THORNBURG INVESTMENT TRUST, 497, 1998-02-06

THORNBURG INVESTMENT TRUST
497, 1998-02-06

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THORNBURG

LIMITED TERM

INCOME FUNDS

Prospectus
February 1, 1998

NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE

<PAGE>
THORNBURG LIMITED TERM INCOME FUNDS
Prospectus
February 1, 1998

Thornburg Limited Term Income Funds (the "Funds") are series of Thornburg
Investment Trust (the "Trust"), each with a separate investment portfolio,
and each having its own series of shares:

Thornburg Limited Term U.S. Government Fund ("Government Fund")
Thornburg Limited Term Income Fund ("Income Fund")

Each of the Funds is managed by Thornburg Management Company, Inc. (TMC).
Each of the Funds offers Class A and Class C shares through this Prospectus.
Class A shares are sold at net asset value plus an initial sales charge
imposed at the time of sale. Class C shares are sold at net asset value
without an initial sales charge but are subject to annual distribution fees
and a deferred sales charge if redeemed within one year of purchase. One or
both Funds may offer other classes of shares. See "Your Account - Buying
Fund Shares in General," beginning on page 17.

Each Fund has the primary investment objective of providing, through
investment in a professionally managed portfolio of fixed income obligations,
as high a level of current income as is consistent, in the view of TMC, with
safety of capital. The Government Fund will seek to achieve its primary
investment objective by investing primarily in obligations issued or
guaranteed by the United States Government or by its agencies or
instrumentalities and in participations in such obligations or in repurchase
agreements secured by such obligations. The Income Fund will seek to achieve
its primary investment objective by investing in investment grade short and
intermediate maturity bonds and asset backed securities such as mortgage
backed securities and collateralized mortgage obligations. The Income Fund
also may invest in or utilize other investment strategies to hedge market
risks, manage cash positions or to enhance potential gain. See "Income
Fund" and "Other Investment Strategies." Additionally, each Fund will seek
to reduce net asset value volatility compared to longer term portfolios by
investing in obligations with an expected dollar-weighted average maturity of
normally not more than five years. If your sole objective is preservation of
capital, then the Funds may not be suitable for you because their net asset
values will vary as market interest rates fluctuate. Investors whose sole
objective is preservation of capital may wish to consider a high quality
money market fund.

This Prospectus concisely sets forth the information a prospective investor
should know about the Funds before investing. It should be retained for
future reference.

Additional information about the Funds is contained in a Statement of
Additional Information dated February 1, 1998, which has been filed with the
Securities and Exchange Commission. The Statement of Additional Information
may be obtained at no charge by contacting Thornburg Securities Corporation,
119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501, (800) 847-0200.
This Prospectus incorporates by reference the entire Statement of Additional
Information.

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

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

Table of Contents

1 Expense Information
2 The Funds
4 Financial Highlights
6 Management Discussion of Fund Performance
7 Investment Objectives and Policies
17 Your Account - Fund Shares
21 Selling Fund Shares
23 Investor Services, Individual Retirement Accounts
and Retirement Plans, Transaction Services
24 Shareholder and Account Policies
25 Taxes
25 Service and Distribution Plans
26 Transaction Details
27 Exchange Restrictions
28 Performance
29 Organization of the Funds
30 Thornburg Management Company, Inc.
and Thornburg Securities Corporation
31 Additional Information

<PAGE>
EXPENSE INFORMATION
<TABLE>
SHAREHOLDER TRANSACTION EXPENSES
<CAPTION>
Government Fund Income Fund
------------------------ ------------------------
Class A Class C Class A Class C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Maximum Sales Charge on Purchases 2.50% none 2.50% none
(as a percentage of offering price)

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

<FN>
<F+> imposed only on redemptions of purchases greater than $1 million and
redemptions by certain employee benefit plans in the event of a
redemption within 12 months of purchase.

<F++> imposed only on redemptions of Class C shares within 12 months of
purchase.
</FN> </TABLE>

<TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
- -------------------------------------------
Thornburg Limited Term U.S. Government Fund
- -------------------------------------------

Class A Class C Examples:
------- ------- You would pay the following expenses on a $1,000
<S> <C> <C> investment, assuming the Fund's expense ratio
Management Fees .38% .38% remains the same, a 5% annual return, and
12b-1 fees (after fee waivers redemption at the end of each time period. Figures
for Class C) <F*> .25% .50% for Class A shares do not reflect a 1/2 of 1%
Other Expenses (after contingent deferred sales charge (CDSC) imposed on
assumption of expenses for redemptions of purchases of $1 million or more, or
Class C) <F*> .34% .52% a 1/2 of 1% CDSC imposed on redemptions by certain
----- ----- employee benefit plans, of purchases made after
Total Fund Operating Expenses .97% 1.40% January 31, 1997, only if redemption occurs
within one year of purchase.
<CAPTION>
<FN> One Year 3 Years 5 Years 10 Years
<F*> Expenses reflect rounding and have been -------- ------- ------- --------
restated to reflect current fees. Amounts <S> <C> <C> <C> <C>
shown for Class C shares of the Government Class A $35 $55 $77 $141
Fund are based upon a waiver of a portion Class C $19 $44 $77 $168
of the Class C 12b-1 fee and assumption of
certain expenses by TMC. Absent the waiver You would pay the following expenses on the same
and assumption, the Class C 12b-1 fees and $1,000 investment, assuming no redemption at the
other expenses would have been 1.00% and end of each period:
.87%, respectively, and the total Fund
operating expenses would have been 2.25% One Year 3 Years 5 Years 10 Years
for Class C shares. Long-term Class C -------- ------- ------- --------
shareholders may pay more than the economic <S> <C> <C> <C> <C>
equivalent of the maximum front-end sales Class A $35 $55 $77 $141
charge permitted by the National Association Class C $14 $44 $77 $168
of Securities Dealers, Inc.
</FN>

<PAGE> 2
- ---------------------
THORNBURG INCOME FUND
- ---------------------
Examples
You would pay the following expenses on a $1,000
investment, assuming the Fund's expense ratio
remains the same, a 5% annual return, and
redemption at the end of each time period. Figures
for Class A shares do not reflect a 1/2 of 1%
contingent deferred sales charge (CDSC) imposed on
redemptions of purchases of $1 million or more, or
a 1/2 of 1% CDSC imposed on redemptions by certain
employee benefit plans, of purchases made after
January 31, 1997, only if redemption occurs within
one year of purchase.
<CAPTION>
Class A Class C One Year 3 Years 5 Years 10 Years
------- ------- -------- ------- ------- --------
<S> <C> <C> <S> <C> <C> <C> <C>
Management Fees .50% .50% Class A $35 $56 $79 $146
12b-1 Fees (after fee waivers Class C $19 $44 $77 $168
for Class C)<F*> .25% .50%
Other Expenses (after You would pay the following expenses on the same
assumption of expenses for $1,000 investment, assuming no redemption at the
Class A and Class C) <F*> .25% .40% end of each period:
----- -----
Total Fund Operating Expenses 1.00% 1.40% One Year 3 Years 5 Years 10 Years
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Class A $35 $56 $79 $146
Class C $14 $44 $77 $16

<FN>
<F*> Expenses reflect rounding and have been restated to reflect current
fees. Amounts shown for Class A of the Income Fund are based upon
an assumption of certain operating expenses by TMC. Absent the
assumption of expenses, other expenses would have been .52% and the
total Fund operating expenses would have been 1.27%. Amounts shown
for Class C of the Income Fund are based upon a waiver of a portion
of the Class C 12b-1 fees and assumption of certain other expenses by
TMC. Absent the waiver and assumption of expenses, the Class C 12b-1
fees and other expenses would have been 1.00% and .94%, respectively,
and total Fund operating expenses would have been 2.44%. Long-term
Class C shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the National Association
of Securities Dealers, Inc.
</FN>
</TABLE>

EXPLANATION OF TABLES

The expense figures shown above are presented pursuant to regulatory
requirements for the purpose of illustrating the cumulative effect over
various time periods of the annual Fund operating expense ratios shown above.
THE INFORMATION IN THE TABLES ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. The Funds' investment adviser or distributor may not waive fees
or assume Fund expenses in the future. The Class A examples for both Funds
assume payment of the maximum sales charge by the investor.

THE FUNDS

The Funds seek as high a level of current income as is consistent with safety
of capital. The Government Fund will attempt to realize this objective by
investing primarily in obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities, and in participations in
such obligations or in repurchase agreements secured by such obligations.
The Income Fund will attempt to realize this objective by investing primarily
in investment grade short and intermediate maturity bonds and in asset backed
securities. The Income Fund also may invest in or utilize other investment
strategies to hedge market risks, manage cash positions or to enhance
potential gain. No assurance can be given that the Funds will achieve this
objective.

Each Fund's name derives from its policy of maintaining an overall portfolio
of investments with a dollar-weighted average maturity of normally not more
than five years, with the objective of reducing fluctuations in the Fund's
net asset value per share compared to longer maturity portfolios. Normally,
the Funds expect to offer greater price stability than a higher yielding
long-term bond fund and higher yields than most short-term investments.
Historically, intermediate-term government bonds enjoyed higher returns,
compounded annually over the period 1926-1994, as compared to long-term
government bonds and 90-day U.S. Treasury Bills. Intermediate-term bonds
outperformed longer-term issues because intermediate-term bonds did not
suffer the

<PAGE> 3
large capital losses which befell higher yielding long-term bonds when bond
yields rose. Intermediate-term bonds, which have less price stability than
short-term obligations, nonetheless outperformed short-term bills because the
yield on intermediate-term obligations typically is higher than the yield on
short-term obligations. The combination of price stability and relatively
high yield enjoyed by intermediate-term bonds caused these bonds to
outperform normally higher yielding long-term bonds and normally more stable
short-term bills during the periods described. The relationship between
interest rates and the values of obligations, as shown by the foregoing
study, applies to all types of debt securities and has been consistently
demonstrated in the portfolios managed by the Funds' investment adviser and
the markets observed by the adviser. However, no assurance can be given that
each Fund's short and intermediate-term obligations will perform as well in
the future as intermediate-term government bonds have in the past.

The Funds' investment policies may involve special considerations for an
investor. For example, each Fund's net asset value will fluctuate in
response to changes in short-term interest rates, although these changes
should be less than the changes in values of obligations which have
maturities longer than the five year dollar-weighted average the Funds will
seek to maintain. No assurance can be given that the fluctuations in each
Fund's net asset value will be less than those experienced by longer term
portfolios. Additionally, variations in interest rates may result in
prepayment of certain obligations the Funds will acquire. These prepayments
could require a Fund to reinvest at a lower rate of return; and the
prepayment right of obligors may reduce a Fund's net asset value because the
value of such securities may not appreciate as rapidly as the price of
non-callable debt securities. See "INVESTMENT OBJECTIVES AND POLICIES,"
beginning on page 7.

On any day on which the New York Stock Exchange, Inc. is open for trading
("Fund Business Day"), investors may initiate purchases and redemptions of a
Fund's shares at its next determined public offering price, which will be
determined daily. (See "BUYING FUND SHARES IN GENERAL," page 17 and "SELLING
FUND SHARES," page 21.) For classes of investors who may purchase shares at
reduced sales charges, see "BUYING CLASS A SHARES," page 17. Dividends from
accumulated net income are declared by the Funds on each Fund Business Day.
The Funds pay interest dividends monthly, normally on the last day of each
month, or if the last day is not a Fund Business Day, on the previous Fund
Business Day. Interest dividends are automatically invested in additional
shares of the appropriate Fund at the next determined net asset value unless
a shareholder has elected by written notice to the Fund to receive monthly
dividend distributions in cash. Net capital gains, if any, will be
distributed annually, normally within 45 days after the end of each Fund's
fiscal year. All distributions of capital gains are automatically invested
in additional shares of the appropriate Fund at the next determined net asset
value or at the shareholder's option, paid in cash. (See "DISTRIBUTIONS AND
TAXES," page 24.)

The Funds are diversified series of Thornburg Investment Trust, an open-end
investment company organized as a Massachusetts business trust. Each of a
Fund's shares represents an equal undivided interest in that Fund's assets.
The Funds' principal office is located at Thornburg Management Company, Inc.,
119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501. (Telephone
(505) 984-0200 or (800) 847-0200.)
3
<PAGE> 4
FINANCIAL HIGHLIGHTS

The following information for the Government Fund, years ended December 31,
1989 and 1990, the nine months ended September 30, 1991 and the years ended
September 30, 1992, 1993, 1994, 1995, 1996 and 1997, and for the Income Fund,
all years shown, has been audited by McGladrey & Pullen, LLP, independent
auditors, whose report is incorporated by reference in the Funds'
registration statement. This information should be read in conjunction with
the 1997 Annual Report for the Funds.

<TABLE>
Ratio of Ratio of Ratio of
Expenses Expenses Net
Net Distri- to to Investment Net
Realized butions Distri- Average Average Income Assets
Net Asset and Total from butions Net Net Net (Loss) at end
Value, Unrealized from Net from Asset Assets Assets to of
Beginning Net Gain Investment Invest- Net Value, Total After Before Average Rate of Period
Fiscal Year of Investment (Loss) on Opera- ment Realized End of Return Exp. Exp. Net Portfolio ('000's
or Period Period Income Investments tions Income Gains Period <F(b)> Reductions Reductions Assets Turnover omitted)
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Government Fund
- ---------------
Class A
11/16/87 <F(a)>
to 12/31/87 $12.22 $.13 $(.05) $.08 $(.13) 12.17 .63% (.54)% (1.50)% 6.12% 44.19% $2,122
Year ended <F(c)> <F(c)> <F(c)>
Dec. 31, 1988 12.17 1.02 (.30) .72 1.02 11.87 6.14 (.90) (1.52) 8.24 217.11 17,338
Dec. 31, 1989 11.87 1.03 .17 1.20 (1.03) 12.04 10.58 (1.00) (1.51) 8.61 101.66 25,336
Dec. 31, 1990 12.04 .99 .04 1.03 (.99) 12.08 8.95 (1.00) (1.25) 8.20 69.42 33,607
9 mos. ended
Sept. 30, 1991 12.08 .71 .28 .99 (.71) 12.36 8.41 (1.00) (1.20) 7.70 33.15 49,876
<F(c)> <F(c)> <F(c)>
Sept. 30, 1992 12.36 .84 .47 1.31 (.84) 12.83 11.01 (1.00) (1.10) 6.56 34.82 126,095
Sept. 30, 1993 12.83 .73 .09 .82 (.73) 12.92 6.61 (1.01) (1.01) 5.61 38.88 201,443
Sept. 30, 1994 12.92 .67 (.89) (.22) (.67) 12.03 (1.72) (.95) (.95) 5.38 80.58 177,439
Sept. 30, 1995 12.03 .75 .37 1.12 (.75) 12.40 9.66 (.99) (.99) 6.23 28.31 142,849
Sept. 30, 1996 12.40 .76 (.16) .60 (.76) 12.24 4.92 (.99) (.99) 6.11 23.27 139,510
Sept. 30, 1997 12.24 .75 .07 .82 (.75) 12.31 6.86 (.97) (.97) 6.09 41.10 133,711

Class C
9/1/94 <F(a)> $12.21 $.06 $(.13) $(.07) $(.06) $12.08 (.50)% (1.63)% (1.63)% 5.45 80.58% $1,005
to 9/30/94 <F(c)> <F(c)> <F(c)>
Year ended
Sept. 30, 1995 12.08 .69 .37 1.06 (.69) 12.45 9.07 (1.52) (2.30) 5.68 28.31 2,217
Sept. 30, 1996 12.45 .71 (.16) .55 (.71) 12.29 4.51 (1.39) (2.35) 5.72 23.27 2,780
Sept. 30, 1997 12.29 .70 .08 .78 (.70) 12.37 6.49 (1.40) (2.24) 5.65 41.10 4,299

Income Fund
- -----------
Class A
Sept 30, 1993 $12.22 $.77 $.33 $1.10 $(.77) $12.55 9.35% (.37)% (2.10)% 5.85% 93.88% $20,065
Sept 30, 1994 12.55 .67 (.69) (.02) (.67) $(.03) 11.83 (.14) (.66) (1.47) 5.51 84.35 21,683
Sept 30, 1995 11.83 .76 .28 1.04 (.76) 12.11 9.22 (.83) (1.48) 6.50 43.12 23,222
Sept 30, 1996 12.11 .76 .12 .88 (.76) 12.23 7.54 (.95) (1.37) 6.31 44.35 23,433
Sept 30, 1997 12.23 .76 .14 .90 (.76) 12.37 7.56 (1.00) (1.27) 6.16 13.87 31,281

Class C
9/1/94 <F(a)>
to 9/30/94 $11.92 $.06 $(.14) $(.08) $(.06) $11.78 (.72)% (1.20)% (1.20)% 5.14% 84.35% $53
Year ended <F(d)> <F(d)> <F(d)>
Sept 30, 1995 11.78 .70 .30 1.00 (.70) 12.08 8.87 (1.36) (4.75) 6.03 43.12 1,032
Sept 30, 1996 12.08 .71 .12 .83 (.71) 12.20 7.12 (1.36) (3.20) 5.91 44.35 2,695
Sept 30, 1997 12.20 .71 .14 .85 (.71) 12.34 7.13 (1.40) (2.44) 5.76 13.87 5,382

<FN> Footnotes to Financial Highlights Tables
<F(a)> Commencement of operations.
<F(b)> Sales charges are not reflected in computing total return,
which is not annualized for periods less than one year.
<F(c)> Annualized
</FN> </TABLE>

4 5

<PAGE> 6
MANAGEMENT DISCUSSION OF FUND PERFORMANCE

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

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

GOVERNMENT FUND
Index Comparison
Compares performance of the Government Fund Class A shares, the Lehman
Brothers Intermediate Government Bond Index, and the Consumer Price Index for
the periods ended September 30, 1997. On September 30, 1997, the weighted
average securities ratings of the Index and the Fund were AAA and AAA,
respectively, and the weighted average portfolio maturities of the Index and
the Fund were 3.8 years and 3.9 years, respectively. Class C shares became
available on September 1, 1994. Past performance of the Index and the Fund
may not be indicative of future performance.

<TABLE> <In the prospectus, this table appears as two side-by-side graphs>
Class A Shares Class C Shares
<CAPTION>
FUND Lehman FUND Lehman
A Shares Government CPI C Shares Government CPI
-------- ----------- -------- -------- ----------- -------
<S> <C> <C> <C> <S> <C> <C> <C>
10/87 $ 9,750 $10,000 $10,000 8/94 $10,000 $10,000 $10,000
2/88 10,127 10,520 10,110 9/94 9,950 9,917 10,020
6/88 10,202 10,577 10,263 10/94 9,938 9,919 10,030
10/88 10,554 10,890 10,397 11/94 9,884 9,875 10,040
2/89 10,465 10,868 10,533 12/94 9,891 9,908 10,060
6/89 11,026 11,645 10,734 1/95 10,041 10,069 10,090
10/89 11,357 12,024 10,799 2/95 10,223 10,264 10,110
2/90 11,552 12,148 11,071 3/95 10,274 10,320 10,141
6/90 11,918 12,545 11,249 4/95 10,374 10,440 10,171
10/90 12,255 12,965 11,545 5/95 10,619 10,734 10,202
2/91 12,745 13,563 11,684 6/95 10,668 10,803 10,222
6/91 13,046 13,866 11,778 7/95 10,683 10,808 10,232
10/91 13,755 14,690 11,908 8/95 10,750 10,897 10,243
2/92 14,068 15,124 12,015 9/95 10,852 10,972 10,263
6/92 14,523 15,648 12,160 10/95 10,939 11,093 10,304
10/92 14,946 16,137 12,282 11/95 11,042 11,238 10,314
2/93 15,569 16,825 12,418 12/95 11,138 11,350 10,335
6/93 15,847 17,219 12,517 1/96 11,216 11,450 10,376
10/93 16,136 17,624 12,618 2/96 11,135 11,329 10,397
2/94 16,069 17,540 12,719 3/96 11,126 11,277 10,439
6/94 15,917 17,187 12,834 4/96 11,098 11,244 10,481
10/94 15,816 17,322 12,950 5/96 11,097 11,239 10,512
2/95 16,298 17,924 13,067 6/96 11,177 11,353 10,522
6/95 17,037 18,866 13,198 7/96 11,213 11,388 10,554
10/95 17,497 19,372 13,304 8/96 11,222 11,401 10,565
2/96 17,835 19,784 13,424 9/96 11,341 11,548 10,596
6/96 17,925 19,826 13,572 10/96 11,489 11,737 10,628
9/96 18,207 20,167 13,681 11/96 11,608 11,879 10,660
12/96 18,579 20,633 13,804 12/96 11,560 11,815 10,692
3/97 18,604 20,627 13,873 3/97 11,564 11,811 10,746
6/97 19,061 21,203 13,915 6/97 11,835 12,142 10,778
9/97 19,457 21,746 13,999 9/97 12,078 12.452 10,843
</TABLE>

Average Annual Total Returns (at max. Average Annual Total Returns
offering price) C Shares One Year (12 mos. ended
A Shares One Year: (12 mos. ended 9/30/97): 5.99%
9/30/97): 4.22% From Inception (9/1/94): 6.32%
Five Years: 4.66%
From Inception (11/16/87): 6.97%

<PAGE> 7
INCOME FUND
Index Comparison
Compares performance of the Income Fund, the Lehman Brothers Intermediate
Government Corporate Bond Index, and the Consumer Price Index for the periods
ended September 30, 1997. On September 30, 1997, the weighted average
securities ratings of the Index and the Fund were A and AA, respectively, and
the weighted average portfolio maturities of the Index and the Fund were 4.3
years and 4.6 years, respectively. Class C shares became available on
September 1, 1994. Past performance of the Index and the Fund may not be
indicative of future performance.

Average Annual Total Returns (at max. Average annual Total Returns
(offering price) C Shares One Year (12 mos. ended
A Shares One Year: (12 mos. ended 9/30/97): 6.63%
9/30/97): 4.87% From Inception (9/1/94): 7.24%
From Inception (10/01/92): 6.11%

Interest rates increased during most of 1996, but began decreasing in late
1996. In general, interest rates have continued, with some fluctuations, to
decline slightly over the first ten months of 1997. For example the generic
30-year treasury bond started 1996 yielding 5.95%. Its yield went up by
1.24% to 7.19% by mid-year, before dropping back down to 6.65% at the end of
1996. After rising again to 7.20% on April 1, 1997, the yield on the generic
30-year bond again declined, closing at 6.40% on September 30, 1997.

In general, interest rate decreases in 1997 have led to higher bond prices
and falling bond yields. Five, ten and 30-year treasury bond prices have
increased by 0.72%, 2.00% and 4.31%, respectively, between October 1, 1996
and September 30, 1997. Net asset values of both of the Funds have similarly
increased slightly over the same period, and the Funds' dividend yields have
decreased to a small extent. If interest rates continue to fall, the net
asset values of the Funds should continue to rise, but the dividend yields
would be expected to decrease.

INVESTMENT OBJECTIVES AND POLICIES

The primary investment objective of each Fund is to provide for its
shareholders as high a level of current income as is consistent with safety
of capital. The secondary investment objective of each Fund is to reduce
fluctuations in the Fund's net asset value per share compared to longer
maturity bond portfolios. However, no assurance can be given that the Funds
will realize either of these investment objectives.

The Government Fund will seek to achieve its primary objective by investing
in obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities, and in readily marketable participations in

<PAGE> 8
such obligations or in repurchase agreements secured by such obligations. The
Income Fund will seek to achieve its primary objective by investing primarily
in investment grade, short and intermediate maturity bonds and other income
securities which are described below under the caption "Income Fund"
beginning on page 11. The object of preserving a Fund's capital may preclude
that Fund from obtaining the highest possible yields available.

Thornburg Management Company, Inc. ("TMC") actively manages each Fund's
portfolios in attempting to meet the Funds' primary investment objective.
Investment decisions are based upon general economic and financial trends,
such as domestic and international economic development, outlooks for
securities markets, interest rates and inflation, the supply and demand for
debt securities, and other factors. The Funds' portfolios are determined by
individual security analyses, and TMC's credit analysts actively monitor the
credit quality of the Funds' portfolios.

The Funds will seek to achieve their secondary objective of reducing
fluctuations in the Funds' net asset value per share primarily by maintaining
portfolios of obligations with a dollar-weighted average maturity or
estimated average life which normally will be not more than five years.
There is no limitation on the maturity of any specific security a Fund may
purchase, subject to the five-year limitation of the preceding sentence.
"Estimated average life" is the estimated maturity of a mortgage backed
security, and ordinarily will be substantially shorter than the security's
stated maturity because of estimated mortgage prepayments. Because the
magnitude of the changes in market value of interest bearing obligations
ordinarily is greater for obligations of longer terms, each Fund believes
that it can reduce the magnitude of fluctuations in the values of its assets
by investing in a portfolio of obligations normally having a dollar-weighted
average maturity or estimated average life of not more than five years.
However, the trustees may lower each Fund's dollar-weighted average maturity
for temporary defensive purposes if conditions or expectations for the
behavior of interest rates indicate that lower average maturity will be
advantageous. Such conditions could include increasing inflation or a market
in which short-term obligations temporarily have higher yields than
longer-term obligations. TMC also will attempt to minimize principal
fluctuations in the Funds' portfolios through, among other things,
diversification, careful credit analyses and security selection.

Changes in the values of a Fund's assets will tend to be less than the
changes in values of obligations which have maturities longer than the five
year dollar-weighted average maturity each Fund will seek to maintain.
However, because each Fund's net asset value will fluctuate in response to
changes in short-term interest rates, increasing in value if rates decrease
and decreasing if rates increase, the Funds may not be suitable for persons
seeking a short-term money market investment.

Each Fund's primary and secondary investment objective is a fundamental
policy which may be changed only by a majority vote of that Fund's
shareholders. Any other investment policy, technique or limitation described
in this Prospectus or the Statement of Additional Information, unless
identified as a "fundamental policy," may be changed by the trustees without
a shareholders' vote.

Each Fund will seek to enhance its income by taking advantage of yield
disparities, trends or other factors in the fixed income markets. Although
each Fund ordinarily will acquire securities for investment rather than for
realization of gains on market fluctuations, a Fund may dispose of any
security prior to its scheduled maturity to enhance income or reduce loss, to
change the portfolio's average maturity, or to otherwise respond to current
market conditions. In addition, the Funds may utilize other techniques,
discussed below, to enhance a Fund's investment income.

<PAGE> 9
TYPES OF OBLIGATIONS EACH FUND INTENDS TO ACQUIRE: INVESTMENT POLICIES

GOVERNMENT FUND

The Government Fund will invest at least 65% of its total assets in
obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities, and will invest at least 80% of its total
assets in such obligations and in readily marketable participations in such
obligations or in repurchase agreements secured by such obligations. See
"Repurchase Agreements," below. Although the Fund will acquire obligations
issued or guaranteed by the U.S. Government and its agencies and
instrumentalities, neither the Fund's net asset value nor its dividends are
so guaranteed.

U.S. Government securities include U.S. Treasury obligations such as U.S.
Treasury Bills, U.S. Treasury Notes, and U.S. Treasury Bonds, with various
interest rates, maturities and dates of issuance. These U.S. Treasury
securities are direct obligations of the U.S. Treasury, backed by the full
faith and credit of the U.S. Government.

Government National Mortgage Association (GNMA) certificates are
mortgage-backed securities of the modified pass-through type, each of which
evidences an interest in a specific pool of mortgage loans insured by the
Federal Housing Administration or guaranteed by the Veterans Administration.
The National Housing Act provides that the full faith and credit of the U.S.
Government is pledged to the timely payment of amounts due for principal and
interest by the GNMA on these certificates. Variations in interest rates and
other factors may result in prepayment of some mortgages underlying these
certificates, so that the resulting term of the certificates will change.
During periods of rising interest rates, mortgage backed securities may have
a greater risk of capital depreciation because of decreased prepayments and
increased effective maturity, and during periods of declining interest rates
these securities may have less potential for capital appreciation because of
increased prepayments. The Funds' investment adviser continually will
evaluate any investment in these certificates in light of market conditions
and the Fund's policy of maintaining a portfolio normally having a
dollar-weighted average maturity or estimated average life of not more than
five years.

U.S. Government agency obligations the Government Fund may purchase, in
addition to GNMA certificates, include, but may not be limited to,
obligations issued by the Banks for Cooperatives; the Export-Import Bank of
the U.S.; the Farmers Home Administration; the Federal Deposit Insurance
Corporation; the Federal Financing Bank; the Federal Home Loan Banks; the
Federal Home Loan Mortgage Corporation; the Federal Housing Administration;
the Federal Intermediate Credit Banks; the Federal Land Banks; the Federal
National Mortgage Association; and the General Services Administration; the
Small Business Administration; the Student Loan Marketing Association; and
the U.S. Maritime Administration. Obligations issued by the Farmers Home
Administration, Federal Financing Bank, General Services Administration, and
the Small Business Administration are backed by the full faith and credit of
the United States or the agency has the authority to borrow from the U. S.
Treasury. Other agency obligations are supported by discretionary authority
of the Treasury to purchase obligations of the agency.

Participations, CMOs. To facilitate its investment in any of the types
of obligations which the Fund may acquire, the Fund may purchase
"participations" in any of these obligations. Participations are undivided
interests in pools of securities which are assembled by certain banks or
other responsible persons, such as securities broker/dealers and investment
banking houses, where the underlying government credit support passes through
or is otherwise available to the participants or the trustee for all
participants. Similarly, the Fund may acquire collateralized mortgage
obligations ("CMOs"), which are obligations issued by a trust or other entity
organized to hold a pool of U.S. Government insured mortgage-backed
securities (such as GNMA certificates) or mortgage loans. The Fund will
acquire a CMO when TMC believes that the CMO is more attractive than the

<PAGE> 10
underlying securities in pursuing the Fund's primary and secondary investment
objectives. Participations and privately issued CMO's are not considered
U.S. Government securities, and are not considered part of the 65% of the
total assets of the Government Fund which will be invested in obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.

Other Securities. The Government Fund may under certain market conditions
invest up to 20% of its assets in (i) time certificates of deposit maturing
in one year or less after the date of acquisition which are issued by United
States banks having assets of one billion dollars or more, or (ii) time
certificates of deposit insured as to principal by the Federal Deposit
Insurance Corporation. If any certificate of deposit (whether insured in
whole or in part) is nonnegotiable, and it matures in more than seven days,
it will be considered illiquid and subject to the Fund's fundamental
investment restriction that no more than 10% of the Fund's net assets will be
placed in illiquid investments.

Repurchase Agreements. When the Government Fund purchases securities, it may
enter into a repurchase agreement with the seller in which the seller agrees,
at the time of sale, to repurchase the security at a mutually agreed-upon
time and price. The resale price will be in excess of the purchase price
reflecting an agreed-upon market rate effective for the period of time the
Fund's money will be invested in the securities, and will not be related to
the coupon rate of the purchased securities. At the time the Fund enters
into a repurchase agreement, the value of the underlying securities,
including accrued interest, will be equal to or exceed the value of the
repurchase agreement, and, for repurchase agreements which mature in more
than one day, the seller will agree to furnish additional security if the
value of the underlying security falls below the value of the repurchase
agreement. If the seller of the repurchase agreement enters a bankruptcy or
other insolvency proceeding, or the seller fails to repurchase the underlying
security as agreed, the Fund could experience losses, including loss of
rights to the security. The Fund will not enter into a repurchase agreement
if, as a result, more than 10% of the value of its net assets would then be
invested in repurchase agreements maturing in more than seven days and other
securities which are considered illiquid.

Securities Lending. The Government Fund may from time to time lend securities
on a short-term basis to banks, brokers, dealers and certain financial
institutions and receive as collateral cash, government securities, or
irrevocable bank letters of credit. The borrowers will be required to
deposit and maintain collateral at least equal to 102% of the current value
of the loaned securities plus accrued interest. Securities loans will not be
made by the Fund if as a result the aggregate of all such outstanding loans
exceeds one-third of the value of the Fund's total assets. The Fund will
continue to be entitled to the interest payable on the loaned securities and
will either receive as income a portion of the interest on the investment of
any cash loan collateral or, in the case of collateral other than cash, a fee
negotiated with the borrower. The terms of these loans will provide that
they are terminable at any time. Loans of securities involve risks of delay
in receiving additional collateral or in recovering the securities loaned or
even loss of rights in the collateral in the event of the insolvency of the
borrower of the securities.

When-Issued and Delayed Delivery Transactions. The Government Fund may
purchase or sell government securities in when-issued or delayed delivery
transactions. In such transactions, instruments are bought or sold with
payment and delivery taking place in the future in order to secure what is
considered to be an advantageous yield or price to the Fund at the time of
entering into the transactions. In such transactions, the payment obligation
and the interest rate are fixed at the time the buyer enters into the
commitment, although no interest accrues to the purchaser prior to settlement
of the transaction. Because the value of the security may

<PAGE> 11
be more or less than the transaction price at the time of the delivery of the
security, depending upon interest rate fluctuations prior to the settlement
date, the Fund will maintain designated high grade liquid debt assets in a
segregated account with the Custodian at least equal in value to its purchase
commitments for when-issued or delayed delivery transactions, which assets
will be earmarked specifically for the settlement of such commitments. The
Fund will only make commitments to purchase securities on a when-issued or
delayed delivery basis with the intention of actually acquiring the
securities and not for the purpose of investment leverage, but the Fund
reserves the right to sell the securities before the settlement date if it is
deemed advisable.

Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements to obtain short-term liquidity. In such a transaction the Fund
would sell a security to a purchaser and agree to repurchase the security in
the future. The Fund will enter into reverse repurchase agreements only with
dealers, banks or recognized financial institutions. These agreements are
subject to the risk that the underlying security will decline in value during
the period when the Fund is obligated to repurchase it. If the Fund enters
into any such transaction, it will deposit high grade liquid debt assets in a
segregated account with its Custodian in an amount sufficient to meet the
Fund's obligations to the purchaser. The Fund will not enter into any
reverse repurchase agreement if, as a result, more than 5% of its total
assets would be subject to such obligations.

Dollar Roll Transactions. The Fund may enter into dollar roll transactions
with selected banks and broker-dealers. Dollar roll transactions are treated
as reverse repurchase agreements for purposes of the Fund's borrowing
restrictions and consist of the sale by the Fund of mortgage-backed
securities, together with a commitment to purchase similar, but not
identical, securities at a future date, at the same price. If the Fund
enters into any such transaction, it will deposit high grade liquid assets
in a segregated account with the custodian in an amount sufficient to meet
the Fund's obligations to the purchaser. The Fund is paid a fee as
consideration for entering into the commitment to purchase. If the
broker-dealer to whom the Fund sells the security underlying a dollar roll
transaction becomes insolvent, the Fund's right to purchase or repurchase the
security may be restricted. Additionally, the value of the security may
change adversely over the term of the dollar roll and the return earned by
the Fund with the proceeds of a dollar roll may not exceed transaction costs.

INCOME FUND

In general, the Income Fund may purchase securities permissible for the
Government Fund, except that the Income Fund may not enter into a repurchase
agreement or purchase any security deemed illiquid if as a result, more than
15% of the value of its net assets would be invested in repurchase agreements
maturing in more than seven days and other securities which are considered
illiquid. The Income Fund also may invest in other types of debt securities,
such that at least 65% of its net assets are invested in a managed portfolio
of securities consisting of:

* U.S. Government securities, including bonds, notes, and bills issued by
the U.S. Treasury, and securities issued or guaranteed by agencies and
instrumentalities of the U.S. Government;
* Corporate debt securities, such as bonds, notes and debentures;
* Mortgage-backed securities;
* Other asset-backed securities;
* Municipal securities;

<PAGE> 12
* Money market instruments which are comprised of commercial paper, bank
obligations (i.e., certificates of deposit and bankers' acceptances) and
repurchase agreements;
* Privately-placed securities (restricted securities); and
* Foreign securities, including non-U.S. dollar-denominated securities and
U.S. dollar-denominated debt securities issued by foreign issuers and
foreign branches of U.S. banks.

In addition, the Income Fund may use investment techniques such as purchasing
securities on a when-issued or forward delivery basis; entering into
interest-rate, securities-index, and currency futures contracts, and
purchasing and selling options thereon; purchasing and selling options on
securities and currencies, and entering into forward contracts. See "Other
Investment Strategies," page 13, for more information.

The Income Fund's securities generally offer less current yield than
securities of lower quality (rated below BBB/Baa) or longer maturity, but
lower-quality securities generally have less liquidity. Both lower quality
securities and longer maturity securities have greater credit and market
risk, and consequently more price volatility than higher quality securities
or shorter maturity securities.

U.S. Government Securities. The Income Fund may invest in government
securities as described before under "Investment Objectives and Policies -
Government Fund".

Mortgage and Other Asset-Backed Securities. The Fund may also invest in
mortgage-backed securities which are securities representing interests in
pools of mortgage loans. The securities provide shareholders with payments
consisting of both interest and principal as the mortgages in the underlying
mortgage pools are paid off. See description under "Investment Objectives and
Policies-Government Fund". The Fund may agree to purchase or sell these
securities with payment and delivery taking place on a future date. Some
mortgage-backed securities which the Fund may purchase will not be backed by
the full faith and credit of the U.S. Government

The Income Fund may also invest in securities representing interests in pools
of certain consumer loans, such as automobile loans and credit card
receivables. Variations in interest rates and other factors may result in
prepayments of the loans underlying these securities, reducing the potential
for capital appreciation and requiring reinvestment of the prepayment
proceeds by the Fund at lower interest rates. Additionally, in periods of
rising interest rates these securities may suffer capital depreciation
because of decreased prepayments.

Municipal Securities. The Income Fund may invest in municipal securities,
which include obligations issued by states, territories and possessions of
the United States, and their political subdivisions, agencies and
instrumentalities. Municipal securities may be "general obligation" bonds or
"revenue bonds." General obligation bonds are backed by the credit of the
issuing political subdivision or agency, and revenue bonds are repaid from
the revenues derived from a specific project such as a waste treatment plant
or stadium. Although investments in municipal obligations will be made
subject to the Fund's emphasis on purchases of investment grade securities
(described below under "Securities Ratings"), municipal obligations are
subject to the provisions of bankruptcy, insolvency and other laws affecting
the rights and remedies of creditors. In addition, these obligations could
become subject to actions by state legislatures or voter referenda extending
the time for repayment of principal or imposing other constraints upon
enforcement of the obligations or upon political subdivisions to levy taxes
to pay the obligations.

<PAGE> 13
Foreign Securities. While the Income Fund generally emphasizes investments in
U.S. Government securities and other issuers domiciled in the United States,
it may invest in foreign securities of the same types and quality as the
domestic securities in which it invests. When TMC anticipates performance of
foreign securities offers more potential than domestic alternatives. Foreign
securities may be denominated either in U.S. dollars or foreign currencies.

The Income Fund may also invest in instruments offered by brokers which
combine forward contracts, options and securities in order to reduce foreign
currency exposure. The Income Fund may enter into multiple futures, options
and foreign currency transactions or a combination of these transactions,
instead of a single transaction, as part of a hedging strategy.

Investments in foreign securities involve special risks due to more limited
information, higher brokerage costs, different accounting standards, thinner
trading markets and the likely impact of foreign taxes on the yield from debt
securities. They may also entail other risks, such as the possibility of one
or more of the following: imposition of dividend or interest withholding or
confiscatory taxes; currency blockages or transfer restrictions;
expropriation, nationalization or other adverse political or economic
developments; less government supervision and regulation of securities
exchanges, brokers and listed companies; and the difficulty of enforcing
obligations in other countries. Purchases of foreign securities are usually
made in foreign currencies and, as a result, the Income Fund may incur
currency conversion costs and may be affected favorably or unfavorably by
changes in the value of foreign currencies against the U.S. dollar. Further,
it may be more difficult for the Income Fund's agents to keep currently
informed about corporate actions which may affect the prices of portfolio
securities. Communications between the United States and foreign countries
may be less reliable than within the United States, thus increasing the risk
of delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. The Income Fund's ability and decisions to purchase
and sell portfolio securities may be affected by laws or regulations relating
to the convertibility and repatriation of assets. These risks may be more
acute in the case of developing countries.

Securities Ratings. The Income Fund emphasizes "investment grade"
investments. At least 65% of the Income Fund's net assets will be invested
in (1) obligations of the U.S. Government, its agencies, or instrumentalities
and in (2) debt securities rated at the time of purchase in one of the three
highest categories of Standard & Poor's Corporation (AAA, AA, or A) or
Moody's Investors Service, Inc. (Aaa, Aa, or A) or, if not rated, judged to
be of comparable quality by TMC. In addition, the Fund will not invest in any
debt security rated at the time of purchase lower than BBB by Standard &
Poor's or Baa by Moody's, or of equivalent quality as determined by TMC.
Should the rating of a portfolio security be downgraded TMC will determine
whether it is in the best interest of the Income Fund to retain or dispose of
the security.

Securities rated BBB by Standard & Poor's or Baa by Moody's are neither
highly protected nor poorly secured. These securities normally pay higher
yields but involve potentially greater price variability than higher-quality
securities. These securities are regarded as having adequate capacity to
repay principal and pay interest, although adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to do
so. Such securities may have speculative elements as well as
investment-grade characteristics.

Other Investment Strategies. The Income Fund may, but is not required to,
utilize various other investment strategies described below to hedge various
market risks such as the effective maturity or duration of fixed-income
securities, or to enhance potential gain. Such strategies are generally
accepted by modern portfolio managers and are regularly utilized by many
mutual funds and other institutional investors. Techniques and instruments
may change over time as new instruments and strategies are developed or
regulatory changes occur.

<PAGE> 14
Strategic Positions. In the course of pursuing these investment strategies,
the Income Fund may purchase and sell exchange-listed and over-the-counter
put and call options on securities, financial futures, equity and
fixed-income indices and other financial instruments, purchase and sell
financial futures contracts, enter into various interest rate transactions
such as swaps, caps, floors or collars, and enter into various currency
transactions such as currency forward contracts, currency futures contracts,
currency swaps or options on currency or currency futures (collectively, all
the above are called "Strategic Positions"). Strategic Positions may be used
to attempt to protect against possible changes in the market value of
securities held in or to be purchased for the Income Fund's portfolio
resulting from securities markets or currency exchange rate fluctuations, to
protect the Income Fund's unrealized gains in the value of its portfolio
securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Income Fund's
portfolio, or to establish a position in the derivatives markets as a
temporary substitute for purchasing or selling particular securities. The
Fund may manage its portfolio maturity or duration by using options, futures
and swaps to acquire and dispose of specific securities having maturities
which are then considered desirable in managing the Fund's maturity or
duration. "Duration" is a measure of an obligation's life, based upon the
present value of the obligor's payments of principal and interest, and is
usually shorter than the obligation's maturity. Some Strategic Positions may
also be used to enhance potential gain, although no more than 5% of the
Fund's assets will be committed to Strategic Positions entered into for
purposes other than bona fide hedging, risk management or portfolio
management. Any or all of these investment techniques may be used at any
time and there is no particular strategy that dictates the use of one
technique rather than another, because use of any Strategic Transaction is a
function of numerous variables including market conditions. The ability of
the Income Fund to utilize these Strategic Positions successfully will depend
on TMC's ability to predict pertinent market movements, which cannot be
assured. The Income Fund will comply with applicable regulatory requirements
when implementing these strategies, techniques and instruments.

Strategic Positions involve certain risks including possible default by the
other party to the transaction, illiquidity and, to the extent TMC's view as
to certain market movements is incorrect, the risk that the use of such
Strategic Positions could result in losses greater than if they had not been
used. Selling put and call options may result in losses to the Income Fund,
force the purchase or sale of portfolio securities at inopportune times or
for prices higher than (in the case of put options) or lower than (in the
case of call options) current market values, limit the amount of appreciation
the Income Fund can realize on its investments or cause the Income Fund to
hold a security it might otherwise sell. The use of currency transactions
can result in the Income Fund incurring losses as a result of a number of
factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency.
The use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of a
futures contract and price movements in the related portfolio position of the
Income Fund creates the possibility that losses on the hedging instrument may
be greater than gains in the value of the Income Fund's position.

<PAGE> 15
more than 15% of its net assets would be invested in securities which are not
readily marketable by the Income Fund. The Fund will segregate cash or high
grade liquid debt assets sufficient to meet its obligation to purchase and
deliver securities or currencies under any futures contract or option or to
pay any amount owed upon the expiration of an index-based futures contract.
Finally, the daily margin requirements for futures contracts may create a
greater ongoing potential financial risk than would purchases of options,
where the exposure is limited to the cost of the initial premium. Losses
resulting from the use of Strategic Positions would reduce net asset value,
and possibly income, and such losses can be greater than if the Strategic
Positions had not been utilized. The Strategic Positions that the Fund may
use and some of their risks are described more fully in the Income Fund's
Statement of Additional Information.

When-Issued Securities. The Income Fund may purchase securities on a
when-issued or forward delivery basis, for payment and delivery at a later
date. The price and yield are generally fixed on the date of commitment to
purchase. During the period between purchase and settlement, no interest
accrues to the Fund. At the time of settlement, the market value of the
security may be more or less than the purchase price.

Covered Short Sales. The Income Fund may make short sales of securities. It
will only do so in circumstances where it owns securities of the type sold,
or securities giving it the right to obtain securities equivalent in kind and
amount to the securities sold. If the right to obtain securities is
conditional, a sale may be made, but only upon the same conditions, except in
connection with arbitrage transactions. The Fund may also, however, obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities.

Repurchase Agreements. As a means of earning income for periods as short as
overnight, the Income Fund may enter into repurchase agreements with selected
banks and broker-dealers. See the descriptions under "Investment Objectives
and Policies - Government Fund".

Reverse Repurchase Agreements and Dollar Roll Transactions. The Income Fund
may enter into reverse repurchase agreements and dollar roll transactions
with selected banks and broker-dealers. See description under "Investment
Objectives and Policies - Government Fund".

Securities Lending. The Income Fund may seek to increase its income by
lending portfolio securities on a short-term basis to certain banks, brokers,
dealers and financial institutions. See the description of securities lending
under " Investment Objectives and Policies-Government Fund. " These loans
will be made only to borrowers believed by TMC to be of good financial
standing, and the value of securities loaned will not exceed 30% of the value
of the Income Fund's total assets at the time any loan is made.

SEGREGATED ACCOUNTS
The Income Fund may be required to segregate high grade debt assets in order
to provide coverage consistent with applicable regulatory policies on reverse
repurchase agreements, covered call and put options written by the Fund, to
cover forward foreign currency exchange contracts that require the Fund to
purchase or sell foreign currency for hedging purposes, or in an amount equal
to the value of the instruments underlying any futures contracts and options
on futures.

CERTAIN INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions which, as described
in more detail in the Statement of Additional Information, may generally be
changed only with the approval of the holders of a majority of that Fund's
outstanding shares. For a more complete description of the investment
restrictions summarized below and the other investment restrictions to which
a Fund is subject, please see the Statement of Additional Information.

<PAGE> 16
The Funds have the authority to borrow money from banks and other persons as
a temporary measure, and then only in amounts not exceeding 5% of the value
of a Fund's total assets unless the borrowing is from banks, in which case
the percentage limitation is 10% . For this purpose, reverse repurchase
agreements are considered as borrowings by a Fund. In connection with such
borrowing, a Fund may pledge, hypothecate, or otherwise encumber its assets.
The Funds do not intend to borrow for investment leverage purposes but
solely for extraordinary or emergency purposes or to facilitate management of
a Fund by enabling that Fund to meet redemption requests when the liquidation
of portfolio securities is deemed to be disadvantageous or not possible.

DESCRIPTION OF POTENTIAL INVESTORS AND ADVANTAGES
The Funds are designed as a convenient and economic vehicle for investors
seeking to obtain the yields available on intermediate and short-term
securities. Although the Funds are particularly designed for individual
investors, the Funds also may be appropriate for the investment of funds held
or managed by corporations, employee benefit plans, insurance companies,
investment counselors, savings and loan associations, credit unions,
educational, religious and charitable organizations, municipalities,
investment bankers, brokers and others. In each case, prospective
shareholders should determine if an investment in a Fund is consistent with
their investment objectives through consultation with their advisers and
investigation of applicable state and federal laws and regulations.

Counsel to the Funds has advised that in their view shares of the Government
Fund are a legal investment for, among other investors, commercial banks and
credit unions chartered under the laws of the United States. This advice is
based upon a review of this Prospectus and the Fund's Statement of Additional
Information, and upon counsel's receipt of undertakings by TMC and the
Government Fund respecting investment policies. In addition, the Government
Fund believes that the Government Fund is currently a legal investment for
savings and loan associations and commercial banks chartered under the laws
of certain states.

Investment in a Fund relieves the investor of many investment management and
administrative burdens usually associated with the direct purchase and sale
of fixed income debt securities, otherwise consistent with that Fund's
investment objectives and management policies. These include: (i) selection
of portfolio investments; (ii) surveying the market for the best price at
which to buy and sell; (iii) valuation of portfolio securities; (iv)
selecting and scheduling of maturities and reinvestments; (v) receipt,
delivery and safekeeping of securities; and (vi) portfolio recordkeeping.

In addition, each Fund gives smaller investors access to investments in
certain obligations, such as GNMA certificates, which these smaller investors
would not otherwise have because of the relatively high minimum purchase
amounts for such securities. In the same regard, investment in a Fund
permits the smaller investor to diversify an investment among a variety of
obligations.

PORTFOLIO TURNOVER

For its fiscal year ended September 30, 1996, the Government Fund's portfolio
turnover rate was 23.27%. The Income Fund's portfolio turnover rate was
44.35%. Each Fund anticipates that its annual turnover rate normally will be
less than 100%. A 100% turnover rate would occur, for example, if all of the
securities held in the portfolio were sold and replaced within one year. TMC
does not consider the portfolio turnover rate a limiting factor in making
investment decisions for a Fund which are otherwise consistent with that
Fund's investment objectives and management policies. However, a higher rate
of portfolio turnover may result in increased transaction costs to that Fund.

<PAGE> 17
YOUR ACCOUNT

BUYING FUND SHARES IN GENERAL

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

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

Financial advisors and others who sell shares of the Funds receive different
compensation for selling different classes of the Funds' shares. Shares of
the Funds may be purchased through investment dealers, brokers or agents
("financial advisors") who have agreements with the Funds' distributor,
Thornburg Securities Corporation ("TSC"), or through TSC in those states
where TSC is registered. All orders are subject to acceptance, and the Funds
and TSC reserve the right to refuse any order in whole or in part.

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

NET ASSET VALUE
When you purchase shares, the price is based on the net asset value 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.

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

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

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

<PAGE> 18
<TABLE>
Class A Shares Dealer Concession
Total Sales Charge or Agency Commission
As Percentage As Percentage As Percentage
of Offering Price of Net Asset Value of Offering Price
<S> <C> <C> <C>
Less than $50,000.00 2.50% 2.56% 2.10%
$50,000 to 99,999.99 2.25% 2.30% 1.85%
$100,000 to 249,999.99 1.75% 1.78% 1.50%
$250,000 to 499,999.99 1.50% 1.52% 1.25%
$500,000 to 999,999.99 1.00% 1.01% 0.85%
$1,000,000 and up 0.00% 0.00% <F*>

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

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

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

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

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

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

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

<PAGE> 19
CHARITABLE ORGANIZATIONS OR FOUNDATIONS, including trusts established
for the benefit of charitable organizations or foundations, may
purchase shares of the Funds at no sales charge. TMC or TSC intend to
pay a commission of up to 1/2 of 1% to financial advisors who place
orders for these purchasers.

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 and TSC may pay a sales fee of up to 1/2 of 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 redemptions within one year of purchase.

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

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

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

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

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

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

<PAGE> 20
BUYING CLASS C SHARES

You can buy Class C shares at NAV but you will pay a contingent deferred
sales charge (CDSC) of 1/2 of 1% if you redeem your shares within one year of
purchase. The CDSC will be imposed upon the lower of the purchase price or
net asset value at redemption for each share redeemed. The CDSC is not
imposed upon shares you buy by reinvesting dividends or capital gain
distributions. Maximum purchase amount for Class C shares is less than $1
million. Class C shares are charged higher annual expenses than Class A
shares.

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

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

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

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

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

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

Complete and sign an account application and give it, along with your check,
to your financial advisor. You may also open your account by wire or mail as
described above. If there is no application accompanying this prospectus,
call 1-800-847-0200. If you buy shares by check and then redeem those
shares, the payment may be delayed for up to 15 business days to ensure that
your previous investment has cleared.

<PAGE> 21
STREET NAME OWNERSHIP OF SHARES

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

SELLING FUND SHARES

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

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

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

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

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

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

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

If you did not complete the telephone redemption section of your application,
you may add this feature to your account by calling the Fund for a telephone
redemption application. Once you receive it, please fill it out, have it
signature guaranteed and send it to: NFDS
c/o Thornburg Funds
P.O. Box 419017
Kansas City, MO 64141-6017

<PAGE> 22
The Funds, TSC, TMC and the Funds' Transfer Agent are not responsible for,
and will not be liable for, the authenticity of withdrawal instructions
received by telephone or the delivery or transmittal of the redemption
proceeds if they follow instructions communicated by telephone that they
reasonably believe to be genuine. By electing telephone redemption you are
giving up a measure of security you otherwise may have by redeeming shares
only with written instructions, and you may bear the risk of any losses
resulting from telephone redemption. The Funds' Transfer Agent will attempt
to implement reasonable procedures to prevent unauthorized transactions and
the Funds or their Transfer Agent could be liable if these procedures are not
employed. These procedures will include recording of telephone transactions,
providing written confirmation of such transactions within 5 days, and
requesting certain information to better confirm the identity
of the caller at the time of the transaction.

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

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

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

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

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

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

By Systematic Withdrawal All account types You must sign up for this
Plan feature to use it.
* Minimum Account Balance
$10,000
* Minimum Check $50.00
- ----------------------------------------------------------------------------
22

<PAGE> 23
INVESTOR SERVICES

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

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

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

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

INDIVIDUAL RETIREMENT ACCOUNTS AND RETIREMENT PLANS
Shares of the Funds may be purchased by retirement plans and in connection
with individual retirement plans ("IRA's"). The purchase of shares may be
limited by the governing instrument of any such plan. The minimum initial
investment imposed by the Funds in connection with an IRA is $2,000.

A standardized IRA is available through TSC for individuals wishing to open
an IRA. The cost to open an IRA under this program is $10, the annual fee is
$10 for each Fund purchased through the IRA and, 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.

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

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

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

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

Note that exchanges out of a Fund may have tax consequences for you. For
details on policies and restrictions governing exchanges, including
circumstances under which a shareholder's exchange privilege may be suspended
or revoked, see page 27.

<PAGE> 24
Systematic withdrawal plans let you set up periodic redemptions from your
account. Because of the sales charge on Class A shares of each Fund, you may
not want to set up a systematic withdrawal plan during a period when you are
buying Class A shares on a regular basis.

SHAREHOLDER AND ACCOUNT POLICIES

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

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

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

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

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

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

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

Shares of any Thornburg Fund purchased through reinvestment of dividend and
capital gain distributions are not subject to sales charges or contingent
deferred sales charges. No interest is accrued or paid on uncashed
distribution checks.

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

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

To minimize taxable capital gain distributions, each Fund will realize
capital losses, if available, when, in the judgment of the portfolio manager,
the integrity and income generating aspects of the portfolio would be
unaffected by doing so.
24

<PAGE> 25
TAXES

FEDERAL TAXES
The Funds have elected and intend to continue qualification as regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986
(the "Code"). Distributions representing net investment income and net
short-term capital gains will be taxable to the recipient shareholders as
ordinary income, whether the distributions are actually taken in cash or are
reinvested by the recipient shareholders in additional shares. Fund
distributions will not be eligible for the dividends-received deduction for
corporations. Distributions of net long-term capital gains, if any, will be
treated as long-term capital gains to the distributee shareholders,
regardless of the length of time the shareholder has owned the shares, and
whether received as cash or in additional shares.

Redemption or resale of shares by a shareholder will be a taxable transaction
for federal income tax purposes, and the shareholder will recognize a gain or
loss in an amount equal to the difference between the shareholder's basis in
the shares and the amount received on the redemption or resale. If the
shares sold or redeemed are a capital asset, the gain or loss will be a
capital gain or loss and will be long-term if the shares were held for more
than one year.

Each shareholder will be notified annually by the shareholder's Fund as to
the amount and characterization of distributions paid to or reinvested by the
shareholder for the preceding taxable year. A Fund may be required to
withhold federal income tax at a rate of 31% from distributions otherwise
payable to a shareholder if (i) the shareholder has failed to furnish that
Fund with his or her taxpayer identification number, (ii) that Fund is
notified that the shareholder's number is incorrect, (iii) the Internal
Revenue Service notifies that Fund that the shareholder has failed properly
to report certain income, or (iv) when required to do so, the shareholder
fails to certify under penalty of perjury that he is not subject to this
withholding.

The tax discussion set forth above is for general information only, and
relates primarily to tax consequences affecting individual shareholders.
Prospective investors, and particularly persons who are not individuals,
should consult their own tax advisers regarding the federal, state, local and
other tax consequences to investors of investment in the Funds.

SERVICE AND DISTRIBUTION PLANS
Service Plan. Each class of each Fund has adopted a Service Plan under which
TMC makes payments to securities dealers and other financial institutions and
organizations to obtain various shareholder related services. The Service
Plans applicable to the Funds permit each of these Funds to reimburse TMC for
these payments at annual rates up to .25% of each class's net assets.

No assets of any class of any Fund will be used to reimburse expenses
attributable to any other class of the same, or any other Fund.

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

<PAGE> 26
The Glass-Steagall Act prohibits certain banks from underwriting mutual fund
shares. The Funds do not believe that this prohibition will apply to the
commissions described beginning on page 16 or to the plans described above.
However, no assurance can be given that the Glass-Steagall Act will not be
interpreted so as to prohibit these arrangements. In that event, the ability
of the Funds to market their shares could be impaired to a small extent. In
addition, state securities laws on this issue may differ from
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law.

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

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

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

The Funds reserve the right to suspend the offering of shares for a period of
time. Each Fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions "
on page 27. Purchase orders may be refused if, in TMC's opinion, they would
disrupt management of a Fund.

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

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

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

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

<PAGE> 27
Each Fund may authorize certain securities brokers to accept on its behalf
purchase and redemption orders received in good form, and some of those
brokers may be authorized to designate other intermediaries to accept
purchase and redemption orders on the Fund's behalf. Provided the order is
promptly transmitted to the Fund, the Fund will be deemed to have received a
purchase or redemption order at the time it is accepted by such an
authorized broker or its designee, and customer orders will be priced based
upon the Fund's net asset value next computed after the order is accepted by
the authorized broker or its designee.

When you place an order to sell shares, your shares will be sold at the next
NAV calculated after your request is received in proper form. (Except that a
CDSC will be deducted from Class C shares purchased on or after October 2,
1995 and sold within one year of purchase, and a CDSC of 1/2 of 1% will be
deducted from redemptions of Class A shares within one year of purchase where
no sales charge was imposed on the purchase because it exceeded $1,000,000).
Note the following:

* Consult your financial advisor for procedures governing redemption through
his or her firm.
* If you redeem by mail the proceeds will normally be mailed to you on the
next business day, but if making immediate payment could adversely affect
your Fund, it may take up to 7 days to pay you.
* Telephone redemptions over the wire generally will be credited to your
bank account on the business day after your phone call.
* Each Fund may hold payment on redemptions until it is reasonably satisfied
that investments previously made by check have been collected, which can
take up to 15 business days.
* Redemptions may be suspended or payment dates postponed when the NYSE is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
* No interest or earnings will accrue or be paid on amounts represented by
uncashed distribution or redemption checks.
* To the extent consistent with state and federal law, a Fund may make
payments of the redemption price either in cash or in kind. The Funds have
elected to pay in cash all requests for redemption by any shareholder.
They may, however, limit such cash in respect to each shareholder during
any 90 day period to the lesser of $250,000 or 1% of the net asset value
of a Fund at the beginning of such period. This election has been made
pursuant to Rule 18f-1 under the Investment Company Act of 1940 and is
irrevocable while the Rule is in effect unless the Securities and Exchange
Commission, by order, permits its withdrawal. In the case of a redemption
in kind, securities delivered in payment for shares would be valued at the
same value assigned to them in computing the net asset value per share of
the Fund. A shareholder receiving such securities would incur brokerage
costs when selling the securities.

EXCHANGE RESTRICTIONS

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

<PAGE> 28
* Exchanges may have tax consequences for you.
* Because excessive trading can hurt performance and shareholders, each Fund
reserves the right to temporarily or permanently terminate the exchange
privilege of any investor who makes more than four exchanges out of a Fund
in any calendar year. Accounts under common ownership or control,
including accounts with the same taxpayer identification number, will be
counted together for purposes of the four exchange limit.
* Each Fund reserves the right to refuse exchange purchases by any person or
group if, in TMC's judgment,
the Fund would be unable to invest the money effectively in accordance
with its investment objective and policies, or would otherwise potentially
be adversely affected.
* Your exchanges may be restricted or refused if a Fund receives or
anticipates simultaneous orders affecting significant portions of the
Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to a Fund.

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

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

Current yield quotations will include a standardized calculation which
computes yield for a 30-day or one-month period by dividing a Fund's net
investment income per share during the period by the maximum offering price
on the last day of the period and annualizing the result. Provided that any
such quotation is also accompanied by the standardized calculation referred
to above, either of the Funds also may quote non-standardized yields for a
specified period by dividing the net investment income per share of that Fund
f or that period by either the Fund's average public offering price per share
for that same period or the offering price per share on the first or last day
of the period and annualizing the result. The primary differences between the
yield calculations obtained using the standardized performance measure and
any non-standardized performance measure will be caused by the following
factors: (1)The non-standardized calculation may cover periods other than the
30-day or one month period required by the standardize d calculation; (2)The
non-standardized calculations may reflect amortization of premium based upon
historical cost rather than market value; (3)The non-standardized calculation
may reflect the average offering price per share for the period or the
beginning offering price per share for the period, whereas the standardized
calculation will always reflect the maximum offering price per share on the
last day of the period; (4)The non-standardized calculation may reflect an
offering price per share other than the maximum offering price, provided
that any time any Fund's return is quoted in reports, sales literature or
advertisements using a public offering price which is less than the Fund's
maximum public offering price, the return computed by using the Fund's
maximum public offering price also will be quoted in the same piece; (5)The
non-standard return quotation may include the effective return obtained by
compounding the monthly dividends.

<PAGE> 29
Average annual total return quotations show the average annual percentage
change in value of $1,000 for one, five and ten-year periods unless the class
has been in existence for a shorter period. Average annual total return
includes the effect of paying the maximum sales charge (Class A shares) or
the deduction of the applicable CDSC (Class C shares) and assumes the
reinvestment of all dividends. The Funds also may furnish average annual
total return quotations for other periods, or based upon investments at
various sales charge levels or at net asset value. Total return quotations
show the total of all income and capital gain paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in the value of
the original investment, expressed as a percentage of the purchase price.

Yield and return information may be useful in reviewing the performance of
the Funds and for providing a basis for comparison with other investment
alternatives. Comparative information about the yield or distribution rate of
the shares of a Fund and a bout average rates of return on certificates of
deposit, bank money market deposit accounts, money market mutual funds and
other short-term investments may also be included in advertisements and
communications of the Fund. Any such comparison will contain information
about the differences between the Funds and those investments.

From time to time, in advertisements and other types of literature, the
performance of the Funds may be compared to other groups of mutual funds.
This comparative performance ma y be expressed as a ranking or a rating
prepared by Lipper Analytical Services, Inc., Donoghue Organization, Inc.,
Morningstar, Inc., Value Line or other widely recognized independent services
which monitor the performance of mutual funds. Performance rankings and
ratings reported periodically in national financial publications such as
MONEY Magazine, FORBES, BARRON's, VALUE LINE, the WALL STREET JOURNAL and
MORNINGSTAR, and other such publications may also be used. The Funds may
illustrate performance or the characteristics of their respective investment
portfolios through graphs, tabular data, or other displays which describe (i)
the average portfolio maturity of a Fund's portfolio securities relative to
the maturities of other investments, (ii) the relationship of yield and
maturity of the Fund to the yield and maturity of other investments (either
as a comparison or through use of standard benchmarks or indices such as the
Treasury yield curve), (iii) changes in the Funds' share price or net asset
value relative to changes in the value of other investments, and (iv) the
relationship over time of changes in the Funds' (or other investments) net
asset values or prices and the Funds' (or other investments') investment
returns. The Funds also may illustrate or refer to their respective
investment portfolios, investment techniques and strategies, and general
market or economic trends in advertising or communications to shareholders or
prospective shareholders, including reprints of interviews or articles
written by or about, and including comments by, Fund managers. These
illustrations, references and comments ordinarily will relate to
topics addressed in the Funds' Prospectus and Statements of Additional
Information.

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

<PAGE> 30
Each Fund may hold special shareholder meetings and mail proxy materials.
These meetings may be called to elect or remove Trustees, change fundamental
investment policies, or for other purposes. Shareholders not attending these
meetings are encouraged to vote by proxy. Each Fund will mail proxy materials
in advance, including a voting card and information about the proposals to be
voted on. The number of votes you are entitled to is based upon the number of
shares you own. Shares do not have cumulative voting rights or preemptive
rights.

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

For each of the Funds, TMC receives a management fee computed according to
the tables on the next page and paid monthly as a percentage of each Fund's
average daily assets.

Each Fund also pays to TMC an administrative services fee computed at an
annual rate of .125% of the average daily net assets of Class A and Class C
shares, payable monthly.

TMC was established in 1982. Today the Thornburg Funds include Thornburg
Limited Term Municipal Fund - National Portfolio, Thornburg Limited Term
Municipal Fund - California Portfolio, Thornburg Intermediate Municipal Fund,
Thornburg New Mexico Intermediate Municipal Fund, Thornburg New York
Intermediate Municipal Fund, Thornburg Florida Intermediate Municipal Fund
and Thornburg Value Fund, in addition to the Funds described in this
prospectus. The Thornburg Funds total more than $1.8 billion in assets.
Thornburg Management Company Inc. is known as a provider of conservative
investment products. For more than a decade the Thornburg Funds have been
committed to preserving and increasing the real wealth of their shareholders.
The key to growing real wealth is increasing buying power after taxes,
inflation, and investment related expenses.

Steven J. Bohlin, a Managing Director of TMC, has primary responsibility for
the day-to-day management of each of the Fund portfolios. He has held this
responsibility since 1988 for the Government Fund and since the inception of
the Income Fund in 1992. Mr. Bohlin is assisted by other employees of TMC in
managing the Funds.

TMC may, from time to time, agree to waive its fees or to reimburse any Fund
for expenses above a specified percentage of average daily net assets. TMC
retains the ability to be repaid by the Fund receiving these reimbursements
for these expense reimbursements if expenses fall below the limit prior to
the end of the fiscal year. Fee waivers or reimbursement of expenses to a
Fund will improve its performance, and repayment of waivers or reimbursements
will reduce its performance. In addition to TMC's fees, each Fund will pay
all other costs and expenses of its operations. Funds will not bear any
costs of sales or promotion incurred in connection with the distribution of
their shares, except as provided for under the service and distribution plans
applicable to each Fund class, as described above under "Service and
Distribution Plans."

<PAGE> 31
<TABLE>
INVESTMENT MANAGEMENT FEE RATES
<CAPTION>
- -----------
INCOME FUND
- -----------
NET ASSETS ANNUAL RATE
- ---------- -----------
<S> <C>
0 to $500 million .50%
$500 million to $1 billion .45%
$1 billion to $1.5 billion .40%
$1.5 billion to $2 billion .35%
Over $2 billion .275%
- ---------------
GOVERNMENT FUND
- ---------------
NET ASSETS ANNUAL RATE
- ---------- -----------
<S> <C>
0 to $1 billion .375%
$1 billion to $2 billion .325%
Over $2 billion .275%
</TABLE>
Thornburg Securities Corporation (TSC) distributes and markets the Thornburg
Funds.

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

Thornburg Funds provides shareholders account inquiry service 24 hours a day,
365 days a year, through its Audio Response telephone service. To reach
Thornburg Funds for general information, please call 1-800-847-0200. If you
would prefer to speak with a Thornburg Funds representative, please call
during business hours and follow the simple instructions you will receive.

ADDITIONAL INFORMATION

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

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

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

31
<PAGE>
Notes

<PAGE>
Notes

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

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

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

Custodian
State Street Bank & Trust Co.
Boston, Massachusetts

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

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

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

<PAGE>

THORNBURG
MUNICIPAL FUNDS

PROSPECTUS
February 1, 1998

NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE

<PAGE>
THORNBURG MUNICIPAL FUNDS
Prospectus
February 1, 1998

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

All of the Funds are managed by Thornburg Management Company, Inc. (TMC).
Each of the active Funds offers Class A shares through this Prospectus, which
are sold at net asset value plus an initial sales charge imposed at the time
of sale. Limited Term National Fund, Limited California Fund and
Intermediate National Fund also offer Class C shares through this Prospectus,
sold without an initial sales charge but subject to a sales charge if
redeemed within one year of purchase and an annual distribution fee. One or
more Funds may offer other classes of shares. See "Your Account-Buying Fund
Shares," beginning on page 15.

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

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

This Prospectus sets forth concisely the information a prospective investor
should know about the Funds before investing. It should be read and retained
for further reference. Additional information about the Limited Term Funds is
contained in a Statement of Additional Information - Thornburg Limited Term
Municipal Funds dated November 2, 1997, and additional information about the
Intermediate Funds is contained in a Statement of Additional Information -
Thornburg Intermediate Municipal Funds dated February 1, 1998. Each of these
Statements of Additional Information has been
filed with the Securities and Exchange Commission and may be obtained at no
charge by contacting Thornburg Securities Corporation, 119 East Marcy Street,
Suite 202, Santa Fe, New Mexico 87501, 800-847-0200. This Prospectus
incorporates by reference both Statements of Additional Information.

<PAGE>
LIMITED TERM MUNICIPAL FUNDS

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

INTERMEDIATE TERM MUNICIPAL FUNDS

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

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

<PAGE>
TABLE OF CONTENTS

1 Expense Information

4 Financial Highlights

8 Management Discussion of Fund Performance

12 Investment Objectives and Policies

16 Your Account - Buying Fund Shares

20 Selling Fund Shares

22 Investor Services, Transaction Services

23 Shareholder and Account Policies

24 Taxes

25 Service and Distribution Plans

26 Transaction Details

28 Exchange Restrictions

28 Performance

30 Organization of the Funds

30 Thornburg Management Company, Inc.
and Thornburg Securities Corporation

31 Additional Information

<PAGE>

NOTES

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

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

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

<TABLE>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets) Example: You would pay the following expenses on a $1,000 investment, assuming
the Fund's expense ratio remains the same, a 5% annual return, and redemption
at the end of each time period. The figures do not reflect the contingent
deferred sales charge of 1/2 of 1% imposed on redemption of any portion of a
purchase of Class A shares greater than $1 million within one year of purchase.
Thornburg Limited Term <CAPTION>
Municipal Fund -
National Portfolio Class A Class C One Year 3 Years 5 Years 10 Years
- ------------------ ------- ------- -------- ------- ------- --------
<S> <C> <C> <S> <C> <C> <C> <C>

Management Fees .45% .45% Class A $35 $55 $77 $140
12b-1 Fees (after fee waivers Class C $19 $44 $76 $166
for Class C) * .25% .63%
Other Expenses .26% .30% You would pay the following expenses on the same $1,000 investment, assuming
----- ----- no redemption at the end of each period:
Total Fund Operating Expenses .96% 1.38%
One Year 3 Years 5 Years 10 Years
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Class A $35 $55 $77 $140
Class C $14 $44 $76 $166

* Expenses reflect rounding. Amounts shown have been restated to
reflect current fees. Amounts shown for Class C shares of Limited
Term National Fund reflect a partial waiver of the Class C 12b-1
fee. Absent the waiver, the Class C 12b-1 fees would have been 1.00%
and the total Fund operating expenses would have been 1.86% for the
Class C shares. Long-term Class C shareholders may pay more than
the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.

<PAGE>
Example: You would pay the following expenses on a $1,000 investment, assuming
the Fund's expense ratio remains the same, a 5% annual return, and redemption
at the end of each time period. The figures do not reflect the contingent
deferred sales charge of 1/2 of 1% imposed on redemption of any portion of a
purchase of Class A shares greater than $1 million within one year of purchase.
Thornburg Limited Term <CAPTION>
Municipal Fund -
California Portfolio Class A Class C One Year 3 Years 5 Years 10 Years
- -------------------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <S> <C> <C> <C> <C>
Management Fees .50% .50% Class A $35 $56 $79 $144
12b-1 Fees (after fee waivers Class C $19 $44 $77 $168
for Class C) * .25% .63%
Other Expenses (after You would pay the following expenses on the same $1,000 investment, assuming
assumption of expenses for no redemption at the end of each period:
Class A and Class C) .25% .27%
----- ----- One Year 3 Years 5 Years 10 Years
Total Fund Operating Expenses 1.00% 1.40% -------- ------- ------- --------
<S> <C> <C> <C>
Class A $35 $56 $79 $144
Class C $14 $44 $77 $168

* Expenses reflect rounding. Amounts shown have been restated to
reflect current fees. Amounts shown for Class A of the
Limited Term California Fund reflect an assumption of certain Fund
operating expenses. Absent the assumption of expenses, other
expenses would have been .28% and total Fund operating expenses would
have been 1.03%. Amounts shown for Class C of the Limited Term
California Fund reflect a partial waiver of 12b-1 fees and assumption
of certain Fund operating expenses. Absent the waiver of 12b-1 fees
and assumption of expenses, 12b-1 fees and other expenses would have
been 1.00% and .65%, respectively, and total Fund operating expenses
would have been 2.15%. Long-term Class C shareholders may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.

Example: You would pay the following expenses on a $1,000 investment, assuming
the Fund's expense ratio remains the same, a 5% annual return, and redemption
at the end of each time period. The figures do not reflect the contingent
deferred sales charge of 1/2 of 1% imposed on redemption of any portion of a
purchase of Class A shares greater than $1 million within one year of purchase.
Thornburg Intermediate <CAPTION>
Municipal Fund Class A Class C One Year 3 Years 5 Years 10 Years
- ---------------------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <S> <C> <C> <C> <C>
Management Fees .50% .50% Class A $45 $66 $88 $153
12b-1 Fees (after fee waivers Class C $19 $44 $77 $168
for Class C) * .25% .60%
Other Expenses (after You would pay the following expenses on the same $1,000 investment, assuming
assumption of expenses for no redemption at the end of each period:
Class A and Class C) .25% .30%
----- ----- One Year 3 Years 5 Years 10 Years
Total Fund Operating Expenses 1.00% 1.40% -------- ------- ------- --------
<S> <C> <C> <C>
Class A $45 $66 $88 $153
Class C $14 $44 $77 $168

* Expenses reflect rounding. Amounts shown have been restated to
reflect current fees. Amounts shown for Class A of the Intermediate
National Fund reflect an assumption of certain Fund operating
expenses. Absent the assumption of expenses, other expenses would
have been .30% and total Fund operating expenses would have been
1.05%. Amounts shown for Class C of the Intermediate National Fund
reflect a partial waiver of Rule 12b-1 fees and assumption of certain
Fund operating expenses. Absent the waiver of 12b-1 fees and
assumption of expenses, 12b-1 fees and other expenses would have been
1.00% and .49%, respectively, and the total Fund operating expenses
would have been 1.99%. Long-term Class C shareholders may pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.

* Expenses reflect rounding. Amounts shown have been restated to reflect
current fees. Amounts shown for Class A of the Intermediate New Mexico
Fund reflect assumption of certain Fund operating expenses. Absent the
assumption of expenses, other expenses would have been .30%, and
total Fund operating expenses would have been 1.05%.

* Expenses reflect rounding. Amounts shown have been restated to
reflect current fees. Amounts shown for Class A of the Intermediate
Florida Fund reflect assumption of certain Fund operating expenses
Absent the assumption of expenses, other expenses would have been
.41% and total Fund operating expenses would have been 1.13%.

Management Fees .50% Class A $45 $65
12b-1 Fees .25%
Other Expenses (after .24%
assumption of expenses)* -----
Total Fund Operating Expenses .99%

* Expenses reflect rounding. Other expenses are estimated for the
current fiscal year and reflect an estimated assumption of a portion
of these expenses by TMC. Absent the assumption of expenses,
other expenses would have been .34%, and the total Fund operating
expenses would have been 1.09%. TMC's assumption of expenses may be
terminated or reduced at any time.

</TABLE>

EXPLANATION OF TABLES

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

<PAGE>
FINANCIAL HIGHLIGHTS

The tables on the following pages present, for each Fund shown, per share
income and capital changes for a share outstanding throughout each period
indicated. The information for the years ended June 30, 1989, 1990, 1991,
1992, 1993, 1994, 1995, 1996 and 1997 for the Limited Term National Fund and
the Limited Term California Fund, and the information for all of the years
presented for the Intermediate National Fund, Intermediate New Mexico Fund
and Intermediate Florida Fund, has been audited by McGladrey & Pullen, LLP,
independent auditors, whose reports thereon are incorporated by reference in
the registration statements for the respective Funds. The information should
be read in conjunction with the 1997 Annual Report for each Limited Term Fund
and the 1997 Annual Report for Intermediate National Fund, Intermediate New
Mexico Fund and Intermediate Florida Fund. No figures are shown for
Intermediate New York Fund, which commenced operations on September 5, 1997.

<TABLE> Ratio of Ratio of Ratio of
Expenses Expenses Net
Net Distri- to to Investment Net
Realized butions Distri- Average Average Income Assets
Net Asset and Total from butions Net Net Net (Loss) at end
Value, Unrealized from Net from Asset Assets Assets to of
Beginning Net Gain Investment Invest- Net Value, Total After Before Average Rate of Period
Fiscal Year of Investment (Loss) on Opera- ment Realized End of Return Exp. Exp. Net Portfolio ('000's
or Period Period Income Investments tions Income Gains Period <F(b)> Reductions Reductions Assets Turnover omitted)
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Limited Term
National Fund
- -------------
Class A
Year ended:
June 30, 1988 $12.69 $.84 $.06 $.90 $( .84) $12.75 7.37% (1.10)% (1.20)% 6.58% 66.00% $164,489
June 30, 1989 12.75 .85 .05 .90 ( .85) 12.80 7.29 (1.15) (1.15) 6.66 69.96 184,139
June 30, 1990 12.80 .86 (.06) .80 ( .86) 12.74 6.48 (1.11) (1.11) 6.73 67.51 217,325
June 30, 1991 12.74 .85 .09 .94 ( .85) 12.83 7.60 (1.07) (1.07) 6.58 32.36 312,882
June 30, 1992 12.83 .79 .26 1.05 ( .79) 13.09 8.40 (1.04) (1.04) 5.96 27.63 521,683
June 30, 1993 13.09 .68 .50 1.18 ( .68) 13.59 9.24 (1.01) (1.01) 5.03 19.30 895,500
June 30, 1994 13.59 .63 (.32) .31 ( .63) 13.27 2.25 (0.95) (0.95) 4.60 15.63 1,030,293
June 30, 1995 13.27 .64 .10 .74 ( .64) 13.37 5.76 (0.97) (0.97) 4.86 23.02 931,987
June 30, 1996 13.37 .63 (.02) .61 ( .63) 13.35 4.60 (0.97) (0.97) 4.66 20.60 917,831
June 30, 1997 13.35 .62 .09 .71 ( .62) 13.44 5.46 (0.96) (0.90) 4.65 23.39 837,621

Class C
9/1/94 <F(a)> $13.29 $ .46 $ .11 $ .57 $( .46) $13.40 4.25% (1.60)% (1.84)% 4.21% 23.02% $6,469
to 6/30/95 <F(c)> <F(c)> <F(c)>
Year ended
June 30, 1996 13.40 .57 (.03) .54 ( .57) 13.37 4.05 (1.41) (1.63) 4.22 20.60 15,948
June 30, 1997 13.37 .57 .09 .66 ( .57) 13.46 5.02 (1.38) (1.86) 4.24 23.39 19,475

Limited Term
California Fund
- ---------------
Class A
Year ended:
June 30, 1988 $12.01 $.78 $.07 $.85 $( .78) $12.08 7.10% (0.85)% (1.73)% 6.30% 29.00% $11,641
<F(c)> <F(c)> <F(c)>
June 30, 1989 12.08 .77 .07 .84 ( .77) 12.15 7.17 (1.00) (1.38) 6.27 58.80 12,794
June 30, 1990 12.15 .76 (.04) .72 ( .76) 12.11 6.15 (1.00) (1.22) 6.16 49.05 26,517
June 30, 1991 12.11 .75 .13 .88 ( .75) 12.24 7.45 (1.00) (1.20) 6.08 39.66 33,487
June 30, 1992 12.24 .72 .24 .96 ( .72) 12.48 8.10 (1.00) (1.10) 5.80 30.56 53,130
June 30, 1993 12.48 .65 .37 1.02 ( .65) 12.85 8.36 (1.00) (1.06) 5.07 20.81 81,874
June 30, 1994 12.85 .58 (.28) .30 ( .58) 12.57 2.37 (1.00) (1.03) 4.51 15.26 111,723
June 30, 1995 12.57 .58 .04 .62 ( .58) 12.61 5.12 (1.00) (1.04) 4.69 18.54 98,841
June 30, 1996 12.61 .58 .03 .61 ( .58) 12.64 4.94 (1.00) (1.05) 4.59 22.68 94,379
June 30, 1997 12.64 .57 .11 .68 ( .57) 12.75 5.47 (1.00) (1.03) 4.47 20.44 94,253

Class C
9/1/94 <F(a)> $12.55 $ .42 $ .07 $ .49 $( .42) $12.62 3.98% (1.63)% (3.21)% 4.07% 18.54% $790
to 6/30/95 <F(c)> <F(c)> <F(c)>
Year ended
June 30, 1996 12.62 .53 .03 .56 ( .53) 12.65 4.46 (1.43) (2.92) 4.16 22.68 2,444
June 30, 1997 12.65 .52 .11 .63 ( .52) 12.76 5.06 (1.40) (2.15) 4.06 20.44 5,882

<FN>
<F(a)> Commencement of operations.
<F(b)> Sales charges are not reflected in computing total return,
which is not annualized for periods less than one year.
<F(c)> Annualized.
4 5

<PAGE> Ratio of Ratio of Ratio of
Expenses Expenses Net
Net Distri- to to Investment Net
Realized butions Distri- Average Average Income Assets
Net Asset and Total from butions Net Net Net (Loss) at end
Value, Unrealized from Net from Asset Assets Assets to of
Beginning Net Gain Investment Invest- Net Value, Total After Before Average Rate of Period
Fiscal Year of Investment (Loss) on Opera- ment Realized End of Return Expense Expense Net Portfolio ('000's
or Period Period Income Investments tions Income Gains Period <F(b)> Reductions Reductions Assets Turnover omitted)
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate
National Fund
- -------------
Class A
7/23/91 <F(a)> $12.06 $ .16 $ .05 $ .21 $( .16) $12.11 1.77% (0.25)% (2.78)% 5.80% 3.40% $9,719
to 9/30/91 <F(c)> <F(c)> <F(c)>
Year ended:
Sept. 30, 1992 12.11 .78 .48 1.26 ( .78) 12.59 10.76 (0.48) (1.19) 6.15 46.15 81,428
Sept. 30, 1993 12.59 .71 .88 1.59 ( .71) 13.47 13.01 (0.70) (1.06) 5.37 14.29 182,319
Sept. 30, 1994 13.47 .67 (.72) (.05) ( .67) $( .02) 12.73 (.38) (0.95) (1.05) 5.23 27.37 207,718
Sept. 30, 1995 12.73 .68 .45 1.13 ( .68) 13.18 9.16 (1.00) (1.08) 5.31 32.20 227,881
Sept. 30, 1996 13.18 .68 .05 .73 ( .68) 13.23 5.64 (1.00) (1.09) 5.12 12.64 246,128
Sept. 30, 1997 13.23 .66 .23 .89 ( .66) 13.46 6.90 (1.00) (1.05) 4.96 15.36 309,293

Class C
9/1/94 <F(a)> $12.91 $ .05 $(.18) $(.13) $( .05) $12.73 (.97)% (1.76)% (1.76)% 4.51% 27.37% $139
to 9/30/94 <F(c)> <F(c)> <F(c)>
Year ended:
Sept. 30, 1995 12.73 .60 .47 1.07 ( .60) 13.20 8.60 (1.66) (2.35) 4.62 32.20 4,001
Sept. 30, 1996 13.20 .63 .04 .67 ( .63) 13.24 5.14 (1.40) (1.97) 4.73 12.64 7,586
Sept. 30, 1997 13.24 .61 .24 .85 ( .61) 13.48 6.55 (1.40) (1.99) 4.55 15.36 11,292

Intermediate
New Mexico Fund
- ---------------
Class A
6/21/91 <F(a)> $12.06 $ .23 $ .15 $ .38 $( .23) $12.21 3.18% (0.25)% (1.32)% 6.57% 49.67% $20,511
to 9/30/91 <F(c)> <F(c)> <F(c)>
Year ended:
Sept. 30, 1992 12.21 .74 .43 1.17 ( .74) 12.64 9.98 (0.42) (1.12) 5.76 32.15 71,034
Sept. 30, 1993 12.64 .65 .72 1.37 ( .65) $( .01) 13.36 10.96 (0.61) (1.01) 4.95 10.33 128,590
Sept. 30, 1994 13.36 .60 (.63) (.03) ( .60) 12.72 (.26) (0.90) (1.04) 4.58 6.87 143,910
Sept. 30, 1995 12.72 .60 .40 1.00 ( .60) 13.12 8.10 (1.00) (1.06) 4.71 17.06 136,742
Sept. 30, 1996 13.12 .63 (.03) .60 ( .63) 13.09 4.68 (1.00) (1.07) 4.81 10.88 131,307
Sept. 30, 1997 13.09 .64 .19 .83 ( .64) 13.28 6.51 (1.00) (1.05) 4.88 10.06 145,850

Intermediate
Florida Fund
- ------------
Class A
2/1/94 <F(a)> $12.06 $ .40 $(.52) $(.12) $( .40) $11.54 (0.95)% (0.25)% (1.95)% 5.09% 19.94% $8,076
to 9/30/94 <F(c)> <F(c)> <F(c)>
Year ended:
Sept. 30, 1995 11.54 .63 .29 .92 ( .63) 11.83 8.22 (0.38) (1.44) 5.41 89.60 14,822
Sept. 30, 1996 11.83 .57 .05 .62 ( .57) 11.88 5.37 (0.61) (1.34) 4.80 77.12 19,501
Sept. 30, 1997 11.88 .56 .26 .82 ( .56) 12.14 7.04 (0.83) (1.13) 4.65 51.48 24,663

<FN>
<F(a)> Commencement of operations.
<F(b)> Sales charges are not reflected in computing total return,
which is not annualized for periods less than one year.
<F(c)> Annualized.
</FN>
</TABLE>
6 7

<PAGE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE

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

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

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

Interest rates increased during most of 1996, but began decreasing in late
1996. In general, interest rates have continued, with some fluctuations, to
decline slightly over the first ten months of 1997. For example, the generic
30-year treasury bond started 1996 yielding 5.95%. Its yield went up by
1.24% to 7.19% by mid-year, before dropping back down to 6.65% at the end of
1996. After rising again to 7.20% on April 1, 1997, the yield on the generic
30-year bond again declined, closing at 6.40% on September 30, 1997.

In general, interest rate decreases in 1997 have led to higher bond prices
and falling bond yields. Five, ten and 30-year treasury bond prices have
increased by 0.72%, 2.00% and 4.31%, respectively, between October 1, 1996
and September 30, 1997. Municipal bond prices also increased over calendar
year 1997, with the Bond Buyer 40 Bond Index of long-term bonds rising by
3.75% over the same period of time. The net asset values of the Limited Term
National Fund and the Limited Term California Fund each increased by 1.01%
between July 1, 1996 and June 30, 1997, reflecting these influences. The net
asset values of the Intermediate Municipal Funds have similarly increased
between October 1, 1996 and September 30, 1997: Intermediate National Fund
increased 1.81%; Intermediate New Mexico Fund increased 1.45%, and
Intermediate Florida Fund increased 2.19%. While the net asset values of all
of the Funds rose over the periods described, the dividend yields of all but
the Intermediate Florida Fund declined slightly. If interest rates continue
to fall, the net asset values of all of the Funds should continue to rise,
but the dividend yields would be expected to decrease.

<PAGE>
LIMITED TERM NATIONAL FUND

Index Comparison

Compares performance of the Limited Term National Fund, the Lehman 5-Year
General Obligation Bond Index and the Consumer Price Index for the period
October 1, 1984 to June 30, 1997. On June 30, 1997, the weighted average
securities ratings of the Index and the Fund were AA and AA, respectively,
and the weighted average portfolio maturities of the Index and the Fund were
4.9 years and 3.5 years, respectively. Class C shares became available on
September 1, 1994. Past performance of the Index and the Fund may not be
indicative of future performance.

<TABLE> <This appears as a graph in the prospectus.>
Class A Shares
<CAPTION>
FUND Lehman CPI
A Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
9/84 $ 9,746 $10,000 $10,000
12/84 9,928 10,448 10,151
3/85 10,232 10,852 10,283
6/85 10,677 11,400 10,355
9/85 10,747 11,355 10,417
12/85 11,226 11,741 10,564
3/86 11,739 12,628 10,522
6/86 11,842 12,636 10,553
9/86 12,177 13,103 10,616
12/86 12,471 13,447 10,702
3/87 12,741 13,755 10,852
6/87 12,656 13,629 10,983
9/87 12,683 13,347 11,104
12/87 12,988 13,857 11,204
3/88 13,402 14,289 11,294
6/88 13,589 14,350 11,430
9/88 13,838 14,514 11,545
12/88 14,013 14,601 11,649
3/89 14,168 14,559 11,789
6/89 14,580 15,244 11,955
9/89 14,783 15,421 12,027
12/89 15,105 15,881 12,172
3/90 15,239 15,959 12,404
6/90 15,524 16,316 12,529
9/90 15,715 16,488 12,781
12/90 16,085 17,034 12,948
3/91 16,400 17,402 13,026
6/91 16,704 17,706 13,117
9/91 17,073 18,336 13,222
12/91 17,470 18,952 13,355
3/92 17,628 18,904 13,435
6/92 18,107 19,519 13,543
9/92 18,509 20,010 13,624
12/92 18,822 20,328 13,747
3/93 19,341 20,808 13,858
6/93 19,780 21,298 13,941
9/93 20,264 21,761 14,011
12/93 20,481 22,028 14,123
3/94 20,050 21,332 14,208
6/94 20,225 21,619 14,293
9/94 30,324 21,784 14,408
12/94 20,178 21,713 14,466
3/95 20,896 22,592 14,582
6/95 21,390 23,168 14,713
9/95 21,755 23,801 14,772
12/95 22,190 24,251 14,251
3/96 22,232 24,327 15,010
6/96 22,374 24,433 15,131
9/96 22,703 24,909 15,237
12/96 23,070 25,452 15,374
3/97 23,150 25,411 15,451
6/97 23,595 26,044 15,498
</TABLE>

Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 6/30/97): 2.84%
Five Years: 4.90%
Ten Years: 6.15%
From Inception (9/28/84): 6.96%

<TABLE> <This appears as a graph in the prospectus.>
Class C Shares
<CAPTION>
FUND Lehman CPI
C Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
8/94 $10,000 $10,000 $10,000
9/94 9,952 9,925 10,020
10/94 9,894 9,869 10,030
11/94 9,792 9,806 10,040
12/94 9,858 9,893 10,060
1/95 9,969 9,988 10,090
2/95 10,120 10,132 10,110
3/95 10,193 10,293 10,141
4/95 10,245 10,321 10,171
5/95 10,405 10,547 10,201
6/95 10,425 10,556 10,232
7/95 10,483 10,703 10,243
8/95 10,550 10,812 10,263
9/95 10,586 10,844 10,273
10/95 10,663 10,890 10,304
11/95 10,740 10,989 10,314
12/95 10,786 11,049 10,335
1/96 10,848 11,181 10,376
2/96 10,838 11,143 10,397
3/96 10,788 11,084 10,439
4/96 10,786 11,067 10,481
5/96 10,808 11,054 10,512
6/96 10,847 11,132 10,522
7/96 10,910 11,206 10,554
8/96 10,932 11,222 10,565
9/96 11,004 11,307 10,596
10/96 11,067 11,412 10,628
11/96 11,163 11,570 10,660
12/96 11,161 11,553 10,692
1/97 11,192 11,584 10,703
2/97 11,257 11,667 10,735
3/97 11,197 11,535 10,746
4/97 11,228 11,592 10,756
5/97 11,309 11,719 10,778
6/97 11,391 11,822 10,778
</TABLE>

Average Annual Total Returns
C Shares One Year (12 mos. ended 6/30/97): 5.02%
From Inception (9/1/94): 4.71%
9

<PAGE>
LIMITED TERM CALIFORNIA FUND

Index Comparison

Compares performance of the Limited Term California Fund, the Lehman 5-Year
General Obligation Bond Index and the Consumer Price Index for the period
February 28, 1987 to June 30, 1997. On June 30, 1997, the weighted average
securities ratings of the Index and the Fund were AA and AA, respectively,
and the weighted average portfolio maturities of the Index and the Fund were
4.9 years and 3.9 years, respectively. Class C shares became available on
September 1, 1994. Past performance of the Index and the Fund may not be
indicative of future performance.

Class A Shares Class C Shares
<CAPTION>
FUND Lehman CPI FUND Lehman CPI
A Shares Government C Shares Government
-------- ---------- ------- -------- ---------- -------
<S> <C> <C> <C> <S> <C> <C> <C>
1/87 $ 9,750 $10,000 $10,000 8/94 $10,000 $10,000 $10,000
3/87 9,786 10,034 10,080 9/94 9,950 9,925 10,020
6/87 9,857 9,942 10,202 10/94 9,887 9,869 10,030
9/87 9,924 9,737 10,314 11/94 9,792 9,806 10,040
12/87 10,100 10,108 10,407 12/94 9,818 9,893 10,060
3/88 10,375 10,424 10,491 1/95 9,926 9,988 10,090
6/88 10,557 10,469 10,617 2/95 10,099 10,132 10,110
9/88 10,733 10,588 10,724 3/95 10,164 10,293 10,141
12/88 10,885 10,651 10,820 4/95 10,231 10,321 10,171
3/89 10,994 10,620 10,951 5/95 10,380 10,547 10,202
6/89 11,313 11,121 11,105 6/95 10,398 10,556 10,232
9/89 11,469 11,249 11,172 7/95 10,441 10,703 10,243
12/89 11,704 11,585 11,306 8/95 10,509 10,812 10,263
3/90 11,814 11,642 11,522 9/95 10,561 10,844 10,273
6/90 12,009 11,902 11,638 10/95 10,640 10,890 10,304
9/90 12,140 12,028 11,872 11/95 10,719 10,989 10,314
12/90 12,496 12,426 12,027 12/95 10,756 11,049 10,335
3/91 12,707 12,694 12,099 1/96 10,833 11,181 10,376
6/91 12,904 12,916 12,184 2/96 10,828 11,143 10,397
9/91 13,121 13,376 12,282 3/96 10,781 11,084 10,439
12/91 13,436 13,825 13,405 4/96 10,793 11,067 10,481
3/92 13,566 17,790 12,480 5/96 10,805 11,054 10,512
6/92 13,950 14,239 12,580 6/96 10,861 11,132 10,522
9/92 14,261 14,597 12,655 7/96 10,925 11,206 10,554
12/92 14,448 14,829 12,770 8/96 10,953 11,222 10,565
3/93 14,813 15,179 12,872 9/96 11,017 11,307 10,596
6/93 15,116 15,537 12,949 10/96 11,089 11,412 10,628
9/93 15,437 15,874 13,014 11/96 11,189 11,570 10,660
12/93 15,634 16,069 13,119 12/96 11,174 11,553 10,692
3/94 15,308 15,562 13,197 1/97 11,195 11,584 10,703
6/94 15,474 15,771 13,277 2/97 11,260 11,667 10,735
9/94 15,495 15,891 13,383 3/97 11,200 11,535 10,746
12/94 15,300 15,839 13,437 4/97 11,228 11,592 10,756
3/95 15,877 16,481 13,545 5/97 11,328 11,719 10,767
6/95 16,266 16,901 13,667 6/97 11,410 11,822 10,778
9/95 16,549 17,363 13,722
12/95 16,871 17,691 13,804 Average Annual Total Returns
3/96 16,927 17,746 13,943 C Shares One Year (12 mos. ended
6/96 17,670 17,824 14,054 6/30/97): 4.56%
9/96 17,332 18,171 14,153 From Inception (9/1/94): 4.77%
12/96 17,597 18,567 14,281
3/97 17,655 18,537 14,352
6/97 18,004 18,999 14,395

Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 6/30/97): 2.87%
Five Years: 4.70%
Ten Years: 5.94%
From Inception (2/19/87): 5.84%
</TABLE>

INTERMEDIATE NATIONAL FUND

Index Comparison

Compares performance of the Intermediate National Fund, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, July 23, 1991
to September 30, 1997. On September 30, 1997, the weighted average securities
ratings of the Index and the Fund were AA and A+, respectively, and the
weighted average portfolio maturities of the Index and the Fund were 9.5
years and 7.3 years, respectively. Class C shares became available on
September 1, 1994. Past performance of the Index and the Fund may not be
indicative of future performance.

<TABLE> <appears as two graphs side-by-side in the prospectus>
Class A Shares Class C Shares
<CAPTION>
FUND ML Muni CPI FUND ML Muni CPI
A Shares 7-12 Yrs. C Shares 7-12 Yrs.
-------- --------- ------- -------- --------- --------
<S> <C> <C> <C> <S> <C> <C> <C>
6/91 $ 9,648 $10,000 $10,000 8/94 $10,000 $10,000 $10,000
9/91 9,819 10,428 10,080 9/94 9,903 9,848 10,020
12/91 10,099 10,647 10,181 12/94 9,813 9,785 10,060
3/92 10,207 10,593 10,243 3/95 10,286 10,291 10,141
6/92 10,586 10,982 10,325 6/95 10,530 10,671 10,232
9/92 10,876 11,220 10,387 9/95 10,754 10,862 10,273
12/92 11,090 11,440 10,480 12/95 11,052 11,247 10,335
3/93 11,496 11,834 10,565 3/96 11,000 11,251 10,439
6/93 11,847 12,164 10,628 6/96 11,082 11,290 10,522
9/93 12,291 12,456 10,681 9/96 11,307 11,523 10,596
12/93 12,453 12,682 10,767 12/96 11,499 11,814 10,692
3/94 12,039 12,114 10,832 3/97 11,528 11,787 10,746
6/94 12,160 12,187 10,897 6/97 11,803 12,179 10,778
9/94 12,244 12,306 10,984 9/97 12,048 12,550 10,843
12/94 12,145 12,227 11,028
3/95 12,742 12,860 11,117
6/95 13,066 13,334 11,217
9/95 13,365 13,573 11,262
12/95 13,751 14,054 11,330 Average Annual Total Returns
3/96 13,699 14,059 11,443 C Shares One Year (12 mos. ended
6/96 13,814 14,107 11,535 9/30/97): 5.95%
9/96 14,120 14,398 11,616 From Inception (9/1/94): 6.23%
12/96 14,363 14,762 11,721
3/97 14,413 14,729 11,779
6/97 14,772 15,218 11,815
9/97 15,094 15,682 11,886

Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 9/30/97): 3.16%
5 Years: 6.01%
From Inception (7/23/91): 6.87%
</TABLE>

<PAGE>
INTERMEDIATE NEW MEXICO FUND

Index Comparison

Compares performance of the Intermediate New Mexico Fund, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, June 18, 1991
to September 30, 1997. On September 30, 1997, the weighted average securities
ratings of the Index and the Fund were AA and AA, respectively, and the
weighted average portfolio maturities of the Index and the Fund were 9.5
years and 6.9 years, respectively. Past performance of the Index and the Fund
may not be indicative of future performance.

<TABLE> <This appears as a graph in the prospectus.>
FUND ML Muni CPI
A Shares 7-12 Yrs.
-------- --------- ---------
<S> <C> <C> <C>
5/91 $ 9,650 $10,000 $10,000
9/91 9,957 10,375 10,100
12/91 10,260 10,593 10,202
3/92 10,329 10,539 10,263
6/92 10,686 10,926 10,345
9/92 10,950 11,162 10,408
12/92 11,145 11,381 10,501
3/93 11,490 11,773 10,586
6/93 11,789 12,102 10,649
9/93 12,150 12,392 10,703
12/93 12,294 12,617 10,788
3/94 11,936 12,052 10,853
6/94 12,012 12,125 10,919
9/94 12,119 12,243 11,006
12/94 12,059 12,164 11,050
3/95 12,593 12,794 11,139
6/95 12,859 13,267 11,239
9/95 13,100 13,504 11,284
12/95 13,404 13,982 11,352
3/96 13,358 13,987 11,466
6/96 13,450 14,035 11,558
9/96 13,713 14,325 11,639
12/96 13,967 14,687 11,744
3/97 14,012 14,653 11,803
6/97 14,305 15,141 11,838
9/97 14,606 15,602 11,910
</TABLE>

Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 9/30/97): 2.82%
5 Years: 5.18%
From Inception (6/21/91): 6.21%

INTERMEDIATE FLORIDA FUND

Index Comparison

Compares performance of Intermediate Florida Fund, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, February 1,
1994 to September 30, 1997. On September 30, 1997, the weighted average
securities ratings of the Index and the Fund were AA and AA+, respectively,
and the weighted average portfolio maturities of the Index and the Fund were
9.5 years and 6.8 years, respectively. Past performance of the Index and the
Fund may not be indicative of future performance.

<TABLE> <This appears as a graph in the prospectus.>
FUND ML Muni CPI
A Shares 7-12 Yrs.
-------- --------- ---------
<S> <C> <C> <C>
1/94 $ 9,648 $10,000 $10,000
2/94 9,568 9,726 10,030
3/94 9,350 9,466 10,060
6/94 9,481 9,524 10,121
9/94 9,557 9,617 10,202
12/94 9,492 9,555 10,243
3/95 9,936 10,049 10,325
6/95 10,148 10,420 10,418
9/95 10,342 10,607 10,460
12/95 10,595 10,982 10,523
3/96 10,607 10,987 10,628
6/96 10,716 11,024 10,713
9/96 10,897 11,252 10,789
12/96 11,090 11,536 10,886
3/97 11,153 11,510 10,940
6/97 11,387 11,892 10,973
9/97 11,665 12,255 11,039
</TABLE>

Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 9/30/97): 3.30%
From Inception (2/01/94): 4.29%

<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

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

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

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

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

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

MUNICIPAL OBLIGATIONS

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

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

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

VARIABLE RATE SECURITIES; INVERSE FLOATERS; AND DEMAND INSTRUMENTS

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

<PAGE>
MUNICIPAL LEASES

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

SECURITIES RATINGS AND CREDIT QUALITY

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

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

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

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

WHEN-ISSUED TRANSACTIONS

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

INVESTMENT RESTRICTIONS

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

SPECIAL CONSIDERATIONS AFFECTING SINGLE-STATE FUNDS

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

Local economic factors could have varying effects on the obligations owned by
each single state Fund. In particular, economic developments in California,
though improving, could impair the ability of certain California state and
municipal issuers to pay their obligations in some situations. Taxpayer
initiatives, weakness in tax collections and reallocation of certain
revenues previously available to county and local governments could reduce
the revenues available to some California issuers. Lower taxes available in
some New Mexico locales, and reductions in staffing at research and military
facilities at Los Alamos, White Sands and Albuquerque could adversely affect
the ability of nearby municipalities to meet their obligations. Florida has
experienced rapid economic growth. While the economy has broadened, this
growth has brought pressure for more infrastructure, educational facilities,
and other improvements. Although recent state budgets have been balanced,
over-dependence on the sensitive sales tax creates vulnerability to recession
and to slower growth in the tax base in the future. Also, health care,
educational and correctional program cost increases could impose future
financial and budgetary pressures on the state, and recent law changes may
restrict future tax increases. New York State has a diverse economy, growing
personal income, and strength in consumer spending and tourism, but has not
participated uniformly with other regions in the national economic recovery
of 1991 through 1997. Although employment growth is weak, growth in personal
income has resulted in some increase in government revenues. The state,
however, has not taken advantage of revenue increases to reduce the state's
substantial accumulated deficits and establish reserves. Consequently the
financial stability and credit of the state and many of its agencies and
political subdivisions could be vulnerable to consumer spending reductions,
national economic weakness or changes in federally mandated programs. The
state's chronic budget difficulties, while helped recently by some spending
reductions, also may be aggravated by tax cuts unless further spending
reductions are implemented or the state's economy improves.

<PAGE>
YOUR ACCOUNT -
BUYING FUND SHARES IN GENERAL

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

Class A shares are sold subject to a sales charge which is deducted at
the time you purchase your shares. TSC deducts the Class A sales charge
shown in the table on page 17 and invests the balance of your investment at
net asset value. This class also pays a service fee. Class C shares are sold
at net asset value, subject to payment of a sales charge if redeemed within
one year of purchase. Class C shares also pay both a service and a
distribution fee. The various service or service and distribution fees are
Fund expenses which are deducted from each class's annual income. If you do
not specify a class of shares in your order, your money will be invested in
Class A shares of the Fund you purchase.

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

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

NET ASSET VALUE

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

BUYING CLASS A SHARES

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

<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>
Limited Term Municipal Funds
- ----------------------------
Less than $50,000.00 2.50% 2.56% 2.10%
$50,000 to 99,999.99 2.25% 2.30% 1.85%
$100,000 to 249,999.99 1.75% 1.78% 1.50%
$250,000 to 499,999.99 1.50% 1.52% 1.25%
$500,000 to 999,999.99 1.00% 1.01% .85%
$1,000,000 and up 0.00% 0.00% *

Intermediate Municipal Funds
- ----------------------------
Less than $50,000.00 3.50% 3.63% 3.00%
$50,000 to 99,999.99 3.00% 3.09% 2.75%
$100,000 to 249,999.99 2.50% 2.56% 2.25%
$250,000 to 499,999.99 2.00% 2.04% 1.75%
$500,000 to 999,999.99 1.50% 1.52% 1.25%
$1,000,000 and up 0.00% 0.00% *

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

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

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

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

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

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

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

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

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

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

<PAGE>
BUYING CLASS C SHARES

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

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

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

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

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

<PAGE>
STREET NAME OWNERSHIP OF SHARES

SELLING FUND SHARES

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

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

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

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

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

* The dollar amount or
number of shares to be
redeemed,
* Any other applicable
requirements listed
above,
* Signature guarantee, if
required.

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

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

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

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

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

<PAGE>
INVESTOR SERVICES

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

Information Services

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

TRANSACTION SERVICES

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

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

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

<PAGE>
SHAREHOLDER AND ACCOUNT POLICIES

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

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

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

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

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

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

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

Turnover and Capital Gains

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

<PAGE>
TAXES

Federal Taxes

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

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

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

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

<PAGE>
State Taxes

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

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

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

SERVICE AND DISTRIBUTION PLANS

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

Class C Distribution Plan. Each Fund offering Class C shares has adopted a
Class C Distribution Plan applicable to its Class C shares, under which the
Fund will pay to TSC on a monthly basis an annual distribution fee of up to
.75% of the average daily net assets attributable to Class C shares of the
Fund. This distribution fee is an addition to the service fee described above
under "Service Plan - Class A and Class C" and is charged to and

<PAGE>
reduces the income allocated to Class C shares. TSC intends to use these
amounts principally to compensate dealers (including banks) who sell Class C
shares. TSC also will engage in other distribution related activities,
including advertising and other promotional activities. However, the
distribution fee paid to TSC is not computed with respect to TSC's actual
expenses, and the fees received by TSC may be more or less than its actual
distribution expenses. TSC may, but is not obligated to, waive any part or
all of its compensation provided for under the Class C Distribution Plan.

The Glass-Steagall Act prohibits certain banks from underwriting mutual fund
shares. The Funds do not believe that this prohibition will apply to the
commissions described beginning on page 17 or to the plans described above.
However, no assurance can be given that the Glass-Steagall Act will not be
interpreted so as to prohibit these arrangements. In that event, the ability
of the Funds to market their shares could be impaired to a small extent. In
addition, state securities laws on this issue may differ from interpretations
of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law.

TRANSACTION DETAILS

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

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

The Funds reserve the right to suspend the offering of shares for a period of
time. Each Fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions "
on page 28. Purchase orders may be refused if, in TMC's opinion, they would
disrupt management of a Fund.

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

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

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

Each Fund may authorize certain securities brokers to accept on its behalf
purchase and redemption orders received in good form, and some of those
brokers may be authorized to designate other intermediaries to accept
purchase and redemption orders on the Fund's behalf. Provided the order is
promptly transmitted to the Fund, the Fund will be deemed to have received a
purchase or redemption order at the time it is accepted by such an
authorized broker or its designee, and customer orders will be priced based
upon the Fund's net asset value next computed after the order is accepted by
the authorized broker or its designee.

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

* Consult your financial advisor for procedures governing redemption
through his or her firm.
* If you redeem by mail the proceeds will normally be mailed to you on the
next business day, but if making immediate payment could adversely affect
your Fund, it may take up to 7 days to pay you.
* Telephone redemptions over the wire generally will be credited to your
bank account on the business day after your phone call.
* Each Fund may hold payment on redemptions until it is reasonably
satisfied that investments previously made by check have been collected,
which can take up to 15 business days.
* Redemptions may be suspended or payment dates postponed when the NYSE is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
* No interest or earnings will accrue or be paid on amounts represented by
uncashed distribution or redemption checks.
* To the extent consistent with state and federal law, a Fund may make
payments of the redemption price either in cash or in kind. The Funds
have elected to pay in cash all requests for redemption by any
shareholder. They may, however, limit such cash in respect to each
shareholder during any 90 day period to the lesser of $250,000 or 1% of
the net asset value of a Fund at the beginning of such period. This
election has been made pursuant to Rule 18f-1 under the Investment
Company Act of 1940 and is irrevocable while the Rule is in effect unless
the Securities and Exchange Commission, by order, permits its withdrawal.
In the case of a redemption in kind, securities delivered in payment for
shares would be valued at the same value assigned to them in computing
the net asset value per share of the Fund. A shareholder receiving such
securities would incur brokerage costs when selling the securities.
27
<PAGE>
EXCHANGE RESTRICTIONS

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

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

PERFORMANCE

YIELD COMPUTATION AND TOTAL RETURN

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

<PAGE>
one month period required by the standardized calculation; (4) The
non-standardized calculation may reflect the an offering price per share
other than the maximum offering price, provided that any time any Fund's
return is quoted in reports, sales literature or advertisements using a
public offering price which is less than the Fund's maximum public offering
price, the return computed by using the Fund's maximum public offering price
also will be quoted in the same piece; (5) The non-standard return quotation
may include the effective return obtained by compounding the monthly
dividends.

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

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

<PAGE>
communications to shareholders or prospective shareholders, including
reprints of interviews or articles written by or about, and including
comments by, Fund managers. These illustrations, references and comments
ordinarily will relate to topics addressed in the Funds' Prospectus and
Statements of Additional Information.

ORGANIZATION OF THE FUNDS

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

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

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

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

THORNBURG MANAGEMENT COMPANY, INC. AND THORNBURG SECURITIES CORP.

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

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

<PAGE>
<TABLE>
Limited Term Intermediate Term All Funds
Municipal Funds Municipal Funds Annual
Net Assets Annual Investment Annual Investment Administrative
Management Fee Management Fee Fee
- ---------- ----------------- ----------------- --------------
<S> <C> <C> <C>
0 to $500 million .50% .50% .125%
$500 million to $1 billion .40% .45% .125%
$1 billion to $1.5 billion .30% .40% .125%
$1.5 billion to $2 billion .25% .35% .125%
Over $2 billion .225% .275% .125%
</TABLE>

TMC was established in 1982. Today, the Thornburg Funds include Thornburg
Value Fund, Thornburg Limited Term U.S. Government Fund and Thornburg Limited
Term Income Fund in addition to the Funds covered by this Prospectus. The
Thornburg Funds total over $1.8 billion in assets. Thornburg Management
Company Inc. is known as a provider of conservative investment products. For
more than a decade the Thornburg Funds have been committed to preserving and
increasing the real wealth of their shareholders. The key to growing real
wealth is increasing buying power after taxes, inflation, and investment
related expenses.

Brian J. McMahon and George Strickland, both of whom are managing directors
of TMC, have primary responsibilities for the day-to-day management of each
of the Fund portfolios. Mr. McMahon has managed municipal bond portfolios
for TMC since 1984 and Mr. Strickland has performed municipal bond credit
analysis and management since joining TMC in 1991. Mr. McMahon and Mr.
Strickland are assisted by other employees of TMC in managing the Funds.

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

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

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

ADDITIONAL INFORMATION

<PAGE>
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

<logo>
Thornburg Funds
Investing With Integrity
Thornburg Securities Corporation, Distributor
119 East Marcy Street, Santa Fe, New Mexico 87501
(800) 847-0200
www.thornburg.com email: [email protected]

THORNBURG
VALUE FUND

Prospectus
February 1, 1998

<PAGE>
THORNBURG VALUE FUND
- ---------------------------------------------------------------------------
Prospectus, February 1, 1998
- ---------------------------------------------------------------------------

Thornburg Value Fund seeks long-term capital appreciation by investing in a
portfolio of securities selected on a value basis. Please read this
prospectus before investing, and keep it on file for future reference. It
contains important information, including how the Fund invests and the
services available to shareholders.

To learn more about the Fund and its investments, you can obtain a copy of
the Fund's Statement of Additional Information (SAI) dated February 1, 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>
CONTENTS

Key Facts
1 The Fund at a Glance
2 Expense Information
4 Financial Highlights
4 Management Discussion of Fund Performance
5 Prior Performance of the Investment Advisor

The Fund in Detail
6 Organization of the Fund
6 TMC and TSC
7 Investment Principles
8 Securities and Investment Practices and Risks
11 Breakdown of Expenses

Your Account
12 Buying Fund Shares
13 Description of Classes of Shares
15 Opening an Account
16 Selling Fund Shares
18 Investor Services
19 Dividends, Capital Gains, and Taxes

Shareholder and Account Policies
20 Service and Distribution Plans
21 Transaction Details
22 Exchange Restrictions
23 Calculation of Performance
24 Additional Information

<PAGE>
Notes

<PAGE>
KEY FACTS

THE FUND AT A GLANCE

Goal Long-term capital appreciation. As with any mutual fund, there is no
assurance that the Fund will achieve its goal.

Strategy Invest mainly in domestic equity securities selected on a value
basis using traditional and additional fundamental research and valuation
methods. To a lesser extent, the Fund may also invest in preferred stocks,
domestic debt securities and foreign equity and debt securities.

Management The business and affairs of the Fund are managed by Thornburg
Management Company, Inc. (TMC) under the direction of the Fund's Trustees.
TMC was established in 1982 and currently manages $1.8 billion in mutual fund
assets.

Who May Want to Invest. The Fund may be appropriate for investors who are
willing to ride out stock market fluctuations in pursuit of potentially high
long-term returns. The Fund is designed for those who seek capital
appreciation from a conservative style of investing in equities and, when
appropriate, some fixed income securities. The Fund is not in itself a
balanced investment plan, and investors should consider their long-term
investment goals and financial needs when making an investment decision with
respect to the Fund.

The value of the 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 the 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.

Shareholder transaction expenses are charges you pay when you buy or sell
shares of the Fund; for example, the 4.5% maximum sales charge on purchases
of the 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 the 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.

THE ROLE OF FINANCIAL ADVISORS

The Fund is 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 10-13 and page 19 for a full discussion of sales charges and exceptions
for the Fund.)

<PAGE>
<TABLE>
______________________________________________________________________
SHAREHOLDER TRANSACTION EXPENSES

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%<FN*> 1.0%<FN**>
sales charge (CDSC) on redemptions
(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 FUND OPERATING EXPENSES are paid out of the Fund's assets. The Fund
pays a management fee and administrative services fees to TMC. It also incurs
other expenses for services such as maintaining shareholder records and
furnishing shareholder statements and financial reports. The Fund's expenses
are factored into its share price or dividends and are not charged directly
to shareholder accounts. The following are projections based on estimated
future expenses, and are calculated as a percentage of average net assets.

<TABLE>
___________________________________________________________________________
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<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.
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
_____________________________________________________________________________
2

<PAGE>
EXAMPLES OF EXPENSES
<TABLE>
Examples:
Assuming the 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 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.
<CAPTION>
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 $61 $91 $125 $219
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.

<PAGE>
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 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

<PAGE>
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.

<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: 31.56% Since inception: 33.60%

PRIOR PERFORMANCE OF INVESTMENT ADVISER

The graph at the top of the next page shows the performance data for TMC's
Private Investment Account for the period November 1, 1990 to August 25,
1995, which preceded the 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 evaluating TMC as an investment adviser.

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 the Fund. This was the only such account managed by TMC.
The performance of the account has been adjusted downward to 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.
The current expense ratios for Class A and Class C Shares 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 the 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 the Value Fund. Investors should not consider this performance data as an
indication of future performance of the Fund.

<PAGE>
TMC Private Investmetn 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 B 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 B Expenses 25.06%

S&P 500*: 16.67%

THE FUND IN DETAIL

ORGANIZATION OF THE FUND

Thornburg Value Fund is a mutual fund: an investment that pools shareholders'
money and invests it toward a specified goal. The Fund is a diversified
series of Thornburg Investment Trust, a Massachusetts business trust
organized as a diversified, open-end investment company.

The Fund is governed by its Trustees, who are responsible for supervising the
business and affairs of the Fund. The Trustees are individuals experienced in
business who meet throughout the year to oversee the Fund's activities,
review contractual arrangements with companies that provide services to the
Fund, and review performance. The majority of Trustees are not otherwise
affiliated with Thornburg Management Company, Inc. (TMC) or Thornburg
Securities Corporation (TSC).

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

TMC and TSC

The Fund is managed by TMC, which chooses the Fund's investments and handles
its business affairs. TMC performs investment management services for the
Fund under the terms of an Investment Advisory Agreement which specifies that
TMC will select investments for the Fund, monitor those investments and the
markets generally, and perform related services. TMC also performs
administrative services specific to 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 10 for a discussion of the
fees paid to TMC.

<PAGE>
TMC was established in 1982. Today, the Thornburg Funds include eight fixed
income mutual funds, in addition to Thornburg Value Fund, with over $1.8
billion in assets. TMC is known as a provider of conservative investment
products.

For more than a decade the Thornburg Funds have been committed to preserving
and increasing the real wealth of their shareholders. The key to growing
real wealth is increasing buying power after taxes, inflation and investment
related expenses.

Thornburg Funds provides shareholders account inquiry service 24 hours a day,
365 days a year, through its Audio Response telephone service. To reach
Thornburg Funds for general information, please call 800-847-0200 and follow
the simple instructions you will receive. If you would prefer to speak with
a Thornburg Funds representative, please call during business hours.

William Fries, a Managing Director of TMC and a Vice President of Thornburg
Investment Trust, is the portfolio manager of Thornburg Value Fund, which he
has managed since its inception. Before joining TMC in May 1995, Mr. Fries
managed equity mutual funds for 16 years with another mutual fund management
company. Mr. Fries is assisted by other employees of TMC.

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

H. Garrett Thornburg, Jr., a Trustee and President of the Trust, of which the
Fund is a series, is the controlling stockholder of both TMC and TSC.

TMC may use TSC and other firms that sell Fund shares to carry out the Fund's
transactions, provided that the Fund receives brokerage services and
commission rates comparable to those received from or charged by other
broker-dealers.

INVESTMENT PRINCIPLES

The Fund seeks long-term capital appreciation by investing in equity and debt
securities of all types. This goal is a fundamental policy of the Fund and
may be changed only with shareholder approval. The 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.

The value of the Fund's 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 Fund's 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 in their opinion there
is intrinsic value. The Fund's principal focus will be on traditional value
stocks. However, the portfolio may include stocks and other securities that
in TMC's opinion provide value in a broader or different context. 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. The Fund will
typically buy the latter when they are out of favor. The relative proportions
of these different types of securities will vary over time. The portfolio
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.

<PAGE>
TMC primarily uses individual company and industry analysis when making
investment decisions for the Fund. The Fund 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 the 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
Fund's investment portfolio 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
Fund's exposure to loss under adverse market conditions.

Value, for purposes of the Fund's 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 Fund 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 Fund 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.

SECURITIES AND INVESTMENT PRACTICES AND RISKS

The following pages contain more detailed information about types of
instruments in which the Fund may invest, and strategies TMC may employ in
pursuit of the Fund's investment objective. The risks and the Fund's
investment restrictions associated with these instrument types and investment
practices are summarized as well. A complete listing of the Fund's policies
and limitations and more detailed information about the Fund's

<PAGE>
investments is contained in the Fund's Statement of Additional Information
(SAI). Some of the Fund's 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.

TMC may not buy all of these instruments or use all of these techniques to
the full extent permitted unless it believes that doing so will help the
Fund achieve its goal. Current holdings are described in the Fund's financial
reports which are sent to shareholders twice a year. 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, the Fund may not
invest more than 5% of its total assets at the time of purchase in any
one issuer. The Fund may not 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),
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 Fund 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 Fund may invest in the stock or debt
securities of smaller or unseasoned issuers. Although investments in these
companies may offer greater prospects for appreciation, they involve
additional risks because of limited product lines, limited access to markets
and financial resources, and greater vulnerability to competition and changes
in markets. Additionally, the value of these securities may fluctuate more,
and they may be more difficult to sell, particularly in declining markets.

Investments in Other Investment Companies. The Fund may invest in securities
of closed end investment companies. Up to 5% of its total assets at the time
of purchase may be invested in any one investment company, provided that
after its purchase no more than 3% of that investment company's outstanding
stock is owned by the Fund. TMC will charge an advisory fee on the portion
of the Fund's assets that are invested in securities of other investment
companies. Thus shareholders will be paying a "double fee" on those assets
since the advisers of the investment companies also will be charging fees on
the same assets.

Debt Securities. The Fund may buy debt securities of any type. Bonds and
other debt instruments, including convertible debt securities, are used by
issuers to borrow money from investors. The issuer pays the investor a fixed
or variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current interest,
but are purchased at a discount from their face values. Debt securities have
varying degrees of quality and varying levels of sensitivity to changing
interest rates. Longer-term debt securities are generally more sensitive to
interest rate changes than short term debt securities.

<PAGE>
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. The 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 Fund's 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 Fund's investments could be subject to unfavorable
judicial or administrative changes. Further, governmental issuers may be
unwilling or unable to repay principal and interest when due, and may require
that the terms for payment be renegotiated. Markets in some countries may be
more volatile, and subject to less stringent investor protection and
disclosure requirements and it may be difficult to sell securities in those
markets. Moreover, the economies in many countries may be relatively
unstable because of dependence on a few industries or economic sectors.

These factors could make foreign investments more volatile. The Fund will
only invest in companies domiciled in a country whose currency is freely
convertible into U.S. dollars and in companies (such as oil production
companies) 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. Risks of investment
in developing countries may be greater than risks otherwise pertaining to
foreign securities due to conditions in these countries, including illiquid
markets, increased difficulty in repatriating assets and earnings, reduced
or uncertain legal protections for investors, and greater political
instability.

Adjusting Investment Exposure. The Fund can use various techniques to
increase or decrease its exposure to changing securities prices, interest
rates, currency exchange rates, commodity prices, or other factors that
affect securities values. These techniques may involve derivative
transactions such as buying and selling options and futures contracts,
entering into currency exchange contracts or swap agreements, purchasing
indexed securities, and selling securities short. TMC can use these practices
to adjust the risk and return characteristics of the Fund's portfolio of
investments. If TMC judges market conditions incorrectly or employs a
strategy that does not correlate well with the Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. Losses could result from the Fund's
inability to close out futures or options positions. These techniques may
increase the price volatility of the Fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction does
not perform as promised.

<PAGE>
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. The Fund may, under normal conditions,
hold a portion of its assets in other securities pending investment of idle
funds or to provide liquidity. During temporary defensive conditions, the
Fund may invest up to 100% of its assets in other securities. 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, the Fund buys a security at
one price and simultaneously agrees to sell it back at a higher price. Delays
or losses could result if the other party to the agreement defaults or
becomes insolvent. In a reverse repurchase agreement, the Fund sells a
security and agrees to repurchase the security at a higher price. See
"Borrowing" below.

Illiquid and Restricted Securities. Some investments may be determined by
TMC, under the supervision of the Trustees, to be illiquid, which means that
they may be difficult to sell promptly at an acceptable price. The sale of
other securities, including illiquid securities, may be subject to legal
restrictions. Difficulty in selling securities may result in a loss or may be
costly to the Fund.

Restrictions. The 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. The Fund may borrow from banks or through reverse repurchase
agreements. If the 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 the Fund makes additional investments while
borrowings are outstanding, this may be considered a form of leverage.

Restrictions. The 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 the Fund's securities.

Restrictions. Loans, in the aggregate, may not exceed 33-1/3% of the
Fund's total assets.

Portfolio Turnover. The Fund's portfolio turnover rate for the year ended
September 30, 1997 was 78.83% The Fund does not anticipate that its
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.

BREAKDOWN OF EXPENSES

Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.

The Fund pays a management fee to TMC for managing its investments and
business affairs. The Fund also pays its other expenses.

TMC may, from time to time, agree to reimburse the 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 the Fund's return
(or reduce losses), and repayment of waivers or reimbursements will lower the
Fund's return.

<PAGE>
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 the 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 the 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>

OTHER EXPENSES

While the management and administrative services fees are significant
components of the Fund's annual operating costs, the 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.

YOUR ACCOUNT

BUYING FUND SHARES - IN GENERAL

The Fund currently issues multiple classes of shares, and Class A and Class C
shares are offered through this Prospectus. Each share represents an equal
undivided interest in the Fund's assets, and the 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 Fund's distributor deducts the Class A
sales charge shown in the table on the following 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 Fund receive different
compensation for selling different classes of the Fund's shares. Fund shares
may be purchased through firms which have agreements with the Fund's
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 Fund, and the Fund and TSC reserve the right to refuse any order in whole
or in part.

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

Rights of Accumulation. Each time the value of your account plus the amount
of any new investment passes one of the breakpoints illustrated in the table
on page 10, the amount of your new investment in excess of the breakpoint
will be charged the reduced sales charge applicable to that range.

<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>
___________________________________________________________________________

<PAGE>
Waivers. You may purchase Class A shares of the Fund with no sales charge if
you notify TSC or the Fund's transfer agent, NFDS, at the time you purchase
shares that you belong to one of the categories below:

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, 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 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 the 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 the fund through a member
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 (not a Money Market
fund) and places all or some of the proceeds in the Fund.

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
the Fund or Distributor.

Purchases placed through a broker that maintains one or more omnibus
accounts with the Fund provided that such purchases are made by: (i)
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.

<PAGE>
BUYING CLASS C SHARES

Class C shares are sold at the NAV next determined after your order is
received and accepted. 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 on page 18. If there is no application accompanying this
Prospectus, call 800-847-0200.

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. 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 Thornburg
check payable to Thornburg Value Fund. Indicate
Value Fund. Mail to the your fund account
address indicated on the number on your check
application. and mail to the
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.
____________________________________________________________________________

<PAGE>
[Street-Name Ownership of Shares]

Some securities dealers offer to act as owner of record of Fund shares as a
convenience to investors who are clients of those firms and shareholders of
the Fund. Neither the Fund nor the Transfer Agent can be responsible for
failures or delays in crediting shareholders for dividends or redemption
proceeds, or for delays in reports to shareholders if a shareholder 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. Prospective investors are urged to confer with
their financial advisor to learn about the different options available for
owning mutual fund shares.

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.

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 the 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.

<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
_____________________________________________________________________________

<PAGE>
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.

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)

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 the Thornburg 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 20.

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 Fund's Transfer Agent may charge a fee for a bank wire. This fee will be
deducted from the amount wired.

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

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

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

SHAREHOLDER AND ACCOUNT POLICIES

DIVIDENDS, CAPITAL GAINS, AND TAXES

The Fund distributes substantially all of its net income and realized capital
gains to shareholders each year. The 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 The Fund earns dividends from stocks and interest from
bond, money market, and other investments. These are passed along as dividend
distributions. The Fund realizes capital gains whenever it sells securities
for a higher price than it paid for them. These are passed along as capital
gain distributions. When you open an account, specify on your application
how you want to receive your distributions. The Fund offers four options,
which you can change at any time.

Capital Gain

Reinvestment Option. Your capital gain distributions will be
automatically reinvested in additional shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.

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 the 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 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 the Fund
will be taxed. The following paragraphs outline the federal income tax
consequences of an individual's investment in the Fund. 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

<PAGE>
reside. Your distributions are taxable when they are paid, whether you take
them in cash or reinvest them. For federal tax purposes, the 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.

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 the Fund you will be sent a
confirmation statement showing how many shares you sold and at what price.
At the end of the year the 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 Fund may pay withholding or other taxes to
foreign governments during the year. These taxes reduce the Fund's
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.

SERVICE AND DISTRIBUTION PLANS

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

Class C Distribution Plan. The 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
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.
____________________________________________________________________________
TURNOVER AND CAPITAL GAINS

The Fund does not intend to engage in short-term trading for profits. Its
goal is long-term capital appreciation. Nevertheless, when the Fund believes
that a security will no longer contribute to that goal, it will normally sell
that security. When the Fund sells a security at a profit it realizes a
capital gain. When it sells a security at a loss it realizes a capital loss.
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, the 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.
____________________________________________________________________________

<PAGE>
The Glass-Steagall Act prohibits certain banks from underwriting mutual fund
shares. The Fund does not believe that this prohibition will apply to the
sales charge described on page 10 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 Fund
to market its shares could be impaired to a small extent. In addition, state
securities laws on this issue may differ from interpretations of federal law,
and banks and financial institutions may be required to register as dealers
pursuant to state law.

TRANSACTION DETAILS

The Fund is open for business each day the New York Stock Exchange (NYSE) is
open. Each class of shares of the Fund normally calculates its NAV (and
offering price for Class A shares) as of the close of business of the NYSE,
normally 4 p.m. Eastern time. 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 the Fund to
withhold 31% of your taxable distributions and redemptions.

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

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

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

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

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

<PAGE>
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 the Fund is priced on the
following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.

The 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
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.
* The 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 the Fund may make
payment of share redemptions either in cash or in kind. The Fund has
elected to pay in cash all requests for redemption by any shareholder.
It may, however, limit such cash redemptions in respect to each
shareholder during any 90 day period to the lesser of $250,000 or 1%
of the net asset value of the Fund at the beginning of such period.
This election has been made pursuant to Rule 18f-1 under the
Investment Company Act of 1940 and is irrevocable while the Rule is in
effect unless the Securities and Exchange Commission, by order,
permits its withdrawal. In the case of a redemption in kind,
securities delivered in payment for shares would be valued at the same
value assigned to them in computing the net asset value per share of
the Fund. A shareholder receiving such securities would incur
brokerage costs when selling the securities.

EXCHANGE RESTRICTIONS

As a shareholder, you have the privilege of exchanging shares of the Fund 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.

<PAGE>
* 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,
the 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.
* The Fund reserves the right to refuse exchange purchases by any person
or group if, in TMC's judgement, the Fund would be unable to invest
the money effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
* Your exchanges may be restricted or refused if the 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 the Fund.

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

CALCULATION OF PERFORMANCE

The 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. The 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.

The 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.

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.

<PAGE>

ADDITIONAL INFORMATION

Reports to Shareholders

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

Custodian and Transfer Agent

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

General Counsel

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

<PAGE>
INVESTMENT ADVISER
Thornburg Management Company, Inc.
119 East Marcy Street
Santa Fe, New Mexico 87501

DISTRIBUTOR
Thornburg Securities Corporation
119 East Marcy Street
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
INSTITUTIONAL
CLASS SHARES

Prospectus
February 1, 1998

NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE

<PAGE>
THORNBURG FUNDS
Institutional Class Shares

Prospectus
February 1, 1998

Limited Term National Fund and Limited Term California Fund are separate
investment portfolios of Thornburg Limited Term Municipal Fund, Inc. and
Intermediate National Fund, Government Fund and Income Fund are separate
investment portfolios of Thornburg Investment Trust. Value Fund is also a
separate investment portfolio of Thornburg Investment Trust. Limited Term
National Fund, Limited Term California Fund and Intermediate National Fund
are municipal bond funds; Government Fund and Income Fund are taxable bond
funds. Value Fund invests in equity and certain other securities to pursue
long-term capital appreciation. Each of the Funds' investment objectives are
described beginning on page 3 of this Prospectus under the caption "General
Information."

All of the Funds are managed by Thornburg Management Company, Inc. (TMC), and
issue multiple classes of shares. Institutional Class shares are offered
through this prospectus. Other classes issued by the Funds are described on
page 3 under the caption "General Information".

This Prospectus sets forth concisely the information a prospective investor
should know about the Funds before investing. It should be read and retained
for further reference. Additional information about the Funds is contained in
a Statement of Additional Information, Thornburg Funds Institutional Class
Shares, dated February 1, 1998. The Statement of Additional Information has
been filed with the Securities and Exchange Commission and may be obtained at
no charge by contacting Thornburg Securities Corporation, 119 East Marcy Street,
Suite 202, Santa Fe, New Mexico 87501, 888-598-0400. This Prospectus
incorporates by reference the entire Statement of Additional Information.

MUNICIPAL FUNDS
Thornburg Limited Term Municipal Fund National Portfolio
("Limited Term National Fund")
Thornburg Limited Term Municipal Fund California Portfolio
("Limited Term California Fund")
Thornburg Intermediate Municipal Fund
("Intermediate National Fund")

TAXABLE INCOME FUNDS
Thornburg Limited Term U. S. Government Fund ("Government Fund")
Thornburg Limited Term Income Fund ("Income Fund")

THORNBURG VALUE FUND
Thornburg Value Fund* ("Value Fund")

* Thornburg Value Fund is not offering Institutional Class shares as of the date
of this Prospectus, and proposes to commence its offering of those shares in the
future.

<PAGE>
TABLE OF CONTENTS

1 Expense Information
3 General Information
4 Financial Highlights
6 Management Discussion of Fund Performance
9 Investment Objectives and Policies - In General
10 Investment Policies and Risks of the Municipal Funds
12 Investment Policies and Risks of the Taxable Income Funds
19 Securities Ratings and Credit Quality
20 Investment Policies and Risks of Value Fund
25 Your Account - Buying Fund Shares
27 Selling Fund Shares
29 Investor Services
31 Shareholder and Account Policies
32 Taxes
34 Service Plan
34 Performance
35 Organization of the Funds
37 Thornburg Management Company, Inc.
and Thornburg Securities Corporation
37 Additional Information

<PAGE>
EXPENSE INFORMATION

Shareholder Transaction Expenses
Maximum Sales Charge on Purchases or Reinvested Dividends none
Maximum Deferred Sales Charge on Redemptions none
Redemption Fees none
Exchange Fees none

<TABLE>
Annual Operating Expenses Examples:
(as a percentage of average net assets) You will pay the following expenses on a $1,000
investment in each Fund, assuming the Fund's
expense ratio remains the same, a 5% annual return,
and redemption at the end of each time period:
<CAPTION>
__________________________
Limited Term National Fund
--------------------------
<S> <C> <C> <C> <C> <C>
Management Fees .45% One 3 5 10
12b-1 Fees (after fee waiver)* .00% Year Years Years Years
Other Expenses .15% ---- ----- ----- -----
----- $6 $19 $33 $75
Total Fund Operating Expenses .60%

____________________________
Limited Term California Fund
----------------------------
<S> <C> <C> <C> <C> <C>
Management Fees .50% One 3 5 10
12b-1 Fees (after fee waiver)* .00% Year Years Years Years
Other Expenses .13% ---- ----- ----- -----
----- $6 $20 $35 $79
Total Fund operating expenses .63%

__________________________
Intermediate National Fund
--------------------------
<S> <C> <C> <C> <C> <C>
Management fees .50% One 3 5 10
12b-1 fees (after fee waiver)* .00% Year Years Years Years
Other expenses (after .19% ---- ----- ----- -----
reimbursement)* ----- $7 $22 $39 $87
Total Fund operating expenses .69%

* Expenses reflect rounding and current fees. TMC has no current intention
to seek reimbursement under the Fund's 12b-1 plan, and the table reflects
a waiver of the fee. Other expenses reflect a partial reimbursement by TMC.
Absent the waiver and reimbursement, the 12b-1 fee would be .25%, other
expenses would be .74%, and total operating expenses would be 1.49%.
1
<PAGE>
Examples:
You will pay the following expenses on a $1,000
investment in each Fund, assuming the Fund's
expense ratio remains the same, a 5% annual return,
and redemption at the end of each time period:

_______________
Government Fund
---------------
<S> <C> <C> <C> <C> <C>
Management fees .38% One 3 5 10
12b-1 fees (after fee waiver)* .00% Year Years Years Years
Other expenses (after .22% ---- ----- ----- -----
reimbursement)* ----- $6 $19 $34 $76
Total Fund operating expenses .60%

___________
Income Fund
-----------
<S> <C> <C> <C> <C> <C>
Management fees .50% One 3 5 10
12b-1 fees (after fee waiver)* .00% Year Years Years Years
Other expenses (after .19% ---- ----- ----- -----
reimbursement)* ----- $7 $22 $38 $86
Total Fund operating expenses .69%

__________
Value Fund
----------
<S> <C> <C> <C> <C> <C>
Management fees .88% One 3 5 10
12b-1 fees (after fee waiver)* .00% Year Years Years Years
Other expenses (after .41% ---- ----- ----- -----
reimbursement)* ----- $13 $41 $71 $156
Total Fund operating expenses 1.29%

* Expenses reflect rounding. TMC has no current intention to seek
reimbursement under the Fund's 12b-1 plan, and the table reflects
a waiver of the fee. Other expenses are estimated. Absent the waiver, the
12b-1 fee would be .25%, and total operating expenses would be 1.54%.</TABLE

Explanation of Tables

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

2
<PAGE>
GENERAL INFORMATION

The primary investment objective of Limited Term National Fund, Limited Term
California Fund and Intermediate National Fund is to provide, through
investment in professionally managed portfolios of Municipal Obligations, as
high a level of current income exempt from federal income tax as is
consistent, in TMC's view, with preservation of capital. Limited Term
California Fund will invest primarily in Municipal Obligations originating in
California, with the objective of having interest dividends paid to
individual shareholders exempt from California personal income taxes.
Limited Term National Fund and Limited Term California Fund will maintain
portfolios having a dollar-weighted average maturity of normally not more
than five years, to attempt to reduce net asset value volatility relative to
municipal bond portfolios with longer average maturities while expecting
lower yields than those received on portfolios with longer average
maturities. Intermediate National Fund will maintain a portfolio having a
dollar-weighted average maturity of normally three to ten years, to attempt
to reduce net asset value volatility relative to long-term municipal bond
portfolios. Intermediate National Fund may receive lower yields than those
received on long-term bond portfolios, while seeking higher yields and
expecting higher share price volatility than Limited Term National Fund.

The primary investment objective of Government Fund and Income Fund is to
provide, through investment in a professionally managed portfolio of fixed
income obligations, as high a level of current income as is consistent, in
TMC's view, with preservation of capital. The Government Fund will try to
achieve its primary investment objective by investing mainly in obligations
issued or guaranteed by the United States Government or by its agencies or
instrumentalities and in participations in, or repurchase agreements secured
by, such obligations. Income Fund will try to achieve its primary investment
objective by investing in investment grade short and intermediate maturity
bonds and asset backed securities such as mortgage backed securities and
collateralized mortgage obligations. Income Fund also may invest in or
utilize other investment strategies to hedge market risks, manage cash
positions or to enhance potential gain. Additionally, Government Fund and
Income Fund will seek to reduce fluctuations in its net asset value compared
to longer term portfolios by investing in obligations with an expected
dollar-weighted average maturity of normally not more than five years.

Value Fund's investment objective is long-term capital appreciation. The
Fund will seek to achieve this objective by investing mainly in domestic
equity securities selected on a value basis using traditional and additional
fundamental research and valuation methods. To a lesser extent, Value Fund
also may invest in preferred stocks, domestic debt securities and foreign
equity and debt securities.

There can be no assurance that the Funds' objectives can be achieved. If
your sole objective is preservation of capital, then the Funds may not be
suitable for you because their net asset values will change. The share
prices of the Municipal Funds and the Taxable Income Funds will vary as
market interest rates fluctuate. The share price of the Value Fund also will
vary, sometimes to a greater degree, in response to market conditions,
political and economic news, interest rates, dividends and specific corporate
developments. When you sell your Fund shares, they may be worth more or less
than what you paid for them. Investors whose sole objective is preservation
of capital may wish to consider a high quality money market fund. The
primary (and any secondary) investment objective of each Fund is a
fundamental policy and may not be changed without a vote of the Fund's
shareholders. Please see Investment Objectives and Policies below for a
discussion of the Funds' respective investment policies.

Each Fund currently issues multiple classes of shares. Each of a Fund's
shares represents an equal undivided interest in the Fund's assets, and each
Fund has common investment objectives and a common investment portfolio.
Different classes may have different sales charges and other expenses which
may affect performance.
3
<PAGE>
Investors may telephone Thornburg Securities Corporation at (888) 598-0400 to
obtain more information concerning other classes of shares available to them
through their sales representative. Investors may also obtain information
respecting other classes of shares through their sales representative or
other person which is offering or making available the Institutional Class
shares described in this Prospectus.

On any day on which the New York Stock Exchange, Inc. is open for trading,
investors may initiate purchases and redemptions of a Fund's shares. See
"Your Account" beginning on page 25 for information about buying Fund shares,
and "Selling Fund Shares" beginning on page 27 for information about
redeeming Fund shares.

FINANCIAL HIGHLIGHTS

The tables on these pages present, for Institutional Class shares of Limited
Term National Fund, Limited Term California Fund, Intermediate National Fund,
Government Fund and Income Fund, per share income and capital changes for a
share outstanding throughout the periods indicated. This information has
been audited by McGladrey & Pullen, LLP, independent auditors, whose reports
thereon are incorporated by reference in the registration statements for the
Funds. This information should be read in conjunction with the 1997 Annual
Reports for the respective Funds.

</TABLE>
<TABLE>
Ratio of Ratio of Ratio of
Expenses Expenses Net
Net Distri- to to Investment Net
Realized butions Distri- Average Average Income Assets
Net Asset and Total from butions Net Net (Loss) at end
Value, Unrealized from Net from Net Asset Assets Assets to of
Beginning Net Gain Investment Invest- Net Value, Total After Before Average Rate of Period
Fiscal Year of Investment (Loss) on Opera- ment Realized End of Return Expense Expense Net Portfolio ('000's
or Period Period Income Investments tions Income Gains Period <F(b)> Reductions Reductions Assets Turnover omitted)
- ------------- ------ --------- -------- ---------- ------- ------- ------- ------ ---------- ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Limited Term
National Fund
- -------------
Class I
7/5/96 <F(a)> $13.27 $ .66 $ .17 $ .83 $( .66) $13.44 6.42% (.60%) (.79%) 5.01% 23.39% $35,746
to 6/30/97 <F(c)> <F(c)> <F(c)>

Limited Term
California Fund
- ---------------
Class I
4/1/97 <F(a)> $12.64 $ .15 $ .11 $ .26 $( .15) $12.75 2.07% (.63)% (1.32)% 4.77% 20.44% $3,949
to 6/30/97 <F(c)> <F(c)> <F(c)>

Intermediate
National Fund
- -------------
Class I
7/5/96 <F(a)> $13.00 $ .17 $ .23 $ .40 $( .17) $13.23 3.11% (.70)% (6.10)% 5.49% 12.64% $689
to 9/30/96 <F(c)> <F(c)> <F(c)>
10/1/96 to 13.23 1.70 .21 .91 ( .70) 13.44 7.07 (.69) (1.24) 5.16 15.36 16,615
9/30/97

Limited Term
Government Fund
- ---------------
Class I
7/5/96 <F(a)> $12.14 $ .20 $ .10 $ .30 $( .20) $12.24 2.45% (.58%) (305.74)% 6.64% 23.27% $9
to 9/30/96 <F(c)> <F(c)> <F(c)>
10/1/96 to 12.24 .79 .07 .86 ( .79) 12.31 7.26 (.60) (6.57) 6.35 41.10 5,263
9/30/97

Limited Term
Income Fund
- ------------
Class I
7/5/96 <F(a)> $11.95 $ .19 $ .28 $ .47 $( .19) $12.23 3.97% .69% 4.26% 6.67% 44.35% $797
to 9/30/96 <F(c)> <F(c)> <F(c)>
10/1/96 to 12.23 .80 .13 .93 ( .80) 12.36 7.80 (.69) (1.98) 6.44 13.87 4,495
9/30/97

<FN> Footnotes to Financial Highlights Tables

<F(a)> Commencement of operations.
<F(b)> Total return is not annualized for periods less than one year.
<F(c)> Annualized.
</FN>
</TABLE>
4 5

<PAGE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE

Intermediate National Fund, Government Fund, Income Fund,
Limited Term National Fund, & Limited Term California Fund

The following graphs compare how $10,000 would have appreciated if invested
in shares of the named Fund, a broad based securities market index, and the
Consumer Price Index, a general measure of inflation. The figures
accompanying each graph shows average annual total return for the Fund for
the designated periods.

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

Interest rates increased during most of 1996, but began decreasing in late
1996. In general, interest rates have continued, with some fluctuations, to
decline slightly over the first ten months of 1997. For example, the generic
30-year treasury bond started 1996 yielding 5.95%. Its yield went up by
1.24% to 7.19% by mid-year, before dropping back down to 6.65% at the end of
1996. After rising again to 7.20% on April 1, 1997, the yield on the generic
30-year bond again declined, closing at 6.40% on September 30, 1997.

In general, interest rate decreases in 1997 have led to higher bond prices
and falling bond yields. Five, ten and 30-year treasury bond prices have
increased by 0.72%, 2.00% and 4.31%, respectively, between October 1, 1996
and September 30, 1997. Municipal bond prices also increased over calendar
year 1997, with the Bond Buyer 40 Bond Index of long-term bonds rising by
3.75% over the same period of time. The net asset values of the Limited Term
National Fund and the Limited Term California Fund each increased by 1.01%
between July 1, 1996 and June 30, 1997, reflecting these influences. The net
asset value of the Intermediate National Fund similarly increased between
October 1, 1996 and September 30, 1997 by about 1.81% and the net asset
values of the Government Fund and the Income Fund increased slightly over the
same period. While the net asset values of all of the fixed income Funds
rose, the dividend yields of all of those Funds fell slightly. If interest
rates continue to fall, the net asset values of all of the fixed income Funds
should continue to rise, but the dividend yields would be expected to
decrease.

Limited Term National Fund
- --------------------------
Index Comparison

Compares performance of the Limited Term National Fund Class I shares, the
Lehman 5-year General Obligation Bond Index and the Consumer Price Index for
the period July 5, 1996 to June 30, 1997. On June 30, 1997 the weighted
average securities ratings of the Index and the Fund were AA and AA,
respectively, and the weighted average portfolio maturities of the Index and
the Fund were 4.9 years and 3.5 years, respectively. Past performance of the
Index and the Fund may not be indicative of future performance.

<TABLE> <This appears as a graph in the prospectus.>
FUND Lehman CPI
I Shares 5 Yrs.
-------- --------- ---------
<S> <C> <C> <C>
7/5/96 $10,000 $10,000 $10,000
7/31/96 10,119 10,066 10,030
8/31/96 10,147 10,087 10,050
9/30/96 10,220 10,163 10,080
10/31/96 10,285 10,257 10,110
11/30/96 10,382 10,400 10,141
12/31/96 10,386 10,384 10,171
1/31/97 10,422 10,412 10,181
2/28/97 10,489 10,486 10,212
3/31/97 10,439 10,368 10,222
4/30/97 10,475 10,420 10,232
5/31/97 10,558 10,533 10,243
6/30/97 10,642 10,626 10,253
</TABLE>

I Shares Average Annual Total Return
From Inception (7/5/96): 6.42%
6
<PAGE>
Limited Term California Fund
- ----------------------------
Index Comparison

Compares performance of the Limited Term California Fund Class I shares, the
Lehman 5-year General Obligation Bond Index and the Consumer Price Index for
the period April 1, 1997 to June 30, 1997. On June 30, 1997 the weighted
average securities ratings of the Index and the Fund were AA and AA,
respectively, and the weighted average portfolio maturities of the Index and
the Fund were 4.9 years and 3.9 years, respectively. Past performance of the
Index and the Fund may not be indicative of future performance.

<TABLE> <This appears as a graph in the prospectus.>
FUND Lehman CPI
A Shares 5 Yrs.
-------- --------- ---------
<S> <C> <C> <C>
4/01/97 $10,000 $10,000 $10,000
4/30/97 10,032 10,050 10,010
5/31/97 10,127 10,160 10,020
6/30/97 10,208 10,249 10,030
</TABLE>

I Shares Average Annual Total Return
From Inception (4/1/97): 2.07%

Intermediate National Fund
- --------------------------
Index Comparison

Compares performance of the Intermediate National Fund Class I shares, the
Merrill Lynch Municipal Bond (7-12 Year) Index and the Consumer Price Index
for the period July 5, 1996 to September 30, 1997. On September 30, 1997, the
weighted average securities ratings of the Index and the Fund were AA and A+,
respectively, and the weighted average portfolio maturities of the Index and
the Fund were 9.5 years and 7.3 years, respectively. Past performance of the
Index and the Fund may not be indicative of future performance.

<TABLE> <This appears as a graph in the prospectus.>
FUND ML Muni CPI
I Shares 7-12 Yrs.
-------- --------- -------
<S> <C> <C> <C>
7/5/96 10,000 10,000 10,000
7/31/96 10,164 10,107 10,030
8/31/96 10,195 10,113 10,050
9/30/96 10,311 10,206 10,080
10/31/96 10,404 10,324 10,110
11/30/96 10,521 10,486 10,141
12/31/96 10,497 10,464 10,171
1/31/97 10,511 10,490 10,181
2/28/97 10,590 10,568 10,212
3/31/97 10,526 10,440 10,222
4/30/97 10,589 10,497 10,232
5/31/97 10,692 10,676 10,243
6/30/97 10,804 10,787 10,253
9/30/97 11,040 11,116 10,314
</TABLE>

Average Annual Total Return
I Shares
One year ended 9/30/97: 7.07%
From Inception (7/5/96): 8.32%
7

<PAGE>
Government Fund
- ---------------
Index Comparison

Compares performance of the Government Fund Class I shares, the Lehman
Brothers Intermediate Government Bond Index, and the Consumer Price Index for
the period July 5, 1996 to September 30, 1997. On September 30, 1997, the
weighted average securities ratings of the Index and the Fund were AAA and
AAA, respectively, and the weighted average portfolio maturities of the Index
and the Fund were 3.8 years and 3.7 years, respectively. Past performance of
the Index and the Fund may not be indicative of future performance.

<TABLE> <This appears as a graph in the prospectus.>
FUND Lehman CPI
I Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
7/5/96 10,000 10,000 10,000
7/31/96 10,116 10,031 10,030
8/31/96 10,131 10,042 10,050
9/30/96 10,245 10,172 10,080
10/31/96 10,385 10,338 10,110
11/30/96 10,501 10,463 10,141
12/31/96 10,464 10,407 10,171
1/31/97 10,504 10,447 10,181
2/28/97 10,525 10,463 10,212
3/31/97 10,488 10,404 10,222
4/30/97 10,588 10,521 10,232
5/31/97 10,654 10,603 10,243
6/30/97 10,755 10,694 10,253
9/30/97 10,989 10,968 10,314
</TABLE>
Average Annual Total Return
I Shares
One year ended 9/30/97: 7.26%
From Inception (07/05/96): 7.91%

Income Fund
- -----------
Index Comparison

Compares performance of the Income Fund Class I shares, the Lehman Brothers
Intermediate Government Corporate Bond Index, and the Consumer Price Index
for the period July 5, 1996 to September 30, 1997. On September 30, 1997, the
weighted average securities ratings of the Index and the Fund were A and AA,
respectively, and the weighted average portfolio maturities of the Index and
the Fund were 4.3 years and 4.8 years, respectively. Past performance of the
Index and the Fund may not be indicative of future performance.

<TABLE> <In the prospectus, this table appears as a graph>
FUND Lehman CPI
I Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
7/5/96 $10,000 $10,000 $10,000
7/31/96 10,123 10,030 10,030
8/31/96 10,230 10,038 10,050
9/30/96 10,397 10,178 10,080
10/31/96 10,624 10,358 10,110
11/30/96 10,801 10,494 10,141
12/31/96 10,730 10,427 10,171
1/31/97 10,720 10,468 10,181
2/28/97 10,742 10,488 10,212
3/31/97 10,670 10,415 10,222
4/30/97 10,737 10,538 10,232
5/31/97 10,857 10,626 10,243
6/30/97 10,969 10,723 10,253
9/30/97 11,208 11,012 10,314
</TABLE>

Average Annual Total Return
I Shares
One year ended 9/30/97: 7.80%
From Inception (07/05/96): 9.64%

8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES - IN GENERAL

Primary Objectives

The primary investment objective of the Municipal Funds is to obtain, through
investment in a professionally managed portfolio of Municipal Obligations, as
high a level of current income exempt from federal income tax as is
consistent, in the view of TMC, with preservation of capital. Limited Term
California Fund will invest primarily in Municipal Obligations originating in
California with the objective of having interest dividends paid to individual
shareholders exempt from California personal income taxes. The primary
investment objective of the Taxable Income Funds is to obtain, through
investment in a professionally managed portfolio of fixed income obligations,
as high a level of current income as is consistent, in the view of TMC, with
safety of capital. The objective of Value Fund is to obtain long-term
capital appreciation by investing mainly in domestic equity securities
selected on a value basis, and by investing to a lesser extent in preferred
stocks, domestic debt securities and foreign equity and debt securities.

Income from the Municipal Funds which is otherwise exempt from federal income
tax may be subject to the alternative minimum tax, and distributions from
gains attributable to market discount on portfolio securities is treated as
ordinary income for federal income tax purposes. The objective of the
Municipal Funds and the Taxable Income Funds to preserve capital may preclude
these Funds from obtaining the highest yields available.

Thornburg Management Company, Inc. (TMC) actively manages the portfolios of
the Municipal Funds and the Taxable Income Funds in attempting to meet those
Funds' primary investment objectives. Investment decisions are based upon
general economic and financial trends, such as domestic and international
economic development, outlooks for securities markets, interest rates and
inflation, the supply and demand for debt securities, and other factors. The
Funds' portfolios are determined by individual security analyses, and TMC's
credit analysts actively monitor the credit quality of the Funds' portfolios.
Each of the Municipal Funds and the Taxable Funds will seek to enhance its
income by taking advantage of yield disparities, trends or other factors in
the fixed income markets. Although each of these Funds ordinarily will
acquire securities for investment rather than for realization of gains on
market fluctuations, a Fund may dispose of any security prior to its
scheduled maturity to enhance income or reduce loss, to change the
portfolio's average maturity, or to otherwise respond to current market
conditions. In addition, the Funds may utilize other techniques, discussed
below, to enhance a Fund's investment income.

TMC also actively manages Value Fund, investing in securities selected on a
value basis using traditional and additional fundamental research and
valuation methods. TMC also may use additional investment techniques,
discussed below, to increase or decrease its exposure to other factors which
affect securities values. The Fund is designed for those who seek capital
appreciation from a conservative style of investing in equities, and when
appropriate, some fixed income securities. Although values of equity
securities are more volatile, these securities historically have shown
greater growth potential than other types of securities.

Secondary Objectives

The secondary objective of each of the Municipal Funds and the Taxable Income
Funds is to minimize expected fluctuations in net asset value relative to
longer intermediate and long-term bond portfolios. Because the magnitude of
the changes in market value of interest bearing obligations ordinarily is
greater for obligations of longer terms, each Fund believes that it can
reduce the magnitude of fluctuations in the values of its assets by limiting
its weighted average maturity. Limited Term National Fund, Limited Term
California Fund, Government Fund and Income Fund each will maintain a
portfolio having a dollar-weighted average maturity of normally not more than
9
<PAGE>
five years, with the objective of reducing fluctuations in its net asset
value relative to bond portfolios with longer average maturities while
expecting lower yields than those received on portfolios with longer average
maturities. Intermediate National Fund will maintain a portfolio having a
dollar-weighted average maturity of normally three to ten years, with the
objective of reducing fluctuations in net asset value relative to long-term
bond portfolios. There is no limitation on the maturity of any specific
security any of these Funds may purchase, subject to the limitation on the
average portfolio maturity of each Fund. Each Fund's dollar-weighted average
maturity may be lowered for temporary defensive purposes if conditions or
expectations for the behavior of interest rates indicate that a lower average
maturity will be advantageous. Such conditions could include increasing
inflation or a market in which short-term obligations temporarily have higher
yields than longer-term obligations. TMC also will attempt to minimize
principal fluctuations in the Funds' portfolios through, among other things,
diversification, careful credit analysis and security selection.

Some policies of each of the Funds are fundamental policies, that is, are
subject to change only with shareholder approval. For example, the primary
objective of each Fund is a fundamental policy of that Fund, and the
secondary objective for each of the Municipal Funds and the Taxable Income
Funds also is a fundamental policy. 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 investments is not required in the event of a subsequent
circumstances.

INVESTMENT POLICIES AND RISKS
OF THE MUNICIPAL FUNDS

The Municipal Funds will pursue their primary objective by investing in a
portfolio of investment grade or equivalent obligations which are issued by
states and state agencies, and local governments and agencies, and by United
States territories and possessions ("Municipal Obligations"). Municipal
Obligations are discussed on page 11 under the caption "Municipal
Obligations," and investment grade ratings are discussed on page 19 under the
caption "Securities Ratings and Investment Quality".

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

Each Municipal Fund has reserved the right to invest up to 20% of its net
assets in "temporary investments" in taxable securities (of comparable
quality to the tax-exempt investments) that would produce interest not exempt
from federal income tax. Such temporary investments, which may include
repurchase agreements with dealers, banks or recognized financial
institutions that in the opinion of TMC represent minimal credit risk, may be
made due to market conditions, pending investment of idle funds or to afford
liquidity. Such investments are, like any investment, subject to market
risks and fluctuations in value. In addition, each Fund's temporary taxable
investments may exceed 20% of its net assets when made for defensive purposes
during periods of abnormal market conditions. None of the Municipal Funds
expect to find it necessary to make temporary investments in taxable
investments.

Each Municipal Fund is subject to the restriction that it will not purchase
any investment or enter into any transaction if as a result more than 10% of
the Fund's net assets are illiquid investments. No Municipal Fund will
10
<PAGE>
borrow money, except for emergency or temporary purposes, and then only in an
amount not exceeding 5% of the Fund's total assets at the time of borrowing.
Investment policies are subject to additional restrictions, which are
described in the Statement of Additional Information.

Municipal Obligations

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

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

Variable Rate Securities; Inverse Floaters; and
Demand Instruments

Any Municipal Fund may purchase variable rate Municipal Obligations.
These variable rate securities bear rates of interest that are adjusted
periodically according to formulas intended to reflect market rates of
interest, and these may include "inverse floaters," whose rates vary
inversely with changes in market rates of interest. The values of inverse
floaters will tend to be more volatile than fixed rate municipal securities
having similar credit quality, redemption provisions, and maturity. None
of the Municipal Funds will invest more than 10% of its total assets in
securities whose rates vary inversely with changes in market rates of
interest. Each Fund also may purchase variable rate demand instruments and
also may purchase fixed rate municipal demand instruments either in the
public market or privately from banks, insurance companies and other
financial institutions. These instruments provide for periodic adjustment of
11
<PAGE>
the interest rate paid to the holder. The "demand" feature permits the
holder to demand payment of principal and interest prior to the final stated
maturity, either from the issuer or by drawing on a bank letter of credit, a
guarantee or insurance issued with respect to the instrument.

Municipal Leases

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

When Issued Securities

Any of the Municipal Funds may purchase securities on a when-issued or
forward delivery basis, for payment or delivery at a later date. The price
and yield are generally fixed on the date of the purchase commitment. During
the period between purchase and settlement, the market value of the security
may be more or less than its purchase price.

Special Considerations Affecting
Limited Term California Fund

Because Limited Term California Fund will purchase Municipal Obligations
originating primarily in California, an investment in Limited Term California
Fund may be riskier than an investment in either Limited Term National Fund
or Intermediate National Fund, which purchase Municipal Obligations from
throughout the United States. Economic developments in California, although
improving, could impair the ability of certain California state and local
issuers to pay their obligations in some situations. Taxpayer initiatives,
weakness in tax collections and reallocation of certain revenues previously
available to county and local governments could reduce the revenues available
to some California issuers. The Statement of Additional Information includes
a more detailed discussion of California state fiscal matters.

INVESTMENT POLICIES AND RISKS
OF THE TAXABLE INCOME FUNDS

Government Fund will pursue its primary objective by investing mainly in
obligations issued or guaranteed by the United States Government or by its
agencies or instrumentalities and in participations in such obligations or in
repurchase agreements secured by such obligations. Income Fund will seek
to achieve its primary investment objective by investing in investment grade
short and intermediate maturity bonds and asset backed securities such as
mortgage backed securities and collateralized mortgage obligations.
Income Fund also may invest in or utilize other investment strategies to
hedge market risks, manage cash positions or to enhance potential gain. No
assurance can be given that the Funds will achieve their objective. The types
of securities the Taxable Funds may invest in are discussed on page 13 under
the caption "Taxable Obligations," and investment grade ratings are discussed
under the caption "Securities Ratings and Credit Quality".

Each Taxable Income Fund's name derives from its policy of maintaining an
overall portfolio of investments with a dollar-weighted average maturity of
normally not more than five years, with the objective of reducing
fluctuations in the Fund's net asset value per share compared to longer
maturity portfolios. Normally, the Funds expect to offer greater price
stability than a higher yielding long-term bond fund and higher yields than
12
<PAGE>
most short-term investments. Historically, intermediate-term government
bonds enjoyed higher returns, compounded annually over the period 1926-1995,
as compared to long-term government bonds and 90-day U. S. Treasury Bills.
Intermediate-term bonds outperformed longer term issues because
intermediate-term bonds did not suffer the large capital losses which befell
higher yielding long-term bonds when bond yields rose. Intermediate-term
bonds, which have less price stability than short-term obligations,
nonetheless outperformed short-term bills because the yield on
intermediate-term obligations typically is higher than the yield on
short-term obligations. The combination of price stability and relatively
high yield enjoyed by intermediate-term bonds caused these bonds to
outperform normally higher yielding long-term bonds and normally more stable
short-term bills during the periods described. The relationship between
interest rates and the values of obligations, as shown by the foregoing
study, applies to all types of debt securities and has been consistently
demonstrated in the portfolios managed by TMC and the markets it has
observed. However, no assurance can be given that each Taxable Income Fund's
short and intermediate-term obligations will perform as well in the future as
intermediate-term government bonds have in the past.

Counsel to the Funds has advised that in their view shares of Government Fund
are a legal investment for, among other investors, commercial banks and
credit unions chartered under the laws of the United States. This advice is
based upon a review of this Prospectus and the Statement of Additional
Information, and upon counsel's receipt of undertakings by TMC and Thornburg
Investment Trust respecting investment policies. In addition, Thornburg
Investment Trust believes that the Government Fund is currently a legal
investment for savings and loan associations and commercial banks chartered
under the laws of certain states.

Government Fund will not purchase any investment or enter into any
transactions if as a result more than 10% of the Fund's net assets are
illiquid investments; the comparable restriction applicable to Income Fund is
15%. Government Fund will not borrow money, except for emergency or
temporary purposes, and then only in an amount not exceeding 5% or 10% if the
borrowing is from banks. Income Fund will not borrow money, except as a
temporary measure, and then only in an amount not exceeding 5% of total
assets unless the borrowing is from banks, in which case the limitation is
10%. The Taxable Income Funds are subject to additional restrictions, which
are described in the Statement of Additional Information.

Taxable Obligations

Both Taxable Income Funds buy the following types of securities. Securities
and techniques specific to Government Fund or to Income Fund are detailed
under the captions "Government Fund Investment Policies" and "Income Fund
Investment Policies".

U. S. Government Securities -
Government Fund and Income Fund

U. S. Government securities include U. S. Treasury obligations such as U. S.
Treasury Bills, U. S. Treasury Notes, and U. S. Treasury Bonds, with various
interest rates, maturities and dates of issuance. These U. S. Treasury
securities are direct obligations of the U. S. Treasury, and are backed by
the full faith and credit of the U. S. Government.

U. S. Government Agency Obligations

U. S. Government agency obligations include, but may not be limited to,
obligations issued by the Banks for Cooperatives; the Export-Import Bank of
the U. S.; the Farmers Home Administration; the Federal Deposit Insurance
Corporation; the Federal Financing Bank; the Federal Home Loan Banks; the
13
<PAGE>
Government National Mortgage Association (GNMA); the Federal Home Loan
Mortgage Corporation (FHLMC); the Federal National Mortgage Association
(FNMA); the Federal Housing Administration; the Federal Intermediate Credit
Banks; the Federal Land Banks; the General Services Administration; the Small
Business Administration; the Student Loan Marketing Association; and the U.S.
Maritime Administration. Obligations issued by the Farmers Home
Administration, Federal Financing Bank, General Services Administration, and
the Small Business Administration are backed by the full faith and credit of
the United States or the agency has the authority to borrow from the U. S.
Treasury. Other agency obligations are supported by discretionary authority
of the Treasury to purchase obligations of the agency.

GNMA Certificates and Other Asset-Backed Securities

GNMA certificates and other mortgage passthrough securities issued by the
FHLMC and the FNMA evidence interests in specific pools of mortgage loans.
The securities provide shareholders with payments consisting of both interest
and principal as the mortgages in the underlying mortgage pools are paid off.
Variations in interest rates and other factors may result in prepayment of
some mortgages underlying these certificates, so that the resulting term of
the certificates will change. During periods of rising interest rates,
mortgage-backed securities may have a greater risk of capital depreciation
because of decreased prepayments and increased effective maturity, and during
periods of declining interest rates these securities may have less potential
for capital appreciation because of increased prepayments. TMC will
continually evaluate any investment in these certificates in light of market
conditions and each Fund's policy of maintaining a portfolio normally having
a dollar-weighted average maturity or estimated average life of not more than
five years.

Repurchase Agreements

When one of the Taxable Income Funds purchases securities, it may enter into
a repurchase agreement with the seller in which the seller agrees, at the
time of sale, to repurchase the security at a mutually agreed-upon time and
price. The resale price will be in excess of the purchase price reflecting
an agreed-upon market rate effective for the period of time the Fund's money
will be invested in the securities, and will not be related to the coupon
rate of the purchased securities. At the time the Fund enters into a
repurchase agreement, the value of the underlying securities, including
accrued interest, will be equal to or exceed the value of the repurchase
agreement, and for repurchase agreements which mature in more than one day,
the seller will agree to furnish additional security if the value of the
underlying security falls below the value of the repurchase agreement. If
the seller enters a bankruptcy or other insolvency proceeding, or the seller
fails to repurchase the underlying security as agreed, the Fund could
experience losses, including loss of rights to the security. The Government
Fund will not enter into a repurchase agreement if, as a result, more than
10% of the value of its net assets would then be invested in repurchase
agreements maturing in more than seven days and other securities which are
considered illiquid. The Income Fund will not enter into a repurchase
agreement or purchase any security deemed illiquid if as a result, more than
15% of the value of its net assets would be invested in repurchase agreements
maturing in more than seven days and other securities which are considered
illiquid.

Reverse Repurchase Agreements

Either of the Taxable Income Funds may enter into reverse repurchase
agreements to obtain short-term liquidity. In such a transaction the Fund
would sell a security to a purchaser and agree to repurchase the security in
the future. The Funds will enter into reverse repurchase agreements only
with dealers, banks or recognized financial institutions. These agreements
are subject to the risk that the underlying security will decline in value
during the period when the Fund is obligated to repurchase it. If a Fund
enters into any such transaction, it will deposit high grade liquid debt
14
<PAGE>
assets in a segregated account with its custodian in an amount sufficient to
meet the Fund's obligations to the purchaser. Neither Fund will enter into
any reverse repurchase agreement if, as a result, more than 5% of its total
assets would be subject to such obligations.

Dollar Roll Transactions

The Taxable Income Funds may enter into dollar roll transactions with
selected banks and broker-dealers. Dollar roll transactions are treated as
reverse repurchase agreements for purposes of a Fund's borrowing restrictions
and consist of the sale by the Fund of mortgage-backed securities, together
with a commitment to purchase similar, but not identical, securities at a
future date, at the same price. If a Fund enters into any such transaction,
it will deposit high grade liquid debt assets in a segregated account with
the custodian in an amount sufficient to meet the Fund's obligations to the
purchaser. A Fund is paid a fee as consideration for entering into the
commitment to purchase. If the broker-dealer to whom the Fund sells the
security underlying a dollar roll transaction becomes insolvent, the Fund's
right to purchase or repurchase the security may be restricted. Additionally,
the value of the security may change adversely over the term of the dollar
roll and the return earned by the Fund with the proceeds of a dollar roll may
not exceed transaction costs.

Securities Lending

The Taxable Income Funds may from time to time lend securities on a short-
term basis to banks, brokers, dealers and certain financial institutions and
receive as collateral cash, government securities, or irrevocable bank
letters of credit. The borrowers will be required to deposit and maintain
collateral at least equal to 102% of the current value of the loaned
securities plus accrued interest. Securities loans will not be made by a
Fund if as a result the aggregate of all such outstanding loans exceeds one-
third of the value of the Fund's total assets. The Fund will continue to be
entitled to the interest payable on the loaned securities and will either
receive as income a portion of the interest on the investment of any cash
loan collateral or, in the case of collateral other than cash, a fee
negotiated with the borrower. The terms of these loans will provide that
they are terminable at any time. Loans of securities involve risks of delay
in receiving additional collateral or in recovering the securities loaned or
even loss of rights in the collateral in the event of the insolvency of the
borrower of the securities.

When-Issued Securities

The Taxable Income Funds may purchase securities on a when-issued or forward
delivery basis, for payment and delivery at a later date. The price and
yield are generally fixed on the date of the purchase commitment. During the
period between purchase and settlement, no interest accrues to the purchasing
Fund. At the time of settlement, the market value of the security may be
more or less than the purchase price.

Government Fund - Investment Policies

The Government Fund will invest at least 65% of its total assets in
obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities, and will invest at least 80% of its total
assets in such obligations and in readily marketable participations in such
obligations or in repurchase agreements secured by such obligations.
Although the Fund will acquire obligations issued or guaranteed by the U. S.
Government and its agencies and instrumentalities, neither the Fund's net
asset value nor its dividends are so guaranteed.

Participations, CMOs

To facilitate its investment in any of the types of obligations which the
Government Fund may acquire, the Fund may purchase "participations" in any of
these obligations. Participations are undivided interests in pools of
15
<PAGE>
securities which are assembled by certain banks or other responsible persons,
such as securities broker/dealers and investment banking houses, where the
underlying government credit support passes through or is otherwise available
to the participants or the trustee for all participants. Similarly, the Fund
may acquire collateralized mortgage obligations (CMOs), which are obligations
issued by a trust or other entity organized to hold a pool of U.S. Government
insured mortgage-backed securities (such as GNMA certificates) or mortgage
loans. The Fund will acquire a CMO when TMC believes that the CMO is more
attractive than the underlying securities in pursuing the Fund's primary and
secondary investment objectives. Participations and privately issued CMOs
are not considered U.S. Government securities, and are not considered part of
the 65% of the total assets of the Government Fund which will be invested in
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.

Other Securities

Government Fund may under certain market conditions invest up to 20% of
its assets in (i) time certificates of deposit maturing in one year or less
after the date of acquisition which are issued by United States banks having
assets of one billion dollars or more, or (ii) time certificates of deposit
insured as to principal by the Federal Deposit Insurance Corporation. If any
certificate of deposit (whether insured in whole or in part) is non-
negotiable, and it matures in more than seven days, it will be considered
illiquid and subject to the Fund's fundamental investment restriction that no
more than 10% of the Fund's net assets will be placed in illiquid
investments.

Income Fund - Investment Policies

In general, the Income Fund may purchase securities permissible for the
Government Fund. The Income Fund also may invest in other types of debt
securities, so long as at least 65% of its net assets are invested in a
managed portfolio of securities consisting of:

* U.S. Government securities, including bonds, notes, and bills issued
by the U.S. Treasury, and securities issued guaranteed by agencies
and instrumentalities of the U.S. Government;
* Corporate debt securities, such as bonds, notes and debentures;
* Mortgage-backed securities;
* Other asset-backed securities;
* Municipal securities;
* Money market instruments which are comprised of commercial paper,
bank obligations (i.e., certificates of deposit and bankers'
acceptances) and repurchase agreements;
* Privately-placed securities (restricted securities); and
* Foreign securities, including non-U.S. dollar-denominated securities
and U.S. dollar-denominated debt securities issued by foreign issuers
and foreign branches of U.S. banks.

Municipal Securities

Income Fund may invest in municipal securities, which include obligations
issued by states, territories and possessions of the United States, and their
political subdivisions, agencies and instrumentalities. Municipal securities
may be "general obligation" bonds or "revenue bonds." General obligation
bonds are backed by the credit of the issuing political subdivision or
agency, and revenue bonds are repaid from the revenues derived from a
specific project such as a waste treatment plant or stadium. Although
investments in municipal obligations will be made subject to the Fund's
16
<PAGE>
emphasis on purchases of investment grade securities (described on page 19
under "Securities Ratings and Credit Quality"), municipal obligations are
subject to the provisions of bankruptcy, insolvency and other laws affecting
the rights and remedies of creditors. In addition, these obligations could
become subject to actions by state legislatures or voter referenda extending
the time for repayment of principal or imposing other constraints upon
enforcement of the obligations or upon political subdivisions to levy taxes
to pay the obligations.

Foreign Securities

While Income Fund generally emphasizes investments in U. S. Government
securities and other issuers domiciled in the United States, it may invest in
foreign securities of the same types and quality as the domestic securities
in which it may invest. It may do so when TMC anticipates that the
performance of foreign securities offers more potential than domestic
alternatives. Foreign securities may be denominated either in U. S. dollars
or foreign currencies.

Income Fund may also invest in instruments offered by brokers which
combine forward contracts, options and securities in order to reduce foreign
currency exposure. Income Fund may enter into multiple futures, options
and foreign currency transactions or a combination of these transactions,
instead of a single transaction, as part of a hedging strategy.

Investments in foreign securities involve special risks due to more limited
information, higher brokerage costs, different accounting standards, thinner
trading markets and the likely impact of foreign taxes on the yield from debt
securities. They may also entail other risks, such as the possibility of one
or more of the following: imposition of dividend or interest withholding or
confiscatory taxes; currency blockages or transfer restrictions;
expropriation, nationalization or other adverse political or economic
developments; less government supervision and regulation of securities
exchanges, brokers and listed companies; and the difficulty of enforcing
obligations in other countries. Purchases of foreign securities are usually
made in foreign currencies and, as a result, the Income Fund may incur
currency conversion costs and may be affected favorably or unfavorably by
changes in the value of foreign currencies against the U. S. dollar.
Further, it may be more difficult for the Income Fund's agents to keep
currently informed about corporate actions which may affect the prices of
portfolio securities. Communications between the United States and foreign
countries may be less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Income Fund's ability and decisions
to purchase and sell portfolio securities may be affected by laws or
regulations relating to the convertibility and repatriation of assets. These
risks may be more acute in the case of developing countries.

Other Investment Strategies

Income Fund may, but is not required to, utilize various other investment
strategies described below to hedge various market risks such as the
effective maturity or duration of fixed-income securities, or to enhance
potential gain. Such strategies are generally accepted by modern portfolio
managers and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as
new instruments and strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, Income Fund may
purchase and sell exchange-listed and over-the-counter put and call options
on securities, financial futures, equity and fixed-income indices and other
financial instruments, purchase and sell financial futures contracts, enter
into various interest rate transactions such as swaps, caps, floors or
collars, and enter into various currency transactions such as currency
17
<PAGE>
forward contracts, currency futures contracts, currency swaps or options on
currency or currency futures (collectively, all the above are called
"Strategic Positions"). Strategic Positions may be used to attempt to
protect against possible changes in the market value of securities held in or
to be purchased for Income Fund's portfolio resulting from securities
markets or currency exchange rate fluctuations, to protect Income Fund's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities for investment purposes, to manage the effective
maturity or duration of Income Fund's portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchasing
or selling particular securities. The Fund may manage its portfolio maturity
or duration by using options, futures and swaps to acquire and dispose of
specific securities having maturities which are then considered desirable in
managing the Fund's maturity or duration. "Duration" is a measure of an
obligation's life, based upon the present value of the obligor's payments of
principal and interest, and is usually shorter than the obligation's
maturity. Some Strategic Positions may also be used to enhance potential
gain, although no more than 5% of the Fund's assets will be committed to
Strategic Positions entered into for purposes other than bona fide hedging,
risk management or portfolio management. Any or all of these investment
techniques may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, because use of any
Strategic Transaction is a function of numerous variables including market
conditions. The ability of the Income Fund to utilize these Strategic
Positions successfully will depend on TMC's ability to predict pertinent
market movements, which cannot be assured. Income Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments.

Strategic Positions involve certain risks including possible default by the
other party to the transaction, illiquidity and, to the extent TMC's view as
to certain market movements is incorrect, the risk that the use of such
Strategic Positions could result in losses greater than if they had not been
used. Selling put and call options may result in losses to Income Fund,
force the purchase or sale of portfolio securities at inopportune times or
for prices higher than (in the case of put options) or lower than (in the
case of call options) current market values, limit the amount of appreciation
the Fund can realize on its investments or cause the Fund to hold a security
it might otherwise sell. The use of currency transactions can result in
Income Fund incurring losses as a result of a number of factors including the
imposition of exchange controls, suspension of settlements, or the inability
to deliver or receive a specified currency. The use of options and futures
transactions entails certain other risks. In particular, the variable degree
of correlation between price movements of a futures contract and price
movements in the related portfolio position of the Fund creates the
possibility that losses on the hedging instrument may be greater than gains
in the value of the Fund's position.

In addition, futures and options markets may not be liquid in all
circumstances, and over-the-counter options and certain other Strategic
Positions (e.g. caps and floors) are considered to be illiquid securities. As
a result, in certain markets, Income Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the
contemplated use of these futures contracts and options should tend to
minimize the risk of loss due to a decline in the value of the hedged
position, at the same time they tend to limit any potential gain resulting
from an increase in the position's value. Income Fund will not invest in any
over-the-counter option, cap, rate swap, currency swap, floor or other
illiquid security, if, as a result of that investment, more than 15% of its
net assets would be invested in securities which are not readily marketable
by the Fund. The Fund will segregate cash or high grade liquid debt assets
sufficient to meet its obligation to purchase and deliver securities or
currencies under any futures contract or option or to pay any amount owed
upon the expiration of an index-based futures contract. Finally, the daily
margin requirements for futures contracts may create a greater ongoing
18
<PAGE>
potential financial risk than would purchases of options, where the exposure
is limited to the cost of the initial premium. Losses resulting from the use
of Strategic Positions would reduce net asset value, and possibly income, and
such losses could be greater than if the Strategic Positions had not been
utilized. The Strategic Positions that the Fund may use and some of their
risks are described more fully in the Income Fund's Statement of Additional
Information.

Covered Short Sales

Income Fund may make short sales of securities. It will only do so in
circumstances where it owns securities of the type sold, or securities giving
it the right to obtain securities equivalent in kind and amount to the
securities sold. If the right is conditional, a sale may be made only upon
the same conditions, except in connection with arbitrage transactions. The
Fund may also, however, obtain such short-term credits as may be necessary
for the clearance of purchases and sales of securities.

Segregated Accounts

Income Fund may be required to segregate high grade debt assets in order to
provide coverage consistent with applicable regulatory policies on reverse
repurchase agreements, covered call and put options written by the Fund, to
cover forward foreign currency exchange contracts that require the Fund to
purchase or sell foreign currency for hedging purposes, or in an amount equal
to the value of the instruments underlying any futures contracts and options
on futures.

SECURITIES RATINGS
AND CREDIT QUALITY

Each of the Municipal Funds' assets will normally consist of (1) securities,
or participation interests therein, that are rated at the time of purchase
within the four highest grades by Moody's Investors Service ("Moody's"),
Fitch Investors Service ("Fitch"), or Standard & Poor's Corporation ("S&P"),
(2) securities, or participation interests therein, that are not rated by a
rating agency, but are issued by obligors that, at the time of purchase,
either have other comparable debt obligations that are rated within the four
highest grades (Baa or BBB or better) by Moody's or S&P or Fitch or, in the
case of obligors whose obligations are unrated, are deemed by TMC to be
comparable to issuers having such debt ratings, and (3) cash. Government
Fund invests at least 65% of its total assets in obligations issued or
guaranteed by the U. S. Government or its agencies or instrumentalities, and
may invest in participations, repurchase agreements and other obligations
described above on page 11. Such obligations are not typically rated. At
least 65% of Income Fund's net assets will be invested in (1) obligations of
the U. S. Government, its agencies and instrumentalities, and in (2) debt
securities rated at the time of purchase in one of the three highest
categories of Standard & Poor's Corporation (AAA, AA or A) or Moody's
Investor's Service, Inc. (Aaa, Aa or A) or, if not rated, judged to be of
comparable quality by TMC. Income Fund will not invest in any debt security
rated at the time of purchase lower than BBB by Standard & Poor's or Baa by
Moody's or of equivalent quality as determined by TMC.

Securities rated in the described categories are described as "investment
grade," and are regarded as having a capacity to pay interest and repay
principal that varies from "extremely strong" to "adequate." According to
S&P, for example, BBB bonds normally exhibit adequate protection parameters,
although adverse economic conditions or other changes are more likely to lead
to a weakened capacity compared to higher rated categories, and AAA bonds
exhibit extremely strong capacity. Securities rated Baa are regarded by
Moody's as having some speculative characteristics. Securities rated BBB by
Fitch are considered to have adequate capacity, although adverse changes in
economic conditions and circumstances are more likely to have an adverse
impact than for higher rated categories. Please see the Statement of
Additional Information for detailed descriptions of these ratings.
19

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

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

INVESTMENT POLICIES AND RISKS
OF VALUE FUND

General Investment Principles

Value Fund seeks long-term capital appreciation by investing in equity and
debt securities of all types. This goal is a fundamental policy of the Fund
and may be changed only with shareholder approval. The 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.

TMC intends to invest on an opportunistic basis, where in their opinion there
is intrinsic value. Value Fund's principal focus will be on traditional,
value stocks. However, the portfolio may include stocks and other securities
that in TMC's opinion provide value in a broader or different context. 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. The Fund will
typically buy the latter when they are out of favor. The relative proportions
of these different types of securities will vary over time. The portfolio
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.
20

<PAGE>
TMC primarily uses individual company and industry analysis when making
investment decisions for Value Fund. The Fund 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 companies' 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 the 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
Value Fund's investment portfolio 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
Fund's exposure to loss under adverse market conditions.

* 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 Value Fund may invest in the stock of issuers of any size, including
stocks of small, unseasoned issuers.

<PAGE>
Securities and Investment Practices and Risks

Described below are certain investment practices Value Fund may use in
pursuing its investment objective, risks associated with those practices, and
certain restrictions which apply to the Funds's investments. TMC may not buy
all of these instruments or use all of these techniques to the full extent
permitted unless it believes that doing so will help the Fund achieve its
goal. Current holdings are described in the Fund's financial reports which
are sent to shareholders twice a year. For a free Statement of Additional
Information or financial report, call 800-847-0200.

Restrictions. With respect to 75% of total assets, the Fund may not own
more than 10% of the outstanding voting securities of a single issuer.

<PAGE>
Lower-quality debt securities (sometimes called "junk bonds" or "high yield
securities") are rated below investment grade by the primary rating agencies,
and are often considered to be speculative. These securities involve greater
risk of default or price changes due to changes in the issuer's
creditworthiness, or they may already be in default. The market prices of
these securities may fluctuate more than higher-quality securities and may
decline significantly in periods of general economic difficulty or in
response to adverse publicity or changes in investor perceptions.

These factors could make foreign investments more volatile. The Fund will
only invest in companies domiciled in a country whose currency is freely
convertible into U.S. dollars and in companies (such as oil production
companies) 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. Risks of investment
in developing countries may be greater than risks otherwise pertaining to
foreign securities due to conditions in those countries, including illiquid
markets, increased difficulty in repatriating assets and earnings, reduced or
uncertain legal protections for investors, and greater political instability.

Adjusting Investment Exposure. Value Fund can use various techniques to
increase or decrease its exposure to changing securities prices, interest
rates, currency exchange rates, commodity prices, or other factors that
affect securities values. These techniques may involve derivative
transactions such as buying and selling options and futures contracts,
entering into currency exchange contracts or swap agreements, purchasing
indexed securities, and selling securities short. TMC can use these practices
to adjust the risk and return characteristics of the Fund's portfolio of
investments. If TMC judges market conditions incorrectly or employs a
strategy that does not correlate well with the Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the price
volatility of the Fund and may involve a small investment of cash relative to
the magnitude of the risk assumed. In addition, these techniques could result
in a loss if the counterparty to the transaction does not perform as
promised.

Other Securities include short-term, highly liquid securities, such as time
certificates of deposit, and investment grade short-term corporate debt
obligations and commercial paper. The Fund may, under normal conditions,
23
<PAGE>
hold a portion of its assets in other securities pending investment of idle
funds or to provide liquidity. During temporary defensive conditions, the
Fund may invest up to 100% of its assets in other securities. If any
certificate of deposit is non-negotiable, and it matures in more than seven
days, it will be considered illiquid.

Restrictions. The 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. The Fund may borrow from banks or through reverse repurchase
agreements. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off. If the Fund makes
additional investments while borrowings are outstanding, this may be
considered a form of leverage.

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 the Fund's securities.

Restrictions. Loans, in the aggregate, may not exceed 33-1/3% of the
Fund's total assets.

Portfolio Turnover. The Fund does not anticipate that its 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.

Portfolio Turnover - All Funds

Each of the Funds had the portfolio turnover rate shown below for its most
recent fiscal year:
<TABLE>
Fund Turnover Rate Fiscal Year Ended
---- ------------- -----------------
<S> <C> <C>
Limited Term National Fund 23.39% June 30, 1997
Limited Term California Fund 20.44% June 30, 1997
Intermediate National Fund 15.36% September 30, 1997
Government Fund 41.10% September 30, 1997
Income Fund 13.87% September 30, 1997
Value Fund 78.83% September 30, 1997
</TABLE>
24

<PAGE>
Each Fund anticipates that its annual turnover rate normally will be less
than 100%. A 100% turnover rate would occur, for example, if all of the
securities held by a Fund were sold and replaced within one year. TMC does
not consider the portfolio turnover rate a limiting factor in making
investment decisions for a Fund which are otherwise consistent with that
Fund's investment objectives and management policies. A higher rate of
turnover, may, however, result in increased transaction costs and taxable
capital gains.

YOUR ACCOUNT

Buying Fund Shares

The Institutional Class shares of the Funds are sold on a continuous basis
with no initial sales charge or contingent deferred sales charge at the net
asset value (NAV) per share next determined after a purchase order is
received by the Funds' transfer agent and accepted. The NAV of each Fund is
computed at least once each day the Funds conduct business, by adding the
value of the Fund's assets, subtracting its liabilities and dividing the
result by the number of shares outstanding. NAV is normally calculated at
four o'clock p. m. Eastern time on each day the New York Stock Exchange is
open. See the table below for instructions on how to place
your order.

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 30.

Qualified individual investors and qualified institutions purchasing shares
for their own account are eligible to purchase Institutional Class shares
provided they invest a minimum of $2,500,000. The minimum amount for
subsequent purchases is $5,000. Qualified institutions include corporations,
banks and insurance companies purchasing for their own account and other
institutions such as trusts, endowments and foundations. TMC or TSC may make
payments from their own resources to assist in the sales or promotion of the
Funds.

Opening An Account
- ----------------------------------------------------------------------------
Buying Shares To Open an Account To Add To An Account
- ----------------------------------------------------------------------------

Qualified Individual Minimum Minimum
or Institutional $2,500,000 $5,000

Qualified Plans Consult your Plan Consult your Plan
Administrator Administrator

Within Wrap or Fee Based Consult your Program Consult your Program
Program Sponsor Sponsor

By Telephone Exchange from another Exchange from another
1-888-598-0400 Thornburg Fund Thornburg Fund
account with the same account with the same
registration, registration
including name, including name,
address, and address, and
taxpayer ID number. taxpayer ID number.

By Mail Complete and sign Make your check
the application. payable to the
Make your check applicable
payable to the Thornburg Fund.
applicable Indicate your
Thornburg Fund. Fund account number
Mail to the address on your check and
indicated on the mail to the address
application. printed on your
account statement.
Automatic Investment Plan Use one of the above Use Automated Clearing
procedures to open House funds. Sign up
your account. Obtain for this service when
an Automatic you open your account,
Investment Plan form or call 1-888-598-0400
to sign up for this to add it.
service.
- ----------------------------------------------------------------------------
25

<PAGE>
Qualified employee benefit or retirement plans other than an individual
retirement account ("IRA") or SEP-IRA are also eligible to purchase
Institutional Class shares, provided they either invest a minimum of
$1,000,000 in the Funds or have 100 or more eligible participants enrolled in
the plan. There is no minimum amount for subsequent purchases.

Investment dealers, financial advisers or other investment professionals,
including bank trust departments and companies with trust powers, purchasing
for the accounts of others within a clearly defined "wrap" or other fee based
investment advisory program are eligible to purchase Institutional Class
shares. TSC will establish a minimum amount per program or per account to
qualify for purchase of Institutional Class shares. The minimum amount per
program is currently $250,000. Consult your applicable professional for
their minimum.

Employees, officers, trustees, directors of any Thornburg Fund or Thornburg
company, and their families or trusts established for the benefit of any of
the foregoing, may also purchase Institutional Class shares.

Opening an Account

Complete and sign an account application and give it, along with your check,
to the Fund in which you are investing or to your financial intermediary.
You may also open your account by wire or mail. If there is no application
accompanying this prospectus, please call 1-888-598-0400. If you buy shares
by check and then redeem those shares, the payment may be delayed for up to
15 business days to ensure that your previous investment has cleared.

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

If you open or add to your account yourself rather than through your
financial advisor please note the following:

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

Street Name Accounts. Some financial intermediaries offer to act as owner of
record of Fund shares as a convenience to investors who are clients of those
firms and shareholders of an individual Fund. Neither the Funds nor their
Transfer Agent can be responsible for failures or delays in crediting
shareholders for dividends or redemption proceeds, or for delays in reports
to shareholders if a shareholder elects to hold Fund shares in street-name
through an account with a financial intermediary rather than directly in the
shareholder's own name. Further, neither the Funds nor their Transfer Agent
26
<PAGE>
will be responsible to the investor for any loss to the investor due to the
failure of a financial intermediary, its loss of property or funds, or its
acts or omissions. Prospective investors are urged to confer with their
financial intermediaries to learn about the different options available for
owning mutual fund shares. You may receive share certificates or hold shares
in your name with the Transfer Agent upon request.

SELLING FUND SHARES

Shareholders of record (the person or entity in whose name the shares are
registered) can withdraw money from their Fund at any time by redeeming some
or all of the shares in the account, either by selling them back to the Fund
or by selling the shares through their financial advisor. The shares will be
purchased by the Fund at the next share price (NAV) calculated after the
redemption order is received in proper form. Share price is normally
calculated at 4 p.m. Eastern time. Please note the following:

* Consult your financial advisor for procedures governing redemption
through the advisor's firm.

* Telephone redemptions over the wire generally will be credited to your
bank account on the business day after your phone call (see Telephone
Redemption, page 29).

- ---------------------------------------------------------------------------
Redeeming Shares Account Type Special Requirements
- ---------------------------------------------------------------------------
Through a Financial All Account Types Consult with your
Intermediary financial advisor.
They may charge a fee.

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

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

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

Executor, Call 888-598-0400 for
Administrator, instructions.
Conservator,
Guardian

By Telephone All account types You must sign up for
except Street Name the telephone
Accounts redemption feature
before using it.
Minimum Wire $1,000
Minimum Check $500
- ---------------------------------------------------------------------------
27

<PAGE>
* Your Fund may hold payment on redemptions until it is reasonably
satisfied that investments previously made by check have been
collected, which can take up to 15 business days.

* Payment for shares redeemed normally will be made by mail the next
business day, and in most cases within seven days, after receipt by the
Transfer Agent of a properly executed request for redemption
accompanied by any outstanding certificates in proper form for
transfer. The Funds may suspend the right of redemption and may
postpone payment when the New York Stock Exchange is closed for other
than weekends or holidays, or if permitted by rules of the Securities
and Exchange Commission during an emergency which makes it impractical
for the Funds to dispose of their securities or fairly to determine net
asset value, or during any other period specified by the Securities and
Exchange Commission in a rule or order for the protection of investors.

* No interest is accrued or paid on amounts represented by uncashed
distribution or redemption checks.

* To the extent consistent with state and federal law, your Fund may make
payments of the redemption price either in cash or in kind. The Funds
have elected to pay in cash all requests for redemption by any
shareholder. They may, however, limit such cash in respect to each
shareholder during any 90 day period to the lesser of $250,000 or 1% of
the net asset value of a Fund at the beginning of such period. This
election has been made pursuant to Rule 18f-1 under the Investment
Company Act of 1940 and is irrevocable while the Rule is in effect
unless the Securities and Exchange Commission, by order, permits its
withdrawal. In the case of a redemption in kind, securities delivered
in payment for shares would be valued at the same value assigned to
them in computing the net asset value per share of the Fund. A
shareholder receiving such securities would incur brokerage costs when
selling the securities.

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

If you are a qualified individual or qualified institution selling some but
not all of your shares, leave at least $25,000 worth of shares in the account
to keep it open. If you own shares through a "wrap" or fee based program,
you must leave at least $1,000 worth of shares in the account to keep it
open. There is no minimum balance requirement for Qualified Plans.

Certain requests must include a signature guarantee. It is designed to
protect you and your Fund from fraud. If you are redeeming directly rather
than through a financial adviser and you have not signed up for
telephone redemption, your request must be made in writing and include a
signature guarantee if any of the following situations apply:

* You wish to redeem more than $10,000 worth of shares,

* Your account registration has changed within the last 30 days,

* The redemption check is being mailed to a different address than the
one on your account,

* The check is being made payable to someone other than the person in
whose name the account is registered, or

* The redemption proceeds are being transferred to a Thornburg account
with a different registration.

<PAGE>
Telephone Redemption

If you completed the telephone redemption section of your application when
you first purchased your shares, you may easily redeem shares of your Fund by
telephone. Simply call a Fund Customer Service Representative at
888-598-0400. Money can be wired directly to the bank account designated by
you on the application or sent to you in a check. The Fund's Transfer Agent
may charge a fee for a bank wire. This fee will be deducted from the amount
wired.

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

Considerations With Respect to Telephone Redemption

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

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 8:30 am to 6:30 p.m. Eastern time. Whenever you call, you can
speak with someone equipped to provide the information or service you need.

Statements and reports that Thornburg Funds send to you include the
following:

* Account statements after every transaction affecting your account

* Monthly account statements (except the Value Fund which sends
quarterly account statements)

* Financial reports (every six months)

* Cost basis statement (at the end of any year in which you redeem
shares)
29

<PAGE>
Exchange Privilege

You may exchange Institutional Class shares of any Thornburg Fund for
Institutional Class shares of any other Thornburg Fund that offers
Institutional Class shares, subject to the restrictions described below.
Please consult the exchange and reinvestment privilege information in the
Prospectus of the other Thornburg Fund. Note that exchanges out of a Fund
may have tax consequences for you.

Exchange Restrictions

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

* The Fund you are exchanging into must be registered for sale in your
state.

* You may only exchange between accounts that are registered in the same
name address, and taxpayer identification number.

* Before exchanging into a Fund, read its prospectus.

* Exchanges may have tax consequences for you.

* Because excessive trading can hurt fund performance and shareholders,
each Fund reserves the right to temporarily or permanently terminate
the exchange privilege of any investor who makes more than four
exchanges out of a Fund in any calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the
four exchange limit.

* Each Fund reserves the right to refuse exchange purchases by any person
or group if, in TMC's judgment, the Fund would be unable to invest the
money effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.

* Your exchanges may be restricted or refused if a Fund receives or
anticipates simultaneous orders affecting significant portions of the
Fund's assets. In particular, a pattern of exchanges that coincide
with a "market timing" strategy may be disruptive to a Fund. Although
a Fund will attempt to give prior notice whenever it is reasonably able
to do so, it may impose these restrictions at any time. The Funds
reserve the right to terminate or modify the exchange privilege in the
future.

Systematic Withdrawal Plans

Systematic withdrawal plans let you set up periodic redemptions from your
account. Consult your financial intermediary or call a Fund Customer Service
Representative at 888-598-0400 for information.

<PAGE>
SHAREHOLDER & ACCOUNT POLICIES

Dividends and Capital Gains

Each Fund distributes substantially all of its net income and realized
capital gains, if any, to shareholders each year. Each of the Municipal
Funds and the Taxable Income Funds declares its net investment income daily
and distributes it monthly. Value Fund distributes net investment income
quarterly. Each Fund will distribute net realized capital gains, if any, at
least annually. Capital gain distributions, if any, normally will be
declared and payable in December. You will be notified annually by your Fund
as to the amount and characterization of distributions paid to or reinvested
by you for the preceding tax year.

Distribution Options

The Funds earn interest from bond, money market, and other investments.
These are passed along as dividend distributions. Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them.
These are passed along as capital gain distributions. When you open an
account, specify on your application how you want to receive your
distributions. Each Fund offers four options, which you can change at
anytime. Shares of any Thornburg Fund purchased through reinvestment of
dividend and capital gain distributions are not subject to sales charges or
contingent deferred sales charges. No interest or earnings are accrued or
paid on amounts represented by uncashed distribution checks.

Dividends

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

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

Capital Gain

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

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

Turnover and Capital Gains

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

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

To minimize taxable capital gain distributions, each Fund will realize
capital losses, if available, when, in the judgment of the portfolio
manager, the integrity and income generating aspects of the portfolio would
be unaffected by doing so.
31

<PAGE>
TAXES

Federal Taxes - In General

Each Fund has qualified under Subchapter M of the Internal Revenue Code (the
"Code") for tax treatment as a regulated investment company, and intends to
continue its qualification so long as qualification is in the best interests
of its shareholders under Subchapter M. This tax treatment relieves a Fund
from paying federal income tax on income which is currently distributed to
its shareholders. Certain general aspects of federal income taxation of
individual shareholders are discussed below. Aspects of investment by
shareholders who are not individuals are addressed in a limited manner.
Prospective investors, and in particular persons who are not individuals,
should consult their own tax advisers concerning federal, state and local tax
consequences respecting investments in the Funds.

Federal Taxes - Municipal Funds

The Municipal Funds intend to satisfy conditions that will enable them
to designate distributions from the interest income generated by investments
in Municipal Obligations, which are exempt from federal income tax when
received by a Fund, as Exempt Interest Dividends. Shareholders receiving
Exempt Interest Dividends will not be subject to federal income tax on the
amount of such dividends, except to the extent the alternative minimum tax
may be imposed.

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

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

The Code treats interest on certain Municipal Obligations which are private
activity bonds under the Code as a preference item for purposes of the
alternative minimum tax on individuals and corporations. The Municipal Funds
may purchase without limitation private activity bonds the interest on which
is subject to treatment under the Code as a preference item for purposes of
the alternative minimum tax on individuals and corporations, although the
frequency and amounts of these purchases are uncertain. Some portion of
32
<PAGE>
Exempt Interest Dividends could, as a result of such purchases, be treated as
a preference item for purposes of the alternative minimum tax on individuals
and corporations. Shareholders are advised to consult their own tax advisers
as to the extent and effect of this treatment.

Federal Taxes - Taxable Income Funds

Distributions to shareholders representing net investment income and net
short term capital gains will be taxable to the recipient shareholders as
ordinary income, whether the distributions are actually taken in cash or are
reinvested in additional shares. Fund distributions will not be eligible for
the dividends received deduction for corporations. Distributions of net
long-term capital gains, if any, will be treated as long-term capital gains
by shareholders regardless of the length of time the shareholder has owned
the shares, and whether received as cash or in additional shares.

Redemption or resale of shares by a shareholder will be a taxable transaction
for federal income tax purposes, and the shareholder will recognize gain or
loss in an amount equal to the difference between the shareholder's basis in
the shares and the amount received on the redemption or resale. If the
shares sold or redeemed are a capital asset, the gain or loss will be a
capital gain or loss and will be long-term if the shares were held for more
than one year.

Federal Taxes - Value Fund

Your distributions are taxable when paid, whether taken as cash or
reinvested. For federal tax purposes, the Value 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 each shareholder and the IRS a statement showing the taxable
distributions paid in the previous year. You should consult with your tax
advisor for the correct federal and state treatment of distributions.
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 the 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. The Fund may pay withholding or other taxes to foreign
governments during the year. These taxes reduce the Fund's 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.

State Taxes

With respect to distributions of interest income and capital gains from the
Funds, the laws of the several states and local taxing authorities vary with
respect to the taxation of such distributions, and shareholders of the Funds
are advised to consult their own tax advisers in that regard. The Municipal
Funds will advise shareholders approximately 60 days after the end of each
calendar year as to the percentage of income derived from each state as to
which it has any Municipal Obligations in order to assist shareholders in the
preparation of their state and local tax returns. Distributions of interest
income by Limited Term California Fund to individuals resident in California,
to the extent the interest income is attributable to Municipal Obligations
originating in California, will not be subject to California personal income
tax under current law. The Taxable Income Funds will advise shareholders
approximately 60 days after the end of each calendar year as to the
percentage of income derived from Treasury securities in order to assist
shareholders in the preparation of their state and local tax returns.
Prospective investors are urged to confer with their own tax advisers for
more detailed information concerning state tax consequences.
33

<PAGE>
SERVICE PLAN

Each of the Funds has adopted an institutional class Service Plan under which
TMC may make payments to securities dealers and other financial institutions,
intermediaries and organizations to obtain various shareholder related
services or to reimburse their marketing expenses. Each Fund's Service Plan
permits the Fund to reimburse TMC for these payments at an annual rate of up
to .25% of the Fund's net assets attributable to Institutional Class shares.
No assets attributable to Institutional Class shares will be used to
reimburse expenses related to any other class of shares of the same Fund.
TMC has no present intention to seek any reimbursement from any of the Funds
under the Service Plans.

The Glass-Steagall Act prohibits certain banks from underwriting mutual fund
shares. The Funds do not believe that this prohibition will apply to the
plans described above. However, no assurance can be given that the Glass-
Steagall Act will not be interpreted so as to prohibit this arrangement. 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.

PERFORMANCE

Yield Computation and Total Return

Each Fund may quote its yields and returns in reports, sales literature and
advertisements. Yield and return information are computed separately for each
class of a Fund's shares. Yield and return could differ in minor respects
among classes of the same Fund because of allocation of certain expenses to
one or more specific classes to which the expenses relate. Any return quoted
should not be considered a representation of the return in the future since
return figures are based upon historical earnings. Actual performance will
vary.

Current yield quotations will include a standardized calculation which
computes yield for a 30-day or one-month period by dividing the Fund's net
investment income per share during the period by its net asset value on the
last day of the period and annualizing the result. Provided that any such
quotation is also accompanied by the standardized calculation referred to
above, the Fund may also quote non-standardized yields. The primary
differences between the yield calculations obtained using the standardized
performance measure and any non-standardized performance measure will be
caused by the following factors: The non-standardized calculation may cover
periods other than the 30-day or one month period required by the
standardized calculation; (2) The non-standardized calculation may reflect
amortization of premium based upon historical cost rather than market value;
(3) The non-standard return quotation may include the effective return
obtained by compounding the monthly dividends; (4) The non-standard return
quotation may use the average price during the period, or its price on the
first day of the period.

Average annual total return quotations show the average annual percentage
change in value of $1,000 for one, five and ten-year periods unless the class
has been in existence for a shorter period. Average annual total return
assumes the reinvestment of all dividends. The Fund may also furnish average
annual total return quotations for other periods. Total return quotations
show the total of all income and capital gain paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in the value of
the original investment, expressed as a percentage of the purchase price.
Yields and returns described in this section may also be quoted on a "taxable
equivalent yield" basis by computing the taxable yield or return which a
hypothetical investor subject to a specified income tax rate must realize to
receive the same yield or return after taxes. When a taxable equivalent yield
is quoted, the following additional information will be furnished: (1) a
standardized current yield; (2) the length of and the last day of the base
period used in computing the quotation; and (3) a description of the method
by which the quotation is computed.
34

<PAGE>
Yield and return information may be useful in reviewing the performance of a
Fund and for providing a basis for comparison with other investment
alternatives. Comparative information about the yield or distribution rate
of the shares of the Fund and about average rates of return on certificates
of deposit, bank money market deposit accounts, money market mutual funds and
other short-term investments may also be included in advertisements and
communications of the Fund. Any such comparison will contain information
about the differences between the Fund and those investments.

From time to time, in advertisements and other types of literature, the
performance of a Fund may be compared to other groups of mutual funds. This
comparative performance may be expressed as a ranking or a rating prepared by
Lipper Analytical Services, Inc., Donoghue Organization, Inc., Morningstar,
Inc., Value Line or other widely recognized independent services which
monitor the performance of mutual funds. Performance rankings and ratings
reported periodically in national financial publications such as MONEY
Magazine, FORBES, BARRON's, VALUE LINE, the WALL STREET JOURNAL and
MORNINGSTAR, and other such publications may also be used. A Fund may
illustrate performance or the characteristics of its respective investment
portfolios through graphs, tabular data, or other displays which describe (i)
the average portfolio maturity of the Fund's portfolio securities relative to
the maturities of other investments, (ii) the relationship of yield and
maturity of the Fund to the yield and maturity of other investments (either
as a comparison or through use of standard benchmarks or indices such as the
Treasury yield curve), (iii) changes in the Fund's share price or net asset
value relative to changes in the value of other investments, and (iv) the
relationship over time of changes in the Fund's (or other investments) net
asset values or prices and the Fund's (or other investments') investment
returns. The Fund may also illustrate or refer to its respective investment
portfolio, investment techniques and strategies, and general market or
economic trends in advertising or communications to shareholders or
prospective shareholders, including reprints of interviews or articles
written by or about, and including comments by, Fund managers. These
illustrations, references and comments ordinarily will relate to topics
addressed in the Fund's Prospectus and Statement of Additional Information.

ORGANIZATION OF THE FUNDS

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

Intermediate Municipal Fund, Government Fund, Income Fund and Value Fund are
diversified series of Thornburg Investment Trust, a Massachusetts business
trust (the "Trust") organized as a diversified, open-end management
investment company under a Declaration of Trust (the "Declaration"). The
Trust currently has 12 authorized Funds, four of which are described in this
Prospectus. The Trustees are authorized to divide the Trust's shares into
additional series and classes.

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

Each Fund may hold special shareholder meetings and mail proxy materials,
These meetings may be called to elect or remove Directors or Trustees, change
fundamental investment policies, or for other purposes.
35
<PAGE>
Shareholders not attending these meetings are encouraged to vote by proxy.
Each Fund will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on. The number of votes you are
entitled to is based upon the number of shares you own. Shares do not have
cumulative voting rights or preemptive rights.

THORNBURG MANAGEMENT COMPANY, INC. AND THORNBURG SECURITIES CORPORATION

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

TMC was established in 1982. Today, the Thornburg Funds include three other
mutual funds in addition to the Funds covered by this Prospectus. The
Thornburg Funds total over $1.8 billion in assets. Thornburg Management
Company Inc. is known as a provider of conservative investment products. For
more than a decade the Thornburg Funds have been committed to preserving and
increasing the real wealth of their shareholders. The key to growing real
wealth is increasing buying power after taxes, inflation, and investment
related expenses. TMC receives fees for managing each Fund computed in
accordance with the following tables. These annual rates are calculated on
average daily net assets and are paid monthly.

- -------------------------------------------------------
Limited Term National Fund and Limited Term California Fund
- -------------------------------------------------------
Net Assets of Fund Advisory Fee Rate Administrative Services Rate
- ----------------- ----------------- ---------------------------
0 to $500 million .50% .05%
$500 million to $1 billion .40% .05%
$1 billion to $1.5 billion .30% .05%
$1.5 billion to $2 billion .25% .05%
Over $2 billion .225% .05%

- ------------------------------------------
Intermediate National Fund and Income Fund
- ---------------------------------------
Net Assets of Fund Advisory Fee Rate Administrative Services Rate
- ----------------- ----------------- ----------------------------
0 to $500 million .50% .05%
$500 million to $1 billion .45% .05%
$1 billion to $1.5 billion .40% .05%
$1.5 billion to $2 billion .35% .05%
Over $2 billion .275% .05%

- ---------------
Government Fund
- --------------
Net Assets of Fund Advisory Fee Rate Administrative Services Rate
- ----------------- ---------------- ------------------------------
0 to $1 billion .375% .05%
$1 billion to $2 billion .325% .05%
Over $2 billion .275% .05%

<PAGE>

- ----------
Value Fund
- ----------
Net Assets of Fund Advisory Fee Rate Administrative Services Rate
- ----------------- ----------------- --------------------------
0 to $500 million .875% .05%
$500 million to $1 billion .825% .05%
$1 billion to $1.5 billion .775% .05%
$1.5 billion to $2 billion .725% .05%
Over $2 billion .675% .05%
- ---------------------------------------------------------------------------

Brian J. McMahon and George Strickland, both of whom are Managing Directors
of TMC, have primary responsibility for the day-to-day management of the
Municipal Funds. Mr. McMahon has managed municipal bond portfolios for TMC
since 1984 and Mr. Strickland ahs performed municipal bond credit analyses
and management since joining TMC in 1991. Mr. McMahon and Mr. Strickland are
assisted by other employees of TMC in managing the Municipal Funds.

Steven J. Bohlin, a Managing Director of TMC, has primary responsibility for
the day-to-day management of the Taxable Income Funds. He has held this
responsibility for Government Fund since 1988 and for Income
Fund since its inception in 1992. Mr. Bohlin is assisted by other employees
of TMC in managing the Taxable Income Funds.

William Fries, a Managing Director of TMC, is the portfolio manager of Value
Fund, which he has managed since its inception in 1995. Before joining TMC
in May 1995, Mr. Fries managed equity mutual funds for 16 years with another
mutual fund management company. Mr. Fries is assisted by other employees of
TMC.

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

In addition to TMC's fees, each Fund will pay all other costs and expenses of
its operations. No Fund will bear any costs of sales or promotion incurred
in connection with the distribution of Institutional Class shares, except as
described above under "Service Plan".

Thornburg Securities Corporation (TSC) distributes and markets the Thornburg
Funds. TMC or TSC may make payments from their own resources to assist in
the sales or promotion of the Funds.

H. Garrett Thornburg, Jr., a Director and Chairman of the Fund, is the
controlling stockholder of both TMC and TSC.

ADDITIONAL
INFORMATION

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.

<PAGE>

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

<Thornburg Funds logo>
Investing With Integrity
Thornburg Securities Corporation, Distributor
119 East Marcy Street, Santa Fe, New Mexico 87501
(800) 847-0200
www.thornburg.com email: [email protected]

<PAGE>
INCOME FUNDS STATEMENT OF ADDITIONAL INFORMATION

THORNBURG INVESTMENT TRUST
(formerly Thornburg Income Trust)

STATEMENT OF ADDITIONAL INFORMATION
for
THORNBURG LIMITED TERM U.S. GOVERNMENT FUND ("Government Fund")
and
THORNBURG LIMITED TERM INCOME FUND ("Income Fund")
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501

Thornburg Limited Term U.S. Government Fund ("Government Fund") and
Thornburg Limited Term Income Fund ("Income Fund") are investment portfolios
established by Thornburg Investment Trust (the "Trust"). This Statement of
Additional Information relates to the investments proposed to be made by the
Funds, investment policies governing the Funds, the Funds' management, and
other issues of interest to a prospective purchaser of shares in the Funds.

This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Funds' Prospectus. 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 Trust's name was "Thornburg Income Trust" until October 1, 1995.

The date of this Statement of Additional Information is February 1,
1998.

<PAGE> i
Table of Contents

Page
----
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . 1

INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 20
Government Fund Investment Limitations. . . . . . . . . . . . . . . 20
Income Fund Investment Limitations. . . . . . . . . . . . . . . . . 23

YIELD AND RETURN COMPUTATION . . . . . . . . . . . . . . . . . . . . . . 26

REPRESENTATIVE PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . 27
Government Fund (Classes A and C) . . . . . . . . . . . . . . . . . 27
Income Fund (Classes A and C) . . . . . . . . . . . . . . . . . . .28

DISTRIBUTIONS, TAXES AND SHAREHOLDER ACCOUNTS . . . . . . . . . . . . . .29
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Federal Income Tax Considerations . . . . . . . . . . . . . . . . . 29
State and Local Income Tax Considerations . . . . . . . . . . . . . 32
Accounts of Shareholders . . . . . . . . . . . . . . . . . . . . . .29

INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS . . . . . . . 33
Investment Advisory Agreements . . . . . . . . . . . . . . . . . . .33
Administrative Services Agreement . . . . . . . . . . . . . . . . . 35

SERVICE AND DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . 35
Service Plans - All Classes . . . . . . . . . . . . . . . . . . . .35
Class C Distribution Plan . . . . . . . . . . . . . . . . . . . . . 36

PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 37

MANAGEMENT AND HOLDERS OF SECURITIES . . . . . . . . . . . . . . . . . . 38

PURCHASE OF FUND SHARES . . . . . . . . . . . . . . . . . . . . . . . . .42
Discussion of Reduced Sales Charges - Class A Shares . . . . . . . 42

REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 46

DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46

INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . 47

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 47

<PAGE> 1

INVESTMENT OBJECTIVES AND POLICIES

Introduction

This portion of the Statement of Additional Information includes
additional information which the prospective investor may wish to know
respecting types of investments each of the Funds may acquire or specific
techniques each of the Funds may utilize in pursuing its investment
objectives. Although certain investments are subject to purchase by both
Funds, there are certain investments or techniques which are available only
to one Fund or the other.

Determining Portfolio Average Maturity - Government Fund and Income Fund

For purposes of each Fund's investment policy, an instrument will be
treated as having a maturity earlier than its stated maturity date if the
instrument has technical features (such as put or demand features) or a
variable rate of interest which, in the judgment of the Fund's investment
adviser, will result in the instrument being valued in the market as though
it has an earlier maturity.

In addition, each Fund may estimate the expected maturities of certain
securities it purchases in connection with achieving its investment
objectives. Certain obligations such as Treasury Bills and Notes have stated
maturities. However, certain obligations a Fund may acquire, such as GNMA
certificates, are interests in pools of mortgages or other loans having
varying maturities.

Due to prepayments of the underlying mortgage instruments or other
loans, such asset-backed securities do not have a known actual maturity (the
stated maturity date of collateralized mortgage obligations is, in effect,
the maximum maturity date). In order to determine whether such a security is
a permissible investment for a Fund (and assuming the security otherwise
qualifies for purchase by the Fund), the security's remaining term will be
deemed equivalent to the estimated average life of the underlying mortgages
at the time of purchase of the security by the Fund. Average life will be
estimated by the Fund based on its Adviser's evaluation of likely prepayment
rates after taking into account current interest rates, current conditions in
the relevant housing markets and such other factors as it deems appropriate.
There can be no assurance that the average life as estimated will be the
actual average life.

For example, the mortgage instruments in the pools underlying
mortgage-backed securities have original maturities ranging from 8 to 40
years. The maximum original maturity of the mortgage instruments underlying
such a security may, in some cases, be as short as 12 years. The average
life of such a security at the time of purchase by a Fund is likely to be
substantially less than the maximum original maturity of the mortgage
instruments underlying the security because of prepayments of the mortgage
instruments, the passage of time from the issuance of the security until its
purchase by a Fund and, in some cases, the wide dispersion of the original
maturity dates of the underlying mortgage instruments.

Certain securities which have variable or floating interest rates or
demand or put features may nonetheless be deemed to have remaining actual
lives which are less than their stated nominal lives. In addition, certain
asset-backed securities which have variable or floating interest rates may be
deemed to have remaining lives which are less than the stated maturity dates
of the underlying mortgages.

<PAGE> 2
Purchase of Certificates of Deposit - Government Fund and Income Fund

In addition to the other securities each Fund may purchase, each Fund is
authorized to purchase bank certificates of deposit under certain
circumstances. The Government Fund may under certain market conditions
invest up to 20% of its assets in (i) time certificates of deposit maturing
in one year or less after the date of acquisition which are issued by United
States banks having assets of $1,000,000,000 or more, and (ii) time
certificates of deposit insured as to principal by the Federal Deposit
Insurance Corporation. If any certificate of deposit (whether or not insured
in whole or in part) is nonnegotiable, and it matures in more than 7 days, it
will be considered illiquid, and subject to the Government Fund's fundamental
investment restriction that no more than 10% of the Fund's net assets will be
placed in illiquid investments.

The Income Fund may invest in certificates of deposit of large domestic
and foreign banks (i.e., banks which at the time of their most recent annual
financial statements show total assets in excess of one billion U.S.
dollars), including foreign branches of domestic banks, and certificates of
deposit of smaller banks as described below. Although the Income Fund
recognizes that the size of a bank is important, this fact alone is not
necessarily indicative of its creditworthiness. Investment in certificates
of deposit issued by foreign banks or foreign branches of domestic banks
involves investment risks that are different in some respects from those
associated with investment in certificates of deposit issued by domestic
banks. (See "Foreign Securities" below). The Income Fund may also invest in
certificates of deposit issued by banks and savings and loan institutions
which had at the time of their most recent annual financial statements total
assets of less than one billion dollars, provided that (i) the principal
amounts of such certificates of deposit are insured by an agency of the U.S.
Government, (ii) at no time will the Fund hold more that $100,000 principal
amount of certificates of deposit of any one such bank, and (iii) at the time
of acquisition, no more than 10% of the Fund's assets (taken at current
value) are invested in certificates of deposit of such banks having total
assets not in excess of one billion dollars.

Asset-Backed Securities - Government Fund and Income Fund

Each of the Funds may invest in asset-backed securities, which are
interests in pools in loans, described in the Prospectus. The Government
Fund only may purchase such securities or participations therein if they are
U.S. Government obligations described in the Prospectus.

Mortgage-Backed Securities and Mortgage Pass-Through Securities

If otherwise consistent with its investment restrictions and the
Prospectus, each Fund may invest in mortgage-backed securities, which are
interests in pools of mortgage loans, including mortgage loans made by
savings and loan institutions, mortgage bankers, commercial banks and others.
Pools of mortgage loans are assembled as securities for sale to investors by
various governmental, government-related and private organizations as further
described below. A Fund also may invest in debt securities which are secured
with collateral consisting of mortgage -backed securities (see
"Collateralized Mortgage Obligations"), and in other types of
mortgage-related securities.

<PAGE> 3
A decline in interest rates may lead to a faster rate of repayment of
the underlying mortgages, and expose the Fund to a lower rate or return upon
reinvestment of the prepayments. Additionally, the potential for prepayments
in a declining interest rate environment will tend to limit to some degree
the increase in net asset value of the Fund because the value of the
mortgage-backed securities held by the Fund may not appreciate as rapidly as
the price of non-callable debt securities. During periods of increasing
interest rates, prepayments likely will be reduced, and the value of the
mortgage-backed securities will decline.

Interests in pools of mortgage-backed securities differ from other forms
of debt securities, which normally provide for periodic payment of interest
in fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on
their mortgage loans, net of any fees paid to the issuer or insurer of such
securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying property, or upon refinancing or
foreclosure, net of fees or costs which may be incurred. Some
mortgage-related securities (such as securities issued by the Government
National Mortgage Association) are described as "modified pass-through."
These securities entitle the holder to receive all interest and principal
payments owed on the mortgage pool, net of certain fees, at the scheduled
payment dates regardless of whether or not the mortgagor actually makes the
payment.

The principal governmental guarantor of mortgage-related securities is
the Government National Mortgage Association ("GNMA"). GNMA is a
wholly-owned United States Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the
full faith and credit of the United States government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage
bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages.
These guarantees, however, do not apply to the market value or yield of
mortgage-backed securities or to the value of Fund shares. Also, GNMA
securities often are purchased at a premium over the maturity value of the
underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.

Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). FNMA is a government-sponsored corporation owned entirely by
private stockholders. It is subject to general regulation by the Secretary
of Housing and Urban Development. FNMA purchases conventional (i.e., not
insured or guaranteed by any government agency) mortgages from a list of
approved seller/servicers which include state and federally-chartered savings
loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed
as to timely payment of principal and interest by FNMA but are not backed by
the full faith and credit of the United States Government. FHLMC is a
corporate instrumentality of the United States Government and was created by
Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the twelve Federal
Home Loan Banks. FHLMC issues Participation Certificates ("PC's") which
represent interests in conventional mortgages from FHLMC's national
portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal, but PC's are not backed by the full faith and credit
of the United States Government.

<PAGE> 4
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional mortgage loans. Such issuers may,
in addition, be the originators and/or servicers of the underlying mortgage
loans as well as the guarantors of the mortgage-related securities. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments. Such pools
may be purchased by the Income Fund, but will not be purchased by the
Government Fund. Timely payment of interest and principal of these pools may
be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of credit. The
insurance and guarantees are issued by governmental entities, private
insurers and the mortgage poolers. Such insurance and guarantees and the
creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-related security meets the Income Fund's investment
quality standards. There can be no assurance that the private insurer or
guarantors can meet their obligations under the insurance policies or
guarantee arrangements. The Income Fund may buy mortgage-related securities
without insurance or guarantees, if through an examination of the loan
experience and practices of the originators/servicers and poolers, the
Advisor determines that the securities meet the Fund's quality standards.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.

Collateralized Mortgage Obligations ("CMO's")

A CMO is a hybrid between a mortgage-backed bond and a mortgage
pass-through security. Similar to a bond, interest and prepaid principal are
paid, in most cases, semiannually. CMO's may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and
their income streams.

CMO's are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMO's provide for a modified form
of call protection through a de facto breakdown of the underlying pool of
mortgages according to how quickly the loans are repaid. Monthly payment of
principal received from the pool of underlying mortgages, including
prepayments, is first returned to investors holding the shortest maturity
class. Investors holding the longer maturity classes receive principal only
after the first class has been retired. An investor is partially guarded
against unanticipated early return of principal because of the sequential
payments.

In a typical CMO transaction, a corporation issues multiple series,
(e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgage pass-through certificates ("Collateral"). The
Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal
on the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear
current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C
Bond currently being paid off. When the Series A, B, and C Bonds are paid
in full, interest and principal on the Series Z Bond begins to be paid
currently. With some CMO's, the issuer serves as a conduit to allow loan
originators (primarily builders or savings and loan associations) to borrow
against their loan portfolios.

<PAGE> 5
FHLMC Collateralized Mortgage Obligations

FHLMC CMO's are debt obligations of FHLMC issued in multiple classes
having different maturity dates which are secured by the pledge of a pool of
conventional mortgage loans purchased by FHLMC. Unlike FHLMC PC's, payments
of principal and interest on the CMO's are made semiannually, as opposed to
monthly. The amount of principal payable on each semiannual payment date is
determined in accordance with FHLMC's mandatory sinking fund schedule, which,
in turn, is equal to approximately 100% of FHA prepayment experience applied
to the mortgage collateral pool. All sinking fund payments in the CMO's are
allocated to the retirement of the individual classes of bonds in the order
of their stated maturities. Payment of principal on the mortgage loans in
the collateral pool in excess of the amount of FHLMC's minimum sinking fund
obligation for any payment date are paid to the holders of the CMO's as
additional sinking fund payments. Because of the "pass-through" nature of
all principal payments received on the collateral pool in excess of FHLMC's
minimum sinking fund requirement, the rate at which principal of the CMO's is
actually repaid is likely to be such that each class of bonds will be retired
in advance of its scheduled date.

If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.

Criteria for the mortgage loans in the pool backing the CMO's are
identical to those of FHLMC PC's. FHLMC has the right to substitute
collateral in the event of delinquencies and/or defaults.

Other Mortgage-Backed Securities

TMC expects that governmental, government-related or private entities
may create mortgage loan pools and other mortgage-related securities offering
mortgage pass-through and mortgage-collateralized investments in addition to
those described above. The mortgages underlying these securities may include
alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payments may vary or whose terms to maturity may differ
from customary long-term fixed rate mortgages. Neither Fund will purchase
mortgage-backed securities or any other assets which, in the opinion of TMC,
are illiquid and exceed, as a percentage of the Fund's assets, the percentage
limitations on the Fund's investment in securities which are not readily
marketable, as discussed below. TMC will, consistent with the Funds'
respective investment objectives, policies and quality standards, consider
making investments in such new types of mortgage-related securities.

<PAGE> 6
Other Asset-Backed Securities

Several types of asset-backed securities have already been offered to
investors, including Certificates of Automobile Receivables ("CARS"). CARS
represent undivided fractional interests in a trust whose assets consist of a
pool of motor vehicle retail installment sales contracts and security
interests in the vehicles securing the contracts. Payments of principal and
interests on CARS are passed through monthly to certificate holders, and are
guaranteed up to certain amounts and for a certain time period by a letter of
credit issued by a financial institution unaffiliated with the trustee or
originator of the trust. An investor's return on CARS may be affected by
early prepayment of principal on the underlying vehicle sales contracts. If
the letter of credit is exhausted, the trust may be prevented from realizing
the full amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage
or loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of bankruptcy laws and of a number of state and federal consumer
credit laws, many of which give such debtors the right to set off certain
amounts owed on the credit cards, thereby reducing the balance due. There is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.

Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection, and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool assets, to ensure that the receipt of payment
on the underlying pool occurs in a timely fashion. Protection against losses
results from payment of the insurance obligations on at least a portion of
the assets in the pool by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Income Fund, as a possible purchaser of such securities,
will not pay any additional or separate fees for credit support. The degree
of credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that anticipated or
failure of the credit support could adversely affect the return on an
investment in such a security.

<PAGE> 7
The Income Fund may also invest in residual interests in asset-backed
securities. In the case of asset-backed securities issued in a pass-through
structure, the cash flow generated by the underlying assets is applied to
make required payments on the securities and to pay related administrative
expenses. The residual in an asset-backed security pass-through structure
represents the interest in any excess cash flow remaining after making the
foregoing payments. The amount of the residual will depend on, among other
things, the characteristics of the underlying assets, the coupon rates on the
securities, prevailing interest rates, the amount of administrative expenses
and the actual prepayment experience on the underlying assets. Asset-backed
security residuals not registered under the Securities Act of 1933 may be
subject to certain restrictions on transferability. In addition, there may
be no liquid market for such securities.

The availability of asset-backed securities may be affected by
legislative or regulatory developments. It is possible that such
developments may require the Funds to dispose of any then existing holdings
of such securities.

Repurchase Agreements - Government Fund and Income Fund

Either Fund may enter into repurchase agreements with member banks of
the Federal Reserve System or any domestic broker-dealer which is recognized
as a reporting government securities dealer if the creditworthiness of the
bank or broker-dealer has been determined by TMC to be at least as high as
that of other obligations the Fund may purchase or at least equal to that of
issuers of commercial paper rated within the two highest grades assigned by
Moody's or S&P. These transactions may not provide a Fund with collateral
marked-to-market during the term of the commitment.

A repurchase agreement, which provides a means for the Fund to earn
income on funds for periods as short as overnight, is an arrangement under
which the Fund purchases a security ("Obligation") and the seller agrees, at
the time of sale, to repurchase the Obligation at a specified time and price.
The repurchase price may be higher than the purchase price, the difference
being interest at a stated rate due to the Fund together with the repurchase
price on repurchase. In either case, the income to the Fund is unrelated to
the interest rate on the Obligation. Obligations will be held by the Fund's
custodian or in the Federal Reserve Book Entry System.

For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Fund to the seller of the Obligations 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
Obligation purchased by a Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the
seller. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, the Fund may encounter delay and
incur costs before being able to sell the security. Delays may involve loss

<PAGE> 8
of interest or decline in the price of the Obligation. If the court
characterized the transaction as a loan and the Fund has not perfected a
security interest in the Obligation, the Fund may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of
the seller. As an unsecured creditor, the Fund would be at risk of losing
some or all of the principal and income involved in the transaction. As with
any unsecured debt obligation purchased for the Fund, TMC seeks to minimize
the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the Obligation, in which case
the Fund may incur a loss if the proceeds to the Fund of the sale to a third
party are less than the repurchase price. However, if the market value
(including interest) of the Obligation subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the Obligation to deliver additional securities so that
the market value (including interest) of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is
possible that the Fund will be unsuccessful in seeking to impose on the
seller a contractual obligation to deliver additional securities.

When Issued Securities - Government Fund and Income Fund

Either Fund may purchase securities offered on a "when-issued" or
"forward delivery" basis. When so offered, the price, which is generally
expressed in yield terms, is fixed at the time the commitment to purchase is
made, but delivery and payment for the when-issued or forward delivery
securities take place at a later date. During the period between purchase
and settlement, no payment is made by the purchaser to the issuer and no
interest on the when-issued or forward delivery security accrues to the
purchaser. To the extent that assets of a Fund are not invested prior to the
settlement of a purchase of securities, the Fund will earn no income;
however, it is intended that the Fund will be fully invested to the extent
practicable and subject to the Fund's investment policies. While when-issued
or forward delivery securities may be sold prior to the settlement date, it
is intended that the Funds will purchase such securities with the purpose of
actually acquiring them unless sale appears desirable for investment reasons.
At the time a Fund makes the commitment to purchase a security on a
when-issued or forward delivery basis, it will record the transaction and
reflect the value of the security in determining its net asset value. The
market value of when-issued or forward delivery securities may be more or
less than the purchase price. The Funds do not believe that net asset value
or income will be adversely affected by purchase of securities on a
when-issued or forward delivery basis. Each Fund will establish a segregated
account for commitments for when-issued or forward delivery securities.

Reverse Repurchase Agreements - Government Fund and Income Fund

Either Fund may enter into reverse repurchase agreements by transferring
securities to another person in return for proceeds equal to a percentage of
the value of the securities, subject to its agreement to repurchase the
securities from the other person for an amount equal to the proceeds plus an
interest amount. Neither Fund will enter into any such transaction if, as a
result, more than 5% of the Fund's total assets would then be subject to
reverse repurchase agreements. See the "Investment Restrictions" applicable
to each Fund, below.

<PAGE> 9
Dollar Roll Transactions - Government Fund and Income Fund

Either Fund may enter into "dollar roll" transactions, which consist of
the sale by the Fund to a bank or broker-dealer (the "counterparty") of GNMA
certificates or other mortgage-backed securities together with a commitment
to purchase from the counterparty similar, but not identical, securities at a
future date at the same price. The counterparty receives all principal and
interest payments, including prepayments, made on the security while it is
the holder. The Fund receives a fee from the counterparty as consideration
for entering into the commitment to purchase. Dollar rolls may be renewed
over a period of several months with a new purchase and repurchase price
fixed and a cash settlement made at each renewal without physical delivery of
securities. Moreover, the transaction may be preceded by a firm commitment
agreement pursuant to which the Fund agrees to buy a security on a future
date.

Dollar rolls are treated for purposes of the Investment Company Act of
1940 (the "1940 Act") as borrowings of the Fund entering into the transaction
because they involve the sale of a security coupled with an agreement to
repurchase, and are subject to the investment restrictions applicable to any
borrowings made by the Fund. Like all borrowings, a dollar roll involves
costs to the borrowing Fund. For example, while the Fund receives a fee as
consideration for agreeing to repurchase the security, the Fund forgoes the
right to receive all principal and interest payments while the counterparty
holds the security. These payments to the counterparty may exceed the fee
received by the Fund, thereby effectively charging the Fund interest on its
borrowing. Further, although the Fund can estimate the amount of expected
principal prepayment over the term of the dollar roll, a variation in the
actual amount of prepayment could increase or decrease the cost of the Fund's
borrowing.

Dollar rolls involve potential risks of loss which are different from
those related to the securities underlying the transactions. For example, if
the counterparty becomes insolvent, the Fund's right to purchase from the
counterparty may be restricted. Additionally, the value of such securities
may change adversely before the Fund is able to purchase them. Similarly,
the Fund may be required to purchase securities in connection with a dollar
roll at a higher price than may otherwise be available on the open market.
Since, as noted above, the counterparty is required to deliver a similar, but
not identical security to the Fund, the security which the Fund is required
to buy under the dollar roll may be worth less than an identical security.
Finally, there can be no assurance that the Fund's use of the cash that it
receives from a dollar roll will provide a return that exceeds borrowing
costs.

The Trustees of the Funds have adopted guidelines to ensure that those
securities received are substantially identical to those sold. To reduce the
risk of default, the Funds will engage in such transactions only with banks
and broker-dealers selected pursuant to such guidelines.

Lending of Portfolio Securities - Government Fund and Income Fund

Each Fund may seek to increase its income by lending portfolio
securities. Under present regulatory policies, including those of the Board
of Governors of the Federal Reserve System and the Securities and Exchange
Commission, such loans may be made to member firms of the New York Stock
Exchange, and would be required to be secured continuously by collateral in
cash, cash equivalents or U.S. Treasury bills maintained on a current basis
at an amount at least equal to the market value and accrued interest of the

<PAGE> 10
securities loaned. A Fund would have the right to call a loan and obtain the
securities loaned on no more than five days' notice. During the existence of
a loan, the Fund would continue to receive the equivalent of the interest
paid by the issuer on the securities loaned and would also receive
compensation based on investment of the collateral. As with other extensions
of credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
the loans would be made only to firms deemed by the Adviser to be of good
standing, and when, in the judgment of the Adviser, the consideration which
can be earned currently from securities loans of this type justifies the
attendant risk.

Other Investment Strategies - Income Fund

The Income Fund may, but is not required to, utilize various other
investment strategies as described below to hedge various market risks (such
as interest rates, currency exchange rates, and broad or specific equity
market movements), to manage the effective maturity or duration of
fixed-income securities or portfolios, or to enhance potential gain. Such
strategies are used by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new investments and
strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, the Income Fund
may purchase and sell exchange-listed and over-the-counter put and call
options on securities, financial futures, equity and fixed-income indices and
other financial instruments, purchase and sell financial futures contracts,
enter into various interest rate transactions such as swaps, caps, floors or
collars, and enter into various currency transactions such as currency
forward contracts, currency futures contracts, currency swaps or options on
currency or currency futures (collectively, all the above are called
"Strategic Transactions"). Strategic Transactions may be used to attempt to
protect against possible changes in the market value of securities held in or
to be purchased for the Income Fund's portfolio resulting from securities
markets or currency exchange rate fluctuations, to protect the Fund's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities for investment purposes, to manage the effective
maturity or duration of the Fund's portfolio, or to establish a position in
the derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to
enhance potential gain although no more than 5% of the Fund's assets will be
committed to Strategic Transactions entered into for purposes not related to
bona fide hedging or risk management. Any or all of these investment
techniques may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, as use of any
Strategic Transaction is a function of numerous variables including market
conditions. The ability of the Fund to utilize these Strategic Transactions
successfully will depend on the Adviser's ability to predict pertinent market
movements, which cannot be assured. The Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments.

Strategic Transactions have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to
the extent the Adviser's view as to certain market movements is incorrect,
the risk that the use of such Strategic Transactions could result in losses
greater than if they had not been used. Use of put and call options may

<PAGE> 11
result in losses to the Income Fund, force the sales of portfolio securities
at inopportune times or for prices higher than (in the case of put options)
or lower than (in the case of call options) current market values, limit the
amount of appreciation the Fund can realize on its investments or cause the
Fund to hold a security it might otherwise sell. The use of currency
transactions can result in the Fund incurring losses as a result of a number
of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency.
The use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of
the Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures
and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without
incurring substantial losses, if at all. Although the contemplated use of
these futures contracts and options thereon should tend to minimize the risk
of loss due to a decline in the value of the hedged position, at the same
time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited
to the cost of the initial premium. Losses resulting from the use of
Strategic Transactions would reduce net asset value, and possible income, and
such losses can be greater than if the Strategic Transactions had not been
utilized.

General Characteristics of Options - Income Fund

Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument as to which the options relate. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Strategic Transactions involving
options require segregation of Income Fund assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the
underlying security, commodity, index, currency or other instrument at the
exercise price. For instance, the Income Fund's purchase of a put option on
a security might be designed to protect its holdings in the underlying
instrument (or, in some cases, a similar instrument) against a substantial
decline in the market value by giving the Fund the right to sell the
instrument at the option exercise price. A call option, upon payment of a
premium, gives the purchaser of the option the right to buy, and the seller
the obligation to sell, the underlying instrument at the exercise price. The
Fund's purchase of a call option on a security, financial future, index,
currency or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase the
instrument. An American-style put or call option may be exercised at any
time during the option period while a European-style put or call options may
be exercised only upon expiration or during a fixed period prior thereto.
The Income Fund is authorized to purchase and sell exchange listed options
and over-the-counter options ("OTC options"). Exchange listed options are
issued by a regulated intermediary such as the Options Clearing Corporation
("OCC"), which guarantees the performance of the obligations of the parties
to such options. The discussion below uses the OCC as a paradigm, but is
also applicable to other financial intermediaries.

<PAGE> 12
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options
and Eurodollar instruments are cash settled for the net amount, if any, to
the extent the option is "in-the-money" (i.e., where the value of the
underlying instrument exceeds, in the case of a call option, or is less than,
in the case of a put option, the exercise price of the option) at the time
the option is exercised. Frequently, rather than taking or making delivery
of the underlying instrument through the process of exercising the option,
listed options are closed by entering into offsetting purchase or sale
transactions that do not result in ownership of the new option.

The Income Fund's ability to close out its position as a purchaser or
seller of an OCC or exchange listed put or call option is dependent, in part,
upon the liquidity of the option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions
imposed by an exchange; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options
or underlying securities including reaching daily price limits; (iv)
interruption of the normal operations of the OCC or an exchange; (v)
inadequacy of the facilities of an exchange or OCC to handle current trading
volume; or (vi) a decision by one or more exchanges to discontinue the
trading of options (or a particular class or series of options), in which
event the relevant market for that option on that exchange would cease to
exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent
that the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options,
which generally have standardized terms and performance mechanics, all the
terms of an OTC option, including such terms as method of settlement, term,
exercise price, premium, guaranties and security, are set by negotiation of
the parties. The Income Fund will only enter into OTC options that have a
buy-back provision permitting the Fund to require the Counterparty to buy
back the option at a formula price within seven days. The Fund expects
generally to enter into OTC options that have cash settlement provisions,
although it is not required to do so.

<PAGE> 13
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC option will be satisfied. The Fund will engage in OTC
option transactions only with United States government securities dealers
recognized by the Federal Reserve Bank in New York as "primary dealers,"
broker dealers, domestic or foreign banks or other financial institutions
which have received a short-term credit rating of "A-1" from Standard &
Poor's Corporation or "P-1" from Moody's Investor Services or have been
determined by the Adviser to have an equivalent credit rating. The staff of
the SEC currently takes the position that the amount of the Fund's
obligation pursuant to an OTC option is illiquid, and is subject to the
Income Fund's limitation on investing no more than 15% its assets in illiquid
instruments.

If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease
in the value of the underlying securities or instruments in its portfolio or
will increase the Fund's income. The sale of put options can also provide
income.

The Income Fund may purchase and sell call options on U.S. Treasury and
agency securities, foreign sovereign debt, mortgage-backed securities,
corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets and related futures
on such securities other than futures on individual corporate debt and
individual equity securities. All calls sold by the Fund must be "covered"
or must meet the asset segregation requirements described below as long as
the call is outstanding (i.e., the Fund must own the securities or futures
contract subject to the call). Even though the Fund will receive the option
premium to help protect it against loss, a call sold by the Fund exposes the
Fund during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security and may require
the Fund to hold a security which it might otherwise have sold.

The Income Fund may purchase and sell put options that relate to U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio) or futures on such securities other than futures
on individual corporate debt and individual equity securities. The Fund will
not sell put options if, as a result, more than 50% of the Fund's assets
would be required to be segregated to cover its potential obligations under
its hedging, duration management, risk management, and other Strategic
Transactions other than those with respect to futures and options thereon.
In selling put options, there is a risk that the Fund may be required to buy
the underlying security at a disadvantageous price above the market price.

General Characteristics of Futures - Income Fund

<PAGE> 14
a specified price (or, with respect to index futures and Eurodollar
instruments, the net cash amount). Options on futures contracts are similar
to options on securities except that an option on a futures contract gives
the purchaser the right in return for the premium paid to assume a position
in a futures contract.

The Income Fund's use of financial futures and options thereon will in
all cases be consistent with applicable regulatory requirements and in
particular the rules and regulations of the Commodity Futures Trading
Commission and will be entered into only for bona fide hedging, risk
management (including duration management) or other portfolio management
purposes. Typically, maintaining a futures contract or selling an option
thereon requires the Fund to deposit with a financial intermediary as
security for its obligations an amount of cash or other specified assets
(initial margin) which initially is typically 1% to 5% of the face amount of
the contract, but may be higher in some circumstances. Additional cash or
assets (variation margin) may be required to be deposited thereafter on a
daily basis as the mark to market value of the contract fluctuates. The
purchase of options on financial futures involves payment of a premium for
the option without any further obligation on the part of the Fund. If the
Fund exercises an option on a futures contract it will be obligated to post
initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position. Futures contracts and
options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position will be offset
prior to settlement and that delivery will not occur.

The Income Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and
options thereon would exceed 5% of the Fund's total assets (taken at current
value); however, in the case of an option that is in-the-money at the time of
the purchase, the segregation requirements with respect to futures and
options thereon are described below.

Options on Securities Indices and Other Financial Indices - Income Fund

The Income Fund also may purchase and sell call and put options on
securities indices and other financial indices and, in so doing can achieve
many of the same objectives it would achieve through the sale or purchase of
options on individual securities or other instruments. Options on securities
indices and other financial indices are similar to options on a security or
other instrument except that, rather than settling by physical delivery of
the underlying instrument, they settle by cash settlement (i.e., an option on
an index gives the holder the right to receive, upon exercise of the option,
an amount of cash if the closing level of the index upon which the option is
based exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option except if, in the case of an OTC option,
physical delivery is specified). This amount of cash is equal to the excess
of the closing price of the index over the exercise price of the option,
which also may be multiplied by a formula value. The seller of the option is
obligated, in return for the premium received, to make delivery of this
amount. The gain or loss on an option on an index depends on price movements
in the instruments making up the market, market segment, industry or other
composite on which the underlying index is based rather than price movements
in individual securities, as is the case with respect to options on
securities.

<PAGE> 15
Currency Transactions - Income Fund

The Income Fund's dealings in forward currency contracts and other
currency transactions such as futures, options, options on futures and swaps
will be limited to hedging involving either specific transactions or
portfolio positions. Transactions hedging is entering into a currency
transaction with respect to specific assets or liabilities of the Fund, which
will generally arise in connection with the purchase or sale of its portfolio
securities. Position hedging is entering into a currency transaction with
respect to portfolio security positions denominated or generally quoted in
that currency.

The Income Fund will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended to
wholly or partially offset other transactions, than the aggregate market
value (at the time of entering into the transaction) of the securities held
in its portfolio that are denominated or generally quoted in or currently
convertible into such currency other than with respect to proxy hedging as
described below.

The Income Fund may also cross-hedge currencies by entering into
transactions to purchase or sell one or more currencies that are expected to
decline in value relative to other currencies to which the Fund has or in
which the Fund expects to have portfolio exposure.

To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Income Fund may also
engage in proxy hedging. Proxy hedging is often used when the currency to
which the Fund's portfolio is exposed is difficult to hedge or to hedge
against the dollar. Proxy hedging entails entering into a forward contract
to sell a currency whose changes in value are generally considered to be
linked to a currency or currencies in which some or all of the Fund's
portfolio securities are or are expected to be denominated, and to buy U.S.
dollars. The amount of the contract would not exceed the value of the Fund's
securities denominated in linked currencies. For example, if TMC considers
that the Austrian schilling is linked to the German deutschemark (the
"D-mark"), the Fund holds securities denominated in Austrian schillings and
TMC believes that the value of schillings will decline against the U.S.
dollar, TMC may enter into a contract to sell D-marks and buy dollars.
Hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to the Fund if the currency being hedged fluctuates in value to a
degree or in a direction that is not anticipated. Further, there is the risk
that the perceived linkage between various currencies may not be present or
may not be present during the particular time that the Fund is engaging in
proxy hedging. If the Fund enters into a currency hedging transaction, the
Fund will comply with the asset segregation requirements described below.

<PAGE> 16
Risks of Currency Transactions - Income Fund

Currency transactions are subject to risks different from other
transactions. Because currency control is of great importance to the issuing
governments and influences economic planning and policy, purchases and sales
of currency and related instruments can be negatively affected by government
exchange controls, blockages, and manipulations or exchange restrictions
imposed by governments. These can result in losses to the Income Fund if it
is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
ineffective, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement
of a currency futures contract for the purchase of most currencies must occur
at a bank based in the issuing nation. Trading options on currency futures
is relatively new, and the ability to establish and close out positions on
such options is subject to the maintenance of a liquid market which may not
always be available. Currency exchange rates may fluctuate based on factors
extrinsic to that country's economy.

Combined Transactions - Income Fund

The Income Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and any combination of
futures, options and currency transactions ("component" transactions),
instead of a single Strategic Transaction, as part of a single or combined
strategy when, in the opinion of TMC, it is in the best interests of the Fund
to do so. A combined transaction will usually contain elements of risk that
are present in each of its component transactions. Although combined
transactions are normally entered into based on TMC's judgment that the
combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination
will instead increase such risks or hinder achievement of the portfolio
management objective.

Swaps, Caps, Floors and Collars - Income Fund

Among the Strategic Transactions into which the Income Fund may enter
are interest rate, currency and index swaps and the purchase or sale or
related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a
later date. The Income Fund intends to use these transactions as hedges and
not as speculative investments and will not sell interest rate caps or floors
where it does not own securities or other instruments providing the income
stream the Fund may be obligated to pay. An interest rate swap is an
agreement between two parties to exchange payments that are based on
specified interest rates and a notional amount. The exchange takes place
over a specified period of time. A currency swap is an agreement to exchange
cash flows on a notional amount of two or more currencies based on the
relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on

<PAGE> 17
changes in the values of the reference indices. Although swaps can take a
variety of forms, typically one party pays fixed and receives floating rate
payments and the other party receives fixed and pays floating rate payments.
An interest rate cap is an agreement between two parties over a specified
period of time where one party makes payments to the other party equal to the
difference between the current level of an interest rate index and the level
of the cap, if the specified interest rate index increases above the level of
the cap. An interest rate floor is similar except the payments are the
difference between the current level of an interest rate index and the level
of the floor if the specified interest rate index decreases below the level
of the floor. An interest rate collar is the simultaneous execution of a cap
and floor agreement on a particular interest rate index. The purchase of a
cap entitles the purchaser to receive payments on a notional principal amount
from the party selling 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.

The Income Fund may enter into swaps, caps, floors or collars on either
an asset-based or liability-based basis, depending on whether it is hedging
its assets or its liabilities, and will usually enter into swaps on a net
basis, i.e., the two payment streams are netted out in a cash settlement on
the payment date or dates specified in the instrument, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Inasmuch as these swaps, caps, floors and collars are entered into
for good faith hedging purposes, the Adviser and the Fund believes such
obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to its borrowing
restrictions. The Fund will not enter into any swap, cap, floor or collar
transaction unless, at the time of entering into such transaction, the
unsecured long term debt rating of the Counterparty combined with any credit
enhancements, satisfies the credit criteria established by the Trustees. If
there is a default by the Counterparty, the Fund will have contractual
remedies pursuant to the agreements related to the transaction. The swap
market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

Eurodollar Instruments - Income Fund

The Income Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or
options thereon which are linked to the London Interbank Offered Rate
("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain
a fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. The Fund might use Eurodollar futures contracts and options
thereon to hedge against changes in the LIBOR, to which many interest rate
swaps and fixed income instruments are linked.

<PAGE> 18
Risks of Strategic Transactions Outside the United States - Income Fund

When constructed outside the United States, Strategic Transactions may
not be regulated as rigorously as in the United States, may not involve a
clearing mechanism and related guarantees, and are subject to the risk of
governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions
also could be adversely affected by: (i) other complex foreign political,
legal and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the Fund's
ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in
the United States, and (v) lower trading volume and liquidity.

Use of Segregated and Other Special Accounts - Income Fund

Some transactions which the Income Fund may enter into, including many
Strategic Transactions, require that the Income Fund segregate liquid high
grade debt assets with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. Transactions which require segregation include
reverse repurchase agreements, dollar rolls, undertakings by the Fund to
purchase when-issued securities, the Fund's sales of put or call options, the
Fund's sales of futures contracts, currency hedging transactions (including
forward currency contracts, currency futures and currency swaps) and swaps,
floors and collars to the extent of the Fund's uncovered obligation under the
transaction. In general, either the full amount of any obligation by the
Fund to pay or deliver securities or assets must be covered at all times by
the securities, instruments or currency required to be delivered, or an
amount of cash or liquid high grade debt securities at least equal to the
current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them.
For example, a call option written by the Fund will require the Fund to hold
the securities without additional consideration or to segregate liquid
high-grade assets sufficient to purchase and deliver the securities if the
call is exercised. A call option sold by the Fund on an index will require
the Fund to own portfolio securities which correlate with the index or to
segregate liquid high grade debt assets equal to the excess of the index
value over the exercise price on a current basis. A put option written by
the Fund requires the Fund to segregate liquid, high grade assets equal to
the exercise price.

Except when the Income Fund enters into a forward contract for the
purchase or sale of a security denominated in a particular currency, which
requires no segregation, a currency contract which obligates the Fund to buy
or sell currency will generally require the Fund to hold an amount of that
currency or liquid securities denominated in that currency equal to the
Fund's obligations, or to segregate liquid high grade debt assets equal to
the amount of the Fund's obligation.

OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices, OCC issued and exchange listed
index options, swaps, caps, floors and collars will generally provide for
cash settlement. As a result, with respect to these instruments the Fund
will only segregate an amount of assets equal to its accrued net obligations,
18

<PAGE> 19
as there is no requirement for payment or delivery of amounts in excess of
the net amount. These amounts will equal 100% of the exercise price in the
case of a put, or the in-the-money amount in the case of a call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate,
until the option expires or is closed out, cash or cash equivalents equal in
value to such excess. Other OCC issued and exchange listed options sold by
the Fund, other than those above, generally settle with physical delivery,
and the Fund will segregate an amount of assets equal to the full value of
the option. OTC options settling with physical delivery, if any, will be
treated the same as other options settling with physical delivery.

With respect to swaps, the Income Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid high
grade securities having a value equal to the accrued excess. Caps, floors
and collars require segregation of assets with a value equal to the Fund's
net obligation, if any.

Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated
assets, equals its net outstanding obligation in related options and
Strategic Transactions. For example, the Fund could purchase a put option if
the strike price of that option is the same or higher than the strike price
of a put option sold by the Fund. Moreover, instead of segregating assets if
the Fund held a futures or forward contract, it could purchase a put option
on the same futures or forward contract with a strike price as high or higher
than the price of the contract held. Other Strategic Transactions may also
be offset in combinations. If the offsetting transaction terminates at the
time of or after the primary transaction, no segregation is required. If it
terminates prior to such time, assets equal to any remaining obligation would
need to be segregated.

The Income Fund's activities involving Strategic Transactions may be
limited by the requirements of Subchapter M of the Internal Revenue Code for
qualification as a regulated investment company. See "Taxes."

Foreign Securities - Income Fund

<PAGE> 20
can be greater than in the United States. There is generally less government
supervision and regulation of brokers and listed companies than in the United
States. Mail service between the United States and foreign countries may be
slower or less reliable than within the United States, thus increasing the
risk of delayed settlements of portfolio transactions or loss of certificates
for portfolio securities. Securities issued or guaranteed by foreign
national governments, their agencies, instrumentalities, or political
subdivisions, may or may not be supported by the full faith and credit and
taxing power of the foreign government. The Fund's ability and decisions to
purchase and sell portfolio securities may be affected by laws or regulations
relating to the convertibility and repatriation of assets. Further, it may
be more difficult for the Fund's agents to keep currently informed about
corporate actions which may affect the prices of portfolio securities. In
addition, with respect to certain foreign countries, there is the possibility
of expropriation or confiscatory taxation, political or social instability,
or diplomatic developments which could affect United States investments in
those countries. In addition, it may be more difficult to obtain and enforce
a judgment against a foreign issuer. Foreign securities may be subject to
foreign government taxes which will reduce the yield on such securities. A
shareholder of the Income Fund will not be entitled to claim a credit or
deduction for U.S. federal income tax purposes for his or her proportionate
share of such foreign taxes paid by the Fund.

Trustees' Power to Change Objectives and Policies

Any objective and policies stated above may be changed by the Trustees
of the Trust without a vote of the shareholders, unless identified as a
fundamental objective or policy.

INVESTMENT LIMITATIONS

The following restrictions, if identified as "fundamental" with respect
to a Fund, may not be changed without approval of a majority of the
outstanding voting securities of the Fund which, under the 1940 Act and the
rules thereunder and as used in this Statement of Additional Information,
means the lesser of (1) 67% of the shares of the Fund present at a meeting if
the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (2) more than 50% of the outstanding shares
of the Fund. Any restriction, limitation or policy which is not identified
as fundamental may be changed by the Trustees.

Government Fund Investment Limitations

As a matter of fundamental investment policy, the Government Fund will
not:

(1) Invest more than 20% of the Fund's total assets in securities
other than obligations issued or guaranteed by the United States Government
or its agencies, instrumentalities and authorities, or in participations in
such obligations or repurchase obligations secured by such obligations,
generally described (but not limited) under the heading "Types of Obligations
the Fund May Acquire", and then only in the nongovernmental obligations
described in the Prospectus;

<PAGE> 21
(2) Purchase any security if, as a result, more than 5% of its total
assets would be invested in securities of any one issuer, excluding
obligations of, or guaranteed by, the United States government, its agencies,
instrumentalities and authorities;

(3) Borrow money, except (a) as a temporary measure, and then only
in amounts not exceeding 5% of the value of the Fund's total assets or (b)
from banks, provided that immediately after any such borrowing all borrowings
of the Fund do not exceed 10% of the Fund's total assets. The exceptions to
this restriction are not for investment leverage purposes but are solely for
extraordinary or emergency purchases or to facilitate management of the
Fund's portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio instruments is deemed to be disadvantageous. The
Fund will not purchase securities while borrowings are outstanding. For
purposes of this restriction (i) the security arrangements described in
restriction (4) below will not be considered as borrowing money, and (ii)
reverse repurchase agreements will be considered as borrowing money;

(4) Mortgage, pledge or hypothecate any assets except to secure
permitted borrowings. Arrangements to segregate assets with the Fund's
custodian with respect to when-issued and delayed delivery transactions, and
reverse repurchase agreements, and deposits made in connection with futures
contracts, will not be considered a mortgage, pledge or hypothecation of
assets;

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

(6) Purchase or sell real estate and real estate mortgage loans, but
this shall not prevent the Fund from investing in obligations of the U.S.
Government or its agencies, relating to real estate mortgages as described
generally under the heading "Types of Obligations the Fund May Acquire";

(8) Make loans, except through (a) the purchase of debt obligations
in accordance with the Fund's investment objectives and policies; (b)
repurchase agreements with banks, brokers, dealers and other financial
institutions; and (c) loans of securities;

(9) Purchase any security on margin, except for such short-term
credits as are necessary for the clearance of transactions. For purposes of
this restriction, the Fund's entry into futures contracts will not be
considered the purchase of securities on margin;

(10) Make short sales of securities;

(11) Invest more than 5% of its total assets in securities of
unseasoned issuers which, together with their predecessors, have been in
operation for less than three years excluding obligations of, or guaranteed
by, the United States government, its agencies, instrumentalities and
authorities;

<PAGE> 22
(12) Invest more than 5% of its total assets in securities which the
Fund is restricted from selling to the public without registration under the
Securities Act of 1933. The Fund has no present intention to purchase any
such restricted securities;

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

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

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

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

(17) Enter into any reverse repurchase agreement if, as a result
thereof, more than 5% of its total assets would be subject to its obligations
under reverse purchase agreements at any time;

(18) Purchase or sell any futures contract if, as a result thereof,
the sum of the amount of margin deposits on the Fund's existing futures
positions and the amount of premiums paid for related options would exceed 5%
of the Fund's total assets;

(19) Purchase any put or call option not related to a futures
contract;

(20) Purchase the securities of any issuer if as a result more than
10% of the value of the Fund's net assets would be invested in securities
which are considered illiquid because they are subject to legal or
contractual restrictions on resale ("restricted securities") or because no
market quotations are readily available; or enter into a repurchase agreement
maturing in more than seven days, if as a result such repurchase agreements
together with restricted securities and securities for which there are no
readily available market quotations would constitute more than 10% of the
Fund's net assets; or

(21) Issue senior securities, as defined under the Investment
Company Act of 1940, except that the Fund may enter into repurchase
agreements and reverse repurchase agreements, lend its portfolio securities,
borrow, and enter into when-issued and delayed delivery transactions as
described above under "INVESTMENT OBJECTIVES AND POLICIES" and as limited by
the foregoing investment limitations.

<PAGE> 23
Whenever an investment policy or restriction states a minimum or maximum
percentage of the Government Fund's assets which may be invested in any
security or other assets, it is intended that the minimum or maximum
percentage limitations will be determined immediately after and as a result
of the Fund's acquisition of the security or asset. Accordingly, any later
increase or decrease in the relative percentage of value represented by the
asset or security resulting from changes in asset values will not be
considered a violation of these restrictions.

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

Income Fund Investment Limitations

As a matter of fundamental policy, the Income Fund may not:

(1) with respect to 75% of its total assets taken at market value,
purchase more than 10% of the voting securities of any one issuer or invest
more than 5% of the value of its total assets in the securities of any one
issuer, except obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and except securities of other investment
companies;

(2) borrow money, except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase
agreements; provided that the Fund maintains asset coverage of 300% for all
borrowings;

(4) act as underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Fund;

(5) make loans to any other person, except (a) loans of portfolio
securities, and (b) to the extent that the entry into repurchase agreements
and the purchase of debt securities in accordance with its investment
objectives and investment policies may be deemed to be loans;

(6) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except for shares of the
separate classes of a fund or series of the Trust provided that collateral
arrangements with respect to currency-related contracts, futures contracts,
options, or other permitted investments, including deposits of initial and
variation margin, are not considered to be the issuance of senior securities
for purposes of this restriction;
23

<PAGE> 24
(7) purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase to be invested
in the securities of one or more issuers having their principal business
activities in the same industry, provided that there is no limitation with
respect to investments in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities (for the purposes of this
restriction, telephone companies are considered to be in a separate industry
from gas and electric public utilities, and wholly-owned finance companies
are considered to be in the industry of their parents if their activities are
primarily related to financing the activities of the parents).

As a matter of non-fundamental policy the Income Fund may not:

(a) purchase or retain securities of any open-end investment
company, or securities of any closed-end investment company except by
purchase in the open market where no commission or profit to a sponsor or
dealer results from such purchases, or except when such purchase, though not
made in the open market, is part of a plan of merger, consolidation,
reorganization or acquisition of assets. The Fund will not acquire any
security issued by another investment company ( the "acquired company") if
the Fund thereby would own (i) more than 3% of the total outstanding voting
securities of the acquired company, or (ii) securities issued by the acquired
company having an aggregate value exceeding 5% of the Fund's total assets, or
(iii) securities issued by investment companies having an aggregate value
exceeding 10% of the Fund's total assets;

(b) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;

(c) purchase or retain securities of an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Fund or a member, officer, director or trustee of the investment adviser
of the Fund if one or more of such individuals owns beneficially more than
one-half of one percent (1/2%) of the outstanding shares or securities or
both (taken at market value) of such issuer and such shares or securities
together own beneficially more than 5% of such shares or securities or both;

(e) invest more than 15% of its net assets in the aggregate in
securities which are not readily marketable, the disposition of which is
restricted under Federal securities laws, and in repurchase agreements not
terminable within 7 days provided the Fund will not invest more than 5% of
its total assets in restricted securities;

(f) purchase securities of any issuers with a record of less than
three years of continuous operations, including predecessors, except U.S.
Government securities, securities of such issuers which are rated by at least
one nationally recognized statistical rating organization, municipal
obligations and obligations issued or guaranteed by any foreign government or
its agencies or instrumentalities, if such purchase would cause the
investments of the Fund in all such issuers to exceed 5% of the total assets
of the Fund taken at market value;

<PAGE> 25
(g) purchase more than 10% of the voting securities of any one
issuer, except securities issued by the U.S. Government, its agencies or
instrumentalities;

(h) buy options on securities or financial instruments, unless the
aggregate premiums paid on all such options held by the Fund at any time do
not exceed 20% of its net assets; or sell put options in securities if, as a
result, the aggregate value of the obligations underlying such put options
(together with other assets then segregated to cover the Fund's potential
obligations under its hedging, duration management, risk management and other
Strategic Transactions other than those with respect to futures and options
thereon) would exceed 50% of the Fund's net assets;

(i) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial margin
with respect to all futures contracts entered into on behalf of the Fund and
the premiums paid for options on futures contracts does not exceed 5% of the
fair market value of the Fund's total assets; provided that in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount
may be excluded in computing the 5% limit;

(j) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which own or invest
in such interests);

(k) borrow money except as a temporary measure, and then not in
excess of 5% of its total assets (taken at market value) unless the borrowing
is from banks, in which case the percentage limitation is 10%; reverse
repurchase agreements and dollar rolls will be considered borrowings for this
purpose, and will be further subject to total asset coverage of 300% for such
agreements;

(m) make securities loans if the value of such securities loaned
exceeds 30% of the value of the Fund's total assets at the time any loan is
made; all loans of portfolio securities will be fully collateralized and
marked to market daily. The Fund has no current intention of making loans of
portfolio securities that would amount to greater than 5% of the Fund's total
assets;

(n) purchase or sell real estate limited partnership interests.

Restrictions with respect to repurchase agreements shall be construed to be
for repurchase agreements entered into for the investment of available cash
consistent with the Income Fund's repurchase agreement procedures, not
repurchase commitments entered into for general investment purposes.

<PAGE> 26
YIELD AND RETURN COMPUTATION

Performance and Portfolio Information

The yield and return of a Fund or any Fund class may, from time to time,
be quoted in reports, sales literature and advertisements published by the
Fund, the Distributor, or investment dealers offering the Fund. Any such
quotation must include a standardized calculation which computes yield for a
30-day or one month period by dividing net investment income per share
during the period by the maximum offering price on the last day of the
period. The standardized calculation will include the effect of semiannual
compounding and will reflect amortization of premiums for those bonds which
have a market value in excess of par. New schedules based on market value
will be computed each month for amortizing premiums. With respect to
mortgage-backed securities or other receivables-backed obligations, the Fund
will amortize the discount on premium on the outstanding principal balance,
based upon the cost of the security, over the remaining term of the security.
Gains or losses attributable to actual monthly paydowns on mortgage-backed
obligations will be reflected as increases or decreases to interest income
during the period when such gains or losses are realized. Provided that any
such quotation is also accompanied by the standardized calculation referred
to above, a Fund may also quote non-standardized performance data for a
specified period by dividing the net investment income per share for that
period by either the Fund's average public offering price per share for that
same period or the offering price per share on the first or last day of the
period, and multiplying the result by 365 divided by the number of days in
the specified period. For purposes of this non-standardized calculation, net
investment income will include accrued interest income plus or minus any
amortized purchase discount or premium less all accrued expenses. The
primary differences between the results obtained using the standardized
performance measure and any non-standardized performance measure will be
caused by the following factors: (1) The non-standardized calculation may
cover periods other than the 30-day or one month period required by the
standardized calculation; (2) The non-standardized calculation may reflect
amortization of premium based upon historical cost rather than market value;
(3) The non-standardized calculation may reflect the average offering price
per share for the period or the beginning offering price per share for the
period, whereas the standardized calculation always will reflect the maximum
offering price per share on the last day of the period; (4) The
non-standardized calculation may reflect an offering price per share other
than the maximum offering price, provided that any time the Fund's return is
quoted in reports, sales literature or advertisements using a public offering
price which is less than the Fund's maximum public offering price, the return
computed by using the Fund's maximum public offering price also will be
quoted in the same price; (5) The non-standardized return quotation may
include the effective return obtained by compounding the monthly dividends.

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

<PAGE> 27
Any quoted performance should not be considered a representation of the
performance in the future since the performance is not fixed. Actual
performance will depend not only the type, quality and maturities of the
investments held by the Fund and changes in interest rates on such
investments, but also on changes in the Fund's expenses during the period.
In addition, a change in the Fund's net asset value will affect its
performance.

From time to time, in advertisements and other types of literature, the
performance of a Fund may be compared to other groups of mutual funds. This
comparative performance may be expressed as a ranking prepared by Lipper
Analytical Services, Inc. or other widely recognized independent services
which monitor the performance of mutual funds. These performance analyses
ordinarily will include the reinvestment of dividends and capital gains
distributions, but do not take sales charges into consideration and are
prepared without regard to tax consequences. Performance rankings and
ratings reported periodically in national financial publications such as
MONEY magazine, FORBES and BARRON's also may be used.

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

Yield and return information may be used in reviewing the performance of
the Fund's investments and for providing a basis for comparison with other
investment alternatives. However, each Fund's return fluctuates, unlike
certain bank deposits or other investments which pay a fixed return for a
stated period of time.

REPRESENTATIVE PERFORMANCE INFORMATION

GOVERNMENT FUND (Classes A and C)

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

Yield Computations

Standardized Method of Computing Yield. The Government Fund's yields
for Class A shares and Class C shares, computed for the one-month period
ended September 30, 1997 in accordance with the standardized calculation
described above, were 5.81% and 5.51% for Class A shares and Class C shares,
respectively. This method of computing performance does not take into
account changes in net asset value.

<PAGE> 28
Non-standardized Method of Computing Yield. The Government Fund's
yields for Class A shares and Class C shares, computed for the 7-day period
ended September 30, 1997 in accordance with a non-standardized method, were
5.80% and 5.50% for Class A shares and Class C shares, respectively. This
non-standardized method of computation differs from the standardized method
of computing yield in that the non-standardized yield is computed for a 7-day
period rather than a 30-day or one-month period, the yield reflects
amortization of premium based upon historical cost rather than market value,
and the non-standardized yield is computed by compounding dividends monthly
rather than semiannually. This method of computing performance does not take
into account changes in net asset value.

AVERAGE ANNUAL TOTAL RETURN

The Government Fund's total returns for Class A shares and Class C
shares, computed in accordance with the total return calculation described
above, are displayed in the table below for the periods shown ending
September 30, 1997. The Government Fund commenced sales of its Class A
shares on November 6, 1987, and commenced sales of Class C shares on
September 1, 1994. "Total return," unlike the standardized yield and
non-standardized yield figures shown above, takes into account changes in net
asset value over the described periods. The Class A total return figures
assume the deduction of the maximum sales commission of 2.50% on Class A
shares. Class C shares sold on or after October 2, 1995 are subject to a
contingent deferred sales charge of .50% if redeemed within one year of
purchase. This sales charge was deducted in computing the one-year return
figure shown below. These data also assume reinvestment of all dividends at
net asset value.

<TABLE>

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
<S> <C> <C> <C> <C>
Class A 4.22% 4.66% N/A 6.97% (11/6/87)
Class C 5.99% N/A N/A 6.32% (09/1/94)
</TABLE>

Total return figures are average annual total returns for the periods shown.

INCOME FUND (Classes A and C)

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

Yield Computations

Standardized Method of Computing Yield. The Income Fund's yields for
Class A shares and Class C shares, computed for the one-month period ended
September 30, 1997 in accordance with the standardized calculation described
above, were 5.94% and 5.71% for Class A shares and Class C shares,
respectively. This method of computing performance does not take into
account changes in net asset value.

<PAGE> 29
Non-standardized Method of Computing Yield. The Income Fund's yields
for Class A shares and Class C shares, computed for the 7-day period ended
September 30, 1997 in accordance with its non-standardized method, were 5.81%
and 5.56% for Class A shares and Class C shares, respectively. This
non-standardized method of computation differs from the standardized method
of computing yield in that the non-standardized yield is computed for a 7-day
period rather than a 30-day or one-month period, the yield reflects
amortization of premium based upon historical cost rather than market value,
and the non-standardized yield is computed by compounding dividends monthly
rather than semiannually. This method of computing performance does not take
into account changes in net asset value.

AVERAGE ANNUAL TOTAL RETURN

The Income Fund's total returns for Class A shares and Class C shares,
computed in accordance with the total return calculation described above are
displayed in the table below for the periods shown ending September 30, 1997.
The Income Fund commenced sales of its Class A shares on October 1, 1992, and
commenced sales of Class C shares on September 1, 1994. "Total return,"
unlike the standardized yield and non-standardized yield figures shown above,
takes into account changes in net asset value over the described periods.
The Class A total return figures assume the deduction of the maximum sales
commission of 2.50% on Class A shares. Class C shares sold on or after
October 2, 1995 are subject to a contingent deferred sales charge of .50% if
redeemed within one year of purchase. This sales charge was deducted in
computing the one-year return figure shown below. These data also assume
reinvestment of all dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
Class A 4.87% 6.11% N/A 6.11% (10/1/92)
Class C 6.63% N/A N/A 7.24% (09/1/94)

Total return figures are average annual total returns for the periods shown.

DISTRIBUTIONS, TAXES AND SHAREHOLDER ACCOUNTS

Distributions

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

Federal Income Tax Considerations

Each Fund has elected and intends to qualify for treatment as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986 (the "Code"). Distributions representing net interest and net
short-term capital gains will be taxable as ordinary income to the recipient

<PAGE> 30
shareholders, whether the distributions are actually taken in cash or are
reinvested by the recipient shareholders in additional shares. Fund
distributions will not be eligible for the dividends received deduction for
corporations. Distributions of net long-term capital gains, if any, will be
treated as long-term capital gains to the distributee shareholders, whether
the distributions are actually taken as cash or are reinvested by the
recipient shareholders in additional shares.

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 or exchange right, then the original sales charge
to the extent of the reduction is not included in the basis of the shares
sold for determining gain or loss. Instead, the reduction is included in
determining the basis of the reinvested shares.

Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should distributions reduce the net asset value below a
shareholder's cost basis, the distributions would nevertheless be taxable to
the shareholder as ordinary income or capital gain as described above, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those
purchasing just prior to a distribution will then receive a partial return of
capital upon the distribution, which will nevertheless be taxable to them.

If a Fund holds zero coupon securities or other securities which are
issued at discount, a portion of the difference between the issue price and
the face amount of zero coupon securities ("original issue discount") will be
treated as ordinary income if the Fund holds securities with original issue
discount each year, although no current payments will be received by the Fund
with respect to that income. This original issue discount will comprise a
part of that investment company taxable income of the Fund which must be
distributed to shareholders in order to maintain its qualification as a
regulated investment company and to avoid federal income tax on the Fund.
Taxable shareholders of the Fund will be subject to income tax on original
issue discount, whether or not they elect to receive their distributions in
cash.

<PAGE> 31
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a mutual fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays
such liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on a disposition of debt securities denominated in a foreign
currency and on disposition of certain futures contracts, forward contracts
and options, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security or contract
and the date of disposition are also treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of the Income Fund's investment company
taxable income to be distributed to its shareholders as ordinary income.

Each shareholder will be notified annually by their Fund as to the
amount and characterization of distributions paid to or reinvested by the
shareholder for the preceding taxable year. The Fund may be required to
withhold federal income tax at a rate of 31% from distributions otherwise
payable to a shareholder if (i) the shareholder has failed to furnish the
Fund with his taxpayer identification number, (ii) the Fund is notified that
the shareholder's number is incorrect, (iii) the Internal Revenue Service
notifies the Fund that the shareholder has failed properly to report certain
income, or (iv) when required to do so, the shareholder fails to certify
under penalty of perjury that he is not subject to this withholding.

If in any year a Fund fails to qualify for the treatment conferred by
Subchapter M of the Code, the Fund would be taxed as a corporation on its
income. Distributions to the shareholders would be treated as ordinary
income to the extent of the Fund's earnings and profits, and would be treated
as nontaxable returns of capital to the extent of the shareholders'
respective bases in their shares. Further distributions would be treated as
amounts received on a sale or exchange or property. Additionally, if in any
year the Fund qualified as a regulated investment company but failed to
distribute all of its net income, the Fund would be taxable on the
undistributed portion of its net income. Although each Fund intends to
distribute all of its net income currently, it could have undistributed net
income if, for example, expenses of the Fund were reduced or disallowed on
audit.

<PAGE> 32
The foregoing is a general and abbreviated summary of the provisions of
the Internal Revenue Code and Treasury Regulations presently in effect as
they directly govern the taxation of each Fund and its shareholders. For
complete provisions, reference should be made to the pertinent Code sections
and Treasury Regulations. The Code and Treasury Regulations are subject to
change by legislative or administrative action, and any such change may be
retroactive with respect to Fund transactions. Shareholders are advised to
consult their own tax advisers for more detailed information concerning the
federal and state taxation of the Fund and the income tax consequences to its
shareholders. In particular, prospective investors who are not individuals
are advised that the preceding discussion relates primarily to the
consequences affecting individuals, and the tax consequences of an investment
of a person who is not an individual may be very different.

State and Local Income Tax Considerations

Each Fund is a series of Thornburg Investment Trust, which is organized
as a Massachusetts business trust. Under current Massachusetts law, the
Trust is not subject to Massachusetts income taxation during any fiscal year
in which the Fund qualifies as a regulated investment company. The income
tax treatment of the shareholders in the respective states will depend upon
the specific laws applicable in those states, and prospective investors are
urged to confer with their own tax advisers concerning their particular
situations.

Accounts of Shareholders

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

The monthly distributions of interest income, net of expenses, and the
annual distributions of net realized capital gains, if any, will be credited
to the accounts of shareholders in full and fractional shares of the Fund at
net asset value on the payment or distribution date, as the case may be.
Upon written notice to the Transfer Agent, a shareholder may elect to receive
monthly distributions of net interest income in cash. Such an election will
remain in effect until changed by written notice to the Transfer Agent, which
change may be made at any time in the sole discretion of the shareholder.

The issuance and delivery of certificates for shares is not required,
and shareholders may be relieved of the responsibility of safekeeping. Upon
written request to the Transfer Agent, a certificate will be issued for any
or all of the full shares credited to a shareholder's account, unless the
shareholder has elected the Fund's telephone redemption or systematic
withdrawal features, which are described in the Prospectus. Certificates
which have been issued to a shareholder may be returned at any time for
credit to his or her account.

<PAGE> 33
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS

Investment Advisory Agreements

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.

TMC is investment adviser for Thornburg Limited Term Municipal Fund
National Portfolio and Thornburg Limited Term Municipal Fund California
Portfolio, which are fund series issued by Thornburg Limited Term Municipal
Fund, Inc. TMC also is investment adviser for Thornburg Intermediate
Municipal Fund, Thornburg New Mexico Intermediate Municipal Fund, Thornburg
New York Intermediate Municipal Fund, Thornburg Florida Intermediate
Municipal Fund and Thornburg Value Fund, series of Thornburg Investment Trust
which have aggregate net assets of approximately $621,699,000 as of
September 30, 1997. TMC is a sub-adviser for Daily Tax-Free Income Fund,
Inc., a registered investment company.

TMC will provide continuous professional investment supervision under
the Investment Advisory Agreement. In addition to managing each Fund's
investments, TMC will administer the Funds' business affairs, provide office
facilities and certain clerical, bookkeeping and administrative services.
Pursuant to the Investment Advisory Agreements, the Funds will pay to TMC a
monthly management fee at the annual rates described in the table set forth
below. The Income Fund also will pay applicable sales tax, gross receipts
tax or similar impositions thereon. All fees and expenses are accrued daily
and deducted before payment of dividends to investors.

Net Assets Annual Rate
Government Fund 0 to $1 billion 0.375%
$1 billion to $2 billion 0.325%
over $2 billion 0.275%

Income Fund 0 to $500 million 0.50%
$500 million to $1 billion 0.45%
$1 billion to $1.5 billion 0.40%
$1.5 billion to $2 billion 0.35%
over $2 billion 0.275%

In addition to the fees of TMC, each Fund will pay all other costs and
expenses of its operations, as described in the Prospectus under the caption
"MANAGEMENT OF THE FUND-Expenses". Each Fund also will bear the expenses of
registering and qualifying the Fund and the shares for distribution under
federal and state securities laws, including legal fees.

Each Fund may pay fees to TMC and Thornburg Securities Corporation to
reimburse them for particular expenditures incurred in connection with
certain shareholder services and the distribution of the Fund's shares to
investors. The terms and conditions relating to these payments are described
in detail below under the heading "SERVICE AND DISTRIBUTION PLANS".

<PAGE> 34
The Investment Advisory Agreement for each Fund has been approved by the
Trustees of the Funds, including a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Fund or TMC. Each
Agreement may be extended for successive 12-month periods, provided that the
continuation is approved at least annually by the Trustees, and 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 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 shareholders of each of the Funds approved a restatement of the
Investment Advisory Agreement applicable to each Fund at special meetings of
shareholders on April 16, 1996, to reduce the advisory fees under those
agreements and to remove from those agreements the requirement that TMC would
provide certain administrative services. Instead, effective July 1, 1996,
those services are provided under the terms of an Administrative Services
Agreements are described below.

For the three most recent fiscal periods ended September 30, 1995, 1996
and 1997 with respect to each Fund, the amounts paid to TMC by each Fund were
as follows:

1995 1996 1997
---- ---- ----

Government Fund $735,085 $678,979 $512,612
Income Fund -0- $44,213 $63,046

TMC has waived its rights to fees in the foregoing periods as follows:

1995 1996 1997
---- ---- ----

Government Fund $24,278 -0- -0-
Income Fund -0- $106,223 $72,224

The foregoing figures for 1995, and in part for 1996, are based upon the
rates applicable before restatement of the Investment Advisory Agreement
applicable to each Fund. TMC may, (but is not obligated to) waive its rights
to any portion of its fees in the future, and may use any portion of its fee
for purposes of shareholder and administrative services and distribution of
Fund shares. During the fiscal year ended September 30, 1997, the Government
Fund and the Income Fund reimbursed TMC in the amounts of $14,839 and $3,685,
respectively, for certain accounting expenses incurred by TMC on behalf of
that Fund.

<PAGE> 35
Administrative Services Agreement

September 30, 1996: Class A Class C
------- -------
Government Fund $44,204 $977
Income Fund $7,210 $756

September 30, 1997: Class A Class C
------- -------
Government Fund $170,871 $4,909
Income Fund $33,817 $5,702

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

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

SERVICE AND DISTRIBUTION PLANS

Service Plans - All Classes

Each of the Funds have 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 each 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. 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

<PAGE> 36
payment of amounts, including incentive compensation , to securities dealers
and other financial institutions, including banks (to the extent permissible
under the Glass-Steagall Act and other federal banking laws), for
administration and delivery of shareholder services. The nature and scope of
services provided by dealers and other entities likely will vary from entity
to entity, but may include, among other things, processing new account
applications, preparing and transmitting to the Transfer Agent computer
processable tapes of shareholder account transactions, and serving as a
source of information to customers concerning the Funds and transactions with
the Funds. The Service Plan does not provide for accrued but unpaid
reimbursements to be carried over and reimbursed to TMC in later years.

The Funds paid to TMC the amounts shown in the table below under the
Service Plan for the fiscal years shown below. All amounts received by TMC
under the Plan were paid principally as compensation to securities dealers
and other persons selling the Funds' shares for administration and
shareholder services referred to in the preceding paragraph.

September 30, 1996: Class A Class C
------- -------
Government Fund $355,228 $12,882
Income Fund $58,390 $6,007

September 30, 1997: Class A Class C
------- -------
Government Fund $330,420 $982
Income Fund $64,185 $11,411

Class C Distribution Plan

Each Fund has adopted a plan and agreement of distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940, applicable only to the
Class C shares of that Fund ("Class C Distribution Plan"). The Class C
Distribution Plan provides for the Fund's payment to the Fund's principal
underwriter, Thornburg Securities Corporation ("TSC") on a monthly basis of
an annual distribution fee of .75% of the average daily net assets
attributable to the Fund's Class C shares.

The purpose of the Class C Distribution Plan applicable to 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. Because the Class C
Distribution Plan is a compensation type plan, TSC can earn a profit on any
year when Fund payments exceed TSC's actual expenses. The Funds are not
liable for any expenses incurred by TSC in excess of the compensation it
received from the Fund.

The Funds paid to TSC $3,627 (Government Fund) and $3,829 (Income Fund)
under the Class C Distribution Plan for the fiscal year ended September 30,
1996, and paid to TSC $9,816 (Government Fund) and $11,396 (Income Fund)
under the Plan for the fiscal year ended September 30, 1997. Amounts
received by TSC under the Class C Distribution Plan were paid principally as
compensation to securities dealers and other persons selling the Funds'
shares.

<PAGE> 37
The Glass-Steagall Act prohibits certain banks from underwriting mutual
fund shares, but the Funds do not believe that this prohibition will apply to
the arrangements described in the Plans. However, no assurance can be given
that the Glass-Steagall Act will not be interpreted so as to prohibit these
arrangements. In that event, the Funds' ability to market their shares could
be impaired to a small extent. The Funds do not foresee that they will give
preference to banks or other depository institutions which receive payments
from TMC or TSC when selecting investments for the Funds.

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

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

Information regarding the services rendered under the Plans 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 Plans and the level of compensation provided
therein.

PORTFOLIO TRANSACTIONS

TMC, in effecting purchases and sales of portfolio securities for the
account of the Funds, will place orders in such manner as, in the opinion of
TMC, will offer the best price and market for the execution of each
transaction. Portfolio securities normally will be purchased directly from
an underwriter or in the over-the-counter market from the principal dealers

<PAGE> 38
in such securities, unless it appears that a better price of execution may be
obtained elsewhere. Purchases from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include the spread between the bid and asked price. Given the best
price and execution obtainable, it will be the practice of the Funds to
select dealers which, in addition, furnish research information including
credit analyses of issuers and statistical and other services to TMC. It is
not possible to place a dollar value on information and statistical and other
services received from dealers. Since it is only supplementary to TMC's own
research efforts, the receipt of research information is not expected
significantly to reduce TMC's expenses. In selecting among the firms
believed to meet the criteria for handling a particular transaction, TMC also
may give consideration to those firms which have sold or are selling shares
of the Funds. While TMC will be primarily responsible for the placement of
the Funds' business, the policies and practices of TMC in this regard must be
consistent with the foregoing and will at all times be subject to review by
the Trustees of the Funds.

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

The Funds' portfolio turnover rates for the two most recent fiscal years
are as follows:
1996 1997
---- ----

Government Fund 23.27% 41.10%
Income Fund 44.35% 13.87%

MANAGEMENT AND HOLDERS OF SECURITIES

The management of the Funds, including general supervision of the duties
performed by TMC under the Investment Advisory Agreements, is the
responsibility of the 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 Funds
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 of
TMC 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).

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.

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,
Executive Vice President of Daily Tax-Free Income Fund, Inc., and Chairman
and Treasurer of Thornburg Limited Term Municipal Fund, Inc. Mr. Ziesenheim
and Ms. Fischer are respectively the president and secretary of TSC.

<PAGE> 42
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.

As of November 14, 1997, the Government Fund had 11,327,887 shares
outstanding, of which 10,558,388 were Class A shares and 340,611 were Class
C shares; as of the same date, the Income Fund had 3,409,406 shares
outstanding, of which 2,563,980 were Class A shares and 470,406 were Class C
shares. As of November 14, 1997, no person was known to own, of record or
beneficially, 5% or more of the issued and outstanding shares of either Fund.
As of the same date, officers and Trustees of the Trust as a group, together
with family members, owned themselves or through affiliated persons 74,572
shares of the Income Fund, representing 2.19% of the Fund's issued and
outstanding shares on that date. As of November 14, 1997, officers and
Trustees of the Trust as a group (together with family members) owned
themselves or through affiliated persons less than 1% of the outstanding
shares of the Government Fund.

PURCHASE OF FUND SHARES

Discussion of Reduced Sales Charges - Class A Shares

Procedures for purchases of Fund shares by investors, the pricing of
Fund shares for sale to investors, and the schedule of sale to the public are
described in the Prospectus under the caption "BUYING FUND SHARES IN
GENERAL."

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

<PAGE> 43
(1) Existing shareholders of a Fund may purchase shares upon the
reinvestment of dividends and capital gains distributions with no sales
charge. This practice is followed by many investment funds that charge sales
loads for new investments.

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

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

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

<PAGE> 44
(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 placed directly with the
Transfer Agent or TSC and through a broker/dealer who is a member in good
standing with the NASD, and employees of eligible non-NASD members which
accept orders for shares of a Fund on an agency basis and clear those orders
through a broker/dealer who is a member in good standing with NASD, and their
families, may purchase shares of the Fund for themselves with no sales
charge, provided that (i) the order must be placed through an NASD member
firm who has entered into an agreement with TSC to distribute shares of the
Fund, and (ii) the shareholder's broker/dealer or the shareholder must notify
TSC or the Transfer Agent at the time an order is placed that the purchase
would qualify for this variation to the Public Scale. Similar notification
must be made in writing by the dealer, the broker, or the shareholder when
such an order is placed by mail. The reduced sales charge will not apply if
the notification is not furnished at the time of the order or a review of
TSC's, the dealer's, the broker's or the Transfer Agent's records fails to
confirm that the investor's representation is correct.

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

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

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

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

<PAGE> 45
(8) Certain employee benefit plans and insurance company separate
accounts used to fund annuity contracts may purchase shares of the Funds at
no sales charge. TSC or TMC intend to pay a commission of up to 1/2 of 1% to
dealers 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 redemptions within one year of purchase.

(9) Charitable organizations or foundations, including trusts
established for the benefit of charitable organizations or foundations, may
purchase shares of the Funds at no sales charge. TSC or TMC intend to pay a
commission of up to 1/2 of 1% to dealers who place orders for these
purchasers.

These organizations may charge fees to clients for whose accounts they
purchase shares of a Fund. Where the reduced sales charge applies,
notification is required at the time the order is received, and a review of
TSC's or Transfer Agent's record must confirm that the investor's
representation is correct. The investment decisions of the persons and
organizations described in the foregoing paragraphs tend to be made by
informed advisers. Typically, these organizations are better able than the
general public to evaluate quickly the appropriateness of a Fund's investment
objectives and performance in light of their goals. In certain cases, these
organizations may approach the Fund directly with no solicitation after
reading performance data in trade publications. Consequently, costs of
marketing to these persons and organizations likely will be minimal.

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

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

(12) Investors 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. This is available only to investors whose broker-
dealer or other financial advisor has made prior arrangements with TSC. When
making a direct purchase at net asset value under this provision, the Fund
must receive one of the following with the direct purchase order: (i) the
redemption check representing the proceeds of the shares redeemed, endorsed
to the order or the Fund, or (ii) a copy of the confirmation from the other
fund, showing the redemption transaction. Purchases with redemptions from
money market funds are not eligible for this privilege. This provision may
be terminated anytime by TSC or the Trust without notice. This variation to
the Public Scale is offered in the belief that investors in other funds who
determine to reinvest in one of the Funds have made an informed decision and
that significant sales efforts are not required.

<PAGE> 46
REDEMPTION OF SHARES

Procedures with respect to redemption of Fund shares are set forth in
the Prospectus under the caption "HOW TO REDEEM FUND SHARES". Each Fund may
suspend the right of redemption or delay payment more than seven days (a)
during any period when the New York Stock Exchange is closed (other than
customary weekend and holiday closings), (b) when trading in the markets the
Fund normally utilizes is restricted, or an emergency exists as determined by
the Securities and Exchange Commission so that disposal of the Fund's
investments or determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the Securities and Exchange
Commission by order may permit for protection of the shareholders of the
Fund.

DISTRIBUTOR

Pursuant to a Distribution Agreement with the Fund, Thornburg Securities
Corporation acts as the distributor of Fund shares. The Fund bears the
expenses of registering its shares with the Securities and Exchange
Commission and qualifying them or the Fund with state regulatory authorities.
In addition, the Fund will make payments to TMC and to TSC for certain
shareholder services and distribution of the Funds' shares, including amounts
paid to dealers for services and incentive compensation. See the discussion
under the heading "SERVICE AND DISTRIBUTION PLANS". Terms of continuation,
termination and assignment under the Distribution Agreement are similar to
those described above with regard to the Investment Advisory Agreement,
except that termination other than upon assignment requires 30 days' notice.

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

The following table shows the commissions and other compensation
received by TSC from each of the Funds for the fiscal years ended September
30, 1996 and 1997, except for amounts paid under Rule 12b-1 plans, which are
described above under the caption "Service and Distribution Plans."

<TABLE>
Net Compensation
Underwriting on
Fiscal Year Aggregate Discounts and Redemptions
Ended Underwriting Commissions and Brokerage Other
9/30/96 Commissions Paid to TSC Repurchases Commissions Compensation
- ----------- ------------ ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Government $96,524 $24,515 $1,557 - 0 - *
Fund

Income Fund $95,939 $ 9,784 $1,647 - 0 - *

Net Compensation
Underwriting on
Fiscal Year Aggregate Discounts and Redemptions
Ended Underwriting Commissions and Brokerage Other
9/30/97 Commissions Paid to TSC Repurchases Commissions Compensation
- ----------- ------------ ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Government $__,___ $18,119 $1,793 - 0 - *
Fund

Income Fund $__,___ $18,484 $6,628 - 0 - *

</TABLE>

* See "Service and Distributions Plans"

<PAGE> 47
INDEPENDENT AUDITORS

McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, has
been selected as the independent auditor of the Funds for the fiscal year
ending September 30, 1998. Shareholders will receive semiannual unaudited
financial statements and annual financial statements audited by the
independent auditor. The Funds' most recent Annual Reports may be obtained
at no charge by writing or calling Thornburg Management Company, Inc., 119
East Marcy Street, Suite 202, Santa Fe, New Mexico 87501, (800) 847-0200.

FINANCIAL STATEMENTS

The Funds' Statements of Assets and Liabilities including Schedules of
Investments, as of September 30, 1997, Statements of Operations for the year
ended September 30, 1997 and Statements of Changes in Net Assets for the two
years in the period ended September 30, 1997, Notes to Financial Statements,
Financial Highlights, and Independent Auditor's Reports dated October 24,
1997 for Thornburg Limited Term U.S. Government Fund and Thornburg Limited
Term Income Fund are incorporated herein by reference from the Funds' 1997
Annual Reports to Shareholders.

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

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

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

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

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

Thornburg Intermediate Municipal Fund
("Intermediate National Fund")

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

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

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

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

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

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

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

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

This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Funds' Prospectus dated February 1, 1998. A
copy of the Prospectus may be obtained at no charge by writing to the
distributor of the Funds' shares, Thornburg Securities Corporation (TSC), at
119 East Marcy Street, Suite 202, Santa Fe, New Mexico 87501.

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

The date of this Statement of Additional Information is February 1,
1998.

<PAGE> i
TABLE OF CONTENTS
Page
----
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . 1
Municipal Obligations . . . . . . . . . . . . . . . . . . 3
Ratings . . . . . . . . . . . . . . . . . . . . . . . . . 6
Temporary Investments . . . . . . . . . . . . . . . . . . 8
Repurchase Agreements . . . . . . . . . . . . . . . . . . 8
U.S. Government Obligations . . . . . . . . . . . . . . . 9
Special Risks of Investment in Single-State Funds . . . . 9

INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . .10

YIELD AND RETURN COMPUTATION:
Performance and Portfolio Information . . . . . . . . . . . . 13
Computation of Yield and Return - In General . . . . . . 13
Additional Portfolio and Performance Information . . . . 14

REPRESENTATIVE PERFORMANCE INFORMATION . . . . . . . . . . . .15
Thornburg Intermediate Municipal Fund
(Classes A and C) . . . . . . . . . . . . . . .15
Thornburg New Mexico Intermediate Municipal Fund
(Class A) . . . . . . . . . . . . . . . . . . .16
Thornburg Florida Intermediate Municipal Fund
(Class A) . . . . . . . . . . . . . . . . . . .17

DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . . . 19
Distributions . . . . . . . . . . . . . . . . . . . . . .19
Federal Income Tax Matters . . . . . . . . . . . . . . . 19
State and Local Tax Aspects . . . . . . . . . . . . . . .22
Accounts of Shareholders . . . . . . . . . . . . . . . . 23

INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS . .24
Investment Advisory Agreement . . . . . . . . . . . . . .24
Administrative Services Agreement . . . . . . . . . . . .26

SERVICE AND DISTRIBUTION PLANS . . . . . . . . . . . . . . . .26
Service Plans - All Classes . . . . . . . . . . . . . . .26
Class C Distribution Plan . . . . . . . . . . . . . . . .27

PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . .28

MANAGEMENT AND HOLDERS OF SECURITIES . . . . . . . . . . . . .29

HOW TO PURCHASE FUND SHARES . . . . . . . . . . . . . . . . . 34

<PAGE> ii

NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . 37

REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . .37

DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . 37

INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . .38

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . .38
ii

<PAGE> 1
INVESTMENT OBJECTIVES AND POLICIES

The primary investment objective of each of the Funds is to provide for
its shareholders as high a level of current income exempt from Federal income
tax as is consistent, in the view of the Funds' investment adviser, TMC, with
preservation of capital. The Alabama, Arizona, New Mexico, New York,
Pennsylvania and Tennessee Funds seek to provide as high a level of current
income exempt from state individual income taxes as is consistent, in the
view of TMC, with preservation of capital. The Intermediate New York Fund
also seeks to have interest dividends which are distributed to individual
shareholders exempt from New York City individual income taxes. The Florida
and Pennsylvania Funds seek exemption from those states' imposition of taxes
on intangible personal property. A secondary investment objective of the
Funds is reducing fluctuations in net asset value per share relative to
long-term municipal bond portfolios, by maintaining a portfolio with a
dollar-weighted average maturity that will normally not exceed three to ten
years. There is a risk in all investments, however, and there can be no
assurance that the Funds' objectives will be achieved. The objective of
preservation of capital may preclude the Funds from obtaining the highest
available yields. The National, New Mexico and Texas Funds were organized on
June 4, 1991. The Arizona Fund was organized on January 24, 1994. The New
York Fund was organized on March 12, 1997. The other Funds were organized on
October 4, 1993.

The New Mexico Fund commenced investment operations on June 21, 1991,
and the National Fund commenced investment operations on July 23, 1991. The
Florida Fund commenced investment operations on February 1, 1994. The New
York Fund commenced investment operations on September 5, 1997.

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

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

Each Fund's assets will normally consist of (1) Municipal Obligations or
participation interests therein that are rated at the time of purchase within
the four highest grades Aaa, Aa, A, Baa by Moody's Investors Service
("Moody's"), or AAA, AA, A, BBB of Standard & Poor's Corporation ("S&P"), or
Fitch Investors Service ("Fitch"), (2) Municipal Obligations or participation
interests therein that are not rated by a rating agency, but are issued by
obligors that either have other comparable debt obligations that are rated
within the four highest grades by Moody's S&P or Fitch, or, in the case of
obligors whose obligations are unrated, are deemed by TMC to be comparable
with issuers having such debt ratings, and (3) a small amount of cash or
equivalents. In normal conditions, the Funds will hold cash pending
investment in portfolio securities or anticipated redemption requirements.
For an explanation of these ratings, please see "Ratings," page 6. to the
extent that unrated Municipal Obligations may be less liquid, there may be
somewhat greater risk in purchasing unrated Municipal Obligations than in

1
<PAGE> 1
purchasing comparable, rated Municipal Obligations. If a Fund experienced
unexpected net redemptions, it could be forced to sell such unrated Municipal
Obligations at disadvantageous prices without regard to the Obligations'
investment merits, depressing the Fund's net asset value and possibly
reducing the Fund's overall investment performance.

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

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

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

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

No Fund will purchase securities if, as a result, more than 25% of the
Fund's total assets would be invested in any one industry. However, this
restriction will not apply to purchase of (i) securities of the United States
Government and its agencies, instrumentalities and authorities, or (ii) tax
exempt securities issued by other governments or political subdivisions,
because these issuers are not considered to be members of any industry. This
restriction may not be changed as to any Fund unless approved by a majority
of the outstanding shares of the Fund.
2
<PAGE> 3
The Funds' investment objectives and policies, unless otherwise
specified, are not fundamental policies and may be changed by the Trustees
without shareholder approval.

Municipal Obligations

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

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

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

<PAGE> 4
The Funds also may purchase fixed rate municipal demand instruments
either in the public market or privately. Such instruments may provide for
periodic adjustment of the interest rate paid to the holder. The "demand"
feature permits the holder to demand payment of principal and interest prior
to their final stated maturity, either from the issuer or by drawing on a
bank letter of credit, a guarantee or insurance issued with respect to the
instrument. In some cases these demand instruments may be in the form of
units, each of which consists of (i) a Municipal Obligation and (ii) a
separate put option entitling the holder to sell to the issuer of such option
the Municipal Obligation in such unit, or an equal aggregate principal amount
of another Municipal Obligation of the same issuer, issue and maturity as
such Municipal Obligation, at a fixed price on specified dates during the
term of the put option. In those cases, each unit taken as a whole will be
considered a Municipal Obligation, based upon an accompanying opinion of
counsel. A Fund will invest in a fixed rate municipal demand instrument only
if the instrument or the associated letter of credit, guarantee or insurance
is rated within the three highest grades of a nationally recognized rating
agency, or, if unrated, is deemed by TMC to be of comparable quality with
issues having such debt ratings. The credit quality of such investments will
be determined on a continuing basis by TMC under the supervision of the
Trustees.

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

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

<PAGE> 5
The Funds will seek to reduce further the special risks associated with
investment in Municipal Leases by investing in Municipal Leases only where,
in TMC's opinion, certain factors established by the Trustees have been
satisfied, including (i) the nature of the leased equipment or property is
such that its ownership or use is deemed essential to a governmental function
of the governmental issuer, (ii) the Municipal Lease has a shorter term to
maturity than the estimated useful life of the leased property and the lease
payments will commence amortization of principal at an early date,
(iii) appropriate covenants will be obtained from the governmental issuer
prohibiting the substitution or purchase of similar equipment for a specified
period (usually 60 days or more) in the event payments are not appropriated,
(iv) the underlying equipment has elements of portability or use that enhance
its marketability in the event foreclosure on the underlying equipment was
ever required, and (v) the governmental issuer's general credit is adequate.
The enforceability of the "non-substitution" provisions referred to in (iii)
above has not been tested by the courts. Investments not meeting certain of
these criteria (such as the absence of a non-substitution clause) may be made
if the Municipal Lease is subject to an agreement with a responsible party
(such as the equipment vendor) providing warranties to the Funds that satisfy
such criteria.

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

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

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

<PAGE> 6
The yields on Municipal Obligations are dependent on a variety of
factors, including the condition of the general market and the Municipal
Obligation market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The ratings of Moody's, S&P and
Fitch represent their opinions as to the quality of the Municipal Obligations
which they undertake to rate. See "Ratings." It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, Municipal Obligations with the same maturity, coupon and
rating may have different yields, while Municipal Obligations of the same
maturity and coupon with different ratings may have the same yield. The
market value of outstanding Municipal Obligations will vary with changes in
prevailing interest rate levels and as a result of changing evaluations of
the ability of their issuers to meet interest and principal payments. Such
variations in market value of Municipal Obligations held in a Fund's
portfolio arising from these or other factors will cause changes in the net
asset value of the Fund's shares.

Ratings

The four highest ratings of S&P and Fitch for tax-exempt bonds are AAA,
AA, A, and BBB. Tax-exempt bonds rated AAA bear the highest rating assigned
by S&P and Fitch to a debt obligation and indicates an extremely strong
capacity to pay principal and interest. Tax-exempt bonds rated AA also
qualify as high-quality debt obligations. Capacity to pay principal and
interest is very strong, and in the majority of instances they differ from
AAA issues only in small degree. Bonds rated A have a strong capacity to pay
principal and interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions. The BBB

<PAGE> 7
rating, which is the lowest "investment grade" security rating by S&P or
Fitch, indicates an adequate capacity to pay principal and interest.
Whereas BBB rated Municipal Obligations they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay principal and interest
for bonds in this category than for bonds in the A category. The foregoing
ratings are sometimes followed by a "p" indicating that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of default upon failure of, such
completion.

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

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

Commercial Paper. The ratings of Moody's for issuers of commercial
paper are Prime-1, Prime-2 and Prime-3. Issuers rated Prime-1 are judged to
have superior ability for repayment which is normally evidenced by (i)
leading market positions in well established industries, (ii) high rates of
return on funds employed, (iii) conservative capitalization structures with
moderate reliance on debt and ample asset protection, (if) broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and (v) well established access to a range of financial markets

<PAGE> 8
and assured sources of alternate liquidity. Issuers rated Prime-2 are judged
to have a strong capacity for repayment which is normally evidenced by many
of the characteristics cited under the discussion of issuers rated Prime-1
but to a lesser degree. Earnings trends, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may
be more affected by external conditions. Adequate liquidity is maintained.
Issuers rated Prime-3 are judged to have an acceptable capacity for
repayment. The effect of industry characteristics and market composition may
be more pronounced. Variability of earnings and profitability may result in
changes in the level of debt-protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.

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

Temporary Investments

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

Repurchase Agreements

Any Fund may enter into repurchase agreements with respect to taxable
securities constituting "temporary investments" in its portfolio. A
repurchase agreement is a contractual agreement whereby the seller of
securities agrees to repurchase the same security at a specified price on a
future date agreed upon by the parties. The agreed upon repurchase price

<PAGE> 9
determines the yield during the Fund's holding period. Repurchase agreements
may be viewed as loans collateralized by the underlying security that is the
subject of the repurchase agreement. A Fund will not enter into a repurchase
agreement if, as a result, more than 5% of the value of its net assets would
then be invested in repurchase agreements. The Funds will enter into
repurchase agreements only with dealers, banks or recognized financial
institutions that in the opinion of TMC represent minimal credit risk. The
risk to a Fund is limited to the ability of the seller to pay the agreed upon
repurchase price on the delivery date; however, although the value of the
underlying collateral at the time the transaction is entered into always
equals or exceeds the agreed upon repurchase price, if the value of the
collateral declines there is a risk of loss of both principal and interest if
the seller defaults. In the event of a default, the collateral may be sold.
A Fund might incur a loss if the value of the collateral has declined, and
the Fund might incur disposition costs or experience delays in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon the
collateral by the Fund may be delayed or limited. The Funds' investment
adviser will monitor the value of the collateral at the time the transaction
is entered into and at all subsequent times during the term of the repurchase
agreement in an effort to determine that the value always equals or exceeds
the agreed upon repurchase price. In the event the value of the collateral
declines below the repurchase price, the investment adviser will demand
additional collateral from the seller to increase the value of the collateral
to at least that of the repurchase price.

U.S. Government Obligations

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

Special Risks of Investment in Single-State Funds

Investments in a single-state Fund will be subject to economic and other
factors affecting the state in which the Fund invests.

New Mexico
----------
New Mexico's population and economy are among the smallest of the 50
states. As of 1995, the state's population of 1,685,000 was 0.64% of the
United States population. 1996 personal income for New Mexico was $32.2
billion, which was 0.48% of the national total. Major industries for the
state include mining, energy resources, construction, services, tourism,
agriculture, and the federal government.

<PAGE> 10
After growing at a 6.2% rate in 1995, which was the third fastest growth
rate in the nation, New Mexico per capita personal income grew at only a 3.4%
rate in 1996. This appears to be primarily due to cut-backs at some of the
major federal government facilities, and weak energy and agriculture prices.

The state government derives 49% of its revenues from sales taxes, 32%
of revenues from income taxes, 9% of revenues from severance taxes, and the
other 10% from other sources. State general fund revenues are showing
significant increases in 1997 over 1996 levels. Through the first nine
months of the 1996-'97 fiscal year, total revenues were running at a 7.3%
higher rate than 1995-'96. It is estimated that the state will end the 1996-
'97 fiscal year with an operating surplus of approximately $30 million. The
budget for the 1997-'98 fiscal year anticipates an operating surplus of $29
million, which would increase the Operating Reserve balance to $83 million.

Florida
-------
As of 1995, Florida's population of 14,166,000 was 5.4% of the United
States population. 1996 personal income for Florida was $347 billion, which
was 5.2% of the national total. The state continues to grow rapidly. Major
industries for the state include agriculture, tourism, insurance, banking and
import-export trade.

Personal income grew at a 6.3% rate in 1996, and has averaged 6.5%
growth over the last five years. The unemployment rate has dropped to 5.1%
in 1996 from 8.3% in 1992.

Debt ratios are moderate at $730 per capita, and 3.2% of personal
income. State general fund revenues are showing significant increases in
1997 over 1996 levels. Total revenues for the 1996-'97 fiscal year are
projected at $15,568 million, 6.35% higher than 1995-'96. It is estimated
that the state will end the 1996-'97 fiscal year with unencumbered reserves
of approximately $1,080 million. The budget for the 1997-'98 fiscal year
anticipates revenue growth of 5.1% to $16,360 million. General fund revenues
continue to be highly dependent upon the sales tax.

New York
--------

New York has enjoyed increased tax revenues recently from a growth in
personal income, continued strong performance in financial services, strong
consumer spending and tourism. Current state spending estimates appear
reasonable in view of these revenue increases. Medicaid cost containments,
slowing health care cost increases, abatement of public assistance costs and
other cost reduction measures also have permitted the state and local
governments generally to meet their obligations.

The current financial stability could be upset by a number of factors,
however. Costs which are currently contained could increase if the state's
economy falters. Public assistance costs and health care expense could
increase if unemployment increases. Economic difficulties also could reduce
economic activity and consumer spending, reducing tax revenues in a period
when governmental costs likely would increase.

The state also has enacted tax decreases, which will reduce revenue in
fiscal 1997 by an estimated $2.3 billion with an additional revenue loss of
$2.2 billion projected for fiscal 1998. Additional legislation in fiscal
1997 will make additional estimated reductions in fiscal 1997 and 1998
revenue of $83 million and $178 million, respectively. In the same regard,
the state likely will have a natural growth in spending in coming years, and
will have to find additional revenues to cover expenditures financed with
approximately $1.3 billion in nonrecurring revenues in fiscal 1996.

The ability of the state to respond to these challenges may be impaired
significantly, particularly if the economy weakens, because the state and
some local governments have failed to take advantage of the recent stronger
economy and increased public revenue to improve public finances. Although
the state had an approximate $445 million cash balance at the end of fiscal
1996, the state's accumulated deficit was not reduced significantly in fiscal
1996, and amounted to approximately $2.93 billion. In fiscal 1997 the state
continued to enjoy revenue increases, but these enhanced revenues have been
used for current spending instead of debt retirement and creation of
reserves. Moreover, the state's undisciplined budget process continues to
rely on one time fixes and invasion of off-budget funds to achieve short-term
budget balance, at the expense of fiscally responsible long-term solutions to
the state's chronic budget deficit.

Potential difficulties in this respect could be further aggravated by
the state's endemic inability to complete timely its annual budget process.
The state did not enact its fiscal 1997 budget until July 13, 1996, 104 days
after the beginning of the fiscal year on April 1, 1996. The 104 day delay
is the longest delay the state has endured in adopting a budget and the
longest delay for any state. Budget negotiations were linked to the adoption
of other non-budget legislation, including reform of worker's compensation
laws and enactment of a new hospital rate setting scheme to replace the
existing program (NYPHRM -- the New York Prospective Hospital Reimbursement
Methodology). Negotiations between the legislature and the governor on these
issues were deadlocked and delayed adoption of the budget. In order to
provide for the continued functioning of state government services during the
budget delay, the governor and legislature periodically enacted special
emergency legislation with specific limited appropriations to fund state
worker payrolls, Medicaid and welfare payments, and other special needs as
they arose.

The state's structural budget deficit and chronic inability to adopt
timely budgets also disrupt financial planning by local governments, state
agencies, contract agencies and private vendors. Many of these entities are
unable to plan effectively, and may incur additional interest costs for
short-term cash flow borrowings.

INVESTMENT LIMITATIONS

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

<PAGE> 11
A Fund may not:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE> 13
With respect to temporary investments, in addition to the foregoing
limitations a Fund will not enter into a repurchase agreement if, as a result
thereof, more than 5% of its net assets would be subject to repurchase
agreements.

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

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

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

YIELD AND RETURN COMPUTATION:
Performance and Portfolio Information

Computation of Yield and Return - In General

The return or yield of any Fund (or class of any Fund) of the Trust may,
from time to time, be quoted in reports, sales literature and advertisements
published by a Fund, the Funds' principal underwriter, or investment dealers
offering shares issued by the Trust. Any such quotation must include a
standardized calculation which computes yield for a 30-day or one month
period by dividing a portfolio's net investment income per share during the
period by the maximum offering price on the last day of the period. The
standardized calculation may include the effect of semiannual compounding and
will reflect amortization of premiums for those bonds which have a market
value in excess of par. New schedules based on market value will be computed
each month for amortizing premiums. Provided that any such quotation also is
accompanied by the standardized calculation referred to above, any Fund of
the Trust also may quote non-standardized performance data of its classes for
a specified period by dividing the net investment income per share for that
period by either the Fund's average public offering price per share for that
same period or the offering price per share on the first or last day of the
period, and multiplying the result by 365 divided by the number of days in
the specified period. For purposes of this non-standardized calculation net
investment income will include accrued interest income plus or minus any
amortized purchases discount or premium less accrued expenses. The primary
differences between the yield calculations obtained using the standardized

<PAGE> 14
performance measure and any non-standardized performance measure will be
caused by the following factors: (1) The non-standardized calculation may
cover periods other than the 30-day or one month period required by the
standardized calculation; (2) The non-standardized calculation may reflect
amortization of premium based upon historical cost rather than market value.
Amortization of premium based upon historical cost is required by the
Internal Revenue Service for tax reporting purposes; (3) The non-standardized
calculation may reflect the average offering price per share for the period
of the beginning offering price per share for the period, whereas the
standardized calculation will always reflect the maximum offering price per
share on the last day of the period; (4) the non-standardized calculation may
reflect an offering price per share other than the maximum offering price;
provided that any time any Fund's performance is quoted in reports, sales
literature or advertisements using a public offering price, the performance
computed by using the Fund's maximum public offering price also will be
quoted in the same piece; (5) The non-standardized performance quotation may
include the effective return obtained by compounding the monthly dividends.

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

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

Additional Portfolio and Performance Information

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

<PAGE> 15
REPRESENTATIVE PERFORMANCE INFORMATION

Thornburg Intermediate Municipal Fund (Classes A and C)

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

Standardized Method of Computing Yield. The yields of the Intermediate
National Fund Class A and Class C shares for the one month period ended
September 30, 1997, computed in accordance with the standardized calculation
described above, were 4.08% and 3.82% for Class A shares and Class C shares,
respectively. This method of computing yield does not take into account
changes in net asset value.

Non-standardized Method of Computing Yield. The Intermediate National
Fund's nonstandardized yields, for Class A and Class C shares computed in
accordance with its non-standardized method for the 7-day period ended
September 30, 1997, were 4.67% and 4.43% for Class A shares and Class C
shares, respectively. This nonstandardized method differs from the
standardized method of computing yield in that the nonstandardized yield is
computed for the 7-day period rather than a 30-day or one month period, the
nonstandardized yield reflects amortization of premium based upon historical
cost rather than market value, and the nonstandardized yield is computed by
compounding dividends monthly rather than semiannually. This method of
computing performance does not take into account changes in net asset value.

Taxable Equivalent Yield. The Intermediate National Fund's taxable
equivalent yields for Class A and Class C shares, computed in accordance with
the methods described above using a maximum federal tax rate of 39.6%, are
shown below for each of the indicated periods ending September 30, 1997:

<TABLE>
Taxable
Equivalent
Yield Yield
----- ----------
<S> <C> <C>
Standardized Method
30 days ended 09/30/97
Class A 4.08% 6.76%
Class C 3.82% 6.32%

Non-standardized Method
7 days ended 09/30/97
Class A 4.67% 7.73%
Class C 4.43% 7.33%
30 days ended 09/30/97
Class A 4.68% 7.75%
Class C 4.45% 7.37%
</TABLE>

<PAGE> 16
Average Annual Total Return. The Intermediate National Fund's Class A
and Class C total return figures are set forth below for the periods shown
ended September 30, 1997. Class A shares were first offered on July 23,
1991, and Class C shares were first offered on September 1, 1994. The data
for Class A shares reflect deduction of the maximum sales charge of 3.50%
upon purchase. The data for Class C shares held for one year reflect
deduction of a contingent deferred sales charge of .60%. These data assume
reinvestment of all dividends at net asset value.
<TABLE>
1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
<S> <C> <C> <C> <C>
Class A 3.16% 6.01% N/A 6.87%
Class C 5.95% N/A N/A 6.23%
</TABLE>

Thornburg New Mexico Intermediate Municipal Fund (Class A)

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

Standardized Method of Computing Yield. The yield of the Intermediate
New Mexico Fund Class A shares for the one month period ended September 30,
1997, computed in accordance with the standardized calculation described
above, was 3.99%. This method of computing yield does not take into account
changes in net asset value.

Non-standardized Method of Computing Yield. The Intermediate New Mexico
Fund's nonstandardized yield, computed in accordance with a non-standardized
method, for the 7-day period ended September 30, 1997, was 0.38%. This
nonstandardized method differs from the standardized method of computing
yield in that the nonstandardized yield is computed for the 7-day period
rather than a 30-day or one month period, the nonstandardized yield reflects
amortization of premium based upon historical cost rather than market value,
and the nonstandardized yield is computed by compounding dividends monthly
rather than semiannually. This method of computing performance does not take
into account changes in net asset value.

Taxable Equivalent Yield. The Intermediate New Mexico Fund's taxable
equivalent yield for Class A shares, computed in accordance with the methods
described above using a maximum federal tax rate of 39.6% and a maximum New
Mexico tax rate of 8.5%, is shown below for each of the indicated periods
ending on September 30, 1997:

16
<PAGE> 17
<TABLE>
Taxable
Equivalent
Yield Yield
----- ----------
<S> <C> <C>
Standardized Method
30 days ended 09/30/97
Class A 3.99% 7.23%
Non-standardized Method
7 days ended 09/30/97
Class A 0.38% 0.69%
30 days ended 09/30/97
Class A 4.76% 8.63%
</TABLE>

Average Annual Total Return. The Intermediate New Mexico Fund's Class A
total return figures are set forth below for the periods shown ending
September 30, 1997. Class A shares were first offered on June 21, 1991. The
data for Class A shares reflect deduction of the maximum sales charge of
3.50% upon purchase. These data assume reinvestment of all dividends at net
asset value.

<TABLE>
1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
<S> <C> <C> <C> <C>
Class A 2.92% 5.18% N/A 6.21%
</TABLE>

Thornburg Florida Intermediate Municipal Fund (Class A)

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

Standardized Method of Computing Yield. The yield of the Intermediate
Florida Fund Class A shares for the one month period ended September 30,
1997, computed in accordance with the standardized calculation described
above, was 4.46%. This method of computing yield does not take into account
changes in net asset value.

Non-standardized Method of Computing Yield. The Intermediate Florida
Fund's nonstandardized yield, computed in accordance with a non-standardized
method for the 7-day period ending September 30, 1997, was 4.56%. The
nonstandardized method differs from the standardized method of computing
yield in that the nonstandardized yield is computed for the 7-day period
rather than a 30-day or one month period, the nonstandardized yield reflects
amortization of premium based upon historical cost rather than market value,
and the nonstandardized yield is computed by compounding dividends monthly
rather than semiannually. This method of computing performance does not take
into account changes in net asset value.

<PAGE> 18
Taxable Equivalent Yield. The Intermediate Florida Fund's taxable
equivalent yield for Class A, computed in accordance with the methods
described above using a maximum federal tax rate of 39.6%, is shown below for
each of the indicated periods ending on September 30, 1997:
<TABLE>
Taxable
Equivalent
Yield Yield
----- ---------
<S> <C> <C>
Standardized Method
30 days ended 09/30/97
Class A 4.46% 7.38%
Non-standardized Method
7 days ended 09/30/97
Class A 4.56% 7.55%
30 days ended 09/30/97
Class A 4.57% 7.57%
</TABLE>

Average Annual Total Return. The Intermediate Florida Fund's Class A
total return figures are set forth below for the periods shown ending
September 30, 1997. Class A shares were first offered on February 1, 1994.
The data for Class A shares reflect deduction of the maximum sales charge of
3.50% upon purchase. These data also assume reinvestment of all dividends at
net asset value.

<TABLE>
1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
<S> <C> <C> <C> <C>
Class A 3.30% N/A N/A 4.29%
</TABLE>

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

<PAGE> 19
DISTRIBUTIONS AND TAXES

Distributions

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

Federal Income Tax Matters

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

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

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

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

<PAGE> 20
Any net long-term capital gains realized by the Funds, whether
distributed in cash or reinvested in additional shares, must be treated as
long-term capital gains by shareholders regardless of the length of time
investors have held their shares. If a Fund should have net undistributed
capital gains in any year, the Fund would pay the tax on such gains and each
shareholder would be deemed, for federal tax purposes, to have paid his or
her pro rata share of such tax.

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

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

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

Although the Funds currently include nine investment portfolios and
three series of shares outstanding at the date of this Statement of
Additional Information, the Funds' Trustees are authorized to divide the
shares into other separate series, and to establish additional portfolios
pertaining thereto. Each additional series of shares would relate to a
separate investment portfolio that would be different from the portfolios
covered by this Statement of Additional Information. The Trust expects that
it may create other separate state or regional portfolios with investments
concentrated in a particular state or region. The additional separate

<PAGE> 21
portfolios may be attractive for investors seeking to concentrate their
investments and to minimize their liability for state income taxes on
interest income earned by the respective portfolios or for minimizing taxes
on intangibles, depending upon the particular states. Separate series of the
Trust will be treated under the Code as separate corporations except with
respect to the definitional requirements under Section 851 (a) of the Code.
The legislative history of the Tax Reform Act of 1986, which amended the
Code, indicates that the term "fund" means a segregated portfolio of assets,
the beneficial interest of which is owned by the holders of a class or series
of stock of the regulated investment company that is preferred over all other
classes or series in respect of such portfolio of assets. The capital gains
and losses of each series will belong solely to the holders of the shares of
that series and will not be aggregated with the capital gains and losses of
other series.

As is the case with other types of income, including other tax-exempt
interest income, Exempt Interest Dividends received by an individual
shareholder will be added to his or her "modified adjusted gross income" in
determining what portion, if any, of the individual's Social Security
benefits will be subject to federal income taxation. Shareholders are
advised to consult their own tax advisers as to the effect of this treatment.
The Code treats interest on certain Municipal Obligations which are
private activity bonds under the Code issued after August 7, 1986 (in certain
cases, after September 1, 1986) as a preference item for purposes of the
alternative minimum tax on individuals and corporations. The Funds may
purchase private activity bonds which are subject to treatment under the Code
as a preference item for purposes of the alternative minimum tax on
individuals and corporations, although the frequency and amounts of those
purchases are uncertain. Some portion of Exempt Interest Dividends may, as a
result of such purchases, be treated as a preference item for purposes of the
alternative minimum tax on individuals and corporations. Shareholders are
advised to consult their own tax advisers as to the extent and effect of that
treatment.

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

<PAGE> 22
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 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.

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

State and Local Tax Aspects

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

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

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

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

<PAGE> 23
With respect to distributions of interest income from the Intermediate
National Fund, the laws of the several states and local taxing authorities
vary with respect to the taxation of such distributions, and shareholders of
the Fund are advised to consult their own tax advisers in that regard. In
particular, prospective investors who are not individuals are advised that
the preceding discussion relates primarily to tax consequences affecting
individuals, and the tax consequences of an investment by a person which is
not an individual may be very different. The Intermediate National Fund will
advise shareholders within 60 days of the end of each calendar year as to the
percentage of income derived from each state as to which it has any Municipal
Obligations in order to assist shareholders in the preparation of their state
and local tax returns.

Accounts of Shareholders

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

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

<PAGE> 24
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS

Investment Advisory Agreement

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

TMC is investment adviser for Thornburg Limited Term Municipal Fund,
Inc., a series investment company with two fund series having aggregate
assets of approximately $1,030,602,000 as of June 30, 1997. TMC also acts as
investment adviser for Thornburg Limited Term U.S. Government Fund, Thornburg
Limited Term Income Fund and Thornburg Value Fund, separate series of the
Trust which had assets of $143,814,484, $41,429,243 and $77,284,775,
respectively, as of September 30, 1997. TMC is also a sub-adviser for Daily
Tax-Free Income Fund, Inc., a registered investment company.

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

The Investment Advisory Agreement was approved for the Intermediate New
Mexico Fund, the Intermediate National Fund and the Intermediate Texas Fund
on June 4, 1991 by the Trustees of the Funds, including a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Funds or TMC, and became effective for the New Mexico Fund and the National
Fund on June 20, 1991. The Investment Advisory Agreement was similarly
approved on October 4, 1993 by the Trustees for the Intermediate Alabama
Fund, Intermediate Florida Fund, Intermediate Pennsylvania Fund, Intermediate
Tennessee Fund and Intermediate Utah Fund. The Investment Advisory Agreement
was approved for the Intermediate Arizona Fund on January 24, 1994. The
Agreement was approved for the Intermediate New York Fund on March 12, 1997.
The Agreement is currently effective only for the Intermediate National
Fund, the Intermediate Florida Fund, the Intermediate New Mexico Fund and the
Intermediate New York Fund, and will become effective for any Fund upon its
commencement of operations and sale of shares. The Investment Advisory
Agreement was presented to the shareholders for approval at a special
shareholder meeting called for each of the Intermediate National Fund and
Intermediate New Mexico Funds on January 24, 1992, at which the Agreement was
approved by a majority of the outstanding voting securities of each Fund.
The Trustees do not intend to submit the Agreement to shareholders of any
other series for approval. The initial term of this Agreement is two years,
with extensions for successive 12-month periods, provided that the
continuation for a Fund is approved at least annually by a majority of the
Trustees who are not "interested" within the meaning of the Investment
Company Act of 1940 or by a vote of the majority of the Fund's shares then
outstanding.

<PAGE> 25
The shareholders of each of the Funds approved a restatement of the
Investment Advisory Agreement applicable to each Fund at special meetings of
shareholders on April 16, 1996, to reduce the advisory fees under those
agreements and to remove from those agreements the requirement that TMC would
provide certain administrative services. Instead, effective July 1, 1996,
those services are provided under the terms of an Administrative Services
Agreement applicable to each class of shares issued by each Fund. The
Administrative Services Agreements are described below.

For the three most recent fiscal periods ended September 30, 1995, 1996
and 1997, with respect to each Fund, the amounts paid to TMC by each Fund
were as follows:
<TABLE>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Intermediate National Fund $1,161,410 $1,227,432 $1,248,058
Intermediate New Mexico Fund $763,774 $688,883 $606,946
Intermediate Florida Fund -0- -0- $45,786
</TABLE>

The Florida Fund commenced operations on February 1, 1994. TMC has waived
and deferred its rights to fees in the foregoing periods as follows:
<TABLE>
1995 1996 1997
-------- -------- -------
<S> <C> <C> <C>
Intermediate National Fund $191,779 $219,377 $169,343
Intermediate New Mexico Fund $101,636 $99,214 $61,752
Intermediate Florida Fund $73,419 $111,985 $70,565
</TABLE>

The foregoing figures for 1995, and for a portion of 1996, are based upon the
rates applicable before restatement of the Investment Advisory Agreement
applicable to each Fund. TMC may (but is not obligated to) waive its rights
to any portion of its fees in the future, and may use any portion of its fee
for purposes of shareholder and administrative services and distribution of
Fund shares. During the fiscal year ended September 30, 1997, the Funds
reimbursed TMC in the amounts of $27,337 (National), $13,424 (New Mexico) and
$2,256 (Florida) for certain accounting expenses incurred by TMC on behalf of
those Funds.

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

<PAGE> 26
Administrative Services Agreements

September 30, 1996 September 30, 1997
-------------------------- --------------------------
Intermediate National Fund Intermediate National Fund
-------------------------- --------------------------
Class A $76,163 Class A $329,737
Class C $2,250 Class C $11,773

Intermediate New Mexico Fund Intermediate New Mexico Fund
---------------------------- ----------------------------
Class A $40,674 Class A $167,174

Intermediate Florida Fund Intermediate Florida Fund
------------------------- -------------------------
Class A $6,249 Class A $29,088

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

SERVICE AND DISTRIBUTION PLANS

Service Plans - All Classes

Each of the Funds has adopted a plan and agreement of distribution
pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("Service
Plan") which is applicable to Class A shares of the Fund and Class C shares
of each Fund which offers Class C shares. The Plan permits each Fund to pay
to TMC (in addition to the management fee and reimbursements described above)
an annual amount not exceeding .25 of 1% of the Fund's assets attributable to
the class of shares to reimburse TMC for specific expenses incurred by it in
26

<PAGE> 27
connection with certain shareholder services and the distribution of that
class's shares to investors. TMC may, but is not required to, expend
additional amounts from its own resources in excess of the currently
reimbursable amount of expenses. Reimbursable expenses include the payment
of amounts, including incentive compensation , to securities dealers and
other financial institutions, including banks (to the extent permissible
under the Glass-Steagall Act and other federal banking laws), for
administration and shareholder services. The nature and scope of services
provided by dealers and other entities likely will vary from entity to
entity, but may include, among other things, processing new account
applications, preparing and transmitting to the Transfer Agent computer
processable tapes of shareholder account transactions, and serving as a
source of information to customers concerning the Funds and transactions with
the Funds. The Service Plan does not provide for accrued but unpaid
reimbursements to be carried over and paid to TMC in later years.

The Funds paid to TMC the amounts shown in the table below, under the
terms of the Service Plan, for the fiscal years ended September 30, 1996 and
1997. Amounts reimbursed to TMC under the Plan were paid by TMC principally
as compensation to securities dealers and other persons selling the Funds'
shares, for administration and shareholder services.

<TABLE>
Year ended 09/30/96 Year ended 09/30/97
------------------- -------------------
Class A Class C Class A Class C
------- ------- _______ _______
<S> <C> <C> <C> <C>
National $595,596 $27,058 $637,240 $23,542
New Mexico $331,338 $328,762
Florida $46,492 $52,250
</TABLE>

Class C Distribution Plan

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

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

The Funds paid to TSC $11,210 under the Intermediate National Fund's
Class C Distribution Plan for the fiscal year ended September 30, 1996, and
paid $32,968 under the same Plan for the fiscal year ended September 30,
1997. Amounts paid to TSC under the Plan were paid by TSC principally as
compensation to securities dealers and other persons selling the Funds'
shares.

The Glass-Steagall Act prohibits certain banks from underwriting mutual
fund shares, but the Funds do not believe that this prohibition will apply to
the arrangements described in the Plans. However, no assurance can be given
that the Glass-Steagall Act will not be interpreted so as to prohibit these
27

<PAGE> 28
arrangements. In that event, the Funds' ability to market their shares could
be impaired to a small extent. The Funds do not foresee that they will give
preference to banks or other depository institutions which receive payments
from TMC when selecting investments for the Funds.

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

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

PORTFOLIO TRANSACTIONS

TMC, in effecting purchases and sales of portfolio securities for the
accounts of the Funds, will place orders in such manner as, in the opinion of
TMC, will offer the best price and market for the execution of each
transaction. Securities normally will be purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in
such securities, unless it appears that a better price or execution may be
obtained elsewhere. Purchases from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include the spread between the bid and asked price. Given the best

<PAGE> 29
price and execution obtainable, it will be the practice of the Funds to
select dealers which, in addition, furnish research information (primarily
credit analyses of issuers) and statistical and other services to TMC. It is
not possible to place a dollar value on information and statistical and other
services received from dealers. Since it is only supplementary to TMC's own
research efforts, the receipt of research information is not expected
significantly to reduce TMC's expenses. In selecting among the firms
believed to meet the criteria for handling a particular transaction, TMC may
also give consideration to those firms which have sold or are selling shares
of the Funds. While TMC will be primarily responsible for the placement of
the Funds' business, the policies and practices of TMC in this regard must be
consistent with the foregoing and will at all times be subject to review by
the Trustees of the Funds.

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

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

<TABLE> 1996 1997
---- ----
<S> <C> <C>
Intermediate National Fund 12.64% 15.36%
Intermediate New Mexico Fund 10.88% 10.06%
Intermediate Florida Fund 77.12% 51.48%
</TABLE>

MANAGEMENT AND HOLDERS OF SECURITIES

The management of the Funds, including general supervision of the duties
performed by TMC under the Investment Advisory Agreements, is the
responsibility of its Trustees. There are 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 Fund
indicated by an asterisk:

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

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.

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.

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.

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.

The business address of each person listed is 119 East Marcy Street,
Suite 202, Santa Fe, New Mexico 87501. Mr. Thornburg is a Director of TSC,
and Mr. Ziesenheim and Ms. Fischer are president and secretary, respectively
of TSC.

The officers and Trustees affiliated with TMC will serve without any
compensation from the Funds. The Trust currently pays each Trustee who is
not an employee of TMC or an affiliated company a quarterly fee of $1,000
plus a fee of $500 for each meeting of the Trustees attended by the Trustee,
pays an annual stipend of $1,000 to each Trustee who serves on the audit
committee or any other committee the Trustees may establish, and reimburses
Trustees for travel and out-of-pocket expenses incurred in connection with
attending meetings. For the fiscal year ended September 30, 1997, the Trust
paid the following amounts as compensation to Trustees:

<PAGE> 33
<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.

As of November 14, 1997, National Fund had 25,274,986 shares
outstanding, New Mexico Fund had 11,141,515 shares outstanding, and Florida
Fund had 2,016,456 shares outstanding.

As of November 14, 1997, the following persons owned, beneficially or of
record, 5% or more of a Fund's outstanding shares:
<TABLE>
No. of % of
Shareholder Fund Shares Total Shares
----------- ---- ------ ------------
<C> <C> <C> <C>
Merrill Lynch, Pierce, New Mexico Fund 754,929 6.78%
Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286

Alex Brown & Sons, Inc. Florida Fund 126,666 6.28%
P. O. Box 1346
Baltimore, MD 21203-1346
</TABLE>

As of the same date, officers and trustees of the Trust, as a group (together
with family members), owned themselves or through affiliated persons 663,729
shares of the Intermediate New Mexico Fund representing 5.96% of the Fund's
outstanding shares on that date; officers and trustees of the Trust, as a
group (together with family members), owned themselves or through affiliated
persons less than 1% of the National Fund, the New York Fund and the Florida
Fund.

<PAGE> 34
HOW TO PURCHASE FUND SHARES

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

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

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

<PAGE> 35
(3) Officers, Trustees, directors and employees of the Trust, TMC,
TSC, the Custodian and Transfer Agent, and counsel to the Trust, while in
such capacities, and members of their families, including trusts for the
benefit of the foregoing, may purchase shares of a Fund with no sales charge,
provided that they notify TSC or the Transfer Agent at the time an order is
placed that a purchase will qualify for this variation from the Public Scale.
The sales charge will not be eliminated if the notification is not furnished
at the time of the order or a review of Fund records fails to confirm that
the investor's representation is correct. The reduced sales charge to these
persons is based upon the Trust's view that their familiarity with and
loyalty to the Funds will require less selling effort by the Fund, such as a
solicitation and detailed explanation of the conceptual structure of the
Funds, and less sales-related expenses, such as advertising expenses,
computer time, paper work, secretarial needs, postage and telephone costs,
than are required for the sale of shares to the general public. Inclusion of
the families of these persons is based upon the Trust's view that the same
economies exist for sales of shares to family members.

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

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

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

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

<PAGE> 36
These organizations may charge fees to clients for whose accounts they
purchase shares of a Fund in a fiduciary capacity. Where the reduced sales
charge applies, notification is required at the time the order is received,
and a review of TSC's or Transfer Agent's records must confirm that the
investor's representation is correct.

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

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

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

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

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

<PAGE> 37
NET ASSET VALUE

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

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

REDEMPTION OF SHARES

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

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

DISTRIBUTOR

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

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

<PAGE> 38
The following table shows the commissions and other compensation
received by TSC from each of the Funds for the most recent fiscal year ending
September 30, 1997, except for compensation or other amounts paid under Rule
12b-1 plans, which are described above under the caption "Service and
Distribution Plans."

<TABLE>
Fiscal Year Ended
September 30, 1997
- ------------------
<CAPTION> Net Underwriting
Aggregate Discounts and Compensation on
Underwriting Commissions Redemptions and Brokerage Other
Commissions Paid to TSC Repurchases Commissions Compensation
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Intermediate $759,925 $85,221 $8,535 - 0 - *
National Fund
Intermediate 319,131 37,140 - 0 - - 0 - *
New Mexico Fund
Intermediate 103,044 12,481 - 0 - - 0 - *
Florida Fund
* See "Service and Distribution Plans."
</TABLE>

Intermediate National Fund paid aggregate underwriting commissions with
respect to sales of its shares in the fiscal years ending September 30, 1995
and September 30, 1996 of $707,035 and $646,924, respectively; and TSC
retained net underwriting commissions in those fiscal years of $58,440 and
$75,160, respectively. Intermediate New Mexico Fund paid aggregate
underwriting commissions with respect to sales of its shares in the fiscal
years ending September 30, 1995 and September 30, 1996 of $287,331 and
$223,862, respectively; and TSC retained net underwriting commissions in
those fiscal years of $24,533 and $26,797, respectively. Intermediate
Florida Fund paid aggregate underwriting commissions with respect to sales of
its shares in the fiscal years ending September 30, 1995 and September 30,
1996 of $62,954 and $120,852, respectively; and TSC retained net underwriting
commissions in those fiscal years of $8,533 and $14,827, respectively.

INDEPENDENT AUDITORS

McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, is
the independent auditor of the Intermediate National Fund, the Intermediate
New Mexico Fund and the Intermediate Florida Fund for the fiscal year ending
September 30, 1998, and is the independent auditor of the Intermediate New
York Fund for the fiscal year ending June 30, 1998. Shareholders will
receive semi-annual unaudited financial statements, and annual financial
statements audited by the independent auditors.

FINANCIAL STATEMENTS

Statements of Assets and Liabilities including Schedules of Investments
as of September 30, 1997, Statements of Operations for the year ended
September 30, 1997, Statements of Changes in Net Assets for the two years
ended September 30, 1997, Notes to Financial Statements, Financial
Highlights, and Independent Auditor's Reports dated October 24, 1997, for
Thornburg Intermediate Municipal Fund, Thornburg New Mexico Intermediate
Municipal Fund, and Thornburg Florida Intermediate Municipal Fund are
incorporated herein by reference from those Funds' respective Annual Reports
to Shareholders, September 30, 1997.

<PAGE> 39
Unaudited Statement of Assets and Liabilities including Schedules of
Investments as of October 31, 1997, unaudited Statement of Operations for the
period from September 5, 1997 to October 31, 1997, unaudited Statement of
Changes in Net Assets for the period September 5, 1997 to October 31, 1997,
and Notes to Financial Statements and Financial Highlights for Thornburg New
York Intermediate Municipal Fund are attached hereto.

File No. 5787-002
17\cwnt\thornburg\edgar\statments\Intermediate Funds.doc

THORNBURG INVESTMENT TRUST

STATEMENT OF ADDITIONAL INFORMATION
for

THORNBURG VALUE FUND
119 East Marcy Street, Suite 202
Santa Fe, NM 87501

Thornburg Value Fund (the "Fund") is a 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 Fund, investment policies governing the Fund, the
Fund management, and other issues of interest to a prospective purchaser of
shares in the Fund.

This Statement of Additional Information is not a prospectus but should
by read in conjunction with the Fund Prospectus dated February 1, 1998. A
copy of the Prospectus may be obtained at no charge by writing to the
distributor of the Fund's 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 February 1,
1998.

TABLE OF CONTENTS

INVESTMENT POLICIES AND LIMITATIONS . . . . . . . . . . . . . . . . . . . .1
Illiquid Investments . . . . . . . . . . . . . . . . . . . . . . . . .3
Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . 3
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 . . . . . . . . . . . . . . . . . . .10
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . .10
Futures Margin Payments . . . . . . . . . . . . . . . . . . . . . . .11
Purchasing Put and Call Options . . . . . . . . . . . . . . . . . . .11
Writing Put and Call Options . . . . . . . . . . . . . . . . . . . . 12
Combined Positions . . . . . . . . . . . . . . . . . . . . . . . . . 12
Correlation of Price Changes . . . . . . . . . . . . . . . . . . . . 12
Liquidity of Options and Futures Contracts . . . . . . . . . . . . . 13
OTC Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Option and Futures Relating to Foreign Currencies . . . . . . . . . .13
Asset Coverage for Futures and Options Positions . . . . . . . . . . 14
Short Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . .14

VALUATION OF PORTFOLIO SECURITIES . . . . . . . . . . . . . . . . . . . . 16

PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Yield Calculations . . . . . . . . . . . . . . . . . . . . . . . . . 17
Total Return Calculations . . . . . . . . . . . . . . . . . . . . . .18
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Moving Averages . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Historical Fund Results . . . . . . . . . . . . . . . . . . . . . . .18
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Momentum Indicators . . . . . . . . . . . . . . . . . . . . . . . . .20

REPRESENTATIVE PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . .20

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . .21

DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . .23

DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 24
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Capital Gain Distributions . . . . . . . . . . . . . . . . . . . . . 24
Foreign Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Tax Status of the Fund . . . . . . . . . . . . . . . . . . . . . . . 25
Redemptions or Resales . . . . . . . . . . . . . . . . . . . . . . . 25
Other Tax Information . . . . . . . . . . . . . . . . . . . . . . . .25

TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 25

PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . . . . . . . . . . . . . 29

INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS . . . . . . . .30
Investment Advisory Agreement . . . . . . . . . . . . . . . . . . . .30
Administrative Services Agreement . . . . . . . . . . . . . . . . . .31

SERVICE AND DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . .32
Service Plans-All Classes . . . . . . . . . . . . . . . . . . . . . .32
Class C Distribution Plan . . . . . . . . . . . . . . . . . . . . . .32

DESCRIPTION OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . .33
Trust Organization . . . . . . . . . . . . . . . . . . . . . . . . . 33
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . .34
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

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

INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . .35

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .35

APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Moody's Investors Service, Inc.'s Corporate Bond Ratings . . . . . . 36
Standard & Poor's Corporation's Bond Ratings . . . . . . . . . . . . 37

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 the Fund's assets that may be
invested in any security or other asset, that percentage limitation will be
determined immediately after and as a result of the Fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the Fund's investment policies and
limitations.

The Fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting securities"
(as defined in the Investment Company Act of 1940) of the Fund. THE
FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN
THEIR ENTIRETY. THE FUND MAY NOT:

(1) with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the Fund's total assets would be invested in the
securities of that issuer, or (b) the Fund would hold more than 10% of the
outstanding voting securities of that issuer;

(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;

(4) underwrite any issue of securities (except to the extent that the
Fund may be deemed to be an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities);

(5) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total assets
would be invested in the securities of companies whose principal business
activities are in the same industry;

(6) purchase or sell real estate unless acquired as a result or
ownership of securities or other instruments (but this shall not prevent the
Fund from investing in securities or other instruments backed by real estate
or securities of companies engaged in the real estate business);

(7) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not prevent
the Fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical commodities)
; or

(8) lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.

THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL:

(i) The Fund does not currently intend to sell securities short, unless
it owns or has the right to obtain securities equivalent in kind and amount
to the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.

(ii) The Fund does not currently intend to purchase securities on
margin, except that the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.

(iii) The Fund may borrow money only (a) from a bank or (b) by engaging
in reverse repurchase agreements with any party. The Fund will not purchase
any security while borrowings representing more than 5% of its total assets
are outstanding.

(iv) The Fund does not currently intend to purchase any security if, as
a result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or disposed
of in the ordinary course of business at approximately the prices at which
they are valued.

(vi) The Fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.

(vii) The Fund does not currently intend to purchase the securities of
any issuer (other than securities issue or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5%
of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation.

(viii) The Fund does not currently intend to purchase warrants, valued
at the lower of cost or market, in excess of 5% of the Fund's net assets.
Included in that amount, but not to exceed 2% of the Fund's net assets, may
be warrants that are not listed on the New York Stock Exchange or the
American Stock exchange. Warrants acquired by the Fund in units or attached
to securities are not subject to these restrictions.

(ix) The Fund does not currently intend to invest in oil, gas or other
mineral exploration or development programs or leases.

(x) The Fund does not currently intend to purchase the securities of
any issuer if those officers and Trustees of the trust and those officers and
directors of TMC who individually own more than 1/2 of 1% of the securities
of such issuer together own more than 5% of such issuer's securities.

For the Fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions" beginning
on page 13.

ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of
in the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Trustees, TMC determines the
liquidity of the Fund's investments and, through reports from TMC, the
Trustees monitor investments in illiquid instruments. In determining the
liquidity of the Fund's investments, TMC may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or lender features), and (5) the nature of the market place for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment).

Investments currently considered by the Fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days, over-the-counter options, and non-government
stripped fixed-rate mortgage-backed securities. Also TMC may determine some
restricted securities, government-stripped fixed-rate mortgage-backed
securities, emerging market securities, and swap agreements to be illiquid.
However, with respect to over-the-counter options the Fund writes, all or a
portion of the value of the underlying instrument may be illiquid depending
on the assets held to cover the option and the nature and terms of any
agreement the Fund any have to close out the option before expiration.

In the absence of market quotations, illiquid investments are priced at
fair value as determined utilizing procedures and methods reviewed by the
Trustees. If through a change in values, net assets, or other circumstances,
the Fund were in a position where more than 10% of its net assets was
invested in illiquid securities, it would seek to take appropriate steps to
protect liquidity.

RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
required, the Fund could be obligated to pay all or part of the registration
expense and a considerable period may elapse between the time it decides to
seek registration and the time it is permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to seek registration of the security.

SWAP AGREEMENTS. Swap agreements can be individually negotiated and
structured to include exposure to a variety of different types of investments
or market factors. Depending on their structure, swap agreements may
increase or decrease the Fund's exposure to long or short-term interest rates
(in the U.S. or abroad), foreign currency values, mortgage securities,
corporate borrowing rates, or other factors such as security prices or
inflation rates. The Fund is not limited to any particular form of swap
agreement if TMC determines it is consistent with the Fund's investment
objective and policies.

Although swaps can take a variety of forms, typically one party pays
fixed and receives floating rate payments and the other party receives fixed
and pays floating payments. An interest rate cap is an agreement between two
parties over a specified period of time where one party makes payments to the
other party equal to the difference between the current level of an interest
rate index and the level of the cap, if the specified interest rate index
increases above the level of the cap. An interest rate floor is similar
except the payments are the difference between the current level of an
interest rate index and the level of the floor, if the specified interest
rate index decreases below the level of the floor. An interest rate collar
is the simultaneous execution of a cap and floor agreement on a particular
interest rate index. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to
the extent that a specified index exceeds a predetermined interest rate or
amount. Purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent
that a specified index falls below a predetermined interest rate or amount.
A collar is a combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates or values.

Swap agreements will tend to shift the Fund's investment exposure from
one type of investment to another. For example, if the Fund agreed to
exchange payments in dollars for payments in foreign currency, the swap
agreement would tend to decrease the Fund's exposure to U.S. interest rates
and increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on how
they are used, swap agreements may increase or decrease the overall
volatility of the Fund's investments and its share price and yield. The most
significant factor in the performance of swap agreements is the change in the
specific interest rate, currency, or other factors that determine the amounts
of payments due to and from the Fund. If a swap agreement calls for payments
by the Fund, the Fund must be prepared to make such payments when due. In
addition, if the counterparty's credit worthiness declined, the value of the
swap agreement would be likely to decline, potentially resulting in losses.
The Fund expects to be able to eliminate its exposure under swap agreements
either by assignment or other disposition, or by entering into an offsetting
swap agreement with the same party or a similarly creditworthy party.

The Fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap agreements. If
the Fund enters into a swap agreement on other than a net basis, it will
segregate assets with a value equal to the full amount of the Fund's accrued
obligations under the agreement.

INDEXED SECURITIES. The Fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits whose
value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Gold-indexed securities, for example, typically
provide for a maturity value that depends on the price of gold, resulting in
a security whose price tends to rise and fall together with gold prices.
Currency indexed securities typically are short-term to intermediate-term
debt securities whose maturity values or interest rates are determined by
reference to the values of one or more specified foreign currencies, and may
offer higher yields than U.S. dollar-denominated securities of equivalent
issuers. Currency-indexed securities may be positively or negatively
indexed; that is, their maturity value may increase when the specified
currency value increases, resulting in a security that performs similarly to
a foreign-denominated instrument, or their maturity value may decline when
foreign currencies increases, resulting in a security whose price
characteristics are similar to a put on the underlying currency. Currency-
indexed securities may also have prices that depend on the values of a number
of different foreign currencies relative to each other.

The performance of indexed securities depends to a great extent on the
performance of the security, currency or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers
of indexed securities have included banks, corporations, and certain U.S.
government agencies. Indexed securities may be more volatile than their
underlying instruments.

REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund purchases a
security and simultaneously commits to resell that security to the seller at
an agreed upon price on an agreed upon date within a number of days from the
date of purchase. The resale price reflects the purchase price plus an
agreed upon incremental amount which is unrelated to the coupon rate or
maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value (at least equal to the amount of the agreed upon
resale price and marked to market daily) of the underlying security. The
Fund may engage in a repurchase agreements with respect to any security in
which it is authorized to invest.

The Fund may enter into these arrangements with member banks of the
Federal Reserve System or any domestic broker-dealer if the creditworthiness
of the bank or broker-dealer has been determined by TMC to be satisfactory.
These transactions may not provide the Fund with collateral marked-to-market
during the term of the commitment.

For purposes of the Investment Company Act of 1940, a repurchase
agreement is deemed to be a loan from the Fund to the seller of the security
subject to the repurchase agreement and is therefore subject to the Fund's
investment restriction applicable to loans. It is not clear whether a court
would consider the security purchased by the Fund subject to a repurchase
agreement as being owned by the Fund or as being collateral for a loan by the
Fund to the seller. In the event of the commencement of bankruptcy or
insolvency proceedings with respect to the seller of the security before
repurchase of the security under a repurchase agreement, the Fund may
encounter delay and incur costs before being able to sell the security.
Delays may involve loss of interest or decline in the price of the underlying
security. If the court characterized the transaction as a loan and the Fund
has not perfected a security interest in the underlying security, the Fund
may be required to return the security to the seller's estate and be treated
as an unsecured creditor of principal and income involved in the transaction.
As with any unsecured debt obligation purchased for the Fund, TMC seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the security, in which case
the Fund may incur a loss if the proceeds to the Fund of the sale to a third
party are less than the repurchase price. However, if the market value
(including interest) of the security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the security to deliver additional securities so that
the market value (including interest) of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is
possible that the Fund will be unsuccessful in seeking to impose on the
seller a contractual obligation to deliver additional securities.

REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement , the
Fund sells a portfolio instrument to another party, such as a bank or broker-
dealer, in return for cash and agrees to repurchase the instrument at a
particular price and time. While a reverse repurchase agreement is
outstanding, the Fund will maintain appropriate liquid assets in a segregated
custodial account to cover its obligation under the agreement. The Fund will
enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by TMC. Such transactions may
increase fluctuations in the market value of the Fund's assets and may be
viewed as a form of leverage.

SECURITIES LENDING. The Fund may lend securities to parties such as
broker-dealers or institutional investors. Securities lending allows the
Fund to retain ownership of the securities loaned and, at the same time, to
earn additional income. Since there may be delays in the recovery of loaned
securities, or even a loss of rights in collateral supplied should the
borrower fail financially, loans will be made only to parties deemed by TMC
to be of good standing. Furthermore, they will only be made if, in TMC's
judgment, the consideration to be earned from such loans would justify the
risk.

TMC understands that it is the current view of the SEC Staff that the
Fund may engage in loan transactions only under the following conditions: (1)
the Fund must receive 100% collateral in the form of cash or cash equivalents
(e.g., U.S. Treasury bills or notes) from the borrower; (2) the borrower
must increase the collateral whenever the market value of the securities
loaned (determined on a daily basis) rises above the value of the collateral;
(3) after giving notice, the Fund must be able to terminate the loan at any
time; (4) the Fund must receive reasonable interest on the loan or a flat
fee from the borrower, as well as amounts equivalent to any dividends,
interest, or other distributions on the securities loaned and to any increase
in market value; (5) the Fund may pay only reasonable custodian fees in
connection with the loan; and (6) the Trustees must be able to vote proxies
on the securities loaned, either by terminating the loan or by entering into
an alternative arrangement with the borrower.

Cash received through loan transactions may be invested in any security
in which the Fund is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).

LOWER-QUALITY DEBT SECURITIES. The Fund may purchase lower-quality debt
securities (those rated below Baa by Moody's Investors Service, Inc. or BBB
by Standard and Poor's Corporation, and unrated securities judged by TMC to
be of equivalent quality) that have poor protection with respect to the
payment of interest and repayment of principal, or may be in default. These
securities are often considered to be speculative and involve greater risk of
loss or price changes due to changes in the issuer's capacity to pay. The
market prices of lower-quality debt securities may fluctuate more than those
of higher-quality debt securities and may decline significantly in periods of
general economic difficulty, which may follow periods of rising interest
rates.

While the market for high-yield corporate debt securities has been in
existence for may years and has weathered previous economic downturns, the
1980's brought a dramatic increase in the use of such securities to fund
highly leveraged corporate acquisitions and restructuring. Past experience
may not provide an accurate indication of the future performance of the high-
yield bond market, especially during periods of economic recession. In fact,
from 1989 to 1991, the percentage of lower-quality securities that defaulted
rose significantly above prior levels, although the default rate decreased in
1992 and 1993.

The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can adversely
affect the prices at which the former are sold. If market quotations are not
available, lower-quality debt securities will be valued in accordance with
procedures established by the Trustees, including the use of outside pricing
services. Judgment plays a greater role in valuing high-yield corporate debt
securities than is the case for securities for which more external sources
for quotations and last-sale information are available. Adverse publicity
and changing investor perceptions may affect the ability of outside pricing
services to value lower-quality debt securities and the Fund's ability to
sell these securities. Since the risk of default is higher for lower-quality
debt securities, TMC's research and credit analysis are an especially
important part of managing securities of this type held by the Fund. In
considering investments for the Fund, TMC will attempt to identify those
issuers of high-yielding securities whose financial condition is adequate to
meet future obligations, has improved, or is expected to improve in the
future. TMC's analysis focuses on relative values based on such factors as
interest or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.

The Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be
in the best interest of the Fund's shareholders.

FOREIGN INVESTMENTS. Foreign investments can involve significant risks
in addition to the risks inherent in U.S. investments. The value of
securities denominated in or indexed to foreign currencies, and of dividends
and interest from such securities, can change significantly when foreign
currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile.
Many foreign countries lack uniform accounting and disclosure standards
comparable to those applicable to U.S. companies, and it may be more
difficult to obtain reliable information regarding an issuer's financial
condition and operations. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions, and custodial costs, are
generally higher than for U.S. investments.

Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers, and securities markets may be subject to
less government supervision. Foreign security trading practices, including
those involving the release of assets in advance of payment, may involve
increased risks in the event of a failed trade or the insolvency of a broker-
dealer, and may involve substantial delays. It may also be difficult to
enforce legal rights in foreign countries.

Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse
to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention. There
may be a greater possibility of default by foreign governments or foreign
government-sponsored enterprises. Investments in foreign countries also
involve a risk of local political, economic, or social instability, military
action or unrest, or adverse diplomatic developments. There is no assurance
that TMC will be able to anticipate these potential events or counter their
effects.

The considerations noted above generally are intensified for investments
in developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.

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. The Fund may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward
contracts to purchase or sell foreign currencies at a future date and price.
The Fund will convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although
foreign exchange dealers generally do not charge a fee for conversion, they
do realize a profit based on the difference between the prices at which they
are buying and selling various currencies. Thus, a dealer may offer to sell
a foreign currency to the Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer.
Forward contracts are generally traded in an interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. The parties to a forward contract may agree to offset or
terminate the contract before its maturity, or may hold the contract to
maturity and complete the contemplated currency exchange. The Fund may use
currency forward contracts for any purpose consistent with its investment
objective. The following discussion summarizes the principal currency
management strategies involving forward contracts that could be used by the
Fund. The Fund may also use swap agreements, indexed securities, and options
and futures contracts relating to foreign currencies for the same purposes.
When the Fund agrees to buy or sell a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
By entering into a forward contract for the purchase or sale, for a fixed
amount of U.S. dollars, of the amount of foreign currency involved in the
underlying security transaction, the Fund will be able to protect itself
against an adverse change in foreign currency values between the date the
security is purchased or sold and the date on which payment is made or
received. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." The Fund may also enter into forward contracts to
purchase or sell a foreign currency in anticipation of future purchases or
sales of securities denominated in foreign currency, even if the specific
investments have not yet been selected by TMC.

The Fund may enter into forward contracts to shift its investment
exposure from one currency into another. This may include shifting exposure
from U.S. dollars to a foreign currency, or from one foreign currency to
another foreign currency. For example, if the Fund held investments
denominated in deutschemarks, the Fund could enter into forward contracts to
sell deutschemarks and purchase Swiss francs. This type of strategy,
sometimes known as a "cross hedge," will tend to reduce or eliminate exposure
to the currency that is sold, and increase exposure to the currency that is
purchased, much as if the Fund had sold a security denominated in one
currency and purchased an equivalent security denominated in another. Cross-
hedges protect against losses resulting from a decline in the hedged
currency, but will cause the Fund to assume the risk of fluctuations in the
value of the currency it purchases. Under certain conditions, SEC guidelines
require mutual funds to set aside appropriate liquid assets in a segregated
custodial account to cover currency forward contracts. As required by SEC
guidelines, the Fund will segregate assets to cover currency forward
contracts, if any, whose purpose is essentially speculative. The Fund will
not segregate assets to cover forward contracts entered into for hedging
purposes, including settlement hedges, position hedges, and proxy hedges.

Successful use of currency management strategies will depend on TMC's
skill in analyzing and predicting currency values. Currency management
strategies may substantially change the Fund's investment exposure to changes
in currency exchange rates, and could result in losses to the Fund if
currencies do not perform as TMC anticipates. For example, if a currency's
value rose at a time when TMC had hedged the Fund by selling that currency in
exchange for dollars, the Fund would be unable to participate in the
currency's appreciation. If TMC hedges currency exposure through proxy
hedges, the Fund could realize currency losses from the hedge and the
security position at the same time if the two currencies do not move in
tandem. Similarly, if TMC increases the Fund's exposure to a foreign
currency, and that currency's value declines, the Fund will realize a loss.
There is no assurance that TMC's use of currency management strategies will
be advantageous to the Fund or that it will hedge at an appropriate time.

LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Fund will not:
(a) sell futures contracts, purchase put options, or write call options if,
as a result, more than 25% of the Fund's total assets would be hedged with
futures and options under normal conditions; (b) purchase futures contracts
or write put options if, as a result, the Fund's total obligations upon
settlement or exercise of purchased futures contracts and written put options
would exceed 25% of its total assets; or (c) purchase call options if, as a
result, the current value of option premiums for call options purchased by
the Fund would exceed 5% of the Fund's total assets. These limitations do
not apply to options attached to or acquired or traded together with their
underlying securities, and do not apply to securities that incorporate
features similar to options.

The above limitations on the Fund's investments in futures contracts and
options, and the Fund's policies regarding futures contracts and options
discussed elsewhere in this statement of Additional Information, are not
fundamental policies and may be changed as regulatory agencies permit.

REAL ESTATE-RELATED INSTRUMENTS 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 the Fund purchases a futures contract, it
agrees to purchase a specified underlying instrument at a specified future
date. When the Fund sells a futures contract, it agrees to sell the
underlying instrument at a specified future date. The price at which the
purchase and sale will take place is fixed when the Fund enters into the
contract. Some currently available futures contracts are based on specific
securities, such as U.S. Treasury bonds or notes, and some are based on
indices of securities prices, such as the Standard & Poor's 500 Composite
Stock Price Index (S&P 500). Futures can be held until their delivery dates,
or can be closed out before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem with
the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the Fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had purchased
the underlying instrument directly. When the Fund sells a futures contract,
by contrast, the value of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if
the underlying instrument had been sold.

FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However both the purchaser and
seller are required to deposit "initial margin" with a futures broker, known
as a futures commission merchant (FCM), when the contract is entered into.
Initial margin deposits are typically equal to a percentage of the contract's
value. If either party's position declines, that party will be required to
make additional "variation margin" payments to settle the change in value on
a daily basis. The party that has a gain may be entitled to receive all or a
portion of this amount. Initial and variation margin payments do not
constitute purchasing securities on margin for purposes of the Fund's
investment limitations. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Fund, the Fund may be entitled to return of margin
owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Fund.

PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The Fund
may terminate its position in a put option it has purchased by allowing it to
expire or by exercising the option. If the option is allowed to expire, the
Fund will lose the entire premium it paid. If the Fund exercises the option,
it completes the sale of the underlying instrument at the strike price. The
Fund may also terminate a put option position by closing it out in the
secondary market at its current price, if a liquid secondary market exists.

The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying instrument's
price does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium paid,
plus related transaction costs).

The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost
of the option.

WRITING PUT AND CALL OPTIONS. When the Fund writes a put option, it
takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Fund assumes the obligation to pay the
strike price for the option's underlying instrument if the other party to the
option chooses to exercise it. When writing an option on a futures contract
the Fund will be required to make margin payments to an FCM as described
above for futures contracts. The Fund may seek to terminate its position in
a put option it writes before exercise by closing out the option in the
secondary market at its current price. If the secondary market is not liquid
for a put option the Fund has written, however, the Fund must continue to be
prepared to pay the strike price while the option is outstanding, regardless
of price changes, and must continue to set aside assets to cover its
position.

If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received.
If security prices remain the same over time, it is likely that the writer
will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer
a loss. This loss should be less than the loss from purchasing the
underlying instrument directly, however, because the premium received for
writing the option should mitigate the effects of the decline. Writing a
call option obligates the Fund to sell or deliver the option's underlying
instrument, in return for the strike price, upon exercise of the option. The
characteristics of writing call options are similar to those of writing put
options, except that writing calls generally is a profitable strategy if
prices remain the same or fall. Through receipt of the option premium, a
call writer mitigates the effects of a price decline.

At the same time, because a call writer must be prepared to deliver the
underlying instrument in return for the strike price, even if its current
value is greater, a call writer gives up some ability to participate in
security price increases.

COMBINED POSITIONS. 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 Fund's current or
anticipated investments exactly. The Fund may invest in options and futures
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Fund's other investments. Options and futures prices can
also diverge from the prices of their underlying instruments, even if the
underlying instruments match the Fund's investments well. Options and
futures prices are affected by such factors as current and anticipated short-
term interest rates, changes in volatility of the underlying instrument, and
the time remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result from
differing levels of demand in the options and futures markets and the
securities markets, from structural differences in how options and futures
and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. The Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to
hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although
this may not be successful in all cases. If price changes in the Fund's
options or futures positions are poorly correlated with its other
investments, the positions may fail to produce anticipated gains or result in
losses that are not offset by gains in other investments.

LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or futures
contract at any particular time. Options may have relatively low trading
volume and liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily price
fluctuation limits for options and futures contracts, and may halt trading if
a contract's price moves upward or downward more than the limit in a given
day. On volatile trading days when the price fluctuation limit is reached or
a trading halt is imposed, it may be impossible for the Fund to enter into
new positions or close out existing positions. If the secondary market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and potentially
could require the Fund to continue to hold a position until delivery or
expiration regardless of changes in its value. As a result, the Fund's
access to other assets held to cover its options or futures positions could
also be impaired.

OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size,
and strike price, the terms of over-the-counter options (options not traded
on exchanges) generally are established through negotiation with the other
party to the option contract. While this type of arrangement allows the Fund
greater flexibility to tailor an option to its needs, OTC options generally
involve greater credit risk than exchange-traded options, which are
guaranteed by the clearing organization of the exchanges where they are
traded. The staff of the SEC currently takes the position that OTC options
are illiquid, and investments by the Fund in those instruments are subject to
the Fund's limitation on investing no more than 10% of its assets in illiquid
instruments.

OPTION AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that
they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally is
purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase the
underlying currency, and the purchaser of a currency put obtains the right to
sell the underlying currency.

The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed above.
The Fund may purchase and sell currency futures and may purchase and write
currency options to increase or decrease its exposure to different foreign
currencies. The Fund may also purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of
the Fund's investments. A currency hedge, for example, should protect a Yen-
denominated security from a decline in the Yen, but will not protect the Fund
against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the Fund's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to
the value of the Fund's investments exactly over time.

ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Fund will comply
with guidelines established by the SEC with respect to coverage of options
and futures strategies by mutual funds, and if the guidelines so require will
set aside appropriate liquid assets in a segregated custodial account in the
amount prescribed. Securities held in a segregated account cannot be sold
while the futures or option strategy is outstanding, unless they are replaced
with other suitable assets. As a result, there is a possibility that
segregation of large percentage of the Fund's assets could impede Fund
management or the Fund's ability to meet redemption requests or other current
obligations.

SHORT SALES. The Fund may enter into short sales with respect to stocks
underlying its convertible security holdings. For example, if TMC
anticipates a decline in the price of the stock underlying a convertible
security the Fund holds, it may sell the stock short. If the stock price
subsequently declines, the proceeds of the short sale could be expected to
offset all or a portion of the effect of the stock's decline on the value of
the convertible security. The Fund currently intends to hedge no more than
15% of its total assets with short sales on equity securities underlying its
convertible security holdings under normal circumstances. When the Fund
enters into a short sale, it will be required to set aside securities
equivalent in kind and amount to those sold short (or securities convertible
or exchangeable into such securities) and will be required to continue to
hold them while the short sale is outstanding. The Fund will incur
transaction costs, including interest expense, in connection with opening,
maintaining , and closing short sales.

PORTFOLIO TRANSACTIONS

All orders for the purchase or sale of portfolio securities are placed
on behalf of the Fund 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. The Fund may execute
portfolio transactions with broker-dealers who provide research and execution
services to the Fund. Such services may include advice concerning the value
of securities; the availability of securities or the purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and performance
of accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). The selection of such
broker-dealers is generally made by TMC (to the extent possible consistent
with execution considerations) in accordance with a ranking of broker-dealers
determined periodically by TMC's investment staff based upon the quality of
such research and execution services provided.

The receipt of research from broker-dealers that execute transactions on
behalf of the Fund may be useful to TMC in rendering investment management
services to the Fund. The receipt of such research has not reduced TMC's
normal independent research activities; however, it enables TMC to avoid the
additional expenses that could be incurred if TMC tried to develop comparable
information through its own efforts.

Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
Fund to pay such higher commissions, TMC must determine in good faith that
such commissions are reasonable in relation to the value of the brokerage and
research services provided by such executing broker-dealers, viewed in terms
of a particular transaction or TMC's overall responsibilities to the Fund.
In reaching this determination, TMC will not attempt to place a specific
dollar value on the brokerage and research services provided, or to determine
what portion of the compensation would be related to those services.

TMC is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance in
the distribution of shares of the Fund or shares of other Thornburg funds to
the extent permitted by law. TMC may use research services provided by and
place agency transactions with Thornburg Securities Corporation (TSC) if the
commissions are fair, reasonable, and comparable to commissions charged by
non-affiliated, qualified brokerage firms for similar services. TMC may
allocate brokerage transactions to broker-dealers who have entered into
arrangements with TMC under which the broker-dealer allocates a portion of
the commissions paid by the Fund toward payment of the Fund's expenses, such
as transfer agent fees or custodian fees. The transaction quality must,
however, be comparable to those of other qualified broker-dealers.

The Trustees periodically review TMC's performance of its
responsibilities in connection with the placement of portfolio transactions
on behalf of the Fund and review the commissions paid by the Fund over
representative periods of time to determine if they are reasonable in
relation to the benefits to the Fund.

From time to time the Trustees will review whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar
fees paid by the Fund on portfolio transactions is legally permissible and
advisable. The Fund may seek to recapture soliciting broker-dealer fees on
the tender of portfolio securities.

Although the Trustees and officers of the Fund may be substantially the
same as those of some other mutual funds managed by TMC, investment decisions
for the Fund 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 the Fund is concerned. In other cases,
however, the ability of the 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 Fund 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
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 Fund
are determined as of such time for the purpose of computing the Fund's net
asset value. 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 Fund may quote performance in various ways. All performance
information supplied by the Fund in advertising is historical and is not
intended to indicate future returns. The Fund's share price, yield, and
total return fluctuate in response to market conditions and other factors,
and the value of the Fund shares when redeemed may be more or less than
their original cost.

YIELD CALCULATIONS. Yields for the Fund are computed by dividing the
Fund's interest and dividend income for a given 30-day or one-month period,
net of expenses, by the average number of shares entitled to receive
distributions during the period, dividing this figure by the Fund's offering
price at the end of the period, and annualizing the result (assuming
compounding of income) in order to arrive at an annual percentage rate. In
addition, the Fund may use the same method to obtain yields for 90-day or
quarterly periods. Income is calculated for purposes of yield quotations in
accordance with standardized methods applicable to all stock and bond funds.
Dividends from equity investments are treated as if they were accrued on a
daily basis, solely for the purposes of yield calculations. In general,
interest income is reduced with respect to bonds trading at a premium over
their par value by subtracting a portion of the premium from income on a
daily basis, and is increased with respect to bonds trading at a discount by
adding a portion of the discount to daily income. For the Fund's investments
denominated in foreign currencies, income and expenses are calculated first
in their respective currencies, and are then converted to U.S. dollars,
either when they are actually converted or at the end of the 30-day or one
month period, whichever is earlier. Capital gains and losses generally are
excluded from the calculation as are gains and losses from currency exchange
rate fluctuations.

Yield information may be useful in reviewing the Fund's performance and
in providing a basis for comparison with other investment alternatives.
However, the Fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.

Investors should recognize that in periods of declining interest rates
the Fund's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates the Fund's yield will tend to
be somewhat lower. Also, when interest rates are falling, the inflow of net
new money to the Fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the Fund's
holdings, thereby reducing the Fund's current yield. In periods of rising
interest rates, the opposite can be expected to occur.

TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect
all aspects of the Fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in the Fund's net
asset value (NAV) over a stated period. Average annual total returns are
calculated by determining the growth or decline in value of a hypothetical
historical investment in the Fund over a stated period, and then calculating
the annually compounded percentage rate that would have produced the same
result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative total return of 100% over ten years would
produce an average annual return of 7.18%, which is the steady annual rate of
return that would equal 100% growth on a compounded basis in ten years.
While average annual returns are a convenient means of comparing investment
alternatives, investors should realize that the Fund's performance is not
constant over time, but changes from year to year, and the average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Fund. In addition to average annual total returns, the
Fund may quote unaveraged or cumulative total returns reflecting the simple
change in value an investment over a stated period. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar amount,
and may be calculated for a single investment, a series of investments, or a
series of redemptions, over any time period. Total returns may be broken
down into their components of income and capital (including capital gains and
changes in share price) in order to illustrate the relationship of these
factors and their contributions to total return. Total returns may be quoted
on a before-tax or after-tax basis and may be quoted with or without taking
the Fund's maximum sales charge into account. Excluding the Fund's sales
charge from a total return calculation produces a higher total return figure.
Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration.

NET ASSET VALUE. Charts and graphs using the Fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by the Fund and
reflects all elements of its return. Unless otherwise indicated, the Fund's
adjusted NAV's are not adjusted for sales charges, if any.

MOVING AVERAGES. The Fund may illustrate performance using moving
averages. A long-term moving average is the average of each week's adjusted
closing NAV or total return for a specified period. A short-term moving
average NAV is the average of each day's adjusted closing NAV for a specified
period. Moving average activity indicators combine adjusted closing NAV's
from the last business day of each week with moving averages for a specified
period the produce indicators showing when an NAV has crossed, stayed above,
or stayed below its moving average.

HISTORICAL FUND RESULTS. The Fund commenced operations October 1, 1995.
The Fund's performance may be compared to the performance of other mutual
funds in general, or to the performance of particular types of mutual funds.
These comparisons may be expressed as mutual fund ranking prepared by Lipper
Analytical Services, Inc. (Lipper), an independent service located in Summit,
New Jersey that monitors the performance of mutual funds. Lipper generally
ranks funds on the basis of total return, assuming reinvestment of
distributions, but does not take sales charges or redemption fees into
consideration, and is prepared without regard to tax consequences. In
addition to the mutual fund rankings the Fund's performance may be compared
to stock, bond, and money market mutual fund performance indices prepared by
Lipper or other organizations. When comparing these indices, it is important
to remember the risk and return characteristics of each type of investment.
For example, while stock mutual funds may offer higher potential returns,
they also carry the highest degree of share price volatility. Likewise,
money market funds may offer greater stability of principal, but generally do
not offer the higher potential returns from stock mutual funds. From time to
time, the Fund's performance may also be compared to other mutual funds
tracked by financial or business publications and periodicals. For example,
the Fund any quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on
the basis of risk-adjusted performance. Rankings that compare the
performance of Thornburg funds to one another in appropriate categories over
specific periods of time may also be quoted in advertising.

The Fund may be compared in advertising to Certificates of Deposit
(CD's) or other investments issued by banks or other depository institutions.
Mutual funds differ from bank investments in several respects. For example,
while the Fund may offer greater liquidity or higher potential returns than
CD's, the Fund does not guarantee a shareholder's principal or return, and
Fund shares are not FDIC insured.

TMC may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs bases on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of other
Thornburg mutual funds.

The Fund may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any of
these capital markets. The risks associated with the security types in the
capital market may or may not correspond directly to those of the Fund. The
Fund may also compare performance to that of other compilations or indices
that may be developed and made available in the future, and advertising,
sales literature and shareholder reports also may discuss aspects of periodic
investment plans, dollar cost averaging and other techniques for investing to
pay for education, retirement and other goals. In addition, the Fund may
quote or reprint financial or business publications and periodicals,
including model portfolios or allocations, as they relate to current economic
and political conditions, fund management, portfolio composition, investment
philosophy, investment techniques and the desirability of owning a particular
mutual fund. The Fund may present its fund number, Quotron (trademark)
number, and CUSIP number, and discuss or quote its current portfolio manager.

VOLATILITY. The Fund may quote various measures of volatility and
benchmark correlation in advertising. In addition, the Fund may compare
these measures to those of other funds. Measures of volatility seek to
compare the Fund's historical share price fluctuations or total returns to
those of a benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation are
calculated using averages of historical data. In advertising, the Fund may
also discuss or illustrate examples of interest rate sensitivity.

MOMENTUM INDICATORS indicate the Fund's price movements over specific
periods of time. Each point on the momentum indicator represents the Fund's
percentage change in price movements over that period. The Fund may
advertise examples of the effects of periodic investment plans, including the
principle of dollar cost averaging. In such a program, an investor invests a
fixed dollar amount in a fund at periodic intervals, thereby purchasing fewer
shares when prices are high and more shares when prices are low. While such
a strategy does not assure a profit or guard against loss in a declining
market, the investor's average cost per share can be lower than if fixed
numbers of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing shares
during periods of low price levels. The Fund may be available for purchase
through retirement plans or other programs offering deferral of, or exemption
from, income taxes, which may produce superior after-tax returns over time.
For example, a $1,000 investment earning a taxable return of 10% annually
would have an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent tax-deferred
investment would have an after-tax value of $2,100 after ten years, assuming
tax was deducted at a 31% rate from the tax-deferred earnings at the end of
the ten-year period.

REPRESENTATIVE PERFORMANCE INFORMATION

The 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. 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 44.77% N/A N/A 33.60%
</TABLE>

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
the 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.

The reduced sales charge to the above parties is based upon the Trust's
view that these persons' familiarity with and loyalty to the Fund will result
in the need for less selling effort by the Fund, such as a solicitation and
detailed explanation of the conceptual structure of the Fund, and less sales-
related expenses, such as advertising expenses, computer time, paper work,
secretarial needs, postage and telephone costs, 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 the 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
Fund 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 Fund's shares, these individuals tend to be much
more aware of the Fund than the general public. In order to sell shares of
the Fund to the general public, TSC must inform these individuals about the
Fund. 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 Fund.

(6) Purchases of Class A shares 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 Fund 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.

(8) Charitable organizations, including trusts established for the
benefit of charitable organizations, may purchase shares of the Fund 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 Fund's
investment objectives and performance in light of their customers' goals. In
certain cases, these organizations may approach the 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 the 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 Fund is open for business and its net asset value per share (NAV) is
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 Fund normally determines its NAV 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
calculated more often than once a day if the Fund considers this necessary.
To the extent that portfolio securities are traded in other markets on days
when the NYSE is closed, the 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 the Fund's portfolio securities may not occur on
days when the Fund is open for business.

If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the Fund's NAV. Shareholders receiving securities or other
property on redemption may realize a gain or loss for tax purposes, and will
incur any costs of sale, as well as the associated inconveniences.

In the prospectus, the 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 the 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
the 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%. The Fund will notify corporate
shareholders annually of the percentage of Fund dividends that qualifies for
the dividends-received deduction.

A portion of the 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 the 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 the Fund
on the sale of securities and distributed to shareholders are federally
taxable as long-term capital gains, regardless of the length of time
shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of the 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 the Fund are taxable to
shareholders as dividends, not as capital gains.

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 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 FUND. The 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, the 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 Fund and its 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 the Fund is suitable for their particular tax situation.

TRUSTEES AND OFFICERS

The management of the Fund, 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 Fund
indicated by an asterisk:

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

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.

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.

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.

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.

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.

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:

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 Fund's
outstanding shares:

<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>

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 Fund in accordance with the
Fund's investment objectives and policies, subject to the general supervision
and control of the Fund's Trustees.

TMC is investment adviser for Thornburg Limited Term Municipal Fund,
Inc., a series investment company with two fund series, 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, the 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, the Fund will pay all other costs and expenses
of its operations. The Fund also will bear the expenses of registering and
qualifying the Fund and the shares for distribution under federal and state
securities laws, including legal fees.

The 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.

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 by the Trustees of the Fund, including a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Fund or TMC, and became effective on September 30, 1995. The initial term of
this Agreement was for two years, with extensions for successive 12-month
periods, provided that each such continuation for the Fund is approved at
least annually by a majority of the Trustees who are not "interested" within
the meaning of the Investment Company Act of 1940 or by a vote of the
majority of the Fund's shares then outstanding. The Agreement was restated
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
the Fund under an Administrative Services Agreement which requires the
delivery of administrative functions necessary for the maintenance of the
shareholders of the class, supervision and direction of shareholder
communications, assistance and review in preparation of reports and other
communications to shareholders, administration of shareholder assistance,
supervision and review of bookkeeping, clerical, shareholder and account
administration and accounting functions, supervision or conduct of regulated
regulatory compliance and legal affairs, and review and administration of
functions delivered by outside service providers to or for shareholders, and
other related or similar functions as may from time to time be agreed. The
Administrative Services Agreement specific to the Fund's 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 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 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.

SERVICE AND DISTRIBUTION PLANS

Service Plans-All Classes

The Fund has adopted a plan and agreement of distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940 ("Service Plan") which is
applicable to Class A and Class C shares of the Fund. The Plan permits the
Fund to pay to TMC (in addition to the management fee and reimbursements
described above) an annual amount not exceeding .25 of 1% of the Fund's
assets 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 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 Fund paid to TMC
$96,195 uder 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 the 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

The 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 the Fund's payment to TSC on a monthly basis
of an annual distribution fee of .75% of the average daily net assets
attributable to the Fund's Class C shares. For the fiscal year ended
September 30, 1996, the Fund paid to TSC $7,064 under the Class C
Distribution Plan, and for the fiscal year ended September 30, 1997, the Fund
paid to TSC $34,063 under the same Plan.

The purpose of the Class C Distribution Plan is the 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.

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

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 Fund shall be committed to the discretion of the Trustees who are not
"interested persons." The Plans may not be amended to increase materially
the amount of the Fund's payments thereunder without approval of the
shareholders of the affected classes. Under each Plan, the Fund, by a vote
of a majority of the independent Trustees or of the holders of a majority of
the outstanding shares, may terminate the provisions retaining the services
of TMC 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 Fund's assets in the amounts and for the
purposes set forth therein, notwithstanding the occurrence of an assignment,
as defined by the 1940 Act and the rules thereunder. To the extent it
constitutes an agreement pursuant to a plan, it will terminate automatically
in the event of an "assignment." Upon termination, no further payments may be
made under the agreement except for amounts previously accrued by unpaid.
The Fund may continue to make payments pursuant to the Plan of the amounts
authorized to be paid, which may or may not be to TMC or TSC, as the case may
be, or the adoption of other similar arrangements, in each case by the Funds'
Trustees, including a majority of the independent Trustees by vote cast in
person at a meeting called for that purpose.

DESCRIPTION OF THE TRUST

TRUST ORGANIZATION. Thornburg Value Fund is a series of Thornburg
Investment Trust, an open-end management investment company organized as a
Massachusetts business trust on June 3, 1987. Currently, there are 13 series
of the Trust, seven of which are active. The Declaration of Trust permits
the Trustees to create additional fund series and classes of shares.

In the event that TMC ceases to be the investment adviser to the Trust
or the Fund, 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 such fund, and
constitute the underlying assets of such 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 such 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, 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.

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. The 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
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 the 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 Fund. The Custodian is responsible for the
safekeeping of the Fund's assets and the appointment of subcustodian banks
and clearing agencies. The Custodian takes no part in determining the
investment policies of the Fund or in deciding which securities are purchased
or sold by the Fund. The Fund 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
Fund does not bear selling expenses except (i) those involved in registering
shares with the Securities and Exchange Commission and qualifying them or the
Fund with state regulatory authorities, and (ii) expenses paid under the
Service 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 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."

<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.

INDEPENDENT AUDITORS

McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York, 10017, is
the independent auditor of the Fund for the fiscal year ending September 30,
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.

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.

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.

Statement of Additional Information
for
Institutional Class Shares
of
Thornburg Limited Term Municipal Fund National Portfolio
("Limited Term National Fund")
Thornburg Limited Term Municipal Fund California Portfolio
("Limited Term California Fund")
Thornburg Intermediate Municipal Fund
("Intermediate National Fund")
Thornburg Limited Term U.S. Government Fund
("Government Fund")
Thornburg Limited Term Income Fund
("Income Fund")
Thornburg Value Fund
("Value Fund")

119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501

Thornburg Limited Term Municipal Fund National Portfolio ("Limited Term
National Fund") and Thornburg Limited Term Municipal Fund California
Portfolio ("Limited Term California Fund") are investment portfolios
established by Thornburg Limited Term Municipal Fund, Inc. (the "Company"),
and Thornburg Intermediate Municipal Fund ("Intermediate National Fund"),
Thornburg Limited Term U.S. Government Fund ("Government Fund"), Thornburg
Limited Term Income Fund ("Income Fund") and Thornburg Value Fund ("Value
Fund") are investment portfolios established by Thornburg Investment Trust
(the "Trust"). This Statement of Additional Information relates to the
investments made or proposed to be made by the Funds, investment policies
governing the Funds, the Funds' management, and other issues of interest to a
prospective purchaser of Institutional Class shares offered by the Funds.

This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Funds' Institutional Class Prospectus dated
February 1, 1998. A copy of the Institutional Class Prospectus for the Funds
may be obtained at no charge by writing to the distributor of the Funds'
Institutional Class shares, Thornburg Securities Corporation, at 119 East
Marcy Street, Suite 202, Santa Fe, New Mexico 87501.

Prior to June 28, 1985 the Company's name was "Tax-Free Municipal Lease
Fund, Inc."; and prior to October 1, 1995, the Trust's name was "Thornburg
Income Trust."

The date of this Statement of Additional Information is February 1,
1998

<PAGE>
TABLE OF CONTENTS

INVESTMENT POLICIES. . . . . . . . . . . . . . . . . . . . . . .1
MUNICIPAL FUNDS. . . . . . . . . . . . . . . . . . . . . . . .1
TAXABLE INCOME FUNDS . . . . . . . . . . . . . . . . . . . . 12
VALUE FUND. . . . . . . . . . . . . . . . . . . . . . . . . 32

INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . 44
Investment Limitations - Limited Term National Fund
and Limited Term California Fund . . . . . . . . . . . . .44
Investment Limitations - Intermediate National Fund. . . . 47
Investment Limitations - Government Fund . . . . . . . . . 49
Investment Limitations - Income Fund . . . . . . . . . . . 51
Investment Limitations - Value Fund. . . . . . . . . . . . 54

YIELD AND RETURN COMPUTATION . . . . . . . . . . . . . . . . . 57
Performance and Portfolio Information - Municipal
Funds and Taxable Income Funds . . . . . . . . . . . . . .57
Performance and Portfolio Information - Value Fund . . . . 58

REPRESENTATIVE PERFORMANCE INFORMATION . . . . . . . . . . . . 62
Representative Performance Information - Limited Term
National Fund (Institutional Class) . . . . . . . . . . . 62
Representative Performance Information - Limited Term
California Fund (Institutional Class) . . . . . . . . . . 63

Representative Performance Information - Intermediate
National Fund (Institutional Class) . . . . . . . . . . . 64
Representative Performance Information - Government Fund
(Institutional Class) . . . . . . . . . . . . . . . . . . 66
Representative Performance Information - Income Fund
(Institutional Class) . . . . . . . . . . . . . . . . . . 67

TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Federal Income Taxes - In General. . . . . . . . . . . . . 67
Federal Income Taxation - Municipal Funds. . . . . . . . . 69
State and Local Tax Aspects of the Municipal Funds . . . . 71
Federal Income Taxes - Taxable Income Funds. . . . . . . . 72
State and Local Income Tax Considerations - Taxable
Income Funds . . . . . . . . . . . . . . . . . . . . . . .73
Federal Income Taxes - Value Fund. . . . . . . . . . . . . 73
State and Local Income Tax Considerations - Value Fund . . 74

DISTRIBUTIONS AND SHAREHOLDERS ACCOUNTS. . . . . . . . . . . . 74

INVESTMENT ADVISER, INVESTMENT ADVISORY AGREEMENT, AND
ADMINISTRATIVE SERVICES AGREEMENT. . . . . . . . . . . . . . . 75
Investment Advisory Agreement. . . . . . . . . . . . . . . 75
Administrative Services Agreement. . . . . . . . . . . . . 77
i
<PAGE>
SERVICE PLANS. . . . . . . . . . . . . . . . . . . . . . . . . 77

PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . 79
In General . . . . . . . . . . . . . . . . . . . . . . . . 79
Municipal Funds and Taxable Income Funds . . . . . . . . . 79
Value Fund . . . . . . . . . . . . . . . . . . . . . . . . 79
Portfolio Turnover Rates . . . . . . . . . . . . . . . . . 81

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Limited Term National Fund and
Limited Term California Fund. . . . . . . . . . . . . . . 81
Intermediate National Fund; Government Fund;
Income Fund; Value Fund . . . . . . . . . . . . . . . . . 84

PRINCIPAL HOLDERS OF SECURITIES. . . . . . . . . . . . . . . . 87
Limited Term National Fund . . . . . . . . . . . . . . . . 87
Limited Term California Fund . . . . . . . . . . . . . . . 87
Intermediate National Fund . . . . . . . . . . . . . . . . 87
Government Fund. . . . . . . . . . . . . . . . . . . . . . 88
Income Fund. . . . . . . . . . . . . . . . . . . . . . . . 88
Value Fund . . . . . . . . . . . . . . . . . . . . . . . . 88

NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . . 89

DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . 89

INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . 89

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 90

<PAGE> INVESTMENT POLICIES

MUNICIPAL FUNDS

The primary investment objective of Limited Term National Fund and
Intermediate National Fund is to provide for their respective shareholders as
high a level of current investment income exempt from federal income tax as
is consistent, in the view of the Funds' investment adviser, Thornburg
Management Company, Inc. ("TMC"), with preservation of capital. The primary
investment objective of Limited Term California Fund is to provide for its
shareholders as high a level of current investment income exempt from federal
income tax and California state personal income tax as is consistent, in
TMC's view, with preservation of capital. Limited Term National Fund,
Limited Term California Fund and Intermediate National Fund are sometimes
referred to in this Statement of Additional Information as the "Municipal
Funds." This objective of preservation of capital may preclude the Municipal
Funds from obtaining the highest possible yields.

Limited Term National Fund and Intermediate National Fund will each seek
to achieve their primary investment objective by investing in a diversified
portfolio of obligations issued by state and local governments the interest
on which is exempt from federal income tax ("Municipal Obligations").
Limited Term California Fund will seek to achieve its primary investment
objective by investing in a portfolio of Municipal Obligations originating
primarily in California. The Funds may invest in Municipal Obligations (or
participation interests therein) that constitute leases or installment
purchase or conditional sale contracts by state of local governments or
authorities to obtain property or equipment ("Municipal Leases").

The Limited Term National Fund and Limited Term California Fund each
will maintain a portfolio having a dollar-weighted average maturity of
normally not more than five years, with the objective of reducing
fluctuations in its net asset value relative to municipal bond portfolios
with longer average maturities while expecting lower yields than those
received on portfolios with longer average maturities. The Intermediate
National Fund will maintain a portfolio having a dollar-weighted average
maturity of normally three to ten years, with the objective of reducing
fluctuations in net asset value relative to long-term municipal bond
portfolios. The Intermediate National Fund may receive lower yields than
those received on long-term bond portfolios, while seeking higher yields and
expecting higher share price volatility than the Limited Term National Fund.

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

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

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

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

Each of the Municipal Funds has reserved the right to invest up to 20%
of its net assets in "temporary investments" in taxable securities (of
comparable quality to the above tax-exempt investments) that would produce
interest not exempt from Federal income tax. Such temporary investments,
which may include repurchase agreements with dealers, banks or recognized
financial institutions that in the opinion of TMC represent minimal credit
risk, may be made due to market conditions, pending investment of idle funds
or to afford liquidity. See "Temporary Investments," at page 8. Such
investments are, like any investment, subject to market risks and
fluctuations in value. In addition, each Fund's temporary taxable
investments may exceed 20% of its net assets when made for defensive purposes
during periods of abnormal market conditions. The Municipal Funds do not
expect to find it necessary to make temporary investments.
2
<PAGE>
No Municipal Fund will purchase securities if, as a result, more than
25% of the Fund's total assets would be invested in any one industry.
However, this restriction will not apply to purchase of (i) securities of the
United States Government and its agencies, instrumentalities and authorities,
or (ii) tax exempt securities issued by other governments or political
subdivisions, because these issuers are not considered to be members of any
industry. This restriction may not be changed as to any Municipal Fund
unless approved by a majority of the outstanding shares of the Fund.

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

Municipal Obligations

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

The Municipal Funds may invest in a variety of types of Municipal
Obligations, including but not limited to bonds, notes (such as tax
anticipation and revenue anticipation notes), commercial paper and variable
rate demand instruments. Variable rate demand instruments are Municipal
Obligations or participations therein, either publicly underwritten and
traded or privately purchased, that provide for a periodic adjustment of the
interest rate paid on the instrument and permit the holder to demand payment
of the unpaid principal amount and accrued interest upon not more than seven
days' notice either from the issuer or by drawing on a bank letter of credit,
a guarantee or insurance issued with respect to such instrument. Such
letters of credit, guarantees or insurance will be considered in determining
whether a Municipal Obligation meets a Fund's investment criteria. See the
Prospectus under the caption "Investment Policies of the Municipal Funds."
The issuer of a variable rate demand instrument may have the corresponding
right to prepay the principal amount prior to maturity.
3
<PAGE>
The Municipal Funds also may purchase fixed rate municipal demand
instruments either in the public market or privately. Such instruments may
provide for periodic adjustment of the interest rate paid to the holder. The
"demand" feature permits the holder to demand payment of principal and
interest prior to their final stated maturity, either from the issuer or by
drawing on a bank letter of credit, a guarantee or insurance issued with
respect to the instrument. In some cases these demand instruments may be in
the form of units, each of which consists of (i) a Municipal Obligation and
(ii) a separate put option entitling the holder to sell to the issuer of such
option the Municipal Obligation in the unit, or an equal aggregate principal
amount of another Municipal Obligation of the same issuer, issue and maturity
as the Municipal Obligation, at a fixed price on specified dates during the
term of the put option. In those cases, each unit taken as a whole will be
considered a Municipal Obligation, based upon an accompanying opinion of
counsel. A Fund will invest in a fixed rate municipal demand instrument only
if the instrument or the associated letter of credit, guarantee or insurance
is rated within the three highest grades of a nationally recognized rating
agency, or, if unrated, is deemed by TMC to be of comparable quality with
issues having such debt ratings. The credit quality of such investments will
be determined on a continuing basis by TMC for the Limited Term National Fund
under the supervision of the directors of the Company, and for the
Intermediate National Fund under the supervision of the trustees of the
Trust.

A Municipal Fund also may purchase and sell Municipal Obligations on a
when-issued or delayed delivery basis. When-issued and delayed delivery
transactions arise when securities are purchased or sold with payment and
delivery beyond the regular settlement date. (When-issued transactions
normally settle within 30-45 days.) On such transactions the payment
obligation and the interest rate are fixed at the time the buyer enters into
the commitment. The commitment to purchase securities on a when-issued or
delayed delivery basis may involve an element of risk because the value of
the securities is subject to market fluctuation, no interest accrues to the
purchaser prior to settlement of the transaction, and at the time of delivery
the market value may be less than cost. At the time a Fund makes the
commitment to purchase a Municipal Obligation on a when-issued or delayed
delivery basis, it will record the transaction and reflect the value of the
security in determining its net asset value. That Fund also will maintain
liquid assets at least equal in value to commitments for when-issued or
delayed delivery securities, such assets to be segregated by State Street
Bank & Trust Co., the Fund's custodian, specifically for the settlement of
such commitments. The value of the segregated assets will be marked to the
market daily so that the Fund will at all times maintain assets in the
segregated account equal in value to the amount of these commitments. The
Funds will only make commitments to purchase Municipal Obligations on a
when-issued or delayed delivery basis with the intention of actually
acquiring the securities, but the Funds reserve the right to sell these
securities before the settlement date if it is deemed advisable. If a
when-issued security is sold before delivery any gain or loss would not be
tax-exempt.
4
<PAGE>
TMC will evaluate the liquidity of each Municipal Lease upon its
acquisition and periodically while it is held based upon factors established
for the Limited Term National Fund by the Company's directors, and for the
Intermediate National Fund by the Trust's trustees, including (i) the
frequency of trades and quotes for the obligation, (ii) the number of dealers
who will buy or sell the obligation and the potential buyers for the
obligation, (iii) the willingness of dealers to make a market for the
obligation, and (iv) the nature and timing of marketplace trades. An unrated
Municipal Lease with non-appropriation risk that is backed by an irrevocable
bank letter of credit or an insurance policy, issued by a bank or insurer
deemed by TMC to be of high quality and minimal credit risk, will not be
deemed to be "illiquid" solely because the underlying Municipal Lease is
unrated, if TMC determines that the Municipal Lease is readily marketable
because it is backed by the letter of credit or insurance policy.

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

No Municipal Fund will invest in illiquid securities if, as a result
of the investment, more than 10% of its net assets will be invested in
illiquid securities. For purposes of this limitation, "illiquid securities"
shall be deemed to include (1) Municipal Leases subject to non-appropriation
risk which are not rated at the time of purchase within the four highest
grades by Moody's or S&P and not subject to remarketing agreements (or not
currently subject to remarketing, pursuant to the conditions of any such
agreement then in effect, with a responsible remarketing party, deemed by TMC
to be capable of performing its obligations), (2) repurchase agreements
maturing in more than seven days, (3) securities which the Funds are
restricted from selling to the public without registration under the
Securities Act of 1933, and (4) other securities or participations not
considered readily marketable by the Funds, provided that for purposes of the
foregoing an unrated Municipal Lease which is backed by an irrevocable bank
letter of credit or an insurance policy, issued by a bank or insurer deemed
by TMC to be of high quality and minimal credit risk, will not be deemed to
be illiquid.
5
<PAGE>
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption
for interest on municipal securities. Similar proposals may be introduced in
the future. These proposals, if enacted, may have the effect of reducing the
availability of investments for the Funds. Moreover, the value of the Funds'
portfolios may be affected. The Funds could be compelled to reevaluate their
investment objectives and policies and submit possible changes in the
structure of the Funds for the approval of their respective shareholders.

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

Ratings

Tax-Exempt Bonds. The four highest ratings of Moody's for tax-exempt
bonds are Aaa, Aa, A and Baa. Tax-exempt bonds rated Aaa are judged to be of
the "best quality." The rating of Aa is assigned to tax-exempt bonds which
are of "high quality by all standards," but as to which margins of protection
or other elements make long-term risks appear somewhat larger than Aaa rated
tax-exempt bonds. The Aaa and Aa rated tax-exempt bonds comprise what are
generally known as "high grade bonds." Tax-exempt bonds which are rated A by
Moody's possess many favorable investment attributes and are considered
"upper medium grade obligations." Factors giving security to principal and
interest of A rated tax-exempt bonds are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. Tax-exempt bonds rated Baa are considered "medium grade"
obligations. They are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such tax-exempt bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well. The foregoing ratings are sometimes presented in parentheses preceded
with "Con." indicating the bonds are rated conditionally. Bonds for which
the security depends upon the completion of some act or the fulfillment of
some condition are rated conditionally. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of projects unseasoned
in operating experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
The parenthetical rating denotes the probable credit status upon completion
of construction or elimination of the basis of the condition.
6
<PAGE>
The four highest ratings of S&P and Fitch for tax-exempt bonds are
AAA, AA, A, and BBB. Tax-exempt bonds rated AAA bear the highest rating
assigned by S&P and Fitch to a debt obligation and indicates an extremely
strong capacity to pay principal and interest. Tax-exempt bonds rated AA
also qualify as high-quality debt obligations. Capacity to pay principal and
interest is very strong, and in the majority of instances they differ from
AAA issues only in small degree. Bonds rated A have a strong capacity to pay
principal and interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions. The BBB
rating, which is the lowest "investment grade" security rating by S&P or
Fitch, indicates an adequate capacity to pay principal and interest.
Whereas BBB rated Municipal Obligations normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds
in this category than for bonds in the A category. The foregoing ratings are
sometimes followed by a "p" indicating that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, the completion.

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

Tax-Exempt Demand Bonds. The rating agencies may assign dual ratings
to all long term debt issues that have as part of their provisions a demand
or multiple redemption feature. The first rating addresses the likelihood of
repayment of principal and interest as due and the second rating addresses
only the demand feature. The long term debt rating symbols are used for
bonds to denote the long term maturity and the commercial paper rating
symbols are used to denote the put option (for example, "AAA/A-1+"). For
newer "demand notes" maturing in 3 years or less, the respective note rating
symbols, combined with the commercial paper symbols, are used (for example.
"SP-1+/A-1+").
7
<PAGE>
Commercial Paper. The ratings of Moody's for issuers of commercial
paper are Prime-1, Prime-2 and Prime-3. Issuers rated Prime-1 are judged to
have superior ability for repayment which is normally evidenced by (i)
leading market positions in well established industries, (ii) high rates of
return on funds employed, (iii) conservative capitalization structures with
moderate reliance on debt and ample asset protection, (if) broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and (v) well established access to a range of financial markets
and assured sources of alternate liquidity. Issuers rated Prime-2 are judged
to have a strong capacity for repayment which is normally evidenced by many
of the characteristics cited under the discussion of issuers rated Prime-1
but to a lesser degree. Earnings trends, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may
be more affected by external conditions. Adequate liquidity is maintained.
Issuers rated Prime-3 are judged to have an acceptable capacity for
repayment. The effect of industry characteristics and market composition may
be more pronounced. Variability of earnings and profitability may result in
changes in the level of debt-protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.

Temporary Investments

Each Municipal Fund has reserved the right to invest up to 20% of its
net assets in "temporary investments" in taxable securities that would
produce interest not exempt from federal income tax. See "Taxes." Such
temporary investments may be made due to market conditions, pending
investment of idle funds or to afford liquidity. These investments are
limited to the following short-term, fixed-income securities (maturing in one
year or less from the time of purchase): (i) obligations of the United
States government or its agencies, instrumentalities or authorities; (ii)
prime commercial paper within the two highest ratings of Moody's or S&P;
(iii) certificates of deposit of domestic banks with assets of $1 billion or
more; and (iv) repurchase agreements with respect to the foregoing types of
securities. Repurchase agreements will be entered into only with dealers,
domestic banks or recognized financial institutions that in TMC's opinion
represent minimal credit risk. Investments in repurchase agreements are
limited to 5% of a Fund's net assets. See the next paragraph respecting
repurchase agreements. In addition, temporary taxable investments may exceed
20% of a Fund's net assets when made for defensive purposes during periods of
abnormal market conditions. None of the Municipal Funds expect to find it
necessary to make such temporary investments.
8
<PAGE>
Repurchase Agreements

Each Municipal Fund may enter into repurchase agreements with respect
to taxable securities constituting "temporary investments" in its portfolio.
A repurchase agreement is a contractual agreement whereby the seller of
securities agrees to repurchase the same security at a specified price on a
future date agreed upon by the parties. The agreed upon repurchase price
determines the yield during the Fund's holding period. Repurchase agreements
may be viewed as loans collateralized by the underlying security that is the
subject of the repurchase agreement. No Municipal Fund will enter into a
repurchase agreement if, as a result, more than 5% of the value of its net
assets would then be invested in repurchase agreements. The Funds will enter
into repurchase agreements only with dealers, banks or recognized financial
institutions that in the opinion of TMC represent minimal credit risk. The
risk to a Fund is limited to the ability of the seller to pay the agreed upon
repurchase price on the delivery date; however, although the value of the
underlying collateral at the time the transaction is entered into always
equals or exceeds the agreed upon repurchase price, if the value of the
subject security declines there is a risk of loss of both principal and
interest if the seller defaults. In the event of a default, the collateral
may be sold. A Fund might incur a loss if the value of the collateral has
declined, and the Fund might incur disposition costs or experience delays in
connection with liquidating the security. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the subject security by the Fund may be delayed or limited.
The Funds' investment adviser will monitor the value of the security at the
time the transaction is entered into and at all subsequent times during the
term of the repurchase agreement in an effort to determine that the value
always equals or exceeds the agreed upon repurchase price. In the event the
value of the subject security declines below the repurchase price, TMC will
demand additional securities from the seller to increase the value of the
property held to at least that of the repurchase price.

U.S. Government Obligations

Each Fund's temporary investments in taxable securities may include
obligations of the U.S. government. These include bills, certificates of
indebtedness, notes and bonds issued or guaranteed as to principal or
interest by the United States or by agencies or authorities controlled or
supervised by and acting as instrumentalities of the U.S. government and
established under the authority granted by Congress, including, but not
limited to, the Government National Mortgage Association, the Tennessee
Valley Authority, the Bank for Cooperatives, the Farmers Home Administration,
Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land
Banks, Farm Credit Banks and the Federal National Mortgage Association. Some
obligations of U.S. government agencies, authorities and other
instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others only by the credit of the issuing agency, authority or other
instrumentality. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment, and may not be
able to assert a claim against the United States itself in the event the
agency or instrumentality does not meet its commitments.
9
<PAGE>
Special Risks Affecting Limited Term California Fund

Due to Limited Term California Fund's policy of concentrating its
investments in municipal securities exempt from California personal income
taxes, this Fund will invest primarily in California state, municipal, and
agency obligations. For this reason, an investment in the Limited Term
California Fund may be considered riskier than an investment in the Limited
Term National Fund, which buys Municipal Obligations from throughout the
United States. Prospective investors should consider the risks inherent in
the investment concentration of the Limited Term California Fund before
investing.

California's economy is the largest among the 50 states and one of the
largest in the world. The state's July 1, 1995 population of approximately
32.1 million represents 12.2 percent of the total United States population
and total personal income in the state, at an estimated $810 billion in 1996,
accounts for 12.6 percent of all personal income in the nation. Total
employment is about 14.5 million, the majority of which is in the service,
trade and manufacturing sectors.

Changes in California constitutional and other laws raise questions
about the ability of California state and municipal issuers to obtain
sufficient revenue to pay their bond obligations in all situations. In 1978,
California voters approved an amendment to the California Constitution known
as Proposition 13, which has had an affect on California issuers that rely in
whole or in part, directly or indirectly, on ad valorem real property taxes
as a source of revenue. Proposition 13 limits ad valorem taxes on real
property and restricts the ability of taxing entities to increase real
property taxes. In 1979, California voters approved another constitutional
amendment, Article XIIIB, which may have an adverse impact on California
state and municipal issuers. Article XIIIB prohibits government agencies and
the state from spending "appropriations subject to limitation" in excess of
the appropriations limit imposed. "Appropriations subject to limitation" are
authorizations to spend "proceeds of taxes", which consist of tax revenues,
certain state subventions and certain other funds, including proceeds from
regulatory licenses, user charges or other fees to the extent that such
proceeds exceed "the cost reasonably borne by such entity in providing the
regulation, product or service". No limit is imposed on appropriations of
funds which are not "proceeds of taxes", such as debt service on indebtedness
existing or authorized before January 1, 1979, or subsequently authorized by
the voters, appropriations required to comply with mandates of the courts or
the federal government, reasonable user charges or fees and certain other
non-tax funds. The amendment restricts the spending authority of state and
local government entities. If revenues exceed such appropriations limits,
such revenues must be returned either as revisions in the tax rate or fee
schedules.

California obtains roughly 45% of general fund revenues from personal
income taxes (individual and corporate) compared to an average of only 30%
for other states. Income taxes serve as a bellwether which is frequently a
leading indicator of economic weakness. Much of California's recent deficit
was caused by lower than projected income tax receipts. California's other
principal revenue source is sales taxes.
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A recession began in mid-1990 due largely to job losses in the aerospace
and defense-related industries. The 1993 unemployment rate of 9.4% was 135%
of the national rate. The recession affected California's General Fund
revenues, and increased expenditures above initial budget appropriations due
to greater health and welfare costs. The state's budget problems in recent
years have also been caused by a structural imbalance in that the largest
General Fund Programs -- K-12 education, health, welfare and corrections --
were increasing faster than the revenue base, driven by the state's rapid
population growth. These pressures are expected to continue as population
trends maintain strong demand for health and welfare services, as the school
age population continues to grow, and as the state's corrections program
responds to a "Three-Strikes" law enacted in 1994, which requires mandatory
life prison terms for certain third-time felony offenders.

As a result of these factors and others, from the late 1980's until
1992-'93, the state had a period of budget imbalance. During this period,
expenditures exceeded revenues in four out of six years, and the state
accumulated and sustained a budget deficit approaching $2.8 billion at its
peak at June 30, 1993. Starting in the 1990-'91 fiscal year and for each
fiscal year thereafter, each budget required multibillion dollar actions to
bring projected revenues and expenditures into balance. The Legislature and
Governor agreed on the following principal steps to produce Budget Acts in
the years 1991-'92 to 1994-'95, including:

* significant cuts in health and welfare program expenditures;

* transfers of program responsibilities and funding from the state to
local governments (referred to as "realignment"), coupled with some reduction
in mandates on local government;

* transfer of about $3.6 billion in local property tax revenues from
cities, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing state funding for schools under
Proposition 98;

* reduction in growth of support for higher education programs, coupled
with increases in student fees;

* maintenance of the minimum Proposition 98 funding guarantee for K-12
schools, and the disbursement of additional funds to keep a constant level of
about $4,200 per K-12 pupil;

* revenue increases (particularly in the 1991-'92 fiscal year budget),
most of which were for a short duration;

* increased reliance on aid from the federal government to offset the
costs of incarcerating, educating and providing health and welfare services
to illegal immigrants, although during this time frame most of the additional
aid requested by the administration was not received; and

* various one-time adjustments and accounting changes.

Despite these budget actions as noted, the effects of the recession led to
large, unanticipated deficits in the budget reserve as compared to projected
positive balances. By the 1993-'94 fiscal year, the accumulated deficit was
so large that it was impractical to budget to retire it in one year, so a
two-year program was implemented, using the issuance of revenue anticipation
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warrants to carry a portion of the deficit over the end of the fiscal year.
When the economy failed to recover sufficiently in 1993-'94, a second two-
year plan was implemented in 1994-'95, again using cross-fiscal year revenue
anticipation warrants to partly finance the deficit into the 1995-'96 fiscal
year.

With strengthening revenues and reduced social services caseload growth
based on an improving economy, the state entered the 1995-'96 fiscal year
budget negotiations with the smallest nominal "budget gap" to be closed in
many years. Nonetheless, serious policy differences between the Governor and
Legislature prevented timely enactment of the budget. The 1995-'96 Budget
Act was signed by the Governor on August 3, 1995, 34 days after the start of
the fiscal year. Due to an economy which was stronger than expected, the
General Fund received $2.2 billion more tax revenues than planned for in the
1995-'96 budget. This allowed the state to increase school, health and
welfare spending and still post a positive balance of $685 million to the
Adjusted fund Balance as of June 30, 1996.

The state continues to see healthy growth. Personal income is estimated
to be growing at an annual rate of about 6.8%. Revenues and transfers for
the state in the 1996-'97 fiscal year are estimated to have been about 48.9
billion while expenditures are estimated to have been about 48.9 billion.
This should allow the state to post a positive cash balance in the Fund for
Economic Uncertainty ("SFEU") for only the second time in the 1990's.

On August 18, 1997, the Governor signed the 1997 Budget Act. The Act
anticipates General Fund revenues and transfers of about $52.5 billion, a
6.8% increase over the previous year, and expenditures of $52.5 billion, an
8% increase. The SFEU is expected to decline about $112 million.

TAXABLE INCOME FUNDS

Government Fund and Income Fund (the "Taxable Income Funds") each has
the primary investment objective of providing, through investment in a
professionally managed portfolio of fixed income obligations as high a level
of current income as is consistent, in TMC's view, with safety of capital.
The Government Fund will seek to achieve its primary investment objective by
investing primarily in obligations issued or guaranteed by the U.S.
government or by its agencies or instrumentalities and in participations in
such obligations or in repurchase agreements secured by such obligations.
The Income Fund will seek to achieve its primary objective by investing in
primarily in investment grade short and intermediate maturity bonds and asset
backed securities such as mortgage backed securities and collateralized
mortgage obligations. The Income Fund also may invest in other securities,
and utilize other investment strategies to hedge market risks, manage cash
positions or to enhance potential gain. Additionally, each of the Taxable
Income Funds has the secondary objective of reducing fluctuations in its net
asset value compared to longer term portfolios, and will seek to attain this
objective by investing in obligations with an expected dollar-weighted
average maturity of normally not more than five years.
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Determining Portfolio Average Maturity - Government Fund and Income Fund

For purposes of each Taxable Income Fund's investment policy, an
instrument will be treated as having a maturity earlier than its stated
maturity date if the instrument has technical features (such as put or demand
features) or a variable rate of interest which, in the judgment of TMC, will
result in the instrument being valued in the market as though it has an
earlier maturity.

In addition, each Taxable Income Fund may estimate the expected
maturities of certain securities it purchases in connection with achieving
its investment objectives. Certain obligations such as Treasury Bills and
Notes have stated maturities. However, certain obligations a Fund may
acquire, such as GNMA certificates, are interests in pools of mortgages or
other loans having varying maturities.

Due to prepayments of the underlying mortgage instruments or other
loans, such asset-backed securities do not have a known actual maturity (the
stated maturity date of collateralized mortgage obligations is, in effect,
the maximum maturity date). In order to determine whether such a security is
a permissible investment for a Fund (and assuming the security otherwise
qualifies for purchase by the Fund), the security's remaining term will be
deemed equivalent to the estimated average life of the underlying mortgages
at the time of purchase of the security by the Fund. Average life will be
estimated by the Fund based on TMC's evaluation of likely prepayment rates
after taking into account current interest rates, current conditions in the
relevant housing markets and such other factors as it deems appropriate.
There can be no assurance that the average life as estimated will be the
actual average life.

Purchase of Certificates of Deposit - Government Fund and Income Fund

In addition to the other securities each Taxable Income Fund may
purchase, each Taxable Income Fund is authorized to purchase bank
certificates of deposit under certain circumstances. The Government Fund may
under certain market conditions invest up to 20% of its assets in (i) time
certificates of deposit maturing in one year or less after the date of
acquisition which are issued by United States banks having assets of
$1,000,000,000 or more, and (ii) time certificates of deposit insured as to
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principal by the Federal Deposit Insurance Corporation. If any certificate of
deposit (whether or not insured in whole or in part) is nonnegotiable, and it
matures in more than 7 days, it will be considered illiquid, and subject to
the Government Fund's fundamental investment restriction that no more than
10% of the Fund's net assets will be placed in illiquid investments.

Asset-Backed Securities - Government Fund and Income Fund

Each of the Funds may invest in asset-backed securities, which are
interests in pools in loans, described in the Prospectus.

Mortgage-Backed Securities and Mortgage Pass-Through Securities

If otherwise consistent with its investment restrictions and the
Prospectus, each Taxable Income Fund may invest in mortgage-backed
securities, which are interests in pools of mortgage loans, including
mortgage loans made by savings and loan institutions, mortgage bankers,
commercial banks and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related
and private organizations as further described below. A Fund also may invest
in debt securities which are secured with collateral consisting of mortgage
- -backed securities (see "Collateralized Mortgage Obligations"), and in other
types of mortgage-related securities.

A decline in interest rates may lead to a faster rate of repayment of
the underlying mortgages, and expose the Fund to a lower rate or return upon
reinvestment of the prepayments. Additionally, the potential for prepayments
in a declining interest rate environment will tend to limit to some degree
the increase in net asset value of the Fund because the value of the
mortgage-backed securities held by the Fund may not appreciate as rapidly as
the price of non-callable debt securities. During periods of increasing
interest rates, prepayments likely will be reduced, and the value of the
mortgage-backed securities will decline.
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Interests in pools of mortgage-backed securities differ from other forms
of debt securities, which normally provide for periodic payment of interest
in fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on
their mortgage loans, net of any fees paid to the issuer or insurer of such
securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying property, or upon refinancing or
foreclosure, net of fees or costs which may be incurred. Some
mortgage-related securities (such as securities issued by the Government
National Mortgage Association) are described as "modified pass-through."
These securities entitle the holder to receive all interest and principal
payments owed on the mortgage pool, net of certain fees, on the scheduled
payment dates regardless of whether or not the mortgagor actually makes the
payment.

Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional mortgage loans. Such issuers may,
in addition, be the originators and/or servicers of the underlying mortgage
loans as well as the guarantors of the mortgage-related securities. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments. Such pools
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may be purchased by the Income Fund, but will not be purchased by the
Government Fund. Timely payment of interest and principal of these pools may
be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of credit. The
insurance and guarantees are issued by governmental entities, private
insurers and the mortgage poolers. Such insurance and guarantees and the
creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-related security meets the Income Fund's investment
quality standards. There can be no assurance that the private insurer or
guarantors can meet their obligations under the insurance policies or
guarantee arrangements. The Income Fund may buy mortgage-related securities
without insurance or guarantees, if through an examination of the loan
experience and practices of the originators/servicers and poolers, TMC
determines that the securities meet the Income Fund's quality standards.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.

Collateralized Mortgage Obligations ("CMO's")

Criteria for the mortgage loans in the pool backing the CMO's are
identical to those of FHLMC PC's. FHLMC has the right to substitute
collateral in the event of delinquencies or defaults.

Other Mortgage-Backed Securities

TMC expects that governmental, government-related or private entities
may create mortgage loan pools and other mortgage-related securities offering
mortgage pass-through and mortgage-collateralized investments in addition to
those described above. The mortgages underlying these securities may include
alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payments may vary or whose terms to maturity may differ
from customary long-term fixed rate mortgages. Neither the Government Fund
nor the Income Fund will purchase mortgage-backed securities or any other
assets which, in the opinion of TMC, are illiquid and exceed, as a percentage
of the Fund's assets, the percentage limitations on the Fund's investment in
securities which are not readily marketable, as discussed below. TMC will,
consistent with the Funds' respective investment objectives, policies and
quality standards, consider making investments in such new types of
mortgage-related securities.

Other Asset-Backed Securities

The securitization techniques used to develop mortgage-backed securities
are now being applied to a broad range of assets. Through the use of trusts
and special purpose corporations, various types of assets, including
automobile loans, computer leases and credit card receivables, are being
securitized in pass-through structures similar to the mortgage pass-through
structures described above or in structures similar to the CMO pattern.
Consistent with the Funds' respective investment objectives and policies,
each Fund may invest in these and other types of asset-backed securities that
may be developed in the future. In general, the collateral supporting these
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments with interest rate fluctuations.
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Several types of asset-backed securities have already been offered to
investors, including Certificates of Automobile Receivables ("CARS"). CARS
represent undivided fractional interests in a trust whose assets consist of a
pool of motor vehicle retail installment sales contracts and security
interests in the vehicles securing the contracts. Payments of principal and
interests on CARS are passed through monthly to certificate holders, and are
guaranteed up to certain amounts and for a certain time period by a letter of
credit issued by a financial institution unaffiliated with the trustee or
originator of the trust. An investor's return on CARS may be affected by
early prepayment of principal on the underlying vehicle sales contracts. If
the letter of credit is exhausted, the trust may be prevented from realizing
the full amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage
or loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.

The Income Fund may also invest in residual interests in asset-backed
securities. In the case of asset-backed securities issued in a pass-through
structure, the cash flow generated by the underlying assets is applied to
make required payments on the securities and to pay related administrative
expenses. The residual in an asset-backed security pass-through structure
represents the interest in any excess cash flow remaining after making the
foregoing payments. The amount of the residual will depend on, among other
things, the characteristics of the underlying assets, the coupon rates on the
securities, prevailing interest rates, the amount of administrative expenses
and the actual prepayment experience on the underlying assets. Asset-backed
security residuals not registered under the Securities Act of 1933 may be
subject to certain restrictions on transferability. In addition, there may
be no liquid market for such securities.
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The availability of asset-backed securities may be affected by
legislative or regulatory developments. It is possible that such
developments may require a Fund holding these securities to dispose of the
securities.

Repurchase Agreements - Government Fund and Income Fund

Either Taxable Income Fund may enter into repurchase agreements with
member banks of the Federal Reserve System or any domestic broker-dealer
which is recognized as a reporting government securities dealer if the
creditworthiness of the bank or broker-dealer has been determined by TMC to
be at least as high as that of other obligations the purchasing Fund may
purchase or at least equal to that of issuers of commercial paper rated
within the two highest grades assigned by Moody's or S&P. These transactions
may not provide the purchasing Fund with collateral marked-to-market during
the term of the commitment.

A repurchase agreement, which provides a means for a Fund to earn income
on funds for periods as short as overnight, is an arrangement under which
the Fund purchases a security ("Obligation") and the seller agrees, at the
time of sale, to repurchase the Obligation at a specified time and price.
The repurchase price may be higher than the purchase price, the difference
being interest at a stated rate due to the Fund together with the repurchase
price on repurchase. In either case, the income to the Fund is unrelated to
the interest rate on the Obligation. Obligations will be held by the Fund's
custodian or in the Federal Reserve Book Entry System.

For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the purchasing Fund to the seller of the Obligations subject to the
repurchase agreement and is therefore subject to that Fund's investment
restriction applicable to loans. It is not clear whether a court would
consider the Obligation purchased by a Fund subject to a repurchase agreement
as being owned by the Fund or as being collateral for a loan by the Fund to
the seller. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, the Fund may encounter delay and
incur costs before being able to sell the security. Delays may involve loss
of interest or decline in the price of the Obligation. If the court
characterized the transaction as a loan and the Fund has not perfected a
security interest in the Obligation, the Fund may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of
the seller. As an unsecured creditor, the Fund would be at risk of losing
some or all of the principal and income involved in the transaction. As with
any unsecured debt obligation purchased for the Fund, TMC seeks to minimize
the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the Obligation, in which case
the purchasing Fund may incur a loss if the proceeds to the Fund of the sale
to a third party are less than the repurchase price. However, if the market
value (including interest) of the Obligation subject to the repurchase
agreement becomes less than the repurchase price (including interest), the
Fund will direct the seller of the Obligation to deliver additional
securities so that the market value (including interest) of all securities
subject to the repurchase agreement will equal or exceed the repurchase
price. It is possible that the Fund will be unsuccessful in seeking to
impose on the seller a contractual obligation to deliver additional
securities.
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When Issued Securities - Government Fund and Income Fund

Either Taxable Income Fund may purchase securities offered on a
"when-issued" or "forward delivery" basis. When so offered, the price, which
is generally expressed in yield terms, is fixed at the time the commitment to
purchase is made, but delivery and payment for the when-issued or forward
delivery securities take place at a later date. During the period between
purchase and settlement, no payment is made by the purchaser to the issuer
and no interest on the when-issued or forward delivery security accrues to
the purchaser. To the extent that assets of a Fund are not invested prior to
the settlement of a purchase of securities, the Fund will earn no income;
however, it is intended that each Fund will be fully invested to the extent
practicable and subject to the Fund's investment policies. While when-issued
or forward delivery securities may be sold prior to the settlement date, it
is intended that each Fund will purchase such securities with the purpose of
actually acquiring them unless sale appears desirable for investment reasons.
At the time a Fund makes the commitment to purchase a security on a
when-issued or forward delivery basis, it will record the transaction and
reflect the value of the security in determining its net asset value. The
market value of when-issued or forward delivery securities may be more or
less than the purchase price. Neither Fund believes that its net asset
value or income will be adversely affected by its purchase of securities on a
when-issued or forward delivery basis. Each Fund will establish a segregated
account for commitments for when-issued or forward delivery securities as
described above.

Reverse Repurchase Agreements - Government Fund and Income Fund

Either Taxable Income Fund may enter into reverse repurchase agreements
by transferring securities to another person in return for proceeds equal to
a percentage of the value of the securities, subject to its agreement to
repurchase the securities from the other person for an amount equal to the
proceeds plus an interest amount. Neither Fund will enter into any such
transaction if, as a result, more than 5% of the Fund's total assets would
then be subject to reverse repurchase agreements. See the "Investment
Restrictions" applicable to each Fund, below.

Dollar Roll Transactions - Government Fund and Income Fund

Either Taxable Income Fund may enter into "dollar roll" transactions,
which consist of the sale by the Fund to a bank or broker-dealer (the
"counterparty") of GNMA certificates or other mortgage-backed securities
together with a commitment to purchase from the counterparty similar, but not
identical, securities at a future date at the same price. The counterparty
receives all principal and interest payments, including prepayments, made on
the security while it is the holder. The selling Fund receives a fee from
the counterparty as consideration for entering into the commitment to
purchase. Dollar rolls may be renewed over a period of several months with a
new purchase and repurchase price fixed and a cash settlement made at each
renewal without physical delivery of securities. Moreover, the transaction
may be preceded by a firm commitment agreement pursuant to which the Fund
agrees to buy a security on a future date.
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Dollar rolls are treated for purposes of the Investment Company Act of
1940 (the "1940 Act") as borrowings of the Fund entering into the transaction
because they involve the sale of a security coupled with an agreement to
repurchase, and are subject to the investment restrictions applicable to any
borrowings made by the Fund. Like all borrowings, a dollar roll involves
costs to the borrowing Fund. For example, while the Fund receives a fee as
consideration for agreeing to repurchase the security, the Fund forgoes the
right to receive all principal and interest payments while the counterparty
holds the security. These payments to the counterparty may exceed the fee
received by the Fund, thereby effectively charging the Fund interest on its
borrowing. Further, although the Fund can estimate the amount of expected
principal prepayment over the term of the dollar roll, a variation in the
actual amount of prepayment could increase or decrease the cost of the Fund's
borrowing.

Dollar rolls involve potential risks of loss to the selling Fund which
are different from those related to the securities underlying the
transactions. For example, if the counterparty becomes insolvent, the Fund's
right to purchase from the counterparty may be restricted. Additionally, the
value of such securities may change adversely before the Fund is able to
purchase them. Similarly, the Fund may be required to purchase securities in
connection with a dollar roll at a higher price than may otherwise be
available on the open market. Since, as noted above, the counterparty is
required to deliver a similar, but not identical security to the Fund, the
security which the Fund is required to buy under the dollar roll may be worth
less than an identical security. Finally, there can be no assurance that the
Fund's use of the cash that it receives from a dollar roll will provide a
return that exceeds borrowing costs.

Lending of Portfolio Securities - Government Fund and Income Fund

Each Taxable Income Fund may seek to increase its income by lending
portfolio securities. Under present regulatory policies, including those of
the Board of Governors of the Federal Reserve System and the Securities and
Exchange Commission, such loans may be made to member firms of the New York
Stock Exchange, and would be required to be secured continuously by
collateral in cash, cash equivalents or U.S. Treasury bills maintained on a
current basis at an amount at least equal to the market value and accrued
interest of the securities loaned. The lending Fund would have the right to
call a loan and obtain the securities loaned on no more than five days'
notice. During the existence of a loan, the Fund would continue to receive
the equivalent of the interest paid by the issuer on the securities loaned
and would also receive compensation based on investment of the collateral.
As with other extensions of credit there are risks of delay in recovery or
even loss of rights in the collateral should the borrower of the securities
fail financially. However, the loans would be made only to firms deemed by
TMC to be of good standing, and when, in the judgment of TMC, the
consideration which can be earned currently from securities loans of this
type justifies the attendant risk.

Other Investment Strategies - Income Fund

The Income Fund may, but is not required to, utilize various other
investment strategies as described below to hedge various market risks (such
as interest rates, currency exchange rates, and broad or specific equity
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market movements), to manage the effective maturity or duration of
fixed-income securities or portfolios, or to enhance potential gain. Such
strategies are used by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new investments and
strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, the Income Fund
may purchase and sell exchange-listed and over-the-counter put and call
options on securities, financial futures, equity and fixed-income indices and
other financial instruments, purchase and sell financial futures contracts,
enter into various interest rate transactions such as swaps, caps, floors or
collars, and enter into various currency transactions such as currency
forward contracts, currency futures contracts, currency swaps or options on
currency or currency futures (collectively, all the above are called
"Strategic Transactions"). Strategic Transactions may be used to attempt to
protect against possible changes in the market value of securities held in or
to be purchased for the Income Fund's portfolio resulting from securities
markets or currency exchange rate fluctuations, to protect the Fund's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities for investment purposes, to manage the effective
maturity or duration of the Fund's portfolio, or to establish a position in
the derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to
enhance potential gain although no more than 5% of the Fund's assets will be
committed to Strategic Transactions entered into for purposes not related to
bona fide hedging or risk management. Any or all of these investment
techniques may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, as use of any
Strategic Transaction is a function of numerous variables including market
conditions. The ability of the Income Fund to utilize these Strategic
Transactions successfully will depend on TMC's ability to predict pertinent
market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments.

Strategic Transactions have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to
the extent TMC's view as to certain market movements is incorrect, the risk
that the use of such Strategic Transactions could result in losses greater
than if they had not been used. Use of put and call options may result in
losses to the Income Fund, force the sales of portfolio securities at
inopportune times or for prices higher than (in the case of put options) or
lower than (in the case of call options) current market values, limit the
amount of appreciation the Fund can realize on its investments or cause the
Fund to hold a security it might otherwise sell. The use of currency
transactions can result in the Fund incurring losses as a result of a number
of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency.
The use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of
the Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures
and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without
incurring substantial losses, if at all. Although the contemplated use of
these futures contracts and options thereon should tend to minimize the risk
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of loss due to a decline in the value of the hedged position, at the same
time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited
to the cost of the initial premium. Losses resulting from the use of
Strategic Transactions would reduce net asset value, and possibly income, and
such losses can be greater than if the Strategic Transactions had not been
utilized.

General Characteristics of Options - Income Fund

With certain exceptions, OCC and exchange listed options generally
settle by physical delivery of the underlying security or currency, although
in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, to the
extent the option is "in-the-money" (i.e., where the value of the underlying
instrument exceeds, in the case of a call option, or is less than, in the
case of a put option, the exercise price of the option) at the time the
option is exercised. Frequently, rather than taking or making delivery of
the underlying instrument through the process of exercising the option,
listed options are closed by entering into offsetting purchase or sale
transactions that do not result in ownership of the new option.
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The Income Fund's ability to close out its position as a purchaser or
seller of an OCC or exchange listed put or call option is dependent, in part,
upon the liquidity of the option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions
imposed by an exchange; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options
or underlying securities including reaching daily price limits; (iv)
interruption of the normal operations of the OCC or an exchange; (v)
inadequacy of the facilities of an exchange or OCC to handle current trading
volume; or (vi) a decision by one or more exchanges to discontinue the
trading of options (or a particular class or series of options), in which
event the relevant market for that option on that exchange would cease to
exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails
to make or take delivery of the security, currency or other instrument
underlying an OTC option it has entered into with the Income Fund or fails to
make a cash settlement payment due in accordance with the terms of that
option, the Fund will lose any premium it paid for the option as well as any
anticipated benefit of the transaction. Accordingly, TMC must assess the
creditworthiness of each Counterparty or any guarantor or credit enhancement
of the Counterparty's credit to determine the likelihood that the terms of
the OTC option will be satisfied. The Income Fund will engage in OTC option
transactions only with United States government securities dealers recognized
by the Federal Reserve Bank in New York as "primary dealers," broker dealers,
domestic or foreign banks or other financial institutions which have received
a short-term credit rating of "A-1" from Standard & Poor's Corporation or
"P-1" from Moody's Investor Services or have been determined by TMC to have
an equivalent credit rating. The staff of the SEC currently takes the
position that the amount of the Income Fund's obligation pursuant to an OTC
option is illiquid, and is subject to the Income Fund's limitation on
investing no more than 15% its assets in illiquid instruments.

If the Income Fund sells a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the Fund's income. The sale of put options can
also provide income.
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The Income Fund may purchase and sell call options on U.S. Treasury and
agency securities, foreign sovereign debt, mortgage-backed securities,
corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets and related futures
on such securities other than futures on individual corporate debt and
individual equity securities. All calls sold by the Fund must be "covered"
or must meet the asset segregation requirements described below as long as
the call is outstanding (i.e., the Fund must own the securities or futures
contract subject to the call). Even though the Fund will receive the option
premium to help protect it against loss, a call sold by the Fund exposes the
Fund during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security and may require
the Fund to hold a security which it might otherwise have sold.

General Characteristics of Futures - Income Fund

The Income Fund may purchase and sell financial futures contracts or
purchase put and call options on such futures as a hedge against anticipated
interest rate, currency or equity market changes, for duration management and
for risk management purposes. Futures are generally bought and sold on the
commodities exchanges where they are listed with payment of initial and
variation margin as described below. The sale of a futures contract creates
a firm obligation by the Fund, as seller, to deliver the specific type of
financial instrument called for in the contract at a specific future time for
a specified price (or, with respect to index futures and Eurodollar
instruments, the net cash amount). Options on futures contracts are similar
to options on securities except that an option on a futures contract gives
the purchaser the right in return for the premium paid to assume a position
in a futures contract.

The Income Fund's use of financial futures and options thereon will in
all cases be consistent with applicable regulatory requirements and in
particular the rules and regulations of the Commodity Futures Trading
Commission and will be entered into only for bona fide hedging, risk
management (including duration management) or other portfolio management
purposes. Typically, maintaining a futures contract or selling an option
thereon requires the Fund to deposit with a financial intermediary as
security for its obligations an amount of cash or other specified assets
(initial margin) which initially is typically 1% to 5% of the face amount of
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the contract, but may be higher in some circumstances. Additional cash or
assets (variation margin) may be required to be deposited thereafter on a
daily basis as the mark to market value of the contract fluctuates. The
purchase of options on financial futures involves payment of a premium for
the option without any further obligation on the part of the Fund. If the
Fund exercises an option on a futures contract it will be obligated to post
initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position. Futures contracts and
options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position will be offset
prior to settlement and that delivery will not occur.

Options on Securities Indices and Other Financial Indices - Income Fund

Currency Transactions - Income Fund

The Income Fund may engage in currency transactions with Counterparties
in order to hedge the value of currencies against fluctuations in relative
value. Currency transactions include forward currency contracts, exchange
listed currency futures, exchange listed and OTC options on currencies, and
currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell ( with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time
of the contract. A currency swap is an agreement to exchange cash flows
based on the notional difference among two or more currencies and operates
similarly to an interest rate swap, which is described below.
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The Income Fund's dealings in forward currency contracts and other
currency transactions such as futures, options, options on futures and swaps
will be limited to hedging involving either specific transactions or
portfolio positions. Transactions hedging is entering into a currency
transaction with respect to specific assets or liabilities of the Fund, which
will generally arise in connection with the purchase or sale of its portfolio
securities. Position hedging is entering into a currency transaction with
respect to portfolio security positions denominated or generally quoted in
that currency.

To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Income Fund may also
engage in proxy hedging. Proxy hedging is often used when the currency to
which the Fund's portfolio is exposed is difficult to hedge or to hedge
against the dollar. Proxy hedging entails entering into a forward contract
to sell a currency whose changes in value are generally considered to be
linked to a currency or currencies in which some or all of the Fund's
portfolio securities are or are expected to be denominated, and to buy U.S.
dollars. The amount of the contract would not exceed the value of the Fund's
securities denominated in linked currencies. For example, if TMC considers
the Austrian schilling is linked to the German Deutschemark (the "D-mark"),
the Fund holds securities denominated in Austrian schillings and TMC believes
that the value of schillings will decline against the U.S. dollar, TMC may
enter into a contract to sell D-marks and buy dollars. Hedging involves some
of the same risks and considerations as other transactions with similar
instruments. Currency transactions can result in losses to the Fund if the
currency being hedged fluctuates in value to a degree or in a direction that
is not anticipated. Further, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during
the particular time that the Fund is engaging in proxy hedging. If the Fund
enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.

Risks of Currency Transactions - Income Fund

Currency transactions are subject to risks different from other
transactions. Because currency control is of great importance to the issuing
governments and influences economic planning and policy, purchases and sales
of currency and related instruments can be negatively affected by government
exchange controls, blockages, and manipulations or exchange restrictions
imposed by governments. These can result in losses to the Income Fund if it
is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
ineffective, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
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<PAGE>
same risks that apply to the use of futures generally. Further, settlement
of a currency futures contract for the purchase of most currencies must occur
at a bank based in the issuing nation. Trading options on currency futures
is relatively new, and the ability to establish and close out positions on
such options is subject to the maintenance of a liquid market which may not
always be available. Currency exchange rates may fluctuate based on factors
extrinsic to the issuing country's economy.

Combined Transactions - Income Fund

The Income Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and any combination of
futures, options and currency transactions ("combined" transactions), instead
of a single Strategic Transaction, as part of a single or combined strategy
when, in the opinion of TMC, it is in the best interests of the Fund to do
so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined
transactions are normally entered into based on TMC's judgment that the
combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination
will instead increase such risks or hinder achievement of the portfolio
management objective.

Swaps, Caps, Floors and Collars - Income Fund

Among the Strategic Transactions into which the Income Fund may enter
are interest rate, currency and index swaps and the purchase or sale of
related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a
later date. The Income Fund intends to use these transactions as hedges and
not as speculative investments and will not sell interest rate caps or floors
where it does not own securities or other instruments providing the income
stream the Fund may be obligated to pay. An interest rate swap is an
agreement between two parties to exchange payments that are based on
specified interest rates and a notional amount. The exchange takes place
over a specified period of time. A currency swap is an agreement to exchange
cash flows on a notional amount of two or more currencies based on the
relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. Although swaps can take a variety of forms, typically one
party pays fixed and receives floating rate payments and the other party
receives fixed and pays floating rate payments. An interest rate cap is an
agreement between two parties over a specified period of time where one party
makes payments to the other party equal to the difference between the current
level of an interest rate index and the level of the cap, if the specified
interest rate index increases above the level of the cap. An interest rate
floor is similar except the payments are the difference between the current
level of an interest rate index and the level of the floor if the specified
interest rate index decreases below the level of the floor. An interest rate
collar is the simultaneous execution of a cap and floor agreement on a
particular interest rate index. The purchase of a cap entitles the purchaser
to receive payments on a notional principal amount from the party selling the
cap to the extent that a specified index exceeds a predetermined interest
rate or amount. Purchase of a floor entitles the purchaser to receive
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payments on a notional principal amount from the party selling the floor to
the extent that a specified index falls below a predetermined interest rate
or amount. A collar is a combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates or values.

The Income Fund may enter into swaps, caps, floors or collars on either
an asset-based or liability-based basis, depending on whether it is hedging
its assets or its liabilities, and will usually enter into swaps on a net
basis, i.e., the two payment streams are netted out in a cash settlement on
the payment date or dates specified in the instrument, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Inasmuch as these swaps, caps, floors and collars are entered into
for good faith hedging purposes, TMC and the Fund believe such obligations do
not constitute senior securities under the 1940 Act and, accordingly, will
not treat them as being subject to its borrowing restrictions. The Fund will
not enter into any swap, cap, floor or collar transaction unless, at the time
of entering into the transaction, the unsecured long term debt rating of the
Counterparty combined with any credit enhancements, satisfies credit criteria
established by the Trust's trustees. If there is a default by the
Counterparty, the Fund will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and agents utilizing standardized
swap documentation. As a result, the swap market has become relatively
liquid. Caps, floors and collars are more recent innovations for which
standardized documentation has not yet been fully developed and, accordingly,
they are less liquid than swaps.

Eurodollar Instruments - Income Fund

Risks of Strategic Transactions Outside the United States - Income Fund

When constructed outside the United States, Strategic Transactions may
not be regulated as rigorously as in the United States, may not involve a
clearing mechanism and related guarantees, and are subject to the risk of
governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions
also could be adversely affected by: (i) other complex foreign political,
legal and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the Income
Fund's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States, (iv) the imposition of
different exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lower trading volume and
liquidity.
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Use of Segregated and Other Special Accounts - Income Fund

Some transactions which the Income Fund may enter into, including many
Strategic Transactions, require that the Income Fund segregate liquid high
grade debt assets with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. Transactions which require segregation include
reverse repurchase agreements, dollar rolls, undertakings by the Fund to
purchase when-issued securities, the Fund's sales of put or call options, the
Fund's sales of futures contracts, currency hedging transactions (including
forward currency contracts, currency futures and currency swaps) and swaps,
floors and collars to the extent of the Fund's uncovered obligation under the
transaction. In general, the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or an amount of
cash or liquid high grade debt securities at least equal to the current
amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them.
For example, a call option written by the Fund will require the Fund to hold
the securities without additional consideration or to segregate liquid
high-grade assets sufficient to purchase and deliver the securities if the
call is exercised. A call option sold by the Fund on an index will require
the Fund to own portfolio securities which correlate with the index or to
segregate liquid high grade debt assets equal to the excess of the index
value over the exercise price on a current basis. A put option written by
the Fund requires the Fund to segregate liquid, high grade assets equal to
the exercise price.

OTC options entered into by the Income Fund, including those on
securities, currency, financial instruments or indices, OCC issued and
exchange listed index options, swaps, caps, floors and collars will generally
provide for cash settlement. As a result, with respect to these instruments
the Fund will only segregate an amount of assets equal to its accrued net
obligations, as there is no requirement for payment or delivery of amounts in
excess of the net amount. These amounts will equal 100% of the exercise
price in the case of a put, or the in-the-money amount in the case of a call.
In addition, when the Fund sells a call option on an index at a time when
the in-the-money amount exceeds the exercise price, the Fund will segregate,
until the option expires or is closed out, cash or cash equivalents equal in
value to such excess. Other OCC issued and exchange listed options sold by
the Fund, other than those above, generally settle with physical delivery,
and the Fund will segregate an amount of assets equal to the full value of
the option. OTC options settling with physical delivery, if any, will be
treated the same as other options settling with physical delivery.

In the case of a futures contract or an option thereon, the Income Fund
must deposit initial margin and possible daily variation margin in addition
to segregating assets sufficient to meet its obligation to purchase or
provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such assets may consist of cash, cash
equivalents, or high grade liquid debt instruments.
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With respect to swaps, the Income Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid high
grade securities having a value equal to the accrued excess. Caps, floors
and collars require segregation of assets with a value equal to the Fund's
net obligation, if any.

Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Income Fund may also enter into
offsetting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options
and Strategic Transactions. For example, the Fund could purchase a put
option if the strike price of that option is the same or higher than the
strike price of a put option sold by the Fund. Moreover, instead of
segregating assets if the Fund held a futures or forward contract, it could
purchase a put option on the same futures or forward contract with a strike
price as high or higher than the price of the contract held. Other Strategic
Transactions may also be offset in combinations. If the offsetting
transaction terminates at the time of or after the primary transaction, no
segregation is required. If it terminates prior to that time, assets equal
to any remaining obligation would need to be segregated.

Foreign Securities - Income Fund

The Income Fund may invest in securities of foreign issuers. Investing
in foreign issuers involves certain special considerations, including those
set forth below, which are not typically associated with investing in United
States issuers. As foreign companies are not generally subject to uniform
accounting and auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic companies, there may
be less publicly available information about a foreign company than a
domestic company. Volume and liquidity in most foreign bond markets is less
than in the United States and, at times, volatility of price can be greater
than in the United States. There is generally less government supervision
and regulation of brokers and listed companies than in the United States.
Mail service between the United States and foreign countries may be slower or
less reliable than within the United States, thus increasing the risk of
delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. Securities issued or guaranteed by foreign national
governments, their agencies, instrumentalities, or political subdivisions,
may or may not be supported by the full faith and credit and taxing power of
the foreign government. The Income Fund's ability and decisions to purchase
and sell portfolio securities may be affected by laws or regulations relating
to the convertability and repatriation of assets. Further, it may be more
difficult for the Fund's agents to keep currently informed about corporate
actions which may affect the prices of portfolio securities. In addition,
with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect United States investments in those
countries, and it may be more difficult to obtain and enforce a judgment
against a foreign issuer. Foreign securities may be subject to foreign
government taxes which will reduce the yield on such securities.
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VALUE FUND

The following discussion supplements the disclosures in the Prospectus
respecting Value Fund's investment policies, techniques and investment
limitations.

Illiquid Investments - Value Fund

Illiquid investments are investments that cannot be sold or disposed of
in the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Trustees, TMC determines the
liquidity of the Fund's investments and, through reports from TMC, the
Trustees monitor investments in illiquid instruments. In determining the
liquidity of the Fund's investments, TMC may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or lender features), and (5) the nature of the market place for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment).

Restricted Securities - Value Fund

Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
required, the Fund could be obligated to pay all or part of the registration
expense and a considerable period may elapse between the time it decides to
seek registration and the time it is permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to seek registration of the security.
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Swap Agreements - Value Fund

Swap agreements can be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease the
Fund's exposure to long or short-term interest rates (in the U.S. or abroad),
foreign currency values, mortgage securities, corporate borrowing rates, or
other factors such as security prices or inflation rates. The Fund is not
limited to any particular form of swap agreement if TMC determines it is
consistent with the Fund's investment objective and policies.

The Fund may purchase securities whose prices are indexed to the prices
of other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically,
but not always, are debt securities or deposits whose value at maturity or
coupon rate is determined by reference to a specific instrument or statistic.
Gold-indexed securities, for example, typically provide for a maturity value
that depends on the price of gold, resulting in a security whose price tends
to rise and fall together with gold prices. Currency indexed securities
typically are short-term to intermediate-term debt securities whose maturity
values or interest rates are determined by reference to the values of one or
more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting in
a security that performs similarly to a foreign-denominated instrument, or
their maturity value may decline when foreign currencies increases, resulting
in a security whose price characteristics are similar to a put on the
underlying currency. Currency-indexed securities may also have prices that
depend on the values of a number of different foreign currencies relative to
each other.

Repurchase Agreements - Value Fund

In a repurchase agreement, the Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed
upon price on an agreed upon date within a number of days from the date of
purchase. The resale price reflects the purchase price plus an agreed upon
incremental amount which is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the
seller to pay the agreed upon price, which obligation is in effect secured by
the value (at least equal to the amount of the agreed upon resale price and
marked to market daily) of the underlying security. The Fund may engage in a
repurchase agreements with respect to any security in which it is authorized
to invest.

A repurchase agreement, which provides a means for the Fund to earn
income on funds for periods as short as overnight, is an arrangement under
which the Fund purchases a security and the seller agrees, at the time of the
sale, to repurchase the security at a specified time and price. The
repurchase price may be higher than the purchase price, the difference being
interest at a stated rate due to the Fund together with the repurchase price
on repurchase.
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For purposes of the Investment Company Act of 1940, a repurchase
agreement is deemed to be a loan from the Fund to the seller of the security
subject to the repurchase agreement and is therefore subject to the Fund's
investment restriction applicable to loans. It is not clear whether a court
would consider the security purchased by the Fund subject to a repurchase
agreement as being owned by the Fund or as being collateral for a loan by the
Fund to the seller. In the event of the commencement of bankruptcy or
insolvency proceedings with respect to the seller of the security before
repurchase of the security under a repurchase agreement, the Fund may
encounter delay and incur costs before being able to sell the security.
Delays may involve loss of interest or decline in the price of the underlying
security. If the court characterized the transaction as a loan and the Fund
has not perfected a security interest in the underlying security, the Fund
may be required to return the security to the seller's estate and be treated
as an unsecured creditor of principal and income involved in the transaction.
As with any unsecured debt obligation purchased for the Fund, TMC seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the security, in which case
the Fund may incur a loss if the proceeds to the Fund of the sale to a third
party are less than the repurchase price. However, if the market value
(including interest) of the security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the security to deliver additional securities so that
the market value (including interest) of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is
possible that the Fund will be unsuccessful in seeking to impose on the
seller a contractual obligation to deliver additional securities.

Reverse Repurchase Agreements - Value Fund

In a reverse repurchase agreement , the Fund sells a portfolio
instrument to another party, such as a bank or broker-dealer, in return for
cash and agrees to repurchase the instrument at a particular price and time.
While a reverse repurchase agreement is outstanding, the Fund will maintain
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The Fund will enter into reverse repurchase
agreements only with parties whose creditworthiness has been found
satisfactory by TMC. Such transactions may increase fluctuations in the
market value of the Fund's assets and may be viewed as a form of leverage.

Securities Lending - Value Fund

The Fund may lend securities to parties such as broker-dealers or
institutional investors. Securities lending allows the Fund to retain
ownership of the securities loaned and, at the same time, to earn additional
income. Since there may be delays in the recovery of loaned securities, or
even a loss of rights in collateral supplied should the borrower fail
financially, loans will be made only to parties deemed by TMC to be of good
standing. Furthermore, they will only be made if, in TMC's judgment, the
consideration to be earned from such loans would justify the risk.

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<PAGE>
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.

Lower-Quality Debt Securities - Value Fund

The Fund may purchase lower-quality debt securities (those rated below
Baa by Moody's Investors Service, Inc. or BBB by Standard and Poor's
Corporation, and unrated securities judged by TMC to be of equivalent
quality) that have poor protection with respect to the payment of interest
and repayment of principal, or may be in default. These securities are often
considered to be speculative and involve greater risk of loss or price
changes due to changes in the issuer's capacity to pay. The market prices of
lower-quality debt securities may fluctuate more than those of higher-quality
debt securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates.

Foreign Investments - Value Fund

Foreign investments can involve significant risks in addition to the
risks inherent in U.S. investments. The value of securities denominated in
or indexed to foreign currencies, and of dividends and interest from such
securities, can change significantly when foreign currencies strengthen or
weaken relative to the U.S. dollar. Foreign securities markets generally
have less trading volume and less liquidity than U.S. markets, and prices on
some foreign markets can be highly volatile. Many foreign countries lack
uniform accounting and disclosure standards comparable to those applicable to
U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage
commissions, and custodial costs, are generally higher than for U.S.
investments.

The Fund may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject to
transfer restrictions may be marketable abroad, they may be less liquid than
foreign securities of the same class that are not subject to such
restrictions.
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American Depository Receipts and European Depository Receipts (ADR's and
EDR's) are certificates evidencing ownership of shares of a foreign-based
issuer held in trust by a bank or similar financial institution. Designed
for use in U.S. and European securities markets, respectively, ADR's and
EDR's are alternatives to the purchase of the underlying securities in their
national markets and currencies.

Foreign Currency Transactions - Value Fund

The Fund may conduct foreign currency transactions on a spot (i.e.,
cash) basis or by entering into forward contracts to purchase or sell foreign
currencies at a future date and price. The Fund will convert currency on a
spot basis from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers generally do not
charge a fee for conversion, they do realize a profit based on the difference
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer. Forward contracts are generally traded in an
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. The parties to a forward contract may
agree to offset or terminate the contract before its maturity, or may hold
the contract to maturity and complete the contemplated currency exchange.
The Fund may use currency forward contracts for any purpose consistent with
its investment objective. The following discussion summarizes the principal
currency management strategies involving forward contracts that could be used
by the Fund. The Fund may also use swap agreements, indexed securities, and
options and futures contracts relating to foreign currencies for the same
purposes. When the Fund agrees to buy or sell a security denominated in a
foreign currency, it may desire to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale, for
a fixed amount of U.S. dollars, of the amount of foreign currency involved in
the underlying security transaction, the Fund will be able to protect itself
against an adverse change in foreign currency values between the date the
security is purchased or sold and the date on which payment is made or
received. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." The Fund may also enter into forward contracts to
purchase or sell a foreign currency in anticipation of future purchases or
sales of securities denominated in foreign currency, even if the specific
investments have not yet been selected by TMC.

The Fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For
example, if the Fund owned securities denominated in pounds sterling, it
could enter into a forward contract to sell pounds sterling in return for
U.S. dollars to hedge against possible declines in the pound's value. Such a
hedge, sometimes referred to as a "position hedge, " would tend to offset
both positive and negative currency fluctuations, but would not offset
changes in security values caused by other factors. The Fund could also
hedge the position by selling another currency expected to perform similarly
to the pound sterling for example, by entering into a forward contract to
sell Deutschemarks or European Currency Units in return for U.S. dollars.
This type of hedge, sometimes referred to as a "proxy hedge," could offer
advantages in terms of cost, yield, or efficiency, but generally would not
hedge currency exposure as effectively as a simple hedge into U.S. dollars.
Proxy hedges may result in losses if the currency used to hedge does not
perform similarly to the currency in which the hedged securities are
denominated.
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The Fund may enter into forward contracts to shift its investment
exposure from one currency into another. This may include shifting exposure
from U.S. dollars to a foreign currency, or from one foreign currency to
another foreign currency. For example, if the Fund held investments
denominated in deutschemarks, the Fund could enter into forward contracts to
sell deutschemarks and purchase Swiss francs. This type of strategy,
sometimes known as a "cross hedge," will tend to reduce or eliminate exposure
to the currency that is sold, and increase exposure to the currency that is
purchased, much as if the Fund had sold a security denominated in one
currency and purchased an equivalent security denominated in another. Cross-
hedges protect against losses resulting from a decline in the hedged
currency, but will cause the Fund to assume the risk of fluctuations in the
value of the currency it purchases. Under certain conditions, SEC guidelines
require mutual funds to set aside appropriate liquid assets in a segregated
custodial account to cover currency forward contracts. As required by SEC
guidelines, the Fund will segregate assets to cover currency forward
contracts, if any, whose purpose is essentially speculative. The Fund will
not segregate assets to cover forward contracts entered into for hedging
purposes, including settlement hedges, position hedges, and proxy hedges.

Limitations on Futures and Options Transactions - Value Fund

The Fund will not: (a) sell futures contracts, purchase put options, or
write call options if, as a result, more than 25% of the Fund's total assets
would be hedged with futures and options under normal conditions; (b)
purchase futures contracts or write put options if, as a result, the Fund's
total obligations upon settlement or exercise of purchased futures contracts
and written put options would exceed 25% of its total assets; or (c) purchase
call options if, as a result, the current value of option premiums for call
options purchased by the Fund would exceed 5% of the Fund's total assets.
These limitations do not apply to options attached to or acquired or traded
together with their underlying securities, and do not apply to securities
that incorporate features similar to options.

Real Estate-Related Instruments include real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors such as
changes in real estate values and property taxes, interest rates, cash flow
of underlying real estate assets, over building, and the management skill and
creditworthiness of the issuer. Real estate-related instruments may also be
affected by tax and regulatory requirements, such as those relating to the
environment.

Futures Contracts - Value Fund

When the Fund purchases a futures contract, it agrees to purchase a
specified underlying instrument at a specified future date. When the Fund
sells a futures contract, it agrees to sell the underlying instrument at a
specified future date. The price at which the purchase and sale will take
place is fixed when the Fund enters into the contract. Some currently
available futures contracts are based on specific securities, such as U.S.
Treasury bonds or notes, and some are based on indices of securities prices,
such as the Standard & Poor's 500 Composite Stock Price Index (S&P 500).
Futures can be held until their delivery dates, or can be closed out before
then if a liquid secondary market is available. The value of a futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Fund's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying
instrument directly. When the Fund sells a futures contract, by contrast,
the value of its futures position will tend to move in a direction contrary
to the market. Selling futures contracts, therefore will tend to offset both
positive and negative market price changes, much as if the underlying
instrument had been sold.

Futures Margin Payments - Value Fund

The purchaser or seller of a futures contract is not required to deliver
or pay for the underlying instrument unless the contract is held until the
delivery date. However both the purchaser and seller are required to deposit
"initial margin" with a futures broker, known as a futures commission
merchant (FCM), when the contract is entered into. Initial margin deposits
are typically equal to a percentage of the contract's value. If either
party's position declines, that party will be required to make additional
"variation margin" payments to settle the change in value on a daily basis.
The party that has a gain may be entitled to receive all or a portion of this
amount. Initial and variation margin payments do not constitute purchasing
securities on margin for purposes of the Fund's investment limitations. In
the event of the bankruptcy of an FCM that holds margin on behalf of the
Fund, the Fund may be entitled to return of margin owed to it only in
proportion to the amount received by the FCM's other customers, potentially
resulting in losses to the Fund.

Purchasing Put and Call Options - Value Fund

By purchasing a put option, the Fund obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed strike
price. In return for this right, the Fund pays the current market price for
the option (known as the option premium). Options have various types of
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underlying instruments, including specific securities, indices of securities
prices, and futures contracts. The Fund may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option.
If the option is allowed to expire, the Fund will lose the entire premium it
paid. If the Fund exercises the option, it completes the sale of the
underlying instrument at the strike price. The Fund may also terminate a put
option position by closing it out in the secondary market at its current
price, if a liquid secondary market exists.

Writing Put and Call Options - Value Fund

When the Fund writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the
premium, the Fund assumes the obligation to pay the strike price for the
option's underlying instrument if the other party to the option chooses to
exercise it. When writing an option on a futures contract the Fund will be
required to make margin payments to an FCM as described above for futures
contracts. The Fund may seek to terminate its position in a put option it
writes before exercise by closing out the option in the secondary market at
its current price. If the secondary market is not liquid for a put option
the Fund has written, however, the Fund must continue to be prepared to pay
the strike price while the option is outstanding, regardless of price
changes, and must continue to set aside assets to cover its position.

The Fund may purchase and write options in combination with each other,
or in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, the Fund may
purchase a put option and write a call option on the same underlying
instrument, in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of the
written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.

Correlation of Price Changes - Value Fund

Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts available
will not match the Fund's current or anticipated investments exactly. The
Fund may invest in options and futures contracts based on securities with
different issuers, maturities, or other characteristics from the securities
in which it typically invests, which involves a risk that the options or
futures position will not track the performance of the Fund's other
investments. Options and futures prices can also diverge from the prices of
their underlying instruments, even if the underlying instruments match the
Fund's investments well. Options and futures prices are affected by such
factors as current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until
expiration of the contract, which may not affect security prices the same
way. Imperfect correlation may also result from differing levels of demand
in the options and futures markets and the securities markets, from
structural differences in how options and futures and securities are traded,
or from imposition of daily price fluctuation limits or trading halts. The
Fund may purchase or sell options and futures contracts with a greater or
lesser value than the securities it wishes to hedge or intends to purchase in
order to attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in all
cases. If price changes in the Fund's options or futures positions are
poorly correlated with its other investments, the positions may fail to
produce anticipated gains or result in losses that are not offset by gains in
other investments.

Liquidity of Options and Futures Contracts - Value Fund

There is no assurance a liquid secondary market will exist for any
particular options or futures contract at any particular time. Options may
have relatively low trading volume and liquidity if their strike prices are
not close to the underlying instrument's current price. In addition,
exchanges may establish daily price fluctuation limits for options and
futures contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when
the price fluctuation limit is reached or a trading halt is imposed, it may
be impossible for the Fund to enter into new positions or close out existing
positions. If the secondary market for a contract is not liquid because of
price fluctuation limits or otherwise, it could prevent prompt liquidation of
unfavorable positions, and potentially could require the Fund to continue to
hold a position until delivery or expiration regardless of changes in its
value. As a result, the Fund's access to other assets held to cover its
options or futures positions could also be impaired.
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OTC Options - Value Fund

Unlike exchange-traded options, which are standardized with respect to
the underlying instrument, expiration date, contract size, and strike price,
the terms of over-the-counter options (options not traded on exchanges)
generally are established through negotiation with the other party to the
option contract. While this type of arrangement allows the Fund greater
flexibility to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded. The staff of
the SEC currently takes the position that OTC options are illiquid, and
investments by the Fund in those instruments are subject to the Fund's
limitation on investing no more than 10% of its assets in illiquid
instruments.

Option and Futures Relating to Foreign Currencies - Value Fund

Currency futures contracts are similar to forward currency exchange
contracts, except that they are traded on exchanges (and have margin
requirements) and are standardized as to contract size and delivery date.
Most currency futures contracts call for payment or delivery in U.S. dollars.
The underlying instrument of a currency option may be a foreign currency,
which generally is purchased or delivered in exchange for U.S. dollars, or
may be a futures contract. The purchaser of a currency call obtains the
right to purchase the underlying currency, and the purchaser of a currency
put obtains the right to sell the underlying currency.

Asset Coverage for Futures and Options Positions - Value Fund

The Fund will comply with guidelines established by the SEC with
respect to coverage of options and futures strategies by mutual funds, and if
the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of large percentage of the
Fund's assets could impede Fund management or the Fund's ability to meet
redemption requests or other current obligations.
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Short Sales - Value Fund

The Fund may enter into short sales with respect to stocks underlying
its convertible security holdings. For example, if TMC anticipates a decline
in the price of the stock underlying a convertible security the Fund holds,
it may sell the stock short. If the stock price subsequently declines, the
proceeds of the short sale could be expected to offset all or a portion of
the effect of the stock's decline on the value of the convertible security.
The Fund currently intends to hedge no more than 15% of its total assets with
short sales on equity securities underlying its convertible security holdings
under normal circumstances. When the Fund enters into a short sale, it will
be required to set aside securities equivalent in kind and amount to those
sold short (or securities convertible or exchangeable into such securities)
and will be required to continue to hold them while the short sale is
outstanding. The Fund will incur transaction costs, including interest
expense, in connection with opening, maintaining , and closing short sales.

INVESTMENT LIMITATIONS

Investment Limitations - Limited Term National Fund and
Limited Term California Fund

Thornburg Limited Term Municipal Fund, Inc. has adopted the following
fundamental investment policies applicable to each of Limited Term National
Fund and Limited Term California Fund which may not be changed unless
approved by a majority of the outstanding shares of each Fund. No Fund may:

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

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

(5) Issue senior securities as defined in the Investment Company Act of
1940, except insofar as the Fund may be deemed to have issued a senior
security by reason of (a) entering into any repurchase agreement; (b)
purchasing any securities on a when-issued or delayed delivery basis; or (c)
borrowing money in accordance with the restrictions described above;
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<PAGE>
(6) Underwrite any issue of securities, except to the extent that, in
connection with the disposition of portfolio securities, it may be deemed to
be an underwriter under the federal securities laws;

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

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

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

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

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

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

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

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

(17) Purchase or retain the securities of any issuer other than the
securities of the Fund if, to the Fund's knowledge, those officers and
directors of the Fund, or those officers and directors of TMC, who
individually own beneficially more than 1/2 of 1% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
outstanding securities.
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For the purpose of applying the limitations set forth in paragraphs (2)
and (12) above, an issuer shall be deemed a separate issuer when its assets
and revenues are separate from other governmental entities and its securities
are backed only by its assets and revenues. Similarly, in the case of a
nongovernmental user, such as an industrial corporation or a privately owned
or operated hospital, if the security is backed only by the assets and
revenues of the nongovernmental user, then such nongovernmental user would be
deemed to be the sole issuer. Where a security is also guaranteed by the
enforceable obligation of another entity it shall also be included in the
computation of securities owned that are issued by such other entity. In
addition, for purposes of paragraph (2) above, a remarketing party entering
into a remarketing agreement with a Fund as described in the Prospectus or
this Statement of Additional Information shall not be deemed an "issuer" of a
security or a "guarantor" of a Municipal Lease subject to that agreement.

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

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

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

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

Investment Limitations - Intermediate National Fund

Thornburg Investment Trust has adopted the following fundamental
investment policies respecting the Intermediate National Fund which may not
be changed unless approved by a majority of the outstanding shares of the
Fund.

The Intermediate National Fund may not:

(2) The Intermediate National Fund may not purchase any security if, as
a result, more than 5% of its total assets would be invested in securities of
any one issuer, excluding obligations of, or guaranteed by, the United States
government, its agencies, instrumentalities and authorities;
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(3) Borrow money, except for temporary or emergency purposes and not
for investment purposes, and then only in an amount not exceeding 5% of the
value of the Fund's total assets at the time of borrowing;

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

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

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

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

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

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

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

(14) Purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of any such issuer
to be held by the Fund;
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(15) Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;

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

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

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

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

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

As a matter of fundamental investment policy, the Government Fund will
not:

(1) Invest more than 20% of the Fund's total assets in securities other
than obligations issued or guaranteed by the United States Government or its
agencies, instrumentalities and authorities, or in participations in such
obligations or repurchase agreements secured by such obligations, generally
described (but not limited) under the heading "Types of Obligations the Fund
May Acquire", and then only in the nongovernmental obligations described in
the Prospectus;

(3) Borrow money, except (a) as a temporary measure, and then only in
amounts not exceeding 5% of the value of the Fund's total assets or (b) from
banks, provided that immediately after any such borrowing all borrowings of
the Fund do not exceed 10% of the Fund's total assets. The exceptions to
this restriction are not for investment leverage purposes but are solely for
extraordinary or emergency purchases or to facilitate management of the
Fund's portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio instruments is deemed to be disadvantageous. The
Fund will not purchase securities while borrowings are outstanding. For
purposes of this restriction (i) the security arrangements described in
restriction (4) below will not be considered as borrowing money, and (ii)
reverse repurchase agreements will be considered as borrowing money;

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

(7) Purchase or sell commodities or commodity futures contracts or oil,
gas or other mineral exploration or development programs. Investment in
futures contracts respecting securities and in options on these futures
contracts will not be considered investment in commodity futures contracts;
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(8) Make loans, except through (a) the purchase of debt obligations in
accordance with the Fund's investment objectives and policies; (b) repurchase
agreements with banks, brokers, dealers and other financial institutions; and
(c) loans of securities;

(9) Purchase any security on margin, except for such short-term credits
as are necessary for the clearance of transactions. For purposes of this
restriction, the Fund's entry into futures contracts will not be considered
the purchase of securities on margin;

(10) Make short sales of securities;

(11) Invest more than 5% of its total assets in securities of unseasoned
issuers which, together with their predecessors, have been in operation for
less than three years excluding obligations of, or guaranteed by, the United
States government, its agencies, instrumentalities and authorities;

(12) Invest more than 5% of its total assets in securities which the
Fund is restricted from selling to the public without registration under the
Securities Act of 1933. The Fund has no present intention to purchase any
such restricted securities;

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

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

(17) Enter into any reverse repurchase agreement if, as a result
thereof, more than 5% of its total assets would be subject to its obligations
under reverse purchase agreements at any time;

(18) Purchase or sell any futures contract if, as a result thereof, the
sum of the amount of margin deposits on the Fund's existing futures positions
and the amount of premiums paid for related options would exceed 5% of the
Fund's total assets;

(19) Purchase any put or call option not related to a futures contract;
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(20) Purchase the securities of any issuer if as a result more than 10%
of the value of the Fund's net assets would be invested in securities which
are considered illiquid because they are subject to legal or contractual
restrictions on resale ("restricted securities") or because no market
quotations are readily available; or enter into a repurchase agreement
maturing in more than seven days, if as a result such repurchase agreements
together with restricted securities and securities for which there are no
readily available market quotations would constitute more than 10% of the
Fund's net assets; or

(21) Issue senior securities, as defined under the Investment Company
Act of 1940, except that the Fund may enter into repurchase agreements and
reverse repurchase agreements, lend its portfolio securities, borrow, and
enter into when-issued and delayed delivery transactions as described in the
Prospectus or this Statement of Additional Information and as limited by the
foregoing investment limitations.

Whenever an investment policy or restriction states a minimum or maximum
percentage of the Government Fund's assets which may be invested in any
security or other assets, it is intended that the minimum or maximum
percentage limitations will be determined immediately after and as a result
of the Fund's acquisition of the security or asset. Accordingly, any later
increase or decrease in the relative percentage of value represented by the
asset or security resulting from changes in asset values will not be
considered a violation of these restrictions.

Investment Limitations - Income Fund

As a matter of fundamental policy, the Income Fund may not:

(3) purchase or sell real estate (except that the Fund may invest in
(i) securities of companies which deal in real estate or mortgages, and (ii)
securities secured by real estate or interests therein and that the Fund
reserves freedom of action to hold and sell real estate acquired as a result
of the Fund's ownership of securities) or purchase or sell physical
commodities or contracts relating to physical commodities;
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(4) act as underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Fund;

(7) purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase to be invested
in the securities of one or more issuers having their principal business
activities in the same industry, provided that there is no limitation with
respect to investments in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities (for the purposes of this
restriction, telephone companies are considered to be in a separate industry
from gas and electric public utilities, and wholly-owned finance companies
are considered to be in the industry of their parents if their activities are
primarily related to financing the activities of the parents).

As a matter of non-fundamental policy the Income Fund may not:

(a) purchase or retain securities of any open-end investment company,
or securities of any closed-end investment company except by purchase in the
open market where no commission or profit to a sponsor or dealer results from
such purchases, or except when such purchase, though not made in the open
market, is part of a plan of merger, consolidation, reorganization or
acquisition of assets. The Fund will not acquire any security issued by
another investment company ( the "acquired company") if the Fund thereby
would own (i) more than 3% of the total outstanding voting securities of the
acquired company, or (ii) securities issued by the acquired company having an
aggregate value exceeding 5% of the Fund's total assets, or (iii) securities
issued by investment companies having an aggregate value exceeding 10% of the
Fund's total assets;

(b) pledge, mortgage or hypothecate its assets in excess, together with
permitted borrowings, of 1/3 of its total assets;

(c) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Fund
or a member, officer, director or trustee of the investment adviser of the
Fund if one or more of such individuals owns beneficially more than one-half
of one percent (1/2%) of the outstanding shares or securities or both (taken
at market value) of such issuer and such shares or securities together own
beneficially more than 5% of such shares or securities or both;

(d) purchase securities on margin or make short sales, unless, by
virtue of its ownership of other securities, it has the right to obtain
securities equivalent in kind and amount to the securities sold and, if the
right is conditional, the sale is made upon the same conditions, except in
connection with arbitrage transactions, and except that the Fund may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities;
52
<PAGE>
(e) invest more than 15% of its net assets in the aggregate in
securities which are not readily marketable, the disposition of which is
restricted under Federal securities laws, and in repurchase agreements not
terminable within 7 days provided the Fund will not invest more than 5% of
its total assets in restricted securities;

(f) purchase securities of any issuers with a record of less than three
years of continuous operations, including predecessors, except U.S.
government securities, securities of such issuers which are rated by at least
one nationally recognized statistical rating organization, municipal
obligations and obligations issued or guaranteed by any foreign government or
its agencies or instrumentalities, if such purchase would cause the
investments of the Fund in all such issuers to exceed 5% of the total assets
of the Fund taken at market value;

(g) purchase more than 10% of the voting securities of any one issuer,
except securities issued by the U.S. Government, its agencies or
instrumentalities;

(j) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which own or invest
in such interests);

(k) borrow money except as a temporary measure, and then not in excess
of 5% of its total assets (taken at market value) unless the borrowing is
from banks, in which case the percentage limitation is 10%; reverse
repurchase agreements and dollar rolls will be considered borrowings for this
purpose, and will be further subject to total asset coverage of 300% for such
agreements;

(l) purchase warrants if as a result warrants taken at the lower of
cost or market value would represent more than 5% of the value of the Fund's
total net assets or more than 2% of its net assets in warrants that are not
listed on the New York or American Stock Exchanges or on an exchange with
comparable listing requirements (for this purpose, warrants attached to
securities will be deemed to have no value); or
53
<PAGE>
(m) make securities loans if the value of such securities loaned
exceeds 30% of the value of the Fund's total assets at the time any loan is
made; all loans of portfolio securities will be fully collateralized and
marked to market daily. The Fund has no current intention of making loans of
portfolio securities that would amount to greater than 5% of the Fund's total
assets;

(n) purchase or sell real estate limited partnership interests.

Investment Limitations - Value 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;
54
<PAGE>
(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);

THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL:

(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.
55
<PAGE>
(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.

(ix) The Fund does not currently intend to invest in oil, gas or other
mineral exploration or development programs or leases.

For the Fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions" beginning
on page 39.

YIELD AND RETURN COMPUTATION

Performance and Portfolio Information - Municipal Funds and Taxable Income
Funds

The yield and return of a Fund or any Fund class may, from time to time,
be quoted in reports, sales literature and advertisements published by the
Fund, the Distributor, or investment dealers offering the Fund. Any such
quotation must include a standardized calculation which computes yield for a
30-day or one month period by dividing net investment income per share
during the period by the maximum offering price on the last day of the
period. The standardized calculation will include the effect of semiannual
compounding and will reflect amortization of premiums for those bonds which
have a market value in excess of par. New schedules based on market value
will be computed each month for amortizing premiums. With respect to
mortgage-backed securities or other receivables-backed obligations, the Fund
56
<PAGE>
will amortize the discount or premium on the outstanding principal balance,
based upon the cost of the security, over the remaining term of the security.
Gains or losses attributable to actual monthly paydowns on mortgage-backed
obligations will be reflected as increases or decreases to interest income
during the period when such gains or losses are realized. Provided that any
such quotation is also accompanied by the standardized calculation referred
to above, a Fund may also quote non-standardized performance data for a
specified period by dividing the net investment income per share for that
period by either the Fund's average public offering price per share for that
same period or the offering price per share on the first or last day of the
period, and multiplying the result by 365 divided by the number of days in
the specified period. For purposes of this non-standardized calculation, net
investment income will include accrued interest income plus or minus any
amortized purchase discount or premium less all accrued expenses. The
primary differences between the results obtained using the standardized
performance measure and any non-standardized performance measure will be
caused by the following factors: (1) The non-standardized calculation may
cover periods other than the 30-day or one month period required by the
standardized calculation; (2) The non-standardized calculation may reflect
amortization of premium based upon historical cost rather than market value;
(3) The non-standardized calculation may reflect the average offering price
per share for the period or the beginning offering price per share for the
period, whereas the standardized calculation always will reflect the maximum
offering price per share on the last day of the period; (4) The
non-standardized calculation may reflect an offering price per share other
than the maximum offering price, provided that any time the Fund's return is
quoted in reports, sales literature or advertisements using a public offering
price which is less than the Fund's maximum public offering price, the return
computed by using the Fund's maximum public offering price also will be
quoted in the same piece; (5) The non-standardized return quotation may
include the effective return obtained by compounding the monthly dividends.

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

Any quoted performance should not be considered a representation of the
performance in the future since the performance is not fixed. Actual
performance will depend not only the type, quality and maturities of the
investments held by the Fund and changes in interest rates on such
investments, but also on changes in the Fund's expenses during the period.
In addition, a change in the Fund's net asset value will affect its
performance.

From time to time, in advertisements and other types of literature, the
performance of the Municipal Funds or the Taxable Income Funds may be
compared to other groups of mutual funds. This comparative performance may
be expressed as a ranking prepared by Lipper Analytical Services, Inc. or
other widely recognized independent services which monitor the performance of
mutual funds. These performance analyses ordinarily will include the
reinvestment of dividends and capital gains distributions, but do not take
sales charges into consideration and are prepared without regard to tax
consequences. Performance rankings and ratings reported periodically in
national financial publications such as MONEY magazine, FORBES and BARRON's
also may be used.
57
<PAGE>
A Municipal Fund or a Taxable Income Fund also may illustrate
performance or the characteristics of its investment portfolio through
graphs, tabular data or other displays which describe (i) the average
portfolio maturity of the Fund's portfolio securities relative to the
maturities of other investments, (ii) the relationship of yield and maturity
of the Fund to the yield and maturity of other investments (either as a
comparison or through use of standard bench marks or indices such as the
Treasury yield curve), (iii) changes in the Fund's share price or net asset
value in some cases relative to changes in the value of other investments,
and (iv) the relationship over time of changes in the Fund's (or other
investments') net asset value or price and the Fund's (or other investments')
investment return.

Yield and return information may be used in reviewing the performance of
a Fund's investments and for providing a basis for comparison with other
investment alternatives. However, each Fund's return fluctuates, unlike
certain bank deposits or other investments which pay a fixed return for a
stated period of time.

Performance and Portfolio Information - Value Fund

Yields for the Fund are computed by dividing the Fund's interest and
dividend income for a given 30-day or one-month period, net of expenses, by
the average number of shares entitled to receive distributions during the
period, dividing this figure by the Fund's offering price at the end of the
period, and annualizing the result (assuming compounding of income) in order
to arrive at an annual percentage rate. In addition, the Fund may use the
same method to obtain yields for 90-day or quarterly periods. Income is
calculated for purposes of yield quotations in accordance with standardized
methods applicable to all stock and bond funds. Dividends from equity
investments are treated as if they were accrued on a daily basis, solely for
the purposes of yield calculations. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and is
increased with respect to bonds trading at a discount by adding a portion of
the discount to daily income. For the Fund's investments denominated in
foreign currencies, income and expenses are calculated first in their
respective currencies, and are then converted to U.S. dollars, either when
they are actually converted or at the end of the 30-day or one month period,
whichever is earlier. Capital gains and losses generally are excluded from
the calculation as are gains and losses from currency exchange rate
fluctuations.

Income calculated for the purposes of calculating the Fund's yield
differs from income as determined for other accounting purposes. Because of
the different accounting methods used, and because of the compounding of
income assumed in yield calculations, the Fund's yield may not equal its
distribution rate, the income paid to a shareholder's account, or the income
reported in the Fund's financial statements.
58
<PAGE>
Yield information may be useful in reviewing the Fund's performance and
in providing a basis for comparison with other investment alternatives.
However, the Fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.

Total returns quoted in advertising reflect all aspects of the Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value (NAV) over a
stated period. Average annual total returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in the
Fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example, a
cumulative total return of 100% over ten years would produce an average
annual return of 7.18%, which is the steady annual rate of return that would
equal 100% growth on a compounded basis in ten years. While average annual
returns are a convenient means of comparing investment alternatives,
investors should realize that the Fund's performance is not constant over
time, but changes from year to year, and the average annual returns represent
averaged figures as opposed to the actual year-to-year performance of the
Fund. In addition to average annual total returns, the Fund may quote
unaveraged or cumulative total returns reflecting the simple change in value
an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors and
their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis and may be quoted with or without taking the
Fund's maximum sales charge into account. Excluding the Fund's sales charge
from a total return calculation produces a higher total return figure. Total
returns, yields, and other performance information may be quoted numerically
or in a table, graph, or similar illustration.

Charts and graphs using the Fund's net asset values, adjusted net asset
values, and benchmark indices may be used to exhibit performance. An
adjusted NAV includes any distributions paid by the Fund and reflects all
elements of its return. Unless otherwise indicated, the Fund's adjusted
NAV's are not adjusted for sales charges, if any.
59
<PAGE>
The Fund may illustrate performance using moving averages. A long-term
moving average is the average of each week's adjusted closing NAV or total
return for a specified period. A short-term moving average NAV is the
average of each day's adjusted closing NAV for a specified period. Moving
average activity indicators combine adjusted closing NAV's from the last
business day of each week with moving averages for a specified period the
produce indicators showing when an NAV has crossed, stayed above, or stayed
below its moving average.

The Fund commenced operations October 1, 1995. The Fund's performance
may be compared to the performance of other mutual funds in general, or to
the performance of particular types of mutual funds. These comparisons may
be expressed as mutual fund ranking prepared by Lipper Analytical Services,
Inc. (Lipper), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Lipper generally ranks funds on
the basis of total return, assuming reinvestment of distributions, but does
not take sales charges or redemption fees into consideration, and is prepared
without regard to tax consequences. In addition to the mutual fund rankings
the Fund's performance may be compared to stock, bond, and money market
mutual fund performance indices prepared by Lipper or other organizations.
When comparing these indices, it is important to remember the risk and return
characteristics of each type of investment. For example, while stock mutual
funds may offer higher potential returns, they also carry the highest degree
of share price volatility. Likewise, money market funds may offer greater
stability of principal, but generally do not offer the higher potential
returns from stock mutual funds. From time to time, the Fund's performance
may also be compared to other mutual funds tracked by financial or business
publications and periodicals. For example, the Fund may quote Morningstar,
Inc. in its advertising materials. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted performance.
Rankings that compare the performance of Thornburg funds to one another in
appropriate categories over specific periods of time may also be quoted in
advertising.

Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate
of inflation (based on the CPI), and combinations of various capital markets.
The performance of these capital markets is based on the returns of differed
indices.
60
<PAGE>
The Value Fund may use the performance of these capital markets in order
to demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any of
these capital markets. The risks associated with the security types in the
capital market may or may not correspond directly to those of the Fund. The
Fund may also compare performance to that of other compilations or indices
that may be developed and made available in the future, and advertising,
sales literature and shareholder reports also may discuss aspects of periodic
investment plans, dollar cost averaging and other techniques for investing to
pay for education, retirement and other goals. In addition, the Fund may
quote or reprint financial or business publications and periodicals,
including model portfolios or allocations, as they relate to current economic
and political conditions, fund management, portfolio composition, investment
philosophy, investment techniques and the desirability of owning a particular
mutual fund. The Fund may present its fund number, Quotron (trademark)
number, and CUSIP number, and discuss or quote its current portfolio manager.

The Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Fund may compare these measures
to those of other funds. Measures of volatility seek to compare the Fund's
historical share price fluctuations or total returns to those of a benchmark.
Measures of benchmark correlation indicate how valid a comparative benchmark
may be. All measures of volatility and correlation are calculated using
averages of historical data. In advertising, the Fund may also discuss or
illustrate examples of interest rate sensitivity.

Momentum Indicators show the Fund's price movements over specific
periods of time. Each point on the momentum indicator represents the Fund's
percentage change in price movements over that period. The Fund may
advertise examples of the effects of periodic investment plans, including the
principle of dollar cost averaging. In such a program, an investor invests a
fixed dollar amount in a fund at periodic intervals, thereby purchasing fewer
shares when prices are high and more shares when prices are low. While such
a strategy does not assure a profit or guard against loss in a declining
market, the investor's average cost per share can be lower than if fixed
numbers of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing shares
during periods of low price levels. The Fund may be available for purchase
through retirement plans or other programs offering deferral of, or exemption
from, income taxes, which may produce superior after-tax returns over time.
For example, a $1,000 investment earning a taxable return of 10% annually
would have an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent tax-deferred
investment would have an after-tax value of $2,100 after ten years, assuming
tax was deducted at a 31% rate from the tax-deferred earnings at the end of
the ten-year period.
61
<PAGE>

REPRESENTATIVE PERFORMANCE INFORMATION

Representative Performance Information - Limited Term National Fund
(Institutional Class)

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

Yield Computations

Standardized Method of Computing Yield. The yield of the Limited Term
National Fund Institutional Class shares for the one month period ended June
30, 1997, computed in accordance with the standardized calculation described
above, was 4.37%. This method of computing yield does not take into account
changes in net asset value.

Non-standardized Method of Computing Yield. The Limited Term National
Fund's nonstandardized yield, for Institutional Class shares computed in
accordance with its non-standardized method for the 7-day period ended June
30, 1997, was 5.03%. This nonstandardized method differs from the
standardized method of computing yield in that the nonstandardized yield is
computed for the 7-day period rather than a 30-day or one month period, the
nonstandardized yield reflects amortization of premium based upon historical
cost rather than market value, and the nonstandardized yield is computed by
compounding dividends monthly rather than semiannually. This method of
computing performance does not take into account changes in net asset value.

Taxable Equivalent Yield. The Intermediate National Fund's taxable
equivalent yield for Institutional Class shares, computed in accordance with
the methods described above using a maximum federal tax rate of 39.6%, were
as shown below for the indicated periods ending June 30, 1997:

Taxable
Equivalent
Yield Yield
----- ----------
Standardized Method
30 days ended 06/30/97 4.37% 7.23%

Non-standardized Method
7 days ended 06/30/97 5.03% 8.33%

Non-standardized Method
30 days ended 06/30/97 5.03% 8.33%

The nonstandardized method of computation differs from the standardized
method in that the nonstandardized yield for the 7-day period is computed on
a basis of seven days rather than the standard 30-day or one month period,
the nonstandardized yield reflects amortization of premium based upon
historical cost rather than market value, and the nonstandardized yield is
computed by compounding dividends monthly rather than semiannually. The
standardized and nonstandardized methods of computing yield and taxable
equivalent yield do not take into account changes in net asset value.
62
<PAGE>
Average Annual Total Return. The Limited Term National Fund's
Institutional Class total return figures are set forth below for the period
shown ending June 30, 1997. Institutional Class shares were first offered on
July 5, 1996. These total return figures assume reinvestment of all
dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
N/A N/A N/A 6.42%

Representative Performance Information - Limited Term California Fund
(Institutional Class)

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

Yield Computations

Standardized Method of Computing Yield. The yield of the Limited Term
California Fund Institutional Class shares for the one month period ended
June 30, 1997, computed in accordance with the standardized calculation
described above, was 4.38%. This method of computing yield does not take
into account changes in net asset value.

Non-standardized Method of Computing Yield. The Limited Term California
Fund's nonstandardized yield, for Institutional Class shares computed in
accordance with its non-standardized method for the 7-day period ended June
30, 1997, was 4.81%. This nonstandardized method differs from the
standardized method of computing yield in that the nonstandardized yield is
computed for the 7-day period rather than a 30-day or one month period, the
nonstandardized yield reflects amortization of premium based upon historical
cost rather than market value, and the nonstandardized yield is computed by
compounding dividends monthly rather than semiannually. This method of
computing performance does not take into account changes in net asset value.
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<PAGE>
Taxable Equivalent Yield. The Limited Term California Fund's taxable
equivalent yield for Institutional Class shares, computed in accordance with
the methods described above using a maximum federal tax rate of 39.6% and a
maximum California tax rate of 9.3%, were as shown below for the indicated
periods ending June 30, 1997:

Taxable
Equivalent
Yield Yield
----- ----------
Standardized Method
30 days ended 06/30/97 4.38% 8.57%

Non-standardized Method
7 days ended 06/30/97 4.81% 9.41%

Non-standardized Method
30 days ended 06/30/97 4.82% 9.43%

Average Annual Total Return. The Limited Term California Fund's
Institutional Class total return figures are set forth below for the period
shown ending June 30, 1997. Institutional Class shares were first offered on
April 1, 1997. These total return figures assume reinvestment of all
dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
N/A N/A N/A 2.07%

Representative Performance Information - Intermediate National Fund
(Institutional Class)

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

Yield Computations

Standardized Method of Computing Yield. The yield of the Intermediate
National Fund Institutional Class shares for the one month period ended
September 30, 1997, computed in accordance with the standardized calculation
described above, was 4.55%. This method of computing yield does not take
into account changes in net asset value.
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<PAGE>
Non-standardized Method of Computing Yield. The Intermediate National
Fund's nonstandardized yield, for Institutional Class shares computed in
accordance with its non-standardized method for the 7-day period ended
September 30, 1997, was 5.14%. This nonstandardized method differs from the
standardized method of computing yield in that the nonstandardized yield is
computed for the 7-day period rather than a 30-day or one month period, the
nonstandardized yield reflects amortization of premium based upon historical
cost rather than market value, and the nonstandardized yield is computed by
compounding dividends monthly rather than semiannually. This method of
computing performance does not take into account changes in net asset value.

Taxable
Equivalent
Yield Yield
----- ----------
Standardized Method
30 days ended 09/30/97 4.55% 7.53%

Non-standardized Method
7 days ended 09/30/97 5.14% 8.51%

Non-standardized Method
30 days ended 09/30/97 5.33% 8.82%

Average Annual Total Return. The Intermediate National Fund's
Institutional Class total return figures are set forth below for the period
shown ending September 30, 1997. Institutional Class shares were first
offered on July 5, 1996. These total return figures assume reinvestment of
all dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
7.07% N/A N/A 8.32%

Representative Performance Information - Government Fund
(Institutional Class)

THE FOLLOWING DATA FOR THE GOVERNMENT FUND REPRESENT PAST PERFORMANCE,
AND THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE. AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
65
<PAGE>
Yield Computations

Standardized Method of Computing Yield. The Government Fund's yield for
Institutional Class shares, computed for the one-month period ended September
30, 1997 in accordance with the standardized calculation described above, was
6.34%. This method of computing yield does not take into account changes in
net asset value.

Non-standardized Method of Computing Yield. The Government Fund's yield
for Institutional Class shares, computed for the 7-day period ended September
30, 1997 in accordance with a non-standardized method, was 6.31%. This non-
standardized method of computation differs from the standardized method of
computing yield in that the non-standardized yield is computed for a 7-day
period rather than a 30-day or one-month period, the non-standardized yield
reflects amortization of premium based upon historical cost rather than
market value, and the non-standardized yield is computed by compounding
dividends monthly rather than semiannually. This method of computing
performance does not take into account changes in net asset value.

Average Annual Total Return. The Government Fund's total returns for
Institutional Class shares, computed in accordance with the total return
calculation described above, are displayed in the table below for the periods
shown ending September 30, 1997. The Government Fund commenced sales of
Institutional Class shares on July 5, 1996. "Total return," unlike the
standardized yield and non-standardized yield figures shown above, takes into
account changes in net asset value over the described periods. These data
assume reinvestment of all dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
7.26% N/A N/A 7.91% (7/5/96)

Total return figures are average annual total returns for the periods shown.

Representative Performance Information - Income Fund
(Institutional Class)

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

Yield Computations

Standardized Method of Computing Yield. The Income Fund's yield for
Institutional Class shares, computed for the one-month period ended September
30, 1997 in accordance with the standardized calculation described above, was
6.42%. This method of computing yield does not take into account changes in
net asset value.

Non-standardized Method of Computing Yield. The Income Fund's yield for
Institutional Class shares, computed for the 7-day period ended September 30,
1997 in accordance with a non-standardized method, was 6.41%. This non-
standardized method of computation differs from the standardized method of
computing yield in that the non-standardized yield is computed for a 7-day
period rather than a 30-day or one month period, the non-standardized yield
reflects amortization of premium based upon historical cost rather than
market value, and the non-standardized yield is computed by compounding
dividends monthly rather than semiannually. This method of computing
performance does not take into account changes in net asset value.
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<PAGE>
Average Annual Total Return. The Income Fund's total returns for
Institutional Class shares, computed in accordance with the total return
calculation described above,are displayed in the table below for the periods
shown ending September 30, 1997. The Income Fund commenced sales of
Institutional Class shares on July 5, 1996. "Total return," unlike the
standardized yield and non-standardized yield figures shown above, takes into
account changes in net asset value over the described periods. These data
assume reinvestment of all dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
7.80% N/A N/A 9.64% (7/5/96)

Total return figures are average annual total returns for the periods shown.

TAXES

Federal Income Taxes - In General

Each Fund has elected and intends to qualify for treatment as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code").

The Code imposes a nondeductible 4% excise tax on regulated investment
companies which do not distribute to shareholders by the end of each calendar
year the sum of (i) 98% of the company's net ordinary income realized in the
year, (ii) 98% of the company's net capital gain income for the 12-month
period ending on October 31 of that year, and (iii) the excess of (A) the sum
of the amounts in (i) and (ii) for the prior calendar year plus all amounts
from earlier years which are not treated as having been distributed under
this provision, over (B) actual distributions for the preceding calendar
years. The effect of this excise tax will be to cause each Fund to
distribute substantially all of its income during the calendar year in which
the income is earned. Shareholders will be taxed on the full amount of the
distribution declared by their Fund for each such year, including declared
distributions not actually paid until January 31 of the next calendar year.
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<PAGE>
Each shareholder will be notified annually by their Fund as to the
amount and characterization of distributions paid to or reinvested by the
shareholder for the preceding taxable year. The Fund may be required to
withhold federal income tax at a rate of 31% from distributions otherwise
payable to a shareholder if (i) the shareholder has failed to furnish the
Fund with his taxpayer identification number, (ii) the Fund is notified that
the shareholder's number is incorrect, (iii) the Internal Revenue Service
notifies the Fund that the shareholder has failed properly to report certain
income, or (iv) when required to do so, the shareholder fails to certify
under penalty of perjury that he is not subject to this withholding.

Effective for sales charges incurred after October 3, 1989 if the
shareholder disposes of shares within 90 days after purchasing them, and
later acquires shares for which the sales charge is eliminated or reduced
pursuant to a reinvestment right, then the original sales charge to the
extent of the reduction is not included in the basis of the shares sold for
determining gain or loss. Instead, the reduction is included in determining
the basis of the reinvested shares.

Distributions by a Fund result in a reduction in the net asset value of
the Fund's shares. Should distributions reduce the net asset value below a
shareholder's cost basis, the distribution would nevertheless be taxable to
the shareholder as ordinary income or capital gain as described above, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those
purchasing just prior to a distribution will then receive a partial return of
capital upon the distribution, which will nevertheless be taxable to them.

Federal Income Taxation - Municipal Funds

The Municipal Funds each intend to satisfy conditions (including
requirements as to the proportion of its assets invested in Municipal
Obligations) which will enable each Fund to designate distributions from the
interest income generated by its investments in Municipal Obligations, which
are exempt from federal income tax when received by the Fund, as Exempt
Interest Dividends. Shareholders receiving Exempt Interest Dividends will
not be subject to federal income tax on the amount of those dividends, except
to the extent the alternative minimum tax may apply. A Municipal Fund would
be unable to make Exempt Interest Dividends if, at the close of any quarter
of its taxable year, more than 50% of the value of the Fund's total assets
68
<PAGE>
consisted of assets other than Municipal Obligations. Additionally, if in
any year the Fund qualified as a regulated investment company but failed to
distribute all of its net income, the Fund would be taxable on the
undistributed portion of its net income. Although each Fund intends to
distribute all of its net income currently, it could have undistributed net
income if, for example, expenses of the Fund were reduced or disallowed on
audit.

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

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

Any net long-term capital gains realized by a Municipal Fund, whether or
not distributed in cash or reinvested in additional shares, must be treated
as long-term capital gains by shareholders regardless of the length of time
investors have held their shares. If a Fund should have net undistributed
capital gain in any year, the Fund would pay the tax on such gains and each
shareholder would be deemed, for federal tax purposes, to have paid his or
her pro rata share of such tax.

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

As is the case with other types of income, including other tax-exempt
interest income, Exempt Interest Dividends received by an individual
shareholder will be added to his or her "modified adjusted gross income" in
determining what portion, if any, of the individual's Social Security
benefits will be subject to federal income taxation. Shareholders are
advised to consult their own tax advisers as to the effect of this treatment.
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<PAGE>
The Code treats interest on certain Municipal Obligations which are
private activity bonds under the code issued after August 7, 1986 (in certain
cases, after September 1, 1986) as a preference item for purposes of the
alternative minimum tax on individuals and corporations. Each Fund may
purchase private activity bonds which are subject to treatment under the Code
as a preference item for purposes of the alternative minimum tax on
individuals and corporations, although the frequency and amounts of those
purchases are uncertain. Some portion of Exempt Interest Dividends may, as a
result of such purchases, be treated as a preference item for purposes of the
alternative minimum tax on individuals and corporations. Shareholders are
advised to consult their own tax advisers as to the extent and effect of such
treatment.

In addition, the Code provides that a portion of the adjusted current
earnings of a corporation reported on its financial statement and not
otherwise included in the minimum tax base will be included for purposes of
calculating the alternative minimum tax for such years. The adjusted current
earnings of a corporation will include Exempt Interest Dividends in
calculating the alternative minimum tax on corporations to the extent that
such dividends are not otherwise treated as a preference item for the reasons
discussed above. An environmental tax is imposed on the excess of a
corporation's modified alternative minimum taxable income (minimum taxable
base, discussed above, with certain modifications) over $2 million. Modified
alternative minimum taxable income includes Exempt Interest Dividends. The
environmental tax applies with respect to taxable years beginning after
December 31, 1986 and before January 1, 1996. Exempt Interest Dividends are
included in effectively connected earnings and profits for purposes of
computing the branch profits tax on certain foreign corporations doing
business in the United States.

With respect to property and casualty companies, the amount of certain
cost deductions otherwise allowed is reduced (in certain cases below zero) by
a specified percentage of, among other things, Exempt Interest Dividends
received on shares acquired after August 7, 1986, for taxable years beginning
after 1986. Commercial banks, thrift institutions and other financial
institutions may not deduct their cost of carrying shares acquired after
August 7, 1986, for taxable years ending after December 31, 1986.

Redemption or resale of shares will be a taxable transaction for federal
income tax purposes and the shareholder will recognize gain or loss in an
amount equal to the difference between the shareholder's basis in the shares
and the amount realized by the shareholder on the redemption or resale. If
the redemption or resale occurs before May 7, 1997, and the shareholder held
the shares as capital assets, the gain or loss will be long-term if the
shares were held for more than 12 months, and any such long-term gain will be
subject to a maximum federal income tax rate of 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 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.
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<PAGE>
The foregoing is a general and abbreviated summary of the provisions of
the Code and Treasury Regulations presently in effect as they directly govern
the taxation of the Municipal Funds and their individual shareholders, and
this summary primarily addresses tax consequences to individual shareholders.
For complete provisions, reference should be made to the pertinent Code
sections and Treasury Regulations. The Code and Treasury Regulations are
subject to change by legislative or administrative action, and any such
change may be retroactive with respect to Fund transactions. Shareholders
are advised to consult their own tax advisers for more detailed information
concerning the federal taxation of the Funds and the income tax consequences
to their shareholders.

State and Local Tax Aspects of the Municipal Funds

The exemption from the State of California personal income taxes for
distributions of interest income in the Limited Term California Fund applies
only to shareholders who are residents of the State of California, and only
to the extent such income qualifies as "exempt-interest dividends" under
Section 17145 of the California Revenue and Taxation Code and is not derived
from interest on obligations from any state other than from California or its
political subdivisions.

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

Federal Income Taxes - Taxable Income Funds

Each of the Taxable Income Funds has elected and intends to qualify for
treatment as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Distributions representing net
interest and net short-term capital gains will be taxable as ordinary income
to the recipient shareholders, whether the distributions are actually taken
in cash or are reinvested by the recipient shareholders in additional shares.
Fund distributions will not be eligible for the dividends received deduction
for corporations. Distributions of net long-term capital gains, if any, will
be treated as long-term capital gains to the distributee shareholders,
whether the distributions are actually taken as cash or are reinvested by the
recipient shareholders in additional shares.
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<PAGE>
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 capital assets, the gain or loss will be long-term if the
shares were held for more than 12 months, and any such long-term gain will be
subject to a maximum federal income tax rate of 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 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.

Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a mutual fund accrues interest or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Fund actually collects such receivables or
pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on a disposition of debt securities denominated in a
foreign currency and on disposition of certain futures contracts, forward
contracts and options, gains or losses attributable to fluctuations in the
value of foreign currency between the date of acquisition of the security or
contract and the date of disposition are also treated as ordinary gain or
loss. These gains or losses, referred to under the Code as "Section 988"
gains or losses, may increase or decrease the amount of the Income Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.

The foregoing is a general and abbreviated summary of the provisions of
the Code and Treasury Regulations presently in effect as they directly govern
the taxation of the Taxable Income Funds and their individual shareholders,
and this summary primarily addresses tax consequences to individual
shareholders. For complete provisions, reference should be made to the
pertinent Code sections and Treasury Regulations. The Code and Treasury
Regulations are subject to change by legislative or administrative action,
and any such change may be retroactive with respect to Fund transactions.
Shareholders are advised to consult their own tax advisers for more detailed
information concerning the federal and state taxation of the Fund and the
income tax consequences to its shareholders.

State and Local Income Tax Considerations - Taxable Income Funds

A portion of each Fund's dividends derived from certain U.S. Government
obligations may be exempt from state and local taxation. The income tax
treatment of the shareholders in the respective states will depend upon the
specific laws applicable in those states, and prospective investors are urged
to confer with their own tax advisers concerning their particular situations.
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<PAGE>
Federal Income Taxes - Value Fund

Gains (losses) attributable to foreign currency fluctuations are
generally taxable as ordinary income and therefore will increase (decrease)
dividend distributions. Net short-term capital gains are distributed as
dividend income. The Value Fund will send each shareholder a notice in
January describing the tax status of dividends and capital gain distributions
for the prior year.

Long-term capital gains earned by the Value Fund on the sale of
securities and distributed to shareholders are federally taxable as long-term
capital gains, regardless of the length of time shareholders have held their
shares. If a shareholder receives a long-term capital gain distribution on
shares of the Value Fund and such shares are held 12 months or less and are
sold at a loss, the portion of the loss equal to the amount of the long-term
capital gain distribution will be considered a long-term loss for tax
purposes. Net short-term capital gains distributed by the Fund are taxable
to shareholders as dividends, not as capital gains.

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.

Foreign governments may withhold taxes on dividends and interest paid
with respect to foreign securities typically at a rate between 10% and 35%.
Foreign governments may also impose taxes on other payments or gains with
respect to foreign securities. Because the Fund does not currently
anticipate that securities of foreign issuers will constitute more than 50%
of its total assets at the end of its fiscal year, shareholders should not
expect to claim a foreign tax credit or deduction on their federal income tax
returns with respect to foreign taxes withheld.
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<PAGE>
The foregoing is a general and abbreviated summary of the provisions of
the Code and Treasury Regulations currently in effect as they directly govern
the income taxation of Value Fund shareholders. This summary primarily
addresses income tax consequences to shareholders who are individuals. The
Code and Regulations are subject to change at any time, in some cases
retroactively. Shareholders are advised to consult their own tax advisers
for more detailed information concerning the federal tax consequences of an
investment in the Value Fund.

State and Local Income Tax Considerations - Value Fund

Shareholders may be subject to state and local taxes on Value Fund
distributions, and capital gains taxation on disposition of shares. Shares
also may be subject, in some jurisdictions, to state and local property
taxes. A portion of the Value Fund's dividends derived from certain U.S.
Government obligations may be exempt from state and local taxation.
Shareholders should consult their own tax advisers for information concerning
the state and local taxation of an investment in the Value Fund.

DISTRIBUTIONS AND SHAREHOLDERS ACCOUNTS

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

The monthly or quarterly distributions of interest income, net of
expenses, and the annual distributions of net realized capital gains, if any,
will be credited to the accounts of shareholders in full and fractional
shares of the Fund at net asset value on the payment or distribution date, as
the case may be. Upon written notice to the Transfer Agent, a shareholder
may elect to receive periodic distributions of net interest income in cash.
Such an election will remain in effect until changed by written notice to the
Transfer Agent, which change may be made at any time in the sole discretion
of the shareholder.

Investment Advisory Agreement

Pursuant to an Investment Advisory Agreement in respect of each Fund,
Thornburg Management Company, Inc. ("TMC"), 119 East Marcy Street, Suite 202,
Santa Fe, New Mexico 87501, acts as investment adviser for, and will manage
the investment and reinvestment of the assets of, each of the Funds in
accordance with the Funds' respective investment objectives and policies,
subject to the general supervision and control of the directors of Thornburg
Limited Term Municipal Fund, Inc. with respect to Limited Term National Fund
and Limited Term California Fund, and subject to the general supervision and
control of the trustees of Thornburg Investment Trust with respect to
Intermediate National Fund, Government Fund, Income Fund and Value Fund.

TMC is also investment adviser to Thornburg New Mexico Intermediate
Municipal Fund, Thornburg New York Intermediate Municipal Fund and Thornburg
Florida Intermediate Municipal Fund, separate series of Thornburg Investment
Trust having assets of $147,418,000, $27,127,000 and $25,487,000,
respectively as of September 30, 1997. TMC is a subadviser to Daily Tax-Free
Income Fund, Inc., a registered investment company.

TMC is paid a fee by each Fund, in the percentage amounts described in
the Prospectus. All fees and expenses are accrued daily and deducted before
payment of dividends. In addition to the fees of TMC, each Fund will pay all
other costs and expenses of its operations. Each Fund also will bear the
expenses of registering and qualifying the Fund and its shares for
distribution under federal and state securities laws, including legal fees.

The Company's directors (including a majority of the directors who are
not "interested persons" within the meaning of the Investment Company Act of
1940) have approved the Investment Advisory Agreement applicable to each of
Limited Term National Fund and Limited Term California Fund, and the Trust's
trustees (including a majority of the trustees who are not "interested
persons") have similarly approved the Investment Advisory Agreement
applicable to each of Intermediate National Fund, Government Fund, Income
Fund and Value Fund. The shareholders of each of the Funds approved a
restatement of the Investment Advisory Agreement applicable to each Fund at
special meetings of shareholders on April 16, 1996, to reduce the advisory
fees under those agreements and to remove from those agreements the
requirement that TMC would provide certain administrative services. Instead,
those services are provided under the terms of an Administrative Services
Agreement applicable to each class of shares issued by each Fund. The
Administrative Services Agreements are described below.

The Investment Advisory Agreement applicable to each Fund may be
terminated by either party, at any time without penalty, upon 60 days'
written notice, and will terminate automatically in the event of its
assignment. Termination will not affect the right of TMC to receive payments
on any unpaid balance of the compensation earned prior to termination. The
Agreement further provides that in the absence of willful misfeasance, bad
faith or gross negligence on the part of TMC, or of reckless disregard of its
obligations and duties under the Agreement, TMC will not be liable for any
action or failure to act in accordance with its duties thereunder.
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For the three most recent fiscal periods with respect to each Fund, the
amounts paid to TMC by each Fund under the Investment Advisory Agreement
applicable to each Fund were as follows:

<TABLE>
June 30, 1995 June 30, 1996 June 30, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Limited Term National Fund $6,805,432 $6,584,835 $4,159,938
Limited Term California Fund $740,936 $748,077 $496,821

Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Intermediate National Fund $1,062,263 $1,446,809 $1,248,058
Government Fund $735,085 $678,979 $529,056
Income Fund 0 $150,436 $170,199
Value Fund N/A $105,914 $376,424

TMC has waived its rights to fees in the foregoing periods as follows:
<CAPTION>
June 30, 1995 June 30, 1996 June 30, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Limited Term National Fund $16,669 0 0
Limited Term California Fund $45,876 $75,198 $27,360

Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Intermediate National Fund $191,779 0 $144,709
Government Fund $24,278 0 0
Income Fund $163,741 0 0
Value Fund N/A 0 0
</TABLE>

The foregoing figures for the time periods before July 1, 1996 reflect, in
whole or in part, fee rates applicable before restatement of the Investment
Advisory Agreement for each Fund. TMC may (but is not obligated to) waive
its rights to any portion of its fees in the future, and may use any portion
of its fee for purposes of shareholder and administrative services and
distribution of fund shares. During the fiscal year ended June 30, 1997,
Limited Term National Fund and Limited Term California Fund each reimbursed
TMC $96,589 and $10,477, respectively, for accounting expenses incurred on
behalf of each Fund, and during the fiscal year ended September 30, 1997,
Intermediate National Fund, Government Fund and Income Fund reimbursed TMC
$27,337, $14,839 and $3,685, respectively, for accounting services.

H. Garrett Thornburg, Jr., Treasurer, Director and Chairman of the Board
of Thornburg Limited Term Municipal Fund, Inc., and President and Trustee of
Thornburg Investment Trust, is also Director and controlling shareholder of
TMC.
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<PAGE>
Administrative Services Agreement

Administrative services are provided to each class of shares issued by
each of the Funds under an Administrative Services Agreement which requires
the delivery of administrative functions necessary for the maintenance of the
shareholders of the class, supervision and direction of shareholder
communications, assistance and review in preparation of reports and other
communications to shareholders, administration of shareholder assistance,
supervision and review of bookkeeping, clerical, shareholder and account
administration and accounting functions, supervision or conduct of regulatory
compliance and legal affairs, review and administration of functions
delivered by outside service providers to or for shareholders, and other
related or similar functions as may from time to time be agreed. The
Administrative Services Agreement specific to each Fund's Institutional
Class shares provides that the class will pay a fee calculated at an annual
percentage of .05% of the class's average daily net assets, paid monthly,
together with any applicable sales or similar tax. Services are currently
provided under these agreements by TMC. For the year ended June 30, 1997,
Limited Term National Fund and Limited Term California Fund paid to TMC
$8,588 and $265, respectively, under each Fund's Administrative Services Plan
specific to Institutional Class shares. For the year ended September 30,
1996, Intermediate National Fund, Government Fund and Income Fund paid to TMC
$57, $1 and $89, respectively, under each Fund's Administrative Services
Agreement specific to Institutional Class shares, and for the year ended
September 30, 1997, Intermediate National Fund, Government Fund and Income
Fund paid to TMC $2,673, $229 and $1,212, respectively, under the same
Agreement. 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.

SERVICE PLANS

Each of the Funds has adopted a plan and agreement of distribution
pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("Service
Plan") which is applicable to Institutional Class shares of each Fund. The
Plan permits each Fund to pay to TMC (in addition to the management and
administration fees and reimbursements described above) an annual amount not
exceeding .25 of 1% of the Fund's Institutional Class assets to reimburse TMC
for specific expenses incurred by it in connection with certain shareholder
services and the distribution of that Fund's shares to investors. TMC may,
but is not required to, expend additional amounts from its own resources in
excess of the currently reimbursable amount of expenses. Reimbursable
expenses include the payment of amounts, including incentive compensation, to
securities dealers and other financial institutions, including banks (to the
extent permissible under the Glass-Steagall Act and other federal banking
laws), for administration and shareholder services, and in connection with
the distribution of Institutional Class shares. The nature and scope of
services provided by dealers and other entities likely will vary from entity
to entity, but may include, among other things, processing new account
applications, preparing and transmitting to the Transfer Agent information
respecting shareholder account transactions, and serving as a source of
information to customers concerning the Funds and transactions with the
Funds. TMC has no current intention to request or receive any reimbursement
under the Service Plans applicable to the Institutional Classes of any of the
Funds. The Service Plan does not provide for accrued but unpaid
reimbursements to be carried over and paid to TMC in later years.
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<PAGE>
PORTFOLIO TRANSACTIONS

In General

Municipal Funds and Taxable Income Funds

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

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

Value Fund

All orders for the purchase or sale of portfolio securities are placed
on behalf of Value Fund by TMC pursuant to authority contained in the
Investment Advisory Agreement. TMC is also responsible for the placement of
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<PAGE>
transaction orders for other investment companies for which it acts as
investment adviser. In selecting broker-dealers, subject to applicable
limitations of the federal securities laws, TMC considers various relevant
factors, including, but not limited to: the size and type of the
transaction; the nature and character of the markets for the security to be
purchased or sold; the execution efficiency, settlement capability, and
financial condition of the broker-dealer firm; the broker-dealer's execution
services rendered on a continuing basis; and the reasonableness of any
commissions; and arrangements for payment of Fund expenses. Generally
commissions for foreign investments traded will be higher than for U.S.
investments and may not be subject to negotiation. Value Fund may execute
portfolio transactions with broker-dealers who provide research and execution
services to the Fund. Such services may include advice concerning the value
of securities; the availability of securities or the purchasers or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and performance
of accounts; and effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). The selection of such
broker-dealers is generally made by TMC (to the extent possible consistent
with execution considerations) in accordance with a ranking of broker-dealers
determined periodically by TMC's investment staff based upon the quality of
such research and execution services provided. The receipt of research from
broker-dealers that execute transactions on behalf of the Fund may be useful
to TMC in rendering investment management services to the Fund. The receipt
of such research has not reduced TMC's normal independent research
activities; however, it enables TMC to avoid the additional expenses that
could be incurred if TMC tried to develop comparable information through its
own efforts.

Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
Value Fund to pay such higher commissions, TMC must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers,
viewed in terms of a particular transaction or TMC's overall responsibilities
to the Fund. In reaching this determination, TMC will not attempt to place a
specific dollar value on the brokerage and research services provided, or to
determine what portion of the compensation would be related to those
services.

The Trustees of Thornburg Investment Trust periodically review TMC's
performance of its responsibilities in connection with the placement of
portfolio transactions on behalf of Value Fund and review the commissions
paid by the Fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the Fund.
79
<PAGE>
From time to time the Trustees will review whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar
fees paid by the Fund on portfolio transactions is legally permissible and
advisable. The Fund may seek to recapture soliciting broker-dealer fees on
the tender of portfolio securities.

Portfolio Turnover Rates

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

Year ended Year ended
June 30, 1996 June 30, 1997
------------- -------------
Limited Term National Fund 20.59% 23.39%
Limited Term California Fund 22.68% 20.44%

Year ended Year ended
Sept. 30, 1996 Sept. 30, 1997
-------------- --------------
Intermediate National Fund 12.64% 15.36%
Government Fund 23.27% 41.10%
Income Fund 44.35% 13.87%
Value Fund 59.62% 78.83%

MANAGEMENT

Limited Term National Fund and Limited Term California Fund

Limited Term National Fund and Limited Term California Fund are separate
"series" or investment portfolios of Thornburg Limited Term Municipal Fund,
Inc., a Maryland corporation (the "Company"). The management of Limited Term
National Fund and Limited Term California Fund, including general supervision
of TMC's performance of duties under the Investment Advisory Agreement and
Administrative Services Agreements applicable to the Funds, is the
responsibility of the Board of Directors of the Company. There are five
Directors of the Company, one of whom is an "interested person" (as the term
"interested" is defined in the Investment Company Act of 1940) and four of
whom are "disinterested" persons. The names of the Directors and officers
and their principal occupations and other affiliations during the past five
years are set forth below, with those Directors who are "interested persons"
of the Company indicated by an asterisk:

H. Garrett Thornburg, Jr.,* 51, Director, Chairman and Treasurer of the
Company; President and Trustee of Thornburg Investment Trust; Chairman and
Director of Thornburg Mortgage Advisory Corporation since its formation in
1989; Chairman and Director of Thornburg Mortgage Asset Corporation (real
80
<PAGE>
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.

J. Burchenal Ault, 70, Director of the Company; Consultant to and fund
raiser for charities, 1990 to present; Trustee of Thornburg Investment Trust
since June 1987; Director of Farrar, Strauss & Giroux (publishers).

Eliot R. Cutler , 50, Director of the Company; Partner, Cutler &
Stanfield, Attorneys, Washington, D.C.

James E. Monaghan, Jr., 49, Director of the Company; President, Monaghan
& Associates, Inc. and Strategies West, Inc. Denver, Colorado, (business
consultants).

A. G. Newmyer III, 47, Director of the Company; President, from 1983 to
December 1992, and Senior Officer from January 1993, Newmyer Associates,
Inc., Washington, D.C., (business consultants).

Richard M. Curry , 57, Advisory Director of the Company; Senior Vice
President McDonald & Co., Indianapolis, Indiana (securities dealers).

Brian J. McMahon, 41, President of the Company; Vice President of
Thornburg Investment Trust since June 1987 and a Trustee from June 1996 to
August 1997; Managing Director of TMC, Vice President of TMC from December
1995 through July 1997 and President since August 1997.

Steven J. Bohlin, 38, Vice President of the Company; Vice President and
Treasurer of Thornburg Investment Trust; a Managing Director and a Vice
President of TMC.

William Fries, 57, Vice President of the Company; Vice President of
Thornburg Investment Trust; Managing Director of TMC since May 1995 and Vice
President since December 1995; Vice President of USAA Investment Management
Company from 1982 to 1995.

Ken Ziesenheim, 43, Vice President of the Company; Vice President of
Thornburg Investment Trust; Managing Director and Vice President of TMC since
1995; President of Thornburg Securities Corporation since 1995; Senior Vice
President of Financial Services, Raymond James & Associates, Inc. from 1991
to 1995.

Dawn B. Fischer, 50, Secretary of the Company; Secretary and Assistant
Treasurer of Thornburg Investment Trust; Managing Director and Secretary of
TMC.

Susan Rossi, 36, Assistant Vice President of the Company since July
1992; Assistant Vice President of Thornburg Investment Trust since June 1992;
Associate of TMC, and Vice President since December 1995.
81
<PAGE>
George Strickland, 34, Assistant Vice President of the Company since
July 1992; Vice President of Thornburg Investment Trust; Associate of TMC
since July 1991 and Managing Director since 1996; Vice President of TMC since
December 1995.

Jonathan Ullrich, 28, Assistant Vice President of the Company since July
1992; Assistant Vice President of Thornburg Investment Trust since 1992;
Associate of TMC since September 1991 and Assistant Vice President since
December 1995.

Jack Lallement, 58, Assistant Vice President of the Company 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 of the Company since
September 1997; Assistant Vice President of Thornburg Investment Trust; Fund
Accountant for TMC since 1993; BBA, University of New Mexico, 1993.

Van Billops, 31, Assistant Vice President of the Company since September
1997; Assistant Vice President of Thornburg Investment Trust; Fund Accountant
for TMC since 1992.

Dale Van Scoyk, 50, Assistant Vice President of the Company since
September 1997; Assistant Vice President of Thornburg Investment Trust;
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,
and Executive Vice President of Daily Tax-Free Income Fund, Inc. Mr.
Ziesenheim is president of TSC, and Ms. Fischer is secretary of TSC.

The officers and Directors affiliated with TMC will serve without any
compensation from the Company. The Company pays each Director who is not an
employee of TMC or an affiliated company a quarterly fee of $1,000 plus a
$500 fee for each meeting of the Board of Directors attended by the Director.
In addition, the Company pays a $1,000 annual stipend to each member of the
audit committee, and reimburses all Directors for travel and out-of-pocket
expenses incurred in connection with attending such meetings.
82
<PAGE>

The Company paid fees to the Directors during the year ended June 30,
1997 as follows:

<TABLE>
Pension or
Retirement Estimated Total
Aggregate Benefits Annual Compensation
Name of Compensation Accrued as Benefits from Company and
Person, from Part of Upon Fund Complex
Position Company Fund Expenses Retirement Paid to Directors
- -------- ------------ ------------- ------------- -----------------
<C> <C> <C> <C> <C>
H. Garrett 0 0 0 0
Thornburg,
Jr.

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

Eliot R. $6,000 0 0 $6,000
Cutler

James E. $7,000 0 0 $7,000
Monaghan, Jr.

A. G. $7,000 0 0 $7,000
Newmyer, III

Richard M. $6,000 0 0 $6,000
Curry
</TABLE>

Intermediate National Fund; Government Fund; Income Fund; Value Fund

Intermediate National Fund, Government Fund, Income Fund and Value Fund
are separate "series" or investment portfolios of Thornburg Investment Trust,
a Massachusetts business trust (the "Trust"). The management of Intermediate
National Fund, Government Fund, Income Fund and Value Fund, including the
general supervision of TMC's performance of its duties under the Investment
Advisory Agreements and Administrative Services Agreements applicable to the
Funds, is the responsibility of the Trust's Trustees. There are five
Trustees, one of whom is an "interested person" (as the term "interested" is
defined in the Investment Company Act of 1940) and four of whom are
"disinterested" persons. The names of Trustees and officers and their
principal occupations and affiliations during the past five years are set
forth below, with the Trustee who is an "interested person" of the Trust
indicated by an asterisk.

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

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.

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.

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

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 and a Vice President since 1995.

Jonathan Ullrich, 28 / Assistant Vice President / Assistant Vice President of
Thornburg Limited Municipal Fund, Inc. since July 1992 and a Vice President
since 1995.

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.

The business address of each person listed is 119 East Marcy Street,
Suite 202, Santa Fe, New Mexico 87501. Mr. Thornburg is a Director of TSC,
Executive Vice President of Daily Tax-Free Income Fund, Inc., and a Chairman
and Treasurer of Thornburg Limited Term Municipal Fund, Inc. Mr. Ziesenheim
and Ms. Fischer are president and secretary, respectively, of TSC.

The officers and Trustees affiliated with TMC serve without any
compensation from the Trust. The Trust pays each Trustee who is not an
employee of TMC or an affiliated person a quarterly fee of $1,000 plus $500
for each meeting of the Trustees attended by the Trustee. In addition, the
Trust pays a $1,000 annual stipend to each member of each committee
established by the Trustees, and reimburses all Trustees for travel and
out-of-pocket expenses incurred in connection with attending those meetings.
The Trustees have established one committee, the audit committee, on which
Messrs. Ater, Ault and Smith currently serve.
85
<PAGE>
The Trust paid fees to the Trustees during the year ended September 30,
1997 as follows:

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

Limited Term National Fund

As of August 15, 1997, Limited Term National Fund had an aggregate of
65,935,670.115 shares outstanding, of which 2,948,646.691 were Institutional
Class shares. No persons are known to have held of record or beneficially 5%
or more of Limited Term National Fund's outstanding shares on August 15,
1997. On the same date, the officers, Directors and related persons of
Thornburg Limited Term Municipal Fund, Inc., as a group, held less than one
percent of the outstanding shares of the Fund.

Limited Term California Fund

As of August 15, 1997, Limited Term California Fund had an aggregate of
8,352,620.3 shares outstanding, of which 435,163.622 were Institutional Class
shares. No persons are known to have held of record or beneficially 5% or
more of Limited Term California Fund's outstanding shares on August 15, 1997.
On the same date, the officers, Directors and related persons of Thornburg
Limited Term Municipal Fund, Inc., as a group, held less than one percent of
the outstanding shares of the Fund.

Intermediate National Fund

As of November 14, 1997, Intermediate National Fund had an aggregate of
25,274,985 shares outstanding, of which 1,327,420 were Institutional Class
shares. No persons are known to have held of record or beneficially 5% or
more of Intermediate National Fund's outstanding shares on November 14, 1997.
On the same date, the officers, Trustees and related persons of Thornburg
Investment Trust, as a group, held less than one percent of the outstanding
shares of the Fund.
86
<PAGE>
Government Fund

As of November 14, 1997, Government Fund had an aggregate of 11,327,887
shares outstanding, of which 428,889 were Institutional Class shares. No
persons are known to have held of record or beneficially 5% or more of
Government Fund's outstanding shares on November 14, 1997. On the same date,
the officers, Trustees and related persons of Thornburg Investment Trust, as
a group, held less than one percent of the outstanding shares of the Fund.

Income Fund

As of November 14, 1997, Income Fund had an aggregate of 3,409,459
shares outstanding, of which 375,074 were Institutional Class shares. No
persons are known to have held of record or beneficially 5% or more of Income
Fund's outstanding shares on November 14, 1997. On the same date, the
Thornburg Management Company, Inc. Profit Sharing Plan held 74,281 shares of
the Fund, representing approximately 2.18% of the issued and outstanding
shares of that Fund on that date.

Value Fund

As of November 14, 1997, Value Fund had an aggregate of 3,972,379 shares
outstanding, none of which were Institutional Class shares. On the same
date, the officers, Trustees and related persons owned 485,454 shares of
Value Fund, representing approximately 12.22% of the Fund's issued and
outstanding shares. On November 14, 1997 the following persons owned 5% or
more of Value Fund's outstanding shares:

<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

<F2> Total includes 88,686 shares owned by Thornburg Management Company, Inc.
(as to which Mr. McMahon is president), and 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) and 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 a
trustee and holds voting and investment powers).
</TABLE>

87
<PAGE>

NET ASSET VALUE

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

DISTRIBUTOR

Pursuant to a Distribution Agreement with Thornburg Limited Term
Municipal Fund, Inc., Thornburg Securities Corporation ("TSC") acts as
principal underwriter of Limited Term National Fund and Limited Term
California Fund Institutional Class shares, and pursuant to a separate
Distribution Agreement with Thornburg Investment Trust, TSC also acts as
principal underwriter of Institutional Class shares of Intermediate National
Fund, Government Fund, Income Fund and Value Fund. The Funds do not bear
selling expenses except (i) those involved in registering its shares with the
Securities and Exchange Commission and qualifying them or the Fund with state
regulatory authorities, and (ii) expenses paid under the Service Plans and
which might be considered selling expenses. Terms of continuation,
termination and assignment under the Distribution Agreement are identical to
those described above with regard to the Investment Advisory Agreements,
except that termination other than upon assignment requires six months'
notice.

H. Garrett Thornburg, Jr., Treasurer, a Director and Chairman of the
Board of Thornburg Limited Term Municipal Fund, Inc. and President and a
Trustee of Thornburg Investment Trust, is also Director and controlling
stockholder of TSC.

INDEPENDENT AUDITORS

McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, is
the independent auditor of the Limited Term National Fund and Limited Term
California Fund for their fiscal year ending June 30, 1998, and is the
independent auditor of Intermediate National Fund, Government Fund, Income
Fund and Value Fund for their fiscal year ending September 30, 1998.
88
<PAGE>
FINANCIAL STATEMENTS

Statements of Assets and Liabilities, including Schedules of
Investments, as of June 30, 1997, Statements of Operations for the year ended
June 30, 1997 and Statements of Changes in Net Assets for the two years in
the period ended June 30, 1997, Notes to Financial Statements and Financial
Highlights, and Independent Auditor's Reports dated July 25, 1997, for
Limited Term National Fund and Limited Term California Fund are incorporated
herein by reference from the Funds' Annual Reports to Shareholders, June 30,
1997.

Statements of Assets and Liabilities, including Schedules of
Investments, as of September 30, 1997, Statements of Operations for the year
ended September 30, 1997 and Statements of Changes in Net Assets for the two
years in the period ended September 30, 1997 (one year for Value Fund), Notes
to Financial Statements and Financial Highlights, and Independent Auditor's
Reports dated October 24, 1997, for Intermediate National Fund, Government
Fund, Income Fund and Value Fund, are incorporated herein by reference from
the Funds' Annual Reports to Shareholders, September 30, 1997.