THORNBURG INVESTMENT TRUST, N14AE24, 1997-06-27

THORNBURG INVESTMENT TRUST
N14AE24, 1997-06-27

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As Filed with the Securities and Exchange Commission

June 27, 1997

1933 Act Registration No. ________

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-14

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. ___ Post-Effective Amendment No. ___

THORNBURG INVESTMENT TRUST
- --------------------------
(Exact Name of Registrant as Specified in Charter)

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

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

Charles W. N. Thompson, Jr.
White, Koch, Kelly & McCarthy, P. A.
Post Office Box 787
Santa Fe, New Mexico 87504-0787
- ------------------------------------
(Copies of all Correspondence)

Approximate date of proposed public offering: As soon as possible
after this Registration Statement becomes effective.

The Registrant has registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Rule 24f under the Investment
Company Act of 1940. Accordingly, no fee is payable herewith. Registrant
filed the notice required by Rule 24f-2 with respect to its most recent
fiscal year on November 26, 1996.
- ---------------------------------------------------------------------------
It is proposed that this filing will become effective on July 27,
1997, pursuant to Rule 488 under the Securities Act of 1933.

<PAGE>
EXPLANATORY NOTE

The Registrant is filing as portions of this Registration Statement two
combined Prospectus/Proxy Statements, which relate respectively to two of
its separate series, THORNBURG INTERMEDIATE MUNICIPAL FUND and THORNBURG
NEW YORK INTERMEDIATE MUNICIPAL FUND. Accordingly, this Registration
Statement is organized as follows:

- Cross Reference Sheet with respect to Thornburg Intermediate
Municipal Fund

- Cross Reference Sheet with respect to Thornburg New York
Intermediate Municipal Fund

- Letter to Shareholders of Mackenzie National Municipal Fund

- Letter to Shareholders of Mackenzie New York Municipal Fund

- Supplemental Letter to Mackenzie Shareholders

- Notice of Special Meeting of Shareholders of Mackenzie National
Municipal Fund

- Notice of Special Meeting of Shareholders of Mackenzie New York
Municipal Fund

- Prospectus/Proxy Statement respecting the proposed acquisition
of substantially all of the assets of Mackenzie National
Municipal Fund by Thornburg Intermediate Municipal Fund
(together with Exhibits A and B)

- Prospectus/Proxy Statement respecting the proposed acquisition
of substantially all of the assets of Mackenzie New York
Municipal Fund by Thornburg New York Intermediate Municipal Fund
(together with Exhibit A and B)

- Statement of Additional Information relating to the acquisition
of the assets of Mackenzie National Municipal Fund

- Statement of Additional Information relating to the acquisition
of the assets of Mackenzie New York Municipal Fund

- Part C Information

- Exhibits

<PAGE>
THORNBURG INVESTMENT TRUST
(Thornburg Intermediate Municipal Fund)
Form N-14 Cross Reference Sheet

Part A. Thornburg Intermediate Municipal Fund Prospectus/Proxy Statement
Item No. and Caption Caption

1. Beginning of Registration Statement Cover Page; Front cover
and Outside Front Cover Page of page of Prospectus/Proxy
Prospectus Statement

2. Beginning and Outside Back Cover of Table of Contents
Prospectus

3. Fee Table, Synopsis Information and Summary of the Proposed
Risk Factors Reorganization; Principal
Risk Factors; Fees and
Expenses of Mackenzie Fund
and Thornburg Fund;
Comparative Fee Tables;
Comparison of Investment
Objectives, Policies and
Restrictions of Mackenzie
and Thornburg Funds;
Comparative Information on
Shareholder Rights

4. Information About the Transaction Summary of the Proposed
Reorganization;
Information About the
Reorganization

5. Information About the Registrant Summary of the Proposed
Reorganization; Investment
Advisers and Distributors
of Mackenzie Fund and
Thornburg Fund; Comparison
of Investment Objectives,
Policies and Restrictions
of Mackenzie Fund and
Thornburg Fund; Principal
Risk Factors; Fees and
Expenses of Mackenzie Fund
and Thornburg Fund;
Comparative Fee Table;
Purchase, Redemption and
Exchange Procedures for
Mackenzie Fund and
Thornburg Fund; Dividend
Policies of Mackenzie Fund
and Thornburg Fund;
Comparative Information
on Shareholder Rights;
Additional Information
About Mackenzie Fund and
Thornburg Fund

6. Information About the Company Summary of the Proposed
Being Acquired Reorganization; Investment
Advisers and Distributors
of Mackenzie Fund and
Thornburg Fund;
Investment Objectives,
Policies and Restrictions
of Mackenzie Fund and
Thornburg Fund; Principal
Risk Factors; Fees and
Expenses of Mackenzie Fund
and Thornburg Fund;
Comparative Fee Table;
Purchase, Redemption and
Exchange Procedures of
Mackenzie Fund and
Thornburg Fund; Dividend
Policies of Mackenzie Fund
and Thornburg Fund;
Comparative Information on
Shareholder Rights;
Additional Information
about Mackenzie Fund and
Thornburg Fund

7. Voting Information Information About the
Reorganization; Voting
Information

8. Interest of Certain Persons and Experts Not Applicable

9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters

<PAGE>
Part B. Thornburg Intermediate Municipal Fund Statement of Additional
Item No. and Caption Information Caption

10. Cover Page Cover Page

11. Table of Contents Not Applicable

12. Additional Information About Registrant Statement of Additional
Information of Thornburg
Intermediate Municipal
Funds, February 1, 1997,
as revised May 6, 1997

13. Additional Information About the Company Statement of Additional
Being Acquired Information of Mackenzie
Series Trust, dated
October 25, 1996

14. Financial Statements Annual Report of Thornburg
Intermediate Municipal
Fund, September 30, 1996;
Semiannual Report of
Thornburg Intermediate
Municipal Fund, March 31,
1997;
Annual Report of Mackenzie
National Municipal Fund,
June 30, 1996;
Semiannual Report of
Mackenzie National
Municipal Fund,
December 31, 1996

Part C

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.

<PAGE>
THORNBURG INVESTMENT TRUST
(Thornburg New York Intermediate Municipal Fund)
Form N-14 Cross Reference Sheet

Report A. Thornburg New York Intermediate Municipal Fund
Item No. and Caption Prospectus/Proxy Statement
Caption

1. Beginning of Registration Statement Cover Page; Front cover
and Outside Front Cover Page of page of Prospectus/Proxy
Prospectus Statement

2. Beginning and Outside Back Cover of Table of Contents
Prospectus

3. Fee Table, Synopsis Information and Summary of the Proposed
Risk Factors Reorganization; Principal
Risk Factors; Fees and
Expenses of Mackenzie Fund
and Thornburg Fund;
Comparative Fee Tables;
Comparison of Investment
Objectives, Policies and
Restrictions of Mackenzie
Fund and Thornburg Fund;
Comparative Information on
Shareholder Rights

4. Information About the Transaction Summary of the Proposed
Reorganization;
Information About the
Reorganization

5. Information About the Registrant Summary of the Proposed
Reorganization; Investment
Advisers and Distributors
of Mackenzie Fund and
Thornburg Fund;
Investment Objectives,
Policies and Restrictions
of Mackenzie Fund and
Thornburg Fund; Principal
Risk Factors; Fees and
Expenses of Mackenzie Fund
and Thornburg Fund;
Comparative Fee Table;
Purchase, Redemption
and Exchange Procedures
for Mackenzie Fund and
Thornburg Fund; Dividend
Policies of Mackenzie Fund
and Thornburg Fund;
Comparative Information
on Shareholder Rights;
Additional Information
About Mackenzie Fund
and Thornburg Fund

7. Voting Information Information About the
Reorganization; Voting
Information

8. Interest of Certain Not Applicable
Persons and Experts

9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters

<PAGE>
Part B: Thornburg New York Intermediate Municipal Fund
Item No. and Caption Statement of Additional
Information Caption

10. Cover Page Cover Page

11. Table of Contents Not Applicable

12. Additional Information About Registrant Statement of Additional
Information of Thornburg
New York Intermediate
Municipal Fund, June 1,
1997

13. Additional Information About the Company Statement of Additional
Being Acquired Information of Mackenzie
Series Trust, dated
October 25, 1996

14. Financial Statements Annual Report of Mackenzie
New York Municipal Fund,
June 30, 1996;
Semi-annual Report of
Mackenzie New York
Municipal Fund,
December 31, 1996

Part C

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.

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

Date:____________________

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 ________________, 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,

________________________________________
President and Trustee
Mackenzie Series Trust

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

Date:____________________

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,

________________________________________
President and Trustee
Mackenzie Series Trust

Dear Shareholder:

WHY IS A SHAREHOLDER MEETING BEING HELD?

Shareholders are being asked to vote on a reorganization of certain
Mackenzie Funds into certain Thornburg Funds that pursue similar investment
objectives.

HOW WILL THIS REORGANIZATION AFFECT CURRENT MACKENZIE SHAREHOLDERS?

Assuming shareholders of the affected Mackenzie Funds approve the
reorganizations, the assets of each of these Funds will be combined with
those of the appropriate Thornburg Fund. You will receive Class A shares
of the appropriate Thornburg Fund regardless of the class(es) of Mackenzie
Fund shares you own. The Thornburg Fund shares you receive will be equal
in dollar value, at the time of their issuance, to the shares of your
Mackenzie Fund. Mackenzie Fund shareholders will become shareholders of
the following Thornburg Funds:

Mackenzie Fund Thornburg Fund
-------------- --------------
Limited Term Municipal Fund Limited Term Municipal Fund -
National Portfolio

National Municipal Fund Intermediate Municipal Fund

California Municipal Fund Limited Term Municipal Fund -
California Portfolio

New York Municipal Fund New York Intermediate Municipal
Fund (a new fund)

WHY IS THE REORGANIZATION BEING RECOMMENDED?

Mackenzie Investment Management, Inc. ("MIMI") is opting to cease
their management of municipal bond funds. Thornburg Management Company,
Inc. ("TMC") has been managing municipal bond funds since 1984 and has
funds with similar characteristics and investment objectives as those
currently managed by Mackenzie.

Morningstar currently rates the Class A shares of each of Thornburg's
Limited Term National Portfolio, Intermediate Municipal Fund and Limited
Term California Portfolio 5 stars overall. As a new mutual Fund, Thornburg
New York Intermediate Municipal Fund is not currently rated by Morningstar.
These overall ratings are an average of Morningstar's historical ratings
for the Funds. The table below shows historical Morningstar ratings for
the Class A shares of each Fund as of March 31, 1997.

<TABLE>
3 year 5 year 10 year
-------- -------- ---------
<S> <C> <C> <C> <C>
Category
Number of Funds [in category during the period] 1,237 601 267 --------------
Thornburg Limited Term Municipal - National 4 stars 5 stars 5 stars Muni Short
Thornburg Intermediate Municipal Fund 5 stars 5 stars - Muni Natl Long
Thornburg Limited Term Municipal - California 4 stars 5 stars 5 stars Muni Short

SOURCE: MORNINGSTAR Advanced Analytics for Principia, 3/31/97.
Morningstar proprietary ratings reflect historical risk-adjusted
performance as of 3/31/97. The ratings are subject to change
every month. Past performance does not guarantee future results.
Morningstar ratings are calculated from the Funds' 3-, 5- and 10-
year average annual returns in excess of 90-day Treasury bill
returns with the appropriate sales charge adjustments and a risk
factor that reflects fund performance below 90-day T-bill
returns. 10% of the funds in an investment category receive 5
stars; 22.5% receive 4 stars. The overall rating is a weighted
average of the 3-, 5- and 10- year ratings.

Average annual total returns for each fund, which reflect the
deduction of the current maximum initial sales charge of 2.5% for
Thornburg Limited Term Funds and 3.5% for Thornburg Intermediate
Municipal Funds, for the 1-, 5- and 10-year periods ended 3/31/97
are as follows: Thornburg Limited Term Municipal Fund National
Portfolio, 1.56%, 5.07%, 5,89%; Thornburg Intermediate Municipal Fund,
1.52%, 6.39%, 6.63% (since 7/22/91 inception); and Thornburg Limited
Term Municipal Fund California Portfolio, 1.65%, 4.87%, 5.81%.

WILL SHAREHOLDERS HAVE TO PAY ANY SALES LOAD, COMMISSION OR OTHER
TRANSACTION FEE IN CONNECTION WITH THE REORGANIZATION?

No, Mackenzie Shareholders will not pay any sales charge, sales load,
commission or other transaction fee in connection with the reorganization.
The costs associated with the reorganization will be borne by MIMI and TMC.

WHO ADVISES THORNBURG FUNDS AND PROVIDES OTHER SERVICES?

TMC provides advisory services to the Thornburg Funds under an
arrangement that is similar to that currently in effect between the
Mackenzie municipal bond funds and MIMI. State Street Bank & Trust Company
is the custodian for the Thornburg Funds, and Thornburg Securities
Corporation is the distributor of the Thornburg Funds.

HOW DO ADVISORY FEES AND OTHER OPERATING COSTS CURRENTLY PAID BY THE
MACKENZIE FUNDS DIFFER FROM THOSE PAID BY THE THORNBURG FUNDS?

With one exception, the current fees and other operating costs of each
Thornburg Fund are lower than those of the corresponding Mackenzie Fund.
That exception, Thornburg Limited Term Municipal Fund National Portfolio,
has similar but slightly higher costs than its corresponding Fund,
Mackenzie Limited Term Municipal Fund. Current fees and costs may assume
fee waivers or expense reimbursements by TMC or MIMI. Please see the
Prospectus/Proxy Statements.

WHAT WILL EXISTING MACKENZIE SHAREHOLDERS DO TO OPEN A THORNBURG FUND
ACCOUNT?

At the time the reorganization is completed, a shareholder's interest
in a Mackenzie Fund will automatically be transferred to the appropriate
Thornburg Fund and a written confirmation will be sent to each shareholder.
Certificates will not be issued but will be available on request.

WILL SHAREHOLDERS HAVE TO PAY ANY FEDERAL INCOME TAXES AS A RESULT OF
THIS REORGANIZATION?

The reorganization is intended to qualify as a tax free
"reorganization" within the meaning of the Internal Revenue Code. If the
reorganization so qualifies, in general, a shareholder of a Mackenzie Fund
will recognize no gain or loss upon the receipt of the shares of a
Thornburg Fund in connection with the reorganization. Additionally, the
Mackenzie Fund would not recognize any gain or loss as a result of the
transaction.

WHAT IF A SHAREHOLDER REDEEMS SHARES OF THE MACKENZIE FUND BEFORE THE
REORGANIZATION TAKES PLACE?

A shareholder may choose to redeem or exchange his or her shares of a
Mackenzie Fund before the reorganization takes place. If so, the
redemption or exchange will be treated as a normal redemption or exchange
of shares and generally will be a taxable transaction unless the account is
not subject to taxes.

WHERE SHOULD SHAREHOLDERS CALL FOR INFORMATION?

Shareholders who want to learn more about Thornburg Funds should call
800-847-0200 or visit Thornburg's website at www.thornburg.com.

<PAGE>
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>
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 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.

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 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 _________________,
1997.

<PAGE>
TABLE OF CONTENTS

Summary of the Proposed Reorganization

Investment Advisers and Distributors of Mackenzie Fund and Thornburg Fund

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

Principal Risk Factors

Fees and Expenses of Mackenzie Fund and Thornburg Fund

Performance Information

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

Dividend Policies of Mackenzie Fund and Thornburg Fund

Comparative Information on Shareholder Rights

Additional Information About Shareholder Accounts

Information About the Reorganization

Capitalization

Additional Information About Mackenzie Fund and Thornburg Fund

Voting Information

Exhibit A: Agreement and Plan of Reorganization

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>
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."

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 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 is not limited in the average portfolio 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 the Funds Invest In
- ------------------------------

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 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.

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
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.

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 $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>
<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 with 12 months of purchase. This charge will not
apply to Thornburg Fund shares issued in the reorganization.
</FN>
</TABLE>

<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% 1.00%

<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.

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.

<TABLE>
Mackenzie Fund Thornburg Fund
Class A Class B Class A
------- ------- --------------
Before After Before After Before After
Expense Expense Expense Expense Expense Expense
Reimbursement Reimb. Reimb. Reimb. Reimb. Reimb.
------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Yield for 30 days
ended March 31, 1997

Average annual total return
for following periods
ending on June 30, 1997
One Year
Five Years
Since Inception
(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. Yield or 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 - Sales Charges
- ------------------------------

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.

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 of more made by a purchaser. A contingent deferred sales
charge will be imposed on any portions of such investments redeemed
within one year of purchase, at a rate of .5% of the amount redeemed.
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 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.

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.

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 $__________ in two installments,
subject to adjustment for redemptions of shares issued in the
reorganization, 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 Thornburg or MIMI, or any
"interested person" (as that term is defined in the 1940 Act) 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.

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.

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>
CAPITALIZATION OF FUNDS AS OF DECEMBER 31, 1996
<CAPTION>

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 _____________ 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.

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 D. F. King to assist in soliciting proxies for the
meeting at an estimated cost of $6,000.

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 ______
Class A shares and ______ 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 issued and outstanding ______ Class A
shares of beneficial interest of Thornburg Fund. As of the same date, no
persons were known to own more than 5% of that 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.

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

THE BOARD OF 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>
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.

(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

_________________________ By:__________________________________________
_______________ __________________, _________________

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

_________________________ By:__________________________________________

_______________ __________________, _________________

<PAGE>
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>
EXHIBIT B
Thornburg Municipal Funds
Prospectus

THORNBURG
MUNICIPAL FUNDS

Thornburg Limited Term Municipal Fund National Portfolio
Thornburg Limited Term Municipal Fund California Portfolio
Thornburg Intermediate Municipal Fund
Thornburg Florida Intermediate Municipal Fund
Thornburg New Mexico Intermediate Municipal Fund

PROSPECTUS
February 1, 1997

NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE

<PAGE>

THORNBURG MUNICIPAL FUNDS
Prospectus
February 1, 1997

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

All of the Funds are managed by Thornburg Management Company, Inc. (TMC). Each
of the active Funds offers Class A shares through this Prospectus, which are
sold at net asset value plus an initial sales charge imposed at the time of
sale. Limited Term National Fund, Limited California Fund and Intermediate
National Fund also offer Class C shares through this Prospectus, sold without
an initial sales charge but subject to a sales charge if redeemed within one
year of purchase and an annual distribution fee. One or more Funds may offer
other classes of shares. See "Your Account-Buying Fund Shares," beginning on
page 18.

Each Fund has the objective of providing, through investment in a
professionally managed portfolio of Municipal Obligations, as high a level of
current income exempt from federal income tax as is consistent, in the view of
the Funds' investment adviser, with preservation of capital.

Each of the Funds having a state's name will invest primarily in Municipal
Obligations of the state having the same name, with the objective of having
interest dividends paid to its state's shareholders exempt from any individual
income taxes imposed by that state. Each of the Limited Term Funds will
maintain a portfolio having a dollar-weighted average maturity of normally not
more than five years, with the objective of reducing fluctuations in its net
asset value relative to municipal bond portfolios with longer average
maturities while expecting lower yields than those received on portfolios with
longer average maturities. Each of the Intermediate Funds will maintain a
portfolio having a dollar-weighted average maturity of normally three to ten
years, with the objective of reducing fluctuations in net asset value relative
to long-term municipal bond portfolios. The Intermediate Funds will expect
lower yields than those received on long term bond portfolios, while seeking
higher yields and expecting higher share price volatility than the Limited Term
Funds. During temporary periods the portfolio maturity of the Intermediate
Funds may be reduced for defensive purposes. There is no limitation on the
maturity of any specific security a Fund may purchase, subject to the
limitation on the average maturity of each Fund. There can be no assurance that
the Funds' respective objectives will be achieved.

This Prospectus sets forth concisely the information a prospective investor
should know about the Funds before investing. It should be read and retained
for further reference. Additional information about the Limited Term Funds is
contained in a Statement of Additional Information - Thornburg Limited Term
Municipal Funds dated November 1, 1996, and additional information about the
Intermediate Funds is contained in a Statement of Additional Information -
Thornburg Intermediate Municipal Funds dated February 1, 1997. Each of these
Statements of Additional Information has been filed with the Securities and
Exchange Commission and may be obtained at no charge by contacting Thornburg
Securities Corporation, 119 East Marcy Street, Suite 202, Santa Fe, New Mexico
87501, 800-847-0200. This Prospectus incorporates by reference both Statements
of Additional Information.

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

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

<PAGE>

LIMITED TERM MUNICIPAL FUNDS

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

INTERMEDIATE TERM MUNICIPAL FUNDS

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

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

<PAGE>

TABLE OF CONTENTS

1 Expense Information

4 Financial Highlights

8 Management Discussion of Fund Performance

12 Investment Objectives and Policies

15 Your Account - Buying Fund Shares

20 Selling Fund Shares

22 Investor Services, Transaction Services

23 Shareholder and Account Policies

24 Taxes

26 Service and Distribution Plans

26 Transaction Details

28 Exchange Restrictions

28 Performance

30 Organization of the Funds

30 Thornburg Management Company, Inc.
and Thornburg Securities Corporation

31 Additional Information

<PAGE>

NOTES

<LOGO>

<PAGE> 1<PAGE>
EXPENSE INFORMATION
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
<CAPTION>
Limited Term Municipal Funds Thornburg Intermediate Municipal Funds
---------------------------- --------------------------------------
Class A Class C Class A Class C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge on Purchases 2.50% none 3.50% none
(as a percentage of offering price)

Maximum Deferred Sales Charge on Redemptions 0.50 <F1> 0.50% <F2> 0.50 <F1> 0.60% <F2>
(as a percentage of redemption proceeds or
original purchase price, whichever is lower)

<FN>
<F1> Imposed only on redemptions of purchases greater than $1 million
in the event of a redemption within 12 months of purchase.
<F2> Imposed only on redemptions of Class C shares within 12 months of purchase.
</FN>
</TABLE>

<PAGE>
<TABLE>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets) Example: You would pay the following expenses on a $1,000 investment, assuming
the Fund's expense ratio remains the same, a 5% annual return, and redemption
Thornburg Limited Term at the end of each time period:
Municipal Fund - <CAPTION>
National Portfolio Class A Class C One Year 3 Years 5 Years 10 Years
- ------------------ ------- ------- -------- ------- ------- --------
<S> <C> <C> <S> <C> <C> <C> <C>

Management Fees .45% .45% Class A $35 $56 $78 $143
12b-1 Fees (after fee waivers Class C $19 $44 $76 $168
for Class C) * .25% .63%
Other Expenses .28% .30% You would pay the following expenses on the same $1,000 investment, assuming
----- ----- no redemption at the end of each period:
Total Fund Operating Expenses .98% 1.38%
One Year 3 Years 5 Years 10 Years
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Class A $35 $56 $78 $143
Class C $14 $44 $76 $168

* Expenses reflect rounding. Expenses have been restated to reflect
current fees. Amounts shown for Class C shares of Limited Term
National Fund are based upon a partial waiver of the Class C 12b-1
fee. Absent the waiver, the Class C 12b-1 fees would have been 1.00%
and the total Fund operating expenses would have been 1.75% for the
Class C shares. Long-term Class C shareholders may pay more than
the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.

<PAGE> 2
Example: You would pay the following expenses on a $1,000 investment, assuming
the Fund's expense ratio remains the same, a 5% annual return, and redemption
Thornburg Limited Term at the end of each time period:
Municipal Fund - <CAPTION>
California Portfolio Class A Class C One Year 3 Years 5 Years 10 Years
- -------------------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <S> <C> <C> <C> <C>
Management Fees .50% .50% Class A $35 $56 $79 $146
12b-1 Fees (after fee waivers Class C $19 $45 $77 $170
for Class C) * .25% .63%
Other Expenses (after You would pay the following expenses on the same $1,000 investment, assuming
assumption of expenses for no redemption at the end of each period:
Class A and Class C) .25% .27%
----- ----- One Year 3 Years 5 Years 10 Years
Total Fund Operating Expenses 1.00% 1.40% -------- ------- ------- --------
<S> <C> <C> <C>
Class A $35 $56 $79 $146
Class C $14 $45 $77 $170

* Expenses reflect rounding. Amounts shown have been restated to
reflect current fees. Amounts shown for Class A of the
Limited Term California Fund reflect an assumption of certain Fund
operating expenses. Absent the assumption of expenses, other
expenses would have been .30% and total Fund operating expenses would
have been 1.05%. Amounts shown for Class C of the Limited Term
California Fund reflect a partial waiver of 12b-1 fees and assumption
of certain Fund operating expenses. Absent the waiver of 12b-1 fees
and assumption of expenses, 12b-1 fees and other expenses would have
been 1.00% and 1.42%, respectively, and total Fund operating expenses
would have been 2.92%. Long-term Class C shareholders may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.

<PAGE>
Example: You would pay the following expenses on a $1,000 investment, assuming
the Fund's expense ratio remains the same, a 5% annual return, and redemption
at the end of each time period:
Thornburg Intermediate <CAPTION>
Municipal Fund Class A Class C One Year 3 Years 5 Years 10 Years
- ---------------------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <S> <C> <C> <C> <C>
Management Fees .50% .50% Class A $45 $66 $89 $154
12b-1 Fees (after fee waivers Class C $20 $45 $77 $170
for Class C) * .25% .60%
Other Expenses (after You would pay the following expenses on the same $1,000 investment, assuming
assumption of expenses for no redemption at the end of each period:
Class A and Class C) .25% .30%
----- ----- One Year 3 Years 5 Years 10 Years
Total Fund Operating Expenses 1.00% 1.40% -------- ------- ------- --------
<S> <C> <C> <C>
Class A $45 $66 $89 $154
Class C $14 $45 $77 $170

* Expenses reflect rounding. Amounts shown have been restated to
reflect current fees. Amounts shown for Class A of the Intermediate
National Fund reflect an assumption of certain Fund operating
expenses. Absent the assumption of expenses, other expenses would
have been .34% and total Fund operating expenses would have been
1.09%. Amounts shown for Class C of the Intermediate National Fund
reflect a partial waiver of Rule 12b-1 fees and assumption of certain
Fund operating expenses. Absent the waiver of 12b-1 fees and
assumption of expenses, 12b-1 fees and other expenses would have been
1.00% and .47%, respectively, and the total Fund operating expenses
would have been 1.97%. Long-term Class C shareholders may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.

<PAGE> 3
Example: You would pay the following expenses on a $1,000 investment, assuming
the Fund's expense ratio remains the same, a 5% annual return, and redemption
at the end of each time period:
Thornburg New Mexico <CAPTION>
Intermediate Municipal Fund Class A One Year 3 Years 5 Years 10 Years
- --------------------------- ------- -------- ------- ------- --------
<S> <C> <S> <C> <C> <C> <C>
Management Fees .50% Class A $45 $66 $89 $154
12b-1 Fees .25%
Other Expenses (after
assumption of expenses) * .25%
-----
Total Fund Operating Expenses 1.00%

* Expenses reflect rounding. Amounts shown have been restated to reflect
current fees. Amounts shown for Class A of the Intermediate New Mexico
Fund reflect assumption of certain Fund operating expenses. Absent the
assumption of expenses, the operating expenses would have been .32%, and
total Fund operating expenses would have been 1.07%.

Example: You would pay the following expenses on a $1,000 investment, assuming
the Fund's expense ratio remains the same, a 5% annual return, and redemption
at the end of each time period:
Thornburg Florida <CAPTION>
Intermediate Municipal Fund Class A One Year 3 Years 5 Years 10 Years
- --------------------------- ------- -------- ------- ------- --------
<S> <C> <S> <C> <C> <C> <C>
Management Fees .50% Class A $45 $66 $89 $154
12b-1 Fees .25%
Other Expenses (after
assumption of expenses for
Class A and Class C) * .25%
-----
Total Fund Operating Expenses 1.00%

* Expenses reflect rounding. Amounts shown have been restated to
reflect current fees. Amounts shown for Class A of the Intermediate
Florida Fund reflect assumption of certain Fund operating expenses
Absent the assumption of expenses, other expenses would have been
.59% and total Fund operating expenses would have been 1.34%.

</TABLE>

EXPLANATION OF TABLES

THE INFORMATION IN THE TABLES ABOVE SHOULD BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. The expense figures shown in the tables above are presented
to assist the investor in understanding the various costs that an investor
in a Fund will bear, directly or indirectly. The Funds' investment adviser
and distributor may not waive fees or assume Fund expenses in the future.

<PAGE> 4

FINANCIAL HIGHLIGHTS

The table on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated. The
information for the years ended June 30, 1989, 1990, 1991, 1992, 1993,
1994, 1995 and 1996 for the Limited Term National Fund and the Limited Term
California Fund, and the information for all of the years presented for the
Intermediate Funds, has been audited by McGladrey & Pullen, LLP, independent
auditors, whose reports thereon are incorporated by reference in the
registration statements for the respective Funds. The information should be
read in conjunction with the 1996 Annual Report for each Limited Term Fund
and the 1996 Annual Report for each Intermediate Fund.

<PAGE>
<TABLE>
Ratio of Ratio of Ratio of
Expenses Expenses Net
Net Distri- to to Investment Net
Realized butions Distri- Average Average Income Assets
Net Asset and Total from butions Net Net Net (Loss) at end
Value Unrealized from Net from Asset Assets Assets to of
Beginning Net Gain Investment Invest- Net Value Total After Before Average Rate of Period
Fiscal Year of Investment (Loss) Operations ment Realized End of Return Exp. Exp. Net Portfolio ('000's
or Period Period Income Investments Income Gains Period <F(c)> Reductions Reductions Assets Turnover omitted)
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Limited Term
National Fund
- -------------
Class A
Year ended:
June 30, 1987 12.68 .83 .02 .85 ( .83) $( .01) 12.69 6.87 (1.00) (1.10) 6.27 47.00 127,074
June 30, 1988 12.69 .84 .06 .90 ( .84) 12.75 7.37 (1.10) (1.20) 6.58 66.00 164,489
June 30, 1989 12.75 .85 .05 .90 ( .85) 12.80 7.29 (1.15) (1.15) 6.66 69.96 184,139
June 30, 1990 12.80 .86 (.06) .80 ( .86) 12.74 6.48 (1.11) (1.11) 6.73 67.51 217,325
June 30, 1991 12.74 .85 .09 .94 ( .85) 12.83 7.60 (1.07) (1.07) 6.58 32.36 312.882
June 30, 1992 12.83 .79 .26 1.05 ( .79) 13.09 8.40 (1.04) (1.04) 5.96 27.63 521,683
June 30, 1993 13.09 .68 .50 1.18 ( .68) 13.59 9.24 (1.01) (1.01) 5.03 19.30 895,500
June 30, 1994 13.59 .63 (.32) .31 ( .63) 13.27 2.25 (0.95) (0.95) 4.60 15.63 1,030,293
June 30, 1995 13.27 .64 .10 .74 ( .64) 13.37 5.76 (0.97) (0.97) 4.86 23.02 931,987
June 30, 1996 13.37 .63 (.02) .61 ( .63) 13.35 4.60 (0.97) (0.97) 4.66 20.60 917,831

Class B <F(a)>
9/1/94 <F(b)> $13.29 $ .46 $ .09 $ .55 $( .46) $13.38 4.14% (1.57)% (2.30)% 4.24% 23.02% $2,823
to 6/30/95 <F(d)> <F(d)> <F(d)>
7/1/95 to 13.38 .13 .05 .18 ( .13) 13.43 1.56 (1.59) (2.01) 4.17 20.60 0
9/28/95 <F(d)> <F(d)> <F(d)>

Class C
9/1/94 <F(b)> $13.29 $ .46 $ .11 $ .57 $( .46) $13.40 4.25% (1.60)% (1.84)% 4.21% 23.02% $6,469
to 6/30/95 <F(d)> <F(d)> <F(d)>
Year ended 13.40 .57 (.03) .54 ( .57) 13.37 4.05 (1.41) (1.63) 4.22 20.60 15,948
6/30/96
<PAGE>
Ratio of Ratio of Ratio of
Expenses Expenses Net
Net Distri- to to Investment Net
Realized butions Distri- Average Average Income Assets
Net Asset and Total from butions Net Net (Loss) at end
Value Unrealized from Net from Net Asset Assets Assets to of
Beginning Net Gain Investment Invest- Net Value Total After Before Average Rate of Period
Fiscal Year of Investment (Loss) Operations ment Realized End of Return Expense Expense Net Portfolio ('000's
or Period Period Income Investments Income Gains Period <F(c)> Reductions Reductions Assets Turnover omitted)
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Limited Term
California Fund
- ---------------
Class A
2/20/87 <F(b)> $12.13 $ .26 $(.12) $ .14 $( .26) $12.01 1.10% (0.67)% (.81)% 5.73% 74.00% $6,041
to 6/30/87 <F(d)> <F(d)> <F(d)>
Year ended:
June 30, 1988 12.01 .78 .07 .85 ( .78) 12.08 7.10 (0.85) (1.73) 6.30 29.00 11,641
June 30, 1989 12.08 .77 .07 .84 ( .77) 12.15 7.17 (1.00) (1.38) 6.27 58.80 12,794
June 30, 1990 12.15 .76 (.04) .72 ( .76) 12.11 6.15 (1.00) (1.22) 6.16 49.05 26,517
June 30, 1991 12.11 .75 .13 .88 ( .75) 12.24 7.45 (1.00) (1.20) 6.08 39.66 33,487
June 30, 1992 12.24 .72 .24 .96 ( .72) 12.48 8.10 (1.00) (1.10) 5.80 30.56 53,130
June 30, 1993 12.48 .65 .37 1.02 ( .65) 12.85 8.36 (1.00) (1.06) 5.07 20.81 81,874
June 30, 1994 12.85 .58 (.28) .30 ( .58) 12.57 2.37 (1.00) (1.03) 4.51 15.26 111,723
June 30, 1995 12.57 .58 .04 .62 ( .58) 12.61 5.12 (1.00) (1.04) 4.69 18.54 98,841
June 30, 1996 12.61 .58 .03 .61 ( .58) 12.64 4.94 (1.00) (1.05) 4.59 22.68 94,379

Class B <F(a)>
9/1/94 <F(b)> $12.55 $ .43 $ .07 $ .50 $( .43) $12.62 3.99% (1.60)% (4.51)% 4.10% 18.54% $590
to 6/30/95 <F(d)> <F(d)> <F(d)>
7/1/95 to 12.62 .13 .06 .19 ( .13) 12.68 1.59 (1.63) (3.67) 4.15 22.68 0
9/28/95 <F(d)> <F(d)> <F(d)>

Class C
9/1/94 <F(b)> $12.55 $ .42 $ .07 $ .49 $( .42) $12.62 3.98% (1.63)% (3.21)% 4.07% 18.54% $790
to 6/30/95 <F(d)> <F(d)> <F(d)>
Year ended
6/30/96 12.62 .53 .03 .56 ( .53) 12.65 4.46 (1.43) (2.92) 4.16 22.68 2,444
<FN>
<F(a)> Class B shares are no longer offered by the Funds, <F(c)> Sales charges are not reflected in computing total return,
and all outstanding Class Be shares were converted which is not annualized for periods less than one year.
into Class A shares on September 28, 1995. <F(d)> Annualized.
<F(b)> Commencement of operations.

4 5

<PAGE> 6
Ratio of Ratio of Ratio of
Expenses Expenses Net
Net Distri- to to Investment Net
Realized butions Distri- Average Average Income Assets
Net Asset and Total from butions Net Net (Loss) at end
Value Unrealized from Net from Net Asset Assets Assets to of
Beginning Net Gain Investment Invest- Net Value Total After Before Average Rate of Period
Fiscal Year of Investment (Loss) Operations ment Realized End of Return Expense Expense Net Portfolio ('000's
or Period Period Income Investments Income Gains Period <F(e)> Reductions Reductions Assets Turnover omitted)
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate
National Fund
- -------------
Class A
7/23/91 <F(b)> $12.06 $ .16 $ .05 $ .21 $( .16) $12.11 1.77% (0.25)% (2.78)% 5.80% 3.40% $9,719
to 9/30/91 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1992 12.11 .78 .48 1.26 ( .78) 12.59 10.76 (0.48) (1.19) 6.15 46.15 81,428
Sept. 30, 1993 12.59 .71 .88 1.59 ( .71) 13.47 13.01 (0.70) (1.06) 5.37 14.29 182,319
Sept. 30, 1994 13.47 .67 (.72) (.05) ( .67) $( .02) 12.73 (.38) (0.95) (1.05) 5.23 27.37 207,718
Sept. 30, 1995 12.73 .68 .45 1.13 ( .68) 13.18 9.16 (1.00) (1.08) 5.31 32.20 227,881
Sept. 30, 1996 13.18 .68 .05 .73 ( .68) 13.23 5.64 (1.00) (1.09) 5.12 12.64 246,128

Class B <F(a)>
9/1/94 <F(b)> $12.91 $ .05 $(.18) $(.13) $( .05) $12.73 (.99)% (1.70)% (1.70)% 4.57% 27.37% $342
to 9/30/94 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1995 12.73 .59 .40 .99 ( .59) 13.13 8.30 (1.65) (2.86) 4.59 32.20 0

Class C
9/1/94 <F(b)> $12.91 $ .05 $(.18) $(.13) $( .05) $12.73 (.97)% (1.76)% (1.76)% 4.51% 27.37% $139
to 9/30/94 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1995 12.73 .60 .47 1.07 ( .60) 13.20 8.60 (1.66) (2.35) 4.62 32.20 4,001
Sept. 30, 1996 13.20 .63 .04 .67 ( .63) 13.24 5.14 (1.40) (1.97) 4.73 12.64 7,586
<PAGE>
Ratio of Ratio of Ratio of
Expenses Expenses Net
Net Distri- to to Investment Net
Realized butions Distri- Average Average Income Assets
Net Asset and Total from butions Net Net (Loss) at end
Value Unrealized from Net from Net Asset Assets Assets to of
Beginning Net Gain Investment Invest- Net Value Total After Before Average Rate of Period
Fiscal Year of Investment (Loss) Operations ment Realized End of Return Expense Expense Net Portfolio ('000's
or Period Period Income Investments Income Gains Period <F(e)> Reductions Reductions Assets Turnover omitted)
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate
New Mexico Fund
- ---------------
Class A
6/21/91 <F(b)> $12.06 $ .23 $ .15 $ .38 $( .23) $12.21 3.18% (0.25)% (1.32)% 6.57% 49.67% $20,511
to 9/30/91 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1992 12.21 .74 .43 1.17 ( .74) 12.64 9.98 (0.42) (1.12) 5.76 32.15 71,034
Sept. 30, 1993 12.64 .65 .72 1.37 ( .65) 13.36 10.96 (0.61) (1.01) 4.95 10.33 128,590
Sept. 30, 1994 13.36 .60 (.63) (.03) ( .60) $( .01) 12.72 (.26) (0.90) (1.04) 4.58 6.87 143,910
Sept. 30, 1995 12.72 .60 .40 1.00 ( .60) 13.12 8.10 (1.00) (1.06) 4.71 17.06 136,742
Sept. 30, 1996 13.12 .63 (.03) .60 ( .63) 13.09 4.68 (1.00) (1.07) 4.81 10.88 131,307

Class B <F(a)>
9/1/94 <F(b)> $12.87 $ .05 $(.15) $(.10) $( .05) $12.72 (0.80)% (1.71)% (10.90)% 3.47% 6.87% $81
to 9/30/94 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1995 12.72 .52 .37 .89 ( .52) 13.09 7.42 (1.64) (4.71) 4.06 17.06 0

Class C <F(c)>
9/1/94 <F(b)> $12.87 $ .04 $(.16) $(.12) $( .04) $12.71 (0.90)% (1.74)% (21.92)% 3.49% 6.87% $59
to 9/30/94 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1995 12.71 .52 .41 .93 ( .52) 13.12 7.48 (1.66) (15.86) 4.05 17.06 141
4 month period 13.12 .19 .15 .34 ( .19) 13.27 2.57 (1.40) (13.03) 4.22 4.84 0
ended 1/31/96 <F(f)> <F(f)> <F(f)>
<PAGE>
Ratio of Ratio of Ratio of
Expenses Expenses Net
Net Distri- to to Investment Net
Realized butions Distri- Average Average Income Assets
Net Asset and Total from butions Net Net (Loss) at end
Value Unrealized from Net from Net Asset Assets Assets to of
Beginning Net Gain Investment Invest- Net Value Total After Before Average Rate of Period
Fiscal Year of Investment (Loss) Operations ment Realized End of Return Expense Expense Net Portfolio ('000's
or Period Period Income Investments Income Gains Period <F(e)> Reductions Reductions Assets Turnover omitted)
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate
Florida Fund
- ------------
Class A
2/1/94 <F(b)> $12.06 $ .40 $(.52) $(.12) $( .40) $11.54 (0.95)% (0.25)% (1.95)% 5.09% 19.94% $8,076
to 9/30/94 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1995 11.54 .63 .29 .92 ( .63) 11.83 8.22 (0.38) (1.44) 5.41 89.60 14,822
Sept. 30, 1996 11.83 .57 .05 .62 ( .57) 11.88 5.37 (.61) (1.34) 4.80 77.12 19,501

Class B <F(a)>
9/1/94 <F(b)> $11.72 $ .05 $(.17) $(.12) $( .05) $11.55 (1.02)% (1.05)% (7.80)% 4.80% 19.94% $20
to 9/30/94 <F(f)> <F(f)> <F(f)>
Year ended:
Sept. 30, 1995 11.55 .55 .28 .83 ( .55) 11.83 7.55 (1.08) (5.35) 4.69 89.60 0

Class C <F(d)>
9/1/94 <F(b)> $11.72 $ .05 $(.18) $(.13) $( .05) $11.54 (1.10)% (1.10)% (40.31)% 4.89% 19.94% $109
to 9/30/94 <F(f)> <F(f)> <F(f)>
Year ended
Sept. 30, 1995 11.54 .55 .32 .87 ( .55) 11.86 7.74 (1.08) (19.08) 4.65 89.60 259
7 month period
ended 4/30/96 11.86 .31 (.02) .29 ( .31) 11.84 2.47 (0.97) ( 6.03) 4.46 77.12 0
<F(f)> <F(f)> <F(f)>
<FN>
<F(a)> Class B shares are no longer offered by the Funds, and
all outstanding Class B shares were converted into
Class A shares on September 28, 1995.
<F(b)> Commencement of operations.
<F(c)> Class C shares are no longer offered by the Intermediate
New Mexico Fund, and all outstanding Class C shares were
converted into Class A shares of the Fund on January 31, 1996.
<F(d)> Class C shares are no longer offered by the Intermediate
Florida Fund, and all outstanding Class C shares were
converted into Class A shares of the Fund on April 30, 1996.
<F(e)> Sales charges are not reflected in computing total return,
which is not annualized for periods less than one year.
<F(f)> Annualized.
</FN>
</TABLE>

6 7

<PAGE> 8

MANAGEMENT DISCUSSION OF FUND PERFORMANCE

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

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

Each Fund "ladders" or arrays the maturities of its bonds. The Limited Term
Municipal Funds maintain a weighted average maturity using this technique
which is normally no more than five years, while the Intermediate Municipal
Funds' weighted average maturity is normally no more than 10 years.

Interest rates during 1995 generally decreased, causing interest dividends to
decrease somewhat as Fund cash flow was reinvested at lower rates, and
causing the value of the Funds' portfolios to increase relative to their
expected values in a flat interest rate environment. In the first three
quarters of 1996, higher economic growth led to rising interest rates and
decreasing bond prices.

Bond prices in the U.S. rose dramatically over 1995 and then fell through the
first nine months of 1996. For example, as the yield on the 6.25% U.S.
Treasury bond due in August 2023 decreased from 7.95% to 6.03% between
January 31, 1995 and December 29, 1995, the market value of the bond
increased by approximately 27.2%. Since December 1995, the yield on the bond
has risen to 7.05% as of September 30, 1996, and the price has fallen by
12.1%. Similarly, market values of U.S. Treasury bonds due in 2001 and 2006
have fallen by 5.6% and 8.0%, respectively since January 1, 1996. Municipal
bond prices also decreased across the spectrum of maturities as market yields
on municipal bonds increased. The market produced total returns of 4.27% and
6.08% respectively, for the Lehman Brothers 5 year general obligation bond
index and the Merrill Lynch Municipal Bond (7-12) year Index for the 12
months ending September 30, 1996. The net asset values of Intermediate
National Fund and Intermediate Florida Fund increased by 0.38% and 0.42%,
respectively, over this same 12 month period, while the net asset value of
the Intermediate New Mexico Fund declined by 0.23%. The net asset value of
Limited Term National Fund decreased by 0.37%, and the net asset value of the
Limited Term California Fund increased by 0.08% over the one year period
ending September 30, 1996. If interest rates continue to fall, the net asset
values of all the Funds should increase. However, over time, dividend income
would decrease.

<PAGE> 9

LIMITED TERM NATIONAL FUND

Index Comparison

Compares performance of the Limited Term National Fund, the Lehman 5-Year
General Obligation Bond Index and the Consumer Price Index for the period
October 1, 1984 to June 30, 1996. On June 30, 1996, the weighted average
securities ratings of the Index an d the Fund were AA and AA, respectively,
and the weighted average portfolio maturities of the Index and the Fund were
4.9 years and 3.5 years, respectively. Class C shares became available on
September 1, 1994. Past performance of the Index and the Fund may not be
indicative of future performance.

Class A Shares
<GRAPH OMITTED>

Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 6/30/96): 2.01%
Five Years: 5.48%
Ten Years: 6.30%
From Inception (9/28/84): 7.09%

Class C Shares
<GRAPH OMITTED>

Average Annual Total Returns
C Shares One Year (12 mos. ended 6/30/96): 4.05%
From Inception (9/1/94): 4.54%

9
<PAGE> 10

LIMITED TERM CALIFORNIA FUND

Index Comparison

Compares performance of the Limited Term California Fund, the Lehman 5-Year
General Obligation Bond Index and the Consumer Price Index for the period
February 28, 1987 to June 30, 1996. On June 30, 1996, the weighted average
securities ratings of the Index and the Fund were AA and AA, respectively,
and the weighted average portfolio maturities of the Index and the Fund were
4.9 years and 3.7 years, respectively. Class C shares became available on
September 1, 1994. Past performance of the Index and the Fund may not be
indicative of future performance.

Class A Shares Class C Shares
<GRAPHS OMITTED>

Average Annual Total Returns Average Annual Total Returns
(at max. offering price)
A Shares One Year (12 mos. C Shares One Year (12 mos. ended
ended 6/30/96): 2.34% 6/30/96): 4.46%
Five Years: 5.23%
From Inception (2/19/87): 5.87% From Inception (9/1/94): 4.62%

INTERMEDIATE NATIONAL FUND

Index Comparison

Compares performance of the Intermediate National Fund, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, July 23, 1991
to September 30, 1996. On September 30, 1996, the weighted average securities
ratings of the Index and the Fund were AA and A+, respectively, and the
weighted average portfolio maturities of the Index and the Fund were 8.6
years and 7.7 years, respectively. Class C shares became available on
September 1, 1994. Past performance of the Index and the Fund may not be
indicative of future performance.

<GRAPHS OMITTED>
Class A Shares Class C Shares
Average Annual Total Returns
C Shares One Year (12 mos. ended
9/30/96): 5.14%
From Inception (9/1/94): 6.08%

Average Annual Total Returns
(at max. offering price)
A Shares One Year (12 mos. ended
9/30/96): 1.93%
5 Years: 6.77%
From Inception (7/23/91): 6.86%

<PAGE> 11

INTERMEDIATE NEW MEXICO FUND

Index Comparison
Compares performance of the Intermediate New Mexico Fund, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, June 18, 1991
to September 30, 1996. On September 30, 1996, the weighted average securities
ratings of the Index and the Fund were AA and AA, respectively, and the
weighted average portfolio maturities of the Index and the Fund were 8.6
years and 6.6 years, respectively. Past performance of the Index and the Fund
may not be indicative of future performance.

Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 9/30/96): 0.99%
5 Years: 5.86%
From Inception (6/21/91): 6.15%

<PAGE>
INTERMEDIATE FLORIDA FUND

Index Comparison
Compares performance of Intermediate Florida Fund, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, February 1,
1994 to September 30, 1996. On September 30, 1996, the weighted average
securities ratings of the Index and the Fund were AA and AA+, respectively,
and the weighted average portfolio maturities of the Index and the Fund were
8.6 years and 6.7 years, respectively. Past performance of the Index and the
Fund may not be indicative of future performance.

Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 9/30/96): 1.67%
From Inception (2/01/94): 3.28%

<PAGE> 12

INVESTMENT OBJECTIVES AND POLICIES

The primary investment objective of each Fund is to obtain as high a level of
current income exempt from federal income tax as is consistent, in the view
of TMC, with preservation of capital. Each single state Fund will invest
primarily in Municipal Obligations originating in its state with the object
of obtaining exemption of interest dividends from any income taxes imposed by
that state on individuals. The Intermediate Florida Fund and the Intermediate
Pennsylvania Fund have the additional objective of obtaining exemption from
ad valorem taxes imposed by those states on securities held by individuals.
The secondary objective of the Limited Term Funds is to minimize expected
fluctuations in net asset value relative to longer intermediate and long-term
bond portfolios. The secondary objective of the Intermediate Funds is to
reduce fluctuations in net asset value relative to long-term municipal bond
portfolios, while seeking higher yields than the Limited Term Municipal Funds
expect to receive. There is a risk in all investments, however, and there is
no assurance that the Funds' objectives will be achieved. Income otherwise
exempt from federal income tax may be subject to the federal alternative
minimum tax, and distributions from gains attributable to market discount are
characterized as ordinary income for federal income tax purposes. The primary
and secondary investment objectives of each Fund are fundamental policies of
that Fund, and may not be changed without a vote of the Fund's shareholders.

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

Each of the Limited Term Funds will seek to achieve its secondary objective of
minimizing fluctuations in net asset value by maintaining a portfolio of
investments with a dollar-weighted average maturity normally not exceeding five
years. Each Intermediate Fund will seek to achieve its secondary objective of
obtaining lower share price fluctuation than a long-term portfolio and obtaining
higher yields than a limited term portfolio by maintaining a dollar-weighted
average portfolio maturity normally between three and ten years. Any
Intermediate Fund may maintain a portfolio maturity shorter than three years as
a defensive strategy during abnormal market conditions. If your sole objective
is preservation of capital, then the Funds may not be suitable for you because
their net asset values will vary as market interest rates fluctuate. Investors
whose sole objective is preservation of capital may wish to consider a high
quality money market fund.

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

<PAGE> 13

may be made due to market conditions, pending investment of idle funds or to
afford liquidity. Such investments are, like any investment, subject to market
risks and fluctuations in value. In addition, each Fund's temporary taxable
investments may exceed 20% of its net assets when made for defensive purposes
during periods of abnormal market conditions. The Funds do not expect to find it
necessary to make temporary investments in taxable investments.

MUNICIPAL OBLIGATIONS

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

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

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

VARIABLE RATE SECURITIES; INVERSE FLOATERS; AND DEMAND INSTRUMENTS

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

<PAGE> 14

MUNICIPAL LEASES

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

SECURITIES RATINGS AND CREDIT QUALITY

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

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

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

<PAGE> 15

the general supervision of its Directors or Trustees, and determines the
equivalency of unrated obligations to rated obligations.

WHEN-ISSUED TRANSACTIONS

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

INVESTMENT RESTRICTIONS

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

SPECIAL CONSIDERATIONS AFFECTING SINGLE-STATE FUNDS

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

Local economic factors could have varying effects on the obligations owned by
each single state Fund. In particular, economic developments in California,
though improving, could impair the ability of certain California state and
municipal issuers to pay their obligations in some situations. Taxpayer
initiatives, weakness in tax collections and reallocation of certain revenues
previously available to county and local governments could reduce the revenues
available to some California issuers. The State of New Mexico anticipates a
small budget surplus in the current year. Lower taxes available in some New
Mexico locales, and reductions in staffing at research and military facilities
at Los Alamos, White Sands and Albuquerque could adversely affect the ability of
nearby municipalities to meet their obligations. Florida has experienced rapid
economic growth. While the economy has broadened, this growth has brought
pressure for more infrastructure, educational facilities, and other
improvements. Although recent state budgets have been balanced, over-dependence
on the sensitive sales tax creates vulnerability to recession and to slower
growth in the tax base in the future. Also, health care, educational and
correctional program cost increases could impose future financial and budgetary
pressures on the state.

YOUR ACCOUNT -
BUYING FUND SHARES IN GENERAL

Each Fund offers Class A shares, and Limited Term National Fund, Limited
California Fund and Intermediate National Fund offer Class C shares. Each of a
Fund's shares represents an equal undivided interest in the Fund's assets, and
each Fund has common investment objectives and a common investment portfolio.
Each class may have varying annual expenses and sales charge structures, which
may affect performance.

Class A shares are sold subject to a sales charge which is deducted at the time
you purchase your shares. TSC deducts the Class A sales charge shown in the
table on page 17 and invests the balance of your investment at net asset value.
This class also pays a service fee. Class C shares are sold at net asset value,
subject

<PAGE> 16

to payment of a sales charge if redeemed within one year of purchase. They also
pay both a service and a distribution fee. The various service or service and
distribution fees are Fund expenses which are deducted from each class' annual
income. If you do not specify a class of shares in your order, your money will
be invested in Class A shares of the Fund you purchase.

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

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

NET ASSET VALUE

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

BUYING CLASS A SHARES

When you buy Class A shares the sales charge applicable to your investment is
deducted from the price you pay and the balance is invested at NAV. The sales
charge is shown in the table below.

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

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

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

<PAGE> 17

<TABLE>
Class A Shares Dealer
Concession
Total Sales Charge or Agency
Commission
As Percentage As Percentage As Percentage
of Offering Price of Net Asset Value of Offering
Price
<S> <C> <C> <C>
Limited Term Municipal Funds
- ----------------------------
Less than $50,000.00 2.50% 2.56% 2.10%
$50,000 to 99,999.99 2.25% 2.30% 1.85%
$100,000 to 249,999.99 1.75% 1.78% 1.50%
$250,000 to 499,999.99 1.50% 1.52% 1.25%
$500,000 to 999,999.99 1.00% 1.01% .85%
$1,000,000 and up 0.00% 0.00% <FN*>

Intermediate Municipal Funds
- ----------------------------
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% <FN*>

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

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

RIGHTS OF ACCUMULATION. Each time the value of your account plus the amount
of any new investment passes one of the breakpoints illustrated in the table
on page 16, the amount of your new investment in excess of the breakpoint
will be charged the reduced sales charge applicable to that range.

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

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

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

<PAGE> 18

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

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

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

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

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

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

<PAGE> 19

BUYING CLASS C SHARES

You can buy Class C shares of Limited Term National Fund, Limited Term
California Fund or Intermediate National Fund at NAV but you will pay a
contingent deferred sales charge (CDSC) of 1/2 of 1% on shares of Limited Term
Funds and 6/10 of 1% on shares of the Intermediate National Fund if you redeem
your shares within one year of purchase. The CDSC applies only to Class C
shares purchased on or after October 2, 1995. The CDSC will be imposed upon the
lower of the purchase price or net asset value at redemption of each share
redeemed. The CDSC is not imposed upon shares you buy by reinvesting dividends
or capital gain distributions. Maximum purchase amount for Class C shares is
less than $1 million. Class C shares are charged higher annual expenses than
Class A shares.

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

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

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

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

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

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

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

If you buy shares by check and then redeem those shares, the payment may be
delayed for up to 15 business days to ensure that your previous investment
has cleared. 19

<PAGE> 20

STREET NAME OWNERSHIP OF SHARES

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

SELLING FUND SHARES

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

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

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

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

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

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

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

If you did not complete the telephone redemption section of your application,
you may add this feature to your account by calling the Fund for a telephone
redemption application. Once you receive it, please fill it out, have it
signature guaranteed and send it to:

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

<PAGE> 21

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

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

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

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

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

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

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

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

<PAGE> 22

INVESTOR SERVICES

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

Information Services

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

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

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

TRANSACTION SERVICES

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

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

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

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

Note that exchanges out of a Fund may have tax consequences for you. For
details on policies and restrictions governing exchanges, including
circumstances under which a shareholder's exchange privilege may be suspended
or revoked, see page 31.

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

<PAGE> 23

SHAREHOLDER AND ACCOUNT POLICIES

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

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

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

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

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

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

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

Shares of any Thornburg Fund purchased through reinvestment of dividend and
capital gain distributions are not subject to sales charges or contingent
deferred sales charges.

Turnover and Capital Gains

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

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

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

<PAGE> 24

TAXES

Federal Taxes

The Limited Term National Fund, Limited Term California Fund, Intermediate
National Fund, Intermediate New Mexico Fund and Intermediate Florida Fund
each have qualified under Subchapter M of the Internal Revenue Code (the
"Code ") for tax treatment as a regulated investment company, and each of
these Funds intends to continue its qualification so long as qualification is
in the best interests of the shareholders. The other Funds also intend to
qualify for this treatment under Subchapter M. This tax treatment relieves a
Fund from paying federal income tax on income which is currently distributed
to its shareholders. Each Fund also intends to satisfy conditions that will
enable it to designate distributions from the interest income generated by
its investments in Municipal Obligations, which are exempt from federal
income tax when received by the Fund, as Exempt Interest Dividends.
Shareholders receiving Exempt Interest Dividends will not be subject to
federal income tax on the amount of such dividends, except to the extent the
alternative minimum tax may be imposed.

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

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

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

<PAGE> 25

State Taxes

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

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

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

<PAGE> 26

SERVICE AND DISTRIBUTION PLANS

Service Plan - Class A and Class C. Each class of each Fund has adopted a
Service Plan under which TMC makes payments to securities dealers and other
financial institutions and organizations to obtain various shareholder related
services. The Service Plans permit each of these Funds to reimburse TMC for
these payments at annual rates up to .25% of each class' net assets. No assets
of any class of any Fund will be used to reimburse expenses attributable to any
other class of the same, or any other Fund.

Class C Distribution Plan. Each Fund offering Class C shares has adopted a
Class C Distribution Plan applicable to its Class C shares, under which the
Fund will pay to TSC on a monthly basis an annual distribution fee of up to
.75% of the average daily net assets attributable to Class C shares of the
Fund. This distribution fee is an addition to the service fee described above
under "Service Plan - All Classes" and is charged to and reduces the income
allocated to Class C shares. TSC intends to use these amounts principally to
compensate dealers (including banks) who sell Class C shares. TSC also will
engage in other distribution related activities, including advertising and
other promotional activities. However, the distribution fee paid to TSC is not
computed with respect to TSC's actual expenses, and the fees received by TSC
may be more or less than its actual distribution expenses. TSC may, but is not
obligated to, waive any part or all of its compensation provided for under the
Class C Distribution Plan.

The Glass-Steagall Act prohibits certain banks from underwriting mutual fund
shares. The Funds do not believe that this prohibition will apply to the
commissions described beginning on page 19 or to the plans described above.
However, no assurance can be given that the Glass-Steagall Act will not be
interpreted so as to prohibit these arrangements. In that event, the ability
of the Funds to market their shares could be impaired to a small extent. In
addition, state securities laws on this issue may differ from
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law.

TRANSACTION DETAILS

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

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

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

<PAGE> 27

The Funds reserve the right to suspend the offering of shares for a period of
time. Each Fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions "
on page 31. Purchase orders may be refused if, in TMC's opinion, they would
disrupt management of a Fund.

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

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

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

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

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

* Consult your financial advisor for procedures governing redemption through
his or her firm.
* If you redeem by mail the proceeds will normally be mailed to you on the
next business day, but if making immediate payment could adversely affect
your Fund, it may take up to 7 days to pay you.
* Telephone redemptions over the wire generally will be credited to your
bank account on the business day after your phone call.
* Each Fund may hold payment on redemptions until it is reasonably satisfied
that investments previously made by check have been collected, which can
take up to 15 business days.
* Redemptions may be suspended or payment dates postponed when the NYSE is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
* To the extent consistent with state and federal law, a Fund may make
payments of the redemption price either in cash or in kind. The Funds have
elected to pay in cash all requests for redemption by any shareholder.
They may, however, limit such cash in respect to each shareholder during
any 90 day period to the lesser of $250,000 or 1% of the net asset value
of a Fund at the beginning of such period. This election has been made
pursuant to Rule 18f-1 under the Investment Company Act of 1940 and is
irrevocable while the Rule is in effect unless the Securities and Exchange
Commission, by order, permits its withdrawal. In the case of a redemption
in kind, securities delivered in payment for shares would be valued at the
same value assigned to them in computing the net asset value per share of
the Fund. A shareholder receiving such securities would incur brokerage
costs when selling the securities. 27

<PAGE> 28

EXCHANGE RESTRICTIONS

As a shareholder you have the privilege of exchanging Class A shares of the
Funds for Class A shares of other Thornburg Funds. However, you should not the
following:

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

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

PERFORMANCE

YIELD COMPUTATION AND TOTAL RETURN

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

Current yield quotations will include a standardized calculation which
computes yield for a 30-day or one-month period by dividing a Fund's net
investment income per share during the period by the maximum offering price
on the last day of the period and annualizing the result. Provided that any
such quotation is also accompanied by the standardized calculation referred
to above, any of the Funds also may quote non-standardized yields for a
specified period by dividing the net investment income per share of that Fund
f or that period by either the Fund's average public offering price per share
for that same period or the offering price per share on the first or last day
of the period and annualizing the result. The primary differences between the
yield calculations obtain ed using the standardized performance measure and
any non-standardized performance measure will be caused by the following
factors: (1)The non-standardized calculation may cover periods other than the

<PAGE> 29

30-day or one month period required by the standardize d calculation; (2)The
non-standardized calculations may reflect amortization of premium based upon
historical cost rather than market value; (3)The non-standardized calculation
may reflect the average offering price per share for the period or the
beginning offering price per share for the period, whereas the standardized
calculation will always reflect the maximum offering price per share on the
last day of the period; (4)The non-standardized calculation may reflect an
offering price per share other than the maximum offering price, provided
that any time any Fund's return is quoted in reports, sales literature or
advertisements using a public offering price which is less than the Fund's
maximum public offering price, the return computed by using the Fund's
maximum public offering price also will be quoted in the same piece; (5)The
non-standard return quotation may include the effective return obtained by
compounding the monthly dividends.

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

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

From time to time, in advertisements and other types of literature, the
performance of the Funds may be compared to other groups of mutual funds.
This comparative performance ma y be expressed as a ranking or a rating
prepared by Lipper Analytical Services, Inc., Donoghue Organization, Inc.,
Morningstar, Inc., Value Line or other widely recognized independent services
which monitor the performance of mutual funds. Performance rankings and
ratings reported periodically in national financial publications such as
MONEY Magazine, FORBES, BARRON's, VALUE LINE, the WALL STREET JOURNAL and
MORNINGSTAR, and other such publications may also be used. The Funds may
illustrate performance or the characteristics of their respective investment
portfolios through graphs, tabular data, or other displays which describe (i)
the average portfolio maturity of a Fund's portfolio securities relative to
the maturities of other investments, (ii) the relationship of yield and
maturity of the Fund to the yield and maturity of other investments (either
as a comparison or through use of standard benchmarks or indices such as the
Treasury yield curve), (iii) changes in the Funds' share price or net asset
value relative to changes in the value of other investments, and
(iv) the relationship 29

<PAGE> 30

over time of changes in the Funds' (or other investments) net asset values or
prices and the Funds' (or other investments') investment returns. The Funds
also may illustrate or refer to their respective investment portfolios,
investment techniques and strategies, and general market or economic trends in
advertising or communications to shareholders or prospective shareholders,
including reprints of interviews or articles written by or about, and including
comments by, Fund managers. These illustrations, references and comments
ordinarily will relate to topics addressed in the Funds' Prospectus and
Statements of Additional Information.

ORGANIZATION OF THE FUNDS

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

Each of the Intermediate Municipal Funds are series of Thornburg Investment
Trust, a Massachusetts business trust (the "Trust") organized as a
diversified, open-end management investment company under a Declaration of
Trust (the "Declaration" ). Each of the single-state Intermediate Funds is a
non-diversified series of the Trust, and the Intermediate Municipal Funds are
managed by their investment adviser, Thornburg Management Company, Inc. under
the supervision of the Trust's Trustees. The Trust currently has 12
authorized Funds, nine of which are described in this Prospectus. The
Trustees are authorized to divide the Trust's shares into additional series
and classes.

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

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

THORNBURG MANAGEMENT COMPANY, INC. AND THORNBURG SECURITIES CORP.

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

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

30
<PAGE> 31

<TABLE>
Limited Term Intermediate Term All Funds
Municipal Funds Municipal Funds Annual
Net Assets Annual Investment Annual Investment Administrative
Management Fee Management Fee Fee
- ---------- ----------------- ----------------- --------------
<S> <C> <C> <C>
0 to $500 million .50% .50% .125%
$500 million to $1 billion .40% .45% .125%
$1 billion to $1.5 billion .30% .40% .125%
$1.5 billion to $2 billion .25% .35% .125%
Over $2 billion .225% .275% .125%
</TABLE>
<PAGE>
TMC was established in 1982. Today, the Thornburg Funds include Thornburg Value
Fund, Thornburg Limited Term U.S. Government Fund and Thornburg Limited Term
Income Fund in addition to the Funds covered by this Prospectus. The Thornburg
Funds total over $1.6 billion in assets. Thornburg Management Company Inc. is
known as a provider of conservative investment products. For more than a decade
the Thornburg Funds have been committed to preserving and increasing the real
wealth of their shareholders. The key to growing real wealth is increasing
buying power after taxes, inflation, and investment related expenses.

Brian J. McMahon, a Managing Director of TMC, has primary responsibility for
the day-to-day management of each of the Fund portfolios. He has held this
responsibility for each of the Limited Term National Fund and the Limited
Term California Fund since their respective inceptions in 1984 and 1987. He
has held the same responsibility for the Intermediate National Fund and the
Intermediate New Mexico Municipal Fund, which commenced operations in 1991,
and for the Intermediate Florida Fund, which commenced operations in February
1994. Mr. McMahon is assisted by other employees of TMC in managing the
Funds.

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

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

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

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

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

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

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

<PAGE> 32

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

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

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

Custodian
State Street Bank & Trust Co.
Boston, Massachusetts

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

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

<logo>
Thornburg Funds
Investing With Integrity
Thornburg Securities Corporation, Distributor
119 East Marcy Street, Santa Fe, New Mexico 87501
(800) 847-0200

<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.

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 _________________, 1997.

<PAGE>
TABLE OF CONTENTS

Summary of the Proposed Reorganization

Investment Advisers and Distributors of Mackenzie Fund and Thornburg Fund

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

Principal Risk Factors

Fees and Expenses of Mackenzie Fund and Thornburg Fund

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

Dividend Policies of Mackenzie Fund and Thornburg Fund

Comparative Information on Shareholder Rights

Additional Information About Shareholder Accounts

Information About the Reorganization

Capitalization

Additional Information About Mackenzie Fund and Thornburg Fund

Voting Information

Exhibit A: Agreement and Plan of Reorganization

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>
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."

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. 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."

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 of 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 five other series of Thornburg Trust, an investment company currently
offering six active investment portfolios, 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 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 for 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.

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 has no stated policy
respecting the dollar-weighted average portfolio maturity or duration of its
portfolios.

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
normally between three and 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 the Funds Invest In
- ------------------------------

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 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. 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 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.

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 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.

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.

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.

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 on 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, 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."

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
Board of Directors or Board of 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.

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.

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.

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 table below sets forth (i) shareholder transaction expenses on
purchases or sales 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) an estimate
of 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.

<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% 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 with 12 months of purchase. This charge will not apply
to Thornburg Fund shares issued in the reorganization.
</FN>
</TABLE>

<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%

<FN>
<FN1> MIMI currently limits Mackenzie Fund's total operating expenses
(excluding taxes, Rule 12b-1 fees, and certain other expenses).
Without expense reimbursements, 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 vary 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>

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>
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>
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 of more made by a purchaser. A contingent deferred sales
charge will be imposed on any portions of such investments redeemed
within one year of purchase, at a rate of .5% of the amount redeemed.
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.

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.

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 after 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.

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 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
$__________ in two installments, subject to adjustment for redemptions of
shares issued in the reorganization, 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
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" (as that term is defined in
the 1940 Act) 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.

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.

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>
CAPITALIZATION OF FUNDS AS OF DECEMBER 31, 1996
<CAPTION>
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 _____________ 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.

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 ______ Class A and
______ 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 ______ outstanding Class A shares of
beneficial interest of Thornburg Fund. As of the same date, no persons
were known to own more than 5% of that 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 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 in 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 in broker non-votes effectively will be
a vote against adjournment and against the proposal because the required
vote is a percentage of the shares outstanding.

THE BOARD OF 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
- ----------------------------------------

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>
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.

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

____________________ By:__________________________________________
_______________ __________________, _________________

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

____________________ By:__________________________________________
_______________ __________________, _________________

<PAGE>
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.
<PAGE>
EXHIBIT B

THORNBURG
NEW YORK
INTERMEDIATE
MUNICIPAL
FUND

PROSPECTUS
June 1, 1997

NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
<PAGE>
<PAGE> <inside cover>

THORNBURG NEW YORK INTERMEDIATE MUNICIPAL FUND
Prospectus
June 1, 1997

Thornburg New York Intermediate Municipal Fund is a separate investment
portfolio ("Fund") offered through this prospectus by Thornburg Investment
Trust.

The Fund is managed by Thornburg Management Company, Inc. (TMC) and offers
Class A shares through this Prospectus, which are sold at net asset value
plus an initial sales charge imposed at the time of sale. See "Your
Account-Buying Fund Shares," beginning on page 5.

The Fund has the objective of providing, through investment in a
professionally managed portfolio of Municipal Obligations, 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, with preservation of capital.

The Fund will invest primarily in Municipal Obligations originating in New
York State, with the objective of having interest dividends paid to
individual shareholders exempt from individual income taxes imposed by New
York State and New York City. The Fund will maintain a portfolio having a
dollar-weighted average maturity of normally three to ten years, with the
objective of reducing fluctuations in net asset value relative to long-term
municipal bond portfolios. The Fund will expect lower yields than those
received on long term bond portfolios, while seeking higher yields and
expecting higher share price volatility than mutual funds with short term
portfolios. During temporary periods the portfolio maturity of the Fund may
be reduced for defensive purposes. There is no limitation on the maturity
of any specific security the Fund may purchase, subject to the limitation
on the average maturity of the Fund. There can be no assurance that the
Fund's objectives will be achieved.

This Prospectus sets forth concisely the information a prospective investor
should know about the Fund before investing. It should be read and retained
for further reference. Additional information about the Fund is contained
in a Statement of Additional Information dated June 1, 1997. The Statement
of Additional Information has been filed with the Securities and Exchange
Commission and may be obtained at no charge by contacting Thornburg
Securities Corporation, 119 East Marcy Street, Suite 202, Santa Fe, New
Mexico 87501, 800-847-0200. This Prospectus incorporates by reference the
Statement of Additional Information.

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

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

1 Expense Information

2 Investment Objectives and Policies

5 Your Account - Buying Fund Shares

9 Selling Fund Shares

11 Investor Services

11 Transaction Services

12 Shareholder and Account Policies

13 Taxes

14 Service Plan

14 Transaction Details

16 Exchange Restrictions

16 Performance

18 Organization of the Fund

18 Thornburg Management Company, Inc.
and Thornburg Securities Corporation

19 Additional Information
<PAGE>
<PAGE>

NOTES

<LOGO>

<PAGE>
<PAGE> 1

EXPENSE INFORMATION
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
<CAPTION>

<S> <C>
Maximum Sales Charge on Purchases 3.50%
(as a percentage of offering price)

Maximum Deferred Sales Charge on Redemptions 0.50 <F1>
(as a percentage of redemption proceeds or
original purchase price, whichever is lower)

<FN>
<F1> Imposed only on redemptions of any portion of a purchases greater than
$1 million in the event of a redemption within 12 months of purchase.
</FN>
</TABLE>

<PAGE>
<TABLE>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets) Example: You would pay the following expenses
on a $1,000 investment, assuming the Fund's
expense ratio remains the same, a 5% annual
return, and redemption at the end of each
time period. The figures do not reflect the
contingent deferred sales charge of .50%
imposed on redemptions of any portion of a
purchase greater than $1 million within
Thornburg New York 1 year of purchase.
Intermediate <CAPTION>
Municipal Fund One Year 3 Years
- ------------------ -------- -------
<S> <C> <S> <C> <C>

Management Fees .50% Class A $45 $66
12b-1 Fees .25%
Other Expenses (after .25%
assumption of expenses)* -----
Total Fund Operating Expenses 1.00%

* Expenses reflect rounding. Other expenses are estimated for the
current fiscal year and reflect an estimated assumption of a portion
of these expenses by TMC. Absent the assumption of expenses, the
other expenses are estimated to be .59%, and the total fund operating
expenses would be 1.34%. TMC's assumption of expenses may be
terminated or reduced at any time.

<PAGE>
EXPLANATION OF TABLES

THE INFORMATION IN THE TABLES ABOVE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. The expense figures shown in the tables
above are presented to assist the investor in understanding the various
costs that an investor in the Fund will bear, directly or indirectly. The
Fund's investment adviser may not assume Fund expenses in the future.

1
<PAGE>
<PAGE> 2

INVESTMENT OBJECTIVES AND POLICIES

The primary investment objective of the Fund is to obtain as high a level
of current income exempt from federal personal income tax and New York
State and New York City personal income taxes as is consistent, in the view
of TMC, with preservation of capital. The secondary objective of the Fund
is to reduce fluctuations in net asset value relative to long-term
municipal bond portfolios, while seeking higher yields and expecting higher
share price volatility than short term portfolios of municipal obligations
expect to have. There is a risk in all investments, however, and there is
no assurance that the Fund's objectives will be achieved. Income otherwise
exempt from federal income tax may be subject to the federal alternative
minimum tax, and distributions from gains attributable to market discount
are characterized as ordinary income for federal income tax purposes. The
primary and secondary investment objectives of the Fund are fundamental
policies of the Fund, and may not be changed without a vote of the Fund's
shareholders.

The Fund will pursue its primary objective by investing in a portfolio of
investment grade obligations and unrated obligations deemed by the Fund's
investment adviser to be of equivalent quality, which are issued primarily
by New York State and its agencies, New York local governments and
agencies, and by United States territories and possessions ("Municipal
Obligations"). Municipal Obligations are discussed below under the caption
"Municipal Obligations," and investment grade ratings are discussed below
under the caption "Securities Ratings and Credit Quality."

The Fund will seek to achieve its secondary objective of obtaining lower
share price fluctuation than a long-term portfolio and obtaining higher
yields than a short term portfolio by maintaining a dollar-weighted
average portfolio maturity normally between three and ten years. The Fund
may maintain a portfolio maturity shorter than three years as a defensive
strategy during abnormal market conditions. If your sole objective is
preservation of capital, then the Fund may not be suitable for you because
its net asset value will vary as market interest rates fluctuate,
increasing as interest rates decline and decreasing as interest rates
increase. Investors whose sole objective is preservation of capital may
wish to consider a high quality money market fund.

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

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. Such temporary investments, which may include
repurchase agreements with dealers, banks or recognized financial
institutions that in the opinion of TMC represent minimal credit risk, may
be made due to market conditions, pending investment of idle funds or to
afford liquidity. Such investments are, like any investment, subject to
market risks and fluctuations in value. In addition, 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.

2
<PAGE>
<PAGE> 3

MUNICIPAL OBLIGATIONS

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

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

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

VARIABLE RATE SECURITIES; INVERSE FLOATERS; AND DEMAND INSTRUMENTS

The Fund may purchase variable rate Municipal Obligations. These variable
rate securities bear rates of interest that are adjusted periodically
according to formulas intended to reflect market rates of interest, and
these may include "inverse floaters," whose rates vary inversely with
changes in market rates of interest. The values of inverse floaters will
tend to be more volatile than fixed rate municipal securities having
similar credit quality, redemption provisions, and maturity. The Fund will
not invest more than 10% of its total assets in securities whose rates vary
inversely with changes in market rates of interest. The Fund also may
purchase variable rate demand instruments and also may purchase fixed rate
municipal demand instruments either in the public market or privately from
banks, insurance companies and other financial institutions. These
instruments provide for periodic adjustment of the interest rate paid to
the holder. The "demand" feature permits the holder to demand payment of
principal and interest prior to the final stated maturity, either from the
issuer or by drawing on a bank letter of credit, a guarantee or insurance
issued with respect to the instrument.

3
<PAGE>
<PAGE> 4

MUNICIPAL LEASES

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

SECURITIES RATINGS AND CREDIT QUALITY

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

Investments in Municipal Obligations may also include (i) variable rate
demand instruments that are rated within the two highest grades of a rating
agency or, if unrated, are deemed by TMC to be of high quality and minimal
credit risk, (ii) tax-exempt commercial paper that is rated within the two
highest grades of a rating agency, and (iii) municipal notes that are rated
within the two highest grades of a rating agency or, if unrated, are deemed
by TMC to be of comparable quality to such rated municipal notes. To the
extent that unrated Municipal Obligations may be less liquid, there may be
somewhat greater risk in purchasing unrated Municipal Obligations than in
purchasing comparable, rated Municipal Obligations. If 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.

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

4
<PAGE>
<PAGE> 5

in ratings. TMC evaluates the credit quality of unrated Municipal
Obligations purchased by the Fund under the general supervision of its
Trustees, and determines the equivalency of unrated obligations to rated
obligations.

WHEN-ISSUED TRANSACTIONS

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

INVESTMENT RESTRICTIONS

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

SPECIAL CONSIDERATIONS AFFECTING THE FUND

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

New York State has a diverse economy, growing personal income, and strength
in consumer spending and tourism, but has not participated uniformly with
other regions in the national economic recovery of 1991 through 1997.
Although employment growth is weak, growth in personal income has resulted
in some increase in government revenues. The state, however, has not taken
advantage of revenue increases to reduce the state's substantial
accumulated deficits and establish reserves. Consequently the financial
stability and credit of the state and many of its agencies and political
subdivisions could be vulnerable to consumer spending reductions, national
economic weakness or changes in federally mandated programs. The state's
chronic budget difficulties, while helped recently by some spending
reductions, also may be aggravated by tax cuts unless further spending
reductions are implemented or the state's economy improves.

YOUR ACCOUNT -
BUYING FUND SHARES IN GENERAL

The Fund currently offers only one class of shares, but may offer other
classes of shares in the future. Each of the Fund's shares represents an
equal undivided interest in the Fund's assets.

Shares are sold subject to a sales charge which is deducted at the time you
purchase your shares. TSC deducts the sales charge shown in the table on
page 6 and invests the balance of your investment at net asset value.

Shares of the Fund may be purchased through investment dealers, brokers or
agents ("financial advisors") who have agreements with the Fund's
distributor, Thornburg Securities Corporation (TSC), or through TSC in
those

5
<PAGE>
<PAGE> 6

states where TSC is registered. Shares of the Fund are or will be available
only in New York State and may be made available in certain other states
where the Fund is qualified for sale. All orders are subject to acceptance
by the Fund, and the Fund and TSC reserve the right to refuse any order in
whole or in part.

NET ASSET VALUE

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

BUYING SHARES

When you buy shares the sales charge applicable to your investment is
deducted from the price you pay and the balance is invested at NAV. The
sales
charge is shown in the table below.
<PAGE>
</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>
Thornburg New York
Intermediate Municipal Fund
- ----------------------------
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% <F*>

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

At certain times, for specific periods, TSC may reallow up to the full

sales charge to all dealers who sell Fund shares. These "full
reallowances" may be based upon the dealer reaching specified minimum
sales goals. TSC will reallow the full sales charge only after
notifying all dealers who sell Fund shares. During such periods,
dealers may be considered underwriters under securities laws. TMC or
TSC also may pay additional cash or non-cash compensation to dealer
firms which have selling agreements with TSC. Those firms may pay
additional compensation to financial advisors who sell Fund shares.
Non-cash compensation may include travel and lodging in connection
with seminars or other educational programs.
</FN>
</TABLE>
<PAGE>
LETTERS OF INTENT. If you intend to invest, over the course of 13 or fewer
months, an amount of money that would qualify for a reduced sales charge if
it were made in one investment, you can qualify for the reduced sales
charge on the entire amount of your investment by signing a "Letter of
Intent" (LOI). Each investment you make during the 13 months will be
charged the reduced sales commission applicable to the amount stated in
your LOI. You do not have to reach the goal you set. If you don't, you
will have to pay the difference between the sales charge you would have
paid and the sales charge you did pay. You may pay this amount directly to
TSC, or TSC will redeem a sufficient number of your shares in the Fund to
obtain the difference.

RIGHTS OF ACCUMULATION. Each time the value of your account plus the amount
of any new investment passes one of the breakpoints illustrated in the
table
on page 6, the amount of your new investment in excess of the breakpoint
will be charged the reduced sales charge applicable to that range.

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

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

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

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

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

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

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

<PAGE> 8

In Minimum Minimum
- -- ------- -------
Regular Accounts $5,000 $ 100
Automatic Investment
Plans $ 100 $ 100

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

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

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

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

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

8
<PAGE>
<PAGE> 9

STREET NAME OWNERSHIP OF SHARES

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

SELLING FUND SHARES

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

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

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

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

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

If you did not complete the telephone redemption section of your
application,
you may add this feature to your account by calling the Fund for a
telephone
redemption application. Once you receive it, please fill it out, have it
signature guaranteed and send it to:

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

9
<PAGE>
<PAGE> 10

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

<PAGE>
___________________________________________________________________________
_
Redeeming Shares Account Type Special Requirements
- ---------------------------------------------------------------------------
- -
Through Your Financial All account types Consult with your
financial
Advisor advisor. Your financial
advisor may charge a fee.

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

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

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

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

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

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

10
<PAGE>
<PAGE> 11

INVESTOR SERVICES

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

Information Services

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

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

TRANSACTION SERVICES

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

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

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

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

Note that exchanges out of the Fund may have tax consequences for you. For
details on policies and restrictions governing exchanges, including
circumstances under which a shareholder's exchange privilege may be
suspended
or revoked, see page 16.

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

11
<PAGE>
<PAGE> 12

SHAREHOLDER AND ACCOUNT POLICIES

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

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

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

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

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

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

Shares of any Thornburg Fund purchased through reinvestment of dividend and
capital gain distributions are not subject to sales charges or contingent
deferred sales charges.

Turnover and Capital Gains

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

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

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

12
<PAGE>
<PAGE> 13

TAXES

Federal Taxes

The Fund intends to qualify under Subchapter M of the Internal Revenue Code
(the "Code ") for tax treatment as a regulated investment company, and the
Fund intends to continue its qualification so long as qualification is in
the best interests of the shareholders. 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 that 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 federal income tax on the amount of such dividends, except to
the extent the alternative minimum tax may be imposed.

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

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

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

13
<PAGE>
<PAGE> 14

New York State and New York City Personal Income Taxes

Exempt interest dividends paid by the Fund in cash or additional shares,
and attributable to interest received by the Fund on Municipal Obligations
originating in New York, will be exempt from New York State and New York
City personal income taxes. Capital gains distributions and dividends
attributable to market discount and interest not received on New York
Municipal Obligations will be subject to New York State and New York City
personal income taxes. Any gain realized on redemption of Fund shares also
will be subject to these taxes.

SERVICE PLAN

The Fund has adopted a Service Plan under which TMC makes payments to
securities dealers and other financial institutions and organizations to
obtain various shareholder related services. The Service Plan permits the
Fund to reimburse TMC for these payments at annual rates up to .25% of its
net assets. No assets of any class of the Fund will be used to reimburse
expenses attributable to any other class of the same, or any other Fund.

The Glass-Steagall Act prohibits certain banks from underwriting mutual
fund shares. The Fund does not believe that this prohibition will apply to
the commissions described beginning on page 7 or to the plan described
above. However, no assurance can be given that the Glass-Steagall Act will
not be interpreted so as to prohibit these arrangements. In that event, the
ability of the Fund to market its shares could be impaired to a small
extent. In addition, state securities laws on this issue may differ from
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law.

TRANSACTION DETAILS

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

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

The Fund reserves the right to suspend the offering of shares for a period
of
time. The Fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page 16. Purchase orders may be refused if, in TMC's opinion, they would
disrupt management of the Fund.

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

14
<PAGE>
<PAGE> 15

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

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

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

* Consult your financial advisor for procedures governing redemption
through
his or her firm.
* If you redeem by mail the proceeds will normally be mailed to you on the
next business day, but if making immediate payment could adversely
affect
your Fund, it may take up to 7 days to pay you.
* Telephone redemptions over the wire generally will be credited to your
bank account on the business day after your phone call.
* The Fund may hold payment on redemptions until it is reasonably
satisfied
that investments previously made by check have been collected, which can
take up to 15 business days.
* Redemptions may be suspended or payment dates postponed when the NYSE is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
* To the extent consistent with state and federal law, the Fund may make
payments of the redemption price either in cash or in kind. The Fund has
elected to pay in cash all requests for redemption by any shareholder.
It may, however, limit such cash in respect to each shareholder during
any 90 day period to the lesser of $250,000 or 1% of the net asset
value
of the Fund at the beginning of such period. This election has been made
pursuant to Rule 18f-1 under the Investment Company Act of 1940 and is
irrevocable while the Rule is in effect unless the Securities and
Exchange
Commission, by order, permits its withdrawal. In the case of a
redemption
in kind, securities delivered in payment for shares would be valued at
the
same value assigned to them in computing the net asset value per share
of
the Fund. A shareholder receiving such securities would incur brokerage
costs when selling the securities.

15
<PAGE>
<PAGE> 16

EXCHANGE RESTRICTIONS

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

* The Fund you are exchanging into must be registered for sale in your
state.
* You may only exchange between accounts that are registered in the same
name, address, and taxpayer identification number.
* Before exchanging into a Fund, read its prospectus.
* If you exchange shares into a Fund with a higher sales charge, you may
have to pay the percentage-point difference between that Fund's sales
charge and any sales charge you have previously paid in connection with
the shares you are exchanging. For example, if you had already paid a
sales charge of 3.5% on your shares and you exchange them into a Fund
with
a 4.5% sales charge, you would pay an additional 1% sales charge.
* Exchanges may have tax consequences for you.
* Because excessive trading can hurt performance and shareholders, each
Thornburg Fund reserves the right to temporarily or permanently
terminate
the exchange privilege of any investor who makes more than four
exchanges
out of a Fund in any calendar year. Accounts under common ownership or
control, including accounts with the same taxpayer identification
number,
will be counted together for purposes of the four exchange limit.
* The Fund reserves the right to refuse exchange purchases by any person
or
group if, in TMC's judgement, the Fund would be unable to invest the
money
effectively in accordance with its investment objective and policies,
or
would otherwise potentially be adversely affected.
* Your exchanges may be restricted or refused if a Fund receives or
anticipates simultaneous orders affecting significant portions of the
Fund's assets. In particular, a pattern of exchanges that coincide with
a
"market timing" strategy may be disruptive to a Fund.

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

PERFORMANCE

YIELD COMPUTATION AND TOTAL RETURN

The Fund may quote its yields and returns in reports, sales literature and
advertisements. Any return quoted should not be considered a
representation of the return in the future since return figures are based
upon historical earnings. Actual performance will vary.

Current yield quotations will include a standardized calculation which
computes yield for a 30-day or one-month period by dividing the Fund's net
investment income per share during the period by the maximum offering price
on the last day of the period and annualizing the result. Provided that any
such quotation is also accompanied by the standardized calculation referred
to above, the Fund also may quote non-standardized yields for a specified
period by dividing the net investment income per share of the Fund for that
period by either the Fund's average public offering price per share for
that same period or the offering price per share on the first or last day
of the period and annualizing the result. The primary differences between
the yield calculations obtain ed using the standardized performance measure
and any non-standardized performance measure will be caused by the
following factors: (1) The non-standardized calculation may cover periods
other than the 30-day or one month period required by the standardize d
calculation; (2) The non-standardized calculation

16
<PAGE>
<PAGE> 17

may reflect amortization of premium based upon historical cost rather than
market value; (3) The non-standardized calculation may reflect the average
offering price per share for the period or the beginning offering price
per share for the period, whereas the standardized calculation will always
reflect the maximum offering price per share on the last day of the period;
(4) The non-standardized calculation may reflect an offering price per
share other than the maximum offering price, provided that any time the
Fund's return is quoted in reports, sales literature or advertisements
using a public offering price which is less than the Fund's maximum public
offering price, the return computed by using the Fund's maximum public
offering price also will be quoted in the same piece; (5) The non-standard
return quotation may include the effective return obtained by compounding
the monthly dividends.

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

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

From time to time, in advertisements and other types of literature, the
performance of the Fund may be compared to other groups of mutual funds.
This comparative performance ma y be expressed as a ranking or a rating
prepared by Lipper Analytical Services, Inc., Donoghue Organization, Inc.,
Morningstar, Inc., Value Line or other widely recognized independent
services
which monitor the performance of mutual funds. Performance rankings and
ratings reported periodically in national financial publications such as
MONEY Magazine, FORBES, BARRON's, VALUE LINE, THE WALL STREET JOURNAL and
MORNINGSTAR, and other such publications may also be used. The Fund may
illustrate performance or the characteristics of its investment portfolio
through graphs, tabular data, or other displays which describe (i) the
average portfolio maturity of the Fund's portfolio securities relative to
the maturities of other investments, (ii) the relationship of yield and
maturity of the Fund to the yield and maturity of other investments (either
as a comparison or through use of standard benchmarks 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
17
<PAGE> 18

in the Fund's (or other investments) net asset values or prices and the
Fund's (or other investments') investment returns. The Fund also may
illustrate or refer to its respective investment portfolios, investment
techniques and strategies, and general market or economic trends in
advertising or communications to shareholders or prospective shareholders,
including reprints of interviews or articles written by or about, and
including comments by, Fund managers. These illustrations, references and
comments ordinarily will relate to topics addressed in the Fund's
Prospectus and Statement of Additional Information.

ORGANIZATION OF THE FUND

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

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

THORNBURG MANAGEMENT COMPANY, INC. & THORNBURG SECURITIES CORP.

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

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

<TABLE>
Annual
Net Assets Annual Investment Administrative
Management Fee Fee
- ---------- ----------------- --------------
<S> <C> <C>
0 to $500 million .50% .125%
$500 million to $1 billion .45% .125%
$1 billion to $1.5 billion .40% .125%
$1.5 billion to $2 billion .35% .125%
Over $2 billion .275% .125%
</TABLE>

18
<PAGE>
<PAGE> 19

TMC was established in 1982. Today, the Thornburg Funds include Thornburg
Value Fund, Thornburg Limited Term U.S. Government Fund, Thornburg Limited
Term Income Fund, Thornburg Limited Term Municipal Fund National Portfolio,
Thornburg Limited Term Municipal Fund California Portfolio, Thornburg
Intermediate Municipal Fund, Thornburg New Mexico Intermediate Municipal
Fund and Thornburg Florida Intermediate Municipal Fund, in addition to the
Fund covered by this Prospectus. The Thornburg Funds total over $1.6
billion in assets. Thornburg Management Company, Inc. is known as a
provider of conservative investment products. For more than a decade the
Thornburg Funds have been committed to preserving and increasing the real
wealth of their shareholders. The key to growing real wealth is increasing
buying power after taxes, inflation, and investment related expenses.

Brian J. McMahon and George Strickland, both of whom are Managing Directors
of TMC, have primary responsibility for the day-to-day management of the
Fund portfolio. They have held this responsibility since its commencement
of investment operations in 1997. Mr. McMahon has managed municipal bond
portfolios for TMC since 1984 and Mr. Strickland has performed municipal
bond credit analysis and management since joining TMC in 1991. Mr. McMahon
and Mr. Strickland are assisted by other employees of TMC in managing the
Fund.

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

In addition to TMC's fees, the Fund will pay all other costs and expenses
of its operations. The Fund will not bear any costs of sales or promotion
incurred in connection with the distribution of its shares, except as
provided for under the service plan applicable to the Fund, as described
above under "Service Plan."

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

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

ADDITIONAL INFORMATION

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

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

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

19
<PAGE>
<PAGE> <back cover>

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

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

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

Custodian
State Street Bank & Trust Co.
Boston, Massachusetts

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

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

<logo>
Thornburg Funds
Investing With Integrity
Thornburg Securities Corporation, Distributor
119 East Marcy Street, Santa Fe, New Mexico 87501
(800) 847-0200

<PAGE>
PART B

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 _______________, 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 _____________,
1997.

<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
----
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);
Trustee
60 Concord Street 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
4701 North Federal Managing Director, 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
Inc.
700 South Federal Hwy. Treasurer (1994-present); Senior Vice President, Finance and Administration/Compliance Officer of
Mackenzie
Suite 300 Investment Management Inc. (1989-1994);
Boca Raton, FL 33432 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.

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

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 _______________, 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 _____________,
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;

(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;

<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

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 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>

03MCNYX123196
<PAGE>
Part C
Other Information
- -----------------

Item 15. Indemnification
- -------------------------

(1) Section 10.2 of the Registrant's Agreement and Declaration of
Trust generally provides that each of the Trust's officers and Trustees
will be indemnified by the Trust against liability and expenses in
connection with his having been a Trustee or officer unless it is
determined that the individual is liable by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office, or if the individual did not act in good faith
in the reasonable belief that the action was in the Trust's best interest.

(2) Section 7 of the Registrant's Distribution Agreement in the form
applicable to each of its series, generally provides that the Trust will
indemnify TSC, its officers and directors, and its controlling persons
against liabilities and expenses incurred because of any alleged untrue
statement of material fact contained in the Registration Statement,
Prospectus or annual or interim reports to shareholders, or any alleged
omission to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading, except where (i)
the untrue statement or omission arises from information furnished by TSC,
or (ii) to the extent the prospective indemnitee is an officer, trustee or
controlling person of the Trust, the indemnification is against public
policy as expressed in the 1933 Act, or (iii) the liability or expense
arises from TSC's willful misfeasance, bad faith, gross negligence,
reckless performance of duties, or reckless disregard of its obligations
and duties under the Distribution Agreement. Further, TSC agrees to
indemnify the Trust, its officers and trustees, and its controlling persons
in certain circumstances.

(3) The directors and officers of TMC are insured, and it is intended
that the Trustees and officers of Thornburg Trust will become insured,
under a joint professional and directors and officers liability policy.
The described individuals are referred to as the "insureds." The policy
covers amounts for which the insureds become legally obligated to pay by
reason of the act, error, omission, misstatement, misleading statement or
neglect or breach of duty in the performance of their duties as directors,
trustees and officers. In addition, the policy covers TMC, and is proposed
to cover the Registrant, to the extent that they have legally indemnified
the insureds for amounts incurred by the insureds as described in the
preceding sentence. The coverage excludes amounts that the insureds become
obligated to pay by reason of conduct which constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard of the
insured's duties. The application of the foregoing provisions is limited
by the following undertaking set forth in the rules promulgated by the
Securities and Exchange Commission:

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officer
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policies
expressed in such Act and that if a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in such Act and will be
governed by the final adjudication of such issue.

Item 16. Exhibits
- ------------------

(1) Declaration of Trust, as amended, incorporated by reference from
registrant's initial registration statement on Form N-1A filed on
June 12, 1987; First Amendment dated August 11, 1987,
incorporated by reference from pre-effective amendment no. 1
filed on October 28, 1987; Second Amendment incorporated by
reference from post-effective amendment no. 1 filed on March 3,
1988; Third, Fourth, Fifth, Sixth and Seventh Amendments,
incorporated by reference from post-effective amendment no. 13
filed on December 3, 1993; Amended and Restated Designation of
Series, incorporated by reference from post-effective amendment
no. 17 filed on July 27, 1994; Ninth Amendment, incorporated by
reference from post-effective amendment no. 20 filed on July 5,
1995; Corrected Tenth Amendment, incorporated by reference from
post-effective amendment no. 22 filed on October 2, 1995; First
Supplement to Amended and Restated Designation of Series,
incorporated by reference from post-effective amendment no. 26
filed on May 6, 1996.

(2) By-laws, incorporated by reference from registrant's initial
registration statement on Form N-1A filed on June 12, 1987.

(3) Not applicable.

(4) Agreement and Plan of Reorganization - (filed herewith as
Exhibit A to each of the Prospectus/Proxy Statements included as
Part A of this Registration Statement).

(5) Not applicable.

(6) (a) Form of Restated Investment Advisory Agreement, incorporated
by reference from post-effective amendment number 27
to Registrant's registration statement on form N-1A, filed
on August 30, 1996.

(b) Form of Administrative Services Agreement, incorporated by
reference from post-effective amendment no. 29 to
registrant's registration statement on Form N-1A, filed on
March 14, 1997.

(7) Form of Underwriting Agreement, incorporated by reference from
registrant's initial registration statement on Form N-1A filed on
June 12, 1987.

(8) Not applicable.

(9) Custody Agreement, incorporated by reference from post-effective
amendment no. 29 to registrant's registration statement on
Form N-1A, filed on March 14, 1997.

(10) (a) Form of Class A Service Plan, incorporated by reference from
post-effective amendment no. 29 to registrant's registration
statement on Form N-1A, filed on March 14, 1997.

(b) Multiple Class Plan pursuant to Rule 18F-3, filed herewith.

(11) Opinion and consent of Koch, Kelly & McCarthy, P.A.

(12) Opinion and consent of Dechert Price and Rhoads, as to
tax consequences (to be filed by post-effective amendment).

(13) Not applicable.

(14) (a) Consent of McGladrey & Pullen, LLP, independent auditors.

(b) Consent of Coopers & Lybrand, LLP, independent auditors.

(15) Not applicable.

(16) Powers of attorney

(17) (a) Declaration pursuant to Rule 24f-2

(b) Proxy card (Mackenzie National Municipal Fund)

Item 17. Undertakings
- ----------------------

(1) The undersigned registrant agrees that prior to any public
offering of the securities registered through the use of a
prospectus which is part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, as
amended, the reoffering prospectus will contain the information
called for by the applicable registration form for reofferings
by person who may be deemed underwriters, in addition to the
information called for by the other items of the applicable
form.

(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, as amended, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and
the offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.

(3) The undersigned registrant agrees to file, by post-effective
amendment, an opinion of counsel or a copy of an Internal
Revenue Service ruling supporting the tax consequences of the
proposed acquisition of assets and issuance of shares described
in this Registration Statement within a reasonable time after
receipt of such opinion or ruling.<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended
(the "Securities Act"), the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Santa Fe, and State of New Mexico on the 25th
day of June, 1997.

THORNBURG INVESTMENT TRUST
Registrant

By *
------------------------------------
H. Garrett Thornburg, Jr., President

Pursuant to the requirements of the Securities Act this Registration
Statement has been signed below by the following persons in the capacities
and on the date indicated.

*
- ------------------------------------------
H. Garrett Thornburg, Jr., Trustee,
President and principal executive officer

*
- ------------------------------------------
J. Burchenal Ault, Trustee

*
- ------------------------------------------
David A. Ater, Trustee

*
- ------------------------------------------
Forrest S. Smith, Trustee

*
- ------------------------------------------
James W. Weyhrauch, Trustee

*
- ------------------------------------------
Brian J. McMahon, Vice President
Trustee and principal accounting
and financial officer

* By: /s/
------------------------------------- Date: June 25, 1997
Charles W.N. Thompson, Jr.
Attorney-In-Fact
<PAGE>
INDEX TO EXHIBITS

(10) (b) Multiple Class Plan pursuant to Rule 18F-3, filed herewith.

(11) Opinion and consent of Koch, Kelly & McCarthy, P.A.

(14) (a) Consent of McGladrey & Pullen, LLP, independent auditors.
(b) Consent of Coopers & Lybrand, LLP, independent auditors.

(16) Powers of attorney

(17) (a) Declaration pursuant to Rule 24f-2

(b) Proxy card (Mackenzie National Municipal Fund)

THORNBURG INVESTMENT TRUST
PLAN FOR MULTIPLE CLASS DISTRIBUTION
July 1, 1996

THIS PLAN FOR MULTIPLE CLASS DISTRIBUTION is adopted and approved by
the Trustees of Thornburg Investment Trust (the "Trust"), in respect of its
six current series, 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, and such other series as the Trust
may hereinafter offer and make subject to this Plan (each series referred
to hereinafter as a "Fund," and collectively as the "Funds"), effective
July 1, 1996.

Recitals

A. The Trust applied for and obtained an exemptive order from the
Securities and Exchange Commission pursuant to Section 6(c) of the
Investment Company Act of 1940 (the "Investment Company Act") for an
exemption from certain provisions thereof and rules adopted thereunder.
The exemptive order was issued to the Trust and certain affiliated or
associated persons on August 3, 1994 under file number 812-8068, and
exempted the Trust's issuance and sale of multiple classes of securities
from (1) Section 18(g) of the Investment Company Act, to the extent the
issuance and sale of these securities result in a "senior security"; (2)
Section 18(i) of the Investment Company Act to the extent that the
different voting rights associated with each class of shares may be deemed
to result in some shares issued by the Trust having unequal voting rights
with every other share of outstanding voting stock; and (3) Sections
2(a)(32), 2(a)(35), 22(c) and 22(d) of the Investment Company Act and Rule
22c-1 thereunder, to the extent necessary or appropriate to permit the
imposition of a contingent deferred sales charge ("CDSC") in connection
with the redemption of the shares of the Funds and certain other new share
classes from time to time with varying sales charges and shareholder
distribution and service fee arrangements.

B. The Securities and Exchange Commission subsequently adopted Rule
18f-3 and other rule changes under the Investment Company Act, to permit
open-end investment management companies such as the Trust to issue
multiple classes of shares without seeking exemptive relief.

C. The Trustees of the Trust, by adoption of resolutions at a
meeting duly called and held on June 20, 1996, have determined (i) to
invoke Rule 18f-3 in the Trust's issuance of multiple classes of shares and
operation of its multiple class distribution system, and (ii) to adopt this
Plan in accordance with paragraph (d) of Rule 18f-3 as a restatement of its
multiple class distribution system.

D. The Trustees, by its adoption of this Plan, finds that this Plan
is in the best interests of the Trust, each Fund, and each class of shares
offered by the Trust's Funds.

E. The terms of this Plan are adopted and approved subject to the
provisions of Rule 18f-3, and all such terms will be governed in their
interpretation and operation by Rule 18f-3.

Plan Provisions

THEREFORE, the Trust will, effective July 1, 1996, offer multiple
classes of shares and operate its multiple class distribution system
subject to the following terms and provisions.

1. In General. Subject to provisions of this Plan hereinafter set
forth, each Fund may issue multiple classes of shares under which each
class (i) may have a different arrangement for shareholder services or the
distribution of securities or both, and shall pay all of the expenses of
that arrangement, and (ii) may pay a different share of other expenses (not
including advisory or custodial fees or other expenses related to the
management of the Trust's assets) if these expenses are actually incurred
in a different amount by that class, or if the class receives services of a
different kind or to a different degree than other classes. Except for the
class designations, the service and distribution fee structure, the
possible allocation of certain expenses, and certain voting rights
respecting plans and agreements adopted under Rule 12b-1 under the
Investment Company Act, each class of shares of each Fund issued under the
multiple class distribution system will be identical in all respects with
(a) each other class so issued by a Fund, and (b) the currently issued and
outstanding shares of the Fund.

2. Class A Shares. Class A shares will be offered by each Fund at
net asset value plus a front-end sales charge. Sales charges may be
subject from time to time to certain reductions permitted by Section 22(d)
of the Investment Company Act and Rule 22d-1 thereunder and set forth in
the Trust's registration statement. Class A shareholders will be assessed
an ongoing service fee under a service plan based upon a percentage of the
average daily net asset value of Class A shares. Administrative services
will be provided to each class by Thornburg Management Company, Inc.,
pursuant to an administrative services agreement adopted for that class by
the Trustees.

3. Class C Shares. Class C shares will be offered by each Fund at
net asset value without the imposition of a sales load at the time of
purchase. Class C shares are subject to a contingent deferred sales charge
if redeemed within one year of purchase, varying in amount as specified by
resolution of the Trustees. This CDSC applies only to Class C shares
purchased on or after October 2, 1995. The CDSC will be imposed upon the
lower of the purchase price or net asset value at redemption of each share
redeemed. The CDSC is not imposed upon shares purchased by reinvesting
dividends or capital gain distributions. A service fee will be imposed on
Class C shares in the same manner it is imposed on Class A shares, pursuant
to a service plan. Class C shares also will pay an annual distribution fee
assessed under a Class C distribution plan applicable only to the Fund's
Class C shares. Administrative services will be provided to each class by
Thornburg Management Company, Inc. pursuant to an administrative services
agreement adopted for that class by the Trustees.

4. Institutional Class Shares. Thornburg Limited Term U.S.
Government Fund, Thornburg Limited Term Income Fund and Thornburg
Intermediate Municipal Fund will offer institutional or "Class I" shares,
pursuant to resolutions adopted by the Trustees on December 18, 1995 and
June 20, 1996. Class I shares are offered by the three Funds in a
prospectus separate from the prospectuses employed to offer Class A and
Class C shares of the Trust's Funds. Class I shares will be offered for
sale at net asset value without imposition of a sales charge at the time of
sale or redemption, to certain institutional and other investors specified
from time to time in the registration statement. Institutional Class
shares will be subject to a plan and agreement pursuant to Rule 12b-1 in
the nature of a service plan similar to that adopted for Class A shares.
Administrative services will be provided to each class by Thornburg
Management Company, Inc. pursuant to an administrative services agreement
adopted for that class by the Trustees.

5. Future Classes. Future classes of shares may be offered by one
or more Funds. Each future class of a Fund will be subject to the same
investment advisory agreement as all other classes of the Fund, but certain
administrative or shareholder or other services may be provided to the
future class by other organizations pursuant to agreements or other
arrangements specific to one or more of the future classes and under which
administrative or other expenses may be charged to each such class.
Expenses attributable to these services will be charged only to the future
class or classes to which the expenses relate and the delivery of such
services will augment or replace and not be duplicative of the services
provided by and charged for by Thornburg Management Company, Inc. or
Thornburg Securities Corporation. Rule 12b-1 plans, other agreements and
arrangements relating to future classes of shares, conversion and exchange
features associated with these shares and the allocation of expenses to
those shares will be specified in each such case by resolution of the
Trustees.

6. Computations of Net Asset Value and Expense Allocations. The net
asset value of all outstanding shares of all classes of each Fund will be
computed on a daily basis. Investment income and unrealized and realized
gains or losses will be allocated to each class of shares based upon its
relative percentage of the Fund's net assets. Expenses also will be
allocated to each class based upon its relative percentage of the Fund's
net assets except to the extent (i) each class bears the specific expenses
of the class's Rule 12b-1 plan (if any), (ii) different administrative
services are assessed to each class under a specific administrative
services agreement adopted for the class, and (iii) transfer agent fee
differentials attributable to specific classes and other class specific
expenses relating to classes of shares ("Class Expenses") are identified
and allocated to a specific class. Class Expenses applicable to more than
one class will be allocated among those classes based upon the relative
percentages of net assets. Administrative and Class Expenses will be
limited to (a) transfer agent fees identified by the transfer agent as
being attributable to a specific class of shares, (b) printing and postage
expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current shareholders, (c)
Blue Sky fees and costs attributable to registration, qualification or
exemption of the class's shares, (d) Securities and Exchange Commission
registration fees incurred by a class of shares, (e) administrative
expenses required to support the shareholders of a specific class, (f)
litigation or other legal expenses relating solely to one class of shares,
and (g) any other expenses subsequently identified that should be properly
allocated to one class that are approved by the Trustees by resolution.
Dividends paid to each class of shares of a Fund will be declared and paid
on the same days and at the same times, and except as noted with respect to
the expenses of Rule 12b-1 plan payments, transfer agent fees and Class
Expenses, will be determined in the same manner for each class of a Fund.
A procedures memorandum and worksheets demonstrating the determination of
net asset value and dividend and distribution amounts was filed as an
exhibit to the Trust's application for exemptive order on June 7, 1994, and
is incorporated in this Plan. The methodology and procedures reflected in
the memorandum and worksheets have been reviewed by the Trust's independent
auditors, who have rendered a report on the methodology for the Trust. On
an ongoing basis, the Trustees will review the methodology and procedures
with management and the independent auditors to determine that the
methodology and procedures are adequate to ensure that the calculations and
allocations will be made in an appropriate manner.

7. Conversion of Shares. As of the date of this Plan's adoption, no
class currently authorized for issuance by either of the Trust's Funds will
convert into shares of any other class of the same Fund. The Trustees may
specify and respecify from time to time by resolution conversion of any
class of shares into any other class of shares of the same Fund. In all
events, any class of shares with a conversion feature will convert into
another class of shares on the basis of the relative net asset values of
the two classes, without the imposition of any sales load, fee or other
charge. After conversion, the converted shares will be subject to asset
based sales charges and service fees (as those terms are defined in Article
III, Section 26 of the NASD's Rules of Fair Practice), if any, that in the
aggregate are lower than the asset based sales charges and service fees to
which they were subject prior to the conversion.

8. Compliance Standards. The Funds' principal underwriter,
Thornburg Securities Corporation, will be required to adopt compliance
standards as to when each class of shares may appropriately be sold to
particular investors.

9. No Liquidation or Distribution Preference. Each class of shares
offered by a Fund will be redeemable at all times (subject to the same
limitations set forth in the Fund's prospectus and statement of additional
information for all classes of shares offered by that Fund) and no class of
shares will have any preference or priority over any other class in the
Fund, and no class will be protected by any distribution or liquidation
preference or by any reserve or other account for distribution or
liquidation purposes.

10. Reinvestment and Exchange Privileges. Each of the Funds
currently offers reinvestment privileges and exchanges relating to its
Class A shares, as described in the Trust's registration statement. There
are not, as of the effective date of this Plan, any reinvestment privileges
or exchange privileges with respect to Class C shares or Institutional
Class shares. The Trustees may specify from time to time by resolution
exchange or conversion privileges in conformity with Rule 18f-3, Rule 11a-3
and other provisions of the 1940 Act and the rules thereunder.

11. Review by Trustees. The Trustees will periodically review each
of the Funds for the existence of any material conflicts among the
different share classes. The Trustees, including a majority of the
independent Trustees, may take such action reasonably necessary to correct
any conflicts which develop. The Trustees, in fulfilling this
responsibility may request and receive from the Trust's investment adviser
and distributor reports of any potential or existing conflicts. In
evaluating whether or not conflicts exist, the Trustees will consider
specifically if the allocations of fees and expenses, the delivery of
services, waivers or reimbursements of expenses or availability of voting
rights discriminate against one class or favor one class at the expense of
another. The Trustees will periodically review statements of distribution
expenses incurred and the amounts of those expenses paid for by the Funds
under Rule 12b-1 plans and agreements. The Trustees and the independent
Trustees will periodically review the method of allocating distribution
expenses among the classes and consider if the method of allocating is
likely to subsidize the distribution or servicing of another class of
shares. The Trustees will periodically evaluate the services provided to
each class and consider if the services are appropriate and the cost is
reasonable.

12. Amendment. The Trustees may amend this Plan any time and from
time to time by adoption of resolutions, and resolutions subsequently
adopted by the Trustees and relating to the subject matter hereof shall be
deemed to amend and supersede this Plan as to the subject matter of those
resolutions.
<PAGE>
EXHIBIT 11

WHITE Attorneys and Counselors at Law
KOCH, KELLY William Booker Kelly Julie A. Wittenberger
& John F. McCarthy, Jr. John T.L. Grubesic
McCARTHY Benjamin Phillips
A Professional Association David F. Cunningham
Albert V. Gonzales Of Counsel
Janet Clow Rebecca Dempsey
Kevin V. Reilly
C.W.N. Thompson, Jr.
M. Karen Kilgore
Sandra J. Brinck Special Counsel
Aaron J. Wolf Paul L. Bloom
Mary E. Walta

June 25, 1997

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

VIA EDGAR FILING
- ----------------

Re: THORNBURG INVESTMENT TRUST (formerly Thornburg Income Trust)
Registration Statement on Form N-14

Ladies and Gentlemen:

The Class A shares proposed to be issued by each of Thornburg
Intermediate Municipal Fund and Thornburg New York Intermediate Municipal
Fund, when issued in accordance with those series' respective prospectuses
included in the above referenced Registration Statement, will be legally
issued, fully paid and non-assessable.

We hereby consent to the references made to this firm in the described
Registration Statement of Thornburg Investment Trust and the prospectuses
which are part of that Registration Statement. In giving this consent, we
do not admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.

/s/ White, Koch, Kelly & McCarthy, P. A.

WHITE, KOCH, KELLY & McCARTHY, P. A.

CWNT:clc

433 Paseo de Peralta Post Office Box 787, Santa Fe, NM 87504-0787
(505) 982-4374 Fax Nos. (505) 982-0350; 984-8631 e-mail [email protected]

<PAGE>

EXHIBIT 14(a)

McGLADREY & PULLEN, LLP
--------------------------------------------
Certified Public Accountants and Consultants

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the incorporation by reference of our report
dated October 27, 1996, on the financial statements of the Thornburg
Intermediate Municipal Fund series of Thornburg Investment Trust, referred
to therein in the Registration Statement on Form N-14 as filed with the
Securities and Exchange Commission.

/s/ McGladrey & Pullen, LLP

McGLADREY & PULLEN, LLP

New York, New York
June 18, 1997

<PAGE>
<PAGE>
EXHIBIT 14(b)

COOPERS Coopers & Lybrand L.L.P.
&LYBRAND a professional services firm

CONSENT OF INDEPENDENT ACCOUNTANTS

To the Board of Trustees of
Mackenzie Series Trust

We hereby consent to the inclusion in the Registration Statement on Form N-
14 (hereafter the "Registration Statement") of Thornburg Investment Trust
of our reports dated August 15, 1996, relating to the financial statements
and financial highlights of Mackenzie National Municipal Fund and Mackenzie
New York Municipal Fund (hereafter the "Funds") appearing in the June 30,
1996 Annual Reports to Shareholders of the Funds, which annual reports are
included in the Registration Statement.

/s/

Fort Lauderdale, Florida
June 25, 1997

Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.

EXHIBIT 16

Power of Attorney

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, David A. Ater,
hereby constitutes and appoints H. Garrett Thornburg, Jr., Brian J.
McMahon, Steven J. Bohlin and Charles W. N. Thompson, Jr., jointly and
severally, his attorneys-in-fact, each with power of substitution, for him
in any and all capacities, to sign Registration Statements under the
Securities Act of 1933 and the Investment Company Act of 1940 for Thornburg
Investment Trust and any and all pre- and post-effective amendments to any
such Registration Statement, for any series of the Trust and to file the
same with the Securities and Exchange Commission and the various state
regulatory agencies, hereby ratifying and confirming all that each of said
attorneys-in-fact or his or her substitute or substitutes may do or cause
to be done by virtue thereof.

DATED: January 1, 1995

___________________________________
David A. Ater, Trustee

<PAGE>

Power of Attorney

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, J. Burchenal
Ault, hereby constitutes and appoints Brian J. McMahon, Dawn B. Shapland,
Steven J. Bohlin and Charles W. N. Thompson, Jr., jointly and severally,
his attorneys-in-fact, each with power of substitution, for him in any and
all capacities, to sign Registration Statements under the Securities Act of
1933 and the Investment Company Act of 1940 for Thornburg Investment Trust
and any and all pre- and post-effective amendments to any such Registration
Statement, for any series of the Trust and to file the same with the
Securities and Exchange Commission and the various state regulatory
agencies, hereby ratifying and confirming all that each of said attorneys-
in-fact or his or her substitute or substitutes may do or cause to be done
by virtue thereof.

DATED: May 7, 1997

___________________________________
J. Burchenal Ault

<PAGE>

Power of Attorney

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Brian J.
McMahon, hereby constitutes and appoints H. Garrett Thornburg, Jr., Dawn B.
Shapland, Steven J. Bohlin and Charles W. N. Thompson, Jr., jointly and
severally, his attorneys-in-fact, each with power of substitution, for him
in any and all capacities, to sign Registration Statements under the
Securities Act of 1933 and the Investment Company Act of 1940 for Thornburg
Investment Trust and any and all pre- and post-effective amendments to any
such Registration Statement, for any series of the Trust and to file the
same with the Securities and Exchange Commission and the various state
regulatory agencies, hereby ratifying and confirming all that each of said
attorneys-in-fact or his or her substitute or substitutes may do or cause
to be done by virtue thereof.

DATED: June 20, 1996

___________________________________
Brian J. McMahon

<PAGE>

Power of Attorney

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Forrest S.
Smith, hereby constitutes and appoints Brian J. McMahon, Dawn B. Shapland,
Steven J. Bohlin and Charles W. N. Thompson, Jr., jointly and severally,
his attorneys-in-fact, each with power of substitution, for him in any and
all capacities, to sign Registration Statements under the Securities Act of
1933 and the Investment Company Act of 1940 for Thornburg Investment Trust
and any and all pre- and post-effective amendments to any such Registration
Statement, for any series of the Trust and to file the same with the
Securities and Exchange Commission and the various state regulatory
agencies, hereby ratifying and confirming all that each of said attorneys-
in-fact or his or her substitute or substitutes may do or cause to be done
by virtue thereof.

DATED: May 7, 1997

___________________________________
Forrest S. Smith

<PAGE>

Power of Attorney

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, H. Garrett
Thornburg, Jr., hereby constitutes and appoints Brian J. McMahon, Dawn B.
Shapland, Steven J. Bohlin and Charles W. N. Thompson, Jr., jointly and
severally, his attorneys-in-fact, each with power of substitution, for him
in any and all capacities, to sign Registration Statements under the
Securities Act of 1933 and the Investment Company Act of 1940 for Thornburg
Investment Trust and any and all pre- and post-effective amendments to any
such Registration Statement, for any series of the Trust and to file the
same with the Securities and Exchange Commission and the various state
regulatory agencies, hereby ratifying and confirming all that each of said
attorneys-in-fact or his or her substitute or substitutes may do or cause
to be done by virtue thereof.

DATED: May 2, 1997

___________________________________
H. Garrett Thornburg, Jr.

<PAGE>

Power of Attorney

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, James W.
Weyhrauch, hereby constitutes and appoints H. Garrett Thornburg, Jr., Brian
J. McMahon, Dawn B. Shapland, Steven J. Bohlin and Charles W. N. Thompson,
Jr., jointly and severally, his attorneys-in-fact, each with power of
substitution, for him in any and all capacities, to sign Registration
Statements under the Securities Act of 1933 and the Investment Company Act
of 1940 for Thornburg Investment Trust and any and all pre- and post-
effective amendments to any such Registration Statement, for any series of
the Trust and to file the same with the Securities and Exchange Commission
and the various state regulatory agencies, hereby ratifying and confirming
all that each of said attorneys-in-fact or his or her substitute or
substitutes may do or cause to be done by virtue thereof.

DATED: June 20, 1996

___________________________________
James W. Weyhrauch

<PAGE>
<PAGE>
EXHIBIT 17(a)

DECLARATION PURSUANT TO RULE 24f-2
by Thornburg Investment Trust

At the time of the initial filing of its registration statement on
Form N-1A in 1987, the registrant declared that an indefinite number of
shares are registered pursuant to Rule 24f-2 under the Investment Company
Act of 1940, and registrant paid the $500 fee required by the Rule.
Initial declaration is incorporated by reference from registrant's original
registration statement.

<PAGE>

EXHIBIT 17(b)

MACKENZIE NATIONAL MUNICIPAL FUND
a series of MACKENZIE SERIES TRUST

SPECIAL MEETING OF SHAREHOLDERS - SEPTEMBER 4, 1997

The undersigned shareholder of MACKENZIE NATIONAL MUNICIPAL FUND (the
"Fund"), a series of Mackenzie Series Trust, a Massachusetts business
trust, hereby appoints C. William Ferris, Keith J. Carlson and Deborah P.
Mason, and each of them, with full power of substitution and revocation, as
proxies to represent the undersigned at the Special Meeting of Shareholders
of the Fund, which shall be held on September 4, 1997 at 10:00 a.m. eastern
time, at the offices of Mackenzie Investment Management Inc., Via Mizner
Financial Plaza, Suite 300, 700 Federal Highway, Boca Raton, Florida 33432,
and at any and all adjournments thereof, and thereat to vote all shares of
the Fund which the undersigned would be entitled to vote, with all powers
the undersigned would possess if personally present, in accordance with the
following instructions:

1. FOR ___ AGAINST ___ ABSTAIN ___ as to the proposal to approve the
Agreement and Plan of Reorganization, dated June 13, 1997 between
Mackenzie Series Trust, on behalf of the Fund, and Thornburg
Investment Trust, on behalf of Thornburg Intermediate Municipal Fund
("Thornburg Fund"), and the proposed transaction whereby substantially
all of the assets of the Fund will be transferred to Thornburg Fund,
in exchange for Thornburg Fund Class A shares; immediately thereafter,
the Class A shares of Thornburg Fund will be distributed to the Fund's
Class A and Class B shareholders in total liquidation of the Fund,
which will thereafter be dissolved, all as more fully described in the
Prospectus/Proxy Statement dated __________, 1997;

and, in their discretion, upon such other business as may properly come
before the meeting or any adjournments thereof.

If more than one of the proxies, or their substitutes, are present at
the meeting or at any adjournment thereof, they jointly (or, if only one is
present and voting, then that one) shall have authority and may exercise
all the powers granted hereby. This proxy, when properly executed, will be
voted in accordance with the instructions marked hereon by the undersigned.
In the absence of contrary instructions, this proxy will be voted FOR the
proposal.

The undersigned hereby acknowledges receipt of the accompanying Notice
of Meeting and Prospectus/Proxy Statement dated __________, 1997, and
Thornburg Fund's prospectus dated February 1, 1997.

IMPORTANT: Please insert date of signing.

Dated: _________________, 1997

______________________________
Signature of Shareholder

______________________________
Signature of Shareholder
(if held jointly)

This Proxy shall be signed exactly as your name(s) appear hereon. If
as attorney, executor, guardian or in some representative capacity or as an
officer of a corporation, please add title as such.

PLEASE VOTE, SIGN, DATE AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.

<PAGE>

EXHIBIT 17(c)

MACKENZIE NEW YORK MUNICIPAL FUND
a series of MACKENZIE SERIES TRUST

SPECIAL MEETING OF SHAREHOLDERS - SEPTEMBER 4, 1997

The undersigned shareholder of MACKENZIE NEW YORK MUNICIPAL FUND (the
"Fund"), a series of Mackenzie Series Trust, a Massachusetts business
trust, hereby appoints C. William Ferris, Keith J. Carlson and Deborah P.
Mason, and each of them, with full power of substitution and revocation, as
proxies to represent the undersigned at the Special Meeting of Shareholders
of the Fund, which shall be held on September 4, 1997 at 10:00 a.m. eastern
time, at the offices of Mackenzie Investment Management Inc., Via Mizner
Financial Plaza, Suite 300, 700 Federal Highway, Boca Raton, Florida 33432,
and at any and all adjournments thereof, and thereat to vote all shares of
the Fund which the undersigned would be entitled to vote, with all powers
the undersigned would possess if personally present, in accordance with the
following instructions:

1. FOR ___ AGAINST ___ ABSTAIN ___ as to the proposal to approve the
Agreement and Plan of Reorganization, dated June 13, 1997 between
Mackenzie Series Trust, on behalf of the Fund, and Thornburg
Investment Trust, on behalf of Thornburg New York Intermediate
Municipal Fund ("Thornburg Fund"), and the proposed transaction
whereby substantially all of the assets of the Fund will be
transferred to Thornburg Fund, in exchange for Thornburg Fund Class A
shares; immediately thereafter, the Class A shares of Thornburg Fund
will be distributed to the Fund's Class A and Class B shareholders in
total liquidation of the Fund, which will thereafter be dissolved, all
as more fully described in the Prospectus/Proxy Statement dated
__________, 1997;

and, in their discretion, upon such other business as may properly come
before the meeting or any adjournments thereof.

The undersigned hereby acknowledges receipt of the accompanying Notice
of Meeting and Prospectus/Proxy Statement dated __________, 1997, and
Thornburg Fund's prospectus dated June 1, 1997.

IMPORTANT: Please insert date of signing.

Dated: _________________, 1997

______________________________
Signature of Shareholder

______________________________
Signature of Shareholder
(if held jointly)

This Proxy shall be signed exactly as your name(s) appear hereon. If
as attorney, executor, guardian or in some representative capacity or as an
officer of a corporation, please add title as such.

PLEASE VOTE, SIGN, DATE AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.