 30-day or one month period,
the nonstandardized yield reflects amortization of premium based upon
historical cost rather than market value, and the nonstandardized yield is
computed by compounding dividends monthly rather than semiannually. The
standardized and nonstandardized methods of computing yield and taxable
equivalent yield do not take into account changes in net asset value.

Average Annual Total Return. The Intermediate National Fund's Class A
and Class C total return figures are set forth below for the period shown
ending September 30, 1996. Class A shares were first offered on July 23,
1991, and Class C shares were first offered on September 1, 1994. The data
for Class A shares reflect deduction of the maximum sales charge of 3.50%
upon purchase. The data for Class C shares held for less than one year
reflect deduction of a contingent deferred sales charge of .60%. These data
assume reinvestment of all dividends at net asset value.
<TABLE>
1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
<S> <C> <C> <C> <C>
Class A 1.93% 6.77% N/A 6.86%
Class C 4.51% N/A N/A 6.08%
</TABLE>

Thornburg New Mexico Intermediate Municipal Fund (Class A)

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

Standardized Method of Computing Yield. The yield of the Intermediate
New Mexico Fund Class A shares for the one month period ended September 30,
1996, computed in accordance with the standardized calculation described
above, was 4.39%. This method of computing yield does not take into account
changes in net asset value.

Non-standardized Method of Computing Yield. The Intermediate New Mexico
Fund's nonstandardized yield, computed in accordance with a non-standardized
method, for the 7-day period ended September 30, 1996, was 4.84%. This
nonstandardized method differs from the standardized method of computing
yield in that the nonstandardized yield is computed for the 7-day period
rather than a 30-day or one month period, the nonstandardized yield reflects
amortization of premium based upon historical cost rather than market value,
and the nonstandardized yield is computed by compounding dividends monthly
rather than semiannually. This method of computing performance does not take
into account changes in net asset value.

Taxable Equivalent Yield. The Intermediate New Mexico Fund's taxable
equivalent yield for Class A shares, computed in accordance with the methods
described above using a maximum federal tax rate of 39.6% and a maximum New
Mexico tax rate of 8.5%, is shown below for each of the indicated periods
ending on September 30, 1996:

<TABLE>
Taxable
Equivalent
Yield Yield
----- ----------
<S> <C> <C>
Standardized Method
30 days ended 09/30/96
Class A 4.39% 7.92%
Non-standardized Method
7 days ended 09/30/96
Class A 4.84% 8.77%
30 days ended 09/30/96
Class A 4.83% 8.75%
</TABLE>

Average Annual Total Return. The Intermediate New Mexico Fund's Class
A total return figures are set forth below for the periods shown ending
September 30, 1996. Class A shares were first offered on June 21, 1991. The
data for Class A shares reflect deduction of the maximum sales charge of
3.50% upon purchase. These data assume reinvestment of all dividends at net
asset value.

<TABLE>
1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
<S> <C> <C> <C> <C>
Class A 0.99% 5.86% N/A 6.15%
</TABLE>

Thornburg Florida Intermediate Municipal Fund (Class A)

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

Standardized Method of Computing Yield. The yield of the Intermediate
Florida Fund Class A shares for the one month period ended September 30,
1996, computed in accordance with the standardized calculation described
above, was 4.59%. This method of computing yield does not take into account
changes in net asset value.

Non-standardized Method of Computing Yield. The Intermediate Florida
Fund's nonstandardized yield, computed in accordance with a non-standardized
method for the 7-day period ending September 30, 1996, was 4.65%. The
nonstandardized method differs from the standardized method of computing
yield in that the nonstandardized yield is computed for the 7-day period
rather than a 30-day or one month period, the nonstandardized yield reflects
amortization of premium based upon historical cost rather than market value,
and the nonstandardized yield is computed by compounding dividends monthly
rather than semiannually. This method of computing performance does not take
into account changes in net asset value.

Taxable Equivalent Yield. The Intermediate Florida Fund's taxable
equivalent yield for Class A, computed in accordance with the methods
described above using a maximum federal tax rate of 39.6%, is shown below for
each of the indicated periods ending on September 30, 1996:
<TABLE>
Taxable
Equivalent
Yield Yield
----- ---------
<S> <C> <C>
Standardized Method
30 days ended 09/30/96
Class A 4.59% 7.60%
Non-standardized Method
7 days ended 09/30/96
Class A 4.65% 7.70%
30 days ended 09/30/96
Class A 4.63% 7.67%
</TABLE>

Average Annual Total Return. The Intermediate Florida Fund's Class A
total return figures are set forth below for the periods shown ending
September 30, 1996. Class A shares were first offered on February 1, 1994.
The data for Class A shares reflect deduction of the maximum sales charge of
3.50% upon purchase. These data also assume reinvestment of all dividends at
net asset value.

<TABLE>
1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
<S> <C> <C> <C> <C>
Class A 1.67% N/A N/A 3.28%
</TABLE>

Any quoted yield or return should not be considered a representation of
the yield or return in the future because neither the yield nor the return
are fixed. Actual performance will depend not only on the type, quality and
maturities of the investments held by the Funds and changes in interest rates
on those investments, but also on changes in a Fund's expenses during the
period. In addition, any change in a Fund's net asset value will affect its
yield and return.

DISTRIBUTIONS AND TAXES

Distributions

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

Federal Income Tax Matters

Each of the National, New Mexico and Florida Funds is qualified and
intends to continue its qualification under Subchapter M of the Internal
Revenue Code (the "Code") for tax treatment as a regulated investment
company. The other Funds intend to qualify for treatment under Subchapter M.
This tax treatment relieves each of the Funds from paying federal income tax
on income which is currently distributed to its shareholders. Each of the
Funds also intends to satisfy conditions (including requirements as to the
proportion of its assets invested in Municipal Obligations) which will enable
it to designate distributions from the interest income generated by its
investments in Municipal Obligations, which are exempt from federal income
tax when received by the Funds, as Exempt Interest Dividends. Shareholders
receiving Exempt Interest Dividends will not be subject to federal income tax
on the amount of those dividends, except to the extent the alternative
minimum tax may be applicable.

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

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

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

Any net long-term capital gains realized by the Funds, whether
distributed in cash or reinvested in additional shares, must be treated as
long-term capital gains by shareholders regardless of the length of time
investors have held their shares. If a Fund should have net undistributed
capital gains in any year, the Fund would pay the tax on such gains and each
shareholder would be deemed, for federal tax purposes, to have paid his or
her pro rata share of such tax.

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

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

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

Although the Funds currently include nine investment portfolios and
three series of shares outstanding at the date of this Statement of
Additional Information, the Funds' Trustees are authorized to divide the
shares into other separate series, and to establish additional portfolios
pertaining thereto. Each additional series of shares would relate to a
separate investment portfolio that would be different from the portfolios
covered by this Statement of Additional Information. The Trust expects that
it may create other separate state or regional portfolios with investments
concentrated in a particular state or region. The additional separate
portfolios may be attractive for investors seeking to concentrate their
investments and to minimize their liability for state income taxes on
interest income earned by the respective portfolios or for minimizing taxes
on intangibles, depending upon the particular states. Separate series of the
Trust will be treated under the Code as separate corporations except with
respect to the definitional requirements under Section 851 (a) of the Code.
The legislative history of the Tax Reform Act of 1986, which amended the
Code, indicates that the term "fund" means a segregated portfolio of assets,
the beneficial interest of which is owned by the holders of a class or series
of stock of the regulated investment company that is preferred over all other
classes or series in respect of such portfolio of assets. The capital gains
and losses of each series will belong solely to the holders of the shares of
that series and will not be aggregated with the capital gains and losses of
other series.

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

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

For taxable years beginning after 1989, the Code provides that the use
of adjusted net book income will be replaced by the use of adjusted current
earnings in computing corporate taxes. The adjusted current earnings of a
corporation will include Exempt Interest Dividends in calculating the
alternative minimum tax on corporations to the extent that such Dividends are
not otherwise treated as a preference item for the reasons discussed above.
Exempt Interest Dividends are included in effectively connected earnings and
profits for purposes of computing the branch profits tax on certain foreign
corporations doing business in the United States.

Redemption or resale of shares will be a taxable transaction for federal
income tax purposes and the shareholder will recognize gain or loss in an
amount equal to the difference between the shareholder's basis in the shares
and the amount realized by the shareholder on the redemption or resale.
Assuming that the shareholder holds the shares as a capital asset, the gain
or loss will be a capital gain or loss and will be long term if the shares
were held for more than 12 months.

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

State and Local Tax Aspects

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

Distributions attributable to interest on obligations originating in
Alabama, Arizona, New Mexico and Tennessee will not be subject to personal
income taxes imposed by the state of the same name as the Fund on residents
of that state. For example, an individual resident in New Mexico, who owns
shares in the New Mexico Fund, will not be required by New Mexico to pay
income taxes on interest attributable to obligations originating in that
state. Capital gains distributions are taxable by these states, irrespective
of the origins of the obligations from which the gains arise.

Individual shareholders in Pennsylvania will not be subject to
Pennsylvania income tax on distributions attributable to interest on
obligations originating in Pennsylvania, or distributions attributable to
gains on dispositions of obligations of Pennsylvania and its political
subdivisions and obligations of the United States and its territories and
possessions. Additionally, individual shareholders will be exempt from
Pennsylvania personal property tax on their Pennsylvania Fund shares to the
extent the Fund's assets consist of obligations described in the preceding
sentence. Individual residents in Pittsburgh will enjoy a similar exemption
from personal property taxes imposed by the City and School District of
Pittsburgh.

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

With respect to distributions of interest income from the Intermediate
National Fund, the laws of the several states and local taxing authorities
vary with respect to the taxation of such distributions, and shareholders of
the Fund are advised to consult their own tax advisers in that regard. In
particular, prospective investors who are not individuals are advised that
the preceding discussion relates primarily to tax consequences affecting
individuals, and the tax consequences of an investment by a person which is
not an individual may be very different. The Intermediate National Fund will
advise shareholders within 60 days of the end of each calendar year as to the
percentage of income derived from each state as to which it has any Municipal
Obligations in order to assist shareholders in the preparation of their state
and local tax returns.

Accounts of Shareholders

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

The monthly distributions of interest income, net of expenses, and the
annual distributions of net realized capital gains, if any, will be credited
to the accounts of shareholders in full and fractional shares of their Fund
at net asset value on the payment or distribution date, as the case may be.

The issuance and delivery of certificates for shares is unnecessary, and
shareholders are thereby relieved of the responsibility of safekeeping. Upon
written request to the Transfer Agent, a certificate will be issued for any
or all of the full shares credited to a shareholder's account. Certificates
which have been issued to a shareholder may be returned at any time for
credit to his or her account.

INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS

Investment Advisory Agreement

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

TMC is investment adviser for Thornburg Limited Term Municipal Fund,
Inc., a series investment company with two fund series having aggregate
assets of approximately $1,030,602,000 as of June 30, 1996. TMC also acts as
investment adviser for Thornburg Limited Term U.S. Government Fund, Thornburg
Limited Term Income Fund and Thornburg Value Fund, separate series of the
Trust which had assets of $142,299,041, $26,925,191 and $16,704,852,
respectively, as of September 30, 1996. TMC is also a sub-adviser for Daily
Tax-Free Income Fund, Inc., a registered investment company.

TMC will provide continuous professional investment supervision under
the Investment Advisory Agreement. In addition to managing each Fund's
investments, TMC will administer the Fund's business affairs, provide office
facilities and certain related services. Pursuant to the Investment Advisory
Agreement, each of the Funds will pay to TMC a monthly management fee at an
annual percentage rate displayed in the Prospectus. All fees and expenses
are accrued daily and deducted before payment of dividends to investors. In
addition to the investment management fee of TMC, the Funds will pay all
other costs and expenses of their operations. The Funds also will bear the
expenses of registering and qualifying the Funds and the shares for
distribution under federal and state securities laws, including legal fees.

The Investment Advisory Agreement was approved for the Intermediate New
Mexico Fund, the Intermediate National Fund and the Intermediate Texas Fund
on June 4, 1991 by the Trustees of the Funds, including a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Funds or TMC, and became effective for the New Mexico Fund and the National
Fund on June 20, 1991. The Investment Advisory Agreement was similarly
approved on October 4, 1993 by the Trustees for the Intermediate Alabama
Fund, Intermediate Florida Fund, Intermediate Pennsylvania Fund, Intermediate
Tennessee Fund and Intermediate Utah Fund. The Investment Advisory Agreement
was approved for the Intermediate Arizona Fund on January 24, 1994. The
Agreement is currently effective only for the Intermediate National Fund, the
Intermediate Florida Fund and the Intermediate New Mexico Fund, and will
become effective for any Fund upon its commencement of operations and sale of
shares. The Investment Advisory Agreement was presented to the shareholders
for approval at a special shareholder meeting called for each of the
Intermediate National Fund and Intermediate New Mexico Funds on January 24,
1992, at which the Agreement was approved by a majority of the outstanding
voting securities of each Fund. The Trustees do not intend to submit the
Agreement to shareholders of any other series for approval. The initial term
of this Agreement is two years, with extensions for successive 12-month
periods, provided that the continuation for a Fund is approved at least
annually by a majority of the Trustees who are not "interested" within the
meaning of the Investment Company Act of 1940 or by a vote of the majority of
the Fund's shares then outstanding.

The shareholders of each of the Funds approved a restatement of the
Investment Advisory Agreement applicable to each Fund at special meetings of
shareholders on April 16, 1996, to reduce the advisory fees under those
agreements and to remove from those agreements the requirement that TMC would
provide certain administrative services. Instead, effective July 1, 1996,
those services are provided under the terms of an Administrative Services
Agreement applicable to each class of shares issued by each Fund. The
Administrative Services Agreements are described below.

For the three most recent fiscal periods ended September 30, 1994, 1995
and 1996, with respect to each Fund, the amounts paid to TMC by each Fund
were as follows:
<TABLE>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Intermediate National Fund $1,062,263 $1,161,410 $1,227,432
Intermediate New Mexico Fund $670,111 $763,774 $688,883
Intermediate Florida Fund -0- -0- -0-
</TABLE>

The Florida Fund commenced operations on February 1, 1994. TMC has waived
and deferred its rights to fees in the foregoing periods as follows:
<TABLE>
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Intermediate National Fund $199,442 $191,779 $219,377
Intermediate New Mexico Fund $199,574 $101,636 $99,214
Intermediate Florida Fund $21,760 $73,419 $111,985
</TABLE>

The foregoing figures for 1994 and 1995, and for a portion of 1996, are based
upon the rates applicable before restatement of the Investment Advisory
Agreement applicable to each Fund. TMC may (but is not obligated to) waive
its rights to any portion of its fees in the future, and may use any portion
of its fee for purposes of shareholder and administrative services and
distribution of Fund shares. During the fiscal year ended September 30,
1996, the Funds reimbursed TMC in the amounts of $26,255 (National), $14,982
(New Mexico) and $0 (Florida) for certain accounting expenses incurred by TMC
on behalf of those Funds.

The Agreement may be terminated by either party, at any time without
penalty, upon 60 days' written notice, and will terminate automatically in
the event of its assignment. Termination will not affect the right of TMC to
receive payments on any unpaid balance of the compensation earned prior to
termination. The Agreement further provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of TMC, or of reckless
disregard of its obligations and duties under the Agreement, TMC will not be
liable for any action or failure to act in accordance with its duties
thereunder.

Administrative Services Agreements

Administrative services are provided to each class of shares issued by
each of the Funds under an Administrative Services Agreement which requires
the delivery of administrative functions necessary for the maintenance of the
shareholders of the class, supervision and direction of shareholder
communications, assistance and review in preparation of reports and other
communications to shareholders, administration of shareholder assistance,
supervision and review of bookkeeping, clerical, shareholder and account
administration and accounting functions, supervision or conduct of regulated
regulatory compliance and legal affairs, and review and administration of
functions delivered by outside service providers to or for shareholders, and
other related or similar functions as may from time to time be agreed. The
Administrative Services Agreement specific to each Fund's Class A shares, and
Class C shares if applicable, provides that the class will pay a fee
calculated at an annual percentage of .125% of the class's average daily net
assets, paid monthly, together with any applicable sales or similar tax.
Services are currently provided under these agreements by TMC. For the
fiscal year ended September 30, 1996, each of the Funds paid the following
amounts to TMC under its Administrative Services Agreements for the share
classes shown:

Intermediate National Fund
--------------------------
Class A $76,153
Class C $2,250

Intermediate New Mexico Fund
----------------------------
Class A $40,674

Intermediate Florida Fund
-------------------------
Class A $6,249

The agreements applicable to each class may be terminated by either
party, at any time without penalty, upon 60 days' written notice, and will
terminate automatically upon assignment. Termination will not affect the
service provider's right to receive fees earned before termination. The
agreements further provide that in the absence of willful misfeasance, bad
faith or gross negligence on the part of the service provider, or reckless
disregard of its duties thereunder, the provider will not be liable for any
action or failure to act in accordance with its duties thereunder.

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

SERVICE AND DISTRIBUTION PLANS

Service Plans - All Classes

Each of the Funds has adopted a plan and agreement of distribution
pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("Service
Plan") which is applicable to Class A shares of the Fund and Class C shares
of each Fund which offers Class C shares. The Plan permits each Fund to pay
to TMC (in addition to the management fee and reimbursements described above)
an annual amount not exceeding .25 of 1% of the Fund's assets attributable to
the class of shares to reimburse TMC for specific expenses incurred by it in
connection with certain shareholder services and the distribution of that
class's shares to investors. TMC may, but is not required to, expend
additional amounts from its own resources in excess of the currently
reimbursable amount of expenses. Reimbursable expenses include the payment
of amounts, including incentive compensation , to securities dealers and
other financial institutions, including banks (to the extent permissible
under the Glass-Steagall Act and other federal banking laws), for
administration and shareholder services. The nature and scope of services
provided by dealers and other entities likely will vary from entity to
entity, but may include, among other things, processing new account
applications, preparing and transmitting to the Transfer Agent computer
processable tapes of shareholder account transactions, and serving as a
source of information to customers concerning the Funds and transactions with
the Funds. The Service Plan does not provide for accrued but unpaid
reimbursements to be carried over and paid to TMC in later years.

The Funds paid to TMC the amounts shown in the table below, under the
terms of the Service Plan, for the fiscal year ended September 30, 1996.
Amounts reimbursed to TMC under the Plan were paid by TMC principally as
compensation to securities dealers and other persons selling the Funds'
shares, for administration and shareholder services.

<TABLE>
Year ended 09/30/96 Class A Class C
------------------- ------- -------
<C> <C> <C>
National $595,596 $27,058
New Mexico $331,338
Florida $46,492
</TABLE>

Class C Distribution Plan

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

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

The Funds paid to TSC $11,210 under the Intermediate National Fund's
Class C Distribution Plan for the fiscal year ended September 30, 1996.
Amounts paid to TSC under the Plan were paid by TSC principally as
compensation to securities dealers and other persons selling the Funds'
shares.

The Glass-Steagall Act prohibits certain banks from underwriting mutual
fund shares, but the Funds do not believe that this prohibition will apply to
the arrangements described in the Plans. 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 Funds' ability to market their shares could
be impaired to a small extent. The Funds do not foresee that they will give
preference to banks or other depository institutions which receive payments
from TMC when selecting investments for the Funds.

Each Plan continues in effect for periods of 12 months each unless
terminated pursuant to its terms and may be continued from year to year
thereafter, provided that the continuance is approved at lease annually by a
vote of a majority of the Trustees, including a majority of the independent
Trustees cast in person at a meeting called for the purpose of voting on such
continuance. Each Plan also may be terminated at any time, without penalty,
if a majority of the independent Trustees or shareholders of a Fund class
vote to terminate the Plan for that class. So long as a Plan is in effect,
the selection and nomination of Trustees who are not "interested persons" of
a Fund shall be committed to the discretion of the Trustees who are not
"interested persons." The Plans may not be amended to increase materially
the amount of a Fund's payments thereunder without approval of the
shareholders of the affected classes. Under each Plan, the investment
adviser or the principal underwriter (as the case may be), or the Funds, by
a vote of a majority of the independent Trustees or of the holders of a
majority of the outstanding shares, may terminate the provisions retaining
the services of TMC or TSC under the Plan, without penalty. The Trustees
have the authority to approve continuance of a Plan without similarly
approving a continuance of the provisions retaining TMC or TSC thereunder.

To the extent that a Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act, it will remain in effect as such,
so as to authorize the use of the Fund's assets in the amounts and for the
purposes set forth therein, notwithstanding the occurrence of an assignment,
as defined by the 1940 Act and the rules thereunder. To the extent it
constitutes an agreement pursuant to a plan, it will terminate automatically
in the event of an "assignment." Upon termination, no further payments may
be made under the agreement except for amounts previously accrued by unpaid.
The Funds may continue to make payments pursuant to the Plan of the amounts
authorized to be paid, which may or may not be to TMC or TSC, as the case may
be, or the adoption of other similar arrangements, in each case by the Funds'
Trustees, including a majority of the independent Trustees by vote cast in
person at a meeting called for that purpose.

Information regarding the services rendered under the Plan and the
amounts paid therefor is provided to, and reviewed by, the Trustees on a
quarterly basis. In their quarterly review, the Trustees consider the
continued appropriateness of the Plan and the level of compensation provided
therein.

PORTFOLIO TRANSACTIONS

TMC, in effecting purchases and sales of portfolio securities for the
accounts of the Funds, will place orders in such manner as, in the opinion of
TMC, will offer the best price and market for the execution of each
transaction. Securities normally will be purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in
such securities, unless it appears that a better price or execution may be
obtained elsewhere. Purchases from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include the spread between the bid and asked price. Given the best
price and execution obtainable, it will be the practice of the Funds to
select dealers which, in addition, furnish research information (primarily
credit analyses of issuers) and statistical and other services to TMC. It is
not possible to place a dollar value on information and statistical and other
services received from dealers. Since it is only supplementary to TMC's own
research efforts, the receipt of research information is not expected
significantly to reduce TMC's expenses. In selecting among the firms
believed to meet the criteria for handling a particular transaction, TMC may
also give consideration to those firms which have sold or are selling shares
of the Funds. While TMC will be primarily responsible for the placement of
the Funds' business, the policies and practices of TMC in this regard must be
consistent with the foregoing and will at all times be subject to review by
the Trustees of the Funds.

TMC reserves the right to manage other investment companies and
investment accounts for other clients which may have investment objectives
similar to those of the Funds. Subject to applicable laws and regulations,
TMC will attempt to allocate equitably portfolio transactions among the Funds
and the portfolios of its other clients purchasing securities whenever
decisions are made to purchase or sell securities by the Funds and one or
more of such other clients simultaneously. In making such allocations the
main factors to be considered will be the respective investment objectives of
the Funds and such other clients, the size of investment commitments
generally held by the Funds and such other clients and opinions of the
persons responsible for recommending investments to the Funds and such other
clients. While this procedure could have a detrimental effect on the price
or amount of the securities available to the Funds from time to time, it is
the opinion of the Funds' Trustees that the benefits available from TMC's
organization will outweigh any disadvantage that may arise from exposure to
simultaneous transactions. The Trustees will review simultaneous
transactions.

The Funds' portfolio turnover rates for the two most recent fiscal years
are as follows:

<TABLE> 1995 1996
---- ----
<S> <C> <C>
Intermediate National Fund 32.20% 12.64%
Intermediate New Mexico Fund 17.06% 10.88%
Intermediate Florida Fund 89.60% 77.12%
</TABLE>

MANAGEMENT AND HOLDERS OF SECURITIES

The management of the Funds, including general supervision of the duties
performed by TMC under the Investment Advisory Agreements, is the
responsibility of its Trustees. There are six Trustees, two of whom are
"interested persons." The names of the Trustees and officers and their
principal occupations and other affiliations during the past five years are
set forth below, with the Trustees who are "interested persons" of the Funds
indicated by asterisks:

Name / Position / Principal Occupation During Past 5 Years
- ----------------------------------------------------------

H. Garrett Thornburg, Jr.,* 50 / Trustee, President / Director, Chairman
(since January of 1987) and Treasurer of Thornburg Limited Term Municipal
Fund, Inc. (a mutual fund investing in certain municipal securities) since
its inception in 1984; Chairman and Director of Thornburg Mortgage Advisory
Corporation since its formation in 1989; Chairman and Director of Thornburg
Mortgage Asset Corporation (real estate investment trust) since its formation
in 1993; Executive Vice President of Daily Tax Free Income Fund, Inc. (mutual
fund) since its formation in 1982 and a Director from 1982 to June 1993;
President and Director of TMC since its formation in 1982.

David A. Ater, 51 / Trustee / Principal in Ater & Ater Associates, Santa Fe,
New Mexico (developer, planner and broker of residential and commercial real
estate) since 1990; owner, developer and broker for various real estate
projects; Director of Thornburg Mortgage Asset Corporation (real estate
investment trust) since 1994.

J. Burchenal Ault, 70 / Trustee / Independent Fund Raising Counsel, May 1986
to present; Trustee, Woodrow Wilson International Center for Scholars;
Provost, St. John's College, Santa Fe, New Mexico, from 1986 through May
1991; Director of Thornburg Limited Term Municipal Fund, Inc. since its
formation in 1984; Director of Farrar, Strauss & Giroux (publishers) since
1968.

Forrest S. Smith, 66 / Trustee / Attorney in private practice, Santa Fe, New
Mexico; shareholder Catron, Catron & Sawtell (law firm), Santa Fe, New
Mexico, 1988 to present.

Brian J. McMahon,* 41 / Trustee, Vice President and Assistant Secretary /
President of Thornburg Limited Term Municipal Fund, Inc. since January, 1987;
Managing Director of TMC since December 1985 and a Vice President since April
1984.

James W. Weyhrauch, 37 / Trustee / Executive Vice President and Director,
Nambe' Mills, Inc. (manufacturer), Santa Fe, New Mexico, 1986 to present.

Steven J. Bohlin, 37 / Vice President and Treasurer / Vice President of
Thornburg Limited Term Municipal Fund, Inc. since November 1988 and Assistant
Vice President from 1985 to November 1988; Managing Director of TMC since
December 1990 and Vice President since December 1988.

Dawn B. Shapland, 49 / Secretary and Assistant Treasurer / Secretary,
Thornburg Limited Term Municipal Fund, Inc. since its formation in 1984; Vice
President, Daily Tax Free Income Fund, Inc. since 1989; Managing Director of
TMC since 1985 and a Vice President since January 1984.

William Fries, 57 / Vice President / Managing Director of TMC since May 1995
and Vice President of Thornburg Limited Term Municipal Fund, Inc. since June
1995; Vice President of USAA Investment Management Company from 1982 to 1995.

Ken Ziesenheim, 42 / Vice President / Managing Director of TMC since 1995 and
Vice President of Thornburg Limited Term Municipal Fund, Inc. since 1995;
President of Thornburg Securities Corporation since 1995; Senior Vice
President of Financial Services, Raymond James & Associates, Inc. from 1991
to 1995.

George Strickland, 33 / Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since July 1992; Associate of
TMC since July 1991 and a Managing Director commencing in 1996; Investor
Representative, Calvert Group, Washington, D.C., 1989 to 1991.

Susan Rossi, 35 / Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since July 1992; Associate of TMC
since June 1990.

Jonathan Ullrich, 27 / Assistant Vice President / Assistant Vice President of
Thornburg Limited Municipal Fund, Inc. since July 1992; Associate, of TMC
since September 1991; student, Brown University, 1987 to 1991.

Christine E. Thompson, 30 / Assistant Vice President / Assistant Vice
President, Thornburg Limited Term Municipal Fund, Inc. since June 1993;
Associate of TMC since June 1992; Office Manager, Town and Country Janitorial
Services, Inc., Greenland, New Hampshire, September 1991 to February 1992;
Salesperson and later Department Manager, The Harvard Cooperative society,
Cambridge, Massachusetts, May, 1990 to September, 1991.

The business address of each person listed is 119 East Marcy Street,
Suite 202, Santa Fe, New Mexico 87501. Mr. Thornburg is a Director of TSC.

The officers and Trustees affiliated with TMC will serve without any
compensation from the Funds. The Trust currently pays each Trustee who is
not an employee of TMC or an affiliated company a quarterly fee of $1,000
plus a fee of $500 for each meeting of the Trustees attended by the Trustee,
pays an annual stipend of $1,000 to each Trustee who serves on the audit
committee or any other committee the Trustees may establish, and reimburses
Trustees for travel and out-of-pocket expenses incurred in connection with
attending meetings. For the fiscal year ended September 30, 1996, the Trust
paid the following amounts as compensation to Trustees:

<TABLE>
Pension or
Retirement Estimated Total
Aggregate Benefits Annual Compensation
Compensation Accrued as Benefits from Trust and
from Part of Upon Fund Complex
Trustee Trust Fund Expenses Retirement Paid to Trustee
- -------- ------------ ------------- ------------- ---------------
<C> <C> <C> <C> <C>
David A. $7,500 - 0 - - 0 - $7,500
Ater

J. Burchenal $7,500 - 0 - - 0 - $14,000
Ault

Forrest S. $7,500 - 0 - - 0 - $7,500
Smith

James W. $3,000 - 0 - - 0 - $3,000
Weyhrauch
</TABLE>

The Trust does not pay retirement or pension benefits.

As of October 31, 1996, National Fund had 19,332,375 shares outstanding,
New Mexico Fund had 10,023,614 shares outstanding, and Florida Fund had
1,775,277 shares outstanding.

As of October 31, 1996, the following persons owned, beneficially or of
record, 5% or more of a Fund's outstanding shares:
<TABLE>
No. of % of
Shareholder Fund Shares Total Shares
----------- ---- ------ ------------
<C> <C> <C> <C>
Merrill Lynch, Pierce, New Mexico Fund 590,035 5.89%
Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286

E. Good Florida Fund 97,336 5.48%
Naples, FL

</TABLE>

As of the same date, officers and trustees of the Trust, as a group (together
with family members), owned themselves or through affiliated persons 498,217
shares of the Intermediate New Mexico Fund representing 4.97% of the Fund's
outstanding shares on that date; officers and trustees of the Trust, as a
group (together with family members), owned themselves or through affiliated
persons less than 1% of the National Fund and less than 1% of the Florida
Fund.

HOW TO PURCHASE FUND SHARES

Procedures with respect to the manner in which shares of the Funds may
be purchased and how the offering price is determined are set forth in the
Prospectus under the caption "BUYING FUND SHARES IN GENERAL."

The Prospectus states that certain classes of investors, specified
below, may purchase Class A shares of the Funds at variations to the Public
Scale. The Trust may change or eliminate these variations at any time.

(1) Existing shareholders of a Fund may purchase shares upon the
reinvestment of dividends and capital gains distributions with no sales
charge. This practice is followed by many investment funds that charge sales
loads for new investments.

(2) Shareholders of a Fund who have redeemed all or any portion of
their investment in Class A shares of a Fund may purchase Class A shares with
no sales charge up to the maximum dollar amount of their shares redeemed
within 24 months of the redemption date, provided that the shareholder's
dealer or the shareholder must notify TSC or the Transfer Agent at the time
an order is placed that such a purchase would qualify for this variation to
the Public Scale. Similar notifications must be made in writing by the
dealer, the broker, or the shareholder when the order is placed by mail. The
sales charge will not be eliminated if notification is not furnished at the
time of the order or a review of TSC's or the Transfer Agent's records fail
to confirm the investor's represented previous holdings.

(3) Persons may purchase Class A shares of a Fund at no sales charge
if they redeem Class A shares of the Fund or any other series of Thornburg
Investment Trust, or of any series of Thornburg Limited Term Municipal Fund,
Inc., and reinvest some or all of the proceeds within 24 months. The
shareholder's dealer or the shareholder must notify TSC or the Transfer Agent
at the time an order is placed that the purchase qualifies for this variation
to the Public Scale.

The special classes of shareholders in subsections (2) and (3) above
were created as a convenience for those shareholders who invest in a Fund and
subsequently make a decision to redeem all or part of their investment for a
temporary period. In some cases, the existence of this special class of
shareholders will act as further inducement for certain individuals to make
an initial investment in a Fund, particularly if those investors feel that
they might have a temporary need to redeem all or part of their investment in
the coming years. Shareholders who have previously invested in a Fund are
more familiar than the general public with the Fund, its investment
objectives, and its results. The costs to TSC of its marketing to these
individuals and maintaining the records of their prior investment are minimal
compared to the costs of marketing the Fund to the public at large.

(4) Officers, Trustees, directors and employees of the Trust, TMC,
TSC, the Custodian and Transfer Agent, and counsel to the Trust, while in
such capacities, and members of their families, including trusts for the
benefit of the foregoing, may purchase shares of a Fund with no sales charge,
provided that they notify TSC or the Transfer Agent at the time an order is
placed that a purchase will qualify for this variation from the Public Scale.
The sales charge will not be eliminated if the notification is not furnished
at the time of the order or a review of Fund records fails to confirm that
the investor's representation is correct. The reduced sales charge to these
persons is based upon the Trust's view that their familiarity with and
loyalty to the Funds will require less selling effort by the Fund, such as a
solicitation and detailed explanation of the conceptual structure of the
Funds, and less sales-related expenses, such as advertising expenses,
computer time, paper work, secretarial needs, postage and telephone costs,
than are required for the sale of shares to the general public. Inclusion of
the families of these persons is based upon the Trust's view that the same
economies exist for sales of shares to family members.

(5) Employees of brokerage firms who are members in good standing with
the National Association of Securities Dealers, Inc. ("NASD"), employees of
financial planning firms who place orders for the Funds placed directly with
the Transfer Agent or TSC and through a broker/dealer who is a member in good
standing with the NASD, and employees of eligible non-NASD members which
accept orders for shares of the Fund on an agency basis and clear those
orders through a broker/dealer who is a member in good standing with NASD,
and their families, including trusts for the benefit of the foregoing, may
purchase shares of the Funds for themselves with no sales charge, provided
that (i) the order must be through a NASD member firm which has entered into
an agreement with TSC to distribute shares of the Fund, and (ii) the
shareholder's broker/dealer or the shareholder must notify TSC or the
Transfer Agent at the time an order is placed that the purchase would qualify
for this variation to the Public Scale. Similar notification must be made in
writing by the dealer, the broker, or the shareholder when such an order is
placed by mail. The reduced sales charge will not apply if the notification
is not furnished at the time of the order or a review of TSC's, the dealer's,
the broker's or the Transfer Agent's records fails to confirm that the
investor's representation is correct.

Because they sell the Funds' shares, these individuals tend to be much
more aware of the Funds than the general public. Any additional costs to TSC
of marketing to these individuals are minimal.

(6) Bank trust departments, companies with trust powers and investment
dealers and investment advisors who charge fees for service, and investment
dealers who utilize wrap fee and similar arrangements may purchase shares of
a Fund for their customers at no sales charge, provided that these persons
notify TSC or the Transfer Agent, at the time an order qualifying for this
reduced charge is placed, that such a purchase would qualify for this
variation to the Public Scale.

(7) Purchases of Class A shares of any Fund may be made at net asset
value provided that such purchases are placed through a broker that maintains
one or more omnibus accounts with the Funds and such purchases are made by
(i) investment advisers or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; (ii) clients of such investment
advisers or financial planners who place trades for their own accounts if the
accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker or agent; and (iii)
retirement and deferred compensation plans and trusts used to fund those
plans, including, but not limited to, those defined in Sections 401(a)
through 403(b) or 457 of the Internal Revenue Code and "rabbi trusts."
Investors may be charged a fee if they effect transactions in Fund shares
through a broker or agent.

These organizations may charge fees to clients for whose accounts they
purchase shares of a Fund in a fiduciary capacity. Where the reduced sales
charge applies, notification is required at the time the order is received,
and a review of TSC's or Transfer Agent's records must confirm that the
investor's representation is correct.

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

The investment decisions of the persons and organizations described in
the preceding paragraph tend to be made by informed advisers. Typically,
these persons are better able than the general public to evaluate quickly the
appropriateness of a Fund's investment objectives and performance in light of
their customers' goals. Costs of marketing to these persons and
organizations likely will be minimal.

(9) Such persons as are determined by the Trustees to have acquired
shares under special circumstances, not involving any sales expense to the
Fund or to TSC, may purchase shares of the Fund with no sales charge. This
variation from the Public Scale contemplates circumstances where a relatively
large sale can be made at no distribution cost to a large investor or a
number of smaller investors who are similarly situated. In the contemplated
circumstances, there would be no cost of distribution, or any costs would be
paid by TMC.

(10) Shares of the Fund may be sold at a reduced or no sales charge
pursuant to sponsored arrangements, which include programs under which an
organization makes recommendations to or permits group solicitation of its
employees, members or participants. Information on these arrangements is
available from TSC.

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

NET ASSET VALUE

Procedures for determining the net asset value of the Funds' shares are
set forth in the Prospectus.

The Funds will calculate the net asset value at least once daily on days
when the New York Stock Exchange is open for trading, and more frequently if
deemed desirable by the Trust. Net asset value will not be calculated on New
Year's Day, Washington's Birthday (on the third Monday in February), Good
Friday, Memorial Day (on the last Monday in May), Independence Day, Labor
Day, Thanksgiving Day, Christmas Day, on the preceding Friday if any of the
foregoing holidays falls on a Saturday, and on the following Monday if any of
the foregoing holidays falls on a Sunday. Under the Investment Company Act
of 1940, net asset value must be computed at least once daily on each day
(i) in which there is a sufficient degree of trading in a Fund's portfolio
securities that the current net asset value of its shares might be materially
affected by changes in the value of such securities and (ii) on which an
order for purchase or redemption of its shares is received.

REDEMPTION OF SHARES

Procedures with respect to redemption of Fund shares are set forth in
the Prospectus under the caption "Selling Fund Shares."

The Funds may suspend the right of redemption or delay payment more than
seven days (a) during any period when the New York Stock Exchange is closed
(other than customary weekend and holiday closings), (b) when trading in the
markets the Funds normally utilize is restricted, or an emergency exists as
determined by the Securities and Exchange Commission so that disposal of the
Funds' investments or determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the Securities and Exchange
Commission by order may permit for protection of the shareholders of a Fund.

DISTRIBUTOR

Pursuant to a Distribution Agreement with the Trust, Thornburg
Securities Corporation (TSC) acts as the principal underwriter of Fund shares
in a continuous offering of those shares. The Funds do not bear selling
expenses except (i) those involved in registering shares with the Securities
and Exchange Commission and qualifying them or the Funds with state
regulatory authorities, and (ii) expenses paid under the Service and
Distribution Plans which might be considered selling expenses. Terms of
continuation, termination and assignment under the Distribution Agreement are
identical to those described above with regard to the Investment Advisory
Agreement, except that termination other than upon assignment requires six
months' notice.

H. Garrett Thornburg, Jr. President, Treasurer and a Trustee of the
Funds, is also Director and controlling stockholder of TSC.

The following table shows the commissions and other compensation
received by TSC from each of the Funds for the most recent fiscal year ending
September 30, 1996, except for compensation or other amounts paid under Rule
12b-1 plans, which are described above under the caption "Service and
Distribution Plans."

<TABLE>
Fiscal Year Ended
September 30, 1996
- ------------------
<CAPTION> Net Underwriting
Aggregate Discounts and Compensation on
Underwriting Commissions Redemptions and Brokerage Other
Commissions Paid to TSC Repurchases Commissions Compensation
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Intermediate $646,924 $75,160 $1,579 - 0 - *
National Fund
Intermediate 223,862 26,797 - 0 - - 0 - *
New Mexico Fund
Intermediate 120,852 14,827 - 0 - - 0 - *
Florida Fund
* See "Service and Distribution Plans."
</TABLE>

Intermediate National Fund paid aggregate underwriting commissions with
respect to sales of its shares in the fiscal years ending September 30, 1994
and September 30, 1995 of $1,220,513 and 707,035, respectively; and TSC
retained net underwriting commissions in those fiscal years of $145,806 and
$58,440, respectively. Intermediate New Mexico Fund paid aggregate
underwriting commissions with respect to sales of its shares in the fiscal
years ending September 30, 1994 and September 30, 1995 of $677,160 and
$287,331, respectively; and TSC retained net underwriting commissions in
those fiscal years of $79,689 and $24,533, respectively. Intermediate
Florida Fund paid aggregate underwriting commissions with respect to sales of
its shares in the fiscal years ending September 30, 1994 and September 30,
1995 of $152,340 and $62,954, respectively; and TSC retained net underwriting
commissions in those fiscal years of $10,115 and $8,533, respectively.

INDEPENDENT AUDITORS

McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, is
the independent auditor of the Funds for the fiscal year ending September 30,
1997. Shareholders will receive semi-annual unaudited financial statements,
and annual financial statements audited by the independent auditors.

FINANCIAL STATEMENTS

Statements of Assets and Liabilities including Schedules of Investments
as of September 30, 1996, Statements of Operations for the year ended
September 30, 1996, Statements of Changes in Net Assets for the two years
ended September 30, 1996, Notes to Financial Statements, Financial
Highlights, and Independent Auditor's Reports dated October 25, 1996, for
Thornburg Intermediate Municipal Fund, Thornburg New Mexico Intermediate
Municipal Fund, and Thornburg Florida Intermediate Municipal Fund are
incorporated herein by reference from those Funds' respective Annual Reports
to Shareholders, September 30, 1996.

<PAGE>
MACKENZIE LIMITED TERM MUNICIPAL FUND
MACKENZIE NATIONAL MUNICIPAL FUND
MACKENZIE CALIFORNIA MUNICIPAL FUND
MACKENZIE NEW YORK MUNICIPAL FUND

series of

MACKENZIE SERIES TRUST
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432

STATEMENT OF ADDITIONAL INFORMATION

October 25, 1996

Mackenzie Series Trust (the "Trust") is a diversified open-end
management investment company that consists of four fully managed portfolios,
which are offered hereby. This Statement of Additional Information ("SAI")
describes the four portfolios listed above (each, a "Fund," and collectively,
the "Funds").

This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Funds dated October 25, 1996 (the "Prospectus"), which may
be obtained without charge from the Trust at the Distributor's address and
telephone number listed below.

INVESTMENT MANAGER

Mackenzie Investment Management Inc. ("MIMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111

DISTRIBUTOR

Mackenzie Ivy Funds Distribution, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
TABLE OF CONTENTS

PAGE

INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . 4

DEBT SECURITIES, IN GENERAL . . . . . . . . . . . . . . . . . 4
MUNICIPAL SECURITIES . . . . . . . . . . . . . . . . . . 4
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING
TO CALIFORNIA MUNICIPAL SECURITIES . . . . . . . . 7
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING
TO NEW YORK MUNICIPAL SECURITIES . . . . . . . . . 17
U.S. GOVERNMENT SECURITIES . . . . . . . . . . . . . . . 26
INVESTMENT-GRADE DEBT SECURITIES . . . . . . . . . . . . 27
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS . . . . 27
COMMERCIAL PAPER . . . . . . . . . . . . . . . . . . . . 28
REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . 28
BORROWING . . . . . . . . . . . . . . . . . . . . . . . . 28

RESTRICTED AND ILLIQUID SECURITIES. . . . . . . . . . . . . . 29
TEMPORARY INVESTMENTS . . . . . . . . . . . . . . . . . . 29

MACKENZIE NATIONAL MUNICIPAL FUND,
MACKENZIE CALIFORNIA MUNICIPAL FUND AND
MACKENZIE NEW YORK MUNICIPAL FUND ONLY. . . . . . . . . . . . 30
OTHER INVESTMENT TECHNIQUES . . . . . . . . . . . . . . . . . 31

INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . 31

ADDITIONAL RESTRICTIONS . . . . . . . . . . . . . . . . . . . 33

ADDITIONAL RIGHTS AND PRIVILEGES . . . . . . . . . . . . . . 34
AUTOMATIC INVESTMENT METHOD. . . . . . . . . . . . . . . 35
EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . 35
INITIAL SALES CHARGE SHARES. . . . . . . . . . . . . 35
CONTINGENT DEFERRED SALES CHARGE SHARES . . . . . . 35
LETTER OF INTENT . . . . . . . . . . . . . . . . . . . . 38
REINVESTMENT PRIVILEGE . . . . . . . . . . . . . . . . . 39
RIGHTS OF ACCUMULATION . . . . . . . . . . . . . . . . . 40
SYSTEMATIC WITHDRAWAL PLAN . . . . . . . . . . . . . . . 40

BROKERAGE ALLOCATION . . . . . . . . . . . . . . . . . . . . 41

TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . 43
PERSONAL INVESTMENTS BY EMPLOYEES OF THE ADVISER . . . . 46

COMPENSATION TABLE . . . . . . . . . . . . . . . . . . . . . 47

INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . 48
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES . . 48
DISTRIBUTION SERVICES . . . . . . . . . . . . . . . . . 50
RULE 18F-3 PLAN . . . . . . . . . . . . . . . . . . 52
RULE 12b-1 DISTRIBUTION PLANS . . . . . . . . . . . 53
RULE 12B-1 PAYMENTS BY THE FUNDS FOR DISTRIBUTION-
RELATED SERVICES . . . . . . . . . . . . . . . 54
DISTRIBUTION-RELATED EXPENSES BORNE BY IMDI . . . . 55
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . 56
FUND ACCOUNTING . . . . . . . . . . . . . . . . . . . . 56
TRANSFER AND DIVIDEND PAYING AGENT . . . . . . . . . . . 57
ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . 57
AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . 57

CAPITALIZATION AND VOTING RIGHTS . . . . . . . . . . . . . . 58
PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . . 59

NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . 60

PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . 61

REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 61

CONVERSION OF CLASS B SHARES . . . . . . . . . . . . . . . . 63

TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . 64
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . 64
DISCOUNT . . . . . . . . . . . . . . . . . . . . . . . . 65
DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . 66
DISPOSITION OF SHARES . . . . . . . . . . . . . . . . . 67
BACKUP WITHHOLDING . . . . . . . . . . . . . . . . . . . 68
OTHER TAXATION . . . . . . . . . . . . . . . . . . . . . 68
SPECIAL INFORMATION RELATING TO MACKENZIE CALIFORNIA
MUNICIPAL FUND . . . . . . . . . . . . . . . . . . 69
SPECIAL INFORMATION RELATING TO MACKENZIE NEW YORK
MUNICIPAL FUND . . . . . . . . . . . . . . . . . . 70

PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . 70
YIELD . . . . . . . . . . . . . . . . . . . . . . . 70
TAX-EQUIVALENT YIELD . . . . . . . . . . . . . . . 71
AVERAGE ANNUAL TOTAL RETURN . . . . . . . . . . . . 72
CUMULATIVE TOTAL RETURN . . . . . . . . . . . . . . 78

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 83

APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION ("S&P")
AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
CORPORATE BOND, COMMERCIAL PAPER AND MUNICIPAL
OBLIGATIONS RATINGS . . . . . . . . . . . . . . . . . . 84

APPENDIX B
TAX-EXEMPT VS. TAXABLE INCOME . . . . . . . 91

<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

Mackenzie Series Trust (the "Trust") is a diversified open-end
management investment company organized as a Massachusetts business trust on
April 22, 1985 under the name Industrial Series Trust. The Funds' investment
objectives and general investment policies are described in the Prospectus.
Additional information concerning the characteristics of the Funds'
investments is set forth below.

DEBT SECURITIES, IN GENERAL

Investment in debt securities involves both interest rate and credit
risk. Generally, the value of debt instruments rises and falls inversely with
fluctuations in interest rates. As interest rates decline, the value of debt
securities generally increases. Conversely, rising interest rates tend to
cause the value of debt securities to decrease. Bonds with longer maturities
generally are more volatile than bonds with shorter maturities. The market
value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields
due to the increased risk that the issuer will be unable to meet its
obligations on interest or principal payments at the time called
for by the debt instrument.

MUNICIPAL SECURITIES

To achieve its investment objectives as described in the Fund's
Prospectus, each Fund may invest in "investment grade" municipal securities,
i.e., securities within the four highest rating categories for Moody's
Investors Service, Inc. ("Moody's) or Standard & Poor's Corporation ("S&P").
A description of the ratings is contained in Appendix A to this SAI. Baa
securities are considered "medium grade" obligations by Moody's, and BBB is
the lowest classification which is still considered an "investment grade"
rating by S&P. Baa securities are described by Moody's as obligations on
which "[i]nterest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time." According to
Moody's, "[s]uch bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well." The ratings of Moody's and
S&P represent their respective opinions of the qualities of the securities
they undertake to rate and such ratings are general and are not absolute
standards of quality.

Each Fund may invest in both "general obligation bonds" and "revenue
bonds." General obligation bonds are secured by the issuer's pledge of its
full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable from the revenues derived from a
particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source, but not
from the general taxing power. Municipal bonds are issued for various public
purposes, including construction of a wide range of public facilities such as
bridges, highways, housing, hospitals, mass transportation, schools, streets,
and water and sewer works. Other public purposes for which municipal bonds
may be issued include the refunding of outstanding obligations, obtaining
funds for general operating expenses and obtaining funds to loan to other
public institutions and facilities, including certain types of industrial
facilities for water supply, gas, electricity or sewage or solid waste
disposal.

Industrial development bonds which pay tax-exempt interest are, in most
cases, revenue bonds and do not generally carry the pledge of the full faith
and credit of the issuer of such bonds. The payment of the principal and
interest on such industrial development bonds depends solely on the ability
of the user of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property so financed
as security for such payment. A Fund will not invest more than 5% of its
assets in securities where the principal and interest are the responsibility
of an industrial user with less than three years' operational history. In
addition, a Fund will not invest in industrial development bonds for the use
of privately-owned electric utilities.

There are, depending on numerous factors, variations in the risks
involved in holding municipal securities, both within a particular rating
classification and between classifications. The market values of outstanding
municipal bonds will vary as a result of the rating of the issue and changing
evaluations of the ability of the issuer to meet interest and principal
payments. Such market values will also change in response to changes in the
interest rates payable on new issues of municipal bonds. Should such
interest rates rise, the values of outstanding bonds, including those held in
a Fund's portfolio, would decline; should such interest rates decline, the
values of outstanding bonds would increase.

As a result of litigation or other factors, the power or ability of
issuers of municipal bonds to pay principal and/or interest might be
adversely affected. Municipal securities are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may
be enacted by Congress, state legislatures extending the time for payment of
principal or interest or both, or imposing other constraints upon enforcement
of such obligations or upon the power of municipalities to levy taxes.

A Fund may invest without percentage limitations in issues of municipal
securities which have similar characteristics, such as the location of their
issuers in the same geographic region or the derivation of interest payments
from revenues or similar projects (for example, electric utility systems,
hospitals, or housing finance agencies). Consequently, a Fund's portfolio of
municipal securities may be more susceptible to the risks of adverse
economic, political, or regulatory developments than would be the case with
a portfolio of securities required to be more diversified as to geographic
region and/or source of revenue.

For the purpose of certain requirements under the Investment Company Act
of 1940, as amended (the "1940 Act"), and revenues of a political subdivision
are separate from those of the government which created the subdivision and
the security is backed only by the assets and revenues of the subdivision,
the subdivision would be deemed to be the sole issuer. Similarly, in the
case of an industrial development bond or private activity bond, if that bond
is backed only by the assets and revenues of the nongovernmental user, then
the nongovernmental user would be deemed to be the sole issuer. If, however,
in either case, the creating government or some other entity guarantees the
security, the guarantee would be considered a separate security and would be
treated as an issue of the government or other agency.

Interest on certain types of industrial development bonds (or private
activity bonds) (generally small issues, and obligations to finance certain
exempt facilities which may be leased to or used by persons other than the
issuer) will not be exempt from Federal income tax when received by
"substantial users" or persons related to "substantial users" as defined in
the Internal Revenue Code of 1986, as amended (the "Code"). The term
"substantial user" generally includes any "non-exempt person" who regularly
uses in his or her trade or business a part of a facility financed from the
proceeds of industrial development bonds. The Funds may invest periodically
in industrial development bonds and private activity bonds and, therefore,
may not be an appropriate investment for entities which are substantial users
of facilities financed by such bonds or "related persons" of substantial
users. Generally, an individual will not be a related person of a
substantial user under the Code unless the person or his or her immediate
family (spouse, brothers, sisters and lineal descendants) owns directly or
indirectly in the aggregate more than 50% in value of the equity of the
substantial user.

Legislative developments may affect the value of the securities in a
Fund's portfolio, and therefore the value of the Fund's shares, as well as
the tax-exempt status of dividends. The Board of Trustees of the Trust will
monitor the progress of any such proposals to determine what, if any,
defensive action may be taken. If any legislation which would have a
material adverse effect on the ability of a Fund to pursue its objective were
adopted, the investment objective and policies of that Fund would be
reconsidered by the shareholders of that Fund.

RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL
SECURITIES: The following information as to certain California state (as
used in this subsection, the "State") risk factors is given to investors in
light of Mackenzie California Municipal Fund's policy of concentrating its
investments in California municipal issuers. Certain California
constitutional amendments, legislative measures, and voter initiatives, as
discussed below, could adversely affect the market values and marketability
of, or result in default of, existing obligations, including obligations that
may be held by the Fund. Obligations of the State or local governments may
also be affected by budgetary pressures affecting the State and economic
conditions in the State. The following information constitutes only a brief
summary, does not purport to be a complete description and is based on
information from sources believed by the Trust to be reliable, including
official statements relating to securities offerings of California issuers
and periodic publications by national ratings organizations. Such
information, however, has not been independently verified by the Trust.

Certain California municipal securities held by the Fund may be
obligations of issuers that rely in whole or in part on State revenues for
payment of these obligations. Property tax revenues and a portion of the
state's General Fund surplus are distributed to counties, cities and their
various taxing entities and the State assumes certain obligations theretofore
paid out of local funds. Whether and to what extent a portion of the State's
General Fund will be distributed in the future to counties, cities and their
various entities, is unclear.

Some of the California municipal securities held by the Fund may be
obligations of issuers who rely in whole or in part on ad valorem real
property taxes as a source of revenue. On June 6, 1978, "Proposition 13"
added Article XIIIA to the California Constitution. Briefly, Article XIIIA
limits ad valorem taxes on real property and generally restricts the ability
of taxing entities to increase real property tax revenues.

Legislation enacted by the California Legislature to implement Article
XIIIA (Statutes of 1978, Chapter 292, as amended) provides that
notwithstanding any other law, local agencies may not levy any ad valorem
property tax except to pay debt service on indebtedness approved by the
voters prior to July 1, 1978, and any bonded indebtedness for the acquisition
or improvement of real property approved on or after July 1, 1978 must be
approved by two-thirds of the voters voting on the proposition. In addition,
each county will levy the maximum tax permitted by Article XIIIA of $4.00 per
$100 assessed valuation. The apportionment of property taxes in fiscal years
after 1978-79 was revised pursuant to Statutes of 1979, Chapter 282, which
provided relief funds from state moneys beginning in fiscal year 1979-80 and
is designed to provide a permanent system for sharing state taxes and budget
funds with local agencies. Under Chapter 282, cities and counties receive
more of the remaining property tax revenues collected under Proposition 13,
instead of direct state aid. School districts receive a correspondingly
reduced amount of property taxes, but receive compensation directly from the
state and are given additional relief.

On November 6, 1979, California voters approved Proposition 4, which
added Article XIIIB to the California Constitution. Article XIIIB may have
an adverse impact on California state and municipal issuers because it
subjects State and local governments to an annual "appropriations limit,"
which prohibits them from spending certain moneys (called "appropriations
subject to limitation") in excess of the imposed appropriations limit. The
State's appropriations limit in each year is based on the limit for the prior
year, adjusted annually for changes in State per capita personal income and
changes in population, and adjusted, where applicable, for any transfer of
financial responsibility of providing services to or from another unit of
government. As originally enacted, the appropriations limit was based on
certain 1978-79 expenditures and adjusted annually to reflect changes in
cost-of-living and population. Starting in the 1991-92 fiscal year, the
appropriations limit was recalculated by taking the actual 1986-87 fiscal
year limit, and applying the annual adjustments as if Proposition 111
(discussed below) had been in effect. This recalculation resulted in an
increase of $1 billion to the State's appropriations limit in the 1990-91
fiscal year.

On November 4, 1986, California voters approved an initiative statute
known as "Proposition 62." This statute (i) requires that any tax for
general governmental purposes imposed by local governments be approved by
resolution or ordinance adopted by a two-thirds vote of the governmental
entity's legislative body and by a majority vote of the electorate of the
governmental entity; (ii) requires that any special tax (defined as taxes
levied for other than general governmental purposes) imposed by a local
governmental entity be approved by a two-thirds vote of the voters within
that jurisdiction; (iii) restricts the use of revenues from a special tax to
the purposes or for the service for which the special tax was imposed; (iv)
prohibits the imposition of ad valorem taxes on real property by local
governmental entities except as permitted by Article XIIIA of the California
Constitution; (v) prohibits the imposition of transaction taxes and sales
taxes on the sale of real property by local governments; (vi) requires that
any tax imposed by a local government on or after August 1, 1985 be ratified
by a majority of the electorate within two years of the adoption of the
initiative or be terminated by November 15, 1988; (vii) requires that, in the
event a local government fails to comply with the provisions of this measure,
a reduction in the amount of tax revenue allocated to such local government
occur in an amount equal to the revenues received by such entity attributable
to the tax levied in violation of the initiative; and (viii) permits these
provisions to be amended exclusively by the voters of the State. In
September 1988 the California Court of Appeals held that it was
unconstitutional to require that local tax measures be submitted to the
electorate, as described in (vi) above.

On November 8, 1988, voters approved "Proposition 98," which has
significantly altered the operation and effect of the Article XIIIB spending
limit, the first changes since its adoption in 1979. This combined
initiative, constitutional amendment and statute, called the "Classroom
Instructional Improvement and Accountability Act" (the "Act"), changes State
funding of public education below the university level and the operation of
the State's Appropriations Limit. Specifically, Proposition 98 requires that
(a) the California Legislature establish a prudent State reserve fund in an
amount as it shall deem reasonable and necessary, and (b) revenues in excess
of amounts permitted to be spent and which would otherwise be returned
pursuant to Article XIIIB by revision of tax rates or fee schedules, be
transferred and allocated (up to a maximum of 4%) to the State School Fund
and be expended solely for purposes of instructional improvement and
accountability. No such transfer or allocation of funds will be required if
certain designated State officials determine that annual student expenditures
and class size meet certain criteria as set forth in Proposition 98. Any
funds allocated to the State School Fund shall cause the appropriation limits
established in Article XIIIB to be annually increased for any such allocation
made in the prior year.

The Act also amends Article XVI to require that the State provide a
minimum level of funding for public schools and community colleges.
Commencing with the 1988-89 fiscal year, State moneys to support school
districts and community college districts shall equal or exceed the lesser
of: (a) an amount equaling the percentage of State general revenue bonds for
school districts and community college districts in fiscal year 1986-87, or
(b) an amount equal to the prior year's State general fund proceeds of taxes
appropriated under Article XIIIB plus allocated proceeds of local taxes,
after adjustment under Article XIIIB. The Act permits the enactment of
legislation, by a two-thirds vote, to suspend the minimum funding requirement
for one year.

"Proposition 111" was approved by the voters and took effect
on July 1, 1990. Among a number of important provisions, Proposition 111
recalculates spending limits for the State and local governments, allows
greater annual increases in the limits, allows the averaging of two years'
tax revenues before requiring action regarding excess tax revenues, reduces
the amount of the funding guarantee in recession years for school districts
and community college districts (but with a floor of 40.9 percent of State
General Fund tax revenues), removes the provision of Proposition 98 which
included excess moneys transferred to school districts and community college
districts in the base calculation for the next year, limits the amount of
State tax revenue over the limit which would be transferred to school
districts and community college districts, and exempts increased gasoline
taxes and truck weight fees from the State appropriations limit.
Additionally, Proposition 111 exempts from the State appropriations limit
funding for capital outlays.

In the years immediately following enactment, very few California
governmental entities operated near their appropriations limit; in the
mid-to-late 1980's, however, many entities were at or approaching their
limit. Many local entities have successfully sought voter approval for
4-year waivers of the limit and, under Proposition 111, may elect among
different measures of population in setting the limit. During fiscal year
1986-87, State receipts from proceeds of taxes exceeded its appropriations
limit by $1.138 billion, which was returned to taxpayers. Since that time,
appropriations subject to limitation were under the State limit. State
appropriations are estimated to be approximately $6.5 billion under the limit
for the 1995-96 fiscal year.

Article XIIIB, like Article XIIIA, may require further interpretation by
both the California Legislature and the courts to determine its applicability
to specific situations involving the State and local taxing authorities.
Depending upon such interpretation, Article XIIIB may limit significantly a
governmental entity's ability to budget sufficient funds to meet debt service
on bonds and other obligations.

Certain California municipal securities held by the Fund may
be obligations that are secured in whole or in part by a mortgage
or deed of trust on real property. Upon the default of a mortgage or deed of
trust with respect to California real property, the creditor's nonjudicial
foreclosure rights under the power of sale contained in the mortgage or deed
of trust are subject to the constraints imposed by California law upon
transfers of title to real property by private power of sale. During the
three-month period beginning with the filing of a formal notice of default,
the debtor is entitled to reinstate the home mortgage by making any
overdue payments. Under standard loan servicing procedures, the filing of
the formal notice of default does not occur unless at least three full
monthly payments have become due and remain unpaid. The power of sale is
exercised by posting and publishing a notice of sale for at least 20 days
after expiration of the three-month reinstatement period. Therefore, the
effective minimum period for foreclosing on a mortgage could be in excess of
seven months after the initial default. Such time delays in collections
could disrupt the flow of revenues available to an issuer for the payment of
debt service on the outstanding obligations if such defaults occur with
respect to a substantial number of home mortgages or deeds of trust securing
an issuer's obligations.

Certain California municipal securities held by the Fund may be
obligations that finance the acquisition of single family home mortgages for
low- and moderate-income mortgagors. These obligations may be payable solely
from revenues derived from the home mortgages and are subject to the
California statutory limitations on the transfer of title during foreclosure
proceedings as described above. Under California anti-deficiency
legislation, there is no personal recourse against a mortgagor of a single
family residence purchased with the loan secured by the mortgage.

Under California law, mortgage loans secured by single family
owner-occupied dwellings may be prepaid at any time. Prepayment charges on
such mortgage loans may be imposed only with respect to voluntary prepayments
made during the first five years of the mortgage loan's term, and cannot in
any event exceed six months' advance interest on the amount prepaid in excess
of 20% of the original principal amount of the mortgage loan. This
limitation could affect the flow of revenues available to an issuer for debt
service on the outstanding debt obligations which financed such home
mortgages.

In December 1991, Standard and Poor's Corporation ("S&P") downgraded its
rating of the State's general obligation bonds to "AA" from "AAA". As the
State's economy worsened and its budget deficit swelled, rating agency
officials closely monitored the State's budget progress. In February 1992,
Moody's Investors Service Inc. ("Moody's") downgraded its rating of the
State's general obligation bonds to "Aa1" from "Aaa". In April 1992, S&P
placed the State's general obligation bonds on its CreditWatch, indicating
the possibility of further downgrades should the State's budget and
recessionary problems persist. In July 1992, Moody's and S&P downgraded
their ratings of the State's general obligation bonds to "Aa" from "Aa1", and
to "A+" from "AA", respectively. On July 15, 1993, Moody's confirmed its
"Aa" rating of the State's general obligation bonds. However, on July 15,
1994, Moody's, S & P and Fitch Investors Service downgraded their ratings of
the State's general obligation bonds from "Aa" to "A1", "A+" to "A", and
"AA" to "A", respectively.

From mid-1990 until late 1993, California suffered a prolonged recession
coupled with deteriorating fiscal and budget conditions. During this period,
the state also contended with natural disasters including fires, a prolonged
drought and a major earthquake in the Los Angeles area (January 1994), a
rapidly growing population, and increasing social service requirements.
Since the start of 1994, however, the State's economy has been on a steady
recovery. Employment has grown by over 500,000 in 1994 and 1995, and the
pre-recession level of total employment is expected to be matched by early
1996. The strongest growth has been in export-related industries, business
services, electronics, entertainment and tourism, all of which have offset
the recession-related losses which were heaviest in aerospace and
defense-related industries (which accounted for two-thirds of the job
losses), finance and insurance. Residential housing construction, with new
permits for under 100,000 annual new units issued in 1994 and 1995, is weaker
than in previous recoveries, but has been growing slowly since 1993.

In 1994 and 1995, the State registered two consecutive years of job
growth and declining unemployment rates. During 1994 and throughout most of
1995, California posted non-farm employment gains of 1.3% and 2.3%. This
period has also seen personal income growth exceeding 3% annually, increasing
retail sales, and increased international trade, particularly manufactured
goods. Over the next two years, non-farm employment is projected to annually
expand at rates above 2%. These trends are expected to continue and allow
the State's recovery to gain momentum over the next two years. Over the next
two years, growth in employment and personal income is forecast to outpace
the growth of the national economy. Any setbacks to this recovery or future
breakdowns in fiscal discipline could lead to additional budgetary pressures
on State and local governments.

The prolonged recession seriously impacted California tax revenues and
produced the need for additional expenditures on health and welfare services.
Since the late 1980's, the State's Administrations have recognized that its
budget problems stem in part from a structural imbalance. The largest
General Fund programs -- K-12 schools and community colleges, health and
welfare, and corrections -- have been increasing faster than the revenue
base, driven by the State's rapid population growth. These structural
concerns may be exacerbated in coming years by the expected need to
substantially increase capital and operating funds for corrections as a
result of a "Three Strikes" law enacted in 1994.

The principal sources of the State's General Fund revenues are the
California personal income tax, 43% of total revenues, sales and use tax,
34%, and bank and corporation taxes, 13%. The State maintains a Special Fund
for Economic Uncertainties (the "Special Fund") derived from General Fund
revenues as a reserve to meet the cash requirements of the General Fund but
which is required to be replenished as soon as sufficient revenues are
available. Because of the recession, the Special Fund has had a negative
balance since 1991; the Administration projects a positive balance of about
$92 million in the Special Fund by June 30, 1996.

The accumulated budget deficits over the past several years, together
with expenditures for school funding, which have not been reflected in the
budget, and reduction of available internal borrowable funds, have combined
to significantly deplete the State's cash resources to pay its ongoing
expenses. In order to meet its cash needs, the State has had to rely for
several years on a series of external borrowings, including borrowings past
the end of a fiscal year. Such borrowings are expected to continue in future
fiscal years.

Administration reports during the course of the 1993-1994 Fiscal Year
indicated that while economic recovery appeared to have started in the second
half of the fiscal year, recessionary conditions continued longer than had
been anticipated when the 1993-1994 Budget Act was adopted. Overall,
revenues for the 1993-1994 Fiscal Year were approximately $800 million lower
than original projections, and expenditures were approximately $780 million
higher, primarily because of higher health and welfare caseloads, lower
property taxes which required greater State support for K-14 education to
make up the shortfall, and lower than anticipated federal government payments
for immigration-related costs. The reports in May and June, 1994, indicated
that revenues in the second half of the 1993-94 Fiscal Year were very close
to the projections made in the Governor's Budget of January 10, 1994, which
was consistent with a slow turnaround in the economy.

The Department of Finance's July 1994 Bulletin including the final June
receipts, reported that June revenues were $114 million, or 2.5%, above
projections, with final end-of-year results at $377 million, or approximately
1.1%, above the projections in the May 1994 Revision to the 1994-95
Governor's Budget ("May Revision"). Part of this result was due to the
end-of-year adjustments and reconciliations. Personal income tax and sales
tax continued to track projections. The largest factor in the higher than
anticipated revenues was from bank and corporation taxes, which were $140
million, or 18.4%, above projections in June.

During the 1993-1994 Fiscal Year, the State implemented the Deficit
Retirement Plan, which was part of the 1993-94 Budget Act, by issuing $1.2
billion of revenue anticipation warrants in February 1994 maturing December
21, 1994. This borrowing reduced the cash deficit at the end of the 1993-94
Fiscal Year. Nevertheless, because of the $1.5 billion variance from the
original 1993-1994 Budget Act assumptions, the General Fund ended the Fiscal
Year at June 30, 1994 carrying forward an accumulated deficit of
approximately $1.7 billion.

Because of the revenue shortfall and the State's reduced internal
borrowable cash resources, in addition to the $1.2 billion or revenue
anticipation warrants issued as part of the Deficit Retirement and Reduction
Plan, the State issued an additional $2.0 billion of revenue anticipation
warrants, maturing July 26, 1994, which were needed to fund the State's
obligations and expenses through the end of the 1993-94 Fiscal Year.

On January 17, 1994, an earthquake of the magnitude of an
estimated 6.8 on the Richter Scale struck Los Angeles (the "Northbridge
Earthquake"). Significant property damage to private and public facilities
occurred in a four-county area including northern Los Angeles County, Ventura
County, and parts of Orange and San Bernardino Counties. Although some
individuals and businesses suffered losses totaling in the billions of
dollars, the overall effect on the earthquake on the regional and state
economy is not expected to be serious.

The 1994-95 fiscal year represented the fourth consecutive year that the
Governor and the Legislature were faced with a difficult budget environment.
Many program cuts and budgetary adjustments had already been made in the last
three years.

The Governor's Budget Proposal, as updated in May and June 1994,
recognized that the accumulated deficit could not be repaid in one year, and
proposed a two-year solution. The budget proposal sets forth revenue and
expenditure forecasts and revenue and expenditure proposals which result in
operating surpluses for the budget for both 1994-95 and 1995-96, and lead to
the elimination of the accumulated budget deficit, estimated at about $1.7
billion at June 30, 1994, by June 30, 1996.

The 1994-95 Budget Act, signed by the Governor on July 8,
1994, projected revenues and transfers of $41.9 billion, $2.1
billion higher than revenues in 1993-94. This reflected the Administration's
forecast of an improving economy. Also included in this figure was the
projected receipt of about $360 million from the Federal Government to
reimburse the State's cost of incarcerating undocumented immigrants, most of
which eventually was not received. The Legislature took no action on a
proposal in the January 1994-95 Governor's Budget to undertake an expansion
of the transfer of certain programs to counties, which would also have
transferred to counties 0.5% of the State's current sales tax.

The 1994-95 Budget Act projected Special Fund revenues of $12.1 billion,
a decrease of 2.4% from 1993-94 estimated revenues. The 1994-95 Budget Act
projected General Fund expenditures of $40.9 billion, an increase of $1.6
billion over 1993-94. The 1994-95 Budget Act also projected Special Fund
expenditures of $12.3 billion, a 4.7% increase over 1993-94 estimated
expenditures.

Among other major features of the 1994-95 Budget Act were reductions in
health and welfare costs, increases in educational funding, and increased
funding for anticipated growth in the State's prison inmate population,
including provisions for implementing recent legislation which requires
mandatory life prison terms for certain third time felony offenders.

The 1994-95 Budget Act contained no tax increases. Under legislation
enacted for the 1993-94 Budget Act, the renters' tax credit was suspended for
two years (1993 and 1994). A ballot proposition to permanently restore the
renters' tax credit after this year failed at the June, 1994 election. The
Legislature enacted a further one-year suspension of the renters' tax credit,
for 1995, saving approximately $390 million in the 1995-96 Fiscal Year.

The 1994-95 Budget assumed that the State would use a cash flow
borrowing program in 1994-95 which combined one-year notes and two-year
warrants, which have now been issued. Issuance of the warrants allows the
State to defer repayment of approximately $1.0 billion of its accumulated
budget deficit into the 1995-96 Fiscal Year. The Budget Adjustment law
enacted along with the 1994-95 Budget Act is designed to ensure that the
warrants will be repaid in the 1995-96 Fiscal Year.

Because of the accumulated budget deficit over the past several years,
the payment of certain unbudgeted expenditures to schools to maintain
constant per-pupil aid levels, and a reduction of the level of available
internal borrowing, the State's cash resources have been significantly
reduced. This has required the State to rely on a series of external
borrowings for the past several years to pay its normal expenses, including
borrowings which have gone past the end of the fiscal year. In February
1994, the State borrowed $3.2 billion, maturing by December 1994. In July
1994, the State borrowed a total of $7.0 billion to meet its cash flow
requirements for the 1994-95 fiscal year and to fund part of its deficit into
the 1995-96 fiscal year. A total of $4.0 billion of this borrowing matures
in April 1996. The State will continue to utilize external borrowing to
meet its cash needs to the foreseeable future.

In order to assure repayment of the $4 billion, 22-month
borrowing, the State enacted legislation (the "Trigger Law") which
can lead to automatic, across-the-board cuts in General Fund expenditures in
either the 1994-95 or 1995-96 fiscal years if cash flow projections made at
certain times during those years show deterioration from the projections made
in July 1994 when the borrowings were made. This plan places the burden on
the legislature to maintain ongoing control over the annual budget, and could
exert additional pressure on local governments reliant on appropriated
program expenditures. On November 15, 1994, the State Controller as part of
the Trigger Law reported that the cash position of the General Fund on June
30, 1995 would be about $580 million better than earlier projected, so no
automatic budget adjustments were required in 1994-95. The Controller's
report showed that loss of federal funds was offset by higher revenues, lower
expenditures, and certain other increases in cash resources.

Again in 1995, the State experienced difficulties in obtaining a
consensus on the Budget which produced a two-month delay in passage. The
enacted FY 1995-96 Budget projects General Fund revenues of $44.1 billion and
expenditures of $43.4 billion. Key components built into the budget included
the receipt of about $830 million of new Federal aid for undocumented aliens'
costs and the successful resolution of litigation concerning previous budget
actions. This Budget proposes to eliminate the outstanding deficit including
all short-term borrowings and generate a small surplus of $289 million by
year end. On October 16, 1995, the State Controller indicated that the cash
position of the General Fund exceeded requirements for enacting the
Trigger Law. Initial results show that the major tax sources (Income, Sales
and Corporation Taxes) of the state are exceeding projections by $440
million. The tax revenue growth provides some evidence of the breadth of
California's economic rebound and offsets some reductions in anticipated
Federal aid during 1995. Attainment of FY 1995-96 Budget projections hinge
on the continuation of the economic recovery into 1996 and the maintenance of
fiscal discipline by the state.

On January 10, 1996, the Governor released his proposed budget for the
next fiscal year (the "Governor's Budget"). The governor requested total
General Fund appropriations of about $45.2 billion, based on projected
revenues and transfers of about $45.6 billion. The Governor renewed a
proposal, which had been rejected by the Legislature in 1995, for a 15
percent phased cut in individual and corporate tax rates over three years
(the budget proposal assumes this will be enacted, reducing revenues in
1996-97 by about $600 million). There was also a proposal to restructure
trial court funding in a way which would result in a $300 million decrease in
General fund revenues. The Governor's budget projects external cash flow
borrowing of up to $3.2 billion, to mature by June 30, 1997.

ORANGE COUNTY BANKRUPTCY PROCEEDINGS. On December 6, 1994, Orange
County, California (the "County"), together with its pooled investment funds
(the "Pooled Funds") filed for protection under Chapter 9 of the Federal
Bankruptcy Code, after reports that the Pooled Funds had suffered significant
market losses in their investments, causing a liquidity crisis for the Pooled
Funds and the County. More than 200 other public entities, most of which,
but not all, are located in the County, were also depositors in the Pooled
Funds. As of mid-January 1995, following a restructuring of most of the
Pooled Funds' assets to increase their liquidity and reduce their exposure to
interest rate increases, the County estimated the Pooled Funds' loss at about
$1.69 billion, or about 23% of their initial deposits approximately $7.5
billion. A Recovery Plan which includes the diversion of public transit
revenues to the General Fund was adopted by the County and approved by the
State Legislature in the fall of 1995. The most recent plan calls for the
County to pay for investment losses to the investment pool participants over
15 years. Before the plan can be submitted to the bankruptcy court for
approval, the proposal must be unanimously approved by the investment pool
participants. The County anticipates receiving court approval of the plan
and emerging from bankruptcy by the end of fiscal year 1996.

The State has no existing obligation with respect to any outstanding
obligations or securities of Orange County or any of the other participating
entities.

LITIGATION. The State is a party to numerous legal proceedings, many of
which normally recur in governmental operations. In addition, the State is
involved in certain other legal proceedings that, if decided against the
State, may require the State to make significant future expenditures or may
impair future revenue sources.

Among the more significant lawsuits pending against the State are the
following: (i) a lawsuit seeking reimbursement for alleged state-mandated
costs; (ii) lawsuits related to contamination at the Stringfellow toxic waste
site; (iii) an action involving 3,000 plaintiffs seeking recovery for damages
caused by the Yuba River flood of February, 1986; (iv) challenges to several
budget appropriations in the 1994 and 1995 budget acts; and (v) actions
challenging the transfer of moneys from special fund accounts within the
State Treasury to the State's General Fund.

RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL
SECURITIES: Because Mackenzie New York Municipal Fund intends to concentrate
its investments in issuers located in New York (as used in this subsection,
the "State"), the Fund will be significantly affected by any economic,
political or regulatory developments which affect the ability of New York
issuers to pay interest or repay principal on their obligations. The
following information constitutes only a brief summary, does not purport to
be a complete description and is based on information from sources believed
by the Trust to be reliable, including official statements relating to
securities offerings of New York issuers and periodic publications by
national rating organizations. Such information, however, has not been
independently verified by the Trust.

NEW YORK STATE. The financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can
be very complex, may vary from fiscal year to fiscal year, and are frequently
the result of actions taken not only by the State and its agencies and
instrumentalities but also by entities that are not under the control of the
State. Adverse developments affecting the State's financing activities, its
authorities, the City of New York (the "City") or other localities could
adversely affect the State's financial condition.

There are a number of methods by which the State may incur debt. Under
the State Constitution, the State may not, with limited exceptions for
emergencies, undertake long-term borrowing (i.e., borrowing for more than one
year) unless the borrowing is authorized in a specific amount for a single
work or purpose by the Legislature and approved by the voters. There is no
limitation on the amount of long-term debt that may be so authorized and
subsequently incurred by the State.

The State may undertake short-term borrowings without voter approval (i)
in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds from the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New
York's authorities and public benefit corporations ("Authorities"). Payments
of debt service on New York State general obligation and New York
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.

The State also employs two other types of long- term financing
mechanisms that are State-supported but do not result in general obligations
of the State: moral obligation and lease-purchase or contractual- obligation
financing. Payments for principal and interest due on general obligation
bonds, interest due on bond anticipation notes and on tax and revenue
anticipation notes were $2.471 and $2.722 billion in the aggregate for the
State's 1994-95 and 1995-96 fiscal years, respectively, and were estimated to
be $2.926 billion for the State's 1996-97 fiscal year. The State has never
defaulted on any of its general obligation indebtedness or its obligations
under lease-purchase or contractual- obligation financing arrangements and
has never been called upon to make any direct payments pursuant to its
guarantees. There has never been a default on any moral obligation debt of
any Authority.

In 1990, as part of a State fiscal reform program, legislation was
enacted creating the New York Local Government Assistance Corporation
("LGAC"), a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally
funded through New York State's annual seasonal borrowing. The legislation
empowered LGAC to issue its bonds and notes in an amount not in excess of
$4.7 billion (exclusive of certain refunding bonds) plus certain other
amounts. As of June 1995, LGAC had issued its bonds to provide net proceeds
of $4.7 billion completing the program. The impact of LGAC's borrowing is
that the State is able to meet its cash flow needs in the first quarter of
the fiscal year without relying on short-term seasonal borrowings. The
1996-97 State Financial Plan includes no spring borrowing. This reflects
success of the LGAC program in permitting the State to accelerate local aid
payments from the first quarter of the current fiscal year to the fourth
quarter of the previous fiscal year.

On January 6, 1992, Moody's lowered from "A" to "Baa1" its rating of
those New York State bonds that are backed by annual legislative
appropriations. Moody's also placed its "A" rating of the State's general
obligation bonds under review for possible downgrading. On January 13, 1992,
S&P lowered its rating of the State's general obligation bonds from "A" to
"A-." Moody's and S&P variously cited the State's continued economic
deterioration, chronic operating deficits, and the legislative stalemate in
closing the budget gap, as factors contributing to the downgrades. On
February 14, 1994, S&P raised its outlook to positive and, on July 13, 1995,
confirmed its "A-" rating on the State's general obligation bonds. On July
3, 1995, Moody's reconfirmed its "A" rating on the State's general obligation
bonds.

The State Constitution requires the Governor to submit to the
Legislature a balanced Executive Budget which contains a complete plan of
expenditures for the ensuing fiscal year and all moneys and revenues
estimated to be available therefor, accompanied by bills containing all
proposed appropriations or reappropriation and any new or modified revenue
measures to be enacted in connection with the Executive Budget. The entire
plan constitutes the proposed State financial plan for that fiscal year. The
Governor submits to the Legislature, on at least a quarterly basis, reports
of actual receipts, revenues, disbursements, expenditures, tax refunds and
reimbursements, and repayment of advances in form suitable for comparison
with the State financial plan, together with explanations of deviations from
the State financial plan. At such time, the Governor is required to submit
any amendments to the State financial plan necessitated by such deviations.

The State ended its 1995-96 fiscal year on March 31, 1996 with a General
Fund cash surplus. The Division of the Budget reported that revenues
exceeded projections by $270 million, while spending for social service
programs was lower than forecast by $120 million and all other spending was
lower by $55 million. The General Fund closing fund balance was $287
million, an increase of $129 million from 1994-95 levels. General Fund
receipts totaled 32.81 billion, a decrease of 1.1 percent from 1994-95
levels. This decrease reflects the impact of tax reductions enacted and
effective in both 1994 and 1995. General Fund disbursements totaled $32.68
billion for the 1995-96 fiscal year, a decrease of 2.2 percent from 1994-95
levels.

The State's budget for the 1996-97 fiscal year was enacted by the
Legislature on June 13, 1996, more than three months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State
operations and other purposes, including all necessary appropriations for
debt service. The State Financial Plan for 1996-97 fiscal year was
formulated on July 25, 1996 and is based on the State's budget as enacted by
the Legislature and signed into law by the Governor.

The 1996-97 State Financial Plan is projected to be balanced on cash
basis. As compared to the Governor's proposed budget as revised on March 20,
1996, the State's adopted budget for 1996-97 increases General Fund spending
by $842 million, primarily from increases for education, special education
and higher education ($563 million). The balance represents funding
increases to a variety of other programs, including community projects and
increased assistance to fiscally distressed cities. Resources used to fund
these additional expenditures include $540 million in increased revenues
projected for 1996-97 based on higher-than-projected tax collections during
the first half of calendar 1996, $110 million in projected receipts from a
new State tax amnesty program, and other resources including certain
non-recurring resources. The total amount of non-recurring resources
included in the 1996-97 state budget is projected to be $1.3 billion, or 3.9
percent of total General Fund receipts.

The State Financial Plan is based upon forecasts of national and State
economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and State
economies. Many uncertainties exist in forecasts of both the national and
State economies, including consumer attitudes toward spending, federal
financial and monetary policies, the availability of credit and the condition
of the world economy, which could have an adverse effect on the State. There
can be no assurance that the State economy will not experience
worse-than-predicted results in the 1995-96 fiscal year, with corresponding
material and adverse effects on the State's projections of receipts and
disbursements.

The General Fund is projected to be balanced on a cash basis for the
1996-97 fiscal year. Total receipts and transfers from other funds are
projected to be $33.17 billion, an increase of $365 million from the prior
fiscal year. Total General fund disbursements and transfers to other funds
are projected to be $33.12 billion, an increase of $444 million from the
total amount disbursed in the prior fiscal year.

There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
spending required to maintain State programs at current levels. To address
any potential budgetary imbalance, the State may need to take significant
actions to align recurring receipts and disbursements in future fiscal years.

The State anticipates that its borrowings for capital purposes in its
1996-97 fiscal year will consist of approximately $411 million in general
obligation bonds and $154 million in general obligation commercial paper
issuances. In addition, it is anticipated that the State will issue $153.6
million in general obligation bonds for the purpose of redeeming outstanding
bond anticipation notes. The Legislature has also authorized the issuance of
up to $101 million in certificates of participation for equipment purchases
during the State's 1996-97 fiscal year. The projection of the State
regarding its borrowings for the 1996-97 fiscal year may change if actual
receipts fall short of State projections or if other circumstances require.

AUTHORITIES. The fiscal stability of the State is related to the fiscal
stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue producing public benefit
facilities. Authorities are not subject to the constitutional restrictions
on the incurrence of debt that apply to the State itself and may issue bonds
and notes within the amounts of, and as otherwise restricted by, their
legislative authorization. As of September 30, 1995, the latest data
available, 17 Authorities had outstanding debt of $100 million or more. The
aggregate outstanding debt, including refunding bonds, of these 17
Authorities was $73.45 billion.

Several Agencies have experienced financial difficulties in the past.
Certain Agencies continue to experience financial difficulties requiring
financial assistance from the State. The Metropolitan Transportation
Authority (the "MTA") receives the bulk of this financial assistance in order
to carry out mass transit and commuter services. For the 1996-97 State
fiscal year, total State assistance to the MTA is estimated at approximately
$1.09 billion. Failure of the State to appropriate necessary amounts or to
take other action to permit certain Agencies to meet their obligations could
result in a default by one or more of such Agencies. If a default were to
occur, it would likely have a significant effect on the marketability of
obligations of the State and the Agencies.

State legislation accompanying the 1996-97 adopted State budget
authorized the MTA, the Triborough Bridge and Tunnel Authority (the "TBTA")
and the New York City Transit Authority and the Manhattan and Bronx Surface
Transit Operating Authority (the "TA"). TA to issue an aggregate of $6.5
billion in bonds to finance a portion of a new $11.98 billion MTA capital
plan for the 1995 through 1999 calendar years (the "1995-99 Capital
Program"), and authorized the MTA to submit the 1995-99 Capital Program to
the Capital Program Review Board for approval. This plan will supersede the
overlapping portion of the MTA's 1992-96 Capital Program. This is the fourth
capital plan since the Legislature authorized procedures for the adoption,
approval and amendment of MTA capital programs and is designed to upgrade the
performance of the MTA's transportation systems by investing in new rolling
stock, maintaining replacement schedules for existing assets and bringing the
MTA system into a state of good repair. The 1995-99 Capital Program assumes
the issuance of an estimated $5.1 billion in bonds under this $6.5 billion
aggregate bonding authority. The remainder of the plan is projected to be
financed through assistance from the State, the federal government, and the
City of New York, and from various other revenues generated from actions
taken by the MTA.

There can be no assurance that all the necessary governmental actions
for the 1995-99 Capital Program or future capital programs will be taken,
that funding sources currently identified will not be decreased or
eliminated, or that the 1995-99 Capital Program, or parts thereof, will not
be delayed or reduced. If the 1995-99 Capital Program is delayed or reduced,
ridership and fare revenues may decline, which could, among other things,
impair the MTA's ability to meet its operating expenses without additional
State assistance.

NEW YORK CITY AND MUNICIPAL ASSISTANCE CORPORATION. The fiscal health of
the State is closely related to the fiscal health of its localities,
particularly the City of New York, which has required and continues to
require significant financial assistance from the State. The City's
independently audited operating results for each of its 1981 through 1995
fiscal years, which end on June 30, show a General Fund surplus reported in
accordance with GAAP. The City has eliminated the cumulative deficit in its
net General Fund position.

The City's economy, whose rate of growth slowed substantially over the
past three years, is currently in recession. During the 1990 and 1991 fiscal
years, as a result of the slowing economy, the City has experienced
significant shortfalls in almost all of its major tax sources and increases
in social services costs, and has been required to take actions to close
substantial budget gaps in order to maintain balanced budgets in accordance
with the Financial Plan.

In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and the State. In that year the City lost
access to public credit markets and was not able to sell debt to the public
again until 1979. In response to the City's fiscal crisis, the State created
the Municipal Assistance Corporation ("MAC") to provide financing assistance
for the City, and the New York State Financial Control Board (the "Control
Board") to exercise certain oversight and review functions with respect to
the City's financing. Prior to 1985, MAC had the authority to issue bonds
and notes and to pay or lend the proceeds to the City. Since 1985 MAC has
been authorized to issue bonds and notes only to refund its outstanding bonds
and notes. MAC also has the authority to exchange its obligations for City
obligations. MAC bonds are payable from appropriations of certain State
sales and use taxes imposed by the City, the State stock transfer tax and per
capita State aid to the City. The State is not, however, obligated to
continue these taxes, continue to appropriate revenue from these taxes or
continue the appropriation of per capita State aid to pay MAC obligations.
MAC does not have taxing powers and its bonds are not obligations enforceable
against either the City or the State.

According to a recent OSDC economic report, the City's economy was slow
to recover from the recession and is expected to experience a weak employment
situation, and moderate wage and income growth, during the 1995-96 period.
Also, Financial Plan reports of OSDC, the Control Board, and the City
Comptroller have variously indicated that many of the City's balanced budgets
have been accomplished, in part, through the use of non- recurring resource,
tax and fee increases, personnel reductions and additional State assistance;
that the City has not yet brought its long-term expenditures in line with
recurring revenues; that the City's proposed gap-closing programs, if
implemented, would narrow future budget gaps; that these programs tend to
rely heavily on actions outside the direct control of the City; and that the
City is therefore likely to continue to face futures projected budget gaps
requiring the City to reduce expenditures and/or increase revenues.
According to the most recent staff reports of OSDC, the Control Board and the
City Comptroller during the four- year period covered by the current
Financial Plan, the City is relying on obtaining substantial resources from
initiatives needing approval and cooperation of its municipal labor unions,
Covered Organizations, and City Council, as well as the State and Federal
governments, among others, and there can be no assurance that such approval
can be obtained.

On February 11, 1991, Moody's lowered its rating on the City's general
obligation bonds to "Baa1" from "A". On July 6, 1993, S&P reaffirmed the
City's "A-" rating on $20.4 billion of general obligation bonds stating that
"[t]he City has identified additional gap- closing measures that have
recurring value and will reduce next year's budget gap . . . by approximately
$400 million." Officials at Moody's also indicated that there were no plans
to alter its "Baa1" rating on the City's general obligation bonds.

On July 10, 1995, S&P revised its rating on the City's general
obligation bonds downward to "BBB+." S&P stated that "structural budgetary
balance remains elusive because of persistent softness in the City's economy,
highlighted by weak job growth and a growing dependence on the historically
volatile financial services sector." Other factors identified by S&P in
lowering its rating on City general obligation bonds, included a trend of
using one-time measures, including debt refinancings, to close projected
budget gaps, dependence on unratified labor savings to help balance the
City's financial plan, optimistic projections of additional federal and State
aid or mandate relief, a history of cash flow difficulties caused by State
budget delays and continued high debt levels. Since July 15, 1993, Fitch
Investors Service ("Fitch") has maintained an "A" rating on the City's
general obligation bonds. On July 12, 1995, Fitch stated that the City's
credit trend remains "declining."

The Mayor is responsible for preparing the City's four-year financial
plan. On February 10, 1994 the City released a financial plan for the 1996
through 1999 fiscal years (the "1996 1999 Financial Plan" or "Financial
Plan"). The City's projections set forth in the Financial Plan are based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and
contingencies include the condition of the regional and local economies, the
impact on real estate tax revenues of the real estate market, wage increases
for City employees consistent with those assumed in the Financial Plan,
employment growth, the ability to implement proposed reductions in City
personnel and other cost reduction initiatives which may require in certain
cases the cooperation of the City's municipal unions, the ability of the New
York City Health and Hospitals Corporation ("HHC") and the Board of Education
("BOE") to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and federal aid and
mandate relief and the impact on City revenues of proposals for federal and
State welfare reform.

Estimates of the City's revenues and expenditures are based on numerous
assumptions and are subject to various uncertainties. If expected federal or
State aid is not forthcoming, if unforeseen developments in the economy
significantly reduce revenues derived from economically sensitive taxes or
necessitate increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the amounts provided
for in the City's financial plan or if other uncertainties materialize that
reduce expected revenues or increase projected expenditures, then, to avoid
operating deficits, the City may be required to implement additional actions,
including increases in taxes and reductions in essential City services. The
City might also seek additional assistance from New York State.

OTHER LOCALITIES. Certain localities, in addition to the City, could
have financial problems leading to requests for additional State assistance
during the State's 1996-97 fiscal year and thereafter. The potential impact
on the State of such requests by localities is not included in the
projections of the State receipts and disbursements in the State's 1996-97
fiscal year.

Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re-establishment of the Financial Control Board for the City
of Yonkers (the "Yonkers' Board") by the State in 1984. The Yonkers' Board
is charged with oversight of the fiscal affairs of Yonkers. Future actions
taken by the Governor or the Legislature to assist Yonkers could result in
allocation of State resources in amounts that cannot yet be determined.

Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1994, the total indebtedness of all
localities in the State other than the City was approximately $17.7 billion,
a small portion (approximately $82.9 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant
to enabling State legislation. State law requires the Comptroller to review
and make recommendations concerning the budgets of those local government
units other than the City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
Seventeen localities had outstanding indebtedness for deficit financing at
the close of their fiscal year ending in 1994.

From time to time, Federal expenditure reductions could reduce, or in
some cases eliminate, Federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the Authorities were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also
face anticipated and potential problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. The
longer-range problems of declining urban population, increasing expenditures
and other economic trends could adversely affect localities and require
increasing State assistance in the future.

LITIGATION. Certain litigation pending against the State, its
subdivisions and their officers and employees could have a substantial and
long-term adverse effect on State finances. The State is a party to numerous
legal proceedings, many of which normally recur in governmental operations.
Because of the prospective nature of these proceedings, no estimate of the
potential loss can be made.

Among the more significant of these cases are those that involve: (i)
claims to land in upstate New York by several Indian tribes; (ii) certain
aspects of the State's Medicaid policies and its rates and regulations,
including reimbursements to providers of mandatory and optional Medicaid
services; (iii) a challenge to the practice of reimbursing certain Office of
Mental Health patient care expenses from the client's Social Security
benefits; (iv) an action against the State and City officials alleging
inadequate shelter allowances to maintain proper housing; (v) a claim that
the assessment of the petroleum business tax pursuant to Tax Law 301 to
such fuel violates the Commerce Clause of the United States Constitution; and
(vi) claims against Yonkers, its public schools, the State, the State
Education Department and the New York State Urban Development Corporation
that the defendants have not fulfilled their responsibility to alleviate
segregation in public schools in Yonkers.

The legal proceedings noted above involve State finances, State programs
and miscellaneous tort, real property and contract claims in which the State
is a defendant and the monetary damages sought are substantial. These
proceedings could affect adversely the financial condition of the State in
the 1996-97 fiscal year or thereafter. Adverse developments in these
proceedings or the initiation of new proceedings could affect the ability of
the State to maintain a balanced 1996-97 State Financial Plan. An adverse
decision in any of these proceedings could exceed the amount of the 1996-97
State Financial Plan reserve for the payment of judgments and, therefore,
could affect the ability of the State to maintain a balanced 1996-97 State
Financial Plan. The State has stated its belief that the 1996-97 State
Financial Plan includes sufficient reserves for the payment of judgments that
may be required during the 1996-97 fiscal year.

U.S. GOVERNMENT SECURITIES

The Funds may invest in U.S. Government securities. U.S. Government
securities are obligations of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities. Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes, and bonds), and (2) Federal agency obligations guaranteed as to
principal and interest by the U.S. Treasury (such as GNMA certificates, which
are mortgage-backed securities). When these securities are held to maturity,
the payment of principal and interest is unconditionally guaranteed by the
U.S. Government, and thus they are of the highest possible credit quality.
U.S. Government securities that are not held to maturity are subject to
variations in market value due to fluctuations in interest rates.

Mortgage-backed securities are securities representing part ownership of
a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the
full faith and credit of the U.S. Government. Although the mortgage loans in
the pool will have maturities of up to 30 years, the actual average life of
the loans typically will be substantially less because the mortgages will be
subject to normal principal amortization and may be prepaid prior to
maturity. Prepayment rates vary widely and may be affected by changes in
market interest rates. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby shortening the actual average life of
the security. Conversely, when interest rates are rising, the rate of
prepayments tends to decrease, thereby lengthening the actual average life of
the security (and increasing the security's price volatility). Accordingly,
it is not possible to predict accurately the average life of a particular
pool. Reinvestment of prepayments may occur at higher or lower rates than
the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, GNMA
certificates can be less effective than typical bonds of similar maturities
at "locking in" yields during periods of declining interest rates. GNMA
certificates may appreciate or decline in market value during periods of
declining or rising interest rates, respectively.

Securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury. However, they involve Federal sponsorship in one way or another;
some are backed by specific types of collateral; some are supported by the
issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of
the issuer; others are supported only by the credit of the issuing government
agency or instrumentality. These agencies and instrumentalities include, but
are not limited to, Federal Land Banks, Farmers Home Administration, Central
Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan
Banks, Federal National Mortgage Association and Student Loan Marketing
Association.

INVESTMENT-GRADE DEBT SECURITIES

Bonds rated Aaa by Moody's and AAA by S&P are judged to be of the best
quality (i.e., capacity to pay interest and repay principal is extremely
strong). Bonds rated Aa/AA are considered to be of high quality (i.e.,
capacity to pay interest and repay principal is very strong and differs from
the highest rated issues only to a small degree). Bonds rated A are viewed as
having many favorable investment attributes, but elements may be present that
suggest a susceptibility to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories. Bonds rated
Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal,
but certain protective elements may be lacking (i.e., such bonds lack
outstanding investment characteristics and have some speculative
characteristics). The Fund may invest in debt securities that are given an
investment-grade rating by Moody's or S&P, and may also invest in unrated
debt securities that are considered by IMI to be of comparable quality.

BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS

The Funds may invest in bank obligations, which may include certificates
of deposit, bankers' acceptances, and other short-term debt obligations.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity).
Investments in certificates of deposit and bankers' acceptances are limited
to obligations of (i) banks having total assets in excess of $1 billion, and
(ii) other banks which do not meet the $1 billion asset requirement, if the
principal amount of such obligation is fully insured by the Federal Deposit
Insurance Corporation ("FDIC"). Investments in certificates of deposit of
savings associations are limited to obligations of federally or state
chartered institutions that have total assets in excess of $1 billion and
whose deposits are insured by the FDIC.

COMMERCIAL PAPER

The Funds may invest in commercial paper. Commercial paper represents
short-term unsecured promissory notes issued in bearer form by bank holding
companies, corporations and finance companies. Investments in commercial
paper are limited to obligations rated Prime-1 by Moody's Investors Service,
Inc. ("Moody's") or A-1 by Standard and Poor's Corporation ("S&P") or, if not
rated by Moody's or S&P, issued by companies having an outstanding debt issue
currently rated Aaa or Aa by Moody's or AAA or AA by S&P.

REPURCHASE AGREEMENTS

The Funds may enter into repurchase agreements. Repurchase agreements
are contracts under which a Fund buys a money market instrument and obtains
a simultaneous commitment from the seller to repurchase the instrument at a
specified time and at an agreed-upon yield. A Fund will not enter into a
repurchase agreement with more than seven days to maturity if, as a result,
more than 10% of the Fund's net assets would be invested in illiquid
securities including such repurchase agreements. The Funds may enter into
repurchase agreements with banks or broker-dealers deemed to be creditworthy
by MIMI under guidelines approved by the Board of Trustees. In the unlikely
event of failure of the executing bank or broker-dealer, a Fund could
experience some delay in obtaining direct ownership of the underlying
collateral and might incur a loss if the value of the security should
decline, as well as costs in disposing of the security.

BORROWING

As a fundamental policy, the Funds may borrow from banks as a temporary
measure for extraordinary or emergency purposes. A Fund may borrow in
amounts up to 10% of its total assets taken at cost or market value,
whichever is lower. All borrowings will be repaid before any additional
investments are made. A Fund may not mortgage, pledge or in any other manner
transfer any of its assets as security for any indebtedness. Borrowing may
exaggerate the effect on a Fund's net asset value of any increase or decrease
in the value of the Fund's portfolio securities. Money borrowed will be
subject to interest costs (which may include commitment fees and/or the cost
of maintaining minimum average balances).

RESTRICTED AND ILLIQUID SECURITIES

It is each Fund's policy that restricted securities, including
restricted securities offered and sold to "qualified institutional buyers"
under Rule 144A under the Securities Act of 1933, as amended (the "1933
Act"), and any other illiquid securities (including certain repurchase
agreements and other securities which are not readily marketable) may not
constitute, at the time of purchase, more than 10% of the value of the Fund's
net assets. Issuers of restricted securities may not be subject to the
disclosure and other investor protection requirements that would be
applicable if their securities were publicly traded. Restricted securities
may be sold only in privately negotiated transactions or in a public offering
with respect to which a registration statement is in effect under the 1933
Act. Where a registration statement is required, a Fund may be required to
bear all or part of the registration expenses. There may be a lapse of time
between the Fund's decision to sell a restricted or illiquid security and the
point at which the Fund is permitted or able to do so. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid,
each Fund will carefully monitor each of its investments in these securities,
focusing on factors, such as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing
the level of illiquidity in a Fund to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these restricted
securities.

TEMPORARY INVESTMENTS

From time to time on a temporary basis, a Fund may invest in
fixed-income obligations the interest on which is subject to Federal income
tax. Except when a Fund is in a "defensive" investment position, it will not
purchase a taxable security if, as a result, more than 20% of its total net
assets would be invested in taxable securities.

This limitation is a fundamental policy of each Fund, i.e., it may not
be changed without a majority vote of a Fund's outstanding securities.
Temporary taxable investments of a Fund may consist of obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
commercial paper rated A-l by S&P or Prime-1 by Moody's, corporate
obligations rated AAA or AA by S&P or Aaa or Aa by Moody's, certificates of
deposit or bankers' acceptances of domestic banks or thrifts with at least $1
billion in assets, or repurchase agreements with such banks or with
broker-dealers. Repurchase agreements may be entered into with respect to
any securities eligible for investment by a Fund, including municipal
securities. The income from a repurchase agreement with respect to a
municipal security would not be tax- exempt. See "Repurchase Agreements,"
"Restricted and Illiquid Securities" and Appendix A for a further description
of repurchase agreements, illiquid securities and of the Moody's and S&P
ratings relating to taxable securities.

MACKENZIE NATIONAL MUNICIPAL FUND, MACKENZIE CALIFORNIA MUNICIPAL FUND
AND MACKENZIE NEW YORK MUNICIPAL FUND ONLY: Each of these three Funds may
invest in short-term municipal securities for temporary defensive purposes.
Short-term municipal securities consist of notes and short-term municipal
loans and obligations, including municipal paper, master demand notes and
variable rate demand notes. Short-term municipal notes include Tax
Anticipation Notes (i.e, notes issued in anticipation of the receipt of tax
funds), Bond Anticipation Notes (i.e, notes issued in anticipation of receipt
of the proceeds of bond placements), Revenue Anticipation Notes (i.e, notes
issued in anticipation of the receipt of revenues other than taxes or bond
placements), and Project Notes (i.e, obligations of municipal housing
agencies on which the payment of principal and interest ordinarily is backed
by the full faith and credit of the U.S. Government) when a market for such
securities exists. Municipal paper typically consists of the very short-term
unsecured negotiable promissory notes of municipal issuers.

A municipal master demand note is an arrangement under which a Fund
participates in a note agreement between a bank acting on behalf of its
clients and a municipal borrower, whereby amounts maintained by the Fund in
an account with the bank are provided to the municipal borrower and payments
of interest and principal on the note are credited to the Fund's account.
Interest rates on master demand notes typically are tied to market interest
rates, and therefore may fluctuate daily. The amounts borrowed under these
notes may be repaid at any time by the borrower without penalty, and must be
repaid upon the demand of the Fund. Variable rate demand notes are
tax-exempt obligations that are payable by the municipal issuer at par value
plus accrued interest on demand by the Fund (generally with three to ten
days' notice). If no demand is made, the note will mature on a specified
date from one to thirty years from its issuance. Payment on the note may be
backed by a stand-by letter of credit. As with a master demand note, the
yield on a variable rate demand note is adjusted automatically to reflect a
particular market rate. Variable rate demand notes typically are callable by
the issuer prior to maturity.

Where short-term municipal securities are rated, a Fund will limit its
investments to "high quality" short-term securities. For short-term
municipal notes this includes ratings of AA or better by Standard & Poor's
Corporation ("S&P") or MIG 2 or better by Moody's Investors Service, Inc.
("Moody's"); for municipal paper this includes A-2 or better by S&P or
Prime-2 or better by Moody's. Unrated short-term municipal securities will
be included within the Fund's overall limitation on investments in unrated
securities. This limitation provides that not more than 20% of a Fund's
total assets may be invested in unrated municipal securities, exclusive of
unrated securities that are guaranteed as to principal and interest by the
full faith and credit of the U.S. Government or are issued by an issuer
having outstanding an issue of municipal bonds within one of the four highest
ratings classifications.

OTHER INVESTMENT TECHNIQUES

Although none of the Funds have done so in the last year and have no
current intention of doing so in the foreseeable future, each Fund may (i)
lend its portfolio securities, (ii) purchase securities on a "when-issued" or
firm commitment basis, (iii) acquire puts or standby commitments, (iv) engage
in transactions in certain types of financial futures (such as interest rate
futures) and related options, and options on individual securities and bond
indices, (v) engage in "conversion" and spread transactions, and (vi) write
straddles.

Investments in the obligations of the governments of Puerto Rico and
Guam require a careful assessment of certain risk factors, including reliance
on substantial Federal assistance and favorable tax programs, above- average
levels of unemployment and low wealth levels, and susceptibility to adverse
shifts in the energy prices as well as U.S. foreign trade/monetary policies.

INVESTMENT RESTRICTIONS

The Funds' investment objectives as set forth in the Prospectus under
"Investment Objectives and Policies," together with the investment
restrictions set forth below, are fundamental policies of the Funds and may
not be changed with respect to a particular Fund without the approval of a
majority of the Fund's outstanding voting shares. Under these restrictions,
a Fund may not:

(i) purchase securities of any one issuer (except U.S. government
securities) if as a result more than 5% of the Fund's total
assets would be invested in such issuer or the Fund would own
or hold more than 10% of the outstanding voting securities of
that issuer (provided, however, that up to 25% of the value of
the Fund's total assets may be invested without regard to
these limitations);

(ii) invest in real estate, real estate mortgage loans,
commodities, commodity futures contracts or interests in oil,
gas and/or mineral exploration or development programs,
although a Fund may purchase and sell (a) securities that are
secured by real estate, (b) securities of issuers that invest
or deal in real estate, and (c) futures contracts as described
in the Prospectus;

(iii) make investments in securities for the purpose of exercising
control over or management of the issuer;

(iv) participate on a joint or a joint and several basis in any
trading account in securities, although the "bunching" of
orders of the Funds--or of the Funds and of other accounts
under the investment management of the persons rendering
investment advice to the Funds--for the sale or purchase of
portfolio securities shall not be considered participation in
a joint securities trading account;

(v) purchase securities on margin, except such short-term credits
as are necessary for the clearance of transactions, although
the deposit or payment by a Fund of initial or variation
margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on
margin;

(vi) make loans, except that this restriction shall not prohibit
(a) the purchase and holding of a portion of an issue of
publicly distributed debt securities, (b) the lending of
portfolio securities (provided that the loan is secured
continuously by collateral consisting of U.S. Government
securities or cash or cash equivalents maintained on daily
marked-to-market basis in an amount at least equal to the
current market value of the securities loaned), or (c) entry
into repurchase agreements with banks or broker-dealers;

(vii) borrow amounts in excess of 10% of its total assets, taken at
lower of cost or market value, and then only from banks as
a temporary measure for extraordinary or emergency purposes;

(viii) mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held
by the Fund (except as may be necessary in connection with
permitted borrowings and then not in excess of 20% of the
Fund's total assets); provided, however, that this does not
prohibit escrow, collateral or margin arrangements in
connection with the Fund's use of options, short sales,
futures contracts and options on futures contracts;

(ix) purchase the securities of issuers conducting their principal
business activities in the same industry if immediately after
such purchase the value of the Fund's investments in such
industry would exceed 25% of the value of the total assets of
the Fund;

(x) act as an underwriter of securities;

(xi) make short sales of securities or maintain a short position;
or

(xii) issue senior securities, except insofar as the Fund may be
deemed to have issued a senior security in connection with any
repurchase agreement or any permitted borrowing.

ADDITIONAL RESTRICTIONS

Each Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy. Under
these restrictions, a Fund may not:

(i) purchase or sell real estate limited partnership interests;

(ii) purchase or sell interests in oil, gas and mineral leases
(other than securities of companies that invest in or sponsor
such programs);

(iii) purchase or retain securities of any company if, to the
knowledge of the Trust, officers and Trustees of the Trust and
officers and directors of MIMI or Mackenzie Financial
Corporation who individually own more than 1/2 of 1% of the
securities of that company together own beneficially more than
5% of such securities;

(iv) purchase any security if as a result a Fund would then have
more than 5% of its total assets (taken at current value)
invested in securities of companies (including predecessors)
less than three years old;

(v) invest more than 10% of its net assets taken at market value
at the time of the investment in "illiquid securities."
Illiquid securities may include securities subject to legal or
contractual restrictions on resale (including private
placements), repurchase agreements maturing in more than seven
days, certain options traded over-the-counter that the Fund
has purchased, securities being used to cover certain options
that the Fund has written, securities for which market
quotations are not readily available, or other securities that
legally or in the Investment Manager's opinion, subject to the
Board's supervision, may be deemed illiquid, but shall not
include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain
conditions intended to provide liquidity, or to other factors,
is liquid; or

(vi) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets,
and except that the Fund may purchase shares of other
investment companies subject to such restrictions as may be
imposed by the 1940 Act, and rules thereunder, or by any state
in which shares of the Fund are registered.

In addition, so long as it remains a restriction of the Ohio Division of
Securities, the Fund will treat securities eligible for resale under Rule
144A of the Securities Act of 1933 and securities of unseasoned issuers as
described in non-fundamental restriction (iv) above, as subject to the Fund's
restriction on investing in restricted securities (see "Restricted and
Illiquid Securities" under "Investment Objectives and Policies," above).

Whenever an investment objective, policy or restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding
quality standards, such percentage limitation or standard shall, unless
otherwise indicated, apply to each Fund on an individual basis, and only at
the time a transaction is entered into. Accordingly, if a percentage
limitation is adhered to at the time of investment by a Fund, a later
increase or decrease in the percentage that results from circumstances not
involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances
beyond the Fund's control, will not be considered a violation.

ADDITIONAL RIGHTS AND PRIVILEGES

The Trust offers to investors (and except as noted below, bears the cost
of providing) the rights and privileges described below. The Trust reserves
the right to amend or terminate any one or more of such rights and
privileges. Notice of amendments to or terminations of rights and privileges
will be provided to shareholders in accordance with applicable law.

Certain of the rights and privileges described below refer to other
funds distributed by IMDI, which funds are not described in this SAI. These
funds are: Ivy Bond Fund, Ivy Canada Fund, Ivy China Region Fund, Ivy
Emerging Growth Fund, Ivy Global Fund, Ivy Global Science & Technology Fund,
Ivy International Value Fund, Ivy Global Natural Resources Fund, Ivy Asia
Pacific Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International
Fund, Ivy International Bond Fund, Ivy Latin America Strategy Fund, Ivy Money
Market Fund, Ivy New Century Fund and Ivy Short-Term Bond Fund, the seventeen
series of Ivy Fund (collectively, with the Funds, the "Ivy and Mackenzie
Funds"). Investors should obtain a current prospectus before exercising any
right or privilege that may relate to these funds.

AUTOMATIC INVESTMENT METHOD

The Automatic Investment Method is available for Class A and Class B
shareholders of the Funds. The minimum initial and subsequent investment
pursuant to this plan is $50 per month. The Automatic Investment Method may
be discontinued at any time upon receipt by Ivy Mackenzie Services Corp.
("IMSC") of telephone instructions or written notice of such discontinuation
from the investor. See "Automatic Investment Method" in the Account
Application.

EXCHANGE OF SHARES

As described in the Prospectus, shareholders of a Fund have an exchange
privilege with certain other Ivy and Mackenzie Funds. Before effecting an
exchange, shareholders of a Fund should obtain and read the currently
effective prospectus for the Ivy or Mackenzie Fund into which the exchange is
to be made.

INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another
Ivy or Mackenzie Fund (or for shares of another Ivy or Mackenzie Fund that
currently offers only a single class of shares) ("new Class A Shares") on the
basis of the relative net asset value per Class A share, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A shares and the sales charge payable at the time of the
exchange on the new Class A shares. (The additional sales charge will be
waived for outstanding Class A shares that have been invested for a period of
12 months or longer.) Class A shareholders may also exchange their Class A
shares for Class A shares of Ivy Money Market Fund (no initial sales charge
will be assessed at the time of such an exchange).

CONTINGENT DEFERRED SALES CHARGE SHARES.

CLASS A: Class A shareholders may exchange their Class A shares subject
to a contingent deferred sales charge, as described in the Prospectus
("outstanding Class A shares"), for Class A shares of another Ivy or
Mackenzie Fund (or for shares of another Ivy or Mackenzie Fund that currently
offers only a single class of shares) ("new Class A shares") on the basis of
the relative net asset value per Class A share, without the payment of any
contingent deferred sales charge that would otherwise be due upon the
redemption of the outstanding Class A shares. Class A shareholders of the
Fund exercising the exchange privilege will continue to be subject to the
Fund's CDSC period following an exchange if such schedule is higher (or such
period is longer) than the CDSC period, if any, applicable to the new Class
A shares.

For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.

CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy or Mackenzie
Fund ("new Class B shares") on the basis of the relative net asset value per
Class B share, without the payment of any contingent deferred sales charge
that would otherwise be due upon the redemption of the outstanding Class B
shares. Class B shareholders of the Fund exercising the exchange privilege
will continue to be subject to the Fund's CDSC schedule (or period) following
an exchange if such schedule is higher (or such period is longer) than the
CDSC schedule (or period) applicable to the new Class B shares.

Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy or Mackenzie Fund will be subject to the Fund's CDSC
schedule (or period) if such schedule is higher (or such period is longer)
than the CDSC schedule (or period) applicable to the Ivy or Mackenzie Fund
from which the exchange was made.

For purposes of both the exchange feature and computing the contingent
deferred sales charge that may be payable upon the redemption of the new
Class B shares (prior to conversion), the holding period of the outstanding
Class B shares is "tacked" onto the holding period of the new Class B shares.

The following contingent deferred sales charge table ("Table 1") applies
to Class B shares of Mackenzie National Municipal Fund, Mackenzie California
Municipal Fund, Mackenzie New York Municipal Fund, Ivy Bond Fund, Ivy Canada
Fund, Ivy Global Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
Emerging Growth Fund, Ivy International Fund, Ivy International Bond Fund,
Ivy New Century Fund, Ivy Latin America Fund, Ivy China Region Fund, Ivy
International Value Fund, Ivy Global Natural Resources Fund, Ivy Asia Pacific
Fund and Ivy Global Science & Technology Fund ("Table 1 Funds"):

CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
AMOUNT SUBJECT TO
YEAR SINCE PURCHASE CHARGE
------------------- --------------------
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%

The following contingent deferred sales charge table ("Table 2") applies
to Class B shares of Mackenzie Limited Term Municipal Fund and Ivy Short-Term
Bond Fund ("Table 2 Funds"):

CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
AMOUNT SUBJECT TO
YEAR SINCE PURCHASE CHARGE
------------------- --------------------
First 3%
Second 2 1/2%
Third 2%
Fourth 1 1/2%
Fifth 1%
Sixth and thereafter 0%

The CDSC schedule for Table 1 Funds is higher (and the period is longer)
than the CDSC schedule (and period) for Table 2 Funds.

If a shareholder exchanges Class B shares of a Table 1 Fund for Class B
shares of a Table 2 Fund, Table 1 will continue to apply to the Class B
shares following the exchange. For example, an investor may decide to
exchange Class B shares of a Table 1 Fund ("outstanding Class B shares") for
Class B shares of a Table 2 Fund ("new Class B shares") after having held the
outstanding Class B shares for two years. The 4% CDSC that generally would
apply to a redemption of outstanding Class B shares held for two years would
not be deducted at the time of the exchange. If, three years later, the
investor redeems the new Class B shares, a 2% CDSC will be assessed upon the
redemption because by "tacking" the two year holding period of the
outstanding Class B shares onto the three year holding period of the new
Class B shares, the investor will be deemed to have held the new Class B
shares for five years.

If a shareholder exchanges Class B shares of a Table 2 Fund for Class B
shares of a Table 1 Fund, Table 1 will apply to the Class B shares following
the exchange. For example, an investor may decide to exchange Class B shares
of a Table 2 Fund ("outstanding Class B shares") for Class B shares of a
Table 1 Fund ("new Class B shares") after having held the outstanding Class
B shares for two years. The 2.5% CDSC that generally would apply to a
redemption of outstanding Class B shares held for two years would not be
deducted at the time of the exchange. If, three years later, the investor
redeems the new Class B shares, a 2% CDSC will be assessed upon the
redemption because by "tacking" the two year holding period of the
outstanding Class B shares onto the three year holding period of the new
Class B shares, the investor will be deemed to have held the new Class B
shares for five years.

The minimum amount that a shareholder may exchange into an Ivy or
Mackenzie Fund in which shares are not already held is $1,000. No exchange
out of any of the Funds (other than by a complete exchange of all shares of
that Fund) may be made if it would reduce the shareholder's interest in that
Fund to less than $1,000. Exchanges are available only in states where the
exchange can be legally made.

Each exchange will be made on the basis of the relative net asset values
per share of each fund of the Ivy and Mackenzie Funds next computed following
receipt of telephone instructions by IMSC or a properly executed request by
the IMSC. Exchanges, whether written or telephonic, must be received by IMSC
by the close of regular trading on the New York Stock Exchange (the
"Exchange") (normally 4:00 p.m., eastern time), to receive the price computed
on the day of receipt; exchange requests received after that time will
receive the price next determined following receipt of the request. This
exchange privilege may be modified or terminated at any time, upon at least
60 days' notice when such notice is required by Rules adopted by the
Securities and Exchange Commission ("SEC"). See "Redemptions."

An exchange of shares between any of the Ivy or Mackenzie Funds will
result in a taxable gain or loss. Generally, any such taxable gain or loss
will be a capital gain or loss (long-term or short-term, depending on the
holding period of the shares) in the amount of the difference between the net
asset value of the shares surrendered and the shareholder's tax basis for
those shares. However, in certain circumstances, shareholders will be
ineligible to take sales charges into account in computing taxable gain or
loss on an exchange. See "Taxation."

With limited exceptions, gain realized by a tax- deferred retirement
plan would not be taxable to the plan and will not be taxed to the
participant until distribution. Each investor should consult his or her tax
adviser regarding the tax consequences of an exchange transaction.

LETTER OF INTENT

Reduced sales charges apply to initial investments made pursuant to a
non-binding Letter of Intent. A Letter of Intent may be submitted by an
individual, his or her spouse and children under the age of 21 or a trustee
or other fiduciary of a single trust estate or single fiduciary account. See
the Account Application in the Prospectus. Any investor may submit a Letter
of Intent stating that he or she will invest, over a period of 13 months, at
least $100,000 in Class A shares of a Fund. A Letter of Intent may be
submitted at the time of an initial purchase of Class A shares of a Fund or
within 90 days of the initial purchase, in which case the Letter of Intent
will be backdated. A shareholder may include the value (at the applicable
offering price) of all Class A shares of the Funds, Ivy Short-Term Bond Fund,
Ivy Bond Fund, Ivy Canada Fund, Ivy Global Fund, Ivy Global Science &
Technology Fund, Ivy International Value Fund, Ivy Global Natural Resources
Fund, Ivy Asia Pacific Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy Emerging Growth Fund, Ivy International Fund, Ivy New Century Fund, Ivy
Latin America Strategy Fund and Ivy China Region Fund (and shares that have
been exchanged into Ivy Money Market Fund from any of the other funds in the
Ivy and Mackenzie Funds), held of record by him or her as of the date of his
or her Letter of Intent as an accumulation credit toward the completion of
such Letter. During the term of the Letter of Intent, the Funds' transfer
agent will hold in escrow Class A shares representing 5% of the indicated
amount (less any accumulation credit value). The escrowed Class A shares
will be released when the full indicated amount has been purchased. If the
full indicated amount is not purchased during the term of the Letter of
Intent, the investor is required to pay IMDI an amount equal to the
difference between the dollar amount of sales charge that he or she has paid
and that which he or she would have paid on his or her aggregate purchases if
the total of such purchases had been made at a single time. Such payment
will be made by an automatic liquidation of Class A shares in the escrow
account. A Letter of Intent does not obligate the investor to buy or the
Trust to sell the indicated amount of Class A shares and the investor should
read carefully all the provisions thereof before signing.

REINVESTMENT PRIVILEGE

Investors who have redeemed Class A shares of a Fund may reinvest all or
a part of the proceeds of the redemption back into Class A shares of that
Fund at net asset value (without a sales charge) within 60 days from the date
of redemption. This privilege may be exercised only once. The reinvestment
will be made at the net asset value next determined after receipt by the
Funds' transfer agent of the reinvestment order accompanied by the funds to
be reinvested. No compensation will be paid to any sales personnel or dealer
in connection with the transaction. Any redemption is a taxable event. A
loss realized on a redemption generally may be disallowed for tax purposes if
the reinvestment privilege is exercised within 30 days after the redemption.
In certain circumstances, shareholders will be ineligible to take sales
charges into account in computing taxable gain or loss on a redemption if the
reinvestment privilege is exercised. See "Taxation."

RIGHTS OF ACCUMULATION

A scale of reduced sales charges applies to certain investments in Class
A shares of the Funds by an individual, his or her spouse and children under
the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other
employee benefit trust created pursuant to a plan qualified under Section 401
of the Code. An investment qualifies for a reduced sales charge if the sum
of: (a) the combined value, determined at the higher of current offering
price or amount invested, of Class A shares held by the persons identified
above in (i) any of the Funds, (ii) any of the series of Ivy Fund (except for
shares of Ivy Money Market Fund, but including shares that have been
exchanged from any of the Ivy or Mackenzie Funds into Ivy Money Market Fund),
and (iii) any other investment company distributed by IMDI currently owned;
and (b) the value of the Class A shares being purchased, exceeds: (i)
$25,000, with respect to an investment in Mackenzie Limited Term Municipal
Fund; (ii) $50,000, with respect to an investment in Ivy Canada Fund, Ivy
Global Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy Emerging
Growth Fund, Ivy International Fund, Ivy International Bond Fund, Ivy New
Century Fund, Ivy Latin America Strategy Fund, Ivy China Region Fund, Ivy
Global Science & Technology Fund, Ivy International Value Fund, Ivy Asia
Pacific Fund or Ivy Global Natural Resources Fund; or (iii) $100,000, with
respect to an investment in Mackenzie National Municipal Fund, Mackenzie
California Municipal Fund, Mackenzie New York Municipal Fund, Ivy Short-Term
Bond Fund or Ivy Bond Fund.

At the time an investment takes place, MIMI, in the case of a wire
order, or IMSC, in the case of a direct mail remittance, must be notified by
the investor or his or her dealer that the investment qualifies for the
reduced charge on the basis of previous investments. The reduced charge is
subject to confirmation of the investor's holdings through a check of the
Funds' records.

SYSTEMATIC WITHDRAWAL PLAN

A shareholder may establish a Systematic Withdrawal Plan (the
"Withdrawal Plan") by telephone instructions to IMSC or delivery to IMSC of
a written election to so redeem, accompanied by a surrender to IMSC of all
share certificates then outstanding in the name of such shareholder, properly
endorsed by him or her. A Withdrawal Plan may not be established if the
investor is currently participating in the Automatic Investment Method. The
Withdrawal Plan may involve the use of principal and, to the extent that it
does, depending on the amount withdrawn, the investor's principal may be
depleted. A redemption under the Withdrawal Plan is a taxable event.
Investors contemplating participation in the Withdrawal Plan should consult
their tax advisers.

Additional investments made by investors participating in the Withdrawal
Plan must equal at least $1,000 each while the Withdrawal Plan is in effect.
Making additional purchases while the Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable initial or contingent
deferred sales changes.

An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by
the investor are liquidated at any time, the Withdrawal Plan will terminate
automatically. The Trust or MIMI may terminate the Withdrawal Plan at any
time after reasonable notice to shareholders.

BROKERAGE ALLOCATION

Subject to the overall supervision of the President and the Board of
Trustees of the Trust, MIMI places orders for the purchase and sale of the
Funds' portfolio securities. All portfolio transactions are effected at the
best price and execution obtainable. Purchases and sales of debt securities
are usually principal transactions and, therefore, brokerage commissions are
usually not required to be paid by a Fund for such purchases and sales,
although the price paid generally includes undisclosed compensation to the
dealer. The prices paid to underwriters of newly-issued securities usually
include a concession paid by the issuer to the underwriter, and purchases of
after-market securities from dealers normally reflect the spread between the
bid and asked prices. In connection with over-the- counter transactions,
MIMI attempts to deal directly with the principal market makers, except in
those circumstances where it believes that better prices and execution are
elsewhere. Subject to the requirement of best price and execution, MIMI may
select broker- dealers that provide it with research services and may
consider sales of Fund shares as a factor in the selection of broker-dealers.

MIMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the
nature of each firm's professional services. Commissions charged and
investment services rendered, including statistical, research, and counseling
services by brokerage firms, are among the factors that are considered in the
placing of brokerage business. The types of research services provided by
brokers may include general economic and industry data, and information on
securities of specific companies. Research services furnished by brokers
through whom the Trust effects securities transactions may be used by MIMI in
servicing all of its accounts. In addition, not all of these services may be
used by MIMI in connection with the services it provides to the Fund or the
Trust. MIMI may consider sales of Fund shares as a factor in the selection
of broker-dealers and may select broker-dealers who provide it with research
services. MIMI will not, however, execute brokerage transactions other than
at the best price and execution.

A Fund may, under some circumstances, accept securities in lieu of cash
as payment for Fund shares. A Fund will consider accepting securities only
to increase its holdings in a portfolio security or to take a new portfolio
position in a security that MIMI deems to be a desirable investment for the
Fund. While no minimum has been established, it is expected that a Fund will
not accept securities having an aggregate value of less than $1 million. The
Trust may reject in whole or in part any or all offers to pay for Fund shares
with securities and may discontinue accepting securities as payment for Fund
shares at any time without notice. The Trust will value accepted securities
in the manner and at the same time provided for valuing portfolio securities
of a Fund, and Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will accept only
securities that are delivered in proper form and will not accept securities
subject to legal restrictions on transfer. The acceptance of securities by
the Trust must comply with applicable laws of certain states.

During the fiscal years ended June 30, 1994, 1995 and 1996, none of the
Funds paid brokerage commissions.

TRUSTEES AND OFFICERS

The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:

<TABLE>
POSITION
WITH THE BUSINESS
NAME, ADDRESS, AGE TRUST AND
PRINCIPAL OCCUPATIONS AFFILIATIONS
- --------------------- -------- -----------------------------------------
<S> <C> <C>
Michael G. Landry (50) Trustee President, Chairman and
700 South Federal Hwy. and Director of Mackenzie
Suite 300 President Investment Management Inc.
Boca Raton, FL (1987-present); President and Director of Ivy Management, Inc. (1992-present);
33432 Chairman and Director of Mackenzie Ivy Investor Services Corp. (1993-present); Director
and President of Mackenzie Ivy Funds Distribution, Inc. (1993-1994); Chairman and Director
of Mackenzie Ivy Funds Distribution, Inc. (1994-present); President and Trustee of Ivy Fund
(1992-present); President of Mackenzie Series Trust (1987 - present); Director and President
of The Mackenzie Funds Inc. (1987-1995). [Deemed to be an "interested person" of the Trust,
as defined under the 1940 Act.]

John S. Anderegg, Jr. Trustee Chairman, Dynamics Research Corp. (instruments and controls); Director, Burr-Brown Corp.
(72) (operational amplifiers); Director, Metritage Incorporated (level measuring instruments);
60 Concord Street Trustee of Ivy Fund (1967-present).
Wilmington, MA 01887

Paul H. Broyhill (72) Trustee Chairman, BMC Fund, Inc. (1983-present);
800 Hickory Blvd. Chairman, Broyhill Family Foundation, Inc. (1983-present);
Golfview Park Chairman and President, Broyhill Investments, Inc. (1983-present);
Lenoir, NC 28645 Chairman, Broyhill Timber Resources (1983-present);
Director of The Mackenzie Funds Inc. (1988-1995);
Trustee of Ivy Fund (1992-present);
Management of a personal portfolio of fixed income and equity investments (1983-present).

Stanley Channick (72) Trustee President, The Whitestone Corporation (insurance agency);
11 Bala Avenue President, Scott Management Company (administrative services for insurance companies);
Bala Cynwyd, PA 19004 President, The Channick Group (consultants to insurance companies and national trade
associations);
Trustee of Ivy Fund (1984-1993); Director of The Mackenzie Funds Inc. (1994-1995).

Frank W. DeFriece, Jr. Trustee Director of The Mackenzie Funds, Inc. (1987-1995);
(75) Trustee and Second Vice Chairman, East Tennessee Public Communications Corp. (WSJK-TV)
322 Seventh Street (1984-present);
Bristol, TN 37620-2218 Director, Manager and Vice President, Massengill-DeFriece Foundation (charitable organization)
(1950-present); Trustee of Ivy Fund (1992-present).

Roy J. Glauber (71) Trustee Mallinckrodt Professor of Physics, Harvard University (since 1974); Trustee of Ivy Fund
(1961-1991);
Trustee of Mackenzie Series Trust (1994-present).

Joseph G. Rosenthal Trustee Chartered Accountant (1958-present); Director of The Mackenzie Funds Inc. (1987-1995);
(62) Trustee of Ivy Fund (1992-present).
110 Jardin Drive
Unit #12
Concord, Ontario
Canada L4K 2T7

J. Brendan Swan (66) Trustee President, Airspray International, Inc.; Joint Managing Director,
4701 North Federal Airspray International B.V. (an environmentally sensitive packaging company);
Hwy. #465 Trustee of Ivy Fund (1992-present);
Pompano Beach, FL Director, The Mackenzie Funds Inc. (1992-1995).
33064

Keith J. Carlson (40) Vice Senior Vice President and
700 South Federal Hwy. President Director of Mackenzie Investment Management, Inc. (1994-present);
Suite 300 Senior Vice President, Secretary and Treasurer of Mackenzie
Boca Raton, FL 33432 Investment Management Inc. (1985-1994); Senior Vice President and Director of Ivy Management,
Inc. (1994-present); Senior Vice President, Treasurer and Director of Ivy Management, Inc.
(1992-1994); Vice President of The Mackenzie Funds Inc. (1987-1995); President and Director of
Mackenzie Ivy Investor Services Corp. (1993-present); Vice President of Mackenzie Series Trust
(1994-present); Treasurer of Mackenzie Series Trust (1985-1994); President and Director of
Mackenzie Ivy Funds Distribution, Inc. (1994- present); Executive Vice President and Director
of Mackenzie Ivy Funds Distribution, Inc. (1993-1994); Treasurer of Ivy Fund (1992-1994); Vice
President of Ivy Fund (1994-present).

C. William Ferris (52) Secretary/ Senior Vice President, Secretary/Treasurer and Director of Mackenzie Investment Management
700 South Federal Hwy. Treasurer Inc.
Suite 300 (1994-present); Senior Vice President, Finance and Administration/Compliance Officer of
Boca Raton, FL 33432 Mackenzie Investment Management Inc. (1989-1994);
Senior Vice President, Secretary/Treasurer and Clerk of Ivy Management, Inc. (1989-1994);
Senior Vice President, Secretary/Treasurer of Mackenzie Ivy Funds Distribution, Inc.
(1993-1994);
Secretary/Treasurer and Director of Mackenzie Ivy Investor Services Corp. (1993-1994);
Secretary of Mackenzie Series Trust (1993-1994); Secretary/Treasurer and Director of Mackenzie
Ivy Investor Services Corp. (1993-present); Secretary/Treasurer of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of Mackenzie Series Trust (1994- present);
Secretary of Ivy Fund (1993-1994); Secretary/Treasurer of Ivy Fund (1994-present).
</TABLE>

As of September 30, 1996, all Trustees and executive officers of the
Trust as a group owned beneficially or of record none of the outstanding
Class A and Class B shares of any of the Funds.

PERSONAL INVESTMENTS BY EMPLOYEES OF THE ADVISER

Employees of MIMI are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in MIMI's
Code of Ethics. The Code of Ethics contains provisions and requirements
designed to identify and address certain conflicts of interest between
personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which
personal transactions may not be made in certain securities, and requires the
submission of duplicate broker confirmations and monthly reporting of
securities transactions. Additional restrictions apply to portfolio
managers, traders, research analysts and others involved in the investment
advisory process. Exceptions to these and other provisions of the Code of
Ethics may be granted in particular circumstances after review by appropriate
personnel.
COMPENSATION TABLE
(for the fiscal year ending June 30, 1996)

PENSION OR
RETIREMENT TOTAL
BENEFITS ESTIMATED COMPEN-
AGGREGATE ACCRUED AS ANNUAL SATION
COMPEN- PART OF BENEFITS FROM TRUST
NAME, SATION FUND UPON PAID TO
POSITION FROM TRUST EXPENSES RETIREMENT TRUSTEE
- -------- ---------- -------- ---------- ----------
[S] [C] [C] [C] [C]
John S. Anderegg, Jr. 2,335 N/A N/A 2,335
(Trustee)

Paul H. Broyhill 2,335 N/A N/A 2,335
(Trustee)

Stanley Channick 5,860 N/A N/A 5,860
(Trustee)

Frank W. DeFriece, Jr. 2,335 N/A N/A 2,335
(Trustee)

Roy J. Glauber 5,860 N/A N/A 5,860
(Trustee)

Michael G. Landry -0- N/A N/A -0-
(Trustee and President)

Joseph G. Rosenthal 2,335 N/A N/A 2,335
(Trustee)

J. Brendan Swan 2,335 N/A N/A 2,335
(Trustee)

Keith J. Carlson -0- N/A N/A -0-
(Vice President)

C. William Ferris -0- N/A N/A -0-
(Secretary/Treasurer)

INVESTMENT ADVISORY AND OTHER SERVICES

BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES

Mackenzie Investment Management Inc. ("MIMI") provides business
management and investment advisory services to the Funds pursuant to a
Business Management and Investment Advisory Agreement (the "Agreement"). The
Agreement was approved by shareholders of Mackenzie National Municipal Fund,
Mackenzie California Municipal Fund and Mackenzie New York Municipal Fund on
October 24, 1990, after having first been approved on September 5, 1990 by
the Board of Trustees, including a majority of the Trustees who neither are
"interested persons" (as defined in the 1940 Act) of the Trust nor have any
direct or indirect financial interest in the operation of the distribution
plans described below (see "Distribution Services") or in any related
agreement (the "Independent Trustees"). The Agreement was approved by the
Board of Trustees for Mackenzie Limited Term Municipal Fund on May 16, 1991,
and by the initial shareholder of the Fund on June 20, 1991. The
continuation of the Agreement with respect to all of the Funds was last
approved on August 24, 1996 by the Board of Trustees, including the
Independent Trustees. MIMI is a subsidiary of Mackenzie Financial
Corporation ("MFC"), 150 Bloor Street West, Toronto, Ontario, Canada, a
public corporation organized under the laws of Ontario whose shares are
listed for trading on The Toronto Stock Exchange. MFC is registered in
Ontario as a mutual fund dealer.

Under the Agreement, MIMI makes investments for the account of each Fund
in accordance with its best judgment and within the investment objectives and
restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy
decisions adopted by the Trust's Board of Trustees. MIMI also provides an
investment program, determines the securities to be purchased or sold by a
Fund and places orders with brokers or dealers who deal in such securities.

MIMI also provides certain business management services pursuant to the
Agreement. MIMI is obligated to (1) coordinate with the Funds' custodian and
transfer agent and monitor the services they provide to the Funds; (2)
coordinate with and monitor any other third parties furnishing services to
the Funds; (3) provide the Funds with any necessary office space, telephones
and other communications facilities; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Funds or by MIMI acting
in some other capacity pursuant to a separate agreement or arrangement with
the Funds; (5) maintain or supervise the maintenance by third parties of such
books and records of the Trust as may be required by applicable Federal or
state law; (6) authorize and permit MIMI's directors, officers and employees
who may be elected or appointed as trustees or officers of the Trust to serve
in such capacities; and (7) take such other action with respect to the Trust,
after approval by the Trust, as may be required by applicable law, including
without limitation the rules and regulations of the SEC and of state
securities commissions and other regulatory agencies.

For MIMI's services under the Agreement, each Fund pays MIMI a monthly
fee at an annual rate of 0.55% of the Fund's average net assets. For the
fiscal years ended June 30, 1996, 1995 and 1994, MIMI received fees of
$513,762, $761,172 and $727,421, respectively, from Mackenzie Limited Term
Municipal Fund; $146,137, $187,610 and $223,155, respectively, from Mackenzie
National Municipal Fund; $209,516, $221,717, and $253,535, respectively, from
Mackenzie California Municipal Fund; and $222,574, $235,164 and $243,239,
respectively, from Mackenzie New York Municipal Fund.

The Trust pays the following expenses under the Agreement: (1) the fees
and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated
with MIMI; (3) interest expenses; (4) taxes and governmental fees, including
any original issue taxes or transfer taxes applicable to the sale or delivery
of shares or certificates therefor; (5) brokerage commissions and other
expenses incurred in acquiring or disposing of portfolio securities; (6) the
expenses of registering and qualifying shares for sale with the SEC and with
various state securities commissions; (7) accounting and legal costs; (8)
insurance premiums; (9) fees and expenses of the Trust's Custodian and
Transfer Agent and any related services; (10) expenses of obtaining
quotations of portfolio securities and of pricing shares; (11) expenses of
maintaining the Trust's legal existence and of shareholders' meetings; (12)
expenses of preparation and distribution to existing shareholders of periodic
reports, proxy materials and prospectuses; and (13) fees and expenses of
membership in industry organizations.

MIMI voluntarily limits the total Fund expenses (excluding interest,
12b-1 fees, taxes, brokerage commissions, litigation and indemnification
expenses, and other extraordinary expenses) to an annual rate of (i) 0.64% of
the average net assets of Mackenzie Limited Term Municipal Fund, and (ii)
0.85% of the average net assets of Mackenzie National Municipal Fund,
Mackenzie California Municipal Fund and Mackenzie New York Municipal Fund.
As long as a Fund's expense limitation continues, it may lower the Fund's
expenses and increase its yield. A Fund's expense limitation may be
terminated or revised at any time, at which time the Fund's expenses may
increase and its yield may be reduced, depending on the total assets of the
Fund. Shareholders of Mackenzie Limited Term Municipal Fund and Mackenzie
National Municipal Fund will receive 30 days' notice of any termination of
the Fund's expense limitation. If a Fund's expense limitation is terminated,
MIMI will comply with any applicable state regulations, which may require
MIMI to make reimbursements to a Fund in the event that the Fund's aggregate
operating expenses, including the management and advisory fee and shareholder
and administrative services fee, but generally excluding interest, taxes,
brokerage commissions and extraordinary expense, are in excess of specific
applicable limitations. For the fiscal year ended June 30, 1996, voluntary
expense reimbursements for Mackenzie Limited Term Municipal Fund, Mackenzie
National Municipal Fund, Mackenzie California Municipal Fund and Mackenzie
New York Municipal Fund and were $373,984, $106,248, $66,721 and $83,090,
respectively.

The Agreement will continue in effect with respect to each Fund for more
than its initial two-year period only so long as the continuance is
specifically approved at least annually (i) by the vote of a majority of the
Independent Trustees, and (ii) either (a) by the vote of a majority of the
Fund's outstanding voting securities (as defined in the 1940 Act), or (b) by
the vote of a majority of the entire Board of Trustees. If the question of
continuance of the Agreement (or adoption of any new agreement) is presented
to a Fund's shareholders, continuance (or adoption) shall be effected only if
approved by the affirmative vote of a majority of the Fund's outstanding
voting securities. See "Capitalization and Voting Rights." The Agreement
may be terminated with respect to a Fund at any time, without payment any
penalty, by the vote of a majority of the Board of Trustees, or by the vote
of a majority of the Fund's outstanding voting securities, on 60 days'
written notice to MIMI, or by MIMI on 60 days' written notice to the Trust.
The Agreement shall terminate automatically in the event of its assignment.
MIMI and MFC reserve all rights in the name "Mackenzie" and permit the use of
the name "Mackenzie" or any name derived from the name "Mackenzie" by a Fund
and the Trust only so long as the Agreement or any extension, renewal or
amendment thereof remains in effect.

DISTRIBUTION SERVICES

Ivy Mackenzie Distributors, Inc. ("IMDI"), a wholly owned subsidiary of
MIMI, serves as the exclusive distributor of the Class A and Class B shares
of the Funds pursuant to an Amended and Restated Distribution Agreement with
the Trust dated April 1, 1994 (the "Distribution Agreement").1[Effective
October 1, 1993, IMDI succeeded to and is continuing MIMI's broker-dealer
activities. The provisions of the Funds' previous Distribution Agreements
with MIMI remain unchanged by the succession.] The Distribution Agreement
does not obligate IMDI to sell any specific amount of Fund shares. The
Distribution Agreement will continue in effect for successive one-year
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a
majority of the entire Board of Trustees or a majority of the outstanding
voting securities of a Fund. The Distribution Agreement may be terminated
with respect to a Fund at any time, without payment of any penalty, by IMDI
on 60 days' written notice to the Fund or by the Fund by vote of either a
majority of the outstanding voting securities of the Fund or a majority of
the Independent Trustees on 60 days' written notice to IMDI. The
Distribution Agreement shall terminate automatically in the event of its
assignment.

Under the terms of the Distribution Agreement, IMDI is entitled to
deduct a contingent deferred sales charge on the redemption of Class B shares
of the Funds in the manner set forth in the Prospectus. IMDI may reallow all
or a portion of the contingent deferred sales charge to dealers as IMDI may
determine from time to time. During the fiscal year ended June 30, 1996,
IMDI received $15,109, $3,596, $1,154 and $5,486 in contingent deferred sales
charges on redemptions of Class B shares of Mackenzie Limited Term Municipal
Fund, Mackenzie National Municipal Fund, Mackenzie California Municipal Fund
and Mackenzie New York Municipal Fund, respectively. During the fiscal year
ended June 30, 1995, IMDI received $8,876, $6,798, $4,231 and $583 in
contingent deferred sales charges on redemptions of Class B shares of
Mackenzie Limited Term Municipal Fund, Mackenzie National Municipal Fund,
Mackenzie California Municipal Fund and Mackenzie New York Municipal Fund,
respectively. During the period from April 1, 1994 (commencement of sales of
Class B shares) to June 30, 1994, IMDI received no contingent deferred sales
charges on redemptions of Class B shares of Mackenzie Limited Term Municipal
Fund, Mackenzie National Municipal Fund and Mackenzie California Municipal
Fund. During the same period, IMDI received $485 in contingent deferred
sales charges on redemptions of Mackenzie New York Municipal Fund.

IMDI is also entitled under the Distribution Agreement to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Funds' then-current
Prospectus, and the net asset value on which such price is based. Out of
such commission, IMDI may allow to dealers such concession as IMDI may
determine from time to time. During the last three fiscal years, the sales
commissions paid by each of the Funds to IMDI pursuant to the Distribution
Agreement for sales of Class A shares, and the amounts reallowed to dealers,
were as follows:

MACKENZIE LIMITED TERM MUNICIPAL FUND. During the fiscal years ended
June 30, 1996 and 1995 and the nine months ended June 30, 1994, IMDI received
$36,848, $155,685 and $816,793, respectively, in commissions from sales of
Class A shares of the Fund, of which $8,684, $33,813 and $193,175,
respectively, was retained after dealers' reallowances. During the three
months ended September 30, 1993, MIMI received $382,984 in commissions from
sales of Class A shares of the Fund, of which $86,956 was retained after
dealers' reallowances.

MACKENZIE NATIONAL MUNICIPAL FUND. During the fiscal years ended June
30, 1996 and 1995, and the nine months ended June 30, 1994, IMDI received
$10,373, $52,035 and $79,937, respectively, in commissions from sales of
Class A shares of the Fund, of which $2,051, $11,118 and $15,708,
respectively, was retained after dealers' reallowances. During the three
months ended September 30, 1993, MIMI received $34,716 in commissions from
sales of Class A shares of the Fund, of which $5,694 was retained after
dealers' reallowances.

MACKENZIE CALIFORNIA MUNICIPAL FUND. During the fiscal years ended June
30, 1996 and 1995, and the nine months ended June 30, 1994, IMDI received
$14,119, $49,841 and $66,168, respectively, in commissions from sales of
Class A shares of the Fund, of which $2,830, $10,201 and $7,932,
respectively, was retained after dealers' reallowances. During the three
months ended September 30, 1993, MIMI received $38,820 in commissions from
sales of Class A shares of the Fund, of which $13,267 was retained after
dealers' reallowances.

MACKENZIE NEW YORK MUNICIPAL FUND. During the fiscal years ended June
30, 1996 and 1995, and the nine months ended June 30, 1994, IMDI received
$29,270, $65,484 and $164,893, respectively, in commissions from sales of
Class A shares of the Fund, of which $5,796, $13,595 and $33,248,
respectively, was retained after dealers' reallowances. During the three
months ended September 30, 1993, MIMI received $85,283 in commissions from
sales of Class A shares of the Fund, of which $16,359 was retained after
dealers' reallowances.

RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company whose
shares are registered on Form N-1A to issue multiple classes of shares in
accordance with a written plan approved by the investment company's board of
directors/trustees and filed with the SEC. At a meeting held on December
1-2, 1995, the Board of Trustees of the Trust adopted a multi-class plan (the
"Rule 18f-3 plan") on behalf of each Fund. The key features of the Rule
18f-3 plan are as follows: (i) shares of each class of each Fund represent
an equal pro rata interest in the Fund and generally have identical voting,
dividend, liquidation, and other rights, preferences, powers, restrictions,
limitations, qualifications, terms and conditions, except that each class
bears certain class-specific expenses and has separate voting rights on
certain matters that relate solely to that class or in which the interests of
shareholders of one class differ from the interests of shareholders of
another class; (ii) subject to certain limitations described in each Fund's
Prospectus, shares of a particular class of the Fund may be exchanged for
shares of the same class of another Ivy or Mackenzie fund; and (iii) each
Fund's Class B shares will convert automatically into Class A shares of the
Fund after a period of eight years, based on the relative net asset value of
such shares at the time of conversion.

RULE 12b-1 DISTRIBUTION PLANS. As described in the Prospectus, each
Fund has adopted pursuant to Rule 12b-1 under the 1940 Act separate
distribution plans pertaining to its Class A and Class B shares (the "Class
A Plan" and the "Class B Plan," collectively, the "Plans"). In adopting each
Plan, a majority of the Independent Trustees have concluded in conformity
with the requirements of the 1940 Act that there is a reasonable likelihood
that the Plan will benefit a Fund and its shareholders. The Trustees of the
Trust believe that the Plans should result in greater sales and/or fewer
redemptions of Fund shares, although it is impossible to know for certain the
level of sales and redemptions of Fund shares in the absence of a Plan or
under an alternative distribution arrangement.

Under each Fund's Class A and Class B Plan, each Fund pays IMDI a
service fee, accrued daily and paid monthly, at the annual rate of up to
0.25% of the average net assets attributable to its Class A shares or Class
B shares, as the case may be. The services for which service fees may be
paid include, among other services, advising clients or customers regarding
the purchase, sale or retention of shares of a Fund, answering routine
inquiries concerning a Fund and assisting shareholders in changing options or
enrolling in specific plans. Pursuant to each Fund's Plans, service fee
payments made out of or charged against the assets attributable to that
Fund's Class A or Class B shares must be in reimbursement for services
rendered for or on behalf of that class of the Fund. The expenses not
reimbursed in any one given month may be reimbursed in a subsequent month.
No Class A Plan provides for the payment of interest or carrying charges as
distribution expenses.

Each Fund also pays IMDI a distribution fee based on the average net
assets attributable to its Class B shares, accrued daily and paid monthly at
the following annual rates: 0.50%, for Mackenzie Limited Term Municipal
Fund; and 0.75%, for Mackenzie National Municipal Fund, Mackenzie California
Municipal Fund and Mackenzie New York Municipal Fund. IMDI may reallow all
or a portion of the service and distribution fees to dealers as MIMI may
determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result
in the sale of Class B shares of a Fund, including the printing of
prospectuses for persons other than shareholders and the preparation,
printing and distribution of sales literature and advertising materials.
Pursuant to each Fund's Class B Plan, IMDI may include interest, carrying or
other finance charges in its calculation of Class B distribution expenses, if
not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC. The SEC order permitting the imposition of a contingent deferred
sales charge on Class B shares does not currently permit IMDI to recover such
charges.

Among other things, each Plan provides that (1) IMDI will submit to the
Board of Trustees of the Trust at least quarterly, and the Trustees will
review, written reports regarding all amounts expended under the Plan and the
purposes for which such expenditures were made; (2) the Plan will continue in
effect only so long as such continuance is approved at least annually, and
any material amendment thereto is approved, by the votes of a majority of the
Trust's Board of Trustees, including the Independent Trustees, cast in person
at a meeting called for that purpose; (3) payments by a Fund under the Plan
shall not be materially increased without the affirmative vote of the holders
of a majority of the outstanding shares of the relevant class; and (4) while
the Plan is in effect, the selection and nomination of Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust shall be
committed to the discretion of the Trustees who are not "interested persons"
of the Trust.

IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid to MIMI by the Funds. IMDI also may make payments (such
as the service fee payments described above) to unaffiliated broker-dealers
for services rendered in the distribution of the Funds' shares. To qualify
for such payments, shares may be subject to a minimum holding period.
However, no such payments will be made to any dealer or broker, if at the end
of each year the amount of shares held does not exceed a minimum amount. The
minimum holding period and minimum level of holdings will be determined from
time to time by IMDI.

Each Plan may be amended at any time with respect to the class of shares
of a Fund to which the Plan relates by vote of the Trustees, including a
majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated with
respect to the class of shares of a Fund to which the Plan relates at any
time, without payment of any penalty, by vote of a majority of the
Independent Trustees, or by vote of a majority of the outstanding voting
securities of that class.

RULE 12B-1 PAYMENTS BY THE FUNDS FOR DISTRIBUTION-RELATED
SERVICES:

MACKENZIE LIMITED TERM MUNICIPAL FUND. During the period from July 1,
1993 to September 30, 1993, the Fund paid MIMI $65,146 pursuant to the Class
A Plan. During the period from October 1, 1993 to June 30, 1994, and the
fiscal years ended June 30, 1995 and 1996, the Fund paid IMDI $265,119,
$340,929 and $228,045, respectively, pursuant to the Class A plan. For the
period from April 1, 1994 (the date on which Class B shares of the Fund were
first offered for sale to the public) to June 30, 1994 and the fiscal years
ended June 30, 1995 and 1996, the Fund paid IMDI $1,115, $15,139 and $16,450,
respectively, pursuant to the Class B Plan.

MACKENZIE NATIONAL MUNICIPAL FUND. During the period from July 1, 1993
to September 30, 1993, the Fund paid MIMI $26,593 pursuant to the Class A
Plan. During the period from October 1, 1993 to June 30, 1994, and the
fiscal years ended June 30, 1995 and 1996, the Fund paid IMDI $74,712,
$83,272 and $64,109, respectively, pursuant to the Class A plan. For the
period from April 1, 1994 (the date on which Class B shares of the Fund were
first offered for sale to the public) to June 30, 1994 and the fiscal years
ended June 30, 1995 and 1996, the Fund paid IMDI $771, $8,042 and $9,273,
respectively, pursuant to the Class B Plan.

MACKENZIE CALIFORNIA MUNICIPAL FUND. During the period from July 1,
1993 to September 30, 1993, the Fund paid MIMI $30,288 pursuant to the Class
A Plan. During the period from October 1, 1993 to June 30, 1994, and the
fiscal years ended June 30, 1995 and 1996, the Fund paid IMDI $84,893,
$100,518 and $92,452, respectively, pursuant to the Class A plan. For the
period from April 1, 1994 (the date on which Class B shares of the Fund were
first offered for sale to the public) to June 30, 1994 and the fiscal years
ended June 30, 1995 and 1996, the Fund paid IMDI $168, $5,868 and 11,122,
respectively, pursuant to the Class B Plan.

MACKENZIE NEW YORK MUNICIPAL FUND. During the period from July 1, 1993
to September 30, 1993, the Fund paid MIMI $27,182 pursuant to the Class A
Plan. During the period from October 1, 1993 to June 30, 1994, and the
fiscal years ended June 30, 1995 and 1996, the Fund paid IMDI $83,038,
$103,901 and $96,899, respectively, pursuant to the Class A plan. For the
period from April 1, 1994 (the date on which Class B shares of the Fund were
first offered for sale to the public) to June 30, 1994 and the fiscal years
ended June 30, 1995 and 1996, the Fund paid IMDI $1,374, $11,975 and $17,083,
respectively, pursuant to the Class B Plan.

DISTRIBUTION-RELATED EXPENSES BORNE BY IMDI:

MACKENZIE LIMITED TERM MUNICIPAL FUND: During the fiscal year ended
June 30, 1996, IMDI expended the following amounts in marketing Class A and
Class B shares of the Fund: advertising, $19,412 and $467, respectively;
printing and mailing of prospectuses to persons other than current
shareholders, $11,799 and $284, respectively; compensation to dealers,
$40,373 and $971, respectively; compensation to sales personnel, $140,835 and
$3,386, respectively; seminars and meetings, $10,093 and $243, respectively;
travel and entertainment, $27,531 and $662, respectively; general and
administrative, $102,189 and $2,457, respectively; telephone, $4,053 and $97,
respectively; and occupancy and equipment rental, $8,981 and $216,
respectively.

MACKENZIE NATIONAL MUNICIPAL FUND: During the fiscal year ended June
30, 1996, IMDI expended the following amounts in marketing Class A and Class
B shares of the Fund: advertising, $5,537 and $200, respectively; printing
and mailing of prospectuses to persons other than current shareholders,
$4,105 and $148, respectively; compensation to dealers, $14,169 and $512,
respectively; compensation to sales personnel, $40,257 and $1,456,
respectively; seminars and meetings, $3,542 and $128, respectively; travel
and entertainment, $7,858 and $284, respectively; general and administrative,
$28,527 and $1,032, respectively; telephone, $1,153 and $42, respectively;
and occupancy and equipment rental, $2,558 and $92, respectively.

MACKENZIE CALIFORNIA MUNICIPAL FUND: During the fiscal year ended June
30, 1996, IMDI expended the following amounts in marketing Class A and Class
B shares of the Fund: advertising, $8,019 and $241, respectively; printing
and mailing of prospectuses to persons other than current shareholders,
$4,629 and 139, respectively; compensation to dealers, $18,545 and $558,
respectively; compensation to sales personnel, $57,935 and 1,742,
respectively; seminars and meetings, $4,637 and $139, respectively; travel
and entertainment, $11,409 and $343, respectively; general and
administrative, $40,841 and $1,228, respectively; telephone, $1,665 and $50,
respectively; and occupancy and equipment rental, $3,706 and $111,
respectively.

MACKENZIE NEW YORK MUNICIPAL FUND: During the fiscal year ended June
30, 1996, IMDI expended the following amounts in marketing Class A and Class
B shares of the Fund: advertising, $8,391 and $370, respectively; printing
and mailing of prospectuses to persons other than current shareholders,
$5,213 and $230, respectively; compensation to dealers, $22,534 and $993,
respectively; compensation to sales personnel, $60,779 and $2,679,
respectively; seminars and meetings, $5,634 and $248, respectively; travel
and entertainment, $11,929 and $526, respectively; general and
administrative, $42,599 and 1,878, respectively; telephone, $1,742 and $77,
respectively; and occupancy and equipment rental, $3,875 and $171,
respectively.

CUSTODIAN

Brown Brothers Harriman & Co., a private bank and member of the
principal securities exchanges, located at 40 Water Street, Boston,
Massachusetts 02109 (the "Custodian"), has been retained to act as Custodian
of the Trust's investments. Its primary responsibility is to maintain
custody of the cash and securities in each Fund's portfolio. Brown Brothers
may receive, as partial payment for its services, a portion of the Trust's
brokerage business, subject to its ability to provide best price and
execution. The First National Bank of Boston, One Financial Center, Boston,
Massachusetts 02111, served as the Trust's custodian until May 31, 1993.

FUND ACCOUNTING

Pursuant to a Fund Accounting Services Agreement dated July 1, 1991
(effective July 16, 1991), MIMI provides certain accounting and pricing
services for the Funds. As compensation for such services, each Fund pays
MIMI a monthly fee plus out-of-pocket expenses as incurred. The monthly fee
is based on the net assets of the Fund at the preceding month end at the
following rates: $1,000 when the net assets are less than $1,500 when the
net assets are $20 to $75 million; $4,000 when the net assets are $75 to $100
million; and $6,000 when the net assets are over $100 million. For the
fiscal years ended June 30, 1996, 1995 and 1994, the Funds paid the following
amounts to MIMI pursuant to the agreement: Mackenzie Limited Term Municipal
Fund, $83,991, $104,676, and $93,126, respectively; Mackenzie National
Municipal Fund, $27,338, $27,467 and$26,935, respectively; Mackenzie
California Municipal Fund, $26,765, $24,790 and $24,062, respectively; and
Mackenzie New York Municipal Fund, $29,975, $29,126 and$27,625, respectively.

TRANSFER AND DIVIDEND PAYING AGENT

Ivy Mackenzie Services Corp. ("IMSC" or the "Transfer Agent") acts as
the Trust's transfer agent and dividend paying agent pursuant to a Transfer
Agency and Shareholder Services Agreement. For transfer agency and
shareholder services, each Fund pays IMSC an annual fee of $20.75 per open
account and $4.48 for each account that is closed. In addition, each Fund
reimburses IMSC monthly for out-of-pocket expenses. Certain broker-dealers
that maintain shareholder accounts with the Fund through an omnibus account
provide transfer agent and other shareholder-related services that would
otherwise be provided by IMSC if the individual accounts that comprise the
omnibus account were opened by their beneficial owners directly. IMSC pays
such broker-dealers a per account fee for each open account within the
omnibus account, or a fixed rate fee (e.g., .10%), based on the average daily
net asset value of the omnibus account (or a combination thereof).

ADMINISTRATOR

MIMI provides various administrative services to the Trust pursuant to
an Administrative Services Agreement. As compensation for these services,
each Fund pays MIMI a monthly fee at the annual rate of .10% of each Fund's
average daily net assets. Outside of providing administrative services to
the Trust, as described above, MIMI may also act on behalf of IMDI in paying
commissions to broker-dealers with respect to sales of a Fund's Class B
shares.

AUDITORS

Coopers & Lybrand L.L.P., independent certified public accountants, 200
East Las Olas Boulevard, Suite 1700, Ft. Lauderdale, Florida 33301, has been
selected as auditors for the Trust. The audit services performed by Coopers
& Lybrand L.L.P. include audits of the annual financial statements of each of
the funds of the Trust. Other services provided primarily relate to filings
with the SEC and the review of the Trust's tax returns.

CAPITALIZATION AND VOTING RIGHTS

The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest with a par value of $0.001 per share. When
issued, shares of each class of a Fund are fully paid, non-assessable,
redeemable and fully transferable. No class of shares of a Fund has
preemptive rights or subscription rights.

The Declaration of Trust permits the Trustees to create separate series
or portfolios and to divide any series or portfolio into one or more classes.
The Trustees have authorized five series, each of which represents a fund.
The Trustees have further authorized the issuance of Classes A and B shares
for the Funds.

Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law
or by the provisions of the Trust's By-Laws. Shares of each class of a Fund
entitle their holders to one vote per share (with proportionate voting for
fractional shares). On matters affecting only one Fund, only the
shareholders of that Fund are entitled to vote. All classes of shares of a
Fund will vote together, except with respect to the distribution plan
applicable to its Class A or Class B shares or when a class vote is required
by the 1940 Act. On matters relating to all of the Funds, but affecting each
Fund differently, separate votes by the shareholders of each Fund are
required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting
by the shareholders of each Fund. If the Trustees determine that a matter
does not affect the interests of a Fund, then the shareholders of that Fund
will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all of
the Funds.

As used in this SAI and the Prospectus, the phrase "majority vote of the
outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders
of more than 50% of the outstanding shares are present in person or by proxy;
or (2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter requiring
separate voting by a Fund, the matter shall have been effectively acted upon
with respect to any Fund if a majority of the outstanding voting securities
of that Fund votes for the approval of the matter, notwithstanding that: (1)
the matter has not been approved by a majority of the outstanding voting
securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Trust's shares do not have cumulative voting rights and accordingly the
holders of more than 50% of the outstanding shares could elect the entire
Board of Trustees, in which case the holders of the remaining shares would
not be able to elect any Trustees.

Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations
of the Trust, which are binding only on the assets and property of the Trust,
and requires that notice of the disclaimer be given in each contract or
obligation entered into or executed by the Trust or its Trustees. The
Amended and Restated Declaration of Trust provides for indemnification out of
Fund property for all loss and expense of any shareholder of a Fund held
personally liable for the obligations of that Fund. The risk of a
shareholder of the Trust incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be
unable to meet its obligations and, thus, should be considered remote.

PRINCIPAL HOLDERS OF SECURITIES:

MACKENZIE LIMITED TERM MUNICIPAL FUND: To the knowledge of the Trust,
as of September 30, 1996, no shareholder owned beneficially or of record 5%
or more of the Fund's total outstanding shares, except that of the
outstanding Class B shares of the Fund, Elizabeth & B.L. Perry, 1744 Pebble
Creek Drive, Prattville, AL 36066-7207, owned of record 23,099.261 shares
(12.27%); Yolanda D. Acinapura, 330 Cherry Lane, Havertown, PA 19083-1617,
owned of record 21,047.910 shares (11.18%) and William E. Anderson
Consulting, 11109 NW 113th Street, Yukon, OK 73099, owned of record
13,792.722 shares (7.32%).

MACKENZIE NATIONAL MUNICIPAL FUND: To the knowledge of the Trust, as of
September 30, 1996, no shareholder owned beneficially or of record 5% or more
of the Fund's total outstanding shares, except that of the outstanding Class
B shares of the Fund, Bianca Van Der Zee, 907 Maple Branch, Pearland, TX
77584, owned of record 32,108.408 shares (26.45%); Ruth Swartz, 1161 Cayuga
Drive, Grand Blanc, MI 48439-4823, owned of record 16,114.112 shares
(13.27%); Paul H. Meyer, 8172 Hunnicut, Dallas, TX 75228-5929, owned of
record 13,779.197 shares (11.35%); Smith Barney, 388 Greenwich Street, New
York, NY 10013, owned of record 12,321.858 shares (10.15%); John and Assuata
Digianno, 271-20 77th Road, New Hyde Park, NY 11040-1428, owned of record
11,079.717 (9.12%) and Smith Barney, 388 Greenwich Street, New York, NY 10013
owned of record 10,148.146 (8.36%). Bianca Van Der Zee, 907 Maple Branch,
Pearland, TX 77584, may be deemed to hold a controlling interest, as defined
in the 1940 Act, in Class B shares of the Fund. Accordingly, as long as
Bianca Van Der Zee holds such an interest, he or she may have the ability to
influence a vote on any matter that is submitted for approval only to Class
B shareholders of the Fund.

MACKENZIE CALIFORNIA MUNICIPAL FUND: To the knowledge of the Trust, as
of September 30, 1996, no shareholder owned beneficially or of record 5% or
more of the Fund's total outstanding shares, except that of the outstanding
Class B shares of the Fund, The Feldman Family Trust, 25381-G Alicia Parkway
- - #214, Laguna Hills, CA 92653, owned of record 22,895.412 (19.69%); The
Donald R. Melen Trust, 353 Euclid Avenue #308, Oakland, CA 94610, owned of
record 14,822.613 (12.75%); Esther Finnigan Trust, 1512 B Granite Hills
Drive, El Cajon, CA 92019, owned of record 10,557.756 (9.08%); The Bell
Trust, 27031 Vista Point, San Juan Capistrano, CA 92675, owned of record
7,387.412 shares (6.35%) and Robert and Dorothy Kishi, 1301 W 184th Street,
Gardena, CA 90248, owned of record 6,081.153 shares (5.23%).

MACKENZIE NEW YORK MUNICIPAL FUND: To the knowledge of the Trust, as of
September 30, 1996, no shareholder owned beneficially or of record 5% or more
of the Fund's total outstanding shares, except that of the outstanding Class
B shares of the Fund, Susan E. Madigan, 455 Village Lane, Box 126, Orient, NY
11957, owned of record 48,836.499 shares (19.87%); Harold L. Mendelson,
146-01 45th Avenue, Suite 402, Flushing, NY 11355, owned of record 23,572.940
shares (9.59%); Smith Barney, 388 Greenwich Street, New York, NY 10013, owned
of record 14,089.580 (5.73%) and Barbara A. Shonyo, 6 Juniper Lane,
Liverpool, NY 13090, owned of record 13,510.420 shares (5.49%).

NET ASSET VALUE

The market price of a Fund share is its net asset value. The net asset
value per share is calculated separately for each Fund, and is computed by
dividing the value of the assets of the Fund, less its liabilities, by the
number of shares of the Fund outstanding. A Fund's liabilities are allocated
between its Classes. The total of such liabilities allocated to a Class plus
that Class' distribution fee and any other expenses specially allocated to
that Class are then deducted from the proportionate interest of the Class in
the Fund's assets, and the resulting amount for each Class is divided by the
number of shares of that Class outstanding to produce the net asset value per
share.

Portfolio securities are valued and net asset value per share is
determined as of the close of regular trading on the New York Stock Exchange
(the "Exchange") (normally 4:00 p.m., Eastern Time) on each day the Exchange
is open for trading. The Trust's offices will be closed, and net asset value
will not be calculated on the following national business holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. On any day on which either or
both of the Funds' Custodian or the Exchange close early as a result of such
day being a partial holiday or otherwise, the Funds reserve the right to
advance the time on that day by which purchase and redemption requests must
be received.

Municipal securities held by the Funds are valued through a pricing
service and/or in accordance with procedures approved by the Board of
Trustees. Valuations furnished by a pricing service are based on a
computerized matrix system and/or appraisals based in each case upon
information concerning market transactions and quotations from recognized
municipal securities dealers. In valuing the Funds' municipal securities,
the pricing service considers factors such as yields or prices of municipal
bonds of comparable quality, type of issue, coupon, maturity and rating,
indications as to value from dealers, and general market conditions. The
Trust's officers, under the general supervision of the Board of Trustees,
will regularly review procedures used and valuations provided by the pricing
service.

Taxable securities held by a Fund for which market quotations are
readily available will be valued at market value, which is the last reported
sale price or, at the mean between the latest available bid and asked prices.
The Board of Trustees has determined that securities having 60 days or less
remaining to maturity will be valued at their amortized cost, which
approximates market value when such amortized cost is believed to reflect the
fair market value of such securities.

The sale of a Fund's shares will be suspended during any period when the
determination of its net asset value is suspended pursuant to rules or orders
of the SEC, and may be suspended by the Board of Trustees whenever in its
judgment it is in the best interest of the Fund to do so.

PORTFOLIO TURNOVER

A change in securities held by a Fund is known as "portfolio turnover"
and may involve the payment by the Fund of dealer markup or underwriting
commission and other transaction costs on the sale of securities, as well as
on the reinvestment of the proceeds in other securities. A Fund's portfolio
turnover rate is calculated by dividing the lesser of purchases or sales of
portfolio securities for the most recently completed fiscal year by the
monthly average of the value of the portfolio securities owned by the Fund
during that year. For purposes of determining a Fund's portfolio turnover
rate, all securities whose maturities at the time of acquisition were one
year or less are excluded. The annual portfolio turnover rates for the Funds
are provided in the Prospectus.

REDEMPTIONS

Shares of a Fund are redeemed at their net asset value next determined
after a redemption request in proper form has been received by IMSC, less any
applicable contingent deferred sales charge. Unless a shareholder requests
that the proceeds of any redemption be wired to his or her bank account,
payment for shares tendered for redemption is made by check within seven days
after tender in proper form, except that the Trust reserves the right to
suspend the right of redemption or to postpone the date of payment upon
redemption, to the extent permitted by Federal securities laws, (i) for any
period during which the New York Stock Exchange is closed (other than
customary weekend and holiday closing) or during which trading on the
Exchange is restricted, (ii) for any period during which an emergency exists
as determined by the SEC as a result of which disposal of securities owned by
a Fund is not reasonably practicable or it is not reasonably practicable for
a Fund fairly to determine the value of its net assets, or (iii) for such
other periods as the SEC may by order permit for the protection of
shareholders of a Fund.

Under unusual circumstances, when the Board of Trustees deems it in the
best interest of a Fund's shareholders, that Fund may make payment for shares
repurchased or redeemed, in whole or in part, in securities of the Fund taken
at current value. If any such redemption in kind is to be made, the Fund
intends to make an election pursuant to Rule 18f-1 under the 1940 Act. This
will require the Fund to redeem with cash at a shareholder's election in any
case where the redemption involves less than $250,000 (or 1% of the Fund's
net asset value at the beginning of each 90-day period during which such
redemptions are in effect, if that amount is less than $250,000). If payment
is made in the form of Fund securities, the redeeming shareholder may incur
brokerage costs in converting such securities to cash.

Subject to state law restrictions, the Trust may redeem those accounts
of shareholders who have maintained an investment, including sales charges
paid, of less than $1,000 in a Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems
it advisable. The $1,000 balance will be determined by actual dollar amounts
invested by the shareholder, unaffected by market fluctuations. The Trust
will notify any such shareholder by certified mail of its intention to redeem
such account, and the shareholder shall have 60 days from the date of such
letter to invest such additional sum as shall raise the value of such account
above that minimum. Should the shareholder fail to forward such sum within
60 days of the date of the Trust's letter of notification, the Trust will
redeem the shares held in such account and transmit the redemption in value
thereof to the shareholder. However, those shareholders who are investing
pursuant to the Automatic Investment Method will not be redeemed
automatically unless they have ceased making payments pursuant to the plan
for a period of at least six consecutive months, and these shareholders will
be given six months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who
wish to avoid tax consequences would have to "rollover" any sum so redeemed
into another qualified plan within 60 days. The Trustees of the Trust may
change the minimum account size.

If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a
single previously designated bank account. Delivery of the proceeds of a
wire redemption request of $250,000 or more may be delayed by the Fund for up
to seven days if deemed appropriate under then current market conditions.
The Trust reserves the right to change this minimum or to terminate the
telephonic redemption privilege without prior notice. The Trust cannot be
responsible for the efficiency of the Federal wire system of the
shareholder's dealer of record or bank. The shareholder is responsible for
any charges by the shareholder's bank.

The Funds employ reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In
the absence of such procedures, a Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.

CONVERSION OF CLASS B SHARES

As described in the Prospectus, Class B shares of a Fund will convert
automatically to Class A shares of that Fund, based on the relative net asset
values per share of the two Classes, as of the close of business on the first
business day after the last day of the calendar quarter in which the eighth
anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (i)
the date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the
exchange privileges for Class B shares) the date on which the original Class
B shares were issued. For purposes of conversion of Class B shares, Class B
shares purchased through the reinvestment of dividends and capital gain
distributions paid in respect of Class B shares will be held in a separate
sub-account. Each time any Class B shares in the shareholder's regular
account (other than those shares in the sub-account) convert to Class A
shares, a pro rata portion of the Class B shares in the sub-account will also
convert to Class A shares. The portion will be determined by the ratio that
the shareholder's Class B shares converting to Class A shares bears to the
shareholder's total Class B shares not acquired through the reinvestment of
dividends and capital gain distributions.

TAXATION

The following is a general discussion of certain tax rules thought to be
applicable with respect to the Funds. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders
should consult a competent tax advisor about the tax consequences to them of
investing in any Fund.

GENERAL

Each Fund intends to continue to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Code. In order to
qualify, each Fund must, among other things, (a) derive in each taxable year
at least 90% of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of
stock, securities, or foreign currencies, or other income (including but not
limited to gains from options, futures, and forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
(b) derive in each taxable year less than 30% of its gross income from the
sale or other disposition of certain assets (namely (i) stock or securities,
(ii) options, futures, and forward contracts (other than those on foreign
currencies), and (iii) foreign currencies (including options, futures, and
forward contracts on such currencies) not directly related to the Fund's
principal business of investing in stocks or securities (or options and
futures with respect to stocks and securities)) held less than three months
(the "30% Limitation"); and (c) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's
assets is represented by cash, U.S. Government securities, the securities of
other regulated investment companies, and other securities, with such other
securities of any one issuer limited for purposes of this calculation to an
amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
its total assets is invested in securities of any other issuer (other than
U.S. Government securities and the securities of other regulated investment
companies).

As a regulated investment company, a Fund generally will not be subject
to U.S. Federal income tax on its investment company taxable income (which
includes, among other items, dividends, interest and net short-term capital
gains in excess of net long-term capital losses) and net capital gains (net
long-term capital gains in excess of net short-term capital losses) that it
distributes to shareholders, if at least 90% of both its investment company
taxable income and its net tax-exempt interest income for the taxable year is
distributed. Each Fund intends to distribute such income.

Amounts, other than tax-exempt interest, not distributed on a timely
basis in accordance with a calendar year distribution requirement are subject
to a nondeductible 4% excise tax. To avoid that tax, each Fund must
distribute during each calendar year an amount equal to (1) at least 98% of
its ordinary income (not taking into account any capital gains or losses) for
the calendar year, (2) at least 98% of its capital gains in excess of its
capital losses (adjusted for certain ordinary losses) for the twelve-month
period ending on October 31 of the calendar year, and (3) all ordinary income
and capital gains for previous years that were not distributed during such
years. A distribution, including an "exempt-interest dividend," will be
treated as paid on December 31 of the current calendar year if it is declared
by a Fund in October, November or December of that year to shareholders of
record at some date in such a month and paid by the Fund during January of
the following calendar year. Such distributions will be taken into account
by shareholders in the calendar year the distributions are declared, rather
than the calendar year in which the distributions are received.

Certain of the Funds may enter into put transactions with respect to
municipal obligations they hold. The IRS has issued published and private
rulings concerning the treatment of such put transactions for Federal income
tax purposes. The Fund's situation is distinguishable from those addressed
in these rulings; thus, there can be no assurance that a Fund will be treated
as the owner of the municipal obligations subject to the puts or that the
interest on such obligations received by the Fund will be exempt from Federal
income tax. If the Fund is not treated as the owner of the municipal
obligations subject to the puts, distributions of income derived from such
obligations would be taxed as ordinary income.

DISCOUNT

Certain of the bonds purchased by a Fund may be treated as bonds that
were originally issued at a discount. Original issue discount represents
interest for Federal income tax purposes and can generally be defined as the
difference between the price at which a security was issued and its stated
redemption price at maturity. Original issue discount is treated for Federal
income tax purposes as income earned by a Fund, although no cash is actually
received by a Fund, and therefore is subject to the distribution requirements
of the Code. The amount of income earned by a Fund generally is determined
on the basis of a constant yield to maturity that takes into account the
semi-annual compounding of accrued interest.

In addition, some of the bonds may be purchased by a Fund at a discount
that exceeds the original issue discount on such bonds, if any. This
additional discount represents market discount for Federal income tax
purposes. The gain realized on the disposition of any bond, including a
tax-exempt bond, having market discount will be treated as ordinary income to
the extent it does not exceed the accrued market discount on such bond
(unless a Fund elects for all its debt securities acquired after the first
day of the first taxable year to which the election applies having a fixed
maturity date of more than one year from the date of issue to include market
discount in income in tax years to which it is attributable). Generally,
market discount accrues on a daily basis for each day the bond is held by a
Fund at a constant rate over the time remaining to the bond's maturity.

DISTRIBUTIONS

Each Fund intends to qualify to pay "exempt- interest dividends" to its
shareholders but there is no guarantee that any particular Fund will so
qualify. A Fund will be so qualified if, at the close of each quarter of its
taxable year, at least 50% of the value of its total assets consist of state
and municipal securities on which interest payments are exempt from Federal
income tax and such interest payments when distributed are designated as
exempt-interest dividends by the Fund. Exempt-interest dividends are
excludable from a shareholder's gross income for Federal income tax purposes.
Exempt- interest dividends, however, must be taken into account by
shareholders in determining whether their total incomes are large enough to
result in taxation of up to 85% of their social security benefits or certain
railroad retirement benefits. Exempt-interest dividends that are
attributable to certain private activity bonds may constitute an item of tax
preference for purposes of the alternative minimum tax. For corporate
shareholders, exempt-interest dividends may comprise all or part of an
adjustment to alternative minimum taxable income, which may result in the
imposition or increase in such tax. Each Fund will inform shareholders
annually as to the portion of the distributions from the Fund that
constituted exempt-interest dividends.

Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Because no
portion of a Fund's income is expected to consist of dividends paid by U.S.
corporations, no portion of the dividends paid by a Fund is expected to be
eligible for the corporate dividends-received deduction. Distributions of
net capital gains, if any, that are designated as capital gain dividends are
taxable as long-term capital gains, whether paid in cash or in shares,
regardless of how long the shareholder has held a Fund's shares, and are not
eligible for the dividends received deduction. The tax treatment of
distributions from a Fund is the same whether the dividends are received in
cash or in additional shares. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received
equal to the net asset value of a share of the Fund on the reinvestment date.
A distribution of an amount in excess of a Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
that is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will
be notified annually as to the U.S. Federal tax status distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.

If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by a Fund, such distribution will be taxable
(unless it is an exempt-interest dividend) even though it represents a return
of invested capital. Investors should be careful to consider the tax
implications of buying shares just prior to a distribution. The price of
shares purchased at this time may reflect the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will receive a
distribution that will nevertheless be taxable to them (unless it is an
exempt-interest dividend).

Deductions for interest expense incurred to acquire or carry shares of
a Fund may be subject to limitations that reduce, defer, or eliminate such
deductions. This includes limitations on deducting interest on indebtedness
properly allocable to investment property (which may include shares of a
Fund). In addition, a shareholder may not deduct that portion of interest on
indebtedness incurred or continued to purchase or carry shares of an
investment company paying exempt-interest dividends, which bears the same
ratio to the total of such interest as the exempt-interest dividends bear to
the total dividends, excluding capital gain dividends received by the
shareholder. Under rules issued by the IRS for determining when borrowed
funds are considered used for the purposes of purchasing or carrying
particular assets, the purchase of shares may be considered to have been with
borrowed funds even though the borrowed funds are not directly traceable to
the purchase of shares.

Opinions relating to the validity of municipal securities and the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the issuers. The Funds, MIMI, MFC and their affiliates, and the
Funds' counsel make no review of proceedings relating to the issuance of
state or municipal securities and the bases of such opinions.

DISPOSITION OF SHARES

Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands and will be long-term or
short-term, generally depending upon the shareholder's holding period for the
shares. Any loss realized on a redemption, sale or exchange will be
disallowed to the extent the shares disposed of are replaced (including
through reinvestment of dividends) within a period of 61 days beginning 30
days before and ending 30 days after the shares are disposed of. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on the sale of Fund
shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital
gains received or treated as having been received by the shareholder with
respect to such shares. Any loss realized by shareholder on the redemption,
sale or exchange of shares of a Fund with respect to which exempt-interest
dividends have been paid will, to the extent of such exempt-interest
dividends, be disallowed if such shares have been held by the shareholder for
six months or less.

In some cases, shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized
on the disposition of their stock. This prohibition generally applies where
(1) the shareholder incurs a sales charge in acquiring the stock of a Fund,
(2) the stock is disposed of before the 91st day after the date on which it
was acquired, and (3) the shareholder subsequently acquires the stock of the
same or another Fund and the otherwise applicable sales charge is reduced
under a "reinvestment right" received upon the initial purchase of regulated
investment company shares. The term "reinvestment right" means any right to
acquire stock of one or more Funds without the payment of a sales charge or
with the payment of a reduced sales charge. Sales charges affected by this
rule are treated as if they were incurred with respect to the stock acquired
under the reinvestment right. This provision may be applied to successive
acquisitions of Fund shares.

BACKUP WITHHOLDING

Each Fund will be required to report to the IRS all distributions (other
than exempt-interest dividends) as well as gross proceeds from the redemption
of that Fund's shares, except in the case of certain exempt shareholders.
All such reportable distributions and proceeds will be subject to withholding
of Federal income tax at a rate of 31% ("backup withholding") in the case of
non-exempt shareholders if (1) the shareholder fails to furnish the Fund with
and to certify the shareholder's correct taxpayer identification number or
social security number; (2) the IRS notifies the shareholder or the Fund that
the shareholder has failed to report properly certain interest and dividend
income to the IRS and to respond to notices to that effect; or (3) when
required to do so, the shareholder fails to certify that he or she is not
subject to backup withholding. If the withholding provisions are applicable,
any such distributions or proceeds, whether reinvested in additional shares
or taken in cash, will be reduced by the amounts required to be withheld.

OTHER TAXATION

The foregoing discussion relates only to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
corporations, partnerships, trusts and estates). Distributions by a Fund
also may be subject to state and local taxes, and their treatment under state
and local income tax laws may differ from the U.S. Federal income tax
treatment. In certain states, Fund distributions that are derived from
interest on obligations of that state or its municipalities or any political
subdivisions thereof may be exempt from state and local taxes. Fund
distributions that are derived from interest on obligations of the U.S.
Government and certain of its agencies, authorities and instrumentalities
also may be exempt from state and local taxes in certain states.
Shareholders should consult their tax advisers with respect to particular
questions of U.S. Federal, state and local taxation. Persons who may be
"substantial users" (or "related persons" of substantial users) of facilities
financed by industrial development bonds should consult their tax advisers
before purchasing shares of a Fund. The term "substantial user" generally
includes any "non-exempt person" who regularly uses in his or her trade or
business a part of a facility financed by industrial development bonds.
Generally, an individual will not be a "related person" of a substantial user
under the Code unless the person or his or her immediate family owns directly
or indirectly in the aggregate more than a 50% equity interest in the
substantial user. Shareholders who are not U.S. persons should consult their
tax advisers regarding U.S. and foreign tax consequences of ownership of
shares of a Fund, including the likelihood that distributions to them would
be subject to withholding of U.S. Federal income tax at a rate of 30% (or at
a lower rate under a tax treaty).

SPECIAL INFORMATION RELATING TO MACKENZIE CALIFORNIA MUNICIPAL FUND

Under California law, a mutual fund that qualifies as a regulated
investment company generally must have at least 50% of its total assets in
California state and local issues or certain U.S. Government obligations or
a combination thereof at the end of each quarter of its taxable year in order
to be eligible to pay dividends that will be exempt from California personal
income tax. Generally, shareholders who are California residents will not
incur California personal income tax on the amount of dividends received by
them from Mackenzie California Municipal Fund that the Fund designates as
California exempt-interest dividends derived from California state and local
issues or certain U.S. Government obligations, whether taken in cash or
reinvested in additional shares. Gain on the sale or redemption of Fund
shares is subject to California personal income tax. Shareholders will
normally be subject to California personal income tax on dividends paid from
interest income derived from taxable securities and from securities issued by
states other than California and its subsidiaries and on distribution of net
capital gains.

SPECIAL INFORMATION RELATING TO MACKENZIE NEW YORK MUNICIPAL FUND

Exempt-interest dividends, whether received by shareholders in cash or
in additional shares, derived by New York residents from interest on
qualifying New York bonds generally are exempt from New York State and New
York City personal income taxes, but not corporate franchise taxes.
Dividends and distributions derived from taxable income and capital gains are
not exempt from New York State and New York City taxes. Interest on
indebtedness incurred or continued by a shareholder to purchase or carry
shares of the Fund is not deductible for New York State or New York City
personal income tax purposes. Gain on the sale or redemption of Fund shares
generally is subject to New York State and New York City personal income tax.

PERFORMANCE INFORMATION

Performance information for the separate classes of shares of a Fund may
be compared, in reports and promotional literature, to: (i) the S&P 500
Index, Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so
that investors may compare a Fund's results with those of a group of
unmanaged securities widely regarded by investors as representative of the
securities markets in general; (ii) other groups of mutual funds tracked by
Lipper Analytical Services, a widely used independent research firm that
ranks mutual funds by overall performance, investment objectives and assets,
or tracked by other services, companies, publications, or other criteria; and
(iii) the Consumer Price Index (measure for inflation) to assess the real
rate of return from an investment in a Fund. Unmanaged indices may assume
the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses. Performance rankings are
based on historical information and are not intended to indicate future
performance.

In addition, the Trust may, from time to time, include various measures
of a Fund's performance including the current yield, the tax-equivalent yield
and the average annual total return of shares of the Funds in advertisements,
promotional literature or reports to shareholders or prospective investors.
Such materials may occasionally cite statistics to reflect a Fund's
volatility or risk.

YIELD. Quotations of yield for a specific Class of shares of a Fund
will be based on all investment income attributable to that Class earned
during a particular 30-day (or one month) period (including dividends and
interest), less expenses attributable to that Class accrued during the period
("net investment income"), and will be computed by dividing the net
investment income per share of that Class earned during the period by the
maximum offering price per share (in the case of Class A shares) or the net
asset value per share (in the case of Class B shares) on the last day of the
period, according to the following formula:

YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]

Where: a = dividends and interest earned during
the period attributable to a specific
Class of shares,
b = expenses accrued for the period
attributable to that Class (net of
reimbursements),
c = the average daily number of shares of
that Class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per share
(in the case of Class A shares) or
the net asset value per share (in the
case of Class B shares) on the last
day of the period.

The yield for Class A and Class B shares of the Funds for the 30-day period
ended June 30, 1996 were: Mackenzie Limited Term Municipal Fund -- 4.24% and
3.89%, respectively; Mackenzie California Municipal Fund -- 4.35% and 4.11%,
respectively; Mackenzie National Municipal Fund -- 4.28% and 4.36%,
respectively; and Mackenzie New York Municipal Fund -- 4.34% and 4.06%,
respectively. The yield figures reflect voluntary expense reimbursements by
MIMI. Without the voluntary reimbursements, the yield for Class A and Class B
shares of each Fund for the same 30-day period would have been: Mackenzie
Limited Term Municipal Fund -- 3.68% and 3.31%, respectively; Mackenzie
California Municipal Fund -- 4.11% and 3.86%, respectively; Mackenzie National
Municipal Fund -- 3.86% and 3.91%, respectively; and Mackenzie New York
Municipal Fund -- 3.76% and 3.45%, respectively.

TAX-EQUIVALENT YIELD. Tax-equivalent yield for a specific Class of shares
of a Fund is the net annualized taxable yield needed to produce a specified
tax-exempt yield at a given tax rate based on a specified 30-day (or one month)
period assuming semi-annual compounding of income. Tax-equivalent yield is
calculated by dividing that portion of a Fund's yield (as computed in the yield
description above) that is tax-exempt by one minus a stated income tax rate and
adding the product to that portion, if any, of the yield of the Fund that is not
tax-exempt. Thus, for example, for the thirty- day period ended June 30, 1996,
taxpayers with effective combined federal, state and/or city marginal income tax
rates of 28% and 31% would have had to have earned (i) a taxable yield of 5.89%
and 6.14% (or 5.11% and 5.33% without the voluntary reimbursements),
respectively, to receive after-tax income equal to the 4.24% (or 3.68% without
the voluntary reimbursements) tax-free yield of Class A shares of Mackenzie
Limited Term Municipal Fund for that period; (ii) a taxable yield of 5.95% and
6.21% (or 5.37% and 5.60% without the voluntary reimbursements), respectively,
to receive after-tax income equal to the 4.28% (or 3.86% without the voluntary
reimbursements) tax-free yield of Class A shares of Mackenzie National Municipal
Fund for that period; (iii) a taxable yield of 6.04% and 6.30% (or 5.71% and
5.96% without the voluntary reimbursements), respectively, to receive after-tax
income equal to the 4.35% (or 4.11% without the voluntary reimbursements)
tax-free yield of Class A shares of Mackenzie California Municipal Fund for that
period; and (iv) a taxable yield of 6.02% and 6.28% (or 5.22% and 5.45% without
the voluntary reimbursements), income equal to the 4.34% (or 3.76% without the
voluntary reimbursements) tax-free yield of Class A shares of Mackenzie New York
Municipal Fund for that period. For the thirty-day period ended June 30, 1996,
taxpayers with effective combined federal, state and/or city marginal income tax
rates of 28% and 31% would have had to have earned (i) a taxable yield of 5.41%
and 5.64% (or 4.60% and 4.80% without the voluntary reimbursements),
respectively, to receive after-tax income equal to the 3.89% (or 3.31% without
the voluntary reimbursements) tax-free yield of Class B shares of Mackenzie
Limited Term Municipal Fund for that period; (ii) a taxable yield of 6.05% and
6.31% (or 5.44% and 5.67% without the voluntary reimbursements), respectively,
to receive after-tax income equal to the 4.36% (or 3.91% without the voluntary
reimbursements) tax-free yield of Class B shares of Mackenzie National Municipal
Fund for that period; (iii) a taxable yield of 5.70% and 5.95% (or 5.36% and
5.59% without the voluntary reimbursements), respectively, to receive after-tax
income equal to the 4.11% (or 3.86% without the voluntary reimbursements)
tax-free yield Class B shares of Mackenzie California Municipal Fund for that
period; and (iv) a taxable yield of 5.63% and 5.88% (or 4.79% and 5.00% without
the voluntary reimbursements), respectively, to receive after-tax income equal
to the 4.06% (or 3.45% without the voluntary reimbursements) tax-free yield of
Class B shares of Mackenzie New York Municipal Fund for that period. For a more
detailed explanation of tax-equivalent yields, see Appendix B of this SAI.

AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific Class of shares of a Fund
will be expressed in terms the average annual compounded rate of return that
would cause a hypothetical investment in that Class of a Fund made on the first
day of a designated period to equal the ending redeemable value ("ERV") of such
hypothetical investment on the last day of the designated period, according to
the following formula:

P(1 + T){superscript n} = ERV

Where: P = a hypothetical initial payment of $1,000 to
purchase shares of a specific Class

T = the average annual total return of shares of
that Class

n = the number of years

ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period.

For purposes of the above computation for a Fund, it is assumed that all
dividends and capital gains distributions made by a Fund are reinvested at net
asset value in additional shares of the same Class during the designated period.
In calculating the ending redeemable value for Class A shares and assuming
complete redemption at the end of the applicable period, the maximum 3.00% sales
charge for Mackenzie Limited Term Municipal Fund, and the maximum 4.75% sales
charge for Mackenzie National Municipal Fund, Mackenzie California Municipal
Fund and Mackenzie New York Municipal Fund, is deducted from the initial $1,000
payment and, for Class B shares, the applicable contingent deferred sales charge
imposed upon redemption of Class B shares held for the period is deducted.
Standardized Return quotations for the Funds do not take into account any
required payments for federal or state income taxes. Standardized Return
quotations for Class B shares for periods of over eight years will reflect
conversion of the Class B shares to Class A shares at the end of the eighth
year. Standardized Return quotations are determined to the nearest 1/100 of 1%.

A Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor contingent deferred sales
charges are taken into account in calculating Non-Standardized Return; a sales
charge, if deducted, would reduce the return.

The following tables summarize the calculation of Standardized and
Non-Standardized Return for the Class A and Class B shares of the Funds for the
periods indicated. In determining the average annual total return for a
specific Class of shares of a Fund, recurring fees, if any, that are charged to
all shareholder accounts are taken into consideration. For any account fees
that vary with the size of the account of a Fund, the account fee used for
purposes of the following computations is assumed to be the fee that would be
charged to the mean account size of the Fund. Shares of the Funds outstanding
as of March 31, 1994 were designated Class A shares.

MACKENZIE LIMITED TERM MUNICIPAL FUND:
<TABLE>
NON-STANDARDIZED
STANDARDIZED RETURN[*] RETURN[**]
CLASS A[1] CLASS B[2] CLASS A[3] CLASS B[4]
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
One year ended
June 30, 1996: 1.32% 0.98% 4.46% 3.98%

Inception to
June 30, 1996:[#] 4.44% 3.67% 5.10% 4.51%
</TABLE>
- --------------------------

[*] The Standardized Return figures for Class A shares reflect
the deduction of the maximum initial sales charge of 3.00%.
The Standardized Return figures for Class B shares reflect
the deduction of the applicable contingent deferred sales
charge imposed on a redemption of Class B shares held for
the period.

[**] The Non-Standardized Return figures do not reflect the
deduction of any initial or contingent deferred sales
charge.

[#] The commencement of operations for Mackenzie Limited Term
Municipal Fund (formerly Limited Term Portfolio of the Zweig
Tax-Free Fund, Inc.), and the Class A shares of that Fund,
was April 22, 1985. From that date until August 2, 1991,
the fund was managed by Zweig/Glaser Advisors. Effective
August 2, 1991, the Fund is being managed (with the same
investment objectives) by MIMI, which date is the "inception"
date for Class A shares in the above table. The inception
date for Class B shares of the Fund was April 1, 1994.

[1] The Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the one year ended
June 30, 1996 and the period from inception through June 30, 1996
would have been 0.93% and 4.14%, respectively.

[3] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Non-Standardized Return for Class A shares for the one year ended
June 30, 1996 and the period from inception through June 30, 1996
would have been 4.05% and 4.78%, respectively.

MACKENZIE NATIONAL MUNICIPAL FUND:
<TABLE>
NON-STANDARDIZED
STANDARDIZED RETURN[*] RETURN[**]
CLASS A[1] CLASS B[2] CLASS A[3] CLASS B[4]
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
One year ended
June 30, 1996: (0.28)% (1.12)% 4.69% 3.88%

Five years ended
June 30, 1996: 5.49% N/A 6.52% N/A

Inception to
June 30, 1996:[#] 6.20% 3.55% 6.84% 4.82%
</TABLE>
- --------------------------

[*] The Standardized Return figures for Class A shares reflect
the deduction of the maximum initial sales charge of 4.75%.
The Standardized Return figures for Class B shares reflect
the deduction of the applicable contingent deferred sales
charge imposed on a redemption of Class B shares held for
the period.

[**] The Non-Standardized Return figures do not reflect the
deduction of any initial or contingent deferred sales
charge.

[#] The inception date for Mackenzie National Municipal Fund
(and the Class A shares of the Fund) was April 15, 1988; the
inception date for Class B shares of the Fund was April 1, 1994.

[1] The Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the one year ended
June 30, 1996, the five years ended June 30, 1996 and the period
from inception through June 30, 1996 would have been (.69)%, 5.23%
and 5.10%, respectively.

[2] The Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class B shares for the one year ended
June 30, 1996 and the period from inception through June 30, 1996
would have been (1.52)% and 3.22%, respectively. (Since the
inception date for Class B shares of the Fund was April 1, 1994,
there were no Class B shares outstanding for the duration of the
five year period ending June 30, 1996.)

[3] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Non-Standardized Return for Class A shares for the one year ended
June 30, 1996, the five years ended June 30, 1996 and the period
from inception through June 30, 1996 would have been 4.27%, 6.26%
and 5.73%, respectively.

[4] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Non-Standardized Return for Class B shares for the one year ended
June 30, 1996 and the period from inception through June 30, 1996
would have been 3.46% and 4.49%, respectively. (Since the
inception date for Class B shares of the Fund was April 1, 1994,
there were no Class B shares outstanding for the duration of the
five year period ending June 30, 1996.)

MACKENZIE CALIFORNIA MUNICIPAL FUND:
<TABLE>
NON-STANDARDIZED
STANDARDIZED RETURN[*] RETURN[**]
CLASS A[1] CLASS B[2] CLASS A[3] CLASS B[4]
---------- ---------- ---------- ----------
<C> <C> <C> <C>
One year ended
June 30, 1996: 0.51% (0.30)% 5.52% 4.70%

Five years ended
June 30, 1996: 5.67% N/A 6.70% N/A

Inception[#] to
June 30, 1996: 6.65% 3.99% 7.29% 5.25%
- ---------------------------------
</TABLE>
[*] The Standardized Return figures for Class A shares reflect
the deduction of the maximum initial sales charge of 4.75%.
The Standardized Return figures for Class B shares reflect
the deduction of the applicable contingent deferred sales
charge imposed on a redemption of Class B shares held for
the period.

[**] The Non-Standardized Return figures do not reflect the
deduction of any initial or contingent deferred sales
charge.

[#] The inception date for Mackenzie National Municipal Fund
(and the Class A shares of the Fund) was April 15, 1988; the
inception date for the Class B shares of the Fund was
April 1, 1994.

[1] The Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the one year
ended June 30, 1996, the five years ended June 30, 1996 and
the period from inception through June 30, 1996 would have
been 0.32%, 5.54% and 5.75%, respectively.

[2] The Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class B shares for the one year
ended June 30, 1996 and the period from inception through
June 30, 1996 would have been (0.51)% and 3.83%,
respectively. (Since the inception date for Class B shares
of the Fund was April 1, 1994, there were no Class B shares
outstanding for the duration of the five year period ending
June 30, 1996.)

[3] The Non-Standardized Return figures for Class A shares
reflect expense reimbursement. Without expense
reimbursement, the Non-Standardized Return for Class A
shares for the one year ended June 30, 1996, the five years
ended June 30, 1996 and the period from inception through
June 30, 1996 would have been 5.32%, 6.58% and 6.38%,
respectively.

[4] The Non-Standardized Return figures for Class B shares
reflect expense reimbursement. Without expense
reimbursement, the Non-Standardized Return for Class B
shares for the one year ended June 30, 1996 and the period
from inception through June 30, 1996 would have been 4.49%
and 5.08%, respectively. (Since the inception date for
Class B shares of the Fund was April 1, 1994, there were no
Class B shares outstanding for the duration of the five year
period ending June 30, 1996.)

MACKENZIE NEW YORK MUNICIPAL FUND:
<TABLE>
NON-STANDARDIZED
STANDARDIZED RETURN[*] RETURN[**]
CLASS A[1] CLASS B[2] CLASS A[3] CLASS B[4]
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
One year ended
June 30, 1996: 0.12% (0.63)% 5.11% 4.37%

Five years ended
June 30, 1996: 6.05% N/A 7.09% N/A

Inception[#] to
June 30, 1996: 6.49% 3.92% 7.13% 5.18%
_________________________________
</TABLE>
[*] The Standardized Return figures for Class A shares reflect
the deduction of the maximum initial sales charge of 4.75%.
The Standardized Return figures for Class B shares reflect
the deduction of the applicable contingent deferred sales
charge imposed on a redemption of Class B shares held for
the period.

[**] The Non-Standardized Return figures do not reflect the
deduction of any initial or contingent deferred sales
charge.

[#] The inception date for Mackenzie National Municipal Fund
(and the Class A shares of the Fund) was April 15, 1988; the
inception date for the Class B shares of the Fund was
April 1, 1994.

[1] The Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the one year
ended June 30, 1996, the five years ended June 30, 1996 and
the period from inception through June 30, 1996 would have
been (0.09)%, 5.88% and 5.59%, respectively.

[2] The Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class B shares for the one year
ended June 30, 1996 and the period from inception through
June 30, 1996 would have been 0.85% and 3.73%, respectively.
(Since the inception date for Class B shares of the Fund was
April 1, 1994, there were no Class B shares outstanding for
the duration of the five year period ending June 30, 1996.)

[3] The Non-Standardized Return figures for Class A shares
reflect expense reimbursement. Without expense
reimbursement, the Non-Standardized Return for Class A
shares for the one year ended June 30, 1996, the five years
ended June 30, 1996 and the period from inception through
June 30, 1996 would have been 4.90%, 6.92% and 6.23%,
respectively.

[4] The Non-Standardized Return figures for Class B shares
reflect expense reimbursement. Without expense
reimbursement, the Non-Standardized Return for Class B
shares for the one year ended June 30,1996 and the period
from inception through June 30, 1996 would have been 4.15%
and 4.99%, respectively. (Since the inception date for
Class B shares of the Fund was April 1, 1994, there were no
Class B shares outstanding for the duration of the five year
period ending June 30, 1996.)

CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific Class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific Class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):

C = (ERV/P) - 1

Where: C = cumulative total return

P = a hypothetical initial investment of $1,000
to purchase shares of a specific Class

ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.

MACKENZIE LIMITED TERM MUNICIPAL FUND. The following table summarizes the
calculation of Cumulative Total Return for the periods indicated through June
30, 1996, assuming the maximum 3.00% sales charge has been assessed.

SINCE
ONE YEAR INCEPTION[*]

Class A 1.32% 23.85%
Class B 0.98% 7.44%

The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through June 30, 1996, assuming the maximum 3.00%
sales charge has not been assessed.

SINCE
ONE YEAR INCEPTION[*]

Class A 4.46% 27.68%
Class B 3.98% 10.44%

___________________________

[*] The inception date for Mackenzie Limited Term Municipal Fund
(and the Class A shares of the Fund) was April 22, 1985; the
inception date for Class B shares of the Fund was April 1,
1994. From commencement until August 2, 1991, this fund
(formerly Limited Term Portfolio of the Zweig Tax-Free Fund,
Inc.) was managed by Zweig/Glaser Advisors. Effective
August 2, 1991, the Fund is being managed by MIMI with the
same investment objectives.

MACKENZIE NATIONAL MUNICIPAL FUND. The following table summarizes the
calculation of Cumulative Total Return for the periods indicated through June
30, 1996, assuming the maximum 4.75% sales charge has been assessed.

SINCE
ONE YEAR FIVE YEARS INCEPTION[*]

Class A (0.28)% 30.64% 63.48%
Class B (1.12)% N/A[**] 6.16%

The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through June 30, 1996, assuming the maximum 4.75%
sales charge has not been assessed.

SINCE
ONE YEAR FIVE YEARS INCEPTION[*]

Class A 4.69% 37.15% 71.63%
Class B 3.88% N/A[**] 11.16%

___________________________

[*] The inception date for Mackenzie National Municipal Fund
(and the Class A shares of the Fund) was April 15, 1988; the
inception date for Class B shares of the Fund was April 1,
1994.

[**] No Class B shares were outstanding for the duration of the
time period indicated.

MACKENZIE CALIFORNIA MUNICIPAL FUND. The following table summarizes the
calculation of Cumulative Total Return for the periods indicated through June
30, 1996, assuming the maximum 4.75% sales charge has been assessed.

SINCE
ONE YEAR FIVE YEARS INCEPTION[*]

Class A 0.51% 31.74% 69.21%
Class B (0.30)% N/A[**] 7.21%

The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through June 30, 1996, assuming the maximum 4.75%
sales charge has not been assessed.

SINCE
ONE YEAR FIVE YEARS INCEPTION[*]

Class A 5.52% 38.31% 77.65%
Class B 4.70% N/A[**] 12.21%

___________________________

[*] The inception date for Mackenzie California Municipal Fund
(and the Class A shares of the Fund) was April 15, 1988; the
inception date for Class B shares of the Fund was April 1,
1994.

[**] No Class B shares were outstanding for the duration of the
time period indicated.

MACKENZIE NEW YORK MUNICIPAL FUND. The following table summarizes the
calculation of Cumulative Total Return for the periods indicated through June
30, 1996, assuming the maximum 4.75% sales charge has been assessed.

SINCE
ONE YEAR FIVE YEARS INCEPTION[*]

Class A 0.12% 34.16% 67.18%
Class B (0.63)% N/A[**] 7.04%

The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through June 30, 1996, assuming the maximum 4.75%
sales charge has not been assessed.

SINCE
ONE YEAR FIVE YEARS INCEPTION[*]

Class A 5.11% 40.85% 75.52%
Class B 4.37% N/A[**] 12.04%

___________________________

[*] The inception date for Mackenzie New York Municipal Fund
(and the Class A shares of the Fund) was April 15, 1988; the
inception date for Class B shares of the Fund was April 1,
1994.

[**] No Class B shares were outstanding for the duration of the
time period indicated.

OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain
a number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results
of actual or hypothetical investments; changes in dividends, distributions or
share values; or any graphic illustration of such data. These data may cover
any period of the Trust's existence and may or may not include the impact of
sales charges, taxes or other factors.

Performance quotations for a Fund will vary from time to time depending on
market conditions, the composition of the Fund's portfolio and operating
expenses of the Fund. These factors and possible differences in the methods
used in calculating performance quotations should be considered when comparing
performance information regarding a Fund's shares with information published for
other investment companies and other investment vehicles. Performance
quotations should also be considered relative to changes in the value of a
Fund's shares and the risks associated with a Fund's investment objectives and
policies. At any time in the future, performance quotations may be higher or
lower than past performance quotations and there can be no assurance that any
historical performance quotation will continue in the future.

The Funds may also cite endorsements or use for comparison their
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter Nelson's Director of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.

FINANCIAL STATEMENTS

The Funds' Portfolios of Investments as of June 30, 1996, Statements of
Assets and Liabilities as of June 30, 1996, Statements of Operations for the
fiscal year ended June 30, 1996, Statements of Changes in Net Assets for the
fiscal year ended June 30, 1996 and the fiscal year ended June 30, 1995,
Financial Highlights, Notes to Financial Statements, and Reports of Independent
Accountants are included in each Fund's June 30, 1996 Annual Report to
Shareholders, which is incorporated by reference into this SAI. Copies of the
Funds' financial statements may be obtained upon request and without charge from
MIMI at the address and telephone number provided on the cover of this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND,
COMMERCIAL PAPER AND MUNICIPAL OBLIGATIONS RATINGS

[From "Moody's Bond Record," November 1994 Issue (Moody's Investor Service, New
York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1994
Issue (McGraw Hill, New York, 1994).]

(a) MOODY'S:

CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to be
of the best quality, carrying the smallest degree of investment risk. Interest
payments are protected by a large or exceptionally stable margin and principal
is secure. Bonds rated Aa are judged by Moody's to be of high quality by all
standards. Aa bonds are rated lower than Aaa bonds because margins of
protection may not be as large as those of Aaa bonds, or fluctuations of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than those
applicable to Aaa securities. Bonds which are rated A by Moody's possess many
favorable investment attributes and are considered as upper medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.

Bonds rated Baa by Moody's are considered medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered
well-assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments of or maintenance of
other terms of the contract over any long period of time may be small.

Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

COMMERCIAL PAPER. The Prime rating is the highest commercial paper rating
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative- type risks which may be inherent in certain areas; (3) evaluation
of the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue.

(b) S&P:

CORPORATE BONDS. An S&P corporate debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may
be modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.

Debt rated AAA by S&P is considered by S&P to be the highest grade
obligation. Capacity to pay interest and repay principal is extremely strong.
Debt rated AA is judged by S&P to have a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only in small
degree. Debt rated A by S&P has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.

Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.

Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB-rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is
applied to debt subordinated to senior debt which is assigned an actual or
implied CCC debt rating. The rating C typically is applied to debt subordinated
to senior debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.

COMMERCIAL PAPER. An S&P commercial paper rating is a current assessment
of the likelihood of timely payment of debt having an original maturity of no
more than 365 days.

Commercial paper rated A by S&P has the following characteristics: (i)
liquidity ratios are adequate to meet cash requirements; (ii) long-term senior
debt rating should be A or better, although in some cases BBB credits may be
allowed if other factors outweigh the BBB; (iii) the issuer should have access
to at least one additional channel of borrowing; (iv) basic earnings and cash
flow should have an upward trend with allowances made for unusual circumstances;
and (v) typically the issuer's industry should be well established and the
issuer should have a strong position within its industry and the reliability and
quality of management should be unquestioned. Issues rated A are further
referred to by use of numbers 1, 2 and 3 to denote relative strength within this
highest classification. For example, the A-1 designation indicates that the
degree of safety regarding timely payment of debt is strong.

Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment.

II. MUNICIPAL OBLIGATIONS RATINGS

(a) MOODY'S:

Aaa

Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.

Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa

Bonds rated Baa are considered medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present, but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Moody's letter ratings may be modified by the addition of a numerical
modifier, which is used to show relative standing within the major rating
categories, except in the Aaa grade.

MIG Ratings: Moody's ratings for state and municipal short-term
obligations will be designated Moody's Investment Grade or MIG. Such ratings
recognize the differences between short-term credit risk and long-term risk.
Factors affecting the liquidity of the borrower and short-term cyclical elements
are critical in short-term ratings, while other factors of the major importance
in bond risk, long-term secular trends for example, may be less important over
the short run.

VMIG Ratings: A short-term rating may also be assigned on an issue having
a demand feature. Such ratings will be designated as VMIG or, if the demand
feature is not rated, as NR. Short-term ratings on issues with demand features
are differentiated by the use of the VMIG symbol to reflect such characteristics
as payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with
no or limited legal recourse to the issuer in the event the demand is not met.

MIG 1/VMIG 1

This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.

MIG 2/VMIG 2

This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.

MIG 3/VMIG 3

This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

MIG 4/VMIG 4

This designation denotes adequate quality. Protection commonly regarded
as required of an investment security is present and although not distinctly or
predominantly speculative, there is specific risk.

(b) S&P:

S&P's Municipal Bond Ratings cover obligations of states and political
subdivisions. Ratings are assigned to general obligation and revenue bonds.
General obligation bonds are usually secured by all resources available to the
municipality and the factors outlined in the rating definitions below are
weighted in determining the rating. Because revenue bonds in general are
payable from specifically pledged revenues, the essential element in the
security for a revenue bond is the quantity and quality of the pledged revenues
available to pay debt service.

Although an appraisal of most of the same factors that bear on the quality
of general obligation bond credit is usually appropriate in the rating analysis
of a revenue bond, other factors are important, including particularly the
competitive position of the municipal enterprise under review and the basic
security covenants. Although a rating reflects S&P's judgment as to the
issuer's capacity for the timely payment of debt service, in certain instances
it may also reflect a mechanism or procedure for an assured and prompt cure of
a default, should one occur, i.e., an insurance program, Federal or State
guaranty, or the automatic withholding and use of State aid to pay the defaulted
debt service.

AAA

PRIME -- These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.

GENERAL OBLIGATION BONDS -- In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure
appears more than adequate to meet future expenditure requirements. Quality of
management appears superior.

REVENUE BONDS -- Debt service coverage has been, and is expected to remain,
substantial. Stability of the pledged revenues is also exceptionally strong,
due to the competitive position of the municipal enterprise or to the nature of
the revenues. Basic security provisions (including rate covenant, earnings test
for issuance of additional bonds, and debt service reserve requirements) are
rigorous. There is evidence of superior management.

HIGH GRADE -- The investment characteristics of general obligation and
revenue bonds in this group differ in only small degrees from those of the prime
quality issues. Bonds rated "AA" have the second strongest capacity for payment
of debt service.

GOOD GRADE -- Principal and interest payments on bonds in this category are
regarded as safe. This rating describes the third strongest capacity for
payment of debt service. It differs from the two higher ratings because:

GENERAL OBLIGATION BONDS -- There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and expenditures,
or in quality of management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt obligations at some
future date.

REVENUE BONDS -- Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management performance
appears adequate.

BBB

Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.

S&P's letter ratings may be modified by the addition of a plus or a minus
sign, which is used to show relative standing within the major rating
categories, except in the AAA-Prime Grade category.

SP-1

These notes show a very strong or strong capacity to pay principal and
interest. Those issues with overwhelming safety characteristics will be given
a plus (+) designation.

SP-2

These notes show a satisfactory capacity to pay principal and interest.

<PAGE>
APPENDIX B
TAX-EXEMPT VS. TAXABLE INCOME

MACKENZIE NATIONAL MUNICIPAL FUND, MACKENZIE LIMITED TERM
MUNICIPAL FUND

The following table illustrates the approximate taxable yields for individuals
that are equivalent to various tax-exempt yields, based upon 1996 Federal income
tax rates. The table illustrates the approximate yield you would have to earn
on taxable investments to equal a given tax-exempt yield in your income tax
bracket. Locate your taxable income, then locate your tax bracket based on
joint or single tax return filing. Read across to find the approximate
equivalent taxable yield you would need to match a given tax-exempt yield.
There is, of course, no assurance that an investment in a Fund will result in
the realization of any particular return.

1996[*]

INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:

Joint Single 5% 6% 7%
Return Return

$0-40,100 $0-24,000 15% 5.88% 7.06% 8.24%

$40,101- $24,001- 28% 6.94 8.33 9.72
96,900 58,150

$96,901- $58,151- 31% 7.25 8.70 10.14
147,700 121,300

$147,701- $121,301- 36% 7.81 9.38 10.94
263,750 263,750

Over Over 39.6% 8.28 9.93 11.59
$263,750 $263,750

INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:

Joint Single 8% 9% 10%
Return Return

$0-40,100 $0-24,000 15% 9.41% 10.59% 11.76%

$40,101- $24,001- 28 11.11 12.50 13.89
96,900 58,150

$96,901- $58,151- 31 11.59 13.04 14.49
147,700 121,300

$147,701- $121,301- 36 12.50 14.06 15.63
263,750 263,750

Over Over 39.6 13.25 14.90 16.56
$263,750 $263,750

INCOME
TAX TAX-EXEMPT
TAXABLE INCOME BRACKET YIELD OF:
Joint Single 11% 12%
Return Return

$0-40,100 $0-24,000 15% 12.94% 14.12%

$40,101- $24,001- 28 15.28 16.67
96,900 58,150

$96,901- $58,151- 31 15.94 17.39
147,700 121,300

$147,701- $121,301- 36 17.19 18.75
263,750 263,750

Over Over 39.6 18.21 19.87
$263,750 $263,750

MACKENZIE CALIFORNIA MUNICIPAL FUND

The following table illustrates the approximate taxable yields for individuals
that are equivalent to various tax-exempt yields, based upon combined 1996
Federal and California income tax rates. For cases in which two or more state
or Federal brackets fall within a bracket shown, the highest state bracket is
combined with the highest Federal bracket. The combined Federal and California
income tax brackets shown reflect the fact that state income taxes are currently
deductible as an itemized deduction for Federal tax purposes (however, a
taxpayer's itemized deductions may be subject to an overall limitation, the
effect of which has not been taken into account in preparing this table). The
table illustrates the approximate yield you would have to earn on taxable
investments to equal a given tax-exempt yield in your income tax bracket.
Locate your taxable income, then locate your tax bracket based on joint or
single tax return filing. Read across to find the approximate equivalent
taxable yield you would need to match a given tax-exempt yield. There is, of
course, no assurance that an investment in a Fund will result in the realization
of any particular return.

1996[*]
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:

Joint Single 5% 6% 7%
Return Return

$0-40,100 $0-24,000 20.10% 6.26% 7.51% 8.76%

$40,101- $24,001- 34.70 7.66 9.19 10.72
96,900 58,150

$96,901- $58,151- 37.42 7.99 9.59 11.19
147,700 111,695

$147,701- $111,696- 42.40 8.68 10.42 12.15
263,750 223,390

Over Over 46.24 9.30 11.16 13.02 $263,750
$223,390

INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:

Joint Single 8% 9% 10%
Return Return

$0-40,100 $0-24,000 20.10% 10.01% 11.26% 12.52%

$30,101- $24,001- 34.70 12.25 13.78 15.31
96,900 58,150

$96,901- $58,151- 37.42 12.78 14.38 15.98
147,700 111,695

$147,701- $111,696- 42.40 13.89 15.63 17.36
263,750 223,390

Over Over 46.24 14.88 16.74 18.60
$263,750 $223,390

INCOME
TAX TAX-EXEMPT
TAXABLE INCOME BRACKET YIELD OF:
Joint Single 11% 12%
Return Return

$0-40,100 $0-24,000 20.10% 13.77% 15.02%

$30,101- $24,001- 34.70 16.85 18.38
96,900 58,150

$96,901- $58,151- 37.42 17.58 19.18
147,700 111,695

$147,701- $111,696- 42.40 19.31 21.07
263,750 223,390

Over Over 46.24 20.46 22.32
$263,750 $223,390

[*] This table does not purport to deal with a shareholder's
particular situation. Shareholders are advised to consult
their own tax advisor with respect to the particular tax
consequences to them of an investment in a Fund. This table
does not take into account any taxes other than the regular
Federal income tax and the regular California personal
income tax. This table reflects certain assumptions,
including: (i) there are no Federal or California minimum
taxes applicable, and (ii) a shareholder has no net capital
gain for the taxable year. In addition, this table does not
reflect the fact that a shareholder's taxable income for
Federal income tax purposes may not be the same as the
shareholder's taxable income for California personal income
tax purposes. Depending upon the circumstances, a
shareholder's effective marginal tax rate may differ from
his or her tax bracket rate. This can be attributable to a
variety of factors, including the Federal phase out of
personal exemptions and reduction of certain itemized
deductions for taxpayers whose adjusted gross incomes exceed
specified thresholds.

MACKENZIE NEW YORK MUNICIPAL FUND

The following tables illustrate the approximate taxable yields for individuals
that are equivalent to various tax-exempt yields, based upon, in the case of the
first table, 1996 combined Federal and New York State income tax rates and, in
the case of the second table, 1996 combined Federal, New York State and New York
City income tax rates. For cases in which two or more state (or city) brackets
fall within a Federal bracket, the highest state (or city) bracket is combined
with the Federal bracket. The combined income tax brackets shown reflect the
fact that city and state income taxes are currently deductible as an itemized
deduction for Federal tax purposes (however, a taxpayer's itemized deductions
may be subject to an overall limitation, the effect of which has not been taken
into account in preparing these tables). The tables illustrate the approximate
yield you would have to earn on taxable investments to equal a given tax-exempt
yield in your income tax bracket. Locate your taxable income, then locate your
tax bracket based on joint or single tax return filing. Read across to find the
approximate equivalent taxable yield you would need to match a given tax-exempt
yield. There is, of course, no assurance that an investment in a Fund will
result in the realization of any particular return.

NEW YORK STATE

1996[*]
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:

Joint Single 5% 6% 7%
Return Return

$0-40,100 $0-24,000 21.06% 6.33% 7.60% 8.87%

$40,101- $24,001- 33.13 7.48 8.97 10.47
96,900 58,150

$96,901- $58,151- 35.92 7.80 9.36 10.92
147,700 121,300

$147,701- $121,301- 40.56 8.41 10.09 11.78
263,750 263,750

Over Over 43.90 8.91 10.70 12.48
$263,750 $263,750

INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:

Joint Single 8% 9% 10%
Return Return

$0-40,100 $0-24,000 21.06% 10.13% 11.40% 12.67%

$40,101- $24,001- 33.13 11.96 13.46 14.95
96,900 58,150

$96,901- $58,151- 35.92 12.48 14.04 15.61
147,700 121,300

$147,701- $121,301- 40.56 13.46 15.14 16.82
263,750 263,750

Over Over 43.90 14.26 16.04 17.83
$263,750 $263,750

INCOME
TAX TAX-EXEMPT
TAXABLE INCOME BRACKET YIELD OF:

Joint Single 11% 12%
Return Return

$0-40,100 $0-24,000 21.06% 13.93% 15.20%

$40,101- $24,001- 33.13 16.45 17.95
96,900 58,150

$96,901- $58,151- 35.92 17.17 18.73
147,700 121,300

$147,701- $121,301- 40.56 18.51 20.19
263,750 263,750

Over Over 43.90 19.61 21.39
$263,750 $263,750

[*] This table does not purport to deal with a shareholder's
particular situation. Shareholders are advised to consult their own tax advisor
with respect to the particular tax consequences to them of an investment in a
Fund. This table does not take into account: (i) any taxes other than the
regular Federal income tax and the regular New York State personal income tax,
or (ii) the New York State tax table benefit recapture tax. This table
reflects certain assumptions, including: (i) there are no Federal or New York
State minimum taxes applicable, and (ii) a shareholder has no net capital gain
for the taxable year. In addition, this table does not reflect the fact that
a shareholder's taxable income for Federal income tax purposes may not be the
same as the shareholder's taxable income for New York State income tax purposes.
Depending upon the circumstances, a shareholder's effective marginal tax rate
may differ from his or her tax bracket rate. This can be attributable to a
variety of factors, including the Federal phase out of personal exemptions and
reduction of certain itemized deductions for taxpayers whose adjusted gross
incomes exceed specified thresholds.

NEW YORK STATE AND CITY

1996[*]
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:

Joint Single 5% 6% 7%
Return Return

$0-40,100 $0-24,000 24.79% 6.65% 7.98% 9.31%

$40,101- $24,001- 36.30 7.85 9.42 10.99
96,900 50,000

$96,901- $50,001- 39.00 8.20 9.84 11.48
147,700 121,300

$147,701- $121,301- 43.42 8.84 10.60 12.37
263,750 263,750

Over Over 46.60 9.36 11.24 13.11
$263,750 $263,750

INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD OF:

Joint Single 8% 9% 10%
Return Return

$0-40,100 $0-24,000 24.79% 10.64% 11.97% 13.30%

$40,001- $24,001- 36.30 12.56 14.13 15.70
96,900 50,000

96,901- 50,001- 39.00 13.11 14.75 16.39
147,700 121,300

$147,701- $121,301- 43.42 14.14 15.91 17.67
263,750 263,750

Over Over 46.60 14.98 16.85 18.73
$263,750 $263,750

INCOME
TAX TAX-EXEMPT
TAXABLE INCOME BRACKET YIELD OF:

Joint Single 11% 12%
Return Return

$0-40,100 $0-24,000 24.79% 14.63% 15.96%

$39,001- $24,001- 36.30 17.27 18.84
96,900 50,000

$96,901- $50,001- 39.00 18.03 19.67
147,700 121,300

$147,701- $121,301- 43.42 19.44 21.21
263,750 263,750

Over Over 46.60 20.60 22.47
$263,750 $263,750

[*] This table does not purport to deal with a shareholder's
particular situation. Shareholders are advised to consult
their own tax advisor with respect to the particular tax
consequences to them of an investment in a Fund. This table
does not take into account: (i) any taxes other than the
regular Federal income tax, the regular New York State
personal income tax, and the regular New York City personal
income tax (including the temporary tax surcharge and the
additional tax), or (ii) the New York State tax table
benefit recapture tax. This table reflects certain
assumptions, including: (i) there are no Federal, state, or
city minimum taxes applicable, and (ii) a shareholder has no
net capital gain for the taxable year. In addition, this
table does not reflect the fact that a shareholder's taxable
income for Federal income tax purposes may not be the same
as the shareholder's taxable income for state and city tax
purposes. Depending upon the circumstances, a shareholder's
effective marginal tax rate may differ from his or her tax
bracket rate. This can be attributable to a variety of
factors, including the Federal phase out of personal
exemptions and reduction of certain itemized deductions for
taxpayers whose adjusted gross incomes exceed specified
thresholds.
<PAGE>
ANNUAL REPORT-THORNBURG INTERMEDIATE NATIONAL

Thornburg Intermediate

Municipal Fund

Thornburg Thornburg Thornburg

Intermediate Intermediate Intermediate
Municipal Fund Municipal Fund Municipal Fund
A Shares C Shares I Shares

SEC Yield 4.62% 4.39% 5.10%

Taxable Equiv. Yields 7.65% 7.27% 8.44%
NAV $13.23 $13.24 $13.23
Max. Offering Price $13.71 $13.24 $13.23

1 Year 1.94% 5.14% NA

5 Year 6.77% NA NA

Since Inception 6.86% 6.08% 3.11%*
(Inception Date) (7/22/91) (9/1/94) (7/5/96)

* Not annualized.

Taxable equivalent yields assume a 39.6% marginal federal tax rate.

The investment return and principal value of an investment in the fund
will fluctuate so that, when redeemed, an investor's shares may be
worth more or less than their original cost.

Maximum sales charge of the Fund's Class A Shares is 3.50%.

The data quoted represent past performance and may not be
construed as a guarantee of future results.

l e t t e r t o s h a r e h o l d e r s

119 East Marcy Street, Santa Fe, New Mexico 87501 l (505) 984-0200

November 6, 1996
Dear Fellow Shareholder:

I am pleased to present the Annual Report for the National Portfolio
of
Thornburg Intermediate Municipal Fund for the fiscal year ending September 30,
1996. The net asset value of the A shares increased 5 cents per share to $13.23
during the year. If you were with us for the entire period, you received
dividends of 67.7 cents per share. If you reinvested your dividends, you
received 69 cents per share. Investors who owned C Shares received dividends
of
62.5 and 63.9 cents per share, respectively.

Your Thornburg Intermediate Municipal Fund portfolio currently holds over 240
municipal obligations from 43 states and 2 U.S. Territories. Approximately 76%
of the bonds are rated A or better by one of the major rating agencies. As you
know, we "ladder" the maturities of the bonds in your portfolio so that some
bonds are scheduled to mature at par during each of the coming years. Today,
your fund's weighted average maturity is approximately 7.4 years, and we always
keep it below 10 years. Percentages of the portfolio maturing in the coming
years are summarized below:

% of portfolio maturing within Cumulative % maturing by end of

2 years = 10% year 2= 10%
2 to 4 years = 7% year 4= 17%
4 to 6 years = 16% year 6= 33%
6 to 8 years = 24% year 8= 57%
8 to 10 years = 21% year 10= 78%
10 to 12 years = 13% year 12= 91%
12 to 14 years = 7% year 14= 98%
14 to 16 years = 1% year 16= 99%

Over the years, our practice of laddering a diversified portfolio of short and
intermediate maturity municipal bonds has allowed your fund to perform well
in
varying interest rate environments. For instance, the A shares of Intermediate
Municipal Fund received "A" letter grades for one, three, and five year
performance relative to other intermediate maturity municipal bond funds through
September 30, 1996.* These rankings, which were published in The Wall Street
Journal, reflect total returns in the top 20% of all short term municipal bond
funds for those periods. Your fund has also earned Morningstar's coveted 5 star
rating.**

I believe that a laddered portfolio of municipal bonds such as yours can usually
outperform a single municipal bond investment, and that it can offer the
additional benefits of convenience, diversification and more favorable balance
of price risk and reinvestment risk. It is not possible to measure every
individual bond from every conceivable starting and ending date against your
fund, however, it is possible to make some comparison. On October 1, 1991,
a
representative yield for a $1 million (or more) block of a AA rated municipal
bonds maturing on October 1, 2001 was 6.00%, according to Delphis Hanover
Corporation. Let's assume an investor purchased such a bond at that time, and
then sold it with no transaction cost at Delphis Hanover's market yield of 4.65%
on September 30, 1996, this investor's average annual total return from that
bond would have been 6.52%, assuming reinvestment of the 1992 to 1996 interest
payments at prevailing money market rates. Your average annual total return on
a
purchase of up to $50,000 of your Thornburg Intermediate Municipal Fund was
6.77% for the 5 year period ended September 30, 1996. Your fund return was
higher if you made a larger quantity purchase. Of course, past performance is
no
guarantee of future results and returns may be higher or lower in the future.

Many municipal bonds issued between 1985 and 1990 have been paid off this year.
Money to pay off other bonds prior to maturity already has been raised. You may
own municipal bonds or unit trusts which are being redeemed. Your investment
in
Thornburg Intermediate Municipal Fund will not be redeemed until you sell it.
Please remember that you can easily add to your investment each month
by
authorizing a simple, automatic transfer from your checking account.

Americans have been net sellers of individual municipal and U.S. government
bonds this year, while simultaneously increasing investments in foreign bonds,
U.S. stocks and money market funds. Meanwhile, foreign investors have been
supporting the U.S. bond market for about two years. I suppose the grass
sometimes appears greener on the other side of the ocean. We like it here
at
home, but we have positioned your bond portfolio conservatively so as to be able
to react quickly to change and take advantage of any opportunities that arise.

Thank you for investing in Thornburg Intermediate Municipal Fund.

Sincerely,

Brian J. McMahon
Managing Director

*Source: The Wall Street Journal, October 4, 1996. Performance data are supplied
by Lipper Analytical Services, Inc., and reflect performance for the 1, 3, and
5
year periods ending September 30, 1996. An "A" ranking reflects total returns
in
the top 20% of all funds within the short term municipal objective, as defined
by The Wall Street Journal. The average maturity and average quality of the
funds within the short municipal objective may differ. At September 30, 1996,
121, 96, and 32 intermediate municipal funds reported 1-year, 3-year, and 5-year
total returns, respectively. Performance calculations used to obtain these
rankings assume deduction of all expenses and reinvestment of all distributions,
but do not include the effect of any sales charge on total return. A portion
of
the Fund's income may be subject to the federal alternative minimum tax.

**Morningstar propriety rating reflects historical risk adjusted performance
as
of 9/30/96. Ratings are subject to change every month. Funds with at least three
years of performance history are assigned ratings from one star (lowest) to five
star (highest). Morningstar ratings are calculated from the funds' three-,
five-, and ten year average annual returns and a risk factor that reflects fund
performance relative to three month Treasury bill returns. 10% of the funds
in
an investment category receive five stars, 22.5% receive four stars. THIMX
is
ranked 4-Stars for the 3 year period and 5-Stars for the 5 year period ending
9/30/96. At 9/30/96, there were 324 bond funds with 3-year ratings, 192 bond
funds with 5-year ratings in Morningstar's Municipal National category.

s t a t e m e n t o f a s s e t s a n d l i a b i l i t i e s

Thornburg Intermediate Municipal Fund
September 30, 1996

ASSETS

Investments, at value (cost $238,961,028) $250,385,711
Cash 99,254
Interest receivable 4,437,392
Receivable for fund shares sold 361,047
Prepaid expenses and other assets 52,486

TOTAL ASSETS 255,335,890
LIABILITIES

Payable for fund shares redeemed 177,157
Accounts payable and accrued expenses 242,249
Payable to investment adviser 106,915
Dividends payable 407,700

TOTAL LIABILITIES 934,021

NET ASSETS $254,401,869

NET ASSET VALUE:

Class A Shares:
Net asset value and redemption price per share
($246,127,703 applicable to 18,610,208 shares of
beneficial interest outstanding) $13.23

Maximum sales charge, 3.50% of offering
price (3.63% of net asset value per share) .48

Maximum Offering Price Per Share $13.71

Class C Shares:
Net asset value and offering price per share *
($7,585,554 applicable to 572,818 shares of
beneficial interest outstanding) $13.24

Class I Shares:
Net asset value, offering and redemption price per share
($688,612 applicable to 52,065 shares of
beneficial interest outstanding) $13.23

* Redemption price per share is equal to net asset value
less any applicable contingent deferred sales charge.

See notes to financial statements.

s t a t e m e n t o f o p e r a t i o n s

Thornburg Intermediate Municipal Fund
Year Ended September 30, 1996

INVESTMENT INCOME
Interest income (net of premium amortized
of $481,760) $14,948,893

EXPENSES
Investment advisory fees (Note 3) 1,446,809
Administration fees (Note 3)
Class A Shares 76,163
Class C Shares 2,250
Class I Shares 57
Distribution and service fees (Note 3)
Class A Shares 595,596
Class C Shares 34,228
Transfer agent fees 200,476
Custodian fees 171,003
Registration and filing fees 58,600
Professional fees 52,300
Accounting fees 26,225
Other expenses 52,460

TOTAL EXPENSES 2,716,167
Less:
Expenses reimbursed by investment adviser (Note 3) (253,119)
NET EXPENSES 2,463,048

NET INVESTMENT INCOME 12,485,845

REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments sold (192,091)
Increase in unrealized appreciation of investments 864,925
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 672,834
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $13,158,679

See notes to financial statements.

s t a t e m e n t s o f c h a n g e s i n n e t a s s e t s

Thornburg Intermediate Municipal Fund

INCREASE (DECREASE) IN Year Ended September 30,
NET ASSETS FROM:
1996 1995
OPERATIONS:
Net investment income $ 12,485,845 $ 11,466,564
Net realized loss on investments sold (192,091) (2,097,030)
Increase in unrealized
appreciation of investments 864,925 9,826,700

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 13,158,679 19,196,234
DIVIDENDS TO SHAREHOLDERS:
From net investment income
Class A Shares (12,209,780) (11,325,918)
Class B Shares -- (49,201)
Class C Shares (269,786) (91,445)
Class I Shares (6,279) --

FUND SHARE TRANSACTIONS - (Note 4)
Class A Shares 17,593,230 12,586,727
Class B Shares -- (373,244)
Class C Shares 3,572,380 3,739,329
Class I Shares 681,348 --

NET INCREASE IN NET ASSETS 22,519,792 23,682,482

NET ASSETS:

Beginning of year 231,882,077 208,199,595
End of year $ 254,401,869 $ 231,882,077
See notes to financial statements.

n o t e s t o f i n a n c i a l s t a t e m e n t s

Thornburg Intermediate Municipal Fund

Note 1 - ORGANIZATION

Thornburg Intermediate Municipal Fund (the "Fund"), is a series of Thornburg
Investment Trust (the "Trust", formerly known as Thornburg Income Trust). The
Trust is organized as a Massachusetts business trust under a Declaration
of
Trust dated June 3, 1987 and is registered as a diversified, open-end management
investment company under the Investment Company Act of 1940, as amended. The
Trust is currently issuing five series of shares of beneficial interest
in
addition to those of the Fund: Thornburg Florida Intermediate Municipal Fund,
Thornburg New Mexico Intermediate Municipal Fund, Thornburg Limited Term U.S.
Government Fund, Thornburg Limited Term Income Fund and Thornburg Value Fund.
Each series is considered to be a separate entity for financial reporting and
tax purposes. The Fund's investment objective is to obtain as high a level
of
current income exempt from Federal income taxes as is consistent with the
preservation of capital.

The Fund currently offers three classes of shares of beneficial interest, Class
A, Class C and Institutional Class (Class I) shares. The Fund no longer offers
Class B shares. Each class of shares of a Fund represents an interest in the
same portfolio of investments of the Fund, except that (i) Class A shares are
sold subject to a front-end sales charge collected at the time the shares are
purchased and bear a service fee, (ii) Class B shares were sold at net asset
value without a sales charge at the time of purchase, but were subject to
a
contingent deferred sales charge upon redemption, and bore both a service fee
and a distribution fee, (iii) Class C shares are sold at net asset value without
a sales charge at the time of purchase, but are subject to a service fee and
a
distribution fee, (iv) Class I shares are sold at net asset value without
a
sales charge at the time of purchase, and (v) the respective classes have
different reinvestment privileges. Additionally, each Fund may allocate among
its classes certain expenses, to the extent allowable to specific classes,
including transfer agent fees, government registration fees, certain printing
and postage costs, and administrative and legal expenses. Currently, class
specific expenses of the Fund are limited to distribution fees, administrative
fees and transfer agent expenses.

Note 2 - SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies of the
Fund are as follows:

Valuation of Investments: In determining net asset value, the Fund utilizes
an
independent pricing service approved by the Trustees. Debt investment securities
have a primary market over the counter and are valued on the basis of valuations
furnished by the pricing service. The pricing service values portfolio
securities at quoted bid prices or the yield equivalents when quotations are not
readily available. Securities for which quotations are not readily available are
valued at fair value as determined by the pricing service using methods which
include consideration of yields or prices of municipal obligations of comparable
quality, type of issue, coupon, maturity, and rating; indications as to value
from dealers and general market conditions. The valuation procedures used by the
pricing service and the portfolio valuations received by the Fund are reviewed
by the officers of the Fund under the general supervision of the Trustees.
Short-term obligations having remaining maturities of 60 days or less are valued
at amortized cost, which approximates market value.

Federal Income Taxes: It is the policy of the Fund to comply with the provisions
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable (if any) and tax exempt income to its
shareholders. Therefore no provision for Federal income tax is required.
Dividends paid by the Fund for the year ended September 30, 1996 represent
exempt interest dividends which are excludable by shareholders from gross income
for Federal income tax purposes.

When-Issued and Delayed Delivery Transactions:
The Fund may engage in when-issued or delayed delivery transactions. To the
extent the Fund engages in such transactions, it will do so for the purpose
of
acquiring portfolio securities consistent with its investment objectives and not
for the purpose of investment leverage or to speculate on interest rate changes.
At the time the Fund makes a commitment to purchase a security on a when-issued
basis, it will record the transaction and reflect the value in determining its
net asset value. When effecting such transactions, assets of the Fund of
an
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Fund's records at the trade date. Securities purchased
on a when-issued or delayed delivery basis do not earn interest until the
settlement date.

Dividends: Net investment income of the Fund is declared daily as a dividend
on
shares for which the Fund has received payment. Dividends are paid monthly and
are reinvested in additional shares of the Fund at net asset value per share
at
the close of business on the dividend payment date, or at the shareholder's
option, paid in cash. Net capital gains, to the extent available, will
be
distributed annually.

Deferred Expenses: Organizational expenses were deferred
and were amortized on a straight-line basis over a 60-month period. Use
of

Estimates: The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.

Note 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Pursuant to an investment advisory agreement, Thornburg Management Company, Inc.
(the "Adviser") serves as the investment adviser and performs services for which
the fees are payable at the end of each month. For the year ending September 30,
1996, these fees were payable at annual rates ranging from 1/2 of 1% to 11/40
of
1% of the average daily net assets of the Fund. Effective July 1, 1996, the Fund
entered into an Administrative Services Agreement with the Adviser, whereby the
Adviser will perform certain administrative services for the shareholders
of
each class of the Fund's shares, and for which fees will be payable at an annual
rate of up to 1/8 of 1% of the average daily net assets attributable to each
class of shares.

In the event normal operating expenses of the Fund, exclusive of brokerage
commissions, taxes, interest, and extraordinary expenses, exceed the limits
prescribed by any state in which the Fund's shares are qualified for sale, the
Adviser will reimburse the Fund for such excess. No such reimbursement was
required as a result of this limitation. For the year ended September 30, 1996,
the Adviser voluntarily reimbursed certain operating expenses amounting
to
$253,119.

The Fund has an underwriting agreement with Thornburg Securities Corporation
(the "Distributor"), which acts as the Distributor of Fund shares. For the year
ended September 30, 1996, the Distributor earned commissions aggregating $75,160
from the sale of Class A shares and collected contingent deferred sales charges
aggregating $1,579 from redemptions of Class C shares of the Fund.

Pursuant to a Service Plan, under Rule 12b-1 of the Investment Company Act
of
1940, the Fund may reimburse to the Adviser an amount not to exceed .25 of
1%
per annum of the Fund's average net assets for payments made by the Adviser
to
securities dealers and other financial institutions to obtain various
shareholder related services. The Adviser may pay out of its own funds
additional expenses for distribution of the Fund's shares.

The Fund has also adopted a Distribution Plan pursuant to Rule 12b-1, applicable
only to the Fund's Class C shares under which the Fund compensates the
Distributor for services in promoting the sale of Class C shares of the Fund
at
an annual rate of up to .75% of the average daily net assets attributable
to
Class C shares. Total fees incurred by each class of shares of the Fund under
their respective Service and Distribution Plans for the year ended September 30,
1996, are set forth in the statement of operations.

Certain officers and trustees of the Fund are also officers and/or directors
of
the Adviser and Distributor.

Thornburg Intermediate Municipal Fund

Note 4 - SHARES OF BENEFICIAL INTEREST:

At September 30, 1996, there were an unlimited number of shares of beneficial
interest authorized, and capital paid-in aggregated $246,473,508. Transactions
in shares of beneficial interest were as follows:

Year Ended Year Ended
September 30, 1996 September 30, 1995
- -
- -------------------------------------------------------------------------------

Class A Shares Shares Amount Shares Amount
Shares sold 3,206,323 $42,461,497 3,708,074 $47,585,636
Shares issued to shareholders
in reinvestment of
distributions 538,669 7,136,992 517,151 6,647,686
Shares repurchased (2,423,428) (32,005,259) (3,260,168) (41,646,595)

Net Increase 1,321,564 $17,593,230 965,057 $12,586,727

Class B Shares
Shares sold -- -- 192,283 2,493,530
Shares issued to shareholders
in reinvestment of
distributions -- -- 2,430 31,469
Shares repurchased -- -- (221,608) (2,898,243)

Net Decrease -- -- (26,895) ($373,244)

Class C Shares
Shares sold 352,952 $4,676,873 309,465 $3,963,617
Shares issued to shareholders
in reinvestment of
distributions 15,345 202,966 5,497 71,325
Shares repurchased (98,650) (1,307,459) (22,700) (295,613)

Net Increase 269,647 $3,572,380 292,262 $3,739,329

Class I Shares *
Shares sold 51,632 $675,632 -- --
Shares issued to sharehol
in reinvestment of
distributions 433 5,716 -- --
Shares repurchased -- -- -- --

Net Increase 52,065 $681,348 -- --

* Sales of Class I shares commenced on July 5, 1996

Note 5 - SECURITIES TRANSACTIONS

For the year ended September 30, 1996, the Fund had purchase and sale
transactions (excluding short-term securities) of $49,825,487 and $30,160,059,
respectively.

The cost of investments for Federal income tax purposes is the same. At
September, 1996, net unrealized appreciation of investments was $11,424,683,
resulting from $11,844,964
gross unrealized appreciation and $420,281 gross unrealized depreciation.

Accumulated net realized losses from securities transactions included in net
assets at September 30, 1996 aggregated $3,496,321.

For Federal income tax purposes the Fund has realized capital loss carryforwards
of $3,496,321 as of September 30, 1996 available to offset future realized
capital gains. To the extent that such carryforwards are used, no capital gains
distributions will be made. The carryforwards expire as follows: September 30,
2002 - $1,207,200, September 30, 2003 - $2,097,030, and September 30, 2004
- -
$192,091.

f i n a n c i a l h i g h l i g h t s

Thornburg Intermediate Municipal Fund

Per share operating performance
(for a share outstanding
throughout the period)
Year Ended September 30,
1996 1995 1994 1993 1992
- -
- -------------------------------------------------------------------------------
Class of Shares: A A A A A

Net asset value, beginning of year $13.18 $12.73 $13.47 $12.59 $12.11
Income from investment operations:
Net investment income .68 .68 .67 .71 .78
Net realized and unrealized
gain (loss) on investments .05 .45 (.72) .88 .48
Total from investment operations .73 1.13 (.05) 1.59 1.26
Less distributions from:
Net investment income (.68) (.68) (.67) (.71) (.78)
Realized capital gains -- -- (.02) -- --
Change in net asset value .05 .45 (.74) .88 .48

Net asset value, end of year $13.23 $13.18 $12.73 $13.47 $12.59

Total return (a) 5.64% 9.16% (.38%) 13.01% 10.76%

Ratios/Supplemental Data Ratios to
Net investment income 5.12% 5.31% 5.23% 5.37% 6.15%
Expenses, after expense reducts 1.00% 1.00% .95% .70% .48%
Expenses, before expense reducts 1.09% 1.08% 1.05% 1.06% 1.19%

Portfolio turnover rate 12.64% 32.20% 27.37% 14.29% 46.15%
Net assets
at end of year (000) $246,128 $227,881 $207,718 $182,319 $81,428

(a) Sales loads are not reflected in.

Per share operating performance
(for a share outstanding
throughout the period) Period from
Year Ended September 1, (a)
September 30, to September 30,
1996 1995 1994

Class of Shares: C I** B* C B C

Net asset value, beg of period $13.20 $13.00 $12.73 $12.73 $12.91 $12.91
Income from investment ops:
Net investment income .63 .17 .59 .60 .05 .05
Net realized and unrealize
gain (loss) on investments .04 .23 .40 .47 (.18) (.18)
Total from investment ops .67 .40 .99 1.07 (.13) (.13)
Less distributions from:
Net investment income (.63) (.17) (.59) (.60) (.05) (.05)
Change in net asset value .04 .23 .40 .47 (.18) (.18)

Net asset value, end of period $13.24 $13.23 $13.13 $13.20 $12.73 $12.73

Total return (b) 5.14% 3.11% 8.30% 8.60% (.99%) (.97%)

Ratios/Supplemental Data Ratios to
Net investment income 4.73% 5.49%(c) 4.59% 4.62% 4.57%(c) 4.51%(c)
Expenses, after expense reducts 1.40% .70%(c) 1.65% 1.66% 1.70%(c) 1.76%(c)
Expenses, before expense reducts 1.97% 6.10%(c) 2.86% 2.35% 1.70%(c) 1.76%(c)
Portfolio turnover rate 12.64% 12.64% 32.20% 32.20% 27.37% 27.37%
Net assets
at end of period (000) $7,586 $689 $0 $4,001 $342 $139

<TABLE>
<CAPTION>
s c h e d u l e o f i n v e s t m e n t s

Thornburg Intermediate Municipal Fund
September 30, 1996 CUSIPS: Class A - 885-215-202, Class C - 885-215-780 ,
Class I - 885-215-673 NASDAQ Symbols: Class A - THIMX, Class C - THMCX
(Proposed), Class I - THMIX (Proposed)

Principal Credit Rating+
Amount Issuer-Description Moody's/S&P Value
Alabama (1.47%)
<S> <C> <C> <C>
$1,530,000 Alabama A & M University Housing & General Fee Revenue Series 1992, 6.20%
due 11/1/05 (Living and Learning Center Project; Insured: MBIA) Aaa/AAA $1,646,219
250,000 Alabama Municipal Electric Authority Power Supply System Series 1991-A,
6.50% due 9/1/05 (Insured: MBIA) Aaa/AAA 272,112
750,000 Montgomery County Revenue, 7.00% due 4/1/07 (Human Resources Project) NR/A 822,780
920,000 Pell County Industrial Development Board Revenue Series 1989-A, 7.75%
due 9/1/04 (Shelby Creek Fabricators Project; LOC: Southtrust Bank) NR/NR 931,767
Alaska (1.56%)
1,000,000 Alaska Industrial Development & Export Authority Series 1991-A, 7.30% due 4/1/06 A/A- 1,069,080
1,500,000 North Slope Borough Alaska General Obligation Capital Appreciation Series 1993-B,
0% due 1/1/02 (Insured: MBIA) Aaa/AAA 1,146,645
1,660,000 Seward Alaska Revenue, 7.375% due 10/1/07 NR/NR 1,683,190
Arizona (0.83%)
500,000 Maricopa County Unified School District #89, Dysart School District
General Obligation, 0% due 7/1/01 (Insured: FGIC) Aaa/AAA 397,975
880,000 Santa Cruz Valley Arizona School District Series 1994, 0% due 7/1/97 (Insured: FGIC) Aaa/AAA 854,410
880,000 Santa Cruz Valley Arizona School District Series 1994, 0% due 7/1/98 (Insured: FGIC) Aaa/AAA 815,927
California (15.26%)
675,000 California Housing Finance Agency Revenue Series 1985-B, 9.875% due 2/1/17 Aa/A+ 704,126
315,000 California Public Capital Improvements Financing Authority Joint Powers Agency
Series E, 8.25% due 3/1/98 (Pooled Projects) Baa/NR 329,544
625,000 California State Veterans Housing, 6.90% due 4/1/01 A1/A+ 632,894
4,500,000 California Statewide Community Development Authority Certificate of Participation,
5.50% due 10/1/07 (Unihealth America Project; Insured: AMBAC) Aaa/AAA 4,550,940
1,000,000 California Statewide Community Development Authority Series 1996-A, 6.00% due
9/1/05 (San Gabriel Medical Center Project; Insured: California Health) NR/A 1,031,270
1,740,000 Escondido Joint Powers Financing Authority Lease Revenue, 0% due 9/1/07
(Center for the Arts Project; Insured: AMBAC) Aaa/AAA 942,941
8,095,000 Glendale Hospital Revenue Refunding Revenue, 7.75% due 1/1/09
(Verdugo Hills Project; Insured: Industrial Indemnity) NR/A+ 9,116,103
2,000,000 Orange County Refunding Recovery, 5.20% due 6/1/03 (Insured: MBIA) Aaa/AAA 2,042,780
1,190,000 Orange County Refunding Recovery, 6.50% due 6/1/04 (Insured: MBIA) Aaa/AAA 1,308,012
2,280,000 Orange County Refunding Recovery, 6.50% due 6/1/05 (Insured: MBIA) Aaa/AAA 2,509,596
330,000 Orange County Airport Revenue, 8.00% 7/1/04 (John Wayne International Airport Project) A1/A- 346,068
770,000 Orange County Airport Revenue, 8.00% 7/1/04 (John Wayne International Airport Project) A1/A- 796,480
100,000 Orange County Transportation Authority Sales Tax Revenue, 5.50% due 2/15/01 Aa/AA 103,324
2,850,000 Orange County Special Financing Authority Teeter Plan Revenue Series E, 6.35%
due 11/1/14, put 11/1/01 (LOC: Industrial Bank of Japan) A1/A+ 2,888,617
1,500,000 Sacramento California Municipal Utility District Electric Revenue, 6.32%
(variable rate) due 11/15/06 (Insured: FSA) Aaa/AAA 1,511,250
1,925,000 San Diego Water Revenue Certificate of Participation, 6.25% due 5/1/04 Aa/AA- 2,053,937
500,000 San Diego County Water Authority Revenue & Refunding Series 1993-A,
7.309% (variable rate) due 4/25/07 (Insured: FGIC) Aaa/AAA 528,750
365,000 San Francisco Downtown Parking Corporation Series 1993, 5.40% due 4/1/98 A/NR 368,453
380,000 San Francisco Downtown Parking Corporation Series 1993, 5.55% due 4/1/99 A/NR 384,769
405,000 San Francisco Downtown Parking Corporation Series 1993, 5.70% due 4/1/00 A/NR 410,763
425,000 San Francisco Downtown Parking Corporation Series 1993, 5.85% due 4/1/01 A/NR 432,722
145,000 San Marcos Certificate of Participation Series C, 0% due 8/15/05 (Escrowed to maturity) NR/AAA 93,222
740,000 San Marcos Certificate of Participation Series D, 0% due 9/2/05 (Escrowed to maturity) NR/AAA 474,636
1,310,000 San Marcos Public Facilities Authority Revenue Custom Receipts, 0% due 1/1/98
(Escrowed to maturity) Aaa/AAA 1,240,334
1,310,000 San Marcos Public Facilities Authority Revenue Custom Receipts, 0% due 7/1/99
(Escrowed to maturity) Aaa/AAA 1,155,381
700,000 Sulphur Springs School District General Obligation Series B, 5.60% due 3/1/04 A/NR 728,819
800,000 Sulphur Springs School District General Obligation Series B, 5.70% due 3/1/05 A/NR 835,272
450,000 Sunline Transit Agency Certificate of Participation Series A, 5.625% due 7/1/04 A/NR 458,874
215,000 Sunline Transit Agency Certificate of Participation Series A, 5.75% due 7/1/05 A/NR 228,650
Colorado (3.27%)
365,000 Colorado Student Obligation Auth. Revenue Series B, 6.55% due 12/1/02 A/NR 385,958
995,000 Colorado Student Obligation Auth. Student Loan Revenue Series B, 5.90% due 9/1/02 A/NR 1,020,373
2,830,000 Larimer County, 8.45% due 12/15/05 (Poudre School District R1 Project) A/NR 3,523,209
2,500,000 Mesa Valley School District Certificate of Participation Series B, 6.875% due 12/1/05
(Insured: FSA) Aaa/AAA 2,722,025
510,000 Thornton Single Family Mortgage Revenue Series 1992-A, 8.05% due 8/1/09 A/NR 544,935
Connecticut (1.99%)
3,000,000 Bristol Resource Recovery Facility Operating Committee - Solid Waste Revenue
Refunding Series 1995, 6.125% due 7/1/03 (Ogden Martin at Bristol Project) A/NR 3,148,200
535,000 Connecticut State Housing Revenue Series 1990-B1, 7.55% due 11/15/08
(FHA/VA/ Private Mortgage Insurance) Aa/AA 542,918
175,000 New Britain Senior Citizen Housing Development Mortgage Revenue Refunding
Series A, 6.50% due 7/1/02 (Nathan Hale Apartments Project; Insured: FHA) NR/AAA 182,026
500,000 Stratford General Obligation Series 1992, 7.15% pre-refunded 3/1/01 @ 102 NR/A- 554,585
500,000 Stratford General Obligation Series 1992, 7.20% pre-refunded 3/1/01 @ 102 NR/A- 555,570
Delaware (1.38%)
3,235,000 Delaware Transportation Authority System Revenue, 6.25% due 7/1/04 A1/AA 3,462,162
District of Col (1.04%)
1,000,000 District of Columbia General Obligation Series A, 5.75% due 6/1/03 Ba/B 997,170
1,000,000 District of Columbia Certificate of Participation Series 1993, 7.30% due 1/1/13 NR/B- 1,038,060
235,000 District of Columbia Housing Finance Agency Mortgage Revenue Refunding
Series 1992-D, 6.00% due 7/1/02 (Insured: MBIA) Aaa/AAA 241,618
300,000 District of Columbia Revenue, 0% due 2/15/02 (Assoc. of American Medical Colleges) NR/AA- 207,582
195,000 District of Columbia Revenue, 0% due 2/15/04 (Assoc. of American Medical Colleges) NR/AA- 117,400
Florida (2.36%)
250,000 Cape Coral Special Assessment Water Improvement, 6.50% due 7/1/98 (Insured: MBIA) Aaa/AAA 258,827
250,000 Dade County Aviation Revenue, 7.20% due 10/1/00, refunding pending 10/1/96 @ 101 Aa/A 253,147
240,000 Dade County Educational Facilities Revenue, 7.65% pre-refunded 4/1/00 @ 102
(University of Miami Project; Insured: MBIA) Aaa/AAA 268,687
1,100,000 Duval County H.F.A. Multi Family Housing Revenue Series 1996,
5.35% due 9/1/06 (St. Augustine Apartments Project) NR/A 1,092,432
160,000 Duval County HFA Series 94, 6.10% due 4/1/06 (GNMA Collateral) Aaa/AAA 162,954
160,000 Duval County HFA Series 94, 6.10% due 10/1/06 (GNMA Collateral) Aaa/AAA 163,069
250,000 Florida Housing Finance Agency Multifamily Housing Revenue Series 1995 D,
5.10% due 4/1/13, put 4/1/02 (Park Colony Project; LOC: Mellon Bank) A+/A1 250,755
1,000,000 Florida Housing Finance Agency Multifamily Housing Revenue Series 1983 G,
5.35% due 12/1/05, mandatory put 6/1/00 (Insured: Connecticut General) Aaa/AAA 1,004,230
320,000 Jacksonville Health Facilities Authority IDR, 7.55% due 12/1/07
(National Benevolent Association Project) Baa1/BBB+ 353,885
100,000 Lee County Hospital Board Director's Revenue Series A, 5.70% due 4/1/01
(Lee Memorial Hospital Project; Insured: MBIA) Aaa/AAA 104,263
400,000 Leon County Infrastructure Sales Surtax Revenue, 5.60% due 10/01/97
(Criminal Detention Facilities Project; Insured: AMBAC) Aaa/AAA 406,896
150,000 Osceola County Health Facilities Revenue Series 1994, 5.75% due 5/1/04
(Evangelical Lutheran Good Samaritan Project; Insured: AMBAC) Aaa/AAA 156,734
1,400,000 Pinellas County Health Facilities Authority Series 1994-A, 5.75% due 8/1/01
(Multi County Project; GNMA/FNMA Collateral) Aaa/NR 1,428,966
Georgia (1.36%)
2,700,000 De Kalb County Housing Authority Multifamily Housing Revenue, 3.85% due 6/15/25, put 10/7/96
weekly demand note (Camden Brook Project; Insured: FNMA) NR/A-1+ 2,700,000
195,000 Hinesville Leased Housing Corp. Rev., 6.05% due 1/15/98 (Regency Park Project) NR/BBB 196,059
500,000 Savannah Resource Recovery, 5.85% due 12/1/01 (Savannah Energy Systems Project) A1/A+ 519,110
Idaho (.39%)
955,000 Idaho Student Loan Series 1992B, 6.00% due 4/1/00 NR/NR 965,792
Illinois (5.17%)
1,930,000 Bedford Park Tax Increment Revenue Refunding Series 1993, 8.00% due 12/1/10 NR/BBB- 2,302,799
300,000 Central Lake County Joint Action Water Agency Series 1991, 0% due 5/1/05
(Insured: MBIA) Aaa/AAA 190,815
500,000 Illinois Development Financing Authority, 7.125% due 3/15/07
(Children's Home & Aid Society Project; LOC: American National Bank of Chicago) NR/A+ 538,410
2,400,000 Illinois Development Financing Authority Debt Restructuring Revenue Series 1994,
7.25% due 11/15/09 (East St. Louis Project) NR/A- 2,618,544
500,000 Illinois HFA Revenue Refunding Series 1992, 7.00% due 1/1/07 (Mercy Hospital Project) Baa1/A- 533,010
1,000,000 Illinois HFA Revenue Refunding Series 1992, 7.00% due 7/1/02
(Trinity Medical Center Project) Baa1/NR 1,024,170
1,025,000 Illinois HFA Revenue Series B, 7.00% due 1/1/04 (Proctor Community Hospital Project) Baa/BBB- 1,039,350
1,525,000 Illinois State University Auxiliary Facilities System Revenue Series 1992,
0% due 10/1/01 (Insured: MBIA) Aaa/AAA 1,193,496
440,000 Rock Island Residential Mortgage Revenue, 7.70% due 9/1/08 Aa/NR 469,291
3,000,000 Southern Illinois University Revenue Refunding Series A, 7.125% due 4/1/07 A/A 3,036,690
Indiana (2.41%)
665,000 Danville Community Elementary School Building Corporation, 6.75% due 1/15/04 NR/A 732,950
1,000,000 Gary Building Corporation - Lake County First Mortgage Series 1994-B,
8.25% due 7/1/10 (Sears Building Project) NR/NR 1,106,300
255,000 Hamilton Heights Refunding Revenue, 6.60% due 1/1/08 NR/A 282,430
700,000 Indiana Bond Bank Special Program Series 1991-F, 7.00% due 8/1/07 NR/A 765,499
445,000 Indiana State Housing Finance Authority Single Family Mortgage Revenue Series E-2,
7.95% due 7/1/10 A2/AA 449,232
740,000 Indianapolis Local Public Improvement Bond Bank, 0% due 7/1/09 Aa/AA- 355,156
1,195,000 Lake Central Multi District School Building Mortgage Revenue Series 1992-B, 6.25%
due 1/15/04 NR/A 1,305,490
1,000,000 Penn High School Building Corporation Series 1992, 6.00% due 6/15/03 NR/A 1,048,760
Iowa (1.57%)
2,600,000 Iowa State Department General Services Certificate of Participation Series 1992,
6.50% due 7/1/06 (Insured: AMBAC) Aaa/AAA 2,856,464
1,000,000 Iowa Student Loan Revenue Series 1992-B, 6.65% due 3/1/03 Aa1/NR 1,087,320
Kentucky (3.05%)
1,000,000 Erlanger Kentucky Improvement Assessment, 7.375% due 8/1/10
(Public Improvement '93 Project; LOC: PNC Bank of Ohio) NR/NR 1,057,890
2,160,000 Fulton County Industrial Building Revenue Series 1995, 7.20% due 2/1/03
(H.I.S. Jeans of Kentucky Project; Guarantee: CHIC by H.I.S.) NR/NR 2,194,409
2,520,000 Fulton County Industrial Building Revenue Series 1995, 7.60% due 2/1/07
(H.I.S. Jeans of Kentucky Project; Guarantee: CHIC by H.I.S.) NR/NR 2,564,705
605,000 Mt. Sterling League of Cities Funding Trust Lease Series A, 5.625% due 3/1/03
(Investment Agreement w/ Transamerica Life; Guaranteed: Health Management Assoc.) Aa/NR 616,211
1,120,000 Paintsville First Mortgage Revenue Refunding Series 1991, 8.65% due 9/1/05
(Paul B. Hall Medical Center Project) NR/NR 1,194,648
Louisiana (3.52%)
475,000 Calcasieu Parish Industrial Development Board Pollution Control Revenue, 7.80%
due 12/1/05 (Cities Service Corporation Project) Baa3/BBB 476,701
47,489 East Baton Rouge Mortgage Financing Authority Purchase Revenue, 8.25% due 2/25/11
(GNMA Collateralized) NR/AAA 49,571
7,500,000 Louisiana Public Facilities Authority Revenue Refinancing, 8.00% due 10/1/09
(Schwegman Westside Expressway Project) NR/NR 8,292,150
Maine (.22%)
500,000 Maine Student Loan Revenue Refunding, 6.90% due 11/1/03 A/NR 542,115
Maryland (.39%)
935,000 Ann Arundel County Multifamily Housing Revenue, 7.45% due 12/1/24, put 12/1/03
(Twin Coves Apartment Project; Hud Section 8) NR/BBB+ 980,778
Massachusetts (3.24%)
250,000 Boston General Obligation Series A, 7.60% pre-refunded 2/1/99 @ 102 NR/A+ 272,710
415,000 Haverhill General Obligation Municipal Purpose Loan, 7.50% due 10/15/11 Baa/BBB 458,380
260,000 Holyoke General Obligation, 9.85% pre-refunded 11/1/97 @ 102 Aaa/NR 280,449
600,000 Holyoke General Obligation School Project Loan Act of 1948, 7.35% due 8/1/02 Baa/NR 663,840
1,000,000 Holyoke General Obligation School Project Loan Act of 1948, 7.65% due 8/1/09 Baa/NR 1,110,450
100,000 Massachusetts Health and Education Facilities, 6.875% due 7/1/99
(Charlton Hospital Project) A/A- 104,730
1,230,000 Massachusetts Industrial Finance Agency IDRB, 7.75% due 11/1/06, put 11/1/96
(William F. Rogers, Jr. Project; LOC: Shawmut Bank) NR/NR 1,235,732
1,000,000 Massachusetts Industrial Financing Authority Revenue Refunding Series 1993-A,
6.15% due 7/1/02 (Massachusetts Refusetech Project) Baa1/BBB 1,026,380
2,860,000 Massachusetts Housing Finance Authority Insured Rental Housing Series 1994-A,
6.20% due 1/1/06 (Insured: AMBAC) Aaa/AAA 2,959,757
Michigan (4.50%)
455,000 Auburn Hills Economic Limited Obligation Revenue Refunding and Improvement,
6.15% due 12/01/05 (Foamade Industries Project; LOC: Michigan National Bank) NR/NR 465,410
500,000 Detroit Unlimited Tax General Obligation, 8.00% pre-refunded 4/1/01 @ 102 Aaa*/BBB 575,255
2,450,000 Flint Refunding Tax Increment General Obligation Fin Auth, 6.125% due 6/1/06 Baa/BBB 2,481,139
965,000 Kent Hospital Finance Authority Revenue Refunding Series 1992, 6.20% due 11/1/02
(Pinerest Christian Hospital Project; Insured: FGIC) Aaa/AAA 1,037,636
500,000 Michigan State Housing Redevelopment Authority Ltd. Obligation, 6.50% due 9/15/07
(Greenwood Villa Project; Insured: FSA) Aaa/AAA 533,520
1,000,000 Michigan State Housing Development Authority Rental Revenue, 3.60% due 4/1/04
(Insured: AMBAC) Aaa/AAA 1,000,000
1,215,000 Michigan Strategic Fund Limited Obligation Refunding Revenue Series 1992, 6.25%
due 8/15/04 (Environmental Research Institute Project) NR/A 1,277,074
895,000 Pontiac Stadium Building Authority Revenue, 6.60% due 3/1/00 Baa/BBB 911,808
1,530,000 Southfield Economic Development Corporation Refunding Revenue
N.W. 12 Limited Partnership, 7.25% due 12/1/10 NR/NR 1,568,556
1,025,000 Wayne County Building Authority Limited Tax General Obligation
Series 1992-A, 7.80% pre-refunded 3/1/02 @ 102 Baa/AAA* 1,182,071
225,000 Wayne County Downriver System Sewage Disposal Series A, 7.00% due 11/1/13 Baa/BBB- 240,014
Minnesota (.28%)
695,000 Minneapolis Special School District Certificate of Participation, 5.40% due 2/1/01 A/A 699,365
Mississippi (2.46%)
3,300,000 Adams County Hospital Revenue Series 1991, 7.90% due 10/1/08
(Jefferson Davis Memorial Hospital Project) Baa/NR 3,798,762
1,000,000 Mississippi Higher Educational Authority Series C, 7.50% due 9/1/09 A/NR 1,073,210
200,000 Mississippi Hospital Equipment and Facilities Revenue Series A, 7.25% due 5/1/00
(Baptist Medical Center Project; Insured: MBIA) (Escrowed to Maturity) Aaa/AAA 217,740
1,000,000 Mississippi Hospital Equipment Revenue, 6.40% due 1/1/07
(Rush Foundation Project; LOC: Connie Lee) Baa/AAA 1,079,310
Missouri (1.43%)
100,000 Jackson County Single Family Mortgage Revenue, 0% due 9/1/14 NR/A 13,393
200,000 Missouri State Economic Development Export and Infrastructure Board MFHR
Series 1991-A, 7.25% due 9/15/02 (Quality Hill Project; Insured: Asset Guaranty) NR/AA 211,094
650,000 Missouri State Health and Education Facilities Authority,
0% due 7/1/02 (Missouri Baptist Medical Center Project) (Escrowed to Maturity) NR/A- 467,285
2,365,000 St. Louis Board of Education General Obligation, 8.50% due 4/1/04 (Insured: FGIC) Aaa/AAA 2,899,183
Montana (.45%)
1,025,000 Montana Higher Education Student Assistance Corp. Series 1992-B, 7.05% due 6/1/04 A/NR 1,114,360
Nebraska (1.44%)
2,195,000 Douglas County Industrial Development Revenue Series 1994, 6.40% due 9/1/14,
mandatory put 9/1/04 (Aksarben Foods Project; LOC: Norwest Bank) Aa/AA2 2,277,291
1,790,000 Nebraska Investment Finance Authority Collateralized Mortgage Obligation
Capital Appreciation Refunding Series B, 0% due 4/15/12 (Insured: MBIA) Aaa/AAA 598,934
700,000 Nebraska Investment Finance Authority, 6.65% due 3/1/00 (Insured: MBIA) Aaa/AAA 743,078
New Jersey (.63%)
280,000 Cape May County Municipal Utilities Authority, 6.60% due 8/1/03 A/A 304,178
1,000,000 Mercer County Improvement Revenue Solid Waste Refunding, 0% due 4/1/14 Ba/NR 267,390
3,020,000 Mercer County Improvement Revenue Solid Waste Refunding, 0% due 4/1/16 Ba/NR 694,540
300,000 New Jersey EDA Refunding Revenue Series 1991, 6.875% due 10/1/14, optional put
10/1/98 (Fairway Corporation Project; Insured: Provident Mutual Life Insurance) A2/NR 300,531
New Mexico (.48%)
590,000 Sandia Pueblo General Obligation, 5.40% due 12/1/03 (LOC: Norwest Bank) NR/AA 592,100
600,000 Sandia Pueblo General Obligation, 5.60% due 12/1/05 (LOC: Norwest Bank) NR/AA 601,188
New York (1.49%)
300,000 Allegheny County I.D.A. Civic Facilities, 7.10% due 9/1/01 (Alfred University Project) Baa1/NR 322,455
550,000 Battery Park City Authority Revenue, 7.35% pre-refunded 5/1/99 @ 102 Aaa/AAA 600,611
1,000,000 New York City General Obligation Refunding, 7.50% due 2/1/01 Baa1/A- 1,085,540
1,500,000 New York Local Government Assistance Corporation Series 1992, 6.875% due 4/1/06 A/A 1,670,520
50,000 Valley Health Development Corporation Mortgage Revenue Series 1990-A,
7.85% due 2/01/02 (Insured: FHA) NR/AAA 53,724
North Carolina (.29%)
650,000 Craven County Industrial Facilities Pollution Control Financing Authority Solid
Waste Revenue, 7.875% due 6/1/05 (Weyerhaeuser Company Project) NR/NR 730,061
North Dakota (.28%)
650,000 Bismarck Hospital Revenue Refunding and Improvement, 7.00% due 5/1/03
(Medical Center One Inc. Project; Insured: BIG) Aaa/AAA 696,839
Ohio (3.56%)
700,000 Bellefontaine Hospital Facility Revenue and Refunding Series 1993, 6.00%
due 12/1/02 (Mary Rutan Health-Logan County Project) NR/BBB 723,583
250,000 Bowling Green State University General Receipts Series 1991, 6.70% due 6/1/07 A/AA 269,605
150,000 Cleveland Airport System Revenue, 7.00% due 1/1/06 A/A 151,853
2,250,000 Cleveland Certificate of Participation, 7.10% due 7/1/02
(Motor Vehicle Motorized and Communications Equipment Project) Baa/BBB 2,374,223
1,000,000 Cleveland Parking Facilities Improvement Revenue Series 1992, 8.00% due 9/15/12 NR/NR 1,177,460
1,100,000 Franklin County Health Care Revenue Series 1995-A, 6.00% due 11/1/10
(Heinzerling Foundation Project; LOC: BancOne - Columbus) Aa2/NR 1,081,487
700,000 Hamilton County Hospital Facilities Refunding Revenue Series 1992, 6.55%
due 1/1/03 (Episcopal Retirement Homes, Inc. Project; LOC: Fifth/Third Bank) Aa/NR 755,923
400,000 Hamilton County Hospital Facilities Refunding Revenue Series 1992, 6.80%
due 1/1/08 (Episcopal Retirement Homes, Inc. Project; LOC: Fifth/Third Bank) Aa/NR 423,224
270,000 Harrison County Ohio Industrial Development Revenue, 6.625% due 12/1/98
(Drano Equipment Company Project) NR/NR 270,864
940,000 Ohio St. Economic Development Revenue Series 1995-2, 5.60% due 6/1/02
(Wirt Metal Products Project) NR/A- 948,996
854,456 Ohio Industrial Development Revenue Series 92, 8.125% due 12/1/06
(Swifton Commons Project; LOC: Chemical Bank) NR/NR 736,977
Oklahoma (1.22%)
165,000 Pryor Creek EDA Mortgage Revenue Refunding Series 1991-A, 6.625% due 7/1/01
(FNMA Collateralized) NR/AAA 173,004
785,000 Pushmatahah County Town of Antlers, Hospital Authority Revenue Series 1991, 8.75%
due 6/1/06 NR/NR 845,618
1,485,000 Tulsa Oklahoma Industrial Development Authority Hospital Revenue, 6.10%
due 2/15/09 (Medical Center Project) Aa/AA 1,496,464
500,000 Woodward Municipal Hospital Authority Revenue Series 1994, 8.25% due 11/1/09 NR/NR 537,770
Oregon (2.39%)
1,025,000 Albany Hospital Facility Authority Gross Revenue and Refunding Series 1994, 7.00%
due 10/1/05 (Mennonite Home Project) NR/NR 1,050,615
1,400,000 Oregon Economic Development Department Revenue Series CLII, 6.70%
due 12/1/98 (Smokecraft Project; LOC: Seafirst Bank) Aa3/NR 1,458,898
1,200,000 Oregon Economic Development Department Revenue Series CLII, 7.00%
due 12/1/02 (Smokecraft Project; LOC: Seafirst Bank) Aa3/NR 1,260,672
1,070,000 Oregon Economic Development Department Revenue Series CLII, 7.70%
due 12/1/14 (Smokecraft Project; LOC: Seafirst Bank) Aa3/NR 1,180,542
1,000,000 Port of Portland Industrial Revenue Series 85, 7.25% due 10/1/09
(Ash Grove Cement Project) NR/NR 1,034,700
Pennsylvania (5.47%)
500,000 Allegheny County Redevelopment Auth Rev Rfdg Home Impt Ln Impac, 6.60% due 8/1/98 A/A 513,505
2,135,000 Beaver County Industrial Development Authority Health Revenue, 0% due 2/1/10
(Collateralized: FHA) NR/AA- 745,414
105,000 Chester County General Obligation, 9.50% due 12/1/97 NR/NR 105,717
335,000 Hampden Industrial Development Authority Partnership Holdings LLC Project, 4.50%
due 11/15/98 Baa2/NR 319,302
2,800,000 Harrisburg Authority Lease Revenue Series 1991, 6.50% due 6/1/04
(Insured: Capital Guaranty) crossover refunded 6/1/01 @ 101 Aaa/AAA 3,039,988
800,000 Harrisburg Authority Lease Revenue Series 1991, 6.625% due 6/1/06
(Insured: Capital Guaranty) crossover refunded 6/1/01 @ 101 Aaa/AAA 872,552
2,000,000 Lancaster County Solid Waste, 8.375% due 12/15/04 A/BBB 2,103,720
2,000,000 Lehigh County General Purpose Authority Revenue, 7.80% due 3/15/20,
put 3/15/02 (Muhlenberg Care Project; LOC: United Jersey Bank) NR/NR 2,190,420
750,000 Lehigh County General Purpose Rev, 5.10% due 11/15/03
(St. Lukes Hospital, Bethlehem Project; Insured: AMBAC) Aaa/AAA 753,510
655,444 Lehigh County Industrial Development Authority Revenue, 7.45% due 8/1/01
(Kresge Company Project) A3/NR 655,503
800,000 McKeesport Area School District Series B, 0% due 10/1/04 NR/A 526,360
985,000 Philadelphia Water and Sewer Revenue 10th Series, 7.35% due 9/1/04
(Escrowed to Maturity) Aaa/AAA 1,116,409
750,000 Pine-Richland School District, 0% pre-refunded 9/01/01 (Insured: AMBAC) Aaa/AAA 539,963
200,000 York County Solid Waste Refuse Authority Industrial Development Revenue
Series 1985, 7.40% due 12/1/99 (Resource Recovery Project) A/AA- 211,444
Rhode Island (1.63%)
595,000 Pawtucket Public Building Authority Water System Project Revenue, 7.45% due 7/1/05 Baa1/NR 672,088
680,000 Providence Public Building Authority Revenue, 7.10% due 12/1/03
(Veazie Street School and Modular Classroom Project) Baa1/NR 763,096
1,500,000 Rhode Island Housing and Mortgage Finance Rental Housing Program
Series A, 5.05% due 10/1/01 NR/A 1,507,965
355,000 Rhode Island Health and Education Building Corporation Series 1991,
7.10% due 11/1/02 (South County Hospital Project) NR/BBB+ 375,860
720,000 West Warwick General Obligation, 5.90% due 1/1/05 (Insured: MBIA) Aaa/AAA 749,182
South Carolina (.71%)
665,000 Florence County Certificate of Participation Series 1992, 4.90% due 3/1/98
(Law Enforcement Center Project; Insured: AMBAC) Aaa/AAA 672,515
615,000 Liberty Sewer Revenue, 8.25% due 8/1/07 NR/NR 642,306
455,000 South Carolina Educational Facilities Authority, 6.95% due 11/1/03, put 11/1/96
(Converse College Project; LOC: Nationsbank) A1/NR 464,796
South Dakota (1.37%)
1,000,000 South Dakota Housing Development Authority Home Ownership Mortgage Series
1993-A, 5.20% due 5/1/02 Aa/AA 1,013,100
1,755,000 South Dakota Student Loan Revenue, 7.625% due 8/1/06 (Insured: MBIA) Aaa/AAA 1,870,146
500,000 South Dakota Student Loan Series 1991-A, 7.60% due 8/1/04 NR/A+ 542,805
Tennessee (1.04%)
395,000 Carroll County Industrial Development Resoure, 7.00% due 4/1/01
(Henry I Siegel Company Project; LOC: Chic By H.I.S) NR/NR 392,436
900,000 Carroll County Industrial Development Board Refunding Revenue Series 1995, 7.20%
due 4/1/05 (Henry I. Seigel Company Project; LOC: CHIC by H.I.S.) NR/BBB 910,062
205,000 Copperhill Industrial Development Board, 7.80% due 12/1/00 (Cities Service Co. Project) Baa3/BBB 205,576
1,100,000 Dayton I.D.R. Series 1986, 7.75% due 12/1/96 (Cowron and Co. Project; LOC: Signet Bank) NR/NR 1,103,014
Texas (6.96%)
3,975,000 Bell County Health Facilities Development, 4.75% due 10/1/23, put 10/1/98 NR/AA 3,989,310
1,400,000 Brazos Higher Education Authority Refunding Revenue Series B-1, 6.50% due 6/1/04 NR/A 1,457,204
135,000 Chimney Hill Municipal Utility District Waterworks and Sewer System Combination
Unlimited Tax and Revenue Refunding Series 1991, 7.75% due 10/1/11 NR/NR 149,141
865,000 Chimney Hill Municipal Utility District Waterworks and Sewer System Combination
Unlimited Tax and Revenue Refunding Series 1991, 7.75% due 10/1/11 NR/NR 939,987
750,000 Clay Road Municipal Utility District Unlimited Tax and Revenue Series 1991,
7.625% due 9/1/11 NR/NR 823,718
1,000,000 Conroe Independent School District Refunding Series 1992, 0% due 2/1/05
(PSF Guaranteed) Aaa/AAA 650,660
1,000,000 Conroe Independent School District Refunding Series 1992, 0% due 2/1/05
(PSF Guaranteed) Aaa/AAA 627,060
250,000 Dallas County Flood Control District #1 General Obligation, 0% due 4/1/97 NR/NR 243,143
400,000 Dallas - Fort Worth Regional Airport Revenue Series A -CR-103,
5.875% due 11/1/05, put 5/1/98 (Insured: FGIC) Aaa/AAA 402,616
570,000 Harris County Municipal Utility District #118 Unlimited Tax and Revenue Refunding
Series 1992, 0% due 3/1/04 (Insured: MBIA) Aaa/AAA 361,819
525,000 Harris County Municipal Utility District #118 Unlimited Tax and Revenue Refunding
Series 1992, 0% due 3/1/05 (Insured: MBIA) Aaa/AAA 310,952
880,000 Houston Water Conveyance System Contract Certificate of Participation Series F,
7.20% due 12/15/04 (Insured: AMBAC) Aaa/AAA 1,008,313
465,000 Hunt Memorial Hospital District, 0% due 2/15/01 A/A 364,239
2,000,000 Leander Independent School District Unlimited Tax School Building & Refunding
Series 1992, 0% due 8/15/05 (PSF Guaranteed) Aaa/NR 1,333,340
800,000 Mesquite General Obligation, 0% due 2/15/02 A1/A+ 611,568
800,000 Midland County Hospital District Revenue Series 1991, 0% due 6/1/07 NR/BBB 414,872
500,000 North Texas Higher Educational Student Loan Revenue, 6.50% due 4/1/98 (Insured: AMBAC) Aaa/AAA 515,180
715,000 Tarrant County Health Fac, 6.00% due 9/1/04,
(Harris Methodist Health Systems Project; Insured: AMBAC) Aaa/AAA 755,512
1,495,000 Texas Water Resource Financing Authority Revenue, 7.30% due 2/15/04
(Insured: AMBAC) Aaa/AAA 1,575,027
500,000 Trinity River Auth Interim Water Rev, 5.75% due 10/15/00 (Livingston Project) A1/A+ 500,405
400,000 Trinity Texas Housing Finance Corporation Multifamily Housing Revenue, 10.00%
due 6/1/98 (Timberline Apartments Project) NR/NR 400,000
U.S. Virgin Islands (1.26%)
3,000,000 U.S. Virgin Islands Water & Power Authority Series A, 7.40% due 7/1/11 NR/NR 3,148,590
Utah (1.71%)
2,000,000 Intermountain Power Agency Revenue, 0% pre-refunded 7/1/00 Aaa/AAA 1,685,580
2,500,000 Salt Lake County Housing Authority Multifamily Housing Revenue Refunding
Series 1993, 5.40% due 12/15/18, put 12/15/03 (Summertree Project;
LOC: First Security Bank) A1/NR 2,472,625
924,997 Utah State Housing Financing Agency Capital Appreciation Res. Mortgage Series 83-A,
0% due 7/1/16 NR/AA 123,681
Virginia (4.01%)
500,000 Chesterfield County Certificate of Participation, 7.80% pre-refunded 12/15/96 @ 102 Aa/NR 514,095
2,000,000 Hampton Redevelopment Housing Authority Multifamily Housing Revenue & Refunding
Series 1994, 7.00% due 7/1/24, mandatory put 7/1/04 (Chase Hampton II Apts. Project) NR/NR 2,143,400
320,000 Peninsula Ports Authority Hospital Revenue, 8.00% due 8/1/99
(Mary Immaculate Hospital Project) NR/A- 347,110
2,000,000 Suffolk Redevelopment Housing Authority Multifamily Housing Revenue & Refunding
Series 1994, 7.00% due 7/1/24, mandatory put 7/1/04 (Chase Heritage @ Dulles Project) NR/NR 2,110,260
665,000 Virginia Beach General Obligation, 5.90% due 7/15/08 Aa/AA 689,781
1,030,000 Virginia State Housing Development Authority Series C-7, 5.40% due 1/1/01 Aa/AA+ 1,054,555
1,000,000 Virginia State Housing Development Authority Series H-1, 6.60% due 7/1/08 Aa/AA+ 1,058,680
1,000,000 Virginia Housing Dev. Auth. Commonwealth Mortgage Series 1992-C, 6.75% due 7/1/11 Aa/AA 1,045,250
1,000,000 Virginia Public School Authority, 6.80% due 1/15/05 pre-refunded 1/15/99
(School Funding Project) Aaa/AAA 1,069,210
Washington (2.43%)
1,000,000 Bremerton Water & Sewer Improvement Revenue Series B, 6.00% due 9/1/03
(Insured: FGIC) Aaa/AAA 1,070,510
1,100,000 Clark County Industrial Revenue Solid Waste Transfer Stations Series 1991, 7.50%
due 12/15/06 (Columbia Resource Company Project; LOC: U.S. Bank of Oregon) A1/NR 1,190,805
1,500,000 Pilchuck Development Public Corporation IDRB Series 1993,
6.25% due 8/1/10 (Little Neck Properties Project; LOC: U.S. Bancorp) A1/NR 1,522,725
790,000 Port of Grays Harbor Revenue Refunding, 6.05% due 12/1/02 A/BBB+ 829,231
1,000,000 Washington Health Care Facilities Authority Pooled Equipment Series 1992-B,
7.20% due 6/1/02 (Kadlec Medical Center Project) Baa1/NR 1,033,670
400,000 Washington Public Power Supply System Series 1991-A, 6.75% due 7/1/05 (Project: 1) Aa/AA 436,108
West Virginia (1.18%)
3,100,000 West Virginia Parkways Economic Development and Tourism Authority Parkway
Revenue Refunding, 5.33% inverse floating rate note due 5/15/02 (Insured: FGIC) Aaa/AAA 2,963,476
Wisconsin (.85%)
375,000 Bass Lake PCRB, 6.50% due 4/1/05 (Johnson Timber Corp. Project; Guaranty: SBA) Aaa*/AAA* 407,141
735,000 Wisconsin Housing & Economic Development Authority Series C, 7.55% due 9/1/97
(LOC: FHA/ GEMIC Mortgage) Aa/AA 746,834
1,000,000 Wisconsin Health & Education, 7.75% due 11/1/15 (Hess Memorial Hospital Project) NR/NR 975,920

TOTAL INVESTMENT (100%) $250,385,711
(Cost $238,961,028)**
</TABLE>

* Indicates rating on other debt issued by the same issuer, rather than on the
security held by the Fund. These securities are deemed by the Adviser to be
comparable with those of issuers having debt ratings in the 4 highest grades by
Moody's or S & P.
** The cost for Federal income tax purposes is the same.
+ Credit ratings are unaudited.
See notes to financial statements.

i n d e p e n d e n t a u d i t o r ' s r e p o r t

To the Board of Trustees and Shareholders
Thornburg Intermediate Municipal Fund
Santa Fe, New Mexico

We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Thornburg Intermediate Municipal Fund, series of
Thornburg Investment Trust as of September 30, 1996, the related statement of
operations, the statements of changes in net assets, and the financial
highlights for the periods indicated. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Thornburg Intermediate Municipal Fund as of September 30, 1996, the results of
its operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles.

New York, New York
October 25, 1996
<PAGE>
03/31/1997
SEMI-ANNUAL REPORT THORNBURG INTERMEDIATE NATIONAL

Thornburg Intermediate
Municipal Fund

Thornburg Thornburg Thornburg
Intermediate Intermediate Intermediate
Municipal Fund Municipal Fund Municipal Fund
A Shares C Shares I Shares

SEC Yield 4.62% 4.37% 5.12%

Taxable Equiv. Yields 7.65% 7.24% 8.48%
NAV $13.17 $13.19 $13.15
Max. Offering Price $13.65 $13.19 $13.15

1 Year 1.52% 4.80% NA

5 Year 6.39% NA NA

Since Inception 6.63% 5.66% 5.26%*
(Inception Date) (7/22/91) (9/1/94) (7/5/96)

*Not annualized.

Taxable equivalent yields assume a 39.6% marginal federal tax rate.

The investment return and principal value of an investment in the fund will
fluctuate so that, when redeemed, an investor's shares may be worth more or
less than their original cost.

Maximum sales charge of the Fund's Class A Shares is 3.50%.
The data quoted represent past performance and may not be
construed as a guarantee of future results.

l e t t e r t o s h a r e h o l d e r s

Dear Fellow Shareholder:

I am pleased to present the Semi-Annual Report for the National Portfolio of
Thornburg Intermediate Municipal Fund for the period ending March 31, 1997. This
was a period of sharply fluctuating interest rates. The bond bulls insist that a
tepid U.S. economy is on the brink of weakness. The bond bears counter that our
current economic vigor will persist for the foreseeable future. If you were with
us for the entire period, you received dividends of 33.5 cents per share. If you
reinvested your dividends, you received 33.8 cents per share. Investors who
owned C Shares received dividends of 30.9 and 31.2 cents per share,
respectively. Investors who owned I shares received dividends of 35.5 and 35.9
cents per share, respectively.

Your Thornburg Intermediate Municipal Fund portfolio currently holds over 250
municipal obligations from 44 states and 2 U.S. Territories. Approximately 76%
of the bonds are rated A or better by one of the major rating agencies. As you
know, we "ladder" the maturities of the bonds in your portfolio so that some
bonds are scheduled to mature at par during each of the coming years. Today,
your fund's weighted average maturity is approximately 7 years, and we always
keep it below 10 years. Percentages of the portfolio maturing in the coming
years are summarized below:

% of portfolio maturing within Cumulative % maturing by end of

2 years = 10% year 2= 10%
2 to 4 years = 10% year 4= 20%
4 to 6 years = 14% year 6= 34%
6 to 8 years = 26% year 8= 60%
8 to 10 years = 20% year 10= 80%
10 to 12 years = 13% year 12= 93%
12 to 14 years = 5% year 14= 98%
14 to 16 years = 1% year 16= 99%

Over the years, our practice of laddering a diversified portfolio of short and
intermediate maturity municipal bonds has allowed your fund to perform well in
varying interest rate environments. For instance, the A shares of Intermediate
Municipal Fund continued to receive "A" letter grades for one, three, and five
year performance relative to other intermediate maturity municipal bond funds
through March 31, 1997.* These rankings, which were published in The Wall Street
Journal, reflect total returns in the top 20% of all short term municipal bond
funds for those periods. Your fund has also earned Morningstar's coveted 5 star
overall rating.**

Strong forces are acting in opposite ways on U.S. interest rates at this time.
The U.S. economy is generally firm and the economies of many developing
countries are growing as well. Americans have been net sellers of individual
municipal and U.S. government bonds, preferring instead to pour money into
stocks, money market funds and, recently, emerging market debt funds. By
themselves, these forces should put upward pressure on our interest rates.
However, most other developed countries have sluggish economies, much lower
interest

*Source: The Wall Street Journal, April 4, 1997. Performance data are supplied
by Lipper Analytical Services, Inc., and reflect performance for the 1, 3, and 5
year periods ending March 31, 1997. An "A" ranking reflects total returns in the
top 20% of all funds within the short term municipal objective, as defined by
The Wall Street Journal. The average maturity and average quality of the funds
within the short municipal objective may differ. At March 31, 1997, 75, 66, and
31 intermediate municipal funds reported 1-year, 3-year, and 5-year total
returns, respectively. Performance calculations used to obtain these rankings
assume deduction of all expenses and reinvestment of all distributions, but do
not include the effect of any sales charge on total return. A portion of the
Fund's income may be subject to the federal alternative minimum tax.

l e t t e r t o s h a r e h o l d e r s (continued)

rates than ours, and currencies that have been depreciating relative to the
U.S. dollar. As a result, foreign money has been pouring into the U.S. bond
market, lifting bond prices and lowering yields from the levels that would
otherwise exist. In the last 2 years, foreign purchases of U.S. Treasury bonds
have accounted for more than 100% of the net issuance of Treasury bonds, up from
an average of approximately 20% between 1980-1994. The graph below illustrates
this trend, which may only now be subsiding. We have positioned your bond
portfolio conservatively so as to be able to react quickly to change and take
advantage of any opportunities that arise.

Many municipal bonds issued between 1985 and 1990 have been paid off this year.
Money to pay off other bonds prior to maturity already has been raised. You may
own municipal bonds or unit trusts which are being redeemed. Your investment in
Thornburg Intermediate Municipal Fund will not be redeemed until you sell it.
Please remember that you can easily add to your investment each month by
authorizing a simple, automatic transfer from your checking account.

Thank you for investing in Thornburg Intermediate Municipal Fund.

Sincerely,

Brian J. McMahon
Managing Director

s t a t e m e n t o f a s s e t s a n d l i a b i l i t i e s

Thornburg Intermediate Municipal Fund
March 31, 1997
(unaudited)

ASSETS

Investments, at value (cost $260,168,983) $270,351,499
Cash 21,461
Interest receivable 4,695,369
Receivable for fund shares sold 625,829
Prepaid expenses and other assets 110,088

TOTAL ASSETS 275,804,246
LIABILITIES

Payable for investments purchased 2,447,989
Payable for fund shares redeemed 165,462
Accounts payable and accrued expenses 208,350
Payable to investment adviser 206,128
Dividends payable 421,437

TOTAL LIABILITIES 3,449,366

NET ASSETS $272,354,880

NET ASSET VALUE:

Class A Shares:
Net asset value and redemption price per share
($259,269,395 applicable to 19,686,811 shares of beneficial interest
outstanding) $13.17

Maximum sales charge, 3.50% of offering .48
price (3.63% of net asset value per share)

Maximum Offering Price Per Share $13.65

Class C Shares:
Net asset value and offering price per share *
($9,547,810 applicable to 724,056 shares of beneficial interest
outstanding) $13.19

Class I Shares:
Net asset value, offering and redemption price per share
($3,537,675 applicable to 268,952 shares of beneficial interest
outstanding) $13.15

* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.

See notes to financial statements.

s t a t e m e n t o f o p e r a t i o n s

Thornburg Intermediate Municipal Fund
Six Months ended March 31, 1997
(unaudited)

INVESTMENT INCOME
Interest income (net of premium amortized $ 7,936,285
of $289,486)

EXPENSES
Investment advisory fees (Note 3) 655,323
Administration fees (Note 3)
Class A Shares 157,782
Class C Shares 5,160
Class I Shares 356
Distribution and service fees (Note 3)
Class A Shares 307,086
Class C Shares 24,766
Custodian fees 98,110
Transfer agent fees 87,638
Registration and filing fees 30,766
Professional fees 22,422
Accounting fees 13,840
Other expenses 14,678

TOTAL EXPENSES 1,417,927
Less:
Expenses deferred by investment adviser (Note 3) (92,976)
NET EXPENSES 1,324,951

NET INVESTMENT INCOME 6,611,334

REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (NOTE 5)
Net realized gain on investments sold 6,848
Decrease in unrealized appreciation of investments (1,242,167)
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (1,235,319)

NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 5,376,015

See notes to financial statements.

s t a t e m e n t s o f c h a n g e s i n n e t a s s e t s

Thornburg Intermediate Municipal Fund
(unaudited)

Six Months Ended Year Ended
March 31, 1997 September 30, 1996

INCREASE (DECREASE) IN
NET ASSETS FROM:

OPERATIONS:
Net investment income $ 6,611,334 $ 12,485,845
Net realized gain (loss) on investments sold 6,848 (192,091)
Increase (Decrease) in unrealized
appreciation of investments (1,242,167) 864,925

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 5,376,015 13,158,679
DIVIDENDS TO SHAREHOLDERS:
From net investment income
Class A Shares (6,380,927) (12,209,780)
Class C Shares (192,230) (269,786)
Class I Shares (38,177) (6,279)

FUND SHARE TRANSACTIONS - (Note 4)
Class A Shares 14,291,088 17,593,230
Class C Shares 2,010,160 3,572,380
Class I Shares 2,887,082 681,348

NET INCREASE IN NET ASSETS 17,953,011 22,519,792

NET ASSETS:

Beginning of period 254,401,869 231,882,077
End of period $ 272,354,880 $ 254,401,869
See notes to financial statements.

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Thornburg Intermediate Municipal Fund

Note 1 - ORGANIZATION

Thornburg Intermediate Municipal Fund (the "Fund"), is a series of Thornburg
Investment Trust (the "Trust", formerly known as Thornburg Income Trust). The
Trust is organized as a Massachusetts business trust under a Declaration of
Trust dated June 3, 1987 and is registered as a diversified, open-end management
investment company under the Investment Company Act of 1940, as amended. The
Trust is currently issuing five series of shares of beneficial interest in
addition to those of the Fund: Thornburg Florida Intermediate Municipal Fund,
Thornburg New Mexico Intermediate Municipal Fund, Thornburg Limited Term U.S.
Government Fund, Thornburg Limited Term Income Fund and Thornburg Value Fund.
Each series is considered to be a separate entity for financial reporting and
tax purposes. The Fund's investment objective is to obtain as high a level of
current income exempt from Federal income taxes as is consistent with the
preservation of capital.

The Fund currently offers three classes of shares of beneficial interest, Class
A, Class C and Institutional Class (Class I) shares. The Fund no longer offers
Class B shares. Each class of shares of a Fund represents an interest in the
same portfolio of investments of the Fund, except that (i) Class A shares are
sold subject to a front-end sales charge collected at the time the shares are
purchased and bear a service fee, (ii) Class B shares were sold at net asset
value without a sales charge at the time of purchase, but were subject to a
contingent deferred sales charge upon redemption, and bore both a service fee
and a distribution fee, (iii) Class C shares are sold at net asset value without
a sales charge at the time of purchase, but are subject to a service fee and a
distribution fee, (iv) Class I shares are sold at net asset value without a
sales charge at the time of purchase, and (v) the respective classes have
different reinvestment privileges. Additionally, each Fund may allocate among
its classes certain expenses, to the extent allowable to specific classes,
including transfer agent fees, government registration fees, certain printing
and postage costs, and administrative and legal expenses. Currently, class
specific expenses of the Fund are limited to distribution fees, administrative
fees and certain transfer agent expenses.

Note 2 - SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies of the
Fund are as follows:

Valuation of Investments: In determining net asset value of the Fund, the Trust
utilizes an independent pricing service approved by the Trustees. Debt
investment securities have a primary market over the counter and are valued on
the basis of valuations furnished by the pricing service. The pricing service
values portfolio securities at quoted bid prices or the yield equivalents when
quotations are not readily available. Securities for which quotations are not
readily available are valued at fair value as determined by the pricing service
using methods which include consideration of yields or prices of municipal
obligations of comparable quality, type of issue, coupon, maturity, and rating;
indications as to value from dealers and general market conditions. The
valuation procedures used by the pricing service and the portfolio valuations
received by the Fund are reviewed by the officers of the Trust under the general
supervision of the Trustees. Short-term obligations having remaining maturities
of 60 days or less are valued at amortized cost, which approximates market
value.

Federal Income Taxes: It is the policy of the Trust to comply with the
provisions of the Internal Revenue Code applicable to "regulated investment
companies" and to distribute all of its taxable (if any) and tax exempt income
to its shareholders. Therefore no provision for Federal income tax is required.
Dividends paid by the Fund for the period ended March 31, 1997 represent exempt
interest dividends which are excludable by shareholders from gross income for
Federal income tax purposes. When-Issued and Delayed Delivery Transactions: The
Trust may engage in when-issued or delayed delivery transactions. To the extent
the Trust engages in such transactions, it will do so for the purpose of
acquiring portfolio securities consistent with its investment objectives and not
for the purpose of investment leverage or to speculate on interest rate changes.
At the time the Trust makes a commitment to purchase a security on a when-issued
basis, it will record the transaction and reflect the value in determining its
net asset value. When effecting such transactions, assets of the Fund of an
amount sufficient to make payment for the portfolio securities to be purchased
will be segregated on the Fund's records at the trade date. Securities purchased
on a when-issued or delayed delivery basis do not earn interest until the
settlement date.

Dividends: Net investment income of the Fund is declared daily as a dividend on
shares for which the Trust has received payment. Dividends are paid monthly and
are reinvested in additional shares of the Fund at net asset value per share at
the close of business on the dividend payment date, or at the shareholder's
option, paid in cash. Net capital gains, to the extent available, will be
distributed annually.

General: Securities transactions are accounted for on a trade date basis.
Interest income is accrued as earned. Premiums and original issue discounts on
securities purchased are amortized over the life of the respective securities.
Realized gains and losses from the sale of securities are recorded on an
identified cost basis. Use of Estimates: The preparation of financial
statements, in conformity with generally accepted accounting principles,
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.

Note 3 - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Pursuant to an investment advisory agreement, Thornburg Management Company, Inc.
(the "Adviser") serves as the investment adviser and performs services for which
the fees are payable at the end of each month. For the six months ending March
31, 1997, these fees were payable at annual rates ranging from 1/2 of 1% to
11/40 of 1% of the average daily net assets of the Fund, also the Trust entered
into an Administrative Services Agreement with the Adviser, whereby the Adviser
will perform certain administrative services for the shareholders of each class
of the Fund's shares, and for which fees will be payable at an annual rate of up
to 1/8 of 1% of the average daily net assets attributable to each class of
shares.

In the event normal operating expenses of the Fund, exclusive of brokerage
commissions, taxes, interest, and extraordinary expenses, exceed the limits
prescribed by any state in which the Fund's shares are qualified for sale, the
Adviser will reimburse the Fund for such excess. No such reimbursement was
required as a result of this limitation. For the six months ended March 31,
1997, the Adviser voluntarily deferred certain operating expenses amounting to
$92,976. These expenses may be repaid to the Advisor by the Fund, however such
repayment will depend upon the overall level of the Fund's expenses for the
entire year ending September 30, 1997.

The Trust has an underwriting agreement with Thornburg Securities Corporation
(the "Distributor"), which acts as the Distributor of the Fund shares. For the
period ended March 31, 1997, the Distributor earned commissions aggregating
$41,205 from the sale of Class A shares and collected contingent deferred sales
charges aggregating $5,379 from redemptions of Class C shares of the Fund.

Pursuant to a Service Plan, under Rule 12b-1 of the Investment Company Act of
1940, the Trust may reimburse to the Adviser an amount not to exceed .25 of 1%
per annum of the Fund's average net assets for payments made by the Adviser to
securities dealers and other financial institutions to obtain various
shareholder related services. The Adviser may pay out of its own funds
additional expenses for distribution of the Fund's shares.

The Trust has also adopted a Distribution Plan pursuant to Rule 12b-1,
applicable only to the Fund's Class C shares under which the Trust compensates
the Distributor for services in promoting the sale of Class C shares of the Fund
at an annual rate of up to .75% of the average daily net assets attributable to
Class C shares. Total fees incurred by each class of shares of the Fund under
their respective Service and Distribution Plans for the six months ended March
31, 1997, are set forth in the statement of operations.

Certain officers and trustees of the Trust are also officers and/or directors
of the Adviser and Distributor. The compensation of unaffiliated directors
of the Trust is borne by the Trust.

Thornburg Intermediate Municipal Fund

Note 4 - SHARES OF BENEFICIAL INTEREST:

At March 31, 1997, there were an unlimited number of shares of beneficial
interest authorized, and capital paid-in aggregated $265,661,837.
Transactions in shares of beneficial interest were as follows:

Six Months Ended Year Ended
March 31, 1997 September 30, 1996
- ------------------------------------------------------

Class A Shares Shares Amount Shares Amount
Shares sold 2,132,755 $28,333,321 3,206,323 $42,461,497
Shares inssued to
shareholders
in reinvestment of
distributions 284,747 3,782,646 538,669 7,136,992
Shares repurchased
(1,340,900) (17,824,879) (2,423,428) (32,005,259)
Net Increase 1,076,602 $14,291,088 1,321,564 $17,593,230

Class C Shares
Shares sold 223,280 $2,967,866 352,952 $4,676,873
Shares issued to
shareholders
in reinvestment of
distributions 11,392 151,475 15,345 202,966
Shares repurchased
(83,434) (1,109,181) (98,650) (1,307,459)
Net Increase 151,238 $2,010,160 269,647 $3,572,380

Class I Shares *
Shares sold 610,893 $8,111,378 51,632 $675,632
Shares issued to shareholders
in reinvestment of
distributions 1,734 22,989 433 5,716
Shares repurchased (395,740) (5,247,285) -- --
Net Increase 216,887 $2,887,082 52,065 $681,348

* Sales of Class I shares commenced on July 5, 1996.

n o t e s t o f i n a n c i a l s t a t e m e n t s (continued)

Thornburg Intermediate Municipal Fund

Note 5 - SECURITIES TRANSACTIONS

For the six months ended March 31, 1997, the Fund had purchase and sale
transactions (excluding short-term securities) of $41,526,136 and $22,231,417,
respectively.

The cost of investments for Federal income tax purposes is the same. At March
31, 1997, net unrealized appreciation of investments was $10,182,516,
resulting from $10,815,261 gross unrealized appreciation and $632,745 gross
unrealized depreciation.

Accumulated net realized losses from securities transactions included in net
assets at March 31, 1997, aggregated $3,489,473.

f i n a n c i a l h i g h l i g h t s

<TABLE>

Thornburg Intermediate Municipal Fund

<CAPTION>
Per share operating performance
(for a share outstanding
throughout the period)
Six Months
Ended Year Ended September 30,
March 31, 1997 1996 1995 1994 1993 1992

<S> <C> <C> <C> <C> <C> <C>
Class of Shares: A A A A A A
--------------------------- -- - -

Net asset value, beginning of period $13.23 $13.18 $12.73 $13.47 $12.59 $12.11
Income from investment operations:
Net investment income
.33 .68 .68 .67 .71 .78
Net realized and unrealized
gain (loss) on investments (.06) .05 .45 (.72) .88 .48
Total from investment operations .27 .73 1.13 (.05) 1.59 1.26
Less dividends from:
Net investment income (.33) (.68) (.68) (.67) (.71) (.78)
Realized capital gains -- -- -- (.02) -- --
Change in net asset value (.06) .05 .45 (.74) .88 .48

Net asset value, end of period $13.17 $13.23 $13.18 $12.73 $13.47 $12.59
Total return (a) 2.08% 5.64% 9.16% (.38%) 13.01% 10.76%

Ratios/Supplemental Data Ratios to average net assets:
Net investment income 5.05%(b) 5.12% 5.31% 5.23% 5.37% 6.15%
Expenses, after expense reductions 1.00%(b) 1.00% 1.00% .95% .70% .48%
Expenses, before expense reductions 1.05%(b) 1.09% 1.08% 1.05% 1.06% 1.19%

Portfolio turnover rate 8.61% 12.64% 32.20% 27.37% 14.29% 46.15%
Net assets
at end of period(000) $259,269 $246,128 $227,881 $207,718 $182,319 $81,428

<FN>
(a) Sales loads are not reflected in computing total return, which is not
annualized for periods less than one year.
(b) Annualized

</FN>
</TABLE>

f i n a n c i a l h i g h l i g h t s (continued)

<TABLE>
Thornburg Intermediate Municipal Fund

<CAPTION>
Per share operating performance
(for a share outstanding
throughout the period) Period from
Six Months September 1, (a)
Ended Year Ended September 30, to September 30,
March 31, 1997 1996 1995 1994
<S> <C> <C> <C> <C>
Class of Shares: C C C C

Net asset value, beginning of period $13.24 $13.20 $12.73 $12.91
Income from investment operations:
Net investment income .31 .63 .60 .05
Net realized and unrealized
gain (loss) on investments (.05) .04 .47 (.18)
Total from investment operations .26 .67 1.07 (.13)
Less distributions from:
Net investment income (.31) (.63) (.60) (.05)
Change in net asset value (.05) .04 .47 (.18)

Net asset value, end of period $13.19 $13.24 $13.20 $12.73

Total return (b) 1.96% 5.14% 8.60% (.97%)

Ratios/Supplemental Data Ratios to average net assets:
Net investment income 4.65%(c) 4.73% 4.62% 4.51%(c)
Expenses, after expense reductions 1.40%(c) 1.40% 1.66% 1.76%(c)
Expenses, before expense reductions 1.64%(c) 1.97% 2.35% 1.76%(c)

Portfolio turnover rate 8.61% 12.64% 32.20% 27.37%

Net assets at end of period (000) $9,548 $7,586 $4,001 $139

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

f i n a n c i a l h i g h l i g h t s (continued)

<TABLE>
Thornburg Intermediate Municipal Fund

Net asset value, beginning of period $13.23 $13.00 $12.73 $12.91
Income from investment operations:
Net investment income .36 .17 .59 .05
Net realized and unrealized
gain (loss) on investments (.08) .23 .40 (.18)
Total from investment operations .28 .40 .99 (.13)
Less distributions from:
Net investment income (.36) (.17) (.59) (.05)
Change in net asset value (.08) .23 .40 (.18)

Net asset value, end of period $13.15 $13.23 $13.13 $12.73

Total return (b) 2.08% 3.11% 8.30% (.99%)

Ratios/Supplemental Data Ratios to average net assets:
Net investment income 5.36%(c) 5.49%(c) 4.59% 4.57%(c)
Expenses, after expense reductions .69%(c) .70%(c) 1.65% 1.70%(c)
Expenses, before expense reductions 2.71%(c) 6.10%(c) 2.86% 1.70%(c)

Portfolio turnover rate 8.61% 12.64% 32.20% 27.37%

Net assets at end of period (000) $3,538 $689 $0 $342

<FN>
(a) Commencement of operations.
(b) Sales loads are not reflected in computing total return, which is not annualized for periods less than one year.
(c) Annualized.
* On September 28,1995, all Class B shares were converted into Class A shares.
** Sales of Class I shares commenced on July 5, 1996.
</FN>
</TABLE>

<TABLE>
s c h e d u l e o f i n v e s t m e n t s (continued)

<CAPTION>
Thornburg Intermediate Municipal Fund

<S> <C> <C> <C>
Principal ............................................................................. Credit Rating
Amount
Issuer-Description .................................................................... Moody's/S&P Value

1,310,000 San Marcos Public Facilities Authority Revenue Custom Receipts, 0% due 1/1/98
(Escrowed to maturity) ................................................................ Aaa/AAA 1,269,377
1,310,000 San Marcos Public Facilities Authority Revenue Custom Receipts, 0% due 7/1/99
(Escrowed to maturity) ................................................................ Aaa/AAA 1,178,948
700,000 Sulphur Springs School District General Obligation Series B, 5.60% due 3/1/04 ......... A/NR 728,007
800,000 Sulphur Springs School District General Obligation Series B, 5.70% due 3/1/05 ......... A/NR 834,296
450,000 Sunline Transit Agency Certificate of Participation Series A, 5.625% due 7/1/04 ....... A/NR 455,697
215,000 Sunline Transit Agency Certificate of Participation Series A, 5.75% due 7/1/05 ........ A/NR 226,963
Colorado (3.0%)
350,000 Colorado Student Obligation Auth. Revenue Series B, 6.55% due 12/1/02 ................. A/NR 367,997
995,000 Colorado Student Obligation Auth. Student Loan Revenue Series B, 5.90% due 9/1/02 ..... A/NR 1,016,641
2,830,000 Larimer County, 8.45% due 12/15/05 (Poudre School District R1 Project) ................ A/NR 3,461,967
2,500,000 Mesa Valley School District Certificate of Participation Series B, 6.875% due 12/1/05
(Insured: FSA) 2,700,675
435,000 Thornton Single Family Mortgage Revenue Series 1992-A, 8.05% due 8/1/09 ............... A/NR 462,683
Connecticut (1.7%)
3,000,000 Bristol Resource Recovery Facility Operating Committee - Solid Waste Revenue
Refunding Series 1995, 6.125% due 7/1/03 (Ogden Martin at Bristol Project) ............ A/NR 3,146,160
200,000 Connecticut State Housing Revenue Series 1990-B1, 7.55% due 11/15/08
(FHA/VA/ Private Mortgage Insurance) .................................................. Aa/AA 200,064
160,000 New Britain Senior Citizen Housing Development Mortgage Revenue Refunding
Series A, 6.50% due 7/1/02 (Nathan Hale Apartments Project; Insured: FHA) ............. NR/AAA 165,720
500,000 Stratford General Obligation Series 1992, 7.15% pre-refunded 3/1/01 @ 102 ............. NR/A- 549,475
500,000 Stratford General Obligation Series 1992, 7.20% pre-refunded 3/1/01 @ 102 ............. NR/A- 550,320
Delaware (1.3%)
3,235,000 Delaware Transportation Authority System Revenue, 6.25% due 7/1/04 .................... A1/AA 3,438,967
District of C (1.5%)
1,000,000 District of Columbia General Obligation Series A, 5.75% due 6/1/03 .................... Ba/B 1,001,450
1,000,000 District of Columbia Certificate of Participation Series 1993, 7.30% due 1/1/13 ....... NR/B- 1,042,410
195,000 District of Columbia Housing Finance Agency Mortgage Revenue Refunding
Series 1992-D, 6.00% due 7/1/02 (Insured: MBIA) ....................................... Aaa/AAA 199,968
300,000 District of Columbia Revenue, 0% due 2/15/02 (Assoc. of American Medical Colleges) .... NR/AA- 214,959
195,000 District of Columbia Revenue, 0% due 2/15/04 (Assoc. of American Medical Colleges) .... NR/AA- 121,450
1,375,000 District of Columbia Revenue American University, 5.25% due 10/1/04
(Insured AMBAC) ....................................................................... Aaa/AAA 1,384,309
Florida (2.7%)
250,000 Cape Coral Special Assessment Water Improvement, 6.50% due 7/1/98 (Insured: MBIA) ..... Aaa/AAA 256,725
240,000 Dade County Educational Facilities Revenue, 7.65% pre-refunded 4/1/00
(University of Miami Project; Insured: MBIA) .......................................... Aaa/AAA 264,840
100,000 Dade County School Board COP Series A, 5.20% due 5/1/02 ............................... Aaa/AAA 101,421
1,100,000 Duval County H.F.A. Multi Family Housing Revenue Series 1996,
5.35% due 9/1/06 (St. Augustine Apartments Project) ................................... NR/A 1,089,539
160,000 Duval County HFA Series 94, 6.10% due 4/1/06 (GNMA guaranteed) ........................ Aaa/AAA 162,054
160,000 Duval County HFA Series 94, 6.10% due 10/1/06 (GNMA guaranteed) ....................... Aaa/AAA 162,139
250,000 Florida Housing Finance Agency Multifamily Housing Revenue Series 1995-D,
5.10% due 4/1/13, put 4/1/02 (Park Colony Project; LOC: Mellon Bank) .................. A+/A1 252,005
1,000,000 Florida Housing Finance Agency Multifamily Housing Revenue Series 1983-G,
5.35% due 12/1/05, mandatory put 6/1/00 (Insured: Connecticut General) ................ Aaa/AAA 1,011,740
300,000 Florida State Board of Education Series C, 6.00% due 5/1/07 ........................... AAA/AAA 320,577
320,000 Jacksonville Health Facilities Authority IDR, 7.55% due 12/1/07
(National Benevolent Association Project) ............................................. Baa1/BBB+ 352,346
100,000 Lee County Hospital Board Director's Revenue Series A, 5.70% due 4/1/01
(Lee Memorial Hospital Project; Insured: MBIA) ........................................ Aaa/AAA 103,498
1,200,000 Orange County HSG Finance Authority, 3.65% due 12/1/10, put 4/7/97
weekly demand note (LOC; Continental Casualty) ........................................ NR/A+ 1,200,000
150,000 Osceola County Health Facilities Revenue Series 1994, 5.75% due 5/1/04
(Evangelical Lutheran Good Samaritan Project; Insured: AMBAC) ......................... Aaa/AAA 156,000
1,400,000 Pinellas County Health Facilities Authority Series 1994-A, 5.75% due 8/1/01
(Multi County Project; GNMA/FNMA guaranteed) .......................................... Aaa/NR 1,424,640
325,000 Seminole County School Board Certificate of Participation, 5.35% due 7/1/02
(Insured; MBIA) ....................................................................... Aaa/AAA 333,336
Georgia (0.2%)
105,000 Hinesville Leased Housing Corp. Rev., 6.05% due 1/15/98 (Regency Park Project) ........ NR/BBB 105,349
500,000 Savannah Resource Recovery, 5.85% due 12/1/01 (Savannah Energy Systems Project) ....... A1/A+ 514,605
Idaho (0.4%)
955,000 Idaho Student Loan Series 1992-B, 6.00% due 4/1/00 .................................... NR/NR 963,585
Illinois (3.9%)
1,930,000 Bedford Park Tax Increment Revenue Refunding Series 1993, 8.00% due 12/1/10 ........... NR/BBB- 2,281,299
300,000 Central Lake County Joint Action Water Agency Series 1991, 0% due 5/1/05
(Insured: MBIA) ....................................................................... Aaa/AAA 196,554
500,000 Illinois Development Financing Authority, 7.125% due 3/15/07
(Children's Home & Aid Society Project; LOC: American National Bank of Chicago) ....... NR/A+ 535,250
2,400,000 Illinois Development Financing Authority Debt Restructuring Revenue Series 1994,
7.25% due 11/15/09 (East St. Louis Project) ........................................... NR/A- 2,608,656
500,000 Illinois HFA Revenue Refunding Series 1992, 7.00% due 1/1/07 (Mercy Hospital Project) . Baa1/A- 530,875
1,000,000 Illinois HFA Revenue Refunding Series 1992, 7.00% due 7/1/02
(Trinity Medical Center Project) ...................................................... Baa1/NR 1,025,060
1,000,000 Illinois Educational Facilities Authority, 3.40% due 12/1/25, put 4/7/97
weekly demand notes(LOC First National Bank, Chicago) ................................. A1/VM1g1 1,000,000
1,525,000 Illinois State University Auxiliary Facilities System Revenue Series 1992,
0% due 10/1/01 (Insured: MBIA) ........................................................ Aaa/AAA 1,226,481
710,000 McHenry County School District Woodstock General Obligation, 6.80% due 1/1/06
(insured; FSA) ........................................................................ Aaa/NR 780,588
385,000 Rock Island Residential Mortgage Revenue, 7.70% due 9/1/08 ............................ Aa/NR 409,097
Indiana (3.4%)
665,000 Danville Community Elementary School Building Corporation, 6.75% due 1/15/04 .......... NR/A 726,539
1,000,000 Gary Building Corporation - Lake County First Mortgage Series 1994-B,
8.25% due 7/1/10 (Sears Building Project) ............................................. NR/NR 1,102,540
255,000 Hamilton Heights Refunding Revenue, 6.60% due 1/1/08 .................................. NR/A 278,450
2,600,000 Hamilton Southeastern North Delaware School Building, 6.25% due 7/15/06
(Insured; AMBAC) ...................................................................... Aaa/AAA 2,798,848
700,000 Indiana Bond Bank Special Program Series 1991-F, 7.00% due 8/1/07 ..................... NR/A 759,045
740,000 Indianapolis Local Public Improvement Bond Bank, 0% due 7/1/09 ........................ Aa/AA- 374,840
1,195,000 Lake Central Multi District School Building Mortgage Revenue Series 1992-B, 6.25%
due 1/15/04 NR/A 1,293,587
645,000 North Lawrence Multi School Building Corp Revenue, 6.30% due 7/1/03 ......................... A/NR 682,739
1,000,000 Penn High School Building Corporation Series 1992, 6.00% due 6/15/03 .................. NR/A 1,043,490
Iowa (1.0%)
2,600,000 Iowa State Department General Services Certificate of Participation Series 1992,
6.50% due 7/1/06 (Insured: AMBAC) ..................................................... Aaa/AAA 2,794,246
Kentucky (3.4%)
1,000,000 Erlanger Kentucky Improvement Assessment, 7.375% due 8/1/10
(Public Improvement '93 Project; LOC: PNC Bank of Ohio) ............................... NR/NR 1,047,970
2,160,000 Fulton County Industrial Building Revenue Series 1995, 7.20% due 2/1/03
(H.I.S. Jeans of Kentucky Project; Guarantee: CHIC by H.I.S.) ......................... NR/NR 2,195,467
2,520,000 Fulton County Industrial Building Revenue Series 1995, 7.60% due 2/1/07
(H.I.S. Jeans of Kentucky Project; Guarantee: CHIC by H.I.S.) ......................... NR/NR 2,565,637
1,665,000 Hickman Industrial Building Revenue, 6.95% due 8/1/09 (H.I.S. Jeans of Kentucky Project) NR/NR 1,690,558
605,000 Mt. Sterling League of Cities Funding Trust Lease Series A, 5.625% due 3/1/03
(Investment Agreement w/ Transamerica Life; Guaranteed: Health Management Assoc.) ..... Aa/NR 613,313
1,120,000 Paintsville First Mortgage Revenue Refunding Series 1991, 8.65% due 9/1/05
(Paul B. Hall Medical Center Project) ................................................. NR/NR 1,194,122
Louisiana (3.1%)
475,000 Calcasieu Parish Industrial Development Board Pollution Control Revenue, 7.80%
due 12/1/05 (Cities Service Corporation Project) ...................................... Baa3/BBB 476,686
44,690 East Baton Rouge Mortgage Financing Authority Purchase Revenue, 8.25% due 2/25/11
(GNMA guaranteed) ..................................................................... NR/AAA 46,455
7,500,000 Louisiana Public Facilities Authority Revenue Refinancing, 8.00% due 10/1/09
(Schwegman Westside Expressway Project) ............................................... NR/NR 7,892,100
854,456 Ohio Industrial Development Revenue Series 92, 8.125% due 12/1/06
(Swifton Commons Project; LOC: Chemical Bank) ......................................... NR/NR 741,181
760,000 Reynoldsburg Health Care Facilities Revenue Bonds Series 1997, 5.70% due 10/20/12 ..... Aaa/NR 752,636
Oklahoma (1.3%)
155,000 Pryor Creek EDA Mortgage Revenue Refunding Series 1991-A, 6.625% due 7/1/01
(FNMA guaranteed) ..................................................................... NR/AAA 161,572
785,000 Pushmatahah County Town of Antlers Hospital Authority Revenue Series 1991, 8.75%
due 6/1/06 ............................................................................ NR/NR 844,432
1,485,000 Tulsa Oklahoma Industrial Development Authority Hospital Revenue, 6.10%
due 2/15/09 (Medical Center Project) .................................................. Aa/ AA 1,509,265
500,000 Tulsa Public Facilities Authority Solid Waste Revenue, 5.65% due 11/1/06
(Ogden Martin Project; Insured: AMBAC) ................................................ Aaa/AAA 504,020
500,000 Woodward Municipal Hospital Authority Revenue Series 1994, 8.25% due 11/1/09 .......... NR/NR 538,290
Oregon (2.0%)
1,025,000 Albany Hospital Facility Authority Gross Revenue and Refunding Series 1994, 7.00%
due 10/1/05 (Mennonite Home Project) .................................................. NR/NR 1,053,557
900,000 Oregon Economic Development Department Revenue Series CLII, 6.70%
due 12/1/98 (Smokecraft Project; LOC: Seafirst Bank) .................................. Aa3/NR 929,772
1,200,000 Oregon Economic Development Department Revenue Series CLII, 7.00%
due 12/1/02 (Smokecraft Project; LOC: Seafirst Bank) .................................. Aa3/NR 1,257,972
1,070,000 Oregon Economic Development Department Revenue Series CLII, 7.70%
due 12/1/14 (Smokecraft Project; LOC: Seafirst Bank) .................................. Aa3/NR 1,179,654
1,000,000 Port of Portland Industrial Revenue Series 85, 7.25% due 10/1/09
(Ash Grove Cement Project) ............................................................ NR/NR 1,049,040
Pennsylvania (6.3%)
500,000 Allegheny County Redevelopment Auth Rev Rfdg Home Loan, 6.60% due 8/1/98 .............. A/A 509,465
1,880,000 Beaver County Hospital Revenue, 6.60% due 7/1/04 (Insured; AMBAC) ..................... Aaa/AAA 2,038,033
1,985,000 Beaver County Industrial Development Authority Health Revenue, 0% due 2/1/10
(Insured: FHA) ........................................................................ NR/AA- 736,772
270,000 Hampden Industrial Development Authority Partnership Holdings LLC Project, 4.50%
due 11/15/98 .......................................................................... Baa2/NR 261,795
2,800,000 Harrisburg Authority Lease Revenue Series 1991, 6.50% due 6/1/04
(Insured: Capital Guaranty) crossover refunded 6/1/01 @ 101 ........................... Aaa/AAA 3,008,264
800,000 Harrisburg Authority Lease Revenue Series 1991, 6.625% due 6/1/06
(Insured: Capital Guaranty) crossover refunded 6/1/01 @ 101 ........................... Aaa/AAA 863,088
815,000 Hempfield School District General Obligation, 6.40% due 10/15/97 ...................... A1/AAA* 817,029
2,000,000 Lancaster County Solid Waste, 8.375% due 12/15/04 ..................................... A/BBB 2,083,080
2,000,000 Lehigh County General Purpose Authority Revenue, 7.80% due 3/15/20,
put 3/15/02 (Muhlenberg Care Project; LOC: United Jersey Bank) ........................ NR/NR 2,178,520
750,000 Lehigh County General Purpose Rev, 5.10% due 11/15/03
(St. Lukes Hospital, Bethlehem Project; Insured: AMBAC) ............................... Aaa/AAA 751,628
596,748 Lehigh County Industrial Development Authority Revenue, 7.45% due 8/1/01
(Kresge Company Project) .............................................................. A3/NR 597,004
800,000 McKeesport Area School District Series B, 0% due 10/1/04 .............................. NR/A 546,344
985,000 Philadelphia Water and Sewer Revenue 10th Series, 7.35% due 9/1/04
(Escrowed to Maturity) ................................................................ Aaa/AAA 1,112,144
750,000 Pine-Richland School District, 0% pre-refunded 9/01/01 (Insured: AMBAC) ............... Aaa/AAA 552,015
1,000,000 Scranton Lackawanna Health and Welfare Authority, 7.125% due 1/15/13 .................. NR/NR 987,000
200,000 York County Solid Waste Refuse Authority Industrial Development Revenue
Series 1985, 7.40% due 12/1/99 (Resource Recovery Project) ............................ A/AA- 208,218
Rhode Island (1.5%)
595,000 Pawtucket Public Building Authority Water System Project Revenue, 7.45% due 7/1/05 .... Baa1/NR 665,853
680,000 Providence Public Building Authority Revenue, 7.10% due 12/1/03
(Veazie Street School and Modular Classroom Project) .................................. Baa1/NR 753,603
1,500,000 Rhode Island Housing and Mortgage Finance Rental Housing Program
Series A, 5.05% due 10/1/01 ........................................................... NR/A 1,501,260
355,000 Rhode Island Health and Education Building Corporation Series 1991,
7.10% due 11/1/02 (South County Hospital Project) ..................................... NR/BBB+ 390,088
720,000 West Warwick General Obligation, 5.90% due 1/1/05 (Insured: MBIA) ..................... Aaa/AAA 745,582
South Carolin (0.5%)
665,000 Florence County Certificate of Participation Series 1992, 4.90% due 3/1/98
(Law Enforcement Center Project; Insured: AMBAC) ...................................... Aaa/AAA 671,464
615,000 Liberty Sewer Revenue, 8.25% due 8/1/07 ............................................... NR/NR 632,786
South Dakota (1.3%)
1,000,000 South Dakota Housing Development Authority Home Ownership Mortgage Series
1993-A, 5.20% due 5/1/02 .............................................................. Aa/AA 1,010,980
1,925,000 South Dakota Student Loan Revenue, 7.625% due 8/1/06 (Insured: MBIA) .................. Aaa/AAA 2,033,666
500,000 South Dakota Student Loan Series 1991-A, 7.60% due 8/1/04 ............................. NR/A+ 539,005
Tennessee (0.6%)
395,000 Carroll County Industrial Development Resoure, 7.00% due 4/1/01
(Henry I Siegel Company Project; LOC: CHIC By H.I.S) .................................. NR/NR 393,120
900,000 Carrol County Industrial Development Board Refunding Revenue Series 1995, 7.20%
due 4/1/05 (Henry I. Seigel Company Project; LOC: CHIC by H.I.S.) ..................... NR/BBB 910,845
200,000 Copperhill Industrial Development Board, 7.80% due 12/1/00 (Cities Service Co. Project) Baa3/BBB 200,556
Texas (7.9%)
440,000 Austin General Obligation Public Improvement, 7.60% due 9/1/97 ........................ Aaa/AAA 441,360
2,925,000 Bell County Health Facilities Development, 4.75% due 10/1/23, put 10/1/98 ............. NR/AA 2,935,062
3,295,000 Brazos Higher Education Authority Refunding Revenue Series C-1, 6.20% due 11/1/00 ..... Aa/NR 3,412,599
1,400,000 Brazos Higher Education Authority Refunding Revenue Series B-1, 6.50% due 6/1/04 ...... NR/A 1,459,990
135,000 Chimney Hill Municipal Utility District Waterworks and Sewer System Combination
Unlimited Tax and Revenue Refunding Series 1991, 7.75% due 10/1/11 .................... NR/NR 147,737
865,000 Chimney Hill Municipal Utility District Waterworks and Sewer System Combination
Unlimited Tax and Revenue Refunding Series 1991, 7.75% due 10/1/11 .................... NR/NR 926,008
750,000 Clay Road Municipal Utility District Unlimited Tax and Revenue Series 1991,
7.625% due 9/1/11 ..................................................................... NR/NR 816,240
1,000,000 Conroe Independent School District Refunding Series 1992, 0% due 2/1/05
(PSF Guaranteed) ...................................................................... Aaa/AAA 665,050
1,000,000 Conroe Independent School District Refunding Series 1992, 0% due 2/1/05
(PSF Guaranteed) ...................................................................... Aaa/AAA 650,480
250,000 Dallas County Flood Control District #1 General Obligation, 0% due 4/1/97 ............. NR/NR 250,000
400,000 Dallas - Fort Worth Regional Airport Revenue Series A -CR-103,
5.875% due 11/1/05, put 5/1/98 (Insured: FGIC) ........................................ Aaa/AAA 402,956
460,000 El Paso Multi Family Housing Revenue Series A, 6.00% due 12/1/01 ...................... A1/NR 471,974
590,000 El Paso Multi Family Housing Revenue Series A, 6.15% due 12/1/02 ...................... A1/NR 608,255
570,000 Harris County Municipal Utility District #118 Unlimited Tax and Revenue Refunding
Series 1992, 0% due 3/1/04 (Insured: MBIA) ............................................ Aaa/AAA 372,147
525,000 Harris County Municipal Utility District #118 Unlimited Tax and Revenue Refunding
Series 1992, 0% due 3/1/05 (Insured: MBIA) ............................................ Aaa/AAA 319,825
880,000 Houston Water Conveyance System Contract Certificate of Participation Series F,
7.20% due 12/15/04 (Insured: AMBAC) ................................................... Aaa/AAA 998,483
465,000 Hunt Memorial Hospital District, 0% due 2/15/01 ....................................... A/A 373,762
2,000,000 Leander Independent School District Unlimited Tax School Building & Refunding
Series 1992, 0% due 8/15/05 (PSF Guaranteed) .......................................... Aaa/NR 1,356,920
800,000 Mesquite General Obligation, 0% due 2/15/02 ........................................... A1/A+ 630,408
800,000 Midland County Hospital District Revenue Series 1991, 0% due 6/1/07 ................... NR/BBB 425,392
500,000 North Texas Higher Educational Student Loan Revenue, 6.50% due 4/1/98 (Insured: AMBAC) Aaa/AAA 511,895
420,000 San Antonio General Obligation, 5.00% due 8/1/00 ...................................... Aa/AA 417,778
715,000 Tarrant County Health Fac, 6.00% due 9/1/04
(Harris Methodist Health Systems Project; Insured: AMBAC) ............................. Aaa/AAA 753,388
1,495,000 Texas Water Resource Financing Authority Revenue, 7.30% due 2/15/04
(Insured: AMBAC) ...................................................................... Aaa/AAA 1,560,944
500,000 Trinity River Auth Interim Water Rev, 5.75% due 10/15/00 (Livingston Project) ......... A1/A+ 500,370
400,000 Trinity Texas Housing Finance Corporation Multifamily Housing Revenue, 10.00%
due 6/1/98 (Timberline Apartments Project) ............................................ NR/NR 400,000
U.S. Virgin I (1.2%)
3,000,000 U.S. Virgin Islands Water & Power Authority Series A, 7.40% due 7/1/11 ................ NR/NR 3,177,420

Utah (1.6%)
2,000,000 Intermountain Power Agency Revenue, 0% pre-refunded 7/1/00 ............................ Aaa/AAA 1,718,080
2,500,000 Salt Lake County Housing Authority Multifamily Housing Revenue Refunding
Series 1993, 5.40% due 12/15/18, put 12/15/03 (Summertree Project;
LOC: First Security Bank) ............................................................. A1/NR 2,547,625
394,997 Utah State Housing Financing Agency Capital Appreciation Res. Mortgage Series 83-A,
0% due 7/1/16 ......................................................................... NR/AA 55,489
Virginia (3.5%)
2,000,000 Hampton Redevelopment Housing Authority Multifamily Housing Revenue & Refunding
Series 1994, 7.00% due 7/1/24, mandatory put 7/1/04 (Chase Hampton II Apts. Project) .. NR/NR 2,137,720
320,000 Peninsula Ports Authority Hospital Revenue, 8.00% due 8/1/99
(Mary Immaculate Hospital Project) .................................................... NR/A- 342,266
2,000,000 Suffolk Redevelopment Housing Authority Multifamily Housing Revenue & Refunding
Series 1994, 7.00% due 7/1/24, mandatory put 7/1/04 (Chase Heritage @ Dulles Project) . NR/NR 2,124,380
665,000 Virginia Beach General Obligation, 5.90% due 7/15/08 .................................. Aa/AA 690,104
1,030,000 Virginia State Housing Development Authority Series C-7, 5.40% due 1/1/01 ............. Aa/AA+ 1,050,827
1,000,000 Virginia State Housing Development Authority Series H-1, 6.60% due 7/1/08 ............. Aa/AA+ 1,054,250
1,000,000 Virginia Housing Dev. Auth. Commonwealth Mortgage Series 1992-C, 6.75% due 7/1/11 ..... Aa/AA 1,041,010
1,000,000 Virginia Public School Authority, 6.80% due 1/15/05 pre-refunded 1/15/99
(School Funding Project) .............................................................. Aaa/AAA 1,056,770
Washington (2.4%)
1,000,000 Bremerton Water & Sewer Improvement Revenue Series B, 6.00% due 9/1/03
(Insured: FGIC) ....................................................................... Aaa/AAA 1,061,590
1,100,000 Clark County Industrial Revenue Solid Waste Transfer Stations Series 1991, 7.50%
due 12/15/06 (Columbia Resource Company Project; LOC: U.S. Bank of Oregon) ............ A1/NR 1,185,261
1,500,000 Pilchuck Development Public Corporation IDRB Series 1993,
6.25% due 8/1/10 (Little Neck Properties Project; LOC: U.S. Bancorp) .................. A1/NR 1,524,090
790,000 Port of Grays Harbor Revenue Refunding, 6.05% due 12/1/02 ............................. A/BBB+ 825,479
400,000 Washington Health Care Facilities Authority Revenue, 7.875% due 12/1/09
(LOC: Allied Irish Banks) ............................................................. NR/A 432,948
1,000,000 Washington Health Care Facilities Authority Pooled Equipment Series 1992-B,
7.20% due 6/1/02 (Kadlec Medical Center Project) ...................................... Baa1/NR 1,054,520
400,000 Washington Public Power Supply System Series 1991-A, 6.75% due 7/1/05 (Project: 1) .... Aa/AA 433,108
West Virginia (1.9%)
2,000,000 West Virginia Sate Building Commission Lottery Revenue, 5.50% due 7/1/05
(Insured MBIA) 2,057,220
3,100,000 West Virginia Parkways Economic Development and Tourism Authority Parkway
Revenue Refunding, 6.13% (variable rate) due 5/15/02 (Insured: FGIC) .................. Aaa/AAA 2,965,274
Wisconsin (0.8%)
375,000 Bass Lake PCRB, 6.50% due 4/1/05 (Johnson Timber Corp. Project; SBA Guaranteed) ....... Aaa*/AAA* 406,421
735,000 Wisconsin Housing & Economic Development Authority Series C, 7.55% due 9/1/97
(LOC: FHA/ GEMIC Mortgage) ............................................................ Aa/AA 740,579
1,000,000 Wisconsin Health & Education, 7.75% due 11/1/15 (Hess Memorial Hospital Project) ...... NR/NR 987,609

TOTAL INVESTMENTS (Cost $260,168,983) $270,351,409

<FN>

* Indicates rating on other debt issued by the same issuer, rather than on
the security held by the Fund. These securities are deemed by the Adviser to
be comparable with those of issuers having debt ratings in the 4 highest grades
by Moody's or S &P.
** The cost for Federal income tax purposes is the same.
+ Credit ratings are unaudited.
See notes to financial statements.
</FN>
</TABLE>

Thornburg Family of Funds

Thornburg Limited Term Municipal Fund - National Portfolio
LTMFX is an open end mutual fund which invests in a laddered portfolio of
municipal obligations from throughout the U.S. The Fund has an average
maturity of 5 years or less.

Thornburg Limited Term Municipal Fund - California Portfolio
LTCAX, a single state companion portfolio to LTMFX, offers California
investors double tax-free** yields in a laddered, short maturity portfolio.
The Fund has an average maturity of 5 years or less.

Thornburg Intermediate Municipal Fund.
THIMX is an open end mutual fund which invests in a laddered portfolio of
municipal obligations from throughout the U.S. The Fund has an
average maturity of 10 years or less.

Thornburg Florida Intermediate Municipal Fund
Thornburg Florida Intermediate Fund, a single state companion fund to THIMX,
offers Florida investors a balanced approach to double tax-free**
yields. The Fund has an average maturity of 10 years or less.

Thornburg New Mexico Intermediate Municipal Fund
THNMX, a single state companion fund to THIMX, offers New Mexico investors a
balanced approach to double tax-free**
yields. The Fund has an average maturity of 10 years or less.

Thornburg Limited
Term U.S. Government Fund LTUSX is an open end mutual fund which invests in
short to intermediate obligations issued by the U.S. Government, its agencies or
instrumentalities***. It has an average maturity of 5 years or less. It is
particularly suitable for your IRA, Keogh Plan, Pension Plan, or Profit Sharing
Plan.

Thornburg Limited Term Income Fund THIFX is an open end mutual fund which
invests in a wide variety of taxable, investment grade, short to intermediate
obligations. The Fund keeps a weighted average maturity of 5 years or less. It
is also suitable for your IRA, Keogh Plan, Pension Plan, or Profit Sharing Plan.

Thornburg Value Fund A mutual fund that invests primarily in domestic equities
selected on a compelling value basis using traditional fundamental research
evaluation methods.
<PAGE>

<PAGE> 1

<TABLE>
<CAPTION>
MACKENZIE

June 30, 1996
<S> <C> <C> <C> <C>
MACKENZIE MARKET COMMENTARY:
NATIONAL
MUNICIPAL During the first six months of the year been supported by a stable US treasury
FUND interest rates trended higher in response to market and high absolute levels of interest
faster than expected economic growth. rates.
Additionally, energy and grain prices went For the twelve months ended June 30,
up because of colder than normal weather 1996, the total return of the Mackenzie
- -------------------- and low inventories of these commodities. National Municipal Fund was 4.69% without
ANNUAL On the labor front, a surprising number of sales charge. This compares with the average
REPORT new jobs were created and unemployment of all General Municipal Debt Funds
- -------------------- declined, leading to an increase in labor tracked by Lipper Analytical Services, Inc.
This report and the costs. Historically, these factors have pre- which was 5.67% for the same period. (For
financial statements saged an increase in inflation and as market the Fund's total return with sales charge and
contained herein are participants fear a repeat of the downturn in performance commentary, please see the
submitted for the general bond prices similar to 1994, the tone of the following page.)
information of the share- fixed income markets has swung dramati- As municipalities continue to focus
holders. This report is cally from complacency to caution. on improving their balance sheets, municipal
not authorized for distrib- Our research indicates the pace of credit fundamentals are enhanced. For
ution to prospective economic growth will moderate in the months example, Standard & Poor's recently increased
investors unless preced- to come as we believe the economy is in the its rating on a new municipal issue from
ed or accompanied by an later stages of a longer term economic California to A+. This reflects the State's
effective prospectus. recovery. This deceleration should allay fears ability to successfully handle its budgetary
of a resurgence of inflation. Additionally, concerns. We believe a stable supply of
Mackenzie Investment the Federal Reserve Board is firmly commit- municipal issuance and increased demand
Management Inc. ted to price stability and we expect that they should allow the municipal board market
Via Mizner Financial will act to defend this mission. Monetary to perform well in the months ahead.
Plaza policy is currently somewhat restrictive
700 South Federal Hwy. which should act as a brake on the economy MACKENZIE INVESTMENT MANAGEMENT, INC.
Boca Raton, FL 33432 over the near future.
1-800-456-5111 The municipal bond market continues
to outperform US treasuries. The most
predominant reason for the strength in the
municipal market is likely explained by a
shift in asset allocation. Equity investors,
who are uncomfortable with the increased
volatility of US stock markets, have been
rotating assets into municipal bond funds.
Should equity markets continue to experi-
ence volatility, we would expect this trend to
persist. The municipal bond market has also
---------------------------------------------------------------------------------------------------
BOARD OF TRUSTEES OFFICERS TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Michael G. Landry, Ivy Mackenzie Mackenzie Investment
Paul H. Broyhill President Services Corp. Management Inc.
Stanley Channick Keith J. Carlson, P.O. Box 3022 Boca Raton, FL
Frank W. DeFriece Vice President Boca Raton, FL
Roy J. Glauber C. William Ferris, 33431-0922 DISTRIBUTOR
Michael G. Landry Secretary/Treasurer 1-800-777-6472 Ivy Mackenzie
Joseph G. Rosenthal Distributors, Inc.
J. Brendan Swan CUSTODIAN AUDITORS Via Mizner Financial Plaza
Brown Brothers Coopers & Lybrand L.L.P. 700 South Federal Highway
LEGAL COUNSEL Harriman & Co. Fort Lauderdale, FL Boca Raton, FL 33432
Dechert Price Boston, MA
& Rhoads [LOGO IVY MACKENZIE]
Boston, MA

</TABLE>

<PAGE> 2

PERFORMANCE COMMENTARY
For the twelve months ended June 30, 1996, the Mackenzie National Municipal Fund
had a total return of 4.69%. This compares with the average of all General
Municipal Debt Funds tracked by Lipper Analytical Services, Inc. which was 5.67%
for the same period. The Fund's underperformance can be attributed to the
manager's decision to extend the average duration of the Fund as a means of
providing a higher level of tax-free income.

PERFORMANCE COMPARISON OF A $10,000
INVESTMENT SINCE INCEPTION OF THE FUND

All figures mentioned in the Market Commentary and in the chart and table
reflect past results and assume reinvestment of dividends and distributions from
capital gains. Future results will, of course, be different. The principal value
of the Mackenzie National Municipal Fund will fluctuate and at redemption may
be worth more or less than the amount of the original investment.
The Lehman Bros. 5-Year Municipal Bond Index is an unmanaged index of municipal
bonds that assumes reinvestment of dividends and, unlike Fund returns, does not
reflect any fees or expenses.
Please note that Treasury Bills are short-term interest bearing instruments
which are guaranteed as to timely payment of principal and interest by the U.S.
Government.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
Because Class B shares bear the expense of a higher distribution fee it is
expected that the level of performance of the Fund 's Class B shares will be
lower than that of the Fund 's Class A shares.
Total returns in some periods were higher due to reimbursement of the Fund 's
expenses. See Financial Highlights.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
MACKENZIE NATIONAL MUNICIPAL FUND
FOR PERIOD ENDING 6/30/96
Class A*-with sales charge
Average Annual Class B**
Total Return Average Annual Total Return
- ---------------------------------------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
- ---------------------------------------------------------------------------------------------
w/CDSC w/o CDSC w/CDSC w/o CDSC
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Yr. (.28)% (.69)% (1.12)% 3.88% (1.52)% 3.46%
- ---------------------------------------------------------------------------------------------
5 Yr. 5.49% 5.23% -- -- -- --
- ---------------------------------------------------------------------------------------------
Since Inception 6.20% 5.10% 3.55% 4.82% 3.22% 4.49%
- ---------------------------------------------------------------------------------------------
</TABLE>

*Class A performance figures include the maximum sales charge of 4.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC) up to a maximum of 5%.

- -------------------------------------------------------------------------------
<PAGE> 3

PORTFOLIO OF INVESTMENTS
JUNE 30, 1996

<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 95.4% PRINCIPAL VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARIZONA -- 8.1%
A1 AA Phoenix Arizona Highway Revenue (NC), 9.25%, 07/01/07............................... $ 565,000 $ 735,913
NR AA Tucson (GO)(NC), 9.75%, 07/01/12 (Escrowed to Maturity)............................. 400,000 562,500
NR AA Tucson (GO)(NC), 9.75%, 07/01/13 (Escrowed to Maturity)............................. 500,000 718,125
-----------
2,016,538
-----------
CALIFORNIA -- 9.9%
NR BBB- Adelanto California Public Financing Authority , 6.30%, 09/01/28.................... 500,000 470,000
NR A- California Health Facilities Authority (Pomona), 7.00%, 01/01/17.................... 1,000,000 1,015,180
Baa NR Irwindale California Industrial Development, 6.60%, 08/01/18........................ 200,000 200,500
A1 NR Kern California High School District, 7.00%, 08/01/10............................... 165,000 183,563
Baa1 A- Los Angeles County California Certificate of Participation (Disney Parking Project)
(NC), 0.00%, 09/01/06............................................................. 500,000 262,500
Aa AA- Southern California Public Power Authority (NC), 0.00%, 07/01/14.................... 1,000,000 333,750
-----------
2,465,493
-----------
COLORADO -- 1.7%
NR AAA Colorado Health Facilities Authority, 0.00%, 07/15/20............................... 500,000 93,750
Aaa NR Dawson Ridge Colorado (GO)(NC), 0.00%, 10/01/22 (Escrowed to Maturity).............. 2,000,000 320,000
-----------
413,750
-----------
CONNECTICUT -- 1.8%
Baa1 NR Connecticut State Health Facilities & Education, 5.75%, 07/01/23.................... 500,000 438,750
-----------
DISTRICT OF COLUMBIA -- 0.4%
A1 A+ Georgetown University, D.C. (MBIA Insured), 8.25%, 04/01/18......................... 100,000 107,250
-----------
FLORIDA -- 7.1%
Aa AA Florida State Board of Education (GO), 9.125%, 06/01/14............................. 110,000 151,800
Aa AA Florida State Board of Education (GO), 9.125%, 06/01/14 (Escrowed to Maturity)...... 690,000 950,475
Aaa AAA Orlando & Orange County Expressway (NC)(FGIC Insured), 8.25%, 07/01/14.............. 500,000 645,625
-----------
1,747,900
-----------
GEORGIA -- 6.5%
A A Municipal Electric Authority of Georgia (NC), 10.00%, 01/01/10...................... 250,000 340,312
Aaa NR Richmond County Georgia Development Authority Revenue, 0.00%, 12/01/21.............. 1,500,000 260,625
Baa BBB+ Savannah Georgia Hospital Authority Revenue, 7.00%, 01/01/23........................ 1,000,000 1,016,250
-----------
1,617,187
-----------
ILLINOIS -- 14.8%
A1 A+ Illinois Educational Facility Authority, 7.125%, 07/01/11........................... 320,000 353,200
Aaa AAA Illinois Health Facility Authority (CGIC Insured), 7.60%, 08/15/10 (Escrowed to
Maturity)......................................................................... 46,000 52,843
Aaa AAA Illinois Health Facility Authority (CGIC Insured), 7.60%, 08/15/10.................. 750,000 829,687
Aa NR Sangamon County Illinois (GO), 7.45%, 11/15/06...................................... 800,000 937,000
Baa BBB Southwestern Illinois Medical Facilties Revenue, 7.00%, 08/15/12.................... 1,000,000 997,500
Aaa AAA Will & Kendall Counties Illinois School District #202, 5.45%, 01/01/05.............. 500,000 504,375
-----------
3,674,605
-----------
MAINE -- 0.4%
NR A Municipal Bond Bank, 7.65%, 11/01/98 (Pre-refunded)................................. 85,000 93,287
-----------
MARYLAND -- 1.8%
Baa NR Prince George County Maryland Medical Hospital Revenue, 6.375%, 01/01/23............ 500,000 458,125
-----------
MASSACHUSETTS -- 4.9%
Aaa AAA Boston Massachusetts Water & Sewer, 10.875%, 01/01/09 (Escrowed to Maturity)........ 500,000 683,750
Baa BBB Massachusetts State Health & Educational Facilities Authority, 6.625%, 11/15/22..... 500,000 486,250
NR BBB+ Massachusetts State Housing, Series B, 8.10%, 08/01/23.............................. 50,000 52,375
-----------
1,222,375
-----------
MICHIGAN -- 10.3%
Aaa AAA Kent Hospital Finance Authority (MBIA Insured), 7.25%, 01/15/13..................... 1,000,000 1,158,750
Baa BBB- Pontiac Michigan Hospital Finance Authority, 6.00%, 08/01/23........................ 1,000,000 891,250
Aaa AAA Romulus, Michigan School Building (GO) (FGIC Insured), 0.00%, 05/01/07
(Pre-refunded).................................................................... 2,500,000 509,375
-----------
2,559,375
-----------
NEW HAMPSHIRE -- 4.2%
Baa3 BB New Hampshire IDA Pollution Control (Central Maine Power Co.), 7.375%, 05/01/14..... 1,000,000 1,047,500
-----------
</TABLE>

(See Notes to Financial Statements)
<PAGE> 4

PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996

<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES PRINCIPAL VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK -- 8.4%
Baa1 BBB Metropolitan Transit Authority New York Service Facilities, 7.00%, 07/01/04......... $ 500,000 $ 545,000
Baa1 BBB New York State Urban Development Corp., 0.00%, 01/01/08............................. 1,000,000 507,500
Baa BBB- New York City Health & Hospital Corporation, 6.30%, 02/15/20........................ 500,000 473,750
NR A Onondaga County New York Industrial Development Agency, 7.90%, 01/01/17............. 500,000 548,750
-----------
2,075,000
-----------
OHIO -- 5.5%
A A Franklin County Ohio Hospital Revenue, 5.80%, 12/01/05.............................. 500,000 510,625
Baa BBB- Stark City Ohio Hospital Revenue, 6.00%, 04/01/24................................... 1,000,000 855,000
-----------
1,365,625
-----------
PENNSYLVANIA -- 2.2%
NR A- Allegheny County PA Hospital Revenue (Allegheny Valley Hospital), 7.00%, 08/01/15... 500,000 535,625
-----------
PUERTO RICO -- 1.8%
Baa1 A Puerto Rico Commonwealth Public Improvement, 0.00%, 07/01/04........................ 100,000 65,750
Baa1 A Puerto Rico Commonwealth Improvement, 5.10%, 07/01/02............................... 50,000 50,500
Baa1 A Puerto Rico Public Buildings Authority Revenue, 6.60%, 07/01/04..................... 200,000 218,250
Baa1 A- Puerto Rico Municipal Financing Agency, 5.70%, 07/01/03............................. 100,000 102,750
-----------
437,250
-----------
TENNESSEE -- 1.4%
Aaa NR Nashville & Davidson County Tennessee Health & Education Board Revenue (NC),
0.00%, 06/01/21..................................................................... 2,000,000 352,500
-----------
UTAH -- 4.2%
Aa AA- Intermountain Power Agency Utah Power Supply (MBIA Insured), 7.20%, 07/01/16........ 1,000,000 1,043,900
-----------
TOTAL INVESTMENTS -- 95.4%
(Cost -- $23,465,671)*.............................................................. 23,672,035
OTHER ASSETS, LESS LIABILITIES -- 4.6%.............................................. 1,130,197
-----------
NET ASSETS -- 100%.................................................................. $24,802,232
===========
*Cost is approximately the same for Federal income tax purposes.
CGIC - Capital Guaranty Insurance Company
FGIC - Financial Guaranty Insurance Company
GO - General Obligation
MBIA - Municipal Bond Insurance Association
NC - Non Callable
NR - Not Rated
OTHER INFORMATION:
At June 30, 1996, net unrealized appreciation based on cost for financial statement and Federal
income tax purposes is as follows:
Gross unrealized appreciation................................................................ $ 824,818
Gross unrealized depreciation................................................................ (618,454)
-----------
Net unrealized appreciation.......................................................... $ 206,364
===========
Purchases and sales of municipal securities aggregated $14,816,942
and $19,387,005 respectively, for the period ended June 30, 1996.
</TABLE>

(See Notes to Financial Statements)
<PAGE> 5

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30 1996

<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $23,465,671).............................................................. $23,672,035
Cash................................................................................................................ 547,196
Receivables:
Interest.......................................................................................................... 588,232
Manager for expense reimbursement................................................................................. 9,132
Deferred organization expenses...................................................................................... 4,614
Other assets........................................................................................................ 4,655
-----------
Total assets...................................................................................................... 24,825,864
-----------
LIABILITIES
Payables:
Management fee.................................................................................................... 10,727
12b-1 service and distribution fees............................................................................... 5,505
Administrative services fee....................................................................................... 1,950
Fund accounting................................................................................................... 2,250
Transfer agent.................................................................................................... 2,733
Other accrued expenses and liabilities.............................................................................. 467
-----------
Total liabilities................................................................................................. 23,632
-----------
NET ASSETS.......................................................................................................... $24,802,232
===========
CLASS A:
Net asset value and redemption price per share ($23,673,466 / 2,434,281 shares outstanding)......................... $ 9.73
===========
Maximum offering price per share ($9.73 x 100 / 95.25)*............................................................. $ 10.22
===========
CLASS B:
Net asset value and offering price per share ($1,128,766 / 116,164 shares outstanding)**............................ $ 9.72
===========
NET ASSETS CONSIST OF:
Capital paid-in................................................................................................... $24,870,851
Accumulated net realized loss on investments...................................................................... (303,962)
Accumulated undistributed net investment income................................................................... 28,979
Net unrealized appreciation on investments........................................................................ 206,364
-----------
NET ASSETS.......................................................................................................... $24,802,232
===========
</TABLE>

* On sales of more than $100,000 the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less any
applicable contingent deferred sales charge.

(See Notes to Financial Statements)
<PAGE> 6

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996

<TABLE>
<S> <C> <C>
Investment income
Interest................................................................................................ $1,644,752
----------
Expenses
Management fee.......................................................................................... $146,137
Transfer agent fee...................................................................................... 32,761
Administrative services fee............................................................................. 26,570
Custodian fees.......................................................................................... 9,078
Blue Sky fees........................................................................................... 23,862
Auditing and accounting fees............................................................................ 30,364
Shareholder reports..................................................................................... 4,419
Amortization of organization expenses................................................................... 1,666
Fund accounting......................................................................................... 27,338
Trustees' fees.......................................................................................... 4,860
12b-1 service and distribution fees
Class A............................................................................................... 64,109
Class B............................................................................................... 9,273
Legal................................................................................................... 25,796
Other................................................................................................... 4,788
----------
411,021
Expenses reimbursed by manager.......................................................................... (106,248)
Fees paid indirectly.................................................................................... (5,544)
----------
Net expenses.......................................................................................... 299,229
----------
NET INVESTMENT INCOME..................................................................................... 1,345,523
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments........................................................................ 580,623
Net unrealized depreciation during the period on investments............................................ (653,884)
----------
Net loss on investments............................................................................... (73,261)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................................... $1,272,262
==========
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 30, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations:
Net investment income.............................................................................. $ 1,345,523 $ 1,732,616
Net realized gain (loss) on investments............................................................ 580,623 (1,092,548)
Net unrealized appreciation (depreciation) during the period on investments........................ (653,884) 1,549,158
----------- ------------
Net income resulting from operations............................................................. 1,272,262 2,189,226
----------- ------------
Class A distributions
From net investment income......................................................................... (1,264,186) (1,697,682)
In excess of net investment income................................................................. -- (81,064)
----------- ------------
Total distributions to Class A shareholders...................................................... (1,264,186) (1,778,746)
----------- ------------
Class B distributions
From net investment income......................................................................... (39,157) (34,934)
In excess of net investment income................................................................. -- (2,373)
----------- ------------
Total distributions to Class B shareholders...................................................... (39,157) (37,307)
----------- ------------
Fund share transactions (Note 4):
Class A............................................................................................ (4,659,340) (10,413,966)
Class B............................................................................................ 373,973 261,679
----------- ------------
Net decrease resulting from Fund share transactions.............................................. (4,285,367) (10,152,287)
----------- ------------
TOTAL DECREASE IN NET ASSETS......................................................................... (4,316,448) (9,779,114)
NET ASSETS
Beginning of period................................................................................ 29,118,680 38,897,794
----------- ------------
END OF PERIOD...................................................................................... $24,802,232 $ 29,118,680
=========== ============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)............................................... $ 28,979 $ (13,201)
=========== ============
</TABLE>

(See Notes to Financial Statements)
<PAGE> 7

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
CLASS A FOR THE YEAR ENDED JUNE 30,
-----------------------------------------------------------------------
SELECTED PER SHARE DATA 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................... $ 9.76 $ 9.60 $ 10.17 $ 9.94 $ 9.60
------- ------- ------- ------- -------
Income from investment operations
Net investment income(a).............................. .50 .48 .57 .60 .59
Net gain (loss) on investments (both realized and
unrealized)......................................... (.05) .19 (.48) .31 .41
------- ------- ------- ------- -------
Total from investment operations.................... .45 .67 .09 .91 1.00
------- ------- ------- ------- -------
Less distributions
From net investment income............................ .48 .48 .57 .60 .59
In excess of net investment income.................... -- .03 -- -- .06
From net realized gain................................ -- -- .09 .08 .01
------- ------- ------- ------- -------
Total distributions................................. .48 .51 .66 .68 .66
------- ------- ------- ------- -------
Net asset value, end of period.......................... $ 9.73 $ 9.76 $ 9.60 $ 10.17 $ 9.94
======= ======= ======= ======= =======
Total return(%)(b)...................................... 4.69 7.21 .77 9.48 10.76
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)................ $23,673 $28,351 $38,406 $42,739 $35,995
Ratio of expenses to average net assets
With expense reimbursement(%)(c)...................... 1.10 1.10 1.10 1.10 1.10
Without expense reimbursement(%)(c)................... 1.52 1.30 1.24 1.29 1.30
Ratio of net investment income to average net
assets(%)(a).......................................... 5.09 5.08 6.65 6.06 6.00
Portfolio turnover rate(%).............................. 58 65 68 57 62
</TABLE>

<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 1, 1994
FOR THE YEAR ENDED (COMMENCEMENT)
CLASS B JUNE 30, TO JUNE 30,
--------------------- --------------
SELECTED PER SHARE DATA 1996 1995 1994
------ ------ --------------
<S> <C> <C> <C>
Net asset value, beginning of period................................................... $ 9.76 $ 9.60 $ 9.69
------ ------ ------
Income from investment operations
Net investment income(a)............................................................. .43 .41 .11
Net gain (loss) on investments (both realized and unrealized)........................ (.05) .19 (.06)
------ ------ ------
Total from investment operations................................................... .38 .60 .05
------ ------ ------
Less distributions
From net investment income........................................................... .42 .41 .11
In excess of net investment income................................................... -- .03 .03
------ ------ ------
Total distributions................................................................ .42 .44 .14
------ ------ ------
Net asset value, end of period......................................................... $ 9.72 $ 9.76 $ 9.60
====== ====== ==========
Total return(%)........................................................................ 3.88(b) 6.42(b) .55(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)............................................... $1,129 $ 767 $ 492
Ratio of expenses to average net assets
With expense reimbursement(%)(c)..................................................... 1.85 1.85 1.85(e)
Without expense reimbursement(%)(c).................................................. 2.27 2.05 1.99(e)
Ratio of net investment income to average net assets(%)(a)............................. 4.34 4.33 5.90(e)
Portfolio turnover rate(%)............................................................. 58 65 68

</TABLE>

(a) Net investment income is net of expenses reimbursed by manager.
(b) Total return does not reflect a sales charge.
(c) Beginning in July 1995, total expenses include fees paid indirectly
through an expense offset arrangement.
(d) Total return represents aggregate total return and does not reflect a
sales charge.
(e) Annualized.

(See Notes to Financial Statements)
<PAGE> 8

NOTES TO FINANCIAL STATEMENTS

Mackenzie National Municipal Fund (the Fund) is a series of shares of
Mackenzie Series Trust. The shares of beneficial interest are $.001 par value
and an unlimited number of shares of Class A and Class B are authorized.
Mackenzie Series Trust was organized as a Massachusetts business trust under a
Declaration of Trust dated April 22, 1985 and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.

SECURITY VALUATION -- Municipal securities are valued utilizing primarily
the latest bid prices or, if bid prices are not available, on the basis of
valuation based upon a matrix system (which considers factors such as security
prices, yields, maturities and ratings), both as furnished by an independent
pricing service approved by the Board of Trustees (the Board).

SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Interest income is accrued on a daily basis.
Realized gains and losses from security transactions are calculated on an
identified cost basis.

FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.

The Fund has a net tax-basis capital loss carryforward of approximately
$249,000 as of June 30, 1996 which may be applied against any realized net
taxable gains of each succeeding fiscal year until fully realized or until the
expiration date, whichever occurs first. The carryforward expires $59,000 in
1997, $85,000 in 2003 and $105,000 in 2004.

DISTRIBUTIONS TO SHAREHOLDERS -- Normally, distributions from net investment
income are declared monthly, and net realized capital gains, if any, are
declared in June. An additional distribution may be declared if necessary to
avoid the payment of a four percent Federal excise tax.

On January 1, 1996, under a Plan pursuant to Rule 18f-3 under the Investment
Company Act of 1940, approved by the Fund's Board December 2, 1995, the Fund
discontinued its practice of declaring daily a dividend to Class A shares at the
rate per share of the excess 12b-1 fees of Class B shares over Class A shares.

For the Fund's taxable year ended June 30, 1996, 100% of the distributions
paid were exempt interest dividends for Federal income tax purposes.

DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in
connection with its issuing Class B shares have been deferred and are being
amortized on a straight-line basis over a five year period.

RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss. As a result, Net realized gain (loss) on investments for a reporting
period may differ significantly in amount and character from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.

FEES PAID INDIRECTLY -- The Fund has an arrangement whereby a certain
percentage of quarterly cumulative credits resulting from cash balances on
deposit with the custodian are used to offset custody fees, including
transaction and out of pocket expenses. For the year ended June 30, 1996,
custody fees were reduced by $5,544 under this arrangement.

2. RELATED PARTIES

Mackenzie Investment Management Inc. (MIMI) is the Manager and Investment
Adviser of the Fund. For its services, MIMI receives a fee monthly at the annual
rate of .55% on the Fund's average net assets.

If the Fund's total expenses in any fiscal year (excluding interest, taxes,
brokerage commissions, extraordinary expenses and other expenses subject to
approval by state securities administrators) exceed limits applicable under
state securities laws, MIMI will bear the excess expenses. Currently, MIMI
voluntarily limits the Fund's total operating expenses (excluding taxes, 12b-1
fees, brokerage commissions, interest, litigation and indemnification expenses,
and other extraordinary expenses) to an annual rate of .85% of its average net
assets. The voluntary expense limitation may be terminated or revised at any
time on 30 days notice to shareholders. Expenses reimbursed by manager reflected
in the Statement of Operations consists of a voluntary reimbursement.

MIMI also provides certain administrative, accounting and pricing services
for the Fund. As compensation for those services, the Fund pays MIMI fees plus
certain out-of-pocket expenses. Such fees are reflected as Administrative
services fee and Fund accounting in the Statement of Operations.

Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI,
is the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers. For the year ended June 30, 1996, the net amount of underwriting
discount retained by IMDI was $2,051.

Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate not to exceed .25% of its average
net asset value. Class B shares are also subject to an ongoing distribution fee
at an annual rate of .75% of the average net asset value attributable to Class B
shares. IMDI may use such distribution fee for purposes of advertising and
marketing shares of the Fund. Such fees are reflected as 12b-1 service and
distribution fees in the Statement of Operations.

Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. The Fund pays a
monthly fee and certain out-of-pocket expenses. Such fees and expenses are
reflected as Transfer agent in the Statement of Operations.

3. BOARD'S COMPENSATION

Trustees who are not affiliated with MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.

<PAGE> 9

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. FUND SHARE TRANSACTIONS

Fund share transactions for both Class A and Class B were as follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
---------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- --------------------------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Sold....................... 235,088 $ 2,311,839 535,305 $ 5,065,584
Issued on reinvestment of
distributions............. 64,174 632,427 82,259 780,601
Repurchased................ (770,220) (7,603,606) (1,714,631) (16,260,151)
-------- ----------- ---------- ------------
Net decrease............... (470,958) $(4,659,340) (1,097,067) $(10,413,966)
========== ============= ============ ==============
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
---------------------- -------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ---------------------------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Sold....................... 48,696 $ 485,932 40,698 $ 393,357
Issued on reinvestment of
distributions............. 1,298 12,781 2,030 19,267
Repurchased................ (12,487) (124,740) (15,353) (150,945)
-------- ----------- ---------- ------------
Net increase............... 37,507 $ 373,973 27,375 $ 261,679
========== ============= ============ ============
</TABLE>

- --------------------------------------------------------------------------------

REPORT OF INDEPENDENT ACCOUNTANTS

To The Shareholders and
Board of Trustees of
Mackenzie National Municipal Fund (the Fund)

We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of June 30, 1996, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1996 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of June 30, 1996, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Fort Lauderdale, Florida
August 15, 1996

MNMF-2-896
<PAGE>

<PAGE> 1
DECEMBER 31, 1996
[MACKENZIE LOGO]

MACKENZIE NATIONAL MUNICIPAL FUND

MARKET COMMENTARY:

Overall, fixed income markets in 1996 were marked by unfulfilled
expectations and interest rate volatility. Following a quarter point decrease
in the discount rate in January 1996, there were several indicators pointing to
increased economic growth--increased wage pressure, higher petroleum and grain
prices, a strong dollar and full employment--and bond markets responded by
pushing interest rates higher.
Later in the year, market participants watched guardedly for inflation
to rear its head. However, US Gross Domestic Product (GDP) and the Consumer
Price Index (CPI) continued to reflect moderate growth which resulted in
interest rates coming down, only to rise again by year end.
The municipal bond market also had to contend with interest rate
volatility and inflationary pressures caused by increased economic growth, as
well as first quarter concerns about proposed tax reform. We believe continued
evidence of a moderating economy should, however, keep interest rates in a
trading range and inflation should remain low. But the threat of tax reform
still looms. A Republican-controlled Congress could bring tax reform and
related issues to the forefront once again. The demand for municipal bonds
has, however, remained strong as supply continued to decrease from its high in
1993.
Municipal credit rating agencies have come under fire for not detecting
fiscal problems early enough to warn investors. We believe it will be
important, therefore, to focus on higher credit quality and strong underlying
fundamentals in the coming year.
The Mackenzie National Municipal Fund maintains its disciplined
investment approach and focus on investment grade bonds. With an aveage
maturity of just more than 18 years and broad diversification across many
issuers, we believe this Fund should provide conservative tax-free investors
with a good balance of yield and return.

MACKENZIE INVESTMENT MANAGEMENT, INC.

<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES OFFICERS TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Michael G. Landry, Chairman Ivy Mackenzie Mackenzie Investment
Paul H. Broyhill Keith J. Carlson, President Services Corp. Management Inc.
Keith J. Carlson C. William Ferris, P.O. Box 3022 Boca Raton, FL
Stanley Channick Secretary/Treasurer Boca Raton, FL 33431-0922
Frank W. DeFriece, Jr. 1-800-777-6472 DISTRIBUTOR
Roy J. Glauber CUSTODIAN Ivy Mackenzie
Michael G. Landry Brown Brothers Harriman & Co. AUDITORS Distributors, Inc.
Joseph G. Rosenthal Boston, MA Coopers & Lybrand L.L.P. Via Mizner Financial Plaza
J. Brendan Swan Fort Lauderdale, FL 700 South Federal Highway
Boca Raton, FL 33432
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA

</TABLE>
<PAGE> 2

PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -------------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 95.4% PRINCIPAL VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARIZONA -- 5.7%
NR AA Tucson (GO)(NC), 9.75%, 07/01/12 (Escrowed to Maturity)..... $ 400,000 $ 572,500
NR AA Tucson (GO)(NC), 9.75%, 07/01/13 (Escrowed to Maturity)..... 500,000 731,250
-----------
1,303,750
-----------
CALIFORNIA -- 13.3%
NR A- California Health Facilities Authority (Pomona), 7.00%,
01/01/17.................................................. 350,000 355,817
NR A- California Health Facilities Authority (Downey Community),
5.625%, 05/15/28 (Pre-refunded)........................... 500,000 500,000
Baa NR Irwindale California Industrial Development, 6.60%,
08/01/18.................................................. 200,000 206,500
NR BBB Long Beach Aquarium of the Pacific, California, 6.125%,
07/01/23.................................................. 750,000 727,500
Baa1 BBB Los Angeles County California Certificate of Participation
(Disney Parking Project) (NC),
0.00%, 09/01/06........................................... 500,000 280,625
Aa AA Los Angeles Department of Water & Power, 9.00%, 09/01/04.... 500,000 627,500
Aaa AAA Southern California Public Power Authority (NC) (MBIA
Insured), 0.00%, 07/01/14................................. 1,000,000 356,250
-----------
3,054,192
-----------
COLORADO -- 2.0%
NR AAA Colorado Health Facilities Authority, 0.00%, 07/15/20....... 500,000 102,500
Aaa NR Dawson Ridge Colorado (GO)(NC), 0.00%, 10/01/22 (Escrowed to
Maturity)................................................. 2,000,000 352,500
-----------
455,000
-----------
CONNECTICUT -- 2.0%
Baa1 NR Connecticut State Health Facilities & Education, 5.75%,
07/01/23.................................................. 500,000 463,750
-----------
DISTRICT OF COLUMBIA -- 0.5%
A1 A+ Georgetown University, D.C. (MBIA Insured), 8.25%,
04/01/18.................................................. 100,000 106,000
-----------
FLORIDA -- 7.8%
Aa AA Florida State Board of Education (GO), 9.125%, 06/01/14..... 110,000 154,962
Aa AA Florida State Board of Education (GO), 9.125%, 06/01/14
(Escrowed to Maturity).................................... 690,000 970,313
Aaa AAA Orlando & Orange County Expressway (NC)(FGIC Insured),
8.25%, 07/01/14........................................... 500,000 660,000
-----------
1,785,275
-----------
GEORGIA -- 7.2%
A A Municipal Electric Authority of Georgia (NC), 10.00%,
01/01/10.................................................. 250,000 344,687
Aaa NR Richmond County Georgia Development Authority Revenue,
0.00%, 12/01/21........................................... 1,500,000 286,875
Baa BBB+ Savannah Georgia Hospital Authority Revenue, 7.00%,
01/01/23.................................................. 1,000,000 1,035,000
-----------
1,666,562
-----------
ILLINOIS -- 16.0%
A1 A+ Illinois Educational Facility Authority, 7.125%, 07/01/11... 320,000 354,800
Aaa AAA Illinois Health Facility Authority (CGIC Insured), 7.60%,
08/15/10 (Escrowed to Maturity)........................... 46,000 52,440
Aaa AAA Illinois Health Facility Authority (CGIC Insured), 7.60%,
08/15/10.................................................. 750,000 831,562
Baa2 BBB- Illinois Health Facility Authority (Proctor Community
Hospital), 7.00%, 01/01/04................................ 200,000 204,000
Aa NR Sangamon County Illinois (GO), 7.45%, 11/15/06.............. 800,000 950,000
Baa BBB Southwestern Illinois Medical Facilties Revenue, 7.00%,
08/15/12.................................................. 1,000,000 1,035,000
Aaa AAA Will & Kendall Counties Illinois School District #202,
5.45%, 01/01/05........................................... 250,000 255,938
-----------
3,683,740
-----------
MAINE -- 0.4%
NR A Municipal Bond Bank, 7.65%, 11/01/98 (Pre-refunded)......... 85,000 92,225
-----------
MARYLAND -- 4.3%
Baa NR Prince Georges County Maryland Medical Hospital Revenue,
6.375%, 01/01/23.......................................... 1,000,000 988,750
-----------
MASSACHUSETTS -- 2.4%
Baa BBB Massachusetts State Health & Educational Facilities
Authority, 6.625%, 11/15/22............................... 500,000 501,875
NR BBB+ Massachusetts State Housing, Series B, 8.10%, 08/01/23...... 50,000 52,375
-----------
554,250
-----------
MICHIGAN -- 9.2%
Aaa AAA Kent Hospital Finance Authority (MBIA Insured), 7.25%,
01/15/13.................................................. 1,000,000 1,183,750
Baa BBB- Pontiac Michigan Hospital Finance Authority, 6.00%,
08/01/23.................................................. 1,000,000 938,750
-----------
2,122,500
-----------
NEW HAMPSHIRE -- 4.6%
Baa3 BB New Hampshire IDA Pollution Control (Central Maine Power
Co.), 7.375%, 05/01/14.................................... 1,000,000 1,048,750
-----------
</TABLE>

(See Notes to Financial Statements)

<PAGE> 3

PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996 (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -------------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES PRINCIPAL VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK -- 4.6%
Baa BBB- New York City Health & Hospital Corporation, 6.30%,
02/15/20.................................................. $ 500,000 $ 495,000
NR A Onondaga County New York Industrial Development Agency,
7.90%, 01/01/17........................................... 500,000 551,250
-----------
1,046,250
-----------
OHIO -- 2.2%
A A Franklin County Ohio Hospital Revenue, 5.80%, 12/01/05...... 500,000 518,750
-----------
PENNSYLVANIA -- 6.7%
NR A- Allegheny County PA Hospital Revenue (Allegheny Valley
Hospital), 7.00%, 08/01/15................................ 500,000 553,750
Ba BBB+ Philadelphia PA Hospitals & Highered Facilities Authority,
6.625%, 07/01/21.......................................... 1,000,000 991,250
-----------
1,545,000
-----------
PUERTO RICO -- 0.3%
Baa1 A Puerto Rico Commonwealth Public Improvement, 0.00%,
07/01/04.................................................. 100,000 68,625
-----------
TENNESSEE -- 1.7%
Aaa NR Nashville & Davidson County Tennessee Health & Education
Board Revenue (NC),
0.00%, 06/01/21 (Escrowed to Maturity).................... 2,000,000 387,500
-----------
UTAH -- 4.5%
Aa AA- Intermountain Power Agency Utah Power Supply (MBIA Insured),
7.20%, 07/01/16........................................... 1,000,000 1,033,520
-----------
TOTAL INVESTMENTS -- 95.4% (Cost -- $21,235,829)*........... 21,924,389
OTHER ASSETS, LESS LIABILITIES -- 4.6%...................... 1,065,426
-----------
NET ASSETS -- 100%.......................................... $22,989,815
===========
* Cost is approximately the same for Federal income tax
purposes.

OTHER INFORMATION:
At December 31, 1996, net unrealized appreciation based on cost for financial
statement and Federal income tax purposes is as follows:
Gross unrealized appreciation............................... $ 862,003
Gross unrealized depreciation............................... (173,443)
-----------
Net unrealized appreciation................................. $ 688,560
===========
Purchases and sales of municipal securities aggregated $3,496,760 and $5,884,921
respectively, for the period ended December 31, 1996.
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
GO -- General Obligation
MBIA -- Municipal Bond Insurance Association
NC -- Non Callable
</TABLE>

(See Notes to Financial Statements)

<PAGE> 4

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996 (UNAUDITED)

<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $21,235,829)...... $21,924,389
Cash........................................................ 542,888
Receivables
Interest.................................................. 524,912
Manager for expense reimbursement......................... 10,334
Other assets................................................ 14,476
-----------
Total assets.............................................. 23,016,999
-----------
LIABILITIES
Payables
Distributions to shareholders............................. 162
Management fee............................................ 10,659
12b-1 service and distribution fees....................... 5,793
Other payables to related parties......................... 6,996
Other accrued expenses and liabilities...................... 3,574
-----------
Total liabilities......................................... 27,184
-----------
NET ASSETS.................................................. $22,989,815
===========
CLASS A
Net asset value and redemption price per share ($21,788,762
/ 2,192,869 shares outstanding)........................... $ 9.94
===========
Maximum offering price per share ($9.94 x 100 / 95.25)*..... $ 10.44
===========
CLASS B
Net asset value and offering price per share ($1,201,053 /
120,953 shares outstanding)**............................. $ 9.93
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $22,550,955
Accumulated net realized loss on investments.............. (205,805)
Accumulated undistributed net investment loss............. (43,895)
Net unrealized appreciation on investments................ 688,560
-----------
NET ASSETS.................................................. $22,989,815
===========
</TABLE>

* On sales of more than $100,000 the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less any
applicable contingent deferred sales charge.

(See Notes to Financial Statements)

<PAGE> 5

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED)

<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................. $ 745,427
----------
EXPENSES
Management fee............................................ $65,513
Transfer agent............................................ 16,413
Administrative services fee............................... 11,911
Custodian fees............................................ 1,442
Blue Sky fees............................................. 6,432
Auditing and accounting fees.............................. 15,963
Shareholder reports....................................... 1,891
Fund accounting........................................... 12,258
Trustees' fees............................................ 2,496
12b-1 service and distribution fees....................... 34,247
Legal..................................................... 13,869
Other..................................................... 3,898
----------
186,333
Expenses reimbursed by manager.............................. (50,787)
----------
Net expenses.............................................. 135,546
----------
NET INVESTMENT INCOME....................................... 609,881
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments.......................... 98,157
Net unrealized appreciation during the period on
investments............................................. 482,196
----------
Net gain on investments................................. 580,353
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $1,190,234
==========
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE
ENDED YEAR ENDED
DECEMBER 31, JUNE 30,
------------ -----------
1996* 1996
------------ -----------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations
Net investment income..................................... $ 609,881 $ 1,345,523
Net realized gain on investments.......................... 98,157 580,623
Net unrealized appreciation (depreciation) during the
period on investments................................... 482,196 (653,884)
----------- -----------
Net income resulting from operations.................... 1,190,234 1,272,262
----------- -----------
Class A distributions
From net investment income................................ (583,418) (1,264,186)
In excess of net investment income........................ (69,917) --
----------- -----------
Total distributions to Class A shareholders............. (653,335) (1,264,186)
----------- -----------
Class B distributions
From net investment income................................ (26,463) (39,157)
In excess of net investment income........................ (2,957) --
----------- -----------
Total distributions to Class B shareholders............. (29,420) (39,157)
----------- -----------
Fund share transactions (Note 4)
Class A................................................... (2,367,132) (4,659,340)
Class B................................................... 47,236 373,973
----------- -----------
Net decrease resulting from Fund share transactions..... (2,319,896) (4,285,367)
----------- -----------
TOTAL DECREASE IN NET ASSETS................................ (1,812,417) (4,316,448)
NET ASSETS
Beginning of period....................................... 24,802,232 29,118,680
----------- -----------
END OF PERIOD............................................. $22,989,815 $24,802,232
=========== ===========
ACCUMULATED NET INVESTMENT INCOME (LOSS).................... $ (43,895) $ 28,979
=========== ===========
</TABLE>

* Unaudited

(See Notes to Financial Statements)

<PAGE> 6

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FOR THE SIX
CLASS A MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
------------- -----------------------------------------------------------
1996* 1996 1995 1994 1993 1992
SELECTED PER SHARE DATA ------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............. $ 9.73 $ 9.76 $ 9.60 $ 10.17 $ 9.94 $ 9.60
------- ------- ------- ------- ------- -------
Income from investment operations
Net investment income(a)....................... .26 .50 .48 .57 .60 .59
Net realized and unrealized gain (loss) on
investments.................................. .24 (.05) .19 (.48) .31 .41
------- ------- ------- ------- ------- -------
Total from investment operations............. .50 .45 .67 .09 .91 1.00
------- ------- ------- ------- ------- -------
Less distributions
From net investment income..................... .26 .48 .48 .57 .60 .59
In excess of net investment income............. .03 -- .03 -- -- .06
From net realized gain......................... -- -- -- .09 .08 .01
------- ------- ------- ------- ------- -------
Total distributions.......................... .29 .48 .51 .66 .68 .66
------- ------- ------- ------- ------- -------
Net asset value, end of period................... $ 9.94 $ 9.73 $ 9.76 $ 9.60 $ 10.17 $ 9.94
======= ======= ======= ======= ======= =======
Total return(%).................................. 5.16(d) 4.69(b) 7.21(b) .77(b) 9.48(b) 10.76(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)......... $21,789 $23,673 $28,351 $38,406 $42,739 $35,995
Ratio of expenses to average net assets
With expense reimbursement(%)(c)............... 1.10(e) 1.12 1.10 1.10 1.10 1.10
Without expense reimbursement(%)(c)............ 1.53(e) 1.52 1.30 1.24 1.29 1.30
Ratio of net investment income to average net
assets(%)(a)................................... 5.15(e) 5.09 5.08 6.65 6.06 6.00
Portfolio turnover rate(%)....................... 15 58 65 68 57 62
</TABLE>

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX APRIL 1, 1994
CLASS B MONTHS ENDED FOR THE YEAR ENDED (COMMENCEMENT) TO
DECEMBER 31, JUNE 30, JUNE 30,
------------- -------------------- -----------------
1996* 1996 1995 1994
SELECTED PER SHARE DATA ------------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 9.72 $ 9.76 $ 9.60 $ 9.69
------- ------- ------- --------
Income from investment operations
Net investment income(a).................................. .22 .43 .41 .11
Net realized and unrealized gain (loss) on investments.... .24 (.05) .19 (.06)
------- ------- ------- --------
Total from investment operations........................ .46 .38 .60 .05
------- ------- ------- --------
Less distributions
From net investment income................................ .22 .42 .41 .11
In excess of net investment income........................ .03 -- .03 .03
------- ------- ------- --------
Total distributions..................................... .25 .42 .44 .14
------- ------- ------- --------
Net asset value, end of period.............................. $ 9.93 $ 9.72 $ 9.76 $ 9.60
======= ======= ======= ========
Total return(%)............................................. 4.75(d) 3.88(b) 6.42(b) .55(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 1,201 $ 1,129 $ 767 $ 492
Ratio of expenses to average net assets
With expense reimbursement(%)(c).......................... 1.80(e) 1.87 1.85 1.85(e)
Without expense reimbursement(%)(c)....................... 2.23(e) 2.27 2.05 1.99(e)
Ratio of net investment income to average net
assets(%)(a).............................................. 4.46(e) 4.34 4.33 5.90(e)
Portfolio turnover rate(%).................................. 15 58 65 68
(a) Net investment income is net of expenses reimbursed by
manager.
(b) Total return does not reflect a sales charge.
(c) Beginning in July 1995, total expenses include any fees paid
indirectly. The ratio of expenses to average net assets with
expense reimbursement has been restated for the year ended
June 30, 1996.
(d) Total return represents aggregate total return and does not
reflect a sales charge.
(e) Annualized.
* Unaudited.
</TABLE>

(See Notes to Financial Statements)

<PAGE> 7

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Mackenzie National Municipal Fund (the Fund) is a diversified series of
shares of Mackenzie Series Trust. The shares of beneficial interest are $.001
par value and an unlimited number of shares of Class A and Class B are
authorized. Mackenzie Series Trust was organized as a Massachusetts business
trust under a Declaration of Trust dated April 22, 1985 and is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DISTRIBUTIONS TO SHAREHOLDERS -- Normally, distributions from net
investment income are declared monthly, and net realized capital gains, if any,
are declared semi-annually. An additional distribution may be declared if
necessary to avoid the payment of a four percent Federal excise tax.

RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss. As a result, Net realized gain (loss) on investments for a reporting
period may differ significantly in amount and character from distributions
during such period. Accordingly, the Fund may make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.

FEES PAID INDIRECTLY -- The Fund has an arrangement whereby a certain
percentage of quarterly cumulative credits resulting from cash balances on
deposit with the custodian are used to offset custody fees, including
transaction and out-of-pocket expenses. For the six months ended December 31,
1996, custody fees were not reduced under this arrangement.

2. RELATED PARTIES

Mackenzie Investment Management Inc. (MIMI) is the Manager and Investment
Adviser of the Fund. For its services, MIMI receives a fee monthly at the annual
rate of .55% on its average net assets.

Currently, MIMI voluntarily limits the Fund's total operating expenses
(excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and
indemnification expenses, and other extraordinary expenses) to an annual rate of
.85% of its average net assets. The voluntary expense limitation may be
terminated or revised at any time on 30 days notice to shareholders.

MIMI also provides certain administrative, accounting and pricing services
for the Fund. For those services, the Fund pays MIMI fees plus certain
out-of-pocket expenses. Such fees are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.

Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI,
is the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers. For the six months ended December 31, 1996, the net amount of
underwriting discount retained by IMDI was $402.

Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate not to exceed .25% of its average
net asset value. Class B shares are also subject to an ongoing distribution fee
at an annual rate of .75% of the average net asset value attributable to Class B
shares. IMDI may use such distribution fee for purposes of advertising and
marketing shares of the Fund. Such fees of $28,310 and $5,937 for Class A and
Class B, respectively, are reflected as 12b-1 service and distribution fees in
the Statement of Operations.

<PAGE> 8

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $15,908 and $505 for Class A and Class B, respectively, are
reflected as Transfer agent in the Statement of Operations.

3. BOARD'S COMPENSATION

Trustees who are not affiliated with MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.

4. FUND SHARE TRANSACTIONS

Fund share transactions for both Class A and Class B were as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 JUNE 30, 1996
------------------------- ----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- -------------- -------- -----------
<S> <C> <C> <C> <C>
Sold....................... 157,676 $ 1,549,180 235,088 $ 2,311,839
Issued on reinvestment of
distributions............. 34,863 341,820 64,174 632,427
Repurchased................ (433,951) (4,258,132) (770,220) (7,603,606)
-------- -------------- -------- -----------
Net decrease............... (241,412) $ (2,367,132) (470,958) $(4,659,340)
======== ============== ======== ===========
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 JUNE 30, 1996
------------------------- ----------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- -------------- -------- -----------
<S> <C> <C> <C> <C>
Sold....................... 8,731 $ 85,952 48,696 $ 485,932
Issued on reinvestment of
distributions............. 990 9,713 1,298 12,781
Repurchased................ (4,932) (48,429) (12,487) (124,740)
-------- -------------- -------- -----------
Net increase............... 4,789 $ 47,236 37,507 $ 373,973
======== ============== ======== ===========
</TABLE>

03MCNMX123196

<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Relating to the Acquisition of the Assets of
MACKENZIE NEW YORK MUNICIPAL FUND,
a series of MACKENZIE SERIES TRUST
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
by and in exchange solely for Class A voting shares of
THORNBURG NEW YORK INTERMEDIATE MUNICIPAL FUND,
a series of THORNBURG INVESTMENT TRUST
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
(800) 847-0200

This Statement of Additional Information, relating specifically to the
proposed acquisition of substantially all of the assets of Mackenzie New York
Municipal Fund ("Mackenzie Fund"), a series of Mackenzie Series Trust, by
Thornburg New York Intermediate Municipal Fund ("Thornburg Fund"), a series of
Thornburg Investment Trust, in exchange solely for Class A voting shares of
Thornburg Fund, consists of this cover page and the following documents, each
of which is attached hereto and incorporated by reference herein:

1. Thornburg New York Intermediate Municipal Fund Statement of Additional
Information;

2. Mackenzie Series Trust Statement of Additional Information dated
October 25, 1996;

3. Mackenzie New York Municipal Fund Annual Report, June 30, 1996; and

4. Mackenzie New York Municipal Fund Semiannual Report, December 31,
1996.

This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated July 28, 1997 relating to the above referenced
acquisition may be obtained from Thornburg Investment Trust at the number and
address shown above. This Statement of Additional Information relates to, and
should be read with, the Prospectus/Proxy Statement.

The financial statements of Mackenzie New York Municipal Fund contained in
its Annual Report to shareholders for the fiscal year ended June 30, 1996 have
been audited by Coopers & Lybrand, L.L.P., that Fund's independent auditors.

The date of this Statement of Additional Information is July 28, 1997.
<PAGE>

THORNBURG INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
for
THORNBURG NEW YORK INTERMEDIATE MUNICIPAL FUND
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501

Thornburg New York Intermediate Municipal Fund (the "Fund") is a series
of Thornburg Investment Trust (the "Trust").

The Fund's investment adviser is Thornburg Management Company, Inc.
(TMC).

This Statement of Additional Information relates to the investments
proposed to be made by the Fund, investment policies governing the Fund, the
Fund's management, and other issues of interest to a prospective purchaser of
shares in the Fund.

This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Fund's Prospectus dated June 1, 1997. A copy
of the Prospectus may be obtained at no charge by writing to the distributor
of the Fund's shares, Thornburg Securities Corporation (TSC), at 119 East
Marcy Street, Suite 202, Santa Fe, New Mexico 87501.

The Trust's name was "Thornburg Income Trust" until October 1, 1995.

The date of this Statement of Additional Information is June 1, 1997.

<PAGE> i
TABLE OF CONTENTS

Page
----
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . 1
Municipal Obligations . . . . . . . . . . . . . . . . . . 2
Ratings . . . . . . . . . . . . . . . . . . . . . . . . . 6
Temporary Investments . . . . . . . . . . . . . . . . . . 8
Repurchase Agreements . . . . . . . . . . . . . . . . . . 8
U.S. Government Obligations . . . . . . . . . . . . . . . 9

NEW YORK ECONOMY AND PUBLIC FINANCE . . . . . . . . . . . . . 9

INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . .10

YIELD AND RETURN COMPUTATION:
Performance and Portfolio Information . . . . . . . . . . . . 13
Computation of Yield and Return - In General . . . . . . 13
Additional Portfolio and Performance Information . . . . 14

DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . . . 14
Distributions . . . . . . . . . . . . . . . . . . . . . .14
Federal Income Tax Matters . . . . . . . . . . . . . . . 15
State and Local Tax Aspects . . . . . . . . . . . . . . .18
Accounts of Shareholders . . . . . . . . . . . . . . . . 18

INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS . .19
Investment Advisory Agreement . . . . . . . . . . . . . .19
Administrative Services Agreement . . . . . . . . . . . .20

SERVICE PLAN . . . . . . . . . . . . . . . . . . . . . . . . .20

PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . .21

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . .22

HOW TO PURCHASE FUND SHARES . . . . . . . . . . . . . . . . . 25

NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . 27

REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . .28

DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . 28

INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . .28

<PAGE> 1

INVESTMENT OBJECTIVES AND POLICIES

The primary investment objective of the Fund is to provide for its
shareholders as high a level of current income exempt from Federal, New York
State and New York City personal income taxes as is consistent, in the view
of the Fund's investment adviser, TMC, with the preservation of shareholders'
capital. The secondary investment objective of the Fund is reducing
fluctuations in net asset value per share relative to long-term municipal
bond portfolios, by maintaining a portfolio with a dollar-weighted average
maturity of normally three to ten years. There is a risk in all investments,
however, and there can be no assurance that the Fund's objectives will be
achieved. The objective of preservation of capital may preclude the Fund
from obtaining the highest available yields. The Fund was organized on March
12, 1997.

The dollar-weighted average effective maturity of the Fund's portfolio
normally is three to ten years. Price changes in the Fund's shares
therefore can be expected to be more moderate than the per share fluctuations
of portfolios with longer-term bonds.

The Fund will seek to achieve its objectives by investing in a portfolio
of obligations issued by New York State and the political subdivisions and
the agencies thereof. The Fund may invest in obligations of United States
possessions and territories or their agencies and instrumentalities. The
Fund may invest more than 5% of its portfolio assets in the securities of a
single issuer, provided that it may not purchase any security (other than
certain United States government securities) if, as a result, more than 5% of
the Trust's total assets would be invested in securities of a single issuer.

The Fund's assets will normally consist of (1) Municipal Obligations or
participation interests therein that are rated at the time of purchase within
the four highest grades Aaa, Aa, A, Baa by Moody's Investors Service
("Moody's"), or AAA, AA, A, BBB by Standard & Poor's Corporation ("S&P"), or
Fitch Investors Service ("Fitch"), (2) Municipal Obligations or participation
interests therein that are not rated by a rating agency, but are issued by
obligors that either have other comparable debt obligations that are rated
within the four highest grades by Moody's S&P or Fitch, or, in the case of
obligors whose obligations are unrated, are deemed by TMC to be comparable
with issuers having such debt ratings, and (3) a small amount of cash or
equivalents. In normal conditions, the Fund will hold cash pending

<PAGE> 2

investment in portfolio securities or anticipated redemption requirements.
For an explanation of these ratings, please see "Ratings," page 6. to the
extent that unrated Municipal Obligations may be less liquid, there may be
somewhat greater risk in purchasing unrated Municipal Obligations than in
purchasing comparable, rated Municipal Obligations. If the Fund experienced
unexpected net redemptions, it could be forced to sell such unrated Municipal
Obligations at disadvantageous prices without regard to the Obligations'
investment merits, depressing the Fund's net asset value and possibly
reducing the Fund's overall investment performance.

Except to the extent that the Fund is invested in temporary investments
for defensive purposes, the Fund will, under normal conditions, invest 100%
of its net assets in Municipal Obligations and normally will not invest less
than 80% of its net assets in Municipal Obligations. This 80% policy is a
fundamental investment policy of the Fund and may be changed only with the
approval of a majority of the outstanding voting securities of the Fund.
Under normal conditions, the Fund will attempt to invest 100%, and as a
matter of fundamental policy, will invest at least 65% of its net assets in
Municipal Obligations which originate in New York State.

The ability of the Fund to achieve its investment objectives is
dependent upon the continuing ability of issuers of Municipal Obligations in
which the Fund invests to meet their obligations for the payment of interest
and principal when due. In addition to using information provided by the
rating agencies, TMC will subject each issue under consideration for
investment to its own credit analysis in an effort to assess each issuer's
financial soundness. This analysis is performed on a continuing basis for
all issues held by the Fund. TMC subjects each issue under consideration for
investment to the same or similar credit analysis that TMC applies to rated
issues.

Credit ratings are helpful in evaluating bonds, but are relevant
primarily to the safety of principal and interest payments under the bonds.
These ratings do not reflect the risk that market values of bonds will
fluctuate with changes in interest rates. Additionally, credit rating
agencies may fail to change credit ratings in a timely fashion to reflect
events subsequent to initial ratings. The Fund's investment adviser, TMC,
reviews data respecting the issuers of the Fund's portfolio assets on an
ongoing basis, and may dispose of portfolio securities upon a change in
ratings or adverse events not reflected in ratings.

The Fund has reserved the right to invest up to 20% of its net assets in
"temporary investments" in taxable securities (of comparable quality to the
above tax-exempt investments) that would produce interest not exempt from
Federal income tax or income taxes imposed by New York State and New York
City. Such temporary investments, which may include repurchase agreements
with dealers, banks or recognized financial institutions that in the opinion
of TMC represent minimal credit risk, may be made due to market conditions,
pending investment of idle funds or to afford liquidity. See "Temporary
Investments," at page 8. Such investments are, like any investment, subject
to market risks and fluctuations in value. In addition, the Fund's temporary
taxable investments may exceed 20% of its net assets when made for defensive
purposes during periods of abnormal market conditions. The Fund does not
expect to find it necessary to make temporary investments in taxable
investments.

The Fund will not purchase securities if, as a result, more than 25% of
the Fund's total assets would be invested in any one industry. However, this
restriction will not apply to purchase of (i) securities of the United States
Government and its agencies, instrumentalities and authorities, or (ii) tax
exempt securities issued by other governments or political subdivisions,
because these issuers are not considered to be members of any industry. This
restriction may not be changed unless approved by a majority of the
outstanding shares of the Fund.

The Fund's investment objectives and policies, unless otherwise
specified, are not fundamental policies and may be changed by the Trustees
without shareholder approval.

Municipal Obligations

Municipal Obligations include debt and lease obligations issued by
states, cities and local authorities to obtain funds for various public

<PAGE> 3

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

The Fund may invest in a variety of types of Municipal Obligations,
including but not limited to bonds, notes (such as tax anticipation and
revenue anticipation notes), commercial paper and variable rate demand
instruments. Variable rate demand instruments are Municipal Obligations or
participations therein, either publicly underwritten and traded or privately
purchased, that provide for a periodic adjustment of the interest rate paid
on the instrument and permit the holder to demand payment of the unpaid
principal amount and accrued interest upon not more than seven days' notice
either from the issuer or by drawing on a bank letter of credit, a guarantee
or insurance issued with respect to such instrument. Such Letters of Credit,
guarantees or insurance will be considered in determining whether a Municipal
Obligation meets the Fund's investment criteria. See the Prospectus under
the caption "Investment Objectives and Policies - Municipal Obligations."
The issuer of a variable rate demand instrument may have the corresponding
right to prepay the principal amount prior to maturity.

The Fund also may purchase fixed rate municipal demand instruments
either in the public market or privately. Such instruments may provide for
periodic adjustment of the interest rate paid to the holder. The "demand"
feature permits the holder to demand payment of principal and interest prior
to their final stated maturity, either from the issuer or by drawing on a
bank letter of credit, a guarantee or insurance issued with respect to the
instrument. In some cases these demand instruments may be in the form of
units, each of which consists of (i) a Municipal Obligation and (ii) a
separate put option entitling the holder to sell to the issuer of such option
the Municipal Obligation in such unit, or an equal aggregate principal amount
of another Municipal Obligation of the same issuer, issue and maturity as
such Municipal Obligation, at a fixed price on specified dates during the
term of the put option. In those cases, each unit taken as a whole will be
considered a Municipal Obligation, based upon an accompanying opinion of
counsel. The Fund will invest in a fixed rate municipal demand instrument

<PAGE> 4

only if the instrument or the associated letter of credit, guarantee or
insurance is rated within the three highest grades of a nationally recognized
rating agency, or, if unrated, is deemed by TMC to be of comparable quality
with issues having such debt ratings. The credit quality of such investments
will be determined on a continuing basis by TMC under the supervision of the
Trustees.

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

The Fund will seek to reduce further the special risks associated with
investment in Municipal Leases by investing in Municipal Leases only where,
in TMC's opinion, certain factors established by the Trustees have been
satisfied, including (i) the nature of the leased equipment or property is
such that its ownership or use is deemed essential to a governmental function
of the governmental issuer, (ii) the Municipal Lease has a shorter term to
maturity than the estimated useful life of the leased property and the lease
payments will commence amortization of principal at an early date,
(iii) appropriate covenants will be obtained from the governmental issuer
prohibiting the substitution or purchase of similar equipment for a specified
period (usually 60 days or more) in the event payments are not appropriated,

<PAGE> 5

(iv) the underlying equipment has elements of portability or use that enhance
its marketability in the event foreclosure on the underlying equipment was
ever required, and (v) the governmental issuer's general credit is adequate.
The enforceability of the "non-substitution" provisions referred to in (iii)
above has not been tested by the courts. Investments not meeting certain of
these criteria (such as the absence of a non-substitution clause) may be made
if the Municipal Lease is subject to an agreement with a responsible party
(such as the equipment vendor) providing warranties to the Fund that satisfy
such criteria.

The Fund will not invest in illiquid securities if, as a result of the
investment, more than 10% of its net assets will be invested in illiquid
securities. For purposes of this limitation, "illiquid securities" shall be
deemed to include (1) Municipal Leases subject to non-appropriation risk
which are not rated at the time of purchase within the four highest grades by
Moody's or S&P and not subject to remarketing agreements (or not currently
subject to remarketing, pursuant to the conditions of any such agreement then
in effect, with a responsible remarketing party, deemed by TMC to be capable
of performing its obligations), (2) repurchase agreements maturing in more
than seven days, (3) securities which the Fund is restricted from selling to
the public without registration under the Securities Act of 1933, and
(4) other securities or participations not considered readily marketable by
the Fund, provided that for purposes of the foregoing an unrated Municipal
Lease which is backed by an irrevocable bank letter of credit or an insurance
policy, issued by a bank or insurer deemed by TMC to be of high quality and
minimal credit risk, will not be deemed to be illiquid.

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

<PAGE> 6

market value of Municipal Obligations held in the Fund's portfolio arising
from these or other factors will cause changes in the net asset value of the
Fund's shares.

Ratings

<PAGE> 7

<PAGE> 8

Temporary Investments

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

Repurchase Agreements

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

<PAGE> 9

the Fund might incur disposition costs or experience delays in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon the
collateral by the Fund may be delayed or limited. The Fund's investment
adviser will monitor the value of the collateral at the time the transaction
is entered into and at all subsequent times during the term of the repurchase
agreement in an effort to determine that the value always equals or exceeds
the agreed upon repurchase price. In the event the value of the collateral
declines below the repurchase price, the investment adviser will demand
additional collateral from the seller to increase the value of the collateral
to at least that of the repurchase price.

U.S. Government Obligations

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

NEW YORK ECONOMY AND PUBLIC FINANCE

New York has enjoyed increased tax revenues recently from a growth in
personal income, continued strong performance in financial services, strong
consumer spending and tourism. Current state spending estimates appear
reasonable in view of these revenue increases. Medicaid cost containments,
slowing health care cost increases, abatement of public assistance costs and
other cost reduction measures also have permitted the state and local
governments generally to meet their obligations.

The current financial stability could be upset by a number of factors,
however. Costs which are currently contained could increase if the state's
economy falters. Public assistance costs and health care expense could
increase if unemployment increases. Economic difficulties also could reduce
economic activity and consumer spending, reducing tax revenues in a period
when governmental costs likely would increase.

The state also has enacted tax decreases, which will reduce revenue in
fiscal 1997 by an estimated $2.3 billion with an additional revenue loss of
$2.2 billion projected for fiscal 1998. Additional legislation in fiscal
1997 will make additional estimated reductions in fiscal 1997 and 1998
revenue of $83 million and $178 million, respectively. In the same regard,

<PAGE> 10

the state likely will have a natural growth in spending in coming years, and
will have to find additional revenues to cover expenditures financed with
approximately $1.3 billion in nonrecurring revenues in fiscal 1996.

The ability of the state to respond to these challenges may be impaired
significantly, particularly if the economy weakens, because the state and
some local governments have failed to take advantage of the recent stronger
economy and increased public revenue to improve public finances. Although
the state had an approximate $445 million cash balance at the end of fiscal
1996, the state's accumulated deficit was not reduced significantly in fiscal
1996, and amounted to approximately $2.93 billion. In fiscal 1997 the state
continued to enjoy revenue increases, but these enhanced revenues have been
used for current spending instead of debt retirement and creation of
reserves. Moreover, the state's undisciplined budget process continues to
rely on one time fixes and invasion of off-budget funds to achieve short-term
budget balance, at the expense of fiscally responsible long-term solutions to
the state's chronic budget deficit.

Potential difficulties in this respect could be further aggravated by
the state's endemic inability to complete timely its annual budget process.
The state did not enact its fiscal 1997 budget until July 13, 1996, 104 days
after the beginning of the fiscal year on April 1, 1996. The 104 day delay
is the longest delay the state has endured in adopting a budget and the
longest delay for any state. Budget negotiations were linked to the adoption
of other non-budget legislation, including reform of worker's compensation
laws and enactment of a new hospital rate setting scheme to replace the
existing program (NYPHRM -- the New York Prospective Hospital Reimbursement
Methodology). Negotiations between the legislature and the governor on these
issues were deadlocked and delayed adoption of the budget. In order to
provide for the continued functioning of state government services during the
budget delay, the governor and legislature periodically enacted special
emergency legislation with specific limited appropriations to fund state
worker payrolls, Medicaid and welfare payments, and other special needs as
they arose.

The state's structural budget deficit and chronic inability to adopt
timely budgets also disrupt financial planning by local governments, state
agencies, contract agencies and private vendors. Many of these entities are
unable to plan effectively, and may incur additional interest costs for
short-term cash flow borrowings.

INVESTMENT LIMITATIONS

The Fund has adopted the following fundamental investment policies which
may not be changed unless approved by a majority of the outstanding shares of
the Fund. Under the Investment Company Act of 1940 (the "Act"), a "vote of
the majority of the outstanding voting securities" of the Fund means the
affirmative vote of the lesser of (1) more than 50% of the outstanding shares
of the Fund or (2) 67% or more of the shares of the Fund present at a
shareholders' meeting if more than 50% of the outstanding shares of such
series are represented at the meeting in person or by proxy.

<PAGE> 11

The Fund may not:

(2) Purchase any security (other than securities issued or guaranteed
as to principal or interest by the United States or its instrumentalities)
if, as a result, more than 5% of the Trust's total assets would be invested
in securities of a single issuer;

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

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

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

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

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

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

<PAGE> 12

(ii) obligations secured by the pledge of the faith, credit and taxing power
of any entity authorized to issue Municipal Obligations;

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

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

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

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

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

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

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

Although the Fund has the right to pledge, mortgage or hypothecate its
assets in order to comply with certain state statutes on investment
restrictions, the Fund will not, as a matter of operating policy (which
policy may be changed by the Trustees without shareholder approval), pledge,

<PAGE> 13

mortgage or hypothecate its portfolio securities to the extent that at any
time the percentage of pledged securities will exceed 10% of its total
assets.

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

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

YIELD AND RETURN COMPUTATION:
Performance and Portfolio Information

Computation of Yield and Return - In General

The return or yield of the Fund may, from time to time, be quoted in
reports, sales literature and advertisements published by the Fund, the
Fund's principal underwriter, or investment dealers offering shares issued by
the Trust. Any such quotation must include a standardized calculation which
computes yield for a 30-day or one month period by dividing the Fund's net
investment income per share during the period by the maximum offering price
on the last day of the period. The standardized calculation may include the
effect of semiannual compounding and will reflect amortization of premiums
for those bonds which have a market value in excess of par. New schedules
based on market value will be computed each month for amortizing premiums.
Provided that any such quotation also is accompanied by the standardized
calculation referred to above, the Fund also may quote non-standardized
performance data of its classes for a specified period by dividing the net
investment income per share for that period by either the Fund's average
public offering price per share for that same period or the offering price
per share on the first or last day of the period, and multiplying the result
by 365 divided by the number of days in the specified period. For purposes
of this non-standardized calculation net investment income will include
accrued interest income plus or minus any amortized purchase discount or
premium less accrued expenses. The primary differences between the yield
calculations obtained using the standardized performance measure and any
non-standardized performance measure will be caused by the following factors:
(1) The non-standardized calculation may cover periods other than the 30-day
or one month period required by the standardized calculation; (2) The
non-standardized calculation may reflect amortization of premium based upon
historical cost rather than market value. Amortization of premium based upon
historical cost is required by the Internal Revenue Service for tax reporting
purposes; (3) The non-standardized calculation may reflect the average
offering price per share for the period of the beginning offering price per
share for the period, whereas the standardized calculation will always

<PAGE> 14

reflect the maximum offering price per share on the last day of the period;
(4) the non-standardized calculation may reflect an offering price per share
other than the maximum offering price; provided that any time the Fund's
performance is quoted in reports, sales literature or advertisements using a
public offering price, the performance computed by using the Fund's maximum
public offering price also will be quoted in the same piece; and (5) The
non-standardized performance quotation may include the effective return
obtained by compounding the monthly dividends.

Any performance computation also must include average annual total
return quotations for the 1, 5 and 10 year periods ended on the date of the
most recent balance sheet included in the registration statement, computed by
finding the average annual compounded rates of return over such periods which
would equate the initial amount invested at the maximum public offering price
to the ending redeemable value. To the extent that a fund or a class has
been in operation less than 1, 5 and 10 years, the time period during which
the fund or the class has been in operation will be substituted for any 1, 5
or 10 year period for which a total return quotation is not obtainable.

Additional Portfolio and Performance Information

The Fund also may illustrate performance or the characteristics of its
investment portfolio or classes of the Fund through graphs, tabular data or
other displays which describe (i) the average portfolio maturity of the
Fund's portfolio securities relative to the maturities of other investments,
(ii) the relationship of yield and maturity of the Fund to the yield and
maturity of other investments (either as a comparison through use of standard
bench marks or indices such as the Treasury yield curve), (iii) changes in
the Fund's share price or net asset value relative to changes in the value of
other investments, and (iv) the relationship over time of changes in the
Fund's (or other investments') net asset value or price and the Fund's (or
other investments') investment return.

DISTRIBUTIONS AND TAXES

Distributions

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

<PAGE> 15

date, or, at the shareholder's option, paid in cash. See "Accounts of
Shareholders."

Federal Income Tax Matters

The Fund intends to qualify under Subchapter M of the Internal Revenue
Code (the "Code") for tax treatment as a regulated investment company. This
tax treatment relieves the Fund from paying federal income tax on income
which is currently distributed to its shareholders. The Fund also intends to
satisfy conditions (including requirements as to the proportion of its assets
invested in Municipal Obligations) which will enable it to designate
distributions from the interest income generated by its investments in
Municipal Obligations, which are exempt from federal income tax when received
by the Fund, as Exempt Interest Dividends. Individual shareholders receiving
Exempt Interest Dividends will not be subject to the federal personal income
tax on the amount of those dividends, except to the extent the alternative
minimum tax may be applicable.

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

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

Any net long-term capital gains realized by the Fund, whether
distributed in cash or reinvested in additional shares, must be treated as
long-term capital gains by shareholders regardless of the length of time
investors have held their shares. If the Fund should have net undistributed
capital gains in any year, the Fund would pay the tax on such gains and each
shareholder would be deemed, for federal tax purposes, to have paid his or
her pro rata share of such tax.

If in any year the Fund should fail to qualify under Subchapter M for
tax treatment as a regulated investment company, (i) the Fund would incur a
regular corporate federal income tax upon its net interest income, other than
interest income from Municipal Obligations, for that year, and (ii)
distributions to its shareholders out of net interest income from Municipal

<PAGE> 16

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

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

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

Although the Fund currently offers one class of shares at the date of
this Statement of Additional Information, the Fund's Trustees are authorized
to divide the shares into other separate series and classes, and to establish
additional portfolios pertaining to each series. Each additional series of
shares would relate to a separate investment portfolio that would be
different from the Fund covered by this Statement of Additional Information.
The Trust expects that it may create other separate state or regional
portfolios with investments concentrated in a particular state or region.
The additional separate portfolios may be attractive for investors seeking to
concentrate their investments and to minimize their liability for state
income taxes on interest income earned by the respective portfolios or for
minimizing taxes on intangibles, depending upon the particular states.
Separate series of the Trust will be treated under the Code as separate
corporations except with respect to the definitional requirements under
Section 851 (a) of the Code. The legislative history of the Tax Reform Act
of 1986, which amended the Code, indicates that the term "fund" means a
segregated portfolio of assets, the beneficial interest of which is owned by
the holders of a class or series of stock of the regulated investment company
that is preferred over all other classes or series in respect of such
portfolio of assets. The capital gains and losses of each series will belong
solely to the holders of the shares of that series and will not be aggregated
with the capital gains and losses of other series.

<PAGE> 17

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

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

<PAGE> 18

State and Local Tax Aspects

Exempt Interest Dividends paid by the Fund and attributable to interest
received by the Fund on Municipal Obligations originating in New York will be
exempt from personal income taxes imposed by New York State and New York City
on individuals resident in the state and the city, respectively. Exempt
Interest Dividends attributable to other Municipal Obligations, and dividends
attributable to interest on any taxable temporary investments and market
discount will not be exempt from those income taxes. Net capital gains
distributions by the Fund, if any, will be subject to New York State and New
York City personal income taxes, and gains realized on share redemptions
similarly will be subject to these taxes. Interest on indebtedness incurred
to purchase Fund shares will not be deductible in computing New York State
and New York City personal income taxes. Prospective investors are urged to
confer with their tax advisers to determine the specific tax consequences of
their investment in Fund shares. In particular, investors who are not
individuals should understand that the foregoing brief outline relates to
personal income taxes, and that a tax adviser should be consulted to
determine the tax consequences to those investors of holding Fund shares.

Accounts of Shareholders

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

The monthly distributions of interest income, net of expenses, and the
annual distributions of net realized capital gains, if any, will be credited
to the accounts of shareholders in full and fractional shares of the Fund at
net asset value on the payment or distribution date, as the case may be.

<PAGE> 19

INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS

Investment Advisory Agreement

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

TMC is investment adviser for Thornburg Limited Term Municipal Fund,
Inc., a series investment company with two fund series having aggregate
assets of approximately $1,030,602,000 as of June 30, 1996. TMC also acts as
investment adviser for Thornburg Limited Term U.S. Government Fund, Thornburg
Limited Term Income Fund, Thornburg Intermediate Municipal Fund, Thornburg
New Mexico Intermediate Municipal Fund, Thornburg Florida Intermediate
Municipal Fund and Thornburg Value Fund, separate series of the Trust which
had assets of $142,299,000, $26,925,000, $254,402,000, $131,307,000,
$19,501,000 and $16,704,000, respectively, as of September 30, 1996. TMC is
also a sub-adviser for Daily Tax-Free Income Fund, Inc., a registered
investment company.

TMC will provide continuous professional investment supervision under
the Investment Advisory Agreement. In addition to managing the Fund's
investments, TMC will administer the Fund's business affairs, provide office
facilities and certain related services. Pursuant to the Investment Advisory
Agreement, the Fund will pay to TMC a monthly management fee at an annual
percentage rate displayed in the Prospectus. All fees and expenses are
accrued daily and deducted before payment of dividends to investors. In
addition to the investment management fee of TMC, the Fund will pay all other
costs and expenses of its operations. The Fund also will bear the expenses
of registering and qualifying the Fund and the shares for distribution under
federal and state securities laws, including legal fees.

The Investment Advisory Agreement was approved for the Fund on March 12,
1997 by the Trustees of the Fund, including a majority of the Trustees who
are not "interested persons" (as defined in the 1940 Act) of the Fund or TMC,
and became effective for the Fund on June 6, 1997. The initial term of this
Agreement is two years, with extensions for successive 12-month periods,
provided that the continuation for the Fund is approved at least annually by
a majority of the Trustees who are not "interested" within the meaning of the
Investment Company Act of 1940 or by a vote of the majority of the Fund's
shares then outstanding.

<PAGE> 20

Administrative Services Agreement

Administrative services are provided to the sole class of shares issued
by the Fund under an Administrative Services Agreement which requires the
delivery of administrative functions necessary for the maintenance of the
shareholders of the class, supervision and direction of shareholder
communications, assistance and review in preparation of reports and other
communications to shareholders, administration of shareholder assistance,
supervision and review of bookkeeping, clerical, shareholder and account
administration and accounting functions, supervision or conduct of regulated
regulatory compliance and legal affairs, and review and administration of
functions delivered by outside service providers to or for shareholders, and
other related or similar functions as may from time to time be agreed. The
Administrative Services Agreement specific to the Fund's sole class of shares
provides that the class will pay a fee calculated at an annual percentage of
.125% of the class's average daily net assets, paid monthly, together with
any applicable sales or similar tax. Services are currently provided under
these agreements by TMC.

The agreement applicable to the class may be terminated by either party,
at any time without penalty, upon 60 days' written notice, and will terminate
automatically upon assignment. Termination will not affect the service
provider's right to receive fees earned before termination. The agreement
further provides that in the absence of willful misfeasance, bad faith or
gross negligence on the part of the service provider, or reckless disregard
of its duties thereunder, the provider will not be liable for any action or
failure to act in accordance with its duties thereunder.

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

SERVICE PLAN

The Fund has adopted a plan and agreement of distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940 ("Service Plan") which is
applicable to Class A shares of the Fund. The Plan permits the Fund to pay
to TMC (in addition to the management fee and reimbursements described above)
an annual amount not exceeding .25 of 1% of the Fund's assets (plus any
applicable sales, use, gross receipts, value added or other tax) attributable
to the class of shares to reimburse TMC for specific expenses incurred by it
in connection with certain shareholder services and the distribution of that
class's shares to investors. TMC may, but is not required to, expend
additional amounts from its own resources in excess of the currently
reimbursable amount of expenses. Reimbursable expenses include the payment
of amounts, including incentive compensation , to securities dealers and
other financial institutions, including banks (to the extent permissible
under the Glass-Steagall Act and other federal banking laws), for
administration and shareholder services. The nature and scope of services
provided by dealers and other entities likely will vary from entity to
entity, but may include, among other things, processing new account
applications, preparing and transmitting to the Transfer Agent computer
processable tapes of shareholder account transactions, and serving as a
source of information to customers concerning the Fund and transactions with

<PAGE> 21

the Fund. The Service Plan does not provide for accrued but unpaid
reimbursements to be carried over and paid to TMC in later years.

The Glass-Steagall Act prohibits certain banks from underwriting mutual
fund shares, but the Fund does not believe that this prohibition will apply
to the arrangements described in the Plan. 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 Fund's ability to market its shares
could be impaired to a small extent. The Fund does not foresee that it will
give preference to banks or other depository institutions which receive
payments from TMC when selecting investments for the Fund.

The Plan continues in effect for periods of 12 months each unless
terminated pursuant to its terms and may be continued from year to year
thereafter, provided that the continuance is approved at lease annually by a
vote of a majority of the Trustees, including a majority of the independent
Trustees cast in person at a meeting called for the purpose of voting on such
continuance. The Plan also may be terminated at any time, without penalty,
if a majority of the independent Trustees or shareholders of the Fund class
vote to terminate the Plan for that class. So long as the Plan is in effect,
the selection and nomination of Trustees who are not "interested persons" of
the Fund shall be committed to the discretion of the Trustees who are not
"interested persons." The Plan may not be amended to increase materially the
amount of the Fund's payments thereunder without approval of the shareholders
of the affected classes. Under the Plan, the investment adviser or the
principal underwriter (as the case may be), or the Fund, by a vote of a
majority of the independent Trustees or of the holders of a majority of the
outstanding shares, may terminate the provisions retaining the services of
TMC under the Plan, without penalty. The Trustees have the authority to
approve continuance of the Plan without similarly approving a continuance of
the provisions retaining TMC thereunder.

To the extent that the Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act, it will remain in effect as such,
so as to authorize the use of the Fund's assets in the amounts and for the
purposes set forth therein, notwithstanding the occurrence of an assignment,
as defined by the 1940 Act and the rules thereunder. To the extent it
constitutes an agreement pursuant to a plan, it will terminate automatically
in the event of an "assignment." Upon termination, no further payments may
be made under the agreement except for amounts previously accrued by unpaid.
The Fund may continue to make payments pursuant to the Plan of the amounts
authorized to be paid, which may or may not be to TMC or TSC, as the case may
be, or the adoption of other similar arrangements, in each case by the Fund's
Trustees, including a majority of the independent Trustees by vote cast in
person at a meeting called for that purpose.

Information regarding the services rendered under the Plan and the
amounts paid therefor is provided to, and reviewed by, the Trustees on a
quarterly basis.

PORTFOLIO TRANSACTIONS

TMC, in effecting purchases and sales of portfolio securities for the
accounts of the Fund, will place orders in such manner as, in the opinion of
TMC, will offer the best price and market for the execution of each

<PAGE> 22

transaction. Securities normally will be purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in
such securities, unless it appears that a better price or execution may be
obtained elsewhere. Purchases from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include the spread between the bid and asked price. Given the best
price and execution obtainable, it will be the practice of the Fund to select
dealers which, in addition, furnish research information (primarily credit
analyses of issuers) and statistical and other services to TMC. It is not
possible to place a dollar value on information and statistical and other
services received from dealers. Since it is only supplementary to TMC's own
research efforts, the receipt of research information is not expected
significantly to reduce TMC's expenses. In selecting among the firms
believed to meet the criteria for handling a particular transaction, TMC may
also give consideration to those firms which have sold or are selling shares
of the Fund. While TMC will be primarily responsible for the placement of
the Fund's business, the policies and practices of TMC in this regard must be
consistent with the foregoing and will at all times be subject to review by
the Trustees of the Fund.

TMC reserves the right to manage other investment companies and
investment accounts for other clients which may have investment objectives
similar to those of the Fund. Subject to applicable laws and regulations,
TMC will attempt to allocate equitably portfolio transactions among the Fund
and the portfolios of its other clients purchasing securities whenever
decisions are made to purchase or sell securities by the Fund and one or more
of such other clients simultaneously. In making such allocations the main
factors to be considered will be the respective investment objectives of the
Fund and such other clients, the size of investment commitments generally
held by the Fund and such other clients and opinions of the persons
responsible for recommending investments to the Fund and such other clients.
While this procedure could have a detrimental effect on the price or amount
of the securities available to the Fund from time to time, it is the opinion
of the Fund's Trustees that the benefits available from TMC's organization
will outweigh any disadvantage that may arise from exposure to simultaneous
transactions. The Trustees will review simultaneous transactions.

MANAGEMENT AND HOLDERS OF SECURITIES

The management of the Fund, including general supervision of the duties
performed by TMC under the Investment Advisory Agreement, is the
responsibility of its Trustees. There are six Trustees, two of whom are
"interested persons." The names of the Trustees and officers and their
principal occupations and other affiliations during the past five years are
set forth below, with the Trustees who are "interested persons" of the Fund
indicated by asterisks:

<PAGE> 23

Name / Position / Principal Occupation During Past 5 Years
- ----------------------------------------------------------

Forrest S. Smith, 66 / Trustee / Attorney in private practice, Santa Fe, New
Mexico; shareholder Catron, Catron & Sawtell (law firm), Santa Fe, New
Mexico, 1988 to present.

James W. Weyhrauch, 37 / Trustee / Executive Vice President and Director,
Nambe' Mills, Inc. (manufacturer), Santa Fe, New Mexico, 1986 to present.

Dawn B. Fischer, 49 / Secretary and Assistant Treasurer / Secretary,
Thornburg Limited Term Municipal Fund, Inc. since its formation in 1984; Vice
President, Daily Tax Free Income Fund, Inc. since 1989; Managing Director of
TMC since 1985 and a Vice President since January 1984.

<PAGE> 24

Susan Rossi, 35 / Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since July 1992; Associate of TMC
since June 1990.

Jonathan Ullrich, 27 / Assistant Vice President / Assistant Vice President of
Thornburg Limited Municipal Fund, Inc. since July 1992; Associate of TMC
since September 1991; student, Brown University, 1987 to 1991.

The business address of each person listed is 119 East Marcy Street,
Suite 202, Santa Fe, New Mexico 87501. Mr. Thornburg is a Director of TSC.

The officers and Trustees affiliated with TMC will serve without any
compensation from the Fund. The Trust currently pays each Trustee who is not
an employee of TMC or an affiliated company a quarterly fee of $1,000 plus a
fee of $500 for each meeting of the Trustees attended by the Trustee, pays an
annual stipend of $1,000 to each Trustee who serves on the audit committee or
any other committee the Trustees may establish, and reimburses Trustees for
travel and out-of-pocket expenses incurred in connection with attending
meetings. For the fiscal year of the Trust ended September 30, 1996, the
Trust paid the following amounts as compensation to Trustees:

J. Burchenal $7,500 - 0 - - 0 - $14,000
Ault

Forrest S. $7,500 - 0 - - 0 - $7,500
Smith

James W. $3,000 - 0 - - 0 - $3,000
Weyhrauch
</TABLE>

The Trust does not pay retirement or pension benefits.

<PAGE> 25

HOW TO PURCHASE FUND SHARES

Procedures with respect to the manner in which shares of the Fund may be
purchased and how the offering price is determined are set forth in the
Prospectus under the caption "BUYING FUND SHARES IN GENERAL."

The Prospectus states that certain classes of investors, specified
below, may purchase shares of the Fund at variations to the Public Scale.
The Trust may change or eliminate these variations at any time.

(1) Existing shareholders of the Fund may purchase shares upon the
reinvestment of dividends and capital gains distributions with no sales
charge. This practice is followed by many investment funds that charge sales
loads for new investments.

(2) Shareholders of the Fund who have redeemed all or any portion of
their investment in shares of the Fund may purchase shares with no sales
charge up to the maximum dollar amount of their shares redeemed within 24
months of the redemption date, provided that the shareholder's dealer or the
shareholder must notify TSC or the Transfer Agent at the time an order is
placed that such a purchase would qualify for this variation to the Public
Scale. Similar notifications must be made in writing by the dealer, the
broker, or the shareholder when the order is placed by mail. The sales
charge will not be eliminated if notification is not furnished at the time of
the order or a review of TSC's or the Transfer Agent's records fail to
confirm the investor's represented previous holdings.

(3) Persons may purchase shares of the Fund at no sales charge if they
redeem shares of the Fund or Class A shares of any other series of Thornburg
Investment Trust, or of any series of Thornburg Limited Term Municipal Fund,
Inc., and reinvest some or all of the proceeds within 24 months. The
shareholder's dealer or the shareholder must notify TSC or the Transfer Agent
at the time an order is placed that the purchase qualifies for this variation
to the Public Scale.

The special classes of shareholders in subsections (2) and (3) above
were created as a convenience for those shareholders who invest in the Fund
and subsequently make a decision to redeem all or part of their investment
for a temporary period. In some cases, the existence of this special class
of shareholders will act as further inducement for certain individuals to
make an initial investment in the Fund, particularly if those investors feel
that they might have a temporary need to redeem all or part of their
investment in the coming years. Shareholders who have previously invested in
funds managed by TMC are more familiar than the general public with the Fund,
its investment objectives, and its results. The costs to TSC of its
marketing to these individuals and maintaining the records of their prior
investment are minimal compared to the costs of marketing the Fund to the
public at large.

(4) Officers, Trustees, directors and employees of the Trust, TMC,
TSC, the Custodian and Transfer Agent, and counsel to the Trust, and members
of their families, including trusts for the benefit of the foregoing, may
purchase shares of the Fund with no sales charge, provided that they notify
TSC or the Transfer Agent at the time an order is placed that a purchase will

<PAGE> 26

qualify for this variation from the Public Scale. The sales charge will not
be eliminated if the notification is not furnished at the time of the order
or a review of Fund records fails to confirm that the investor's
representation is correct. The reduced sales charge to these persons is
based upon the Trust's view that their familiarity with and loyalty to the
Fund will require less selling effort by the Fund, such as a solicitation and
detailed explanation of the conceptual structure of the Fund, and less
sales-related expenses, such as advertising expenses, computer time, paper
work, secretarial needs, postage and telephone costs, than are required for
the sale of shares to the general public. Inclusion of the families of these
persons is based upon the Trust's view that the same economies exist for
sales of shares to family members.

(5) Employees of brokerage firms who are members in good standing with
the National Association of Securities Dealers, Inc. ("NASD"), employees of
financial planning firms who place orders for the Fund placed directly with
the Transfer Agent or TSC and through a broker/dealer who is a member in good
standing with the NASD, and employees of eligible non-NASD members which
accept orders for shares of the Fund on an agency basis and clear those
orders through a broker/dealer who is a member in good standing with NASD,
and their families, including trusts for the benefit of the foregoing, may
purchase shares of the Fund for themselves with no sales charge, provided
that (i) the order must be through a NASD member firm which has entered into
an agreement with TSC to distribute shares of the Fund, and (ii) the
shareholder's broker/dealer or the shareholder must notify TSC or the
Transfer Agent at the time an order is placed that the purchase would qualify
for this variation to the Public Scale. Similar notification must be made in
writing by the dealer, the broker, or the shareholder when such an order is
placed by mail. The reduced sales charge will not apply if the notification
is not furnished at the time of the order or a review of TSC's, the dealer's,
the broker's or the Transfer Agent's records fails to confirm that the
investor's representation is correct.

Because they sell the Fund's shares, these individuals tend to be much
more aware of the Fund than the general public. Any additional costs to TSC
of marketing to these individuals are minimal.

(6) Bank trust departments, companies with trust powers and investment
dealers and investment advisors who charge fees for service, and investment
dealers who utilize wrap fee and similar arrangements may purchase shares of
the Fund for their customers at no sales charge, provided that these persons
notify TSC or the Transfer Agent, at the time an order qualifying for this
reduced charge is placed, that such a purchase would qualify for this
variation to the Public Scale.

(7) Purchases of shares of the Fund may be made at net asset value
provided that such purchases are placed through a broker that maintains one
or more omnibus accounts with the Fund and such purchases are made by (i)
investment advisers or financial planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; (ii) clients of such investment
advisers or financial planners who place trades for their own accounts if the
accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker or agent; and (iii)
retirement and deferred compensation plans and trusts used to fund those
plans, including, but not limited to, those defined in Sections 401(a)

<PAGE> 27

through 403(b) or 457 of the Internal Revenue Code and "rabbi trusts."
Investors may be charged a fee if they effect transactions in Fund shares
through a broker or agent.

These organizations may charge fees to clients for whose accounts they
purchase shares of the Fund in a fiduciary capacity. Where the reduced sales
charge applies, notification is required at the time the order is received,
and a review of TSC's or Transfer Agent's records must confirm that the
investor's representation is correct.

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

The investment decisions of the persons and organizations described in
the preceding paragraph tend to be made by informed advisers. Typically,
these persons are better able than the general public to evaluate quickly the
appropriateness of the Fund's investment objectives and performance in light
of their customers' goals. Costs of marketing to these persons and
organizations likely will be minimal.

NET ASSET VALUE

Procedures for determining the net asset value of the Fund's shares are
set forth in the Prospectus.

The Fund will calculate the net asset value at least once daily on days
when the New York Stock Exchange is open for trading, and more frequently if
deemed desirable by the Trust. Net asset value will not be calculated on New
Year's Day, Washington's Birthday (on the third Monday in February), Good
Friday, Memorial Day (on the last Monday in May), Independence Day, Labor

<PAGE> 28

Day, Thanksgiving Day, Christmas Day, on the preceding Friday if any of the
foregoing holidays falls on a Saturday, and on the following Monday if any of
the foregoing holidays falls on a Sunday. Under the Investment Company Act
of 1940, net asset value must be computed at least once daily on each day
(i) in which there is a sufficient degree of trading in the Fund's portfolio
securities that the current net asset value of its shares might be materially
affected by changes in the value of such securities and (ii) on which an
order for purchase or redemption of its shares is received.

REDEMPTION OF SHARES

Procedures with respect to redemption of Fund shares are set forth in
the Prospectus under the caption "Selling Fund Shares."

The Fund may suspend the right of redemption or delay payment more than
seven days (a) during any period when the New York Stock Exchange is closed
(other than customary weekend and holiday closings), (b) when trading in the
markets the Fund normally utilize is restricted, or an emergency exists as
determined by the Securities and Exchange Commission so that disposal of the
Fund's investments or determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the Securities and Exchange
Commission by order may permit for protection of the shareholders of the
Fund.

DISTRIBUTOR

Pursuant to a Distribution Agreement with the Trust, Thornburg
Securities Corporation acts as the principal underwriter of Fund shares. The
Fund does not bear selling expenses except (i) those involved in registering
shares with the Securities and Exchange Commission and qualifying them or the
Fund with state regulatory authorities, and (ii) expenses paid under the
Service Plan which might be considered selling expenses. Terms of
continuation, termination and assignment under the Distribution Agreement are
identical to those described above with regard to the Investment Advisory
Agreement, except that termination other than upon assignment requires six
months' notice.

H. Garrett Thornburg, Jr. President, Treasurer and a Trustee of the
Trust, is also Director and controlling stockholder of TSC.

INDEPENDENT AUDITORS

McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, is
the independent auditor of the Fund for the fiscal year ending September 30,
1997. Shareholders will receive semi-annual unaudited financial statements,
and annual financial statements audited by the independent auditors.

<PAGE>
Item 2:
Mackenzie Series Trust Statement of Additional Information
dated October 25, 1996
is included as part of preceding
Statement of Additional Information.
<PAGE>
<PAGE> 1

<TABLE>
<CAPTION>
MACKENZIE
<S> <C> <C> <C> <C>
June 30, 1996

MACKENZIE MARKET COMMENTARY:
NEW YORK
MUNICIPAL During the first six months of the year been supported by a stable US treasury
FUND interest rates trended higher in response to market and high absolute levels of interest
faster than expected economic growth. rates.
Additionally, energy and grain prices went For the twelve months ended June 30,
up because of colder than normal weather 1996, the total return of the Mackenzie New
- -------------------- and low inventories of these commodities. York Municipal Fund was 5.11% without
ANNUAL On the labor front, a surprising number of sales charge. This compares with the average
REPORT new jobs were created and unemployment of all New York State Municipal Debt Funds
- -------------------- declined, leading to an increase in labor tracked by Lipper Analytical Services, Inc.
This report and the costs. Historically, these factors have pre- which was 5.54% for the same period. (For
financial statements saged an increase in inflation and as market the Fund's total return with sales charge and
contained herein are participants fear a repeat of the downturn in performance commentary, please see the
submitted for the general bond prices similar to 1994, the tone of the following page.)
information of the share- fixed income markets has swung dramati- As municipalities continue to focus on
holders. This report is cally from complacency to caution. improving their balance sheets, municipal
not authorized for distrib- Our research indicates the pace of credit fundamentals are enhanced. We
ution to prospective economic growth will moderate in the believe a stable supply of municipal issuance
investors unless preced- months to come as the economy is in the and increased demand should allow the
ed or accompanied by an later stages of a longer term economic municipal bond market to perform well in
effective prospectus. recovery. This deceleration should allay fears the months ahead.
of a resurgence of inflation. Additionally,
Mackenzie Investment the Federal Reserve Board is firmly commit- MACKENZIE INVESTMENT MANAGEMENT, INC.
Management Inc. ted to price stability and we expect that they
Via Mizner Financial will act to defend this mission. Monetary
Plaza policy is currently somewhat restrictive
700 South Federal Hwy. which should act as a brake on the economy
Boca Raton, FL 33432 over the near future.
1-800-456-5111 The municipal bond market continues
to outperform US treasuries. The most
predominant reason for the strength in the
municipal market is likely explained by a
shift in asset allocation. Equity investors,
who are uncomfortable with the increased
volatility of US stock markets, have been
rotating assets into municipal bond funds.
Should equity markets continue to experi-
ence volatility, we would expect this trend to
persist. The municipal bond market has also

---------------------------------------------------------------------------------------------------

BOARD OF TRUSTEES OFFICERS TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Michael G. Landry, Ivy Mackenzie Mackenzie Investment
Paul H. Broyhill President Services Corp. Management Inc.
Stanley Channick Keith J. Carlson, P.O. Box 3022 Boca Raton, FL
Frank W. DeFriece Vice President Boca Raton, FL
Roy J. Glauber C. William Ferris, 33431-0922 DISTRIBUTOR
Michael G. Landry Secretary/Treasurer 1-800-777-6472 Ivy Mackenzie
Joseph G. Rosenthal Distributors, Inc.
J. Brendan Swan CUSTODIAN AUDITORS Via Mizner Financial Plaza
Brown Brothers Coopers & Lybrand L.L.P. 700 South Federal Highway
LEGAL COUNSEL Harriman & Co. Fort Lauderdale, FL Boca Raton, FL 33432
Dechert Price Boston, MA
& Rhoads [LOGO IVY MACKENZIE]
Boston, MA

</TABLE>

<PAGE> 2

PERFORMANCE COMMENTARY
For the twelve months ended June 30, 1996, the Mackenzie New York Municipal Fund
had a total return of 5.11%. This compares with the average of all New York
State Municipal Debt Funds tracked by Lipper Analytical Services, Inc. which was
5.54% for the same period. The Fund's underperformance can be attributed to the
manager's decision to extend the average duration of the Fund as a means of
providing a higher level of tax-free income.

PERFORMANCE COMPARISON OF A $10,000
INVESTMENT SINCE INCEPTION OF THE FUND

COMPARISON CHART

All figures mentioned in the Market Commentary and in the chart and table
reflect past results and assume reinvestment of dividends and distributions from
capital gains. Future results will, of course, be different. The principal value
of the Mackenzie New York Municipal Fund will fluctuate and at redemption may be
worth more or less than the amount of the original investment.
The Lehman Bros. 5-Year Municipal Bond Index is an unmanaged index of municipal
bonds that assumes reinvestment of dividends and, unlike Fund returns, does not
reflect any fees or expenses.
Please note that Treasury Bills are short-term interest bearing instruments
which are guaranteed as to timely payment of principal and interest by the U.S.
Government.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
Because Class B shares bear the expense of a higher distribution fee it is
expected that the level of performance of the Fund 's Class B shares will be
lower than that of the Fund 's Class A shares.
Total returns in some periods were higher due to reimbursement of the Fund 's
expenses. See Financial Highlights.

<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
MACKENZIE NEW YORK MUNICIPAL FUND
FOR PERIOD ENDING 6/30/96
Class A*-with sales charge
Average Annual Class B**
Total Return Average Annual Total Return
- --------------------------------------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
- --------------------------------------------------------------------------------------------
w/CDSC w/o CDSC w/CDSC w/o CDSC
----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Yr. .12% (.09)% (.63)% 4.37% (.85)% 4.15%
- --------------------------------------------------------------------------------------------
5 Yr. 6.05% 5.88% -- -- -- --
- --------------------------------------------------------------------------------------------
Since Inception 6.49% 5.59% 3.92% 5.18% 3.73% 4.99%
- --------------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
<PAGE> 3

PORTFOLIO OF INVESTMENTS
JUNE 30, 1996

<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 97.5% PRINCIPAL VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA Bethlehem New York Central School District (GO) (NC) (AMBAC Insured), 7.10%,
11/01/06.......................................................................... $ 700,000 $ 807,625
Baa NR Canastota New York Central School District (GO) (NC), 7.10%, 06/15/07............... 215,000 241,069
Baa NR Canastota New York Central School District (GO) (NC), 7.10%, 06/15/08............... 205,000 229,600
NR BBB Guam Government (GO), 5.375%, 11/15/13.............................................. 1,000,000 890,000
NR BBB Guam Power Authority Revenue, 6.625%, 10/01/14...................................... 550,000 561,000
Baa1 BBB Metropolitan Transportation Authority Service Contract, 5.50%, 07/01/17............. 250,000 233,125
Aa NR Monroe County Industrial Development Agency, Depaul Community Facility (SONYMA
Insured), 6.45%, 02/01/14......................................................... 880,000 925,100
Baa1 BBB+ New York City (GO), 7.20%, 08/15/08................................................. 1,000,000 1,060,000
Baa1 BBB+ New York City (GO), 7.10%, 02/01/09................................................. 500,000 521,875
Baa1 BBB+ New York City (GO), 7.30%, 08/15/10................................................. 150,000 159,937
NR BBB+ New York City (GO), 7.30%, 08/15/10 (Pre-refunded).................................. 100,000 115,500
Baa1 BBB+ New York City (GO)(NC), 0.00%, 08/01/11............................................. 1,000,000 380,000
Baa1 BBB+ New York City (GO), 7.00%, 02/01/19................................................. 500,000 515,625
Baa BBB- New York City Health & Hospital Corporation Revenue, 6.30%, 02/15/20................ 1,500,000 1,421,250
Aa AA New York City Housing Development (FHA Insured), 5.85%, 05/01/26.................... 500,000 481,250
A A- New York City Municipal Water Finance Authority, 6.00%, 06/15/25.................... 500,000 496,875
A A- New York State (GO)(NC), 9.875%, 11/15/05........................................... 1,000,000 1,326,250
Baa1 BBB New York State Dormitory Authority, City University Series C, 6.00%, 07/01/16....... 1,000,000 973,750
NR AAA New York State Dormitory Authority, Jewish Geriatric (FHA Insured), 7.35%,
08/01/29.......................................................................... 500,000 551,875
NR AAA New York State Dormitory Authority, Parkridge, 7.85%, 02/01/29...................... 200,000 216,000
NR AA New York State Dormitory Authority, St. Lukes Home (FHA Insured), 6.375%,
08/01/35.......................................................................... 1,000,000 1,015,000
Baa1 BBB+ New York State Dormitory Authority, State University, 6.25%, 05/15/14............... 1,000,000 1,001,250
Baa1 BBB- New York State Dormitory Authority, Upstate Community College, 6.25%, 07/01/25...... 1,500,000 1,503,750
Aa AA- New York State Environmental Facilities Corporation Pollution Control Series B,
7.50%, 03/15/11................................................................... 400,000 434,500
Aa A- New York State Environmental Facilities Corporation Pollution Control Series E,
6.875%, 06/15/14.................................................................. 1,000,000 1,091,250
Aaa AAA New York State Housing Finance Agency -- State University Series A, 8.00%, 11/01/98
(Pre-refunded).................................................................... 30,000 33,037
Baa1 BBB New York State Housing Finance Agency Service Contract, 6.375%, 09/15/15............ 1,000,000 1,008,750
Baa BBB New York State Medical Care Facilities Financing Agency, 7.35%, 08/15/11............ 1,000,000 1,063,750
Aaa AAA New York State Medical Care Facilities Financing Agency (FHA Insured), 7.70%,
08/15/00
(Pre-refunded).................................................................... 500,000 565,000
Aa NR New York State Medical Care Facilities Finance Agency (SONYMA Insured), 6.00%,
11/15/02.......................................................................... 500,000 522,500
Aa NR New York State Medical Care Facilities Finance Agency (SONYMA Insured), 6.00%,
11/15/03.......................................................................... 500,000 522,500
Aa AAA New York State Medical Care Facilities Finance Agency Series C (FHA Insured), 7.70%,
08/15/98
(Pre-refunded).................................................................... 85,000 92,756
Aaa AAA New York State Medical Care Facilities Finance Agency -- Aurelia Osborn Fox Memorial
Hospital (FSA Insured), 6.50%, 11/01/19........................................... 650,000 673,563
Baa BBB New York State Medical Care Facilities Finance Agency -- Brookdale Hospital Medical
Center, 6.85%, 02/15/17........................................................... 1,000,000 1,023,750
A A New York State Medical Care Facilities Finance Agency -- Good Samaritan Hospital,
7.875%, 11/01/06.................................................................. 10,000 10,487
Baa BBB New York State Medical Care Facilities Finance Agency -- New York Downtown Hospital,
6.80%, 02/15/20................................................................... 500,000 505,625
Aaa AAA New York State Medical Care Facilities Finance Agency -- St. Lukes Hospital (FHA
Insured), 7.45%,
02/15/00 (Pre-refunded)........................................................... 600,000 665,250
Aa NR New York State Mortgage Agency Series B (Pool Insured), 6.45%, 04/01/15............. 1,000,000 1,015,000
Aa NR New York State Mortgage Agency Series BB (FHA Insured), 7.85%, 10/01/08............. 30,000 31,275
Aa NR New York State Mortgage Agency Series E (Pool Insured), 8.10%, 10/01/17............. 35,000 36,487
NR BBB+ New York State Municipal Bond Bank Agency -- Buffalo Series A, 6.875%, 03/15/06..... 1,000,000 1,066,250
Aaa BBB New York State Urban Development Corporation, 7.50%, 04/01/01 (Pre-refunded)........ 1,000,000 1,131,250
Baa1 BBB New York State Urban Development Corporation Correctional Facilities (NC), 0.00%,
01/01/08.......................................................................... 1,000,000 507,500
Aaa AAA New York State Urban Development Series C (AMBAC Insured), 7.75%, 01/01/98
(Pre-refunded).................................................................... 30,000 32,175
Aaa AAA New York State Urban Development Series D (AMBAC Insured), 7.75%, 01/01/98
(Pre-refunded).................................................................... 70,000 75,075
Baa BBB Oneida-Herkimer New York Solid Waste Management Authority, 6.75%, 04/01/14.......... 1,000,000 1,007,500
NR A Onondaga County New York Industrial Revenue Agency, Crouse Irving Co. Series A,
7.90%, 01/01/17................................................................... 2,000,000 2,195,000
Baa1 A Puerto Rico Commonwealth (GO)(NC), 5.10%, 07/01/02.................................. 100,000 101,000
NR BBB- Puerto Rico Educational, Medical & Environmental Control Facilities, 5.70%,
08/01/13.......................................................................... 250,000 229,688
Aaa AAA Puerto Rico Electric Power Authority Power Revenue (FSA Insured), 8.278%,
07/01/23(a)....................................................................... 1,000,000 986,250
Baa1 A- Puerto Rico Electric Power Authority Series N, 5.00%, 07/01/12...................... 750,000 679,687
Baa1 A- Puerto Rico Municipal Finance Agency (GO), 5.70%, 07/01/03.......................... 500,000 513,750
Aa NR Schenectady New York Municipal Housing Authority -- Annie Schaffer Senior Center
(SONYMA Insured), 6.40%, 05/01/14................................................. 650,000 650,813
Aaa AAA South Hampton Village New York Series B (NC) (MBIA Insured), 7.60%, 09/01/03........ 100,000 116,500
</TABLE>

(See Notes to Financial Statements)
<PAGE> 4

PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1996

<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES PRINCIPAL VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A1 A- Triborough Bridge & Tunnel Authority New York Series B, 6.875%, 01/01/15............ $ 500,000 $ 535,625
Baa BBB+ Ulster County New York Resource Recovery Agency, 6.00%, 03/01/14.................... 1,000,000 953,750
Aaa AAA Valley Central School District New York (GO)(NC)(AMBAC Insured), 7.15%, 06/15/07.... 625,000 721,094
Aaa AAA Watkins Glen New York Central School District (NC) (MBIA Insured), 7.25%,
06/15/04............................................................................ 165,000 189,338
Aaa AAA Waverly New York (GO)(NC)(MBIA Insured), 9.05%, 06/15/04............................ 110,000 139,838
-----------
TOTAL INVESTMENTS -- 97.5%
(Cost -- $35,968,859)*.............................................................. 36,755,269
OTHER ASSETS, LESS LIABILITIES -- 2.5%.............................................. 955,036
-----------
NET ASSETS -- 100%.................................................................. $37,710,305
===========
*Cost is approximately the same for Federal income tax purposes.
(a) Inverse floating rate note; interest rate bears an inverse relationship to
movements in market rates.
AMBAC - AMBAC Indemnity Corporation
FHA - Federal Housing Administration
FSA - Financial Security Association
GO - General Obligation
MBIA - Municipal Bond Insurance Association
NC - Non Callable
NR - Not Rated
SONYMA - State of New York Mortgage Agency
OTHER INFORMATION:
At June 30, 1996, net unrealized appreciation based on cost for financial statement
and Federal income tax purposes is as follows:
Gross unrealized appreciation................................................................ $ 1,304,970
Gross unrealized depreciation................................................................ (518,560)
-----------
Net unrealized appreciation......................................................... $ 786,410
===========
Purchases and sales of municipal securities aggregated $13,668,715 and $17,121,090,
respectively, for the period ended June 30, 1996.
</TABLE>

(See Notes to Financial Statements)
<PAGE> 5

STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996

<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $35,968,859).............................................................. $36,755,269
Cash................................................................................................................ 260,641
Receivables:
Interest.......................................................................................................... 709,220
Manager for expense reimbursement................................................................................. 6,677
Deferred organization expenses...................................................................................... 5,518
Other assets........................................................................................................ 7,150
-----------
Total assets...................................................................................................... 37,744,475
-----------
LIABILITIES
Payables:
Management fee.................................................................................................... 16,506
12b-1 service and distribution fees............................................................................... 8,646
Administrative services fee....................................................................................... 3,001
Fund accounting................................................................................................... 2,600
Transfer agent.................................................................................................... 3,417
-----------
Total liabilities................................................................................................. 34,170
-----------
NET ASSETS.......................................................................................................... $37,710,305
===========
CLASS A:
Net asset value and redemption price per share ($35,532,514 / 3,655,558 shares outstanding)......................... $ 9.72
===========
Maximum offering price per share ($9.72 x 100 / 95.25)*............................................................. $ 10.20
===========
CLASS B:
Net asset value and offering price per share ($2,177,791 / 224,085 shares outstanding)**............................ $ 9.72
===========
NET ASSETS CONSIST OF:
Capital paid-in................................................................................................... $37,044,627
Accumulated net realized loss on investments...................................................................... (179,415)
Accumulated undistributed net investment income................................................................... 58,683
Net unrealized appreciation on investments........................................................................ 786,410
-----------
NET ASSETS.......................................................................................................... $37,710,305
===========
</TABLE>

* On sales of more than $100,000 the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less any
applicable contingent deferred sales charge.

(See Notes to Financial Statements)
<PAGE> 6

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996

<TABLE>
<S> <C> <C>
Investment income
Interest................................................................................................ $2,544,845
----------
Expenses
Management fee.......................................................................................... $222,574
Transfer agent.......................................................................................... 39,932
Administrative services fee............................................................................. 40,468
Custodian fees.......................................................................................... 9,076
Blue Sky fees........................................................................................... 21,311
Auditing and accounting fees............................................................................ 30,077
Shareholder reports..................................................................................... 5,087
Amortization of organization expenses................................................................... 1,994
Fund accounting......................................................................................... 29,975
Trustees' fees.......................................................................................... 4,860
12b-1 service and distribution fees
Class A............................................................................................... 96,899
Class B............................................................................................... 17,083
Legal................................................................................................... 23,931
Other................................................................................................... 6,052
----------
549,319
Expenses reimbursed by manager.......................................................................... (83,090)
Fees paid indirectly.................................................................................... (8,268)
----------
Net expenses.......................................................................................... 457,961
----------
NET INVESTMENT INCOME..................................................................................... 2,086,884
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments........................................................................ 310,443
Net unrealized depreciation during the period on investments............................................ (341,320)
----------
Net loss on investments............................................................................... (30,877)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................................... $2,056,007
==========
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 30, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations:
Net investment income............................................................................... $2,086,884 $ 2,169,541
Net realized gain (loss) on investments............................................................. 310,443 (585,293)
Net unrealized appreciation (depreciation) during the period on investments......................... (341,320) 1,586,449
----------- -----------
Net income resulting from operations.............................................................. 2,056,007 3,170,697
----------- -----------
Class A distributions
From net investment income.......................................................................... (1,940,675) (2,117,451)
In excess of net investment income.................................................................. -- (99,132)
----------- -----------
Total distributions to Class A shareholders....................................................... (1,940,675) (2,216,583)
----------- -----------
Class B distributions
From net investment income.......................................................................... (72,015) (52,090)
In excess of net investment income.................................................................. -- (3,220)
----------- -----------
Total distributions to Class B shareholders....................................................... (72,015) (55,310)
----------- -----------
Fund share transactions (Note 5):
Class A............................................................................................. (4,808,441) (2,914,177)
Class B............................................................................................. 749,118 543,756
----------- -----------
Net decrease resulting from Fund share transactions............................................... (4,059,323) (2,370,421)
----------- -----------
TOTAL DECREASE IN NET ASSETS.......................................................................... (4,016,006) (1,471,617)
NET ASSETS
Beginning of period................................................................................. 41,726,311 43,197,928
----------- -----------
END OF PERIOD....................................................................................... $37,710,305 $41,726,311
=========== ===========
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)................................................ $ 58,683 $ (15,511)
=========== ===========
</TABLE>

(See Notes to Financial Statements)
<PAGE> 7

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
CLASS A FOR THE YEAR ENDED JUNE 30,
---------------------------------------------------------------
SELECTED PER SHARE DATA 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of the period........................ $ 9.72 $ 9.50 $ 10.10 $ 9.96 $ 9.56
------- ------- ------- ------- -------
Income from investment operations
Net investment income(a)...................................... .51 .48 .56 .58 .51
Net gain (loss) on investments (both realized and
unrealized)................................................. (.02) .24 (.49) .38 .62
------- ------- ------- ------- -------
Total from investment operations............................ .49 .72 .07 .96 1.13
------- ------- ------- ------- -------
Less distributions
From net investment income.................................... .49 .48 .56 .58 .51
In excess of net investment income............................ -- .02 -- -- .09
From net realized gain........................................ -- -- .11 .24 .13
------- ------- ------- ------- -------
Total distributions......................................... .49 .50 .67 .82 .73
------- ------- ------- ------- -------
Net asset value, end of period.................................. $ 9.72 $ 9.72 $ 9.50 $ 10.10 $ 9.96
======= ======= ======= ======= =======
Total return(%)(b).............................................. 5.11 7.93 .58 10.07 12.15
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)........................ $35,533 $40,290 $42,329 $42,187 $32,755
Ratio of expenses to average net assets:
With expense reimbursement and fees paid indirectly(%)(c)..... 1.10 1.10 1.10 1.10 1.10
Without expense reimbursement and fees paid
indirectly(%)(c)............................................ 1.33 1.24 1.21 1.29 1.25
Ratio of net investment income to average net assets(%)(a)...... 5.19 5.12 5.59 5.81 5.66
Portfolio turnover rate(%)...................................... 35 59 44 87 24
</TABLE>

<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 1, 1994
FOR THE YEAR ENDED (COMMENCEMENT)
CLASS B JUNE 30, TO JUNE 30,
------------------- --------------
SELECTED PER SHARE DATA 1996 1995 1994
------ ------ --------------
<S> <C> <C> <C>
Net asset value, beginning of the period............................................... $ 9.72 $ 9.50 $ 9.65
------ ------ -----
Income from investment operations
Net investment income(a)............................................................. .44 .41 .10
Net gain (loss) on investments (both realized and unrealized)........................ (.02) .24 (.08)
------ ------ -----
Total from investment operations................................................... .42 .65 .02
------ ------ -----
Less distributions
From net investment income........................................................... .42 .41 .14
In excess of net investment income................................................... -- .02 --
From net realized gain............................................................... -- -- .03
------ ------ -----
Total distributions................................................................ .42 .43 .17
------ ------ -----
Net asset value, end of period......................................................... $ 9.72 $ 9.72 $ 9.50
====== ====== ==============
Total return(%)........................................................................ 4.37(b) 7.14(b) .20(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)............................................... $2,178 $1,436 $ 869
Ratio of expenses to average net assets:
With expense reimbursement and fees paid indirectly(%)(c)............................ 1.85 1.85 1.85(e)
Without expense reimbursement and fees paid indirectly(%)(c)......................... 2.08 1.99 1.96(e)
Ratio of net investment income to average net assets(%)(a)............................. 4.44 4.37 4.84(e)
Portfolio turnover rate(%)............................................................. 35 59 44
</TABLE>
(a) Net investment income is net of expenses reimbursed by manager.
(b) Total return does not reflect a sales charge.
(c) Beginning in July 1995, total expenses include fees paid indirectly
through an expense offset arrangement.
(d) Total return represents aggregate total return and does not reflect a
sales charge.
(e) Annualized.

(See Notes to Financial Statements)
<PAGE> 8

NOTES TO FINANCIAL STATEMENTS

Mackenzie New York Municipal Fund (the Fund) is a series of shares of
Mackenzie Series Trust. The shares of beneficial interest are $.001 par value
and an unlimited number of shares of Class A and Class B are authorized.
Mackenzie Series Trust was organized as a Massachusetts business trust under a
Declaration of Trust dated April 22, 1985 and is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on the trade date. Interest income is accrued on a daily basis.
Realized gains and losses from securities transactions are calculated on an
identified cost basis.

The Fund has a net tax-basis capital loss carryforward of approximately
$179,000 as of June 30, 1996 which may be applied against any realized net
taxable gains of each succeeding fiscal year until fully realized or until the
expiration date, whichever occurs first. The carryforward expires $171,000 in
2003 and $8,000 in 2004.

DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are declared monthly and net realized capital gains, if any, are declared in
June. An additional distribution may be declared if necessary to avoid the
payment of a four percent Federal excise tax.

For the Fund's taxable year ended June 30, 1996, 100% of distributions paid
were exempt interest dividends for Federal income tax purposes.

2. RELATED PARTIES

Mackenzie Investment Management, Inc. (MIMI) is the Manager and Investment
Adviser of the Fund. For its services, MIMI receives a fee monthly at the annual
rate of .55% of the Fund's average net assets.

If the Fund's total expenses in any fiscal year (excluding interest, taxes,
brokerage commissions, extraordinary expenses and other expenses subject to
approval by state securities administrators) exceed limits applicable under
state securities laws, MIMI will bear the excess expenses. Currently, MIMI
voluntarily limits the Fund's total operating expenses (excluding taxes, 12b-1
fees, brokerage commissions, interest, litigation and indemnification expenses,
and other extraordinary expenses) to an annual rate of .85% of its average net
assets. The voluntary expense limitation may be terminated or revised at any
time. Expenses reimbursed by manager reflected in the Statement of Operations
consists of a voluntary reimbursement.

3. BOARD'S COMPENSATION

Trustees who are not affiliated with MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.

4. CONCENTRATION OF CREDIT RISK

The Fund primarily invests in debt obligations issued by the State of New
York and its political subdivisions, agencies and public authorities to obtain
funds for various public purposes. The Fund is more susceptible to factors
adversely affecting issuers of New York securities than is a municipal bond fund
that is not concentrated in these issuers to the same extent.
<PAGE> 9

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. FUND SHARE TRANSACTIONS

Fund share transactions for both Class A and Class B were as follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
---------------------- ----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------------------------------ -------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 150,497 $ 1,481,105 384,267 $ 3,640,567
Issued on reinvestment of
distributions................ 118,551 1,162,655 131,027 1,233,019
Repurchased................... (758,400) (7,452,201) (828,084) (7,787,763)
-------- ----------- -------- -----------
Net decrease.................. (489,352) $(4,808,441) (312,790) $(2,914,177)
========== ============= ========== =============
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
---------------------- ----------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------------------------------ -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 90,800 $ 891,763 84,053 $ 802,583
Issued on reinvestment of
distributions................ 4,201 41,183 2,532 23,881
Repurchased................... (18,664) (183,828) (30,370) (282,708)
-------- ----------- -------- -----------
Net increase.................. 76,337 $ 749,118 56,215 $ 543,756
========== ============= ========== ===========
</TABLE>

- --------------------------------------------------------------------------------

REPORT OF INDEPENDENT ACCOUNTANTS

To The Shareholders and
Board of Trustees of
Mackenzie New York Municipal Fund (the Fund)

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1996 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

COOPERS & LYBRAND L.L.P.

Fort Lauderdale, Florida
August 15, 1996

MNYMF-2-896
<PAGE>
<PAGE> 1
DECEMBER 31, 1996 [MACKENZIE LOGO]

MACKENZIE NEW YORK MUNICIPAL FUND

MARKET COMMENTARY:

Overall, fixed income markets in 1996 were marked by unfulfilled
expectations and interest rate volatility. Following a quarter point decrease
in the discount rate in January 1996, there were several indicators pointing to
increased economic growth--increased wage pressure, higher petroleum and grain
prices, a strong dollar and full employment--and bond markets responded by
pushing interest rates higher.
Later in the year, market participants watched guardedly for inflation
to rear its head. However, US Gross Domestic Product (GDP) and the Consumer
Price Index (CPI) continued to reflect moderate growth which resulted in
interest rates coming down, only to rise again by year end.
The municipal bond market also had to contend with interest rate
volatility and inflationary pressures caused by increased economic growth, as
well as first quarter concerns about proposed tax reform. We believe continued
evidence of a moderating economy should, however, keep interest rates in a
trading range and inflation should remain low. But the threat of tax reform
still looms. A Republican-controlled Congress could bring tax reform and
related issues to the forefront once again. The demand for municipal bonds
has, however, remained strong as supply continued to decrease from its high in
1993.
Municipal credit rating agencies have come under fire for not detecting
fiscal problems early enough to warn investors. We believe it will be
important, therefore, to focus on higher credit quality and strong underlying
fundamentals in the coming year.
The Mackenzie New York Municipal Fund maintains its disciplined
investment aproach and focus on investment grade bonds. With an average
maturity of just more than 16 years and broad diversification across many
issuers, we believe this Fund should provide conservative tax-free investors
with a good balance of yield and return.

MACKENZIE INVESTMENT MANAGEMENT, INC.

</TABLE>
<PAGE> 2

PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 97.6% PRINCIPAL VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaa AAA Bethlehem New York Central School District (GO) (NC) (AMBAC
Insured), 7.10%, 11/01/06................................. $ 700,000 $ 822,500
Aaa AAA Brookhaven New York Series A (MBIA Insured)(GO)(NC), 7.00%,
11/01/06.................................................. 300,000 341,625
Baa NR Canastota New York Central School District (GO) (NC), 7.10%,
06/15/07.................................................. 215,000 245,638
Baa NR Canastota New York Central School District (GO) (NC), 7.10%,
06/15/08.................................................. 205,000 234,212
NR BBB Guam Government (GO), 5.375%, 11/15/13...................... 1,000,000 930,000
NR BBB Guam Power Authority Revenue, 6.625%, 10/01/14.............. 550,000 576,125
Baa1 BBB Metropolitan Transportation Authority Service Contract,
5.50%, 07/01/04........................................... 500,000 544,375
Baa1 BBB Metropolitan Transportation Authority Service Contract,
5.15%, 07/01/17........................................... 250,000 240,625
Aa NR Monroe County Industrial Development Agency, Depaul
Community Facility (SONYMA Insured), 6.45%, 02/01/14...... 880,000 944,900
Baa1 BBB+ New York City (GO), 7.20%, 08/15/08......................... 1,000,000 1,095,000
Baa1 BBB+ New York City (GO), 7.10%, 02/01/09......................... 500,000 539,375
Baa1 BBB+ New York City (GO), 7.30%, 08/15/10......................... 150,000 163,688
Baa1 BBB+ New York City (GO), 7.30%, 08/15/10 (Pre-refunded).......... 100,000 116,875
Baa1 BBB+ New York City (GO), 7.00%, 02/01/19......................... 500,000 531,875
Baa BBB- New York City Health & Hospital Corporation Revenue, 6.30%,
02/15/20.................................................. 1,500,000 1,485,000
Aa AA New York City Housing Development (FHA Insured), 5.85%,
05/01/26.................................................. 500,000 495,625
A A- New York City Municipal Water Finance Authority, 6.00%,
06/15/25.................................................. 500,000 506,875
A A- New York State (GO)(NC), 9.875%, 11/15/05................... 1,000,000 1,345,000
Baa1 BBB New York State Dormitory Authority -- City University Series
C, 6.00%, 07/01/16........................................ 1,000,000 1,002,500
NR AAA New York State Dormitory Authority, Jewish Geriatric (FHA
Insured), 7.35%, 08/01/29................................. 500,000 560,000
NR AAA New York State Dormitory Authority -- Parkridge, 7.85%,
02/01/29.................................................. 200,000 214,500
NR AA New York State Dormitory Authority, St. Lukes Home (FHA
Insured), 6.375%, 08/01/35................................ 1,000,000 1,037,500
Baa1 BBB+ New York State Dormitory Authority, State University, 6.25%,
05/15/14.................................................. 1,000,000 1,025,000
Baa1 BBB- New York State Dormitory Authority, Upstate Community
College, 6.25%, 07/01/25.................................. 1,500,000 1,516,875
Aa AA- New York State Environmental Facilities Corporation
Pollution Control Series B, 7.50%, 03/15/11............... 400,000 432,500
Aa A- New York State Environmental Facilities Corporation
Pollution Control Series E, 6.875%, 06/15/14.............. 1,000,000 1,107,500
Aaa AAA New York State Housing Finance Agency -- State University
Series A, 8.00%, 11/01/98
(Pre-refunded)............................................ 30,000 32,625
Baa1 BBB New York State Housing Finance Agency Service Contract,
6.375%, 09/15/15.......................................... 1,000,000 1,026,250
Baa BBB New York State Medical Care Facilities Financing Agency
7.35%, 08/15/11........................................... 1,000,000 1,072,500
Aaa AAA New York State Medical Care Facilities Financing Agency (FHA
Insured), 7.70%, 08/15/00
(Pre-refunded)............................................ 500,000 565,000
Aa NR New York State Medical Care Facilities Finance Agency
(SONYMA Insured), 6.00%, 11/02/02......................... 250,000 266,250
Aa NR New York State Medical Care Facilities Finance Agency
(SONYMA Insured), 6.00%, 11/15/03......................... 500,000 534,375
Aa AAA New York State Medical Care Facilities Finance Agency Series
C (FHA Insured), 7.70%, 08/15/98 (Pre-refunded)........... 85,000 91,694
Aaa AAA New York State Medical Care Facilities Finance
Agency -- Aurelia Osborn Fox Memorial Hospital (FSA
Insured), 6.50%, 11/01/19................................. 650,000 688,187
Baa BBB New York State Medical Care Facilities Finance
Agency -- Brookdale Hospital Medical Center,
6.85%, 02/15/17........................................... 1,000,000 1,046,250
A A New York State Medical Care Facilities Finance
Agency -- Good Samaritan Hospital, 7.875%, 11/01/06....... 10,000 10,408
Baa BBB New York State Medical Care Facilities Finance Agency -- New
York Downtown Hospital, 6.80%, 02/15/20................... 500,000 516,875
Aaa AAA New York State Medical Care Facilities Finance Agency -- St.
Lukes Hospital (FHA Insured),
7.45%, 02/15/00 (Pre-refunded)............................ 600,000 665,250
Aa NR New York State Mortgage Agency Series B (Pool Insured),
6.45%, 04/01/15........................................... 1,000,000 1,025,000
Aa NR New York State Mortgage Agency Series BB (FHA Insured),
7.85%, 10/01/08........................................... 30,000 31,160
Aa NR New York State Mortgage Agency Series E (Pool Insured),
8.10%, 10/01/17........................................... 35,000 36,313
NR BBB+ New York State Municipal Bond Bank Agency -- Buffalo Series
A, 6.875%, 03/15/06....................................... 1,000,000 1,073,750
Baa1 BBB New York State Urban Development Corporation Correctional
Facilities (NC), 0.00%, 01/01/08.......................... 2,000,000 1,072,500
Aaa AAA New York State Urban Development Series C (AMBAC Insured),
7.75%, 01/01/98 (Pre-refunded)............................ 30,000 31,759
Aaa AAA New York State Urban Development Series D (AMBAC Insured),
7.75%, 01/01/98 (Pre-refunded)............................ 70,000 74,105
Baa BBB Oneida-Herkimer New York Solid Waste Management Authority,
6.75%, 04/01/14........................................... 1,000,000 1,030,000
NR A Onondaga County New York Industrial Revenue Agency, Crouse
Irving Series A, 7.90%, 01/01/17.......................... 2,000,000 2,205,000
NR BBB- Puerto Rico Educational, Medical & Environmental Control
Facilities, 5.70%, 08/01/13............................... 250,000 235,000
Baa1 A Puerto Rico Commonwealth Capital Appreciation, 0.00%,
07/01/04.................................................. 400,000 274,500
Baa1 A- Puerto Rico Electric Power Authority Series N, 5.00%,
07/01/12.................................................. 750,000 700,312
Aa NR Schenectady NY Municipal Housing Authority -- Annie Schaffer
Senior Center
(SONYMA Insured), 6.40%, 05/01/14......................... 650,000 658,937
Aaa AAA South Hampton Village New York Series B (NC) (MBIA Insured),
7.60%, 09/01/03........................................... 100,000 117,250
A1 A- Triborough Bridge & Tunnel Authority New York Series B,
6.875%, 01/01/15.......................................... 500,000 536,875
</TABLE>

(See Notes to Financial Statements)

<PAGE> 3

PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996 (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -----------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES PRINCIPAL VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Baa BBB+ Ulster County New York Resource Recovery Agency, 6.00%,
03/01/14.................................................. $1,000,000 $ 976,250
Aaa AAA Valley Central School District New York (GO)(NC)(AMBAC
Insured), 7.15%, 06/15/07................................. 625,000 733,594
Aaa AAA Watkins Glen New York Central School District (NC) (MBIA
Insured), 7.25%, 06/15/04................................. 165,000 190,988
Aaa AAA Waverly New York (GO)(NC)(MBIA Insured), 9.05%, 06/15/04.... 110,000 140,525
-----------
TOTAL INVESTMENTS -- 97.6% (Cost -- $34,413,426)*........... 35,715,170
OTHER ASSETS, LESS LIABILITIES -- 2.4%...................... 896,036
-----------
NET ASSETS -- 100%.......................................... $36,611,206
===========
</TABLE>

* Cost is approximately the same for Federal income tax
purposes.

OTHER INFORMATION:

At December 31, 1996, net unrealized appreciation based on
cost for financial statement and Federal income tax
purposes is as follows:

<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation............................... $ 1,609,802
Gross unrealized depreciation............................... (308,058)
-----------
Net unrealized appreciation................................. $ 1,301,744
===========

</TABLE>

Purchases and sales of municipal securities aggregated
$2,368,110 and $4,088,780, respectively, for the period
ended December 31, 1996.
AMBAC -- AMBAC Indemnity Corporation
FHA -- Federal Housing Administration
FSA -- Financial Security Association
GO -- General Obligation
MBIA -- Municipal Bond Insurance Association
NC -- Non Callable
SONYMA -- State of New York Mortgage Agency

(See Notes to Financial Statements)

<PAGE> 4

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996 (UNAUDITED)

<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $34,413,426)...... $35,715,170
Cash........................................................ 331,127
Receivables
Fund shares sold.......................................... 3,121
Interest.................................................. 668,061
Manager for expense reimbursement......................... 10,153
Other assets................................................ 15,068
-----------
Total assets.............................................. 36,742,700
-----------
LIABILITIES
Payables
Distributions to shareholders............................. 399
Fund shares repurchased................................... 90,799
Management fee............................................ 17,273
12b-1 service and distribution fees....................... 9,747
Other payables to related parties......................... 9,487
Other accrued expenses...................................... 3,789
-----------
Total liabilities......................................... 131,494
-----------
NET ASSETS.................................................. $36,611,206
===========
CLASS A
Net asset value and redemption price per share ($34,145,073
/ 3,463,320 shares outstanding)........................... $ 9.86
===========
Maximum offering price per share ($9.86 x 100 / 95.25)*..... $ 10.35
===========
CLASS B
Net asset value and offering price per share ($2,466,133 /
250,106 shares outstanding)**............................. $ 9.86
===========
NET ASSETS CONSIST OF:
Capital paid-in........................................... $35,404,554
Accumulated net realized loss on investments.............. (50,907)
Accumulated net investment loss........................... (44,185)
Net unrealized appreciation on investments................ 1,301,744
-----------
NET ASSETS.................................................. $36,611,206
===========
</TABLE>

* On sales of more than $100,000 the offering price is reduced.
** Redemption price per share is equal to the net asset value per share less any
applicable contingent deferred sales charge.

(See Notes to Financial Statements)

<PAGE> 5

STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED)

<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................. $1,178,724
----------
EXPENSES
Management fee............................................ $103,979
Transfer agent............................................ 22,645
Administrative services fee............................... 18,905
Custodian fees............................................ 2,037
Blue Sky fees............................................. 6,933
Auditing and accounting fees.............................. 15,963
Shareholder reports....................................... 2,947
Fund accounting........................................... 15,360
Trustees' fees............................................ 2,496
12b-1 service and distribution fees....................... 56,245
Legal..................................................... 13,869
Other..................................................... 4,341
----------
265,720
Expenses reimbursed by manager............................ (48,702)
----------
Net expenses............................................ 217,018
----------
NET INVESTMENT INCOME....................................... 961,706
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments.......................... 128,508
Net unrealized appreciation during the period on
investments............................................. 515,334
----------
Net gain on investments................................. 643,842
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $1,605,548
==========
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE
ENDED YEAR ENDED
DECEMBER 31, JUNE 30,
------------ -----------
1996* 1996
------------ -----------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations
Net investment income..................................... $ 961,706 $ 2,086,884
Net realized gain on investments.......................... 128,508 310,443
Net unrealized appreciation (depreciation) during the
period on investments................................... 515,334 (341,320)
----------- -----------
Net income resulting from operations.................... 1,605,548 2,056,007
----------- -----------
Class A distributions
From net investment income................................ (908,938) (1,940,675)
In excess of net investment income........................ (97,546) --
----------- -----------
Total distributions to Class A shareholders............. (1,006,484) (1,940,675)
----------- -----------
Class B distributions
From net investment income................................ (52,768) (72,015)
In excess of net investment income........................ (5,322) --
----------- -----------
Total distributions to Class B shareholders............. (58,090) (72,015)
----------- -----------
Fund share transactions (Note 5)
Class A................................................... (1,894,330) (4,808,441)
Class B................................................... 254,257 749,118
----------- -----------
Net decrease resulting from Fund share transactions..... (1,640,073) (4,059,323)
----------- -----------
TOTAL DECREASE IN NET ASSETS................................ (1,099,099) (4,016,006)
NET ASSETS
Beginning of period....................................... 37,710,305 41,726,311
----------- -----------
END OF PERIOD............................................. $36,611,206 $37,710,305
=========== ===========
ACCUMULATED NET INVESTMENT INCOME (LOSS).................... $ (44,185) $ 58,683
=========== ===========
</TABLE>

* Unaudited.

(See Notes to Financial Statements)

<PAGE> 6

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FOR THE SIX
CLASS A MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
------------- -----------------------------------------------------------
1996* 1996 1995 1994 1993 1992
SELECTED PER SHARE DATA ------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of the period........... $ 9.72 $ 9.72 $ 9.50 $ 10.10 $ 9.96 $ 9.56
------- ------- ------- ------- ------- -------
Income from investment operations
Net investment income(a)......................... .25 .51 .48 .56 .58 .51
Net realized and unrealized gain (loss) on
investments.................................... .17 (.02) .24 (.49) .38 .62
------- ------- ------- ------- ------- -------
Total from investment operations............... .42 .49 .72 .07 .96 1.13
------- ------- ------- ------- ------- -------
Less distributions
From net investment income....................... .25 .49 .48 .56 .58 .51
In excess of net investment income............... .03 -- .02 -- -- .09
From net realized gain........................... -- -- -- .11 .24 .13
------- ------- ------- ------- ------- -------
Total distributions............................ .28 .49 .50 .67 .82 .73
------- ------- ------- ------- ------- -------
Net asset value, end of period..................... $ 9.86 $ 9.72 $ 9.72 $ 9.50 $ 10.10 $ 9.96
======= ======= ======= ======= ======= =======
Total return(%)(b)................................. 4.39(d) 5.11(b) 7.93(b) .58(b) 10.07(b) 12.15(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)........... $34,145 $35,533 $40,290 $42,329 $42,187 $32,755
Ratio of expenses to average net assets
With expense reimbursement(%)(c)................. 1.10(e) 1.12 1.10 1.10 1.10 1.10
Without expense reimbursement(%)(c).............. 1.36(e) 1.33 1.24 1.21 1.29 1.25
Ratio of net investment income to average net
assets(%)(a)..................................... 5.13(e) 5.19 5.12 5.59 5.81 5.66
Portfolio turnover rate(%)......................... 6 35 59 44 87 24
</TABLE>

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE APRIL 1, 1994
CLASS B MONTHS ENDED YEAR ENDED (COMMENCEMENT) TO
DECEMBER 31, JUNE 30, JUNE 30,
------------- ---------------------- -----------------
1996* 1996 1995 1994
SELECTED PER SHARE DATA ------------- ------ ---------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of the period.................... $ 9.72 $ 9.72 $ 9.50 $9.65
------ ------ ------ -----
Income from investment operations
Net investment income(a).................................. .22 .44 .41 .10
Net realized and unrealized gain (loss) on investments.... .16 (.02) .24 (.08)
------ ------ ------ -----
Total from investment operations........................ .38 .42 .65 .02
------ ------ ------ -----
Less distributions
From net investment income................................ .22 .42 .41 .14
In excess of net investment income........................ .02 -- .02 --
From net realized gain.................................... -- -- -- .03
------ ------ ------ -----
Total distributions..................................... .24 .42 .43 .17
------ ------ ------ -----
Net asset value, end of period.............................. $ 9.86 $ 9.72 $ 9.72 $9.50
====== ====== ====== =====
Total return(%)............................................. 3.96(d) 4.37(b) 7.14(b) .20(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $2,466 $2,178 $1,436 $ 869
Ratio of expenses to average net assets
With expense reimbursement(%)(c).......................... 1.81(e) 1.87 1.85 1.85(e)
Without expense reimbursement(%)(c)....................... 2.07(e) 2.08 1.99 1.96(e)
Ratio of net investment income to average net 4.44
assets(%)(a).............................................. 4.42(e) 4.37 4.84(e)
Portfolio turnover rate(%).................................. 6 35 59 44
</TABLE>
(a) Net investment income is net of expenses reimbursed by
manager.
(b) Total return does not reflect a sales charge.
(c) Beginning in July 1995, total expenses include any fees paid
indirectly. The ratio of expenses to average net assets with
expense reimbursement has been restated for the year ended
June 30, 1996.
(d) Total return represents aggregate total return and does not
reflect a sales charge.
(e) Annualized.
* Unaudited.

(See Notes to Financial Statements)

<PAGE> 7

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Mackenzie New York Municipal Fund (the Fund) is a diversified series of
shares of Mackenzie Series Trust. The shares of beneficial interest are $.001
par value and an unlimited number of shares of Class A and Class B are
authorized. Mackenzie Series Trust was organized as a Massachusetts business
trust under a Declaration of Trust dated April 22, 1985 and is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are declared monthly and net realized capital gains, if any, are declared in
June and December. An additional distribution may be declared if necessary to
avoid the payment of a four percent Federal excise tax.

RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss. As a result, Net realized gain (loss) on investments for a reporting
period may differ significantly in amount and character from distributions
during such period. Accordingly, the Fund may make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.

FEES PAID INDIRECTLY -- The Fund has an arrangement whereby a certain
percentage of quarterly cumulative credits resulting from cash balances on
deposit with the custodian are used to offset custody fees, including
transaction and out-of-pocket expenses. For the six months ended December 31,
1996, custody fees were not reduced under this arrangement.

2. RELATED PARTIES

Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI,
is the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers. For the six months ended December 31, 1996, the net amount of
underwriting discount retained by IMDI was $3,242.

Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate not to exceed .25% of its average
net asset value. Class B shares are also subject to an ongoing distribution fee
at an annual rate of .75% of the average net asset value attributable to Class B
shares. IMDI may use such distribution fee for purposes of advertising and
marketing shares of the Fund. Such fees of $44,301 and $11,944 for Class A and
Class B, respec-

<PAGE> 8

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

tively, are reflected as 12b-1 service and distribution fees in the Statement of
Operations.

Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $21,649 and $996 for Class A and Class B, respectively, are
reflected as Transfer agent in the Statement of Operations.

3. BOARD'S COMPENSATION

Trustees who are not affiliated with MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.

4. CONCENTRATION OF CREDIT RISK

5. FUND SHARE TRANSACTIONS

Fund share transactions for both Class A and Class B were as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 JUNE 30, 1996
---------------------- ----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 106,539 $ 1,031,597 150,497 $ 1,481,105
Issued on reinvestment of
distributions................ 62,437 610,104 118,551 1,162,655
Repurchased................... (361,214) (3,536,031) (758,400) (7,452,201)
-------- ----------- -------- -----------
Net decrease.................. (192,238) $(1,894,330) (489,352) $(4,808,441)
======== =========== ======== ===========
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 JUNE 30, 1996
---------------------- ----------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 27,654 $ 270,588 90,800 $ 891,763
Issued on reinvestment of
distributions................ 3,827 37,426 4,201 41,183
Repurchased................... (5,460) (53,757) (18,664) (183,828)
-------- ----------- -------- -----------
Net increase.................. 26,021 $ 254,257 76,337 $ 749,118
======== =========== ======== ===========
</TABLE>

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