<OUTSIDE FRONT COVER>
THORNBURG
VALUE FUND
THORNBURG
GLOBAL
VALUE FUND
Prospectus
May 26, 1998
Not FDIC-Insured May Lose Value
No Bank Guarantee
<PAGE>
THORNBURG
VALUE FUND
THORNBURG
GLOBAL
VALUE FUND
Prospectus, May 26, 1998
Thornburg Value Fund and Thornburg Global Value Fund seek long-term capital
appreciation by investing in portfolios of securities selected on a value
basis. As a secondary consideration, each Fund also seeks some current
income. Please read this prospectus before investing, and keep it on file
for future reference. It contains important information, including how each
Fund invests and the services available to shareholders.
To learn more about the Funds and their investments, you can obtain a copy of
the Funds' Statement of Additional Information (SAI) dated May 26, 1998. The
SAI has been filed with the Securities and Exchange Commission (SEC) and is
incorporated herein by reference (legally forms a part of the prospectus).
For a free copy of either document, call your financial advisor or Thornburg
Securities Corporation at 1-800-847-0200.
___________________________________________________________________________
MUTUAL 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.
LIKE ALL MUTUAL FUNDS, 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.
___________________________________________________________________________
<PAGE>
TABLE OF
CONTENTS
1 The Funds at a Glance
2 Expense Information
4 Financial Highlights
4 Management Discussion of Fund Performance
5 Prior Performance of the Investment Advisor
6 Investment Principles
8 Securities and Investment Practices and Risks
11 Buying Fund Shares
13 Opening an Account
15 Selling Fund Shares
16 Information Services
16 Individual Retirement Accounts
18 Dividends, Capital Gains, and Taxes
19 Transaction Details
21 Exchange Restrictions
21 Calculation of Performance
22 TMC and TSC
23 Breakdown of Expenses
23 Management Fees and Administrative Services Fees
23 Service and Distribution Plans
24 Additional Information
<PAGE>
Notes
- -----
<PAGE>
KEY FACTS
THE FUNDS AT A GLANCE
Goal of each Fund Long-term capital appreciation. Each Fund, as a secondary
investment consideration, also seeks some current income. As with any mutual
fund, there is no assurance that the Funds will achieve their goals.
Strategy Thornburg Value Fund seeks its primary objective of capital
appreciation by investing mainly in domestic equity securities selected on a
value basis using traditional and additional fundamental research and
valuation methods. Thornburg Global Value Fund has the same primary
objective and uses a similar strategy, but invests throughout the world and
normally will invest more than one-half of its assets outside the United
States. As a secondary investment consideration, each of the Funds seeks to
realize some current income through selection of dividend paying equity
securities, and through the purchase of some preferred stocks and domestic
and foreign debt securities.
Management The business and affairs of the Funds are managed by Thornburg
Management Company, Inc. (TMC) under the direction of the Funds' Trustees.
TMC was established in 1982 and currently manages $1.9 billion in mutual fund
assets. TMC is committed to preserving and increasing the wealth of the
mutual funds TMC manages. The key to growing real wealth is increasing
buying power after taxes, inflation, and investment-related expenses.
Who May Want to Invest. The Funds may be appropriate for investors who are
willing to ride out stock market fluctuations in pursuit of potentially high
long-term returns. Each Fund is designed for those who seek capital
appreciation and some current income from a conservative style of investing
in equities and, when appropriate, fixed income securities. Neither Fund is
in itself a balanced investment plan. Investors should consider their long-
term investment goals and financial needs when making an investment decision
with respect to the Funds.
The value of each Fund's investments and the income they generate varies from
day to day, generally reflecting changes in market conditions, political and
economic news, interest rates, dividends, and specific corporate
developments. Although stock prices (and a Fund's share price) can fluctuate
dramatically over the short term in response to these factors, stocks
historically have shown greater growth than other types of securities. When
you sell your Fund shares, they may be worth more or less than what you paid
for them.
THE ROLE OF FINANCIAL ADVISORS
The Funds are generally available for purchase through professional financial
advisors who are either registered and licensed with the National Association
of Securities Dealers, Inc. or are registered as investment advisors with the
Securities and Exchange Commission or state securities administrators.
Professional financial advisors are often employed by full service investment
firms, financial planning firms, banks, insurance companies, or trust
companies, and offer their services to both individual and institutional
investors. Professional financial advisors may assist you in developing an
understanding of your financial needs and in formulating long-term investment
goals and objectives. In addition, financial advisors customarily may offer
individual investors help in developing realistic expectations, providing
assistance in creating customized financial plans, selecting investments, and
monitoring and reviewing portfolios on an ongoing basis to assure proper
positioning of investments within the context of an overall investment
strategy.
They are also available to answer questions as well as helping investors
"stay the course" of their long-term investment programs. These professionals
are often paid either by sales charges on the initial purchase of mutual
funds or by charging a fee for ongoing investment advice and services. (See
pages 11-14 for a full discussion of sales charges and exceptions for the
Funds.)
1
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Shareholder transaction expenses are charges you pay when you buy or sell
shares of a Fund; for example, the 4.5% maximum sales charge on purchases of
a Fund's Class A shares. Lower sales charges are available for purchases
over $50,000. Sales charges may be waived or reduced for certain purchasers.
Operating expenses. Operating a mutual fund involves a variety of expenses
for portfolio management, shareholder statements, tax reporting, and other
services. These expenses are paid from each Fund's assets; their effect is
factored into any quoted share price or return.
Buying and selling Fund shares. Information on buying Fund shares begins on
page 11 and information on selling Fund shares begins on page 15.
EXPENSE INFORMATION
<TABLE>
____________________________________________________________________________
SHAREHOLDER TRANSACTION EXPENSES
Thornburg Value Fund and Thornburg Global Value Fund
Class A Class C
------- -------
<S> <C> <C>
Maximum sales charge on purchases 4.5% None
(as a % of offering price)
Maximum sales charge on None None
reinvested distributions
Maximum contingent deferred sales 1.0% 1.0%
sales charge (CDSC) on redemptions <FN*> <FN**>
(as a % of the lesser of redemption
proceeds or original purchase price)
<FN>
<FN*> Imposed only on redemption of purchases of $1 million
or more or redemptions by certain employee benefit plans,
if redemption occurs within one year of purchase.
<FN**> Imposed only on redemptions within one year of purchase.
</FN>
______________________________________________________________________
</TABLE>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
ANNUAL FUND OPERATING EXPENSES are paid out of the Funds' assets. The Funds
pay management fees and administrative services fees to TMC. They also incur
other expenses for services such as maintaining shareholder records and
furnishing shareholder statements and financial reports. The Funds' expenses
are factored into their share price or dividends and are not charged directly
to shareholder accounts.
<TABLE>
___________________________________________________________________________
Thornburg Value Fund
<CAPTION>
Class A Class C
------- -------
<S> <C> <C>
Management Fee .88% .88%
12b-1 Fee .25% 1.00%
Other Expenses .40% .50%
----- -----
Total Fund Operating Expenses 1.53% 2.38%
Expenses reflect rounding and are restated to reflect current fees for
Thornburg Value Fund. Long-term Class C shareholders may pay more than the
economic equivalent of the maximum front-end sales charge permitted by
regulations of the National Association of Securities Dealers, Inc.
2
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Thornburg Global Value Fund
<CAPTION>
Class A Class C
------- -------
<S> <C> <C>
Management Fee .88% .88%
12b-1 Fee .25% 1.00%
Other Expenses (after expense .40% .50%
reimbursements) ----- -----
Total Fund Operating Expenses 1.53% 2.38%
* Expenses reflect rounding. Other expenses are estimated and reflect a
partial reimbursement by TMC. Absent these reimbursements, estimated other
expenses for Class A would be 1.12% and total Fund operating expenses for
Class A would be 2.25%;estimated other expenses for Class C would be
4.87%and total Fund operating expenses for Class C would be 6.75%.
Long-term Class C shareholders may pay more than the economic equivalent
of the maximum front-end sales charge permitted by regulations of the
National Association of Securities Dealers, Inc.
</TABLE>
_____________________________________________________________________________
CLASS FEATURES
Class A No sales charge $1 million and over Class C 1% contingent deferred
(Subject to 1% contingent deferred sales charge for one
sales charge if redeemed within one year - Maximum purchase
year). amount is less than $1
million
_____________________________________________________________________________
EXAMPLES OF EXPENSES
Examples:
Assuming a Fund's expense percentages remain the same, you would pay the
following expenses on a $1,000 investment, assuming a 5% annual return and
redemption at the end of each time period. Figures for Class A shares do not
reflect a 1% contingent deferred sales charge (CDSC) imposed only on
redemptions of purchases of $1 million or more or redemption by certain
employee benefit plans and charitable organizations, if redemption occurs
within one year of purchase.
<TABLE>
THORNBURG VALUE FUND
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares $60 $91 $125 $219
Class C Shares $34 $74 $127 $272
You would pay the following expenses on the same $1,000 investment assuming
no redemption at the end of each period:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares $60 $91 $125 $219
Class C Shares $24 $74 $127 $272
THORNBURG GLOBAL VALUE FUND
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares $61 $94 $130 $230
Class C Shares $34 $74 $127 $272
You would pay the following expenses on the same $1,000 investment assuming
no redemption at the end of each period:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares $61 $94 $130 $230
Class C Shares $24 $74 $127 $272
</TABLE>
EXPLANATION OF TABLES
The expense figures shown in the tables above are presented to assist the
investor in understanding the various costs the investor will bear, assuming
the expense percentages remain the same for the periods shown. 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. In particular, TMC may not waive fees or reimburse Fund
expenses in the future.
3
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FINANCIAL HIGHLIGHTS
This table presents for Thornburg Value Fund per share income and capital
changes for a share outstanding throughout the periods shown. This
information has been audited by McGladrey & Pullen, LLP, independent
auditors, whose report thereon is incorporated by reference in the Fund's
registration statement. The information should be read in conjunction with
the Fund's 1997 Annual Report.
<TABLE>
Year Ended Year Ended
September 30, 1997 September 30, 1996<FN(a)>
------------------ -------------------------
<S> <C> <C> <C> <C>
Class of Shares A C A C
- --------------- --- --- --- ---
Net asset value, beginning of year $14.50 $14.51 $11.94 $11.94
------ ------ ------ ------
Income from investment operations:
Net investment income .21 .07 .28 .18
Net realized and unrealized
gain on investments 6.28 6.27 2.56 2.57
---- ---- ---- ----
Total from investment operations 6.49 6.34 2.84 2.75
Less dividends from:
Net investment income (.20) (.08) (.28) (.18)
Capital gains distributions (.37) (.37)
Change in net asset value 5.92 5.89 2.56 2.57
Net asset value, end of year $20.42 $20.40 $14.50 $14.51
====== ====== ====== ======
Total return <FN(b)> 46.01% 44.77% 24.02% 23.20%
Ratios/Supplemental Data
Ratios to average net assets:
Net investment income 1.35% .48% 2.48% 1.73%
Expenses, after expense reductions 1.61% 2.49% 1.55% 2.30%
Expenses, before expense reductions 1.61% 2.73% 2.16% 6.51%
Portfolio turnover rate 78.83% 78.83% 59.62% 59.62%
====== ====== ====== ======
Average commission rate per share $.042 $.042 $.062 $.062
Net assets
at end of year (000's omitted) $66,893 $9,999 $15,438 $1,267
<FN>
<FN(a)> Fund commenced operations on October 1, 1995.
<FN(b)> Sales loads are not reflected in computing total return.
</FN> </TABLE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
Investment results for Thornburg Value Fund for the fiscal year ended
September 30, 1997 were favorably affected by a strong domestic economy,
growth in corporate profits and a good environment for stocks generally. As
Measured by the Standard and Poors 500 Index, the market rose 37.82%. The
net asset value per share for A and C class shares rose to $20.42 and $20.40
from $14.50 and $14.51 at the end of fiscal 1996, or 40.83% and 40.59%,
respectively. Distributions for Class A and C shares were $0.57 and $0.45
per share respectively, including $0.37 per share in capital gains. While
holdings by industry were broadly diversified, meaningful position size in
selected technology and financial service issues contributed importantly to
positive investment performance. Upward earnings revisions during the year
coupled with modest increases in consumer prices created an ideal interest
rate environment for favorable equity valuations.
4
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Thornburg Value Fund Index Comparison
Compares performance of Thornburg Value Fund and the Standard & Poor's 500
Index for the period October 1, 1995 to September 30, 1997. Past performance
of the Index and the Fund may not be indicative of future performance. No
results are shown for Thornburg Global Value Fund, which commenced operations
on May 28, 1998.
<TABLE> <In the prospectus, this table appears as two side-by-side graphs>
Class A Shares Class C Shares
<CAPTION>
FUND S&P FUND S&P
A Shares 500 C Shares 500
-------- ------- -------- -------
<S> <C> <C> <S> <C> <C>
10/01/95 $9,552 $10,000 $10,000 $10,000
10/31/95 9,112 9,970 10/95 9,539 9,970
11/30/95 9,504 10,407 11/95 9,941 10,407
12/31/95 9,502 10,608 12/95 9,931 10,608
1/31/96 9,791 10,968 1/96 10,225 10,968
2/29/96 10,152 11,070 2/96 10,595 11,070
3/31/96 10,490 11,177 3/96 10,947 11,177
4/30/96 10,594 11,342 4/96 11,048 11,342
5/31/96 10,869 11,634 5/96 11,326 11,634
6/30/96 10,806 11,678 6/96 11,261 11,678
7/31/96 10,830 11,162 7/96 11,278 11,162
8/31/96 11,171 11,398 8/96 11,624 11,398
9/30/96 11,846 12,039 9/96 12,320 12,039
. . . . . . .
12/31/96 13,095 13,041 12/96 13,592 13,041
3/31/97 13,092 13,392 3/97 13,567 13,392
6/30/97 15,034 15,727 6/97 15,532 15,727
9/30/97 17,296 16,904 9/97 17,836 16,904
</TABLE>
Average Annual Total Return Average Annual Total Return
(at max. offering price) (at max. offering price)
Class A Shares One Year Class C Shares One Year
(12 mos. ended 9/30/97): 39.47% (12 mos. ended 9/30/97): 43.77%
Since inception (10/1/95): 31.56% Since inception (10/1/95): 33.60%
PRIOR PERFORMANCE OF INVESTMENT ADVISER
The graph below shows the performance data for TMC's Private Investment
Account for the period November 1, 1990 to August 25, 1995, which preceded
Thornburg Value Fund's commencement of investment operations. The graph shows
the change in a $10,000 investment in the Private Investment Account, and
compares that change to the change in the Standard & Poor's 500 Index for the
same period. This information is presented to assist prospective investors
in Thornburg Value Fund to evaluate TMC as an investment adviser.
TMC Private Investment Account
November 1, 1990 - August 25, 1995
<In the prospectus, this information appears as a graph>
Y-axis = $0.00 - $30,000
X-axis = Nov 90 - Aug 95
Private Account Private Account
S&P 500 adj. for Class A expense adj. for Class C expense
----------- ------------------------ ------------------------
Nov 90 $10,000 $ 9,500 $10,000
Oct 91 $13,210 $15,718 $16,381
Oct 92 $14,530 $18,686 $19,454
Oct 93 $16,530 $25,181 $26,249
Oct 94 $17,510 $22,710 $23,425
Aug 95 $21,067 $28,629 $29,373
Average Annual Total Return
November 1, 1990 - August 25, 1995
Private Investment
Account Performance
Adjusted for:
Class A Expenses 24.40%
Class C Expenses 25.06%
S&P 500: 16.67%
The Private Investment Account was owned by TMC and was managed by TMC using
investment objectives, policies and management techniques substantially
similar to those of Thornburg Value Fund. This was the only such account
managed by TMC. The performance of the account has been adjusted downward to
5
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show what the results would have been assuming that expenses were charged at
annual rates comparable to the expenses currently charged to Class A and
Class C shares of Thornburg Value Fund. The current expense ratios for Class
A and Class C Shares of Thornburg Value Fund as of the date of this
prospectus are 1.53% and 2.38%, respectively. See "Expense Information."
The Class A expense adjustment assumes that the maximum Class A sales charge
was imposed. The Class C adjustment assumes that the 1% sales charge on
redemption was not imposed because no redemption occurred in the example
shown. The Standard & Poor's Composite Index of 500 Stocks (S&P 500) is a
group of unmanaged securities widely regarded by investors to be
representative of large company stocks in general; results shown for the S&P
500 assume the reinvestment of dividends, but do not include any expenses or
sales charges. The Private Investment Account was not subject to the
diversification requirements, investment limitations and tax restrictions
imposed on Thornburg Value Fund by the Investment Company Act of 1940 and the
mutual fund rules of the Internal Revenue Code, nor was the Private
Investment Account subject to the need to redeem shares. Consequently, the
performance results for the Account could have been adversely affected if the
Account had been subject to those requirements. The Private Investment
Account results are historical only, and are not intended to predict or
suggest the returns which may or may not be realized by a future investment
in Thornburg Value Fund. Investors should not consider this performance data
as an indication of future performance of the Fund.
THE FUNDS IN DETAIL
INVESTMENT PRINCIPLES
Thornburg Value Fund and Thornburg Global Value Fund are mutual funds, which
pool investors' money and invest towards specified goals. Each Fund seeks
long-term capital appreciation by investing in equity and debt securities of
all types. This goal is a fundamental policy of each Fund and may be changed
only with shareholder approval. The secondary, non-fundamental investment
consideration of each of the Funds is to seek some current income. The Value
Fund expects to invest its assets primarily in domestic equity securities
selected on a value basis. However, the Fund may buy foreign equity and debt
securities, domestic debt securities and securities that are not currently
paying dividends, but which, in TMC's opinion, offer prospects for capital
appreciation and/or income. The Global Value Fund seeks long term growth of
capital and some income by investing throughout the world in a diversified
portfolio consisting primarily of marketable equity securities, including
common stocks, preferred stocks, debt securities and securities representing
the right to acquire stocks. The Global Value Fund normally will invest more
than one-half of its assets in foreign securities.
The value of the Funds' investments varies based on many factors. Stock
values fluctuate in response to the activities of individual companies and
general market and economic conditions. The value of bonds fluctuates based
on changes in interest rates and in the credit quality of the issuer. In
general, bond prices rise when interest rates fall, and vice versa. TMC may
use various investment techniques to hedge the Funds' risks, but there is no
guarantee that these strategies will work as TMC intends. When you sell your
shares, they may be worth more or less than what you paid for them.
TMC intends to invest on an opportunistic basis, where it believes there is
intrinsic value. The Funds' principal focus will be on traditional value
stocks. However, the portfolios may include stocks and other securities that
in TMC's opinion provide value in a broader or different context. Other
contexts would include growing companies with consistent results, when they
are selling below historic norms, as well as companies whose growth in
products and services reflects social and economic changes. A Fund will
typically buy the latter when they are out of favor. The relative proportions
6
<PAGE>
of these different types of securities will vary over time. The portfolios of
the Funds ordinarily will reflect a bias towards certain stocks or industries
when those stocks or industries are depressed, reflecting unfavorable market
perceptions of company or industry fundamentals. TMC anticipates that the
portfolios ordinarily will have a weighted average dividend yield, before
Fund expense, that is higher than the yield of the Standard & Poor's
Composite Index of 500 Stocks.
TMC primarily uses individual company and industry analysis when making
investment decisions for the Funds. Each of the Funds will typically make
equity investments in the following three types of companies:
Companies which, in TMC's opinion, are financially sound companies
with well established businesses whose stock is selling at low
valuations relative to the company's net assets or potential
earning power. The fortunes of this type of company are often
cyclical, and these companies generally do well when the economy
or their industry is doing well. TMC's judgment in evaluating
these companies, or the industries in which they operate, will
likely be contrary to the popular perception of the moment. These
companies are often attractive candidates for corporate takeovers
or restructuring when no single person or group owns a controlling
interest.
Consistent growth companies when they are selling at valuations
below historic norms. Stocks in this category generally sell at
premium valuations. The attractive feature of companies of this
type is steady earnings and dividend growth. Typically, these
companies have below average risk because of their financial
strength, high profitability and dominant industry position.
Rapidly growing companies that, in TMC's opinion, are in the
process of establishing a leading position in a product, service or
market and which TMC expects will grow, or continue to grow, at an
above average rate. The stock price of these smaller, less seasoned
companies will fluctuate more than the stock prices of the first
two types of company listed above. Under normal conditions the
proportion of each Fund invested in companies of this type will be
modest when compared to the proportion invested in cyclical or
consistent growth companies.
TMC selects securities, including equity securities, for inclusion in the
Funds' respective investment portfolios based on total return potential.
"Total return" means all elements of return including dividends (or interest)
and price appreciation. TMC believes that investments in undervalued stocks,
in addition to offering potential capital appreciation, will help limit the
Funds' exposure to loss under adverse market conditions.
Value, for purposes of the Funds' selection criteria, relates both to current
and to projected measures. Among the specific factors considered by TMC in
identifying undervalued securities for inclusion in the Funds are:
* price/earnings ratio * undervalued assets
* price/sales ratio * relative earnings growth potential
* price to book value * industry growth potential
* price/cash flow ratio * industry leadership
* debt/capital ratio * dividend growth potential
* dividend yield * franchise value
* dividend history * potential for favorable
developments
* security and consistency
of revenue stream
The Funds may invest in the stock of issuers of any size, including stocks of
small, unseasoned issuers.
Debt securities will be considered for investment when TMC believes them to
be more attractive than equity alternatives. When analyzing debt security
alternatives, TMC will ordinarily consider the issuer's overall financial
strength as well as prevailing market conditions for debt securities as
opposed to equities.
7
<PAGE>
SECURITIES AND INVESTMENT PRACTICES AND RISKS
The following pages contain more detailed information about types of
instruments in which the Funds may invest, and strategies TMC may employ in
pursuit of the Funds' investment objectives. The risks and the Funds'
investment restrictions associated with these instrument types and investment
practices are summarized as well. A complete listing of the Funds' policies
and limitations and more detailed information about the Funds' investments is
contained in the Funds' Statement of Additional Information (SAI). Some of
the Funds' policies and restrictions are fundamental, that is, subject to
change only with shareholder approval. All policies and restrictions, other
than those identified as fundamental, may be changed without shareholder
approval. Policies and limitations are considered at the time of purchase;
the sale of instruments is not required in the event of a subsequent change
in circumstances, except that securities will be sold or other appropriate
action will be taken at any time it is necessary to comply with the borrowing
restrictions described below. Each of the Funds expects to have a weighted
average dividend yield, before Fund expenses, which is higher than the yield
of the Standard & Poor's Composite Index of 500 Stocks
TMC may not buy all of these instruments or use all of these techniques to
the full extent permitted unless it believes that doing so will help a Fund
achieve its goal. Current holdings are described in the Funds' financial
reports which are sent to shareholders quarterly. For a free SAI or financial
report, call 800-847-0200.
Diversification. Diversifying a mutual fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one industry.
Restrictions. With respect to 75% of its total assets, neither the Value
Fund nor the Global Value Fund may invest more than 5% of its total
assets at the time of purchase in any one issuer. Neither may invest
more than 25% of its total assets at the time of purchase in any one
industry. These limitations do not apply to U.S. Government securities.
These are fundamental limitations.
Equity Securities may include common stocks, preferred stocks, convertible
securities, warrants, ADRs (American Depository Receipts or GDR's), equity
benchmark shares, partnership interests and publicly traded real estate
investment trusts. Common stocks, the most familiar type, represent an equity
(ownership) interest in a corporation. Although equity securities have a
history of long-term growth in value, their prices fluctuate based on changes
in a company's financial condition and on overall market and economic
conditions.
Restrictions. With respect to 75% of total assets, the Funds may not
own more than 10% of the outstanding voting securities of a single
issuer. This is a fundamental limitation.
Investments in smaller companies. The Funds may invest in the stock or debt
securities of smaller or unseasoned issuers. Although investments in these
companies may offer greater prospects for appreciation, they involve
additional risks because of limited product lines, limited access to markets
and financial resources, and greater vulnerability to competition and changes
in markets. Additionally, the value of these securities may fluctuate more,
and they may be more difficult to sell, particularly in declining markets.
Investments in Other Investment Companies. The Funds may invest in
securities of closed end investment companies. Up to 5% of a Fund's total
assets at the time of purchase may be invested in any one investment company,
provided that after its purchase no more than 3% of that investment company's
outstanding stock is owned by the Fund, and provided further, that no more
than 10% of the Fund's total assets are invested in investment companies. TMC
will charge an advisory fee on the portion of the Funds' assets that are
invested in securities of other investment companies. Thus shareholders will
be paying a "double fee" on those assets since the advisers of the investment
companies also will be charging fees on the same assets. In addition, each
Fund may in the future pool its assets with other companies in one investment
company upon a specific determination by the Trustees that the investment is
in the best interests of shareholders. See "Organization of the Funds" on
page 22.
8
<PAGE>
Debt Securities. The Funds may buy debt securities of any type. Bonds and
other debt instruments, including convertible debt securities, are used by
issuers to borrow money from investors. The issuer pays the investor a fixed
or variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current interest,
but are purchased at a discount from their face values. Debt securities have
varying degrees of quality and varying levels of sensitivity to changing
interest rates. Longer-term debt securities are generally more sensitive to
interest rate changes than short term debt securities.
Lower-quality debt securities (sometimes called "junk bonds" or "high yield
securities") are rated below investment grade by the primary rating agencies,
and are often considered to be speculative. These securities involve greater
risk of default or price changes due to changes in the issuer's
creditworthiness, or they may already be in default. The market prices of
these securities may fluctuate more than higher-quality securities and may
decline significantly in periods of general economic difficulty or increasing
interest rates, or in response to adverse publicity, reductions in ratings or
changes in investor perceptions.
Restrictions. A Fund may not invest more than 35% of its assets at
the time of purchase in lower quality debt securities (those rated below
Baa by Moody's or BBB by S&P, and unrated securities judged by TMC to be
of equivalent quality). Refer to the Funds' SAI for a discussion of
these ratings.
Foreign Securities and foreign currencies may involve additional risks.
Securities of foreign issuers, even if denominated in U.S. dollars, may be
affected significantly by fluctuations in the value of foreign currencies,
and the value of these securities in U.S. dollars may decline even if the
securities increase in value in their home country. Foreign securities also
are subject to greater political risk, including nationalization of assets,
confiscatory taxation, currency exchange controls, excessive or
discriminatory regulations, and restrictions on repatriation of assets and
earnings to the United States. In some countries, there may be political
instability or insufficient governmental supervision of markets, and the
legal protections for the Funds' investments could be subject to unfavorable
judicial or administrative changes. Further, governmental issuers may be
unwilling or unable to repay principal and interest when due, and may require
that the terms for payment be renegotiated. Markets in some countries may be
more volatile, and subject to less stringent investor protection and
disclosure requirements and it may be difficult to sell securities in those
markets. Moreover, the economies in many countries may be relatively
unstable because of dependence on a few industries or economic sectors.
These factors could make foreign investments more volatile, particularly in
the case of the Global Value Fund since it will typically invest more than
50% of its assets in non-U.S. investments. The Value Fund will only invest in
companies domiciled in a country whose currency is freely convertible into
U.S. dollars, or in companies (such as oil production companies) in other
countries whose business is conducted primarily in U.S. dollars. Investment
companies whose business is conducted in U.S. dollars could involve
securities of issuers located in developing countries. The Global Value Fund
may invest in companies domiciled in any country, including developing
countries. Risks of investment in developing countries may be greater than
risks otherwise pertaining to foreign securities due to conditions in these
countries, including illiquid or volatile markets, increased difficulty in
repatriating assets and earnings, reduced or uncertain legal protections for
investors, and greater political instability.
Adjusting Investment Exposure. The Funds can use various techniques to
increase or decrease their exposure to changing securities prices, interest
rates, currency exchange rates, commodity prices, or other factors that
9
<PAGE>
affect securities values. These techniques may involve derivative
transactions such as buying and selling options and futures contracts,
entering into currency exchange contracts or swap agreements, purchasing
indexed securities, and selling securities short. TMC can use these practices
to adjust the risk and return characteristics of the Funds' portfolios of
investments. If TMC judges market conditions incorrectly or employs a
strategy that does not correlate well with the Funds' investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. Losses could result from the Funds'
inability to close out futures or options positions. These techniques may
increase the price volatility of the Funds and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction does
not perform as promised.
Other Securities include short-term, highly liquid securities, such as time
certificates of deposit, and investment grade short-term corporate debt
obligations and commercial paper. Each Fund may, under normal conditions,
hold a portion of its assets in other securities pending investment of idle
funds or to provide liquidity. During temporary defensive conditions, each
Fund may invest up to 100% of its assets in other securities. If any
certificate of deposit is non-negotiable, and it matures in more than seven
days, it will be considered illiquid.
Repurchase Agreements. In a repurchase agreement, a Fund buys a security at
one price and simultaneously agrees to sell it back at a higher price. Delays
or losses could result if the other party to the agreement defaults or
becomes insolvent. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the security at a higher price. See
"Borrowing" below.
Illiquid and Restricted Securities. Some investments may be determined by
TMC, under the supervision of the Trustees, to be illiquid, which means that
they may be difficult to sell promptly at an acceptable price. The sale of
other securities, including illiquid securities, may be subject to legal
restrictions. Difficulty in selling securities may result in a loss or may be
costly to a Fund.
Restrictions. A Fund may not purchase a security if, as a result, at
the time of purchase more than 10% of its assets would be invested in
illiquid securities.
Borrowing. Each Fund may borrow from banks or through reverse repurchase
agreements. If a Fund borrows money, its market exposure and risk will
increase, and its share price may be subject to greater fluctuation until the
borrowing is paid off. If a Fund makes additional investments while
borrowings are outstanding, this may be considered a form of leverage.
Restrictions. Each Fund may borrow only for temporary or emergency
purposes or in connection with reverse repurchase agreements, but not in
an amount exceeding 33-1/3% of its total assets. This is a fundamental
limitation.
Securities Lending. Lending securities to broker-dealers and other
institutions is a means of earning income. This practice could result in a
loss or a delay in recovering a Fund's securities.
Restrictions. Loans, in the aggregate, may not exceed 33-1/3% of a
Fund's total assets.
Portfolio Turnover. The Value Fund's portfolio turnover rate for the year
ended September 30, 1997 was 78.83% The Adviser does not anticipate that
either Fund's portfolio turnover rate ordinarily will exceed 100%. This rate
will vary from time to time, and higher turnover rates may result in higher
brokerage commissions, dealer mark-ups and transaction costs, and also could
result in taxable capital gains.
10
<PAGE>
YOUR ACCOUNT
BUYING FUND SHARES - IN GENERAL
The Funds currently issue multiple classes of shares, and Class A and Class C
shares are offered through this Prospectus. Each share represents an equal
undivided interest in its Fund's assets, and each Fund has investment
objectives and an investment portfolio common to all classes. The different
classes may have different sales charges and other expenses which may affect
performance.
Class A shares are sold subject to a sales charge which is deducted at the
time you purchase your shares. The Funds' distributor deducts the Class A
sales charge shown in the table on the next page 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, and pay service and distribution
fees. The service and distribution fees are Fund expenses which are deducted
from the income of each class. Class C shares are subject to a 1% contingent
deferred sales charge (CDSC) if redeemed within one year of purchase. If you
do not specify a class of shares in your order, your money will be invested
in Class A shares.
When you purchase shares, the price is based on the net asset value next
determined after receipt of your order. The net asset value (NAV) is the
value of a share and is computed for each class 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.
Financial advisors and others who sell shares of the Funds receive different
compensation for selling different classes of the Funds' shares. Fund shares
may be purchased through firms which have agreements with the Funds'
distributor, Thornburg Securities Corporation (TSC), or through TSC in those
states where TSC is registered. Investors may telephone TSC at
1-800-847-0200 to obtain more information concerning classes of shares
available to them through their financial advisors. Investors also may
obtain information respecting the classes of shares through their financial
advisor or other person who is offering or making available the classes of
shares described in this Prospectus. All orders are subject to acceptance by
the Funds, and each Fund and TSC reserve the right to refuse any order in
whole or in part.
BUYING CLASS A SHARES
When you buy Class A shares the sales charge applicable to your investment is
deducted and the balance is invested at the NAV. Because the fees for Class
A shares are lower than for Class C shares, Class A shares pay higher
dividends than Class C shares. The deduction of the initial sales charge,
however, means that you purchase fewer Class A shares than Class C shares for
a given amount invested. If you are in any of the special classes of
investors who can buy Class A shares at net asset value or at a reduced sales
charge, you should consider buying Class A shares. If you are planning a
large purchase or purchases under the Right of Accumulation or Letter of
Intent you should consider if your overall costs will be lower by buying
Class A shares, particularly if you plan to hold your shares for an extended
period of time.
Letters of Intent. If you intend to invest in a Fund, 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.
11
<PAGE>
<TABLE>
____________________________________________________________________________
Class A Shares Dealer Concession
Total Sales Charge or Agency Commission
As Percentage As Percentage As Percentage
of Offering Price of Net Asset Value of Offering Price
----------------- ------------------ -----------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
$50,000 to 99,999.99 4.00% 4.17% 3.50%
$100,000 to 249,999.99 3.50% 3.63% 3.00%
$250,000 to 499,999.99 3.00% 3.09% 2.50%
$500,000 to 999,999.99 2.00% 2.04% 1.50%
$1,000,000 and over 0.00% 0.00% <FN*>
<FN>
<FN*> TSC intends to pay a commission of 1% to financial advisors who place
orders from $1 million to $2 million, a commission of .7% for portions
of any such trade exceeding $2 million and less than $4 million, and a
commission of .5% for portions of any such trade exceeding $4 million.
A 1% CDSC will be imposed on redemptions of any such purchases which
occur within 1 year. TMC and TSC also will make payments to dealers
described below under "Service and Distribution Plans."
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. These 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
above, the amount of your new investment in excess of the breakpoint will be
charged the reduced sales charge applicable to that range.
Waivers. You may purchase Class A shares of a 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:
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
you reinvest in Class A shares of Thornburg Value Fund or Global Value
Fund, if you held the original shares for at least 60 days before the
redemption. If you held the original shares for less than 60 days, you
will pay a sales charge equal to the amount, if any, by which the
Thornburg Value Fund or Global Value Fund sales charge exceeds the sales
charge you paid when buying the original 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 those persons.
A shareholder of a Thornburg Bond Fund who is automatically reinvesting
bond fund dividends into shares of either Fund.
An officer, trustee, director, or employee of TMC (or any investment
company managed by TMC), TSC, any affiliated Thornburg Company, the
Fund's Custody Bank or Transfer Agent and members of their families.
Employees of brokerage firms who are members in good standing with the
National Association of Securities Dealers, Inc. (NASD); employees of
financial planning firms who place orders for a Fund through a member
12
<PAGE>
in good standing the with NASD; the families of both types of employees.
Orders must be placed through an NASD member firm which has signed an
agreement with TSC to sell Fund shares.
Investors purchasing $1 million or more. However, a contingent deferred
sales charge of 1% applies to shares redeemed within one year of
purchase.
A shareholder who redeems from another mutual fund. If your financial
advisor's firm has arranged this with TMC, you may purchase shares of a
Fund at net asset value without a sales charge to the extent that the
purchase represents proceeds from a redemption (within the previous 60
days) of shares of another mutual fund which has a sales charge. When
making a direct purchase at net asset value under this provision, the
Fund must receive one of the following with your direct purchase order:
(i) the redemption check representing the proceeds of the shares
redeemed, endorsed to the order of the Fund, or (ii) a copy of the
confirmation from the other fund, showing the redemption transaction.
Standard back office procedures should be followed for wire order
purchases made through broker dealers. Purchases with redemptions from
money market funds are not eligible for this privilege. This privilege
may be terminated anytime by TSC or the Fund without notice.
Certain employee benefit plan and insurance company separate
accounts used to fund annuity contracts may purchase shares of the Funds
at no sales charge. TMC or TSC intend to pay a sales fee of up to 1% to
financial advisors who place orders for these plans. If such a fee is
paid, a contingent deferred sales charge of the same percentage will be
imposed on any redemption within one year of purchase.
Charitable organizations or foundations, including trusts established
for the benefit of charitable organizations or foundations. TMC or
TSC intend to pay a commission of up to 1% to financial advisors who
place orders for these purchasers. If such a fee is paid, a contingent
deferred sales charge of the same percentage will be imposed on any
redemption within one year of purchase.
Those persons who are determined by the Trustees to have acquired their
shares under special circumstances not involving any sales expenses to
a Fund 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)
financial 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
financial advisors or financial planners who place trades for their own
accounts if the accounts are linked to the master account of such
financial 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.
BUYING CLASS C SHARES
Class C shares are sold at the NAV next determined after your order is
received. Class C shares are charged higher annual expenses than Class A
shares. Class C shares carry a 1% CDSC for a period of one year. The CDSC is
not charged against shares you buy by reinvesting dividends or capital gains
distributions. Purchases of $1,000,000 or more of Class C shares will not be
accepted.
If your investment horizon is relatively short and you do not qualify to
purchase Class A shares at a reduced sales charge, you should consider
purchasing Class C shares.
Complete and sign an account application and give it, along with your check,
to your financial advisor. You may also open your account by telephone or
mail as described above. If there is no application accompanying this
Prospectus, call 800-847-0200.
13
<PAGE>
If you are investing through a tax-sheltered retirement plan (such as an IRA)
for the first time, you will need a special application. Retirement investing
also involves its own investment procedures. See "Individual Retirement
Accounts and Retirement Plans" and consult your financial advisor or call
800-847-0200 for more information.
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.
OPENING AN ACCOUNT
____________________________________________________________________________
Buying Shares To Open An Account To Add To An Account
- ----------------------------------------------------------------------------
In Minimum Minimum
-- ------- -------
Regular Accounts $5,000 $100
Retirement Accounts $2,000 $100
Automatic Investment Plans $ 100 $100
Through your Consult with your Consult with your
Financial Advisor financial advisor. financial adviser.
By Telephone Exchange from another Exchange from another
800-847-0200 Thornburg fund account Thornburg fund account
with the same registra- with the same regis-
tion, including name, tration, including
address, and taxpayer name, address, and
ID number. taxpayer ID number.
By Mail Complete and sign the Make your check
application. Make your payable to the appli-
check payable to the cable Thornburg Fund.
applicable Thornburg Indicate your fund
Fund. Mail to the address account number on your
indicated on the check and mail to the
application. address printed on
your statement.
Automatic Investment Use one of the above Uses Automated
Plan procedures to open Clearing House funds.
your account. Obtain an Sign up for this
Automatic Investment Plan service when opening
form to sign up for this your account, or
service. call 1-800-847-0200
to add to it.
____________________________________________________________________________
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 Funds. Neither the Funds 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 elects 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. Shareholders whose shares are held of record by a
broker or other financial advisor should direct account inquiries to the
broker or financial advisor, instead of their Fund or TSC. Prospective
investors are urged to confer with their financial advisor to learn about the
different options available for owning mutual fund shares.
14
<PAGE>
____________________________________________________________________________
REDEEMING SHARES ACCOUNT TYPES SPECIAL REQUIREMENTS
- ----------------------------------------------------------------------------
Through Your Financial Advisor All account types Consult with your
financial advisor.
By Mail Individual, Your financial
Send to: Joint Tenant, advisor may charge a
NFDS Sole Proprietorship, fee. The letter of
c/o Thornburg Funds UGMA, UTMA instruction must be
P.O. Box 419017 signed by all persons
Kansas City, MO required to sign for
64141-6017 transactions, exactly
as their names appear
on the account, and
must include:
* Your name,
* The Fund's name,
* Your Fund account
number,
* The dollar amount
or number of
shares to be
redeemed,
* Any other
applicable
requirements
listed above,
* Signature
guarantee,
if required.
Retirement Account The account owner
should complete a
retirement distri-
bution form. Call
800-847-0200 to
request one.
Trust 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 At least one person
Organization authorized by corpo-
rate resolution to
act on the account
must sign the letter
which must be signa-
ture guaranteed.
Include a corporate
resolution with
corporate seal.
Executor, Adminis- Call 800-847-0200
trator, Conservator for instructions.
Guardian
By Telephone All Account Types You must sign up for
800-847-0200 Except Retirement this feature before
and Street-Name using it.
Accounts Minimum Wire $1,000
Minimum Check $50.00
By Systematic Withdrawal Plan All Account Types You must sign up for
this feature to use
it.
Minimum Account
Balance $10,000
Minimum Check $50.00
_____________________________________________________________________________
SELLING FUND SHARES
You can withdraw money from your Fund account at any time by redeeming some
or all of your shares (selling them back to the Fund either directly or
through your 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 below.
To sell shares in a State Street Bank (Custodian) retirement account, your
request must be made in writing, except for exchanges to other Thornburg
funds, which can be requested by phone or in writing. Call 1-800-847-0200 for
further information.
15
<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.
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 7:30 am to 4:30 pm Mountain 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
* Quarterly account statements
* Financial reports (every six months)
* Cost basis statement (at the end of any year in which you redeem
shares)
INDIVIDUAL RETIREMENT ACCOUNTS AND RETIRMENT PLANS
Shares of the Funds may be purchased by retirement plans and in connection
with individual retirement plans (IRA's). The purchase of shares may be
limited by the governing instrument of any such plan. The minimum initial
investment imposed by the Funds in connection with an IRA is $2,000.
A standardized IRA is available through TSC for individuals wishing to open
an IRA. The cost to open an IRA under this program is $10,the annual fee is
$10 for each Fund purchased through the IRA, and the fee for a termination of
the IRA or a rollover or transfer to a successor custodian is $10. State
Street Bank and Trust Company, as custodian for the program, may amend the
provisions of the IRA's opened through the program to assure continued
qualification under the Internal Revenue Code or for other reasons.
If you are considering establishing a retirement plan or purchasing a Fund's
shares in connection with a retirement plan, you should consult with your
attorney or tax adviser with respect to plan requirements and tax aspects
pertaining to you.
16
<PAGE>
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. Certain
restrictions apply for retirement accounts. Call 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 Thornburg Value Fund or Thornburg Global Value
Fund. You will pay the difference between the front end sales charge you
paid, if any, on the other fund and the front end sales charge applicable to
the Fund if you have not held the original shares for a minimum of 60 days.
If you are exchanging from the Fund into another Thornburg fund, you may
qualify for a reduced sales charge or no sales charge on that fund. Please
consult the 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 21.
Systematic Withdrawal Plans let you set up periodic redemptions from your
account. Because of the Fund's sales charge, 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.
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 by telephone simply by calling a Fund Customer Service
Representative before 2:30 Eastern time. 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 your Fund for a telephone
redemption application. Once you receive it, please fill it out, have it
signature guaranteed and send it to:
c/o NFDS
Thornburg Funds
P.O. Box 419017
Kansas City, MO 64141-6017
The Funds, TSC, TMC and the Funds' Transfer Agent are not responsible for,
and will not be liable for, the authenticity of withdrawal instructions
received by telephone or the delivery or transmittal of the redemption
proceeds if they follow instructions communicated by telephone that they
reasonably believe to be genuine. By electing telephone redemption you are
giving up a measure of security you otherwise may have by redeeming shares
only with written instructions, and you may bear the risk of any losses
resulting from telephone redemption. The Funds' Transfer Agent will attempt
to implement reasonable procedures to prevent unauthorized transactions, and
a 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 transitions within 5 days, and
requesting certain information to better confirm the identity of the caller
at the time of the transaction.
17
<PAGE>
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
Each Fund distributes substantially all of its net income and realized
capital gains to shareholders each year. Each Fund will distribute its net
investment income quarterly, and will distribute any net realized capital
gains at least annually. Capital gains distributions normally will be
declared and payable in December.
Distribution Options Each Fund earns dividends from stocks and 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.
Capital Gains
Reinvestment Option. Your capital gain distributions will be
automatically reinvested in additional shares of your Fund.
If you do not indicate a choice on your application, you will
be assigned this option.
Cash Option. You will be sent a check for your capital gain
distributions.
Dividends
Reinvestment Option. Your dividend distributions will be invested
automatically in additional shares of your Fund. If you do not indicate
a choice on your application, you will be assigned this option.
Cash Option. You will be sent a check for your dividend distributions.
Shares purchased through reinvestment of a Fund's dividend and capital gain
distributions are not subject to the Fund's sales charge or contingent
deferred sales charge.
TAXES
As with any investment, you should consider how your investment in either
Fund will be taxed. The following paragraphs outline the federal income tax
consequences of an individual's investment in the Funds. Investments by
persons who are not individuals, and investments through tax-deferred
retirement accounts will have different consequences and state tax rules may
differ. Prospective investors having questions about these issues should
consult their tax advisors.
Taxes on Distributions. Distributions are subject to federal income tax, and
may also be subject to state or local taxes. If you live outside the United
States, your distributions could also be taxed by the country in which you
reside. Your distributions are taxable when they are paid, whether you take
them in cash or reinvest them. For federal tax purposes, a Fund's income and
short-term capital gains distributions are taxed as dividends; long-term
capital gains distributions are taxed as long-term capital gains. Every
January, the Fund will send you and the IRS a statement showing the taxable
distributions paid to you in the previous year. You should consult with your
tax advisor for the correct federal and state treatment of distributions.
____________________________________________________________________________
TURNOVER AND CAPITAL GAINS
The Funds do not intend to engage in short-term trading for profits. Their
primary goal is long-term capital appreciation. Nevertheless, when a Fund
believes that a security will no longer contribute to that 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 gains
distributions or take them in cash, the distribution is taxable. To
minimize taxable capital gain distributions, each Fund will realize available
capital losses, when, in the judgment of the portfolio manager, the integrity
and potential appreciation of the portfolio would be unaffected by doing so.
____________________________________________________________________________
18
<PAGE>
Taxes on Transactions. Your redemptions, including exchanges to other
Thornburg funds, are subject to capital gains tax. A capital gain or loss is
the difference between the cost of your shares and the price you receive when
you sell them. Whenever you sell shares of a Fund you will be sent a
confirmation statement showing how many shares you sold and at what price.
At the end of the year your Fund will also send you a statement showing the
average cost basis of the shares you redeemed. However, it is up to you or
your tax preparer to determine whether this sale resulted in a capital gain
and, if so, the amount of federal and state taxes to be paid. Be sure to keep
your regular account statements; the information they contain will be
essential in calculating the amount of your capital gains.
Effect of Foreign taxes. The Funds may pay withholding or other taxes to
foreign governments during the year. These taxes reduce the Funds'
distributions, but are included in the taxable income reported on your tax
statement. You may be able to claim an offsetting tax credit or itemized
deduction for foreign taxes paid by the Fund. Your tax statement will
generally show the amount of foreign tax for which a credit or deduction may
be available.
TRANSACTION DETAILS
Each Fund is open for business each day the New York Stock Exchange (NYSE) is
open. Each Fund normally calculates its NAV for each class of shares (and
offering price for Class A shares) as of the close of business of the NYSE,
normally 4 p.m. Eastern time. The Fund's assets are valued primarily on the
basis of market quotations. Foreign securities are valued on the basis of
quotations from the primary market in which they are traded, and are
translated from the local currency into U.S. dollars using current exchange
rates. If quotations are not readily available, or if the values have been
materially affected by events occurring after the closing of foreign markets,
assets are valued by a method that the Trustees believe accurately reflects
fair value.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income to
the IRS. If you violate IRS regulations, the IRS can require your Fund to
withhold 31% of your taxable distributions and redemptions.
You may initiate many transactions by telephone. Note that a Fund will not be
responsible for any losses resulting from unauthorized transactions if it
follows reasonable procedures designed to verify the identity of the caller.
The Funds 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 Funds for a telephone redemption application. If you are
unable to reach the Funds by phone (for example, during periods of unusual
market activity), consider placing your order by mail or by visiting your
financial advisor.
Each Fund reserves the right to suspend the offering of shares for a period
of time. Each Fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page 21. Purchase orders may be refused if, in TMC's opinion, they would
disrupt management of a Fund.
19
<PAGE>
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 the Funds 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 which have entered into sales agreements with
TSC may enter confirmed purchase orders on behalf of customers by phone, with
payment to follow no later than the time when a Fund is priced on the
following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
Each Fund may authorize certain securities brokers to accept on its behalf
purchase and redemption orders received in good form, and some or these
brokers may be authorized to designate other intermediaries to accept
purchase and redemption orders on the Fund's behalf. Provided the order is
promptly transmitted to the Fund, the Fund will be deemed to have received a
purchase or redemption order at the time it is accepted by such an authorized
broker or its designee, and customer orders will be priced based upon the
Fund's net asset value next computed after the order is accepted by the
authorized broker or its designee.
When you place an order to sell shares your shares will be sold at the next
NAV calculated after your request is received in proper form. (Except that a
CDSC will be deducted from Class C share redemptions within one year of share
purchase, and from Class A share redemptions within one year of purchase if
the initial purchase was $1 million or more or purchase was made by certain
charitable organizations or employee benefit plans.) 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 the Fund, it may take up to seven days to pay you.
* Telephone redemptions sent 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 made by check have been collected, which
can take up to 15 business days.
* Redemptions may be suspended or payment dates postponed when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the SEC.
* No interest or earnings will accrue or be paid on amounts represented
by uncashed distribution or redemption checks.
* To the extent consistent with state and federal law each Fund may make
payment of share redemptions 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 redemptions by 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 applicable Fund. A shareholder receiving such securities would
incur brokerage costs when selling the securities.
20
<PAGE>
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of the Funds
for 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 into a fund with a higher sales charge you will 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 if the shares originally purchased have been
held less than 60 days. For example, if you had already paid a sales
charge of 2.5% on your shares and you exchange them within 60 days
of purchase 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 fund performance and shareholders,
each Fund reserves the right to temporarily or permanently terminate
the exchange privilege of any investor who makes more than four
exchanges out of the 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 exchange limit may be modified for accounts in certain
institutional retirement plans to conform to plan exchange limits and
Department of Labor regulations.
* 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 either 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 each Fund will attempt to give prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time. The
Fund reserves the right to terminate or modify the exchange privilege in the
future.
CALCULATION OF PERFORMANCE
Each Fund will from time to time display performance information, including
total return, average annual return and current dividend return, in
advertising, sales literature and reports to shareholders. Each Fund's
performance ordinarily will be expressed as "total return," which is the
change in share value over time, assuming reinvestment of any dividends and
capital gains. "Cumulative total return" describes total return over a stated
period, while "average annual total return" is a hypothetical rate of return
which, if achieved annually, would have produced the same cumulative total
return if performance had been constant for the period shown. Average annual
return tends to reduce variations in return over the period, and investors
should recognize that the average figures are not the same as actual annual
returns. The Fund may display return information for differing periods
without annualizing the results and without taking sales charges into effect.
A Fund's "yield" also may be displayed. Yield is computed by dividing the
Fund's net interest and dividend income for a given 30 days or one month
period by the maximum share offering price at the end of the period. The
result is "annualized" to arrive at an annual percentage rate. In addition,
the Fund may use the same method for 90 day or quarterly periods. All
performance figures are calculated separately for Class A and Class C shares.
The figures are historical, and do not predict future returns.
21
<PAGE>
Advertisements, sales literature and reports may describe current investment
strategies, market and economic conditions and specific portfolio holdings.
These materials may compare the total return, yield, net asset value,
volatility or other portfolio measures of the Fund to other investments,
other mutual funds, mutual fund indices or averages, and broader indices or
markets, such as the Standard & Poor's 500 Stock Index, the NASDAQ composite
or the consumer price index. These materials also may discuss the performance
ratings, index comparisons or commentary published by mutual fund
statistical, ranking or rating services, such as Morningstar or Lipper
Analytical Services, Inc. or publications such as Forbes or Money Magazine.
ORGANIZATION OF THE FUNDS
Each of the Funds is a diversified series of Thornburg Investment Trust, a
Massachusetts business trust organized as a diversified, open-end investment
company.
The Funds are governed by Trustees who are responsible for supervising the
business and affairs of the Funds. The Trustees are individuals experienced
in business who meet throughout the year to oversee the Funds' activities,
review contractual arrangements with companies that provide services to the
Funds, and review performance. The majority of Trustees are not otherwise
affiliated with Thornburg Management Company, Inc. (TMC) or Thornburg
Securities Corporation (TSC).
Each of the Funds 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 Funds 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.
Each of the Funds may in the future, rather than invest in securities
generally, seek to achieve its investment objectives by pooling its assets
with assets of other funds for investment in another investment company
having the same investment objective and substantially similar investment
policies and restrictions as the Fund. The purpose of such an arrangement is
to achieve greater operational efficiencies and to reduce cost. It is
expected that any such investment company would be managed by TMC in a manner
substantially similar to the corresponding Fund. Shareholders of each Fund
would receive prior written notice of any such investment, but may not be
entitled to vote on the action. Such an investment would be made only if at
least a majority of the Trustees determined it to be in the best interest of
the participating Fund and its shareholders.
TMC and TSC
The Funds are managed by TMC, which chooses the Funds' investments and
handles their business affairs. TMC performs investment management services
for the Funds under the terms of an Investment Advisory Agreement which
specifies that TMC will select investments for the Funds, monitor those
investments and the markets generally, and perform related services. TMC
also performs administrative services specific to Class A and Class C
shareholders under an Administrative Services Agreement which requires TMC to
supervise, administer and perform certain services necessary for the
maintenance of shareholders' accounts. See "Breakdown of Expenses" on page
23.
William Fries, a Managing Director of TMC and a Vice President of Thornburg
Investment Trust, is the portfolio manager of Thornburg Value Fund and Global
Value Fund, which he has managed since their respective inceptions. Before
22
<PAGE>
joining TMC in May 1995, Mr. Fries managed equity mutual funds for 16 years
with another mutual fund management company. Mr. Fries is assisted by other
employees of TMC.
H. Garrett Thornburg, Jr., a Trustee and President of the Trust, of which the
Funds are series, is the controlling stockholder of both TMC and TSC.
Thornburg Securities Corporation (TSC) distributes and markets the Thornburg
Funds.
TMC may use TSC and other firms that sell Fund shares to carry out the Funds'
transactions, provided that the Funds receive brokerage services and
commission rates comparable to those received from or charged by other
broker-dealers.
BREAKDOWN OF EXPENSES
Like all mutual funds, each Fund pays fees related to its daily operations.
Expenses paid out of the Funds' assets are reflected in their share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Funds pay management fees to TMC for managing their investments and
business affairs. The Funds also pay their other expenses.
TMC may, from time to time, agree to reimburse a Fund for management fees and
other expenses above a specified limit. TMC retains the ability to be repaid
by the Fund if expenses fall below the specified limit prior to the end of
the fiscal year. These arrangements may be terminated by TMC at any time.
Fee waivers and expense reimbursements will increase a Fund's return (or
reduce losses), and repayment of waivers or reimbursements will lower a
Fund's return.
MANAGEMENT FEES AND ADMINISTRATIVE SERVICES FEES
TMC provides investment management services under an Investment Advisory
Agreement which provides for an investment management fee, payable monthly,
and computed for each Fund at an annual rate shown in the adjoining scale as
a percentage of the Fund's average daily net assets.
TMC also receives a monthly fee from each Fund for performing certain
administrative services for Class A and Class C shares calculated at an
annual rate of .125% of average daily net assets.
<TABLE>
______________________________________________
Investment Management Fee
<CAPTION>
Net Assets of the Fund Annual Rate
- ---------------------- -----------
<S> <C>
0 to $500 million .875%
$500 million to $1 billion .825%
$1 billion to $1.5 billion .775%
$1.5 billion to $2.0 billion .725%
Over $2.0 billion .675%
______________________________________________
</TABLE>
SERVICE AND DISTRIBUTION PLANS
Service Plan - Both Classes. Class A and Class C shares of each Fund have
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 each class to
reimburse TMC for these payments at annual rates of up to .25% of the class's
net assets. No assets of any class will be used to reimburse expenses
attributable to any other class.
Class C Distribution Plan. Each Fund has adopted a Class C Distribution Plan
applicable to Class C shares, under which the Fund will pay to TSC on a
monthly basis an annual distribution fee of up to .75% of the average daily
net assets attributable to Class C shares. This distribution fee is in
addition to the service fee described above under "Service Plan - Both
23
<PAGE>
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
sales charge described on page 11 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.
OTHER EXPENSES
While the management and administrative services fees are significant
components of the Funds' annual operating costs, each Fund has other expenses
as well. These expenses include legal, transfer agency, audit, and custodian
fees; transaction costs and commissions for buying and selling portfolio
securities; proxy solicitation costs; and the compensation of Trustees who
are not affiliated with TMC.
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.
24
<PAGE><OUTSIDE 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 the
Prospectus and, if given or made, the information or representation must not
be relied upon as having been authorized by the Fund or the Distributor. 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 Securities Corporation, Distributor
119 East Marcy Street, Santa Fe, New Mexico 87501
(800)847-0200
<PAGE>
THORNBURG INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
for
THORNBURG VALUE FUND
THORNBURG GLOBAL VALUE FUND
119 East Marcy Street, Suite 202
Santa Fe, NM 87501
Thornburg Value Fund and Thornburg Global Value Fund (the "Funds") are
separate series of Thornburg Investment Trust (the "Trust"). Thornburg
Investment Trust was formerly known as "Thornburg Income Trust" until it
changed its name on October 1, 1995.
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
by read in conjunction with the Fund Prospectus dated May 26, 1998. A copy
of the Prospectus may be obtained at no charge by writing to the distributor
of the Funds' shares, Thornburg Securities Corporation, at 119 East Marcy
Street, Suite 202, Santa Fe, New Mexico 87501.
The date of this Statement of Additional Information is May 26, 1998.
<PAGE>
TABLE OF CONTENTS
INVESTMENT POLICIES AND LIMITATIONS . . . . . . . . . . . . . . . . . . . .1
Illiquid Investments . . . . . . . . . . . . . . . . . . . . . . . . .3
Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . 4
Swap Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Indexed Securities . . . . . . . . . . . . . . . . . . . . . . . . . .5
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . 5
Reverse Repurchase Agreements . . . . . . . . . . . . . . . . . . . . 6
Securities Lending . . . . . . . . . . . . . . . . . . . . . . . . . .6
Lower-Quality Debt Securities . . . . . . . . . . . . . . . . . . . . 7
Foreign Investments . . . . . . . . . . . . . . . . . . . . . . . . . 8
Foreign Currency Transactions . . . . . . . . . . . . . . . . . . . . 9
Limitations on Futures and Options Transactions . . . . . . . . . . .10
Real Estate-Related Instruments . . . . . . . . . . . . . . . . . . .11
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . .11
Futures Margin Payments . . . . . . . . . . . . . . . . . . . . . . .11
Purchasing Put and Call Options . . . . . . . . . . . . . . . . . . .11
Writing Put and Call Options . . . . . . . . . . . . . . . . . . . . 12
Combined Positions . . . . . . . . . . . . . . . . . . . . . . . . . 13
Correlation of Price Changes . . . . . . . . . . . . . . . . . . . . 13
Liquidity of Options and Futures Contracts . . . . . . . . . . . . . 13
OTC Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Option and Futures Relating to Foreign Currencies . . . . . . . . . .14
Asset Coverage for Futures and Options Positions . . . . . . . . . . 14
Short Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . .15
VALUATION OF PORTFOLIO SECURITIES . . . . . . . . . . . . . . . . . . . . 16
PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Yield Calculations . . . . . . . . . . . . . . . . . . . . . . . . . 17
Total Return Calculations . . . . . . . . . . . . . . . . . . . . . .18
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Moving Averages . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Historical Fund Results . . . . . . . . . . . . . . . . . . . . . . .19
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Momentum Indicators . . . . . . . . . . . . . . . . . . . . . . . . .20
REPRESENTATIVE PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . .20
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . .21
i
<PAGE>
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . .23
DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 24
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Capital Gain Distributions . . . . . . . . . . . . . . . . . . . . . 24
Foreign Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Tax Status of the Fund . . . . . . . . . . . . . . . . . . . . . . . 25
Redemptions or Resales . . . . . . . . . . . . . . . . . . . . . . . 25
Other Tax Information . . . . . . . . . . . . . . . . . . . . . . . .25
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . . . . . . . . . . . . . 29
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS . . . . . . . .30
Investment Advisory Agreement . . . . . . . . . . . . . . . . . . . .30
Administrative Services Agreement . . . . . . . . . . . . . . . . . .32
SERVICE AND DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . .33
Service Plans-All Classes . . . . . . . . . . . . . . . . . . . . . .33
Class C Distribution Plan . . . . . . . . . . . . . . . . . . . . . .33
DESCRIPTION OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . .34
Trust Organization . . . . . . . . . . . . . . . . . . . . . . . . . 34
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . .35
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . .37
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .37
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Moody's Investors Service, Inc.'s Corporate Bond Ratings . . . . . . 38
Standard & Poor's Corporation's Bond Ratings . . . . . . . . . . . . 39
ii
<PAGE>
INVESTMENT ADVISOR . . . . . . . . . . .Thornburg Management Co, Inc. (TMC)
DISTRIBUTOR . . . . . . . . . . . . Thornburg Securities Corporation (TSC)
TRANSFER AGENT . . . . . . . .National Financial Data Services, Inc. (NFDS)
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a Fund's assets that may be
invested in any security or other asset, that percentage limitation will be
determined immediately after and as a result of the Fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with a Fund's investment policies and
limitations.
Each Fund's respective fundamental investment policies and limitations
cannot be changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of the Fund.
THE FOLLOWING ARE EACH FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN
THEIR ENTIRETY. A FUND MAY NOT:
(1) with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the Fund's total assets would be invested in the
securities of that issuer, or (b) the Fund would hold more than 10% of the
outstanding voting securities of that issuer, except that, for Thornburg
Global Value Fund, all or substantially all of the assets of the Fund may be
invested in another registered investment company having the same investment
objectives and substantially similar investment policies as the Fund;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except for temporary or emergency purposes or except
in connection with reverse repurchase agreements; in an amount not exceeding
33 1/3% of its total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that come to exceed this amount will
be reduced within three days (not including Sundays and holidays) to the
extent necessary to comply with the 33 1/3% limitation;
(4) underwrite any issue of securities (except to the extent that the
Fund may be deemed to be an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities);
(5) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total assets
would be invested in the securities of companies whose principal business
activities are in the same industry;
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(6) purchase or sell real estate unless acquired as a result or
ownership of securities or other instruments (but this shall not prevent the
Fund from investing in securities or other instruments backed by real estate
or securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not prevent
the Fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical commodities);
or
(8) lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL:
(i) The Fund does not currently intend to sell securities short, unless
it owns or has the right to obtain securities equivalent in kind and amount
to the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.
(ii) The Fund does not currently intend to purchase securities on
margin, except that the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iii) The Fund may borrow money only (a) from a bank or (b) by engaging
in reverse repurchase agreements with any party. The Fund will not purchase
any security while borrowings representing more than 5% of its total assets
are outstanding.
(iv) The Fund does not currently intend to purchase any security if, as
a result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or disposed
of in the ordinary course of business at approximately the prices at which
they are valued.
(v) The Fund does not currently intend to purchase interests in real
estate investment trusts that are not readily marketable or interests in real
estate limited partnerships that are not listed on an exchange or traded on
the NASDAQ National Market System if, as a result, the sum of such interests
and other investments considered illiquid under the limitation in the
preceding paragraph would exceed the Fund's limitations on investments in
illiquid securities.
(vi) The Fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
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(vii) The Fund does not currently intend to purchase the securities of
any issuer (other than securities issue or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5%
of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation.
(viii) The Fund does not currently intend to purchase warrants, valued
at the lower of cost or market, in excess of 5% of the Fund's net assets.
Included in that amount, but not to exceed 2% of the Fund's net assets, may
be warrants that are not listed on the New York Stock Exchange or the
American Stock exchange. Warrants acquired by the Fund in units or attached
to securities are not subject to these restrictions.
(ix) The Fund does not currently intend to invest in oil, gas or other
mineral exploration or development programs or leases.
(x) The Fund does not currently intend to purchase the securities of
any issuer if those officers and Trustees of the trust and those officers and
directors of TMC who individually own more than 1/2 of 1% of the securities
of such issuer together own more than 5% of such issuer's securities.
For each Fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions" beginning
on page 10.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of
in the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Trustees, TMC determines the
liquidity of each Fund's investments and, through reports from TMC, the
Trustees monitor investments in illiquid instruments. In determining the
liquidity of each Fund's investments, TMC may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or lender features), and (5) the nature of the market place for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment).
Investments currently considered by the Funds to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days, over-the-counter options, and non-government
stripped fixed-rate mortgage-backed securities. Also TMC may determine some
restricted securities, government-stripped fixed-rate mortgage-backed
securities, emerging market securities, and swap agreements to be illiquid.
However, with respect to over-the-counter options a Fund writes, all or a
portion of the value of the underlying instrument may be illiquid depending
on the assets held to cover the option and the nature and terms of any
agreement the Fund any have to close out the option before expiration.
In the absence of market quotations, illiquid investments are priced at
fair value as determined utilizing procedures and methods reviewed by the
Trustees. If through a change in values, net assets, or other circumstances,
the Fund were in a position where more than 10% of its net assets was
invested in illiquid securities, it would seek to take appropriate steps to
protect liquidity.
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RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
required, a Fund could be obligated to pay all or part of the registration
expense and a considerable period may elapse between the time it decides to
seek registration and the time it is permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to seek registration of the security.
SWAP AGREEMENTS. Swap agreements can be individually negotiated and
structured to include exposure to a variety of different types of investments
or market factors. Depending on their structure, swap agreements may
increase or decrease a Fund's exposure to long or short-term interest rates
(in the U.S. or abroad), foreign currency values, mortgage securities,
corporate borrowing rates, or other factors such as security prices or
inflation rates. The Funds are not limited to any particular form of swap
agreement if TMC determines it is consistent with a Fund's investment
objective and policies.
Although swaps can take a variety of forms, typically one party pays
fixed and receives floating rate payments and the other party receives fixed
and pays floating payments. An interest rate cap is an agreement between two
parties over a specified period of time where one party makes payments to the
other party equal to the difference between the current level of an interest
rate index and the level of the cap, if the specified interest rate index
increases above the level of the cap. An interest rate floor is similar
except the payments are the difference between the current level of an
interest rate index and the level of the floor, if the specified interest
rate index decreases below the level of the floor. An interest rate collar
is the simultaneous execution of a cap and floor agreement on a particular
interest rate index. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to
the extent that a specified index exceeds a predetermined interest rate or
amount. Purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent
that a specified index falls below a predetermined interest rate or amount.
A collar is a combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates or values.
Swap agreements will tend to shift a Fund's investment exposure from
one type of investment to another. For example, if the Fund agreed to
exchange payments in dollars for payments in foreign currency, the swap
agreement would tend to decrease the Fund's exposure to U.S. interest rates
and increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on how
they are used, swap agreements may increase or decrease the overall
volatility of a Fund's investments and its share price and yield. The most
significant factor in the performance of swap agreements is the change in the
specific interest rate, currency, or other factors that determine the amounts
of payments due to and from a Fund. If a swap agreement calls for payments
by a Fund, the Fund must be prepared to make such payments when due. In
addition, if the counterparty's creditworthiness declined, the value of the
swap agreement would be likely to decline, potentially resulting in losses.
The Funds expect to be able to eliminate exposure under swap agreements
either by assignment or other disposition, or by entering into an offsetting
swap agreement with the same party or a similarly creditworthy party.
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Each Fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap agreements. If
a Fund enters into a swap agreement on other than a net basis, it will
segregate assets with a value equal to the full amount of the Fund's accrued
obligations under the agreement.
INDEXED SECURITIES. The Funds may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits whose
value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Gold-indexed securities, for example, typically
provide for a maturity value that depends on the price of gold, resulting in
a security whose price tends to rise and fall together with gold prices.
Currency indexed securities typically are short-term to intermediate-term
debt securities whose maturity values or interest rates are determined by
reference to the values of one or more specified foreign currencies, and may
offer higher yields than U.S. dollar-denominated securities of equivalent
issuers. Currency-indexed securities may be positively or negatively
indexed; that is, their maturity value may increase when the specified
currency value increases, resulting in a security that performs similarly to
a foreign-denominated instrument, or their maturity value may decline when
foreign currencies increases, resulting in a security whose price
characteristics are similar to a put on the underlying currency. Currency-
indexed securities may also have prices that depend on the values of a number
of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers
of indexed securities have included banks, corporations, and certain U.S.
government agencies. Indexed securities may be more volatile than their
underlying instruments.
REPURCHASE AGREEMENTS. In a repurchase agreement, a Fund purchases a
security and simultaneously commits to resell that security to the seller at
an agreed upon price on an agreed upon date within a number of days from the
date of purchase. The resale price reflects the purchase price plus an
agreed upon incremental amount which is unrelated to the coupon rate or
maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value (at least equal to the amount of the agreed upon
resale price and marked to market daily) of the underlying security. A Fund
may engage in a repurchase agreements with respect to any security in which
it is authorized to invest.
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The Funds may enter into these arrangements with member banks of the
Federal Reserve System or any domestic broker-dealer if the creditworthiness
of the bank or broker-dealer has been determined by TMC to be satisfactory.
These transactions may not provide the Funds with collateral marked-to-market
during the term of the commitment.
A repurchase agreement, which provides a means for a Fund to earn income
on funds for periods as short as overnight, is an arrangement under which a
Fund purchases a security and the seller agrees, at the time of the sale, to
repurchase the security at a specified time and price. The repurchase price
may be higher than the purchase price, the difference being interest at a
stated rate due to the participating Fund together with the repurchase price
on repurchase.
For purposes of the Investment Company Act of 1940, a repurchase
agreement is deemed to be a loan from the Fund to the seller of the security
subject to the repurchase agreement and is therefore subject to the Fund's
investment restriction applicable to loans. It is not clear whether a court
would consider the security purchased by a Fund subject to a repurchase
agreement as being owned by the Fund or as being collateral for a loan by the
Fund to the seller. In the event of the commencement of bankruptcy or
insolvency proceedings with respect to the seller of the security before
repurchase of the security under a repurchase agreement, a participating Fund
could encounter delay and incur costs before being able to sell the security.
Delays may involve loss of interest or decline in the price of the
underlying security. If a court characterized the transaction as a loan and
the Fund has not perfected a security interest in the underlying security,
the Fund may be required to return the security to the seller's estate and be
treated as an unsecured creditor of principal and income involved in the
transaction. As with any unsecured debt obligation purchased for a Fund, TMC
seeks to minimize the risk of loss through repurchase agreements by analyzing
the creditworthiness of the obligor, in this case the seller of the security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the security, in which case
the Fund may incur a loss if the proceeds to the Fund of the sale to a third
party are less than the repurchase price. However, if the market value
(including interest) of the security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the security to deliver additional securities so that
the market value (including interest) of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is
possible that the Fund will be unsuccessful in seeking to impose on the
seller a contractual obligation to deliver additional securities.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
Fund sells a portfolio instrument to another party, such as a bank or broker-
dealer, in return for cash and agrees to repurchase the instrument at a
particular price and time. While a reverse repurchase agreement is
outstanding, the participating Fund will maintain appropriate liquid assets
in a segregated custodial account to cover its obligation under the
agreement. The Funds will enter into reverse repurchase agreements only with
parties whose creditworthiness has been found satisfactory by TMC. Such
transactions may increase fluctuations in the market value of a Fund's assets
and may be viewed as a form of leverage.
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SECURITIES LENDING. Each Fund may lend securities to parties such as
broker-dealers or institutional investors. Securities lending allows a Fund
to retain ownership of the securities loaned and, at the same time, to earn
additional income. Since there may be delays in the recovery of loaned
securities, or even a loss of rights in collateral supplied should the
borrower fail financially, loans will be made only to parties deemed by TMC
to be of good standing. Furthermore, they will only be made if, in TMC's
judgment, the consideration to be earned from such loans would justify the
risk.
TMC understands that it is the current view of the SEC Staff that the
Fund may engage in loan transactions only under the following conditions:
(1) the Fund must receive 100% collateral in the form of cash or cash
equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2) the
borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of the
collateral; (3) after giving notice, the Fund must be able to terminate the
loan at any time; (4) the Fund must receive reasonable interest on the loan
or a flat fee from the borrower, as well as amounts equivalent to any
dividends, interest, or other distributions on the securities loaned and to
any increase in market value; (5) the Fund may pay only reasonable
custodian fees in connection with the loan; and (6) the Trustees must be
able to vote proxies on the securities loaned, either by terminating the loan
or by entering into an alternative arrangement with the borrower.
Cash received through loan transactions may be invested in any security
in which the Fund is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
LOWER-QUALITY DEBT SECURITIES. The Fund may purchase lower-quality debt
securities (those rated below Baa by Moody's Investors Service, Inc. or BBB
by Standard and Poor's Corporation, and unrated securities judged by TMC to
be of equivalent quality) that have poor protection with respect to the
payment of interest and repayment of principal, or may be in default. These
securities are often considered to be speculative and involve greater risk of
loss or price changes due to changes in the issuer's capacity to pay. The
market prices of lower-quality debt securities may fluctuate more than those
of higher-quality debt securities and may decline significantly in periods of
general economic difficulty, which may follow periods of rising interest
rates.
While the market for high-yield corporate debt securities has been in
existence for may years and has weathered previous economic downturns, the
1980's brought a dramatic increase in the use of such securities to fund
highly leveraged corporate acquisitions and restructuring. Past experience
may not provide an accurate indication of the future performance of the high-
yield bond market, especially during periods of economic recession. In fact,
from 1989 to 1991, the percentage of lower-quality securities that defaulted
rose significantly above prior levels, although the default rate decreased in
1992 and 1993.
The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can adversely
affect the prices at which the former are sold. If market quotations are not
available, lower-quality debt securities will be valued in accordance with
procedures established by the Trustees, including the use of outside pricing
services. Judgment plays a greater role in valuing high-yield corporate debt
securities than is the case for securities for which more external sources
for quotations and last-sale information are available. Adverse publicity
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and changing investor perceptions may affect the ability of outside pricing
services to value lower-quality debt securities and the Fund's ability to
sell these securities. Since the risk of default is higher for lower-quality
debt securities, TMC's research and credit analysis are an especially
important part of managing securities of this type held by the Fund. In
considering investments for the Fund, TMC will attempt to identify those
issuers of high-yielding securities whose financial condition is adequate to
meet future obligations, has improved, or is expected to improve in the
future. TMC's analysis focuses on relative values based on such factors as
interest or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.
A Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be
in the best interest of the Fund's shareholders.
FOREIGN INVESTMENTS. Foreign investments can involve significant risks
in addition to the risks inherent in U.S. investments. The value of
securities denominated in or indexed to foreign currencies, and of dividends
and interest from such securities, can change significantly when foreign
currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile.
Many foreign countries lack uniform accounting and disclosure standards
comparable to those applicable to U.S. companies, and it may be more
difficult to obtain reliable information regarding an issuer's financial
condition and operations. The costs of foreign investing, including
withholding taxes, brokerage commissions, and custodial costs, are generally
higher than for U.S. investments. Custodial and depositary arrangements for
the ownership and holding of securities in foreign jurisdictions may not
offer the same protections enjoyed in the United States.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers, and securities markets may be subject to
less government supervision. Foreign security trading practices, including
those involving the release of assets in advance of payment, may involve
increased risks in the event of a failed trade or the insolvency of a broker-
dealer, and may involve substantial delays. It may also be difficult to
enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse
to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention. There
may be a greater possibility of default by foreign governments or foreign
government-sponsored enterprises. Investments in foreign countries also
involve a risk of local political, economic, or social instability, military
action or unrest, or adverse diplomatic developments. There is no assurance
that TMC will be able to anticipate these potential events or counter their
effects.
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The considerations noted above generally are intensified for investments
in developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
Either Fund may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject to
transfer restrictions may be marketable abroad, they may be less liquid than
foreign securities of the same class that are not subject to such
restrictions.
American Depository Receipts and European Depository Receipts (ADR's and
EDR's) are certificates evidencing ownership of shares of a foreign-based
issuer held in trust by a bank or similar financial institution. Designed
for use in U.S. and European securities markets, respectively, ADR's and
EDR's are alternatives to the purchase of the underlying securities in their
national markets and currencies.
FOREIGN CURRENCY TRANSACTIONS. Either Fund may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward
contracts to purchase or sell foreign currencies at a future date and price.
The Funds will convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although
foreign exchange dealers generally do not charge a fee for conversion, they
do realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell
a foreign currency to a Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer.
Forward contracts are generally traded in an interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. The parties to a forward contract may agree to offset or
terminate the contract before its maturity, or may hold the contract to
maturity and complete the contemplated currency exchange. A Fund may use
currency forward contracts for any purpose consistent with its investment
objective. The following discussion summarizes the principal currency
management strategies involving forward contracts that could be used by the
Funds. The Funds may also use swap agreements, indexed securities, and
options and futures contracts relating to foreign currencies for the same
purposes.
When a Fund agrees to buy or sell a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
By entering into a forward contract for the purchase or sale, for a fixed
amount of U.S. dollars, of the amount of foreign currency involved in the
underlying security transaction, the Fund will be able to protect itself
against an adverse change in foreign currency values between the date the
security is purchased or sold and the date on which payment is made or
received. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." A Fund may also enter into forward contracts to
purchase or sell a foreign currency in anticipation of future purchases or
sales of securities denominated in foreign currency, even if the specific
investments have not yet been selected by TMC.
The Funds may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For
example, if a Fund owned securities denominated in pounds sterling, it could
enter into a forward contract to sell pounds sterling in return for U.S.
dollars to hedge against possible declines in the pound's value. Such a
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hedge, sometimes referred to as a "position hedge, " would tend to offset
both positive and negative currency fluctuations, but would not offset
changes in security values caused by other factors. The Fund could also
hedge the position by selling another currency expected to perform similarly
to the pound sterling for example, by entering into a forward contract to
sell deutschemarks or European Currency Units in return for U.S. dollars.
This type of hedge, sometimes referred to as a "proxy hedge," could offer
advantages in terms of cost, yield, or efficiency, but generally would not
hedge currency exposure as effectively as a simple hedge into U.S. dollars.
Proxy hedges may result in losses if the currency used to hedge does not
perform similarly to the currency in which the hedged securities are
denominated.
A Fund may enter into forward contracts to shift its investment exposure
from one currency into another. This may include shifting exposure from U.S.
dollars to a foreign currency, or from one foreign currency to another
foreign currency. For example, if the Fund held investments denominated in
deutschemarks, the Fund could enter into forward contracts to sell
deutschemarks and purchase Swiss francs. This type of strategy, sometimes
known as a "cross hedge," will tend to reduce or eliminate exposure to the
currency that is sold, and increase exposure to the currency that is
purchased, much as if the Fund had sold a security denominated in one
currency and purchased an equivalent security denominated in another. Cross-
hedges protect against losses resulting from a decline in the hedged
currency, but will cause the Fund to assume the risk of fluctuations in the
value of the currency it purchases. Under certain conditions, SEC guidelines
require mutual funds to set aside appropriate liquid assets in a segregated
custodial account to cover currency forward contracts. As required by SEC
guidelines, the Funds will segregate assets to cover currency forward
contracts, if any, whose purpose is essentially speculative. The Funds will
not segregate assets to cover forward contracts entered into for hedging
purposes, including settlement hedges, position hedges, and proxy hedges.
Successful use of currency management strategies will depend on TMC's
skill in analyzing and predicting currency values. Currency management
strategies may substantially change a Fund's investment exposure to changes
in currency exchange rates, and could result in losses to the Fund if
currencies do not perform as TMC anticipates. For example, if a currency's
value rose at a time when TMC had hedged a Fund by selling that currency in
exchange for dollars, the Fund would be unable to participate in the
currency's appreciation. If TMC hedges currency exposure through proxy
hedges, a Fund could realize currency losses from the hedge and the security
position at the same time if the two currencies do not move in tandem.
Similarly, if TMC increases a Fund's exposure to a foreign currency, and that
currency's value declines, the Fund will realize a loss. There is no
assurance that TMC's use of currency management strategies will be
advantageous to the Funds or that it will hedge at an appropriate time.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Neither of the Funds
will: (a) sell futures contracts, purchase put options, or write call
options if, as a result, more than 25% of the Fund's total assets would be
hedged with futures and options under normal conditions; (b) purchase futures
contracts or write put options if, as a result, the Fund's total obligations
upon settlement or exercise of purchased futures contracts and written put
options would exceed 25% of its total assets; or (c) purchase call options
if, as a result, the current value of option premiums for call options
purchased by the Fund would exceed 5% of the Fund's total assets. These
limitations do not apply to options attached to or acquired or traded
together with their underlying securities, and do not apply to securities
that incorporate features similar to options.
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The above limitations on the Funds' investments in futures contracts and
options, and the Funds' policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information, are not
fundamental policies and may be changed as regulatory agencies permit.
REAL ESTATE-RELATED INSTRUMENTS include real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors such as
changes in real estate values and property taxes, interest rates, cash flow
of underlying real estate assets, over building, and the management skill and
creditworthiness of the issuer. Real estate-related instruments may also be
affected by tax and regulatory requirements, such as those relating to the
environment.
FUTURES CONTRACTS. When a Fund purchases a futures contract, it agrees
to purchase a specified underlying instrument at a specified future date.
When a Fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the Fund enters into the contract. Some
currently available futures contracts are based on specific securities, such
as U.S. Treasury bonds or notes, and some are based on indices of securities
prices, such as the Standard & Poor's 500 Composite Stock Price Index (S&P
500). Futures can be held until their delivery dates, or can be closed out
before then if a liquid secondary market is available. The value of a
futures contract tends to increase and decrease in tandem with the value of
its underlying instrument. Therefore, purchasing futures contracts will tend
to increase a Fund's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying
instrument directly. When a Fund sells a futures contract, by contrast, the
value of its futures position will tend to move in a direction contrary to
the market. Selling futures contracts, therefore, will tend to offset both
positive and negative market price changes, much as if the underlying
instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However both the purchaser and
seller are required to deposit "initial margin" with a futures broker, known
as a futures commission merchant (FCM), when the contract is entered into.
Initial margin deposits are typically equal to a percentage of the contract's
value. If either party's position declines, that party will be required to
make additional "variation margin" payments to settle the change in value on
a daily basis. The party that has a gain may be entitled to receive all or a
portion of this amount. Initial and variation margin payments do not
constitute purchasing securities on margin for purposes of the Funds'
investment limitations. In the event of the bankruptcy of an FCM that holds
margin on behalf of a Fund, the Fund may be entitled to return of margin owed
to it only in proportion to the amount received by the FCM's other customers,
potentially resulting in losses to the Fund.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a Fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund pays
the current market price for the option (known as the option premium).
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<PAGE>
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. A Fund may
terminate its position in a put option it has purchased by allowing it to
expire or by exercising the option. If the option is allowed to expire, the
Fund will lose the entire premium it paid. If the Fund exercises the option,
it completes the sale of the underlying instrument at the strike price. The
Fund may also terminate a put option position by closing it out in the
secondary market at its current price, if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying instrument's
price does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium paid,
plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost
of the option.
WRITING PUT AND CALL OPTIONS. When the Fund writes a put option, it
takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Fund assumes the obligation to pay the
strike price for the option's underlying instrument if the other party to the
option chooses to exercise it. When writing an option on a futures contract
the Fund will be required to make margin payments to an FCM as described
above for futures contracts. The Fund may seek to terminate its position in
a put option it writes before exercise by closing out the option in the
secondary market at its current price. If the secondary market is not liquid
for a put option the Fund has written, however, the Fund must continue to be
prepared to pay the strike price while the option is outstanding, regardless
of price changes, and must continue to set aside assets to cover its
position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received.
If security prices remain the same over time, it is likely that the writer
will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer
a loss. This loss should be less than the loss from purchasing the
underlying instrument directly, however, because the premium received for
writing the option should mitigate the effects of the decline. Writing a
call option obligates the participating Fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline.
At the same time, because a call writer must be prepared to deliver the
underlying instrument in return for the strike price, even if its current
value is greater, a call writer gives up some ability to participate in
security price increases.
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<PAGE>
COMBINED POSITIONS. The Fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, the Fund may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a
futures contract. Another possible combined position would involve writing a
call option at one strike price and buying a call option at a lower price, in
order to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the Funds' current or
anticipated investments exactly. Either Fund may invest in options and
futures contracts based on securities with different issuers, maturities, or
other characteristics from the securities in which it typically invests,
which involves a risk that the options or futures position will not track the
performance of a Fund's other investments. Options and futures prices can
also diverge from the prices of their underlying instruments, even if the
underlying instruments match the Fund's investments well. Options and
futures prices are affected by such factors as current and anticipated short-
term interest rates, changes in volatility of the underlying instrument, and
the time remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result from
differing levels of demand in the options and futures markets and the
securities markets, from structural differences in how options and futures
and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. A Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to
hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although
this may not be successful in all cases. If price changes in a Fund's
options or futures positions are poorly correlated with its other
investments, the positions may fail to produce anticipated gains or result in
losses that are not offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or futures
contract at any particular time. Options may have relatively low trading
volume and liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily price
fluctuation limits for options and futures contracts, and may halt trading if
a contract's price moves upward or downward more than the limit in a given
day. On volatile trading days when the price fluctuation limit is reached or
a trading halt is imposed, it may be impossible for the Funds to enter into
new positions or close out existing positions. If the secondary market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and potentially
could require a Fund to continue to hold a position until delivery or
expiration regardless of changes in its value. As a result, a Fund's access
to other assets held to cover its options or futures positions could also be
impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size,
and strike price, the terms of over-the-counter options (options not traded
on exchanges) generally are established through negotiation with the other
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<PAGE>
party to the option contract. While this type of arrangement allows a Fund
greater flexibility to tailor an option to its needs, OTC options generally
involve greater credit risk than exchange-traded options, which are
guaranteed by the clearing organization of the exchanges where they are
traded. The staff of the SEC currently takes the position that OTC options
are illiquid, and investments by a Fund in those instruments are subject to
the Fund's limitation on investing no more than 10% of its assets in illiquid
instruments.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that
they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally is
purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase the
underlying currency, and the purchaser of a currency put obtains the right to
sell the underlying currency.
The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed above. A
Fund may purchase and sell currency futures and may purchase and write
currency options to increase or decrease its exposure to different foreign
currencies. A Fund also may purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of
the Fund's investments. A currency hedge, for example, should protect a yen-
denominated security from a decline in the yen, but will not protect the
participating Fund against a price decline resulting from deterioration in
the issuer's creditworthiness. Because the value of a Fund's foreign-
denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency
options and futures to the value of the Fund's investments exactly over time.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Funds will comply
with guidelines established by the SEC with respect to coverage of options
and futures strategies by mutual funds, and if the guidelines so require will
set aside appropriate liquid assets in a segregated custodial account in the
amount prescribed. Securities held in a segregated account cannot be sold
while the futures or option strategy is outstanding, unless they are replaced
with other suitable assets. As a result, there is a possibility that
segregation of large percentage of a Fund's assets could impede Fund
management or the Fund's ability to meet redemption requests or other current
obligations.
SHORT SALES. The Funds may enter into short sales with respect to
stocks underlying their convertible security holdings. For example, if TMC
anticipates a decline in the price of the stock underlying a convertible
security a Fund holds, it may sell the stock short. If the stock price
subsequently declines, the proceeds of the short sale could be expected to
offset all or a portion of the effect of the stock's decline on the value of
the convertible security. Each of the Funds currently intends to hedge no
more than 15% of its total assets with short sales on equity securities
underlying its convertible security holdings under normal circumstances.
When a Fund enters into a short sale, it will be required to set aside
securities equivalent in kind and amount to those sold short (or securities
convertible or exchangeable into such securities) and will be required to
continue to hold them while the short sale is outstanding. The Funds will
incur transaction costs, including interest expense, in connection with
opening, maintaining, and closing short sales.
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<PAGE>
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed
on behalf of the Funds by TMC pursuant to authority contained in the
management contract. TMC is also responsible for the placement of
transaction orders for other investment companies for which it acts as
investment adviser. In selecting broker-dealers, subject to applicable
limitations of the federal securities laws, TMC considers various relevant
factors, including, but not limited to: the size and type of the
transaction; the nature and character of the markets for the security to be
purchased or sold; the execution efficiency, settlement capability, and
financial condition of the broker-dealer firm; the broker-dealer's execution
services rendered on a continuing basis; and the reasonableness of any
commissions; and arrangements for payment of Fund expenses. Generally
commissions for foreign investments traded will be higher than for U.S.
investments and may not be subject to negotiation. A Fund may execute
portfolio transactions with broker-dealers who provide research and execution
services to the Fund. Such services may include advice concerning the value
of securities; the availability of securities or the purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and performance
of accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). The selection of such
broker-dealers is generally made by TMC (to the extent possible consistent
with execution considerations) in accordance with a ranking of broker-dealers
determined periodically by TMC's investment staff based upon the quality of
such research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the Funds may be useful to TMC in rendering investment management
services to the Funds. The receipt of such research has not reduced TMC's
normal independent research activities; however, it enables TMC to avoid the
additional expenses that could be incurred if TMC tried to develop comparable
information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause a
Fund to pay such higher commissions, TMC must determine in good faith that
such commissions are reasonable in relation to the value of the brokerage and
research services provided by such executing broker-dealers, viewed in terms
of a particular transaction or TMC's overall responsibilities to the Fund.
In reaching this determination, TMC will not attempt to place a specific
dollar value on the brokerage and research services provided, or to determine
what portion of the compensation would be related to those services.
TMC is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance in
the distribution of shares of the Funds or shares of other Thornburg funds to
the extent permitted by law. TMC may use research services provided by and
place agency transactions with Thornburg Securities Corporation (TSC) if the
15
<PAGE>
commissions are fair, reasonable, and comparable to commissions charged by
non-affiliated, qualified brokerage firms for similar services. TMC may
allocate brokerage transactions to broker-dealers who have entered into
arrangements with TMC under which the broker-dealer allocates a portion of
the commissions paid by a Fund toward payment of the Fund's expenses, such as
transfer agent fees or custodian fees. The transaction quality must,
however, be comparable to those of other qualified broker-dealers.
The Trustees periodically review TMC's performance of its
responsibilities in connection with the placement of portfolio transactions
on behalf of each Fund and review the commissions paid by each Fund over
representative periods of time to determine if they are reasonable in
relation to the benefits to the Fund.
From time to time the Trustees will review whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar
fees paid by the Fund on portfolio transactions is legally permissible and
advisable. The Funds may seek to recapture soliciting broker-dealer fees on
the tender of portfolio securities.
Although the Trustees and officers of the Funds may be substantially the
same as those of some other mutual funds managed by TMC, investment decisions
for each of the Funds are made independently from those of other mutual funds
managed by TMC. It sometimes happens that the same security is held in the
portfolio of more than one of these funds. Simultaneous transactions are
inevitable when several funds are managed by the same investment adviser,
particularly when the same security is suitable for the investment objective
of more than one fund. When two or more funds are simultaneously engaged in
the purchase or sale of the same security, the prices and amounts are
allocated in accordance with procedures believed to be appropriate and
equitable for each fund. In some cases this system could have a detrimental
effect on the price or value of the security as far as one of the Funds is
concerned. In other cases, however, the ability of a Fund to participate in
volume transactions will produce better executions and prices for the Fund.
It is the current opinion of the Trustees that the desirability of retaining
TMC as investment adviser to the Funds outweighs any disadvantages that may
be said to exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
Portfolio securities are valued by various methods depending on the
primary market or exchange on which they trade. Most equity securities for
which the primary market is the U.S. are valued at last sale price or, if no
sale has occurred, at the closing bid price. Most equity securities for
which the primary market is outside the U.S. are valued using the official
closing price or the last sale price in the principal market where they are
traded. If the last sale price (on the local exchange) is unavailable, the
last evaluated quote or last bid price is normally used. Short-term
securities are valued either at amortized cost or at original cost plus
accrued interest, both of which approximate current value. Convertible
securities and fixed-income securities are valued primarily by a pricing
service that uses a vendor security valuation matrix which incorporates both
dealer-supplied valuations and electronic data processing techniques. This
twofold approach is believed to more accurately reflect fair value because it
takes into account appropriate factors such as institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
16
<PAGE>
issue, trading characteristics, and other market data, without exclusive
reliance upon quoted, exchange, or over-there counter prices. Securities and
other assets for which there is no readily available market will be valued in
accordance with procedures approved by the Trustees, or by independent
pricing services approved by the Trustees.
Generally, the valuation of foreign and domestic equity securities, as
well as corporate bonds, U.S. government securities, money market
instruments, and repurchase agreements, is substantially completed each day
at the close of the NYSE. The values of any such securities held by the
Funds are determined as of such time for the purpose of computing the Funds'
respective net asset values. Foreign security prices are furnished by
independent brokers or quotation services which express the value of
securities in their local currency. NFDS gathers all exchange rates daily at
the close of the NYSE using the last quoted price on the local currency and
then translates the value of foreign securities from their local currency
into U.S. dollars. Any changes in the value of forward contracts due to
exchange rate fluctuations and days to maturity are included in the
calculation of net asset value. If an extraordinary event that is expected
to materially affect the value of a portfolio security occurs after the
close of an exchange on which that security is traded, then the security will
be valued as determined in good faith in accordance with procedures approved
by the Trustees.
PERFORMANCE
The Funds may quote performance in various ways. All performance
information supplied by the Funds in advertising is historical and is not
intended to indicate future returns. The Funds' share price, yield, and
total return fluctuate in response to market conditions and other factors,
and the value of the Funds' shares when redeemed may be more or less than
their original cost.
YIELD CALCULATIONS. Yields for each Fund are computed by dividing the
Fund's interest and dividend income for a given 30-day or one-month period,
net of expenses, by the average number of shares entitled to receive
distributions during the period, dividing this figure by the Fund's offering
price at the end of the period, and annualizing the result (assuming
compounding of income) in order to arrive at an annual percentage rate. In
addition, each Fund may use the same method to obtain yields for 90-day or
quarterly periods. Income is calculated for purposes of yield quotations in
accordance with standardized methods applicable to all stock and bond funds.
Dividends from equity investments are treated as if they were accrued on a
daily basis, solely for the purposes of yield calculations. In general,
interest income is reduced with respect to bonds trading at a premium over
their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income. For the Funds' investments
denominated in foreign currencies, income and expenses are calculated first
in their respective currencies, and are then converted to U.S. dollars,
either when they are actually converted or at the end of the 30-day or one
month period, whichever is earlier. Capital gains and losses generally are
excluded from the calculation as are gains and losses from currency exchange
rate fluctuations.
Income calculated for the purposes of calculating the Funds' yields
differs from income as determined for other accounting purposes. Because of
the different accounting methods used, and because of the compounding of
income assumed in yield calculations, a Fund's yield may not equal its
distribution rate, the income paid to a shareholder's account, or the income
reported in the Fund's financial statements.
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<PAGE>
Yield information may be useful in reviewing a Fund's performance and in
providing a basis for comparison with other investment alternatives.
However, each Fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates
each Fund's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates each Fund's yield will tend to
be somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a Fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the Fund's
holdings, thereby reducing the Fund's current yield. In periods of rising
interest rates, the opposite can be expected to occur.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect
all aspects of a Fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the Fund's net asset value
(NAV) over a stated period. Average annual total returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in a Fund over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the
rate of growth or decline in value had been constant over the period. For
example, a cumulative total return of 100% over ten years would produce an
average annual return of 7.18%, which is the steady annual rate of return
that would equal 100% growth on a compounded basis in ten years. While
average annual returns are a convenient means of comparing investment
alternatives, investors should realize that a Fund's performance is not
constant over time, but changes from year to year, and the average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Fund. In addition to average annual total returns, a Fund
may quote unaveraged or cumulative total returns reflecting the simple change
in value an investment over a stated period. Average annual and cumulative
total returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors and
their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis and may be quoted with or without taking a
Fund's maximum sales charge into account. Excluding a Fund's sales charge
from a total return calculation produces a higher total return figure. Total
returns, yields, and other performance information may be quoted numerically
or in a table, graph, or similar illustration.
NET ASSET VALUE. Charts and graphs using a Fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by a Fund and
reflects all elements of its return. Unless otherwise indicated, a Fund's
adjusted NAV's are not adjusted for sales charges, if any.
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MOVING AVERAGES. The Funds may illustrate performance using moving
averages. A long-term moving average is the average of each week's adjusted
closing NAV or total return for a specified period. A short-term moving
average NAV is the average of each day's adjusted closing NAV for a specified
period. Moving average activity indicators combine adjusted closing NAV's
from the last business day of each week with moving averages for a specified
period the produce indicators showing when an NAV has crossed, stayed above,
or stayed below its moving average.
HISTORICAL FUND RESULTS. Thornburg Value Fund commenced operations
October 1, 1995, and Thornburg Global Value Fund commenced operations May 26,
1998. Each Fund's performance may be compared to the performance of other
mutual funds in general, or to the performance of particular types of mutual
funds. These comparisons may be expressed as mutual fund ranking prepared by
Lipper Analytical Services, Inc. (Lipper), an independent service located in
Summit, New Jersey that monitors the performance of mutual funds. Lipper
generally ranks funds on the basis of total return, assuming reinvestment of
distributions, but does not take sales charges or redemption fees into
consideration, and is prepared without regard to tax consequences. In
addition to the mutual fund rankings, each Fund's performance may be compared
to stock, bond, and money market mutual fund performance indices prepared by
Lipper or other organizations. When comparing these indices, it is important
to remember the risk and return characteristics of each type of investment.
For example, while stock mutual funds may offer higher potential returns,
they also carry the highest degree of share price volatility. Likewise,
money market funds may offer greater stability of principal, but generally do
not offer the higher potential returns from stock mutual funds. From time to
time, a Fund's performance may also be compared to other mutual funds tracked
by financial or business publications and periodicals. For example, the Fund
may quote Morningstar, Inc. in its advertising materials. Morningstar, Inc.
is a mutual fund rating service that rates mutual funds on the basis of risk-
adjusted performance. Rankings that compare the performance of Thornburg
funds to one another in appropriate categories over specific periods of time
may also be quoted in advertising.
The Funds may be compared in advertising to Certificates of Deposit
(CD's) or other investments issued by banks or other depository institutions.
Mutual funds differ from bank investments in several respects. For example,
while the Funds may offer greater liquidity or higher potential returns than
CD's, neither of the Funds guarantees a shareholder's principal or return,
and Fund shares are not FDIC insured.
TMC may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs bases on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of other
Thornburg mutual funds.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate
of inflation (based on the CPI), and combinations of various capital markets.
The performance of these capital markets is based on the returns of
different indices.
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The Funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any of
these capital markets. The risks associated with the security types in the
capital market may or may not correspond directly to those of each of the
Funds. Each Fund may also compare performance to that of other compilations
or indices that may be developed and made available in the future, and
advertising, sales literature and shareholder reports also may discuss
aspects of periodic investment plans, dollar cost averaging and other
techniques for investing to pay for education, retirement and other goals.
In addition, each Fund may quote or reprint financial or business
publications and periodicals, including model portfolios or allocations, as
they relate to current economic and political conditions, fund management,
portfolio composition, investment philosophy, investment techniques and the
desirability of owning a particular mutual fund. Each Fund may present its
fund number, Quotron (trademark) number, and CUSIP number, and discuss or
quote its current portfolio manager.
VOLATILITY. The Funds may quote various measures of volatility and
benchmark correlation in advertising. In addition, the Funds may compare
these measures to those of other funds. Measures of volatility seek to
compare each Fund's historical share price fluctuations or total returns to
those of a benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation are
calculated using averages of historical data. In advertising, the Funds may
also discuss or illustrate examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate each Fund's price movements over specific
periods of time. Each point on the momentum indicator represents a Fund's
percentage change in price movements over that period. The Funds may
advertise examples of the effects of periodic investment plans, including the
principle of dollar cost averaging. In such a program, an investor invests a
fixed dollar amount in a fund at periodic intervals, thereby purchasing fewer
shares when prices are high and more shares when prices are low. While such
a strategy does not assure a profit or guard against loss in a declining
market, the investor's average cost per share can be lower than if fixed
numbers of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing shares
during periods of low price levels. The Funds may be available for purchase
through retirement plans or other programs offering deferral of, or exemption
from, income taxes, which may produce superior after-tax returns over time.
For example, a $1,000 investment earning a taxable return of 10% annually
would have an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent tax-deferred
investment would have an after-tax value of $2,100 after ten years, assuming
tax was deducted at a 31% rate from the tax-deferred earnings at the end of
the ten-year period.
REPRESENTATIVE PERFORMANCE INFORMATION
Thornburg Value Fund's total return figures are set forth below for the
periods shown ending September 30, 1997. The Fund commenced investment
operations and the offering of Class A and Class C shares on October 2, 1995.
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The data for Class A shares reflect deduction of the maximum sales charge of
4.50% upon purchase. The one-year total return for Class C shares is adjusted
to reflect the 1% contingent deferred sales charge imposed on redemptions of
Class C shares within one year of purchase; the data for Class C shares do
not reflect deduction of this charge. The data assume reinvestment of all
distributions at net asset value.
<TABLE>
1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
<S> <C> <C> <C> <C>
Class A 39.47% N/A N/A 31.56%
Class C 43.77% N/A N/A 33.60%
</TABLE>
Thornburg Global Value Fund commenced operations on _______________, 1998,
and no performance information was available for the Fund as of the date of
this Statement of Additional Information.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
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 "HOW TO PURCHASE FUND SHARES"
The Prospectus states that certain classes of investors, specified
below, may purchase Class A shares of the Fund at variations to the public
scale:
(1) Existing shareholders of the Fund may purchase shares upon the
reinvestment of dividends and capital gains distributions with no sales
charge.
(2) A shareholder who redeemed Class A shares of any series of
Thornburg Investment Trust or of Thornburg Limited Term Municipal Fund, Inc.
may, for two years after the redemption, pay no sales charge on any amounts
up to the total redemption proceeds which are reinvested in Class A shares of
a Fund, if the original Thornburg shares were held for at least 60 days
before the redemption. If the original shares were held for less than 60
days, the shareholder will pay a sales charge on the reinvestment equal to
the amount, if any, by which the Fund sales charge exceeds the sales charge
paid when purchasing the original shares the redemption proceeds of which are
reinvested in Fund shares. The shareholder's financial advisor or the
shareholder must notify TSC or the Transfer Agent at the time the order is
placed that the purchase qualifies for this variation to the public scale.
(3) Officers, trustees, directors and employees of TMC, TSC, or any
investment companies managed by TMC, or any affiliate of TMC or TSC, or of
the Custodian and Transfer Agent, while in such capacity as an officer,
trustee, director or employee of those entities, and members of their
families, including trusts for the benefit of the foregoing, may purchase
shares of the Funds with no sales charge, provided that they notify TSC or
the Transfer Agent at the time an order is placed that the purchase qualifies
for this variation to the public scale.
21
<PAGE>
The reduced sales charge to the above parties is based upon the Trust's
view that these persons' familiarity with and loyalty to the Funds will
result in the need for less selling effort by either 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,
which may be required for the sale of shares to the general public.
Inclusion of the families of such parties is based on the Trust's view that
the same economies exist for sales of shares to family members.
(4) Employees of brokerage firms who are members in good standing with
the National Association of Securities Dealers, Inc. ("NASD"), employees of
financial planning firms who place orders for a Fund through a broker/dealer
who is a member in good standing with the NASD, their families, including
trusts for the benefit of the foregoing, may purchase shares of the Funds for
themselves with no sales charge, provided the following conditions are met:
(1) the order must be through a NASD member firm which has entered into a
Selected Dealer Agreement with TSC, and (2) the shareholder must notify TSC
or the Transfer Agent at the time an order is placed that the purchase
qualifies for this variation from the public scale.
Because they sell the Funds' shares, these individuals tend to be much
more aware of the Funds than the general public. In order to sell shares of
the Funds to the general public, TSC must inform these individuals about the
Funds. Any additional costs to TSC of marketing to these individuals are
minimal.
(5) Customers of bank trust departments and other companies with trust
powers and investment advisers who receive compensation on a fee basis
(including investment dealers who utilize "wrap fee" arrangements) may
purchase shares of the Funds for their customers at no sales charge, provided
that such departments or companies notify TSC or the Transfer Agent at the
time an order is placed that the purchase qualifies for this variation to the
public scale. These persons may charge fees to customers for whose account
they purchase shares of the Funds.
(6) Purchases of Class A shares of a 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 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
advisers or financial planners who place trades for their own accounts if the
accounts are linked to the master account of such investment adviser or
financial planner on the books and records of the broker or agent; and (iii)
retirement and deferred compensation plans and trusts used to fund those
plans, including, but not limited to, those defined in Sections 401(a),
403(b) or 457 of the Internal Revenue Code and "rabbi trusts." Investors may
be charged a fee if they effect transactions in Fund shares through a broker
or agent.
(7) Certain employee benefit plans and insurance company separate
accounts used to fund annuity contracts may purchase shares of the Funds at
no sales charge. TMC or TSC may pay a sales fee of up to 1% to financial
advisors who place orders for these plans. If such a fee is paid, a
contingent deferred sales charge of the same percentage will be imposed on
any redemption within one year of purchase. These plans and accounts must
notify TSC or the Transfer Agent at the time an order is placed that the
purchase qualifies for this variation from the public scale.
22
<PAGE>
(8) Charitable organizations, including trusts established for the
benefit of charitable organizations, may purchase shares of the Funds at no
sales charge. TMC or TSC may pay a sales fee of up to 1% to financial
advisors who place orders for these plans. If such a fee is paid, a
contingent deferred sales charge of the same percentage will be imposed on
any redemption within one year of purchase. These organizations must notify
TSC or the Transfer Agent at the time an order is placed that the purchase
qualifies for this variation from the public scale.
The investment decisions of these persons tend to be made by informed
advisers or fiduciaries. Typically, these persons are better able than the
general public to evaluate quickly the appropriateness of the Funds'
investment objectives and performance in light of their customers' goals. In
certain cases, these organizations may approach a Fund directly with no
solicitation after reading performance data in trade publications.
(9) No sales charge will be payable at the time of purchase on
investments of $1 million or more. However, a CDSC of 1% will be imposed on
such investments in the event of a share redemption within 12 months
following the share purchase. In determining whether a CDSC is payable, and,
if so, the amount of the charge it is assumed that shares not subject to such
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.
(10) Shareholders of any fixed income series of Thornburg Investment
Trust or of Thornburg Limited Term Municipal Fund, Inc. may elect to have
dividends paid with respect to the fixed income series reinvested at no sales
charge in shares of either Fund. Shareholders wishing to elect this
privilege should contact their financial advisors or TSC. The reason for
this exception from the ordinary sales charge is that persons electing the
privilege have become familiar with the Thornburg Funds generally, and little
or no sales effort is anticipated with respect to these persons.
(11) Such persons as are determined by the Trustees to have acquired
shares under special circumstances not involving any sales expense to the
Funds or TSC may purchase shares with no sales charge. Investors seeking the
benefit of this paragraph must provide to the Fund and TSC information
evidencing qualification for this benefit. The reason for this exception is
that little or no sales effort may be required with respect to certain
investors.
DETERMINATION OF NET ASSET VALUE
The Funds are open for business and their respective net asset values
per share (NAV) are calculated at least once each day the New York Stock
Exchange (NYSE) is open for trading. The NYSE customarily closes on the
following holidays: New Year's Day, Washington's Birthday (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving
Day, and Christmas Day (observed). The NYSE may modify its holidays schedule
at any time.
The Funds normally determine their NAVs as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier if
trading on the NYSE is restricted or as permitted by the SEC, and NAV may be
23
<PAGE>
calculated more often than once a day for a Fund if the Fund considers this
necessary. To the extent that portfolio securities are traded in other
markets on days when the NYSE is closed, a Fund's NAV may be affected on days
when investors do not have access to the Fund to purchase or redeem shares.
In addition, trading in some of a Fund's portfolio securities may not occur
on days when the Fund is open for business.
In the prospectus, each Fund has notified shareholders that it reserves
the right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in TMC's judgment, the Fund would be unable to invest
effectively in accordance with its investment objective and policies, or
would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
DIVIDENDS. A portion of each Fund's income may qualify for the
dividends-received deduction available to corporate shareholders to the
extent that the Fund's income is derived from qualifying dividends. Because
a Fund may earn other types of income, such as interest income from
securities loans, non-qualifying dividends, and short-term capital gains, the
percentage of dividends from the Fund that qualify for the deduction
generally will be less than 100%. Each Fund will notify corporate
shareholders annually of the percentage of Fund dividends that qualifies for
the dividends-received deduction.
A portion of each Fund's dividends derived from certain U.S. Government
obligations may be exempt from state and local taxation. Gains (losses)
attributable to foreign currency fluctuations are generally taxable as
ordinary income and therefore will increase (decrease) dividend
distributions. Short-term capital gains are distributed as dividend income.
The Fund will send each shareholder a notice in January describing the tax
status of dividends and capital gain distributions for the prior year.
Distributions by a Fund result in a reduction in the net asset value of
the Fund's shares. Should distributions reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to
the shareholder as ordinary income or capital gain as described above, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those
purchasing just prior to a distribution will then receive a partial return of
capital upon the distribution, which will nevertheless be taxable to them.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by a Fund on
the sale of securities and distributed to shareholders are federally taxable
as long-term capital gains, regardless of the length of time shareholders
have held their shares. If a shareholder receives a long-term capital gain
distribution on shares of a Fund and such shares are held 12 months or less
and are sold at a loss, the portion of the loss equal to the amount of the
long-term capital gain distribution will be considered a long-term loss for
tax purposes.
Short-term capital gains distributed by a Fund are taxable to
shareholders as dividends, not as capital gains.
24
<PAGE>
FOREIGN TAXES. Foreign governments may withhold taxes on dividends and
interest paid with respect to foreign securities typically at a rate between
10% and 35%. Foreign governments may also impose taxes on other payments or
gains with respect to foreign securities. Because the Value Fund does not
currently anticipate that securities of foreign issuers will constitute more
than 50% of its total assets at the end of its fiscal year, shareholders
should not expect to claim a foreign tax credit or deduction on their federal
income tax returns with respect to foreign taxes withheld.
TAX STATUS OF THE FUNDS. Each Fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal Revenue
Code so that it will not be liable for federal tax on income and capital
gains distributed to shareholders. In order to qualify as a regulated
investment company and avoid being subject to federal income or excise taxes
at the fund level, each Fund intends to distribute substantially all of its
net investment income and net realized capital gains within each calendar
year as well as a fiscal year basis.
REDEMPTIONS OR RESALES. Redemption or resale of shares will be a
taxable transaction for federal income tax purposes and the shareholder will
recognize gain or loss in an amount equal to the difference between the
shareholder's basis in the shares and the amount realized by the shareholder
on the redemption or resale. If the redemption or resale occurs before May
7, 1997, and the shareholder held the shares as a capital asset, the gain or
loss will be long-term if the shares were held for more than 12 months, and
any such long-term gain will be subject to a maximum federal income tax rate
of 28% to the extent that gain exceeds any net short-term capital losses
realized by the taxpayer. If the redemption or resale occurs after May 6,
1997, and the shares were held as capital assets, the gain or loss will be
long-term if the shares were held for more than 12 months, and the maximum
28% rate will continue to apply to gains realized on shares held more than 12
months and less than 18 months. However, for shares held as capital assets
for more than 18 months, the maximum federal income tax rate is 20%; and is
reduced to 10% for gains which otherwise would be taxable at a 15% rate. For
taxable years beginning after December 31, 2000, the maximum tax rates for
gains on capital assets which are held more than five years are 8% and 18%,
instead of the 10% and 20% rates applicable to assets held more than 18
months. Effective for sales charges incurred after October 3, 1989 if the
shareholder disposes of shares within 90 days after purchasing them, and
later acquires shares for which the sales charge is eliminated or reduced
pursuant to a reinvestment right, then the original sales charge to the
extent of the reduction is not included in the basis of the shares sold for
determining gain or loss. Instead, the reduction is included in determining
the basis of the reinvested shares.
OTHER TAX INFORMATION. The information above is only a summary of some
of the tax consequences generally affecting the Funds and their shareholders.
The discussion primarily relates to federal income tax consequences
affecting individuals, and tax consequences to investors who are not
individuals could be very different. In addition to federal income taxes,
shareholders may be subject to state and local taxes on Fund distributions,
and capital gains on dispositions of shares; moreover, their shares may be
subject to state and local property taxes. Investors should consult their
tax advisers to determine whether a Fund is suitable for their particular tax
situation.
25
<PAGE>
TRUSTEES AND OFFICERS
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 five Trustees, one of whom is an
"interested person." 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 Trust
indicated by an asterisk:
Name / Position / Principal Occupation During Past 5 Years
- ----------------------------------------------------------
H. Garrett Thornburg, Jr.,* 51 / 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;
Director and Treasurer of TMC since its formation in 1982 and President from
1982 to August 1997.
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;
Director of Thornburg Limited Term Municipal Fund, Inc. since its formation
in 1984; Director of Farrar, Strauss & Giroux (publishers) since 1968.
26
<PAGE>
Forrest S. Smith, 66 / Trustee / Attorney in private practice and shareholder
Catron, Catron & Sawtell (law firm), Santa Fe, New Mexico, 1988 to present.
James W. Weyhrauch, 38 / Trustee / Executive Vice President and Director,
Nambe' Mills, Inc. (manufacturer), Santa Fe, New Mexico, 1986 to present.
Brian J. McMahon, 41 / Vice President and Assistant Secretary / President of
Thornburg Limited Term Municipal Fund, Inc. since January, 1987; Managing
Director of TMC since December 1985, President of TMC since August 1997 and a
Vice President from April 1984 to August 1997.
Steven J. Bohlin, 38 / Vice President and Treasurer / Vice President of
Thornburg Limited Term Municipal Fund, Inc. since November 1988; a Managing
Director and a Vice President of TMC.
Dawn B. Fischer, 50 / Secretary and Assistant Treasurer / 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, 43 / 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.
27
<PAGE>
George Strickland, 34 / 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.
Susan Rossi, 36 / Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since July 1992; Associate of TMC
since June 1990.
Jonathan Ullrich, 28 / Assistant Vice President / Assistant Vice President of
Thornburg Limited Municipal Fund, Inc. since July 1992.
Jack Lallement, 58 / Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since September 1997; Fund
Accountant for TMC since March 1997; Chief Financial Officer/Controller for
Zuni Rental, Inc. (equipment leasing and sales), Albuquerque, New Mexico from
February 1995 to March 1997; Chief Financial Officer/Controller, Montgomery &
Andrews, P.A. (law firm), Santa Fe, New Mexico from March 1987 to August
1994.
Thomas Garcia, 26 / Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since September 1997; Fund
Accountant for TMC since 1993; BBA, University of New Mexico, 1993.
Van Billops, 31 / Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since September 1997; Fund
Accountant for TMC since 1992.
Dale Van Scoyk, 50 / Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since September 1997; Account
Manager for TMC since 1997; National Account Manager for the Heartland Funds
1993 - 1997.
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.
Mr. Ziesenheim and Ms. Fischer are, respectively, president and secretary of
TSC.
28
<PAGE>
The officers and Trustees affiliated with TMC will serve without any
compensation from the Trust. 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, 1997, 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. $7,000 - 0 - - 0 - $7,000
Ater
J. Burchenal $7,000 - 0 - - 0 - $13,000
Ault
Forrest S. $7,000 - 0 - - 0 - $7,000
Smith
James W. $5,500 - 0 - - 0 - $5,500
Weyhrauch
</TABLE>
The Trust does not pay retirement or pension benefits.
PRINCIPAL HOLDERS OF SECURITIES
As of November 14, 1997, the Value Fund had 3,972,379 shares
outstanding. As of the same date, officers and Trustees of the Trust, as a
group (together with family members) owned themselves or through affiliated
persons 485,454 shares of the Fund, representing 12.22% of the Value Fund's
outstanding shares on that date. As of November 14, 1997, the following
persons owned, beneficially or of record, 5% or more of the Value Fund's
outstanding shares:
29
<PAGE>
<TABLE>
No. of % of
Shareholder Shares Total Shares
----------- ------ ------------
<C> <C> <C>
H. Garrett Thornburg, Jr. 382,609 <F1> 9.63%
119 East Marcy Street
Santa Fe, New Mexico 87501
Brian J. McMahon 251,770 <F2> 6.34%
119 East Marcy Street
Santa Fe, New Mexico 87501
Dawn B. Fischer 198,953 <F3> 5.01%
119 East Marcy Street
Santa Fe, New Mexico 87501
<FN>
<F1> Total includes 130,088 shares owned by the Thornburg Management Company,
Inc. Profit Sharing Plan (as to which Mr. Thornburg is a trustee and
holds shared voting and investment powers) and 88,686 shares owned by
Thornburg Management Company, Inc.
<F2> Total includes 130,088 shares owned by the Thornburg Management Company,
Inc. Profit Sharing Plan (as to which Mr. McMahon is a trustee and
holds shared voting and investment powers) and 29,453 shares owned by
Thornburg Descendants Trust (as to which Mr. McMahon is a trustee and
holds shared voting and investment powers).
<F3> Total includes 130,088 shares owned by the Thornburg Management Company,
Inc. Profit Sharing Plan (as to which Ms. Fischer is a trustee and
holds shared voting and investment powers), 29,453 shares owned by
Thornburg Descendants Trust (as to which Ms. Fischer is a trustee and
holds shared voting and investment powers) and 37,577 shares owned by
the Lloyd Thornburg Irrevocable Trust (as to which Ms. Fischer is
trustee and holds voting and investment powers).
</TABLE>
As of May 26, 1998, the commencement of the Global Value Fund's
investment operations, the Fund had 4.188 Class A shares outstanding, and
4.188 Class C shares outstanding, all of which were owned by Dawn B. Fischer.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS
Investment Advisory Agreement
Pursuant to the Investment Advisory Agreement, Thornburg Management
Company, Inc., 119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501
("TMC"), will act as the investment adviser for, and will manage the
investment and reinvestment of the assets of the Funds in accordance with the
Funds' respective investment objectives and policies, subject to the general
supervision and control of the Funds' Trustees.
30
<PAGE>
TMC is investment adviser for Thornburg Limited Term Municipal Fund,
Inc., a series investment company with two fund series, Thornburg Limited
Term Municipal Fund National Portfolio and Thornburg Limited Term Municipal
Fund California Portfolio. 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 New York Intermediate Municipal Fund and Thornburg
Florida Intermediate Municipal Fund, separate series of the Trust. TMC is
also a sub-adviser for Daily Tax-Free Income Fund, Inc., a registered
investment company.
Pursuant to the Investment Advisory Agreement, each Fund pays to TMC a
monthly management fee at an annual percentage rate of the daily average net
assets of the Fund, applied in accordance with the following table, in
consideration of the services and facilities furnished by TMC. All fees and
expenses are accrued daily and deducted before payment of dividends to
investors.
Net Assets Annual Rate
---------- -----------
0 to $500 Million .875%
$500 million to $1 billion .825%
$1 billion to $1.5 billion .775%
$1.5 billion to 2.0 billion .725%
More than $2.0 billion .675%
In addition to TMC's fee, each Fund will pay all other costs and
expenses of its operations. Each Fund also will bear the expenses of
registering and qualifying the Fund and its shares for distribution under
federal and state securities laws, including legal fees.
The Value Fund commenced operations on October 2, 1995, and paid to TMC
advisory fees aggregating $37,126 for the year ended September 30, 1996. TMC
waived advisory fees aggregating $64,178 for the same period. The Value Fund
paid to TMC advisory fees aggregating $376,424 for the year ended September
30, 1997 and TMC waived no advisory fees for the period. The Global Value
Fund commenced operations on May 26, 1998.
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.
The Investment Advisory Agreement was approved for the Value Fund on
June 7, 1995 and for the Global Value Fund on March 10, 1998, in each case 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. The
Agreement became effective for the Value Fund on September 30, 1995 and for
the Global Value Fund on May 22, 1998. The initial term of this Agreement
for each Fund was for two years, with extensions for successive 12-month
periods, provided that each such continuation for each 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 Agreement was restated
31
<PAGE>
for the Value Fund as of July 1, 1996, as approved by the shareholders at a
special meeting on April 16, 1996, to provide for a reduction in the
investment management fee, and to provide that certain administrative
services thereafter will be provided pursuant to Administrative Services
Agreements, described below. 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.
The Trust and TMC have agreed that TMC will perform for the Trust
certain telephone answering services previously performed by the Trust's
transfer agent, National Financial Data Services, Inc. ("NFDS"). These
telephone services include answering telephone calls placed to the Trust or
its transfer agent by shareholders, securities dealers and others through the
Trust's toll free number, and responding to those telephone calls by
answering questions, effecting certain shareholder transactions described in
the Trust's current prospectuses, and performing such other, similar
functions as the Trust may reasonably prescribe from time to time. The Trust
will pay one dollar for each telephone call, which was the charge previously
imposed by the Trust's transfer agent for this service. TMC will not receive
any profit from providing this service.
H. Garrett Thornburg Jr., Chairman and a Trustee of the Trust, is also
the sole Director and controlling stockholder of TMC.
Administrative Services Agreement
Administrative services are provided to each class of shares issued by
each 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 each Fund's Class A shares and
Class C shares provides that each 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. For the fiscal
year ended September 30, 1996, the Value Fund paid TMC under the
Administrative Service Agreement applicable to Class A and Class C shares,
$4,253 and $358, respectively. For the fiscal year ended September 30, 1997,
the Value Fund paid TMC under the Administrative Services Agreements
applicable to Class A and Class C shares $48,098 and $5,667, respectively.
Services are currently provided under these agreements by TMC. 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.
32
<PAGE>
SERVICE AND DISTRIBUTION PLANS
Service Plans-All Classes
Each 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 and Class C shares of the Fund. 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 to reimburse TMC for specific expenses incurred by it in connection
with certain shareholder services and the distribution of that Fund's shares
to investors. For the fiscal year ended September 30, 1996, the Value Fund
paid to TMC $24,457 under the Class A Service Plan and $63 under the Class C
Service Plan. For the fiscal year ended September 30, 1997, the Value Fund
paid to TMC $96,195 under the Class A Service Plan and $11,354 under the
Class C Service Plan. 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 extend 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 data respecting shareholder account
transactions, and serving as a source of information to customers concerning
a Fund and transactions with the Fund. The Service Plan does not provide for
accrued but unpaid reimbursements to be carried over and paid to TMC in later
years.
Class C Distribution Plan
Each Fund has adopted a plan and agreement of distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940, applicable only to the
Class C shares of the Fund ("Class C Distribution Plan"). The Class C
Distribution plan provides for each Fund's payment to TSC on a monthly basis
of an annual distribution fee of .75% of the average daily net assets
attributable to the Fund's Class C shares. For the fiscal year ended
September 30, 1996, the Value Fund paid to TSC $7,064 under the Class C
Distribution Plan, and for the fiscal year ended September 30, 1997, the
Value Fund paid to TSC $34,063 under the same Plan.
The purpose of the Class C Distribution Plan for each Fund 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 shares 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.
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The Glass-Steagall Act prohibits certain banks from underwriting mutual
fund shares, but the Trust does 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 Trust does not foresee that it 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
the Trust 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, a 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 or TSC under the Plan, whichever is applicable, without penalty. The
Trustees have the authority to approve continuance of the 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 participating 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. A 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 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.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Each of the Funds is a separate series of Thornburg
Investment Trust, an open-end management investment company organized as a
Massachusetts business trust on June 3, 1987. Currently, there are 14 series
of the Trust, eight of which are active. The Declaration of Trust permits
the Trustees to create additional fund series and classes of shares.
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In the event that TMC ceases to be the investment adviser to the Trust
or the Funds, the right of the Trust or Fund to use the identifying name
"Thornburg" may be withdrawn.
The assets of the Trust received for the issue or sale of shares of each
Fund and all income, earnings, profits, and proceeds thereof, subject only to
the rights of creditors, are especially allocated to the Fund, and constitute
the underlying assets of that Fund. The underlying assets of each Fund are
segregated on the books of account, and are to be charged with the
liabilities with respect to that Fund and with a share of the general
expense of the Trust. Expenses with respect to the Trust are to be allocated
in proportion to the asset value of the respective series and classes, except
where allocations of direct expense can otherwise be fairly made. The
officers of the Trust, subject to the general supervision of the Trustees,
have the power to determine which expenses are allocable to a given Fund, or
which are general or allocable to all of the funds. In the event of the
dissolution or liquidation of the Trust, shareholders of each fund are
entitled to receive as a class the underlying assets of such fund available
for distribution.
Each of the Funds may in the future, rather than invest in securities
generally, seek to achieve its investment objectives by pooling its assets
with assets of other funds for investment in another investment company
having the same investment objective and substantially similar investment
policies and restrictions as the Fund. The purpose of such an arrangement is
to achieve greater operational efficiencies and to reduce cost. It is
expected that any such investment company would be managed by TMC in a manner
substantially similar to the corresponding Fund. Shareholders of each Fund
would receive prior written notice of any such investment, but would not be
entitled to vote on the action. Such an investment would be made only if at
least a majority of the Trustees determined it to be in the best interest of
the participating Fund and its shareholders.
SHAREHOLDER AND TRUSTEE LIABILITY. The Trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of Trust
provides that the Trust shall not have any claim against shareholders except
for the payment of the purchase price of shares. However, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a fund itself would be unable to meet its
obligations. TMC believes that, in view of the above, the risk of personal
liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they
have exercised reasonable care and have acted under the reasonable belief
that their actions are in the best interest of the Trust, will not be liable
for any neglect or wrongdoing, but nothing in the Declaration of Trust
protects Trustees against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
VOTING RIGHTS. Each Fund's capital consists of shares of beneficial
interest. As a shareholder, you receive one vote for each dollar value of
net asset value per share you own. The shares have no preemptive or
conversion rights; the voting and dividend rights, the right of redemption,
and the privilege of exchange are described in the Prospectus. Shares are
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fully paid and nonassessable, except as a set forth under the heading
"Shareholder and Trustee Liability" above. Shareholders representing 10% or
more of the Trust or a Fund may, as set forth in the Declaration of Trust,
call meetings of the Trust or the Fund, as the case may be, for any purpose
related to the Trust or the Fund, as the case may be, including in the case
of a meeting of the entire Trust, the purpose of voting on removal of one or
more Trustees.
CUSTODIAN. State Street Bank and Trust, Boston, Massachusetts, is
custodian of the assets of the Funds. The Custodian is responsible for the
safekeeping of the Funds' assets and the appointment of subcustodian banks
and clearing agencies. The Custodian takes no part in determining the
investment policies of the Funds or in deciding which securities are
purchased or sold by the Funds. The Funds may, however, invest in
obligations of the Custodian and may purchase securities from or sell
securities to the Custodian.
DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust, Thornburg
Securities Corporation ("TSC") acts as the distributor of Fund 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.
The following table shows the commissions and other compensation
received by TSC from the Value Fund for the fiscal years ending September 30,
1996 and 1997, except for compensation or other amounts paid under Rule 12b-1
plans, which are described above under the caption "Service and Distribution
Plans." The Global Value Fund commenced operations on May 26, 1998.
<TABLE>
Thornburg Value Fund
Net Underwriting
Aggregate Discounts and Compensation on
Underwriting Commissions Redemptions and Brokerage Other
Year Ended Commissions Paid to TSC Repurchases Commissions Compensation
- ---------- ------------ ------------- ---------------- ----------- ------------
<C> <C> <C> <C> <C> <C>
September 30, 1996 22,669 604.00 - 0 - *
September 30, 1997 $872,911 99,848 740.00 - 0 - *
</TABLE>
* See "Service and Distribution Plans
H. Garrett Thornburg Jr. President, Treasurer and a Trustee of the
Funds, is also Director and controlling stockholder of TSC.
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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,
1998. Shareholders will receive semi-annual unaudited financial statements,
and annual financial statements audited by the independent auditors.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities including Schedule of Investments as
of September 30, 1997, Statement of Operations for the year ended September
30, 1997, Statement of Changes in Net Assets for the two years ended
September 30, 1997, Notes to Financial Statements, Financial Highlights, and
Independent Auditor's Report dated October 24, 1997, for Thornburg Value Fund
are incorporated herein by reference from the Fund's 1997 Annual Report to
Shareholders.
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APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
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.
AA- 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.
A- 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 as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interests 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.
BA- Bonds rated Ba are judged to have speculative elements. Their
future cannot be considered as 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.
B- Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any long period of time may be small.
CAA- Bonds rated Caa are of poor standing. Such issues may be in
default or there may me present elements of danger with respect to principal
or interest.
CA- Bonds rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked short-
coming.
C- Bonds rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospectus of ever attaining
any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicated that the issue ranks in the lower end of its generic
rating category.
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DESCRIPTION OF STANDARD & POOR'S CORPORATION'S BOND RATINGS:
AAA- Debt rated AAA has the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A- Debt rated A has 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.
BBB- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits 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 debt in this category than in higher-rated categories.
BB- 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.
B- Debt rated B has a greater vulnerability to default but currently
has the capacity to met 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-rating.
CCC- 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.
CC- Debt rated CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating.
C- The rating C is typically 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.
CI- The rating CI is reserved for income bonds on which no interest is
being paid.
D- Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating will also
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
39
