33-14905
Filed with the Securities and Exchange Commission
April 2, 1999
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 38 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 41 [x]
(Check appropriate box or boxes)
THORNBURG INVESTMENT TRUST (formerly "Thornburg Income Trust"
(Exact Name of Registrant as Specified in Charter)
119 East Marcy Street, Suite 202, Santa Fe, NM 87501
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code
(505) 984-0200
H. Garrett Thornburg, Jr.
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
(Name and Address of Agent for Service
Approximate Date of Proposed Public Offering June 1, 1999
----------------------
It is proposed that this filing will become effective (check appropriate
box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On (February 1, 1999) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)
[ ] On [date] pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] On [date] pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
THORNBURG INVESTMENT TRUST
(i) Thornburg Limited Term U.S. Government Fund
(ii) Thornburg Intermediate Municipal Fund
(iii) Thornburg New Mexico Intermediate Municipal Fund
(iv) Thornburg Limited Term Income Fund
(v) Thornburg Florida Intermediate Municipal Fund
(vi) Thornburg Value Fund
(vii) Thornburg Global Value Fund
(viii) Thornburg New York Intermediate Municipal Fund
CONTENTS
Facing Sheet
Contents
Cross Reference Sheets (Thornburg Limited Term U.S. Government
Fund [Class A shares and Class C shares];
Thornburg Limited Term Income Fund
[Class A shares and Class C shares])
Cross Reference Sheets (Thornburg Intermediate Municipal Fund;
[Class A and Class C shares]
Thornburg New Mexico Intermediate Municipal Fund
[Class A shares];
Thornburg Florida Intermediate Municipal Fund
[Class A shares];
Thornburg New York Intermediate Municipal Fund
[Class A shares];
Cross Reference Sheets (Thornburg Value Fund [Class A shares and
Class C shares]; Thornburg Global Value Fund
[Class A shares and Class C shares])
Cross Reference Sheets (Thornburg Intermediate Municipal Fund
[Institutional Class]; Thornburg Limited Term U.S.
Government Fund [Institutional Class]; Thornburg
Limited Term Income Fund [Institutional Class];
Thornburg Value Fund [Institutional Class])
Prospectus (Thornburg Limited Term U.S. Government Fund
[Class A shares and Class C shares];
Thornburg Limited Term Income Fund
[Class A shares and Class C shares])
Prospectus (Thornburg Intermediate Municipal Fund;
[Class A and Class C shares]
Thornburg New Mexico Intermediate Municipal Fund
[Class A shares];
Thornburg Florida Intermediate Municipal Fund
[Class A shares];
Thornburg New York Intermediate Municipal Fund
[Class A shares])
Prospectus (Thornburg Value Fund [Class A shares and
Class C shares]; Thornburg Global Value Fund
[Class A shares and Class C shares])
Prospectus (Thornburg Intermediate Municipal Fund
[Institutional Class shares];
Thornburg Limited Term U.S. Government Fund
[Institutional Class Shares];
Thornburg Limited Term Income Fund
[Institutional Class shares];
Thornburg Value Fund [institutional Class shares])
Statement of Additional (Thornburg Limited Term U.S. Government Fund
Information [Class A shares and Class C shares];
Thornburg Limited Term Income Fund
[Class A shares and Class C shares])
Statement of Additional (Thornburg Intermediate Municipal Fund
Information [Class A shares and Class C shares];
Thornburg New Mexico Intermediate Municipal Fund
[Class A shares];
Thornburg Florida Intermediate Municipal Fund
[Class A shares];
Thornburg New York Intermediate Municipal Fund
[Class A shares])
Statement of Additional (Thornburg Value Fund [Class A shares and
Information Class C shares]; Thornburg Global Value Fund
[Class A shares and Class C shares])
Statement of Additional (Thornburg Intermediate Municipal Fund
Information [Institutional Class shares];
Thornburg Limited Term U.S. Government Fund
[Institutional Class shares];
Thornburg Limited Term Income Fund
[Institutional Class shares]; and
Thornburg Value Fund
[Institutional Class shares])
Part C
Signature Page
Exhibits
<PAGE>
THORNBURG INVESTMENT TRUST
CROSS REFERENCE SHEETS
("Thornburg Limited Term Income Funds"
[Class A and Class C shares])
Thornburg Limited Term U.S. Government Fund
Thornburg Limited Term Income Fund
Form N-1A Item Number
- ---------------------
Part A Prospectus Caption
1(a). . . . . . . . . . . . . . . . . .Front Cover Page
(b). . . . . . . . . . . . . . . . . . Back Cover Page
2(a). . . . . . . . . . . . . . . . . . . . . THE FUNDS
(b). . . . . . . . . . . . . . . . . . . . . THE FUNDS
(c). . . . . . . . . . . . . . . . . . . . . THE FUNDS
3 . . . . . . . . . . . . . . . . . . . . . . THE FUNDS
4 . . . . . . . . . . . . . . . . . . . . . . THE FUNDS
5 . . . . . . . .FUND PERFORMANCE AND INDEX COMPARISONS
6(a) . . . . . . . . . . . . . . . . INVESTMENT ADVISER
(b) . . . . . . . . . . . . . . . . . .(Not Applicable)
7(a) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
(b) . .YOUR ACCOUNT - BUYING FUND SHARES; Buying Class
A Shares; Buying Class C Shares
(c) . . . . . . . . . . . . . . . .SELLING FUND SHARES
(d) . . . . . . . . . . . .DIVIDENDS AND DISTRIBUTIONS
(e) . . . . . . . . . . . . . . . . . . . . . . .TAXES
(f) . . . . . . . . . . . . . . . . . .(Not Applicable)
8(a) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
(b) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
9 . . . . . . . . . . . . . . . . .FINANCIAL HIGHLIGHTS
Part B Statement of Additional Information
10(a) . . . . . . . . . . . . . . . . .Front Cover Page
10(b) . . . . . . . . . . . . . . . . TABLE OF CONTENTS
11(a) . . . . . . . . . . . . ORGANIZATION OF THE FUNDS
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
12(a) . . . . . . . . . . . . ORGANIZATION OF THE FUNDS
(b) . . . . . . . .INVESTMENT OBJECTIVES AND POLICIES
(c) . . . . . . . INVESTMENT OBJECTIVES AND POLICIES;
INVESTMENT LIMITATIONS
(d) . . . . . . . . . . . . . . . . . . . .Prospectus
(e) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
13(a) . . . . . . ORGANIZATION OF THE FUNDS; MANAGEMENT
(b) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
(c) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
(d) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
14(a) . . . . . . . . . . . . . . . . . (Not Applicable)
(b) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
(c) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
15(a) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(b) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(c) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(d) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(e) . . . . . . . . . . . . . . . . . (Not Applicable)
(f) . . . . . . . . . . . . . Prospectus; DISTRIBUTOR
(g) . . . . . . . . . .SERVICE AND DISTRIBUTION PLANS
(h) . . . . . . . . . . . . . . . . . (Not Applicable)
16(a) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
(c) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
(d) . . . . . . . . . . . . . . . . . (Not Applicable)
(e) . . . . . . . . . . . . . . . . . (Not Applicable)
17(a) . . . . . . Prospectus; ORGANIZATION OF THE FUNDS
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
18(a) . . . . . . . Prospectus; PURCHASE OF FUND SHARES
(b) . . . . . . . . . . . . . PURCHASE OF FUND SHARES
(c) . . . . . . . . . . . . . . . . . . . .Prospectus
(d) . . . . . . . . . . . . . . . . . . . .Prospectus
19(a) . . DISTRIBUTIONS, TAXES AND SHAREHOLDER ACCOUNTS
(b) . . DISTRIBUTIONS, TAXES AND SHAREHOLDER ACCOUNTS
20(a) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(b) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(C) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
21(a) . . . . . . . . . . . . . . . . . (Not Applicable)
(b) . . . . . . . . . . YIELD AND RETURN COMPUTATION;
REPRESENTATIVE PERFORMANCE INFORMATION
22(a) . Financial Statements (incorporated by reference)
(b) . Financial Statements (incorporated by reference)
<PAGE> THORNBURG INVESTMENT TRUST
CROSS REFERENCE SHEETS
("Thornburg Intermediate Municipal Funds"
[Class A shares and Class C shares])
Thornburg Intermediate Municipal Fund
Thornburg New Mexico Intermediate Municipal Fund
Thornburg Florida Intermediate Municipal Fund
Thornburg New York Intermediate Municipal Fund
Form N-1A Item Number
- ---------------------
Part A Prospectus Caption
1(a). . . . . . . . . . . . . . . . . .Front Cover Page
(b). . . . . . . . . . . . . . . . . . Back Cover Page
2(a). . . . . . . . . . . . . . . . . . . . . THE FUNDS
(b). . . . . . . . . . . . . . . . . . . . . THE FUNDS
(c). . . . . . . . . . . . . . . . . . . . . THE FUNDS
3 . . . . . . . . . . . . . . . . . . . . . . THE FUNDS
4 . . . . . . . . . . . . . . . . . . . . . . THE FUNDS
5 . . . . . . . .FUND PERFORMANCE AND INDEX COMPARISONS
6(a) . . . . . . . . . . . . . . . . INVESTMENT ADVISER
(b) . . . . . . . . . . . . . . . . . .(Not Applicable)
7(a) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
(b) . .YOUR ACCOUNT - BUYING FUND SHARES; Buying Class
A Shares; Buying Class C Shares
(c) . . . . . . . . . . . . . . . .SELLING FUND SHARES
(d) . . . . . . . . . . . .DIVIDENDS AND DISTRIBUTIONS
(e) . . . . . . . . . . . . . . . . . . . . . . .TAXES
(f) . . . . . . . . . . . . . . . . . .(Not Applicable)
8(a) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
(b) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
9 . . . . . . . . . . . . . . . . .FINANCIAL HIGHLIGHTS
Part B Statement of Additional Information
10(a) . . . . . . . . . . . . . . . . .Front Cover Page
10(b) . . . . . . . . . . . . . . . . TABLE OF CONTENTS
11(a) . . . . . . . . . . . . ORGANIZATION OF THE FUNDS
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
12(a) . . . . . . . . . . . . ORGANIZATION OF THE FUNDS
(b) . . . . . . . .INVESTMENT OBJECTIVES AND POLICIES
(c) . . . . . . . INVESTMENT OBJECTIVES AND POLICIES;
INVESTMENT LIMITATIONS
(d) . . . . . . . . . . . . . . . . . . . .Prospectus
(e) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
13(a) . . . . . . ORGANIZATION OF THE FUNDS; MANAGEMENT
(b) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
(c) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
(d) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
14(a) . . . . . . . . . . . . . . . . . (Not Applicable)
(b) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
(c) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
15(a) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(b) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(c) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(d) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(e) . . . . . . . . . . . . . . . . . (Not Applicable)
(f) . . . . . . . . . . . . . Prospectus; DISTRIBUTOR
(g) . . . . . . . . . .SERVICE AND DISTRIBUTION PLANS
(h) . . . . . . . . . . . . . . . . . (Not Applicable)
16(a) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
(c) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
(d) . . . . . . . . . . . . . . . . . (Not Applicable)
(e) . . . . . . . . . . . . . . . . . (Not Applicable)
17(a) . . . . . . Prospectus; ORGANIZATION OF THE FUNDS
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
18(a) . . . . . . . Prospectus; PURCHASE OF FUND SHARES
(b) . . . . . . . . . . . . . PURCHASE OF FUND SHARES
(c) . . .Prospectus; DETERMINATION OF NET ASSET VALUE
(d) . . . . . . . . . . . . . . . . . . . .Prospectus
19(a) . . DISTRIBUTIONS, TAXES AND SHAREHOLDER ACCOUNTS
(b) . . DISTRIBUTIONS, TAXES AND SHAREHOLDER ACCOUNTS
20(a) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(b) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(C) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
21(a) . . . . . . . . . . . . . . . . . (Not Applicable)
(b) . . . . . . . . . . YIELD AND RETURN COMPUTATION;
REPRESENTATIVE PERFORMANCE INFORMATION
22(a) . Financial Statements (incorporated by reference)
(b) . Financial Statements (incorporated by reference)
<PAGE>
THORNBURG INVESTMENT TRUST
CROSS REFERENCE SHEETS
Thornburg Value Fund and Thornburg Global Value Fund
[Class A shares and Class C Shares]
Form N-1A Item Number
- ---------------------
Part A Prospectus Caption
1(a). . . . . . . . . . . . . . . . . .Front Cover Page
(b). . . . . . . . . . . . . . . . . . Back Cover Page
2(a). . . . . . . . . . . . . . . . . . . . . THE FUNDS
(b). . . . . . . . . . . . . . . . . . . . . THE FUNDS
(c). . . . . . . . . . . . . . . . . . . . . THE FUNDS
3 . . . . . . . . . . . . . . . . . . . . . . THE FUNDS
4 . . . . . . . . . . . . . . . . . . . . . . THE FUNDS
5 . . . . . . . .FUND PERFORMANCE AND INDEX COMPARISONS
6(a) . . . . . . INVESTMENT ADVISER AND MANAGEMENT FEES
(b) . . . . . . . . . . . . . . . . . .(Not Applicable)
7(a) . . . . . . . . YOUR ACCOUNT - BUYING FUND SHARES;
TRANSACTION DETAILS
(b) . .YOUR ACCOUNT - BUYING FUND SHARES; Buying Class
A Shares; Buying Class C Shares
(c) . . . . . . . . . . . . . . . .SELLING FUND SHARES
(d) . . . . . . . . . . . .DIVIDENDS AND DISTRIBUTIONS
(e) . . . . . . . . . . . . . . . . . . . . . . .TAXES
(f) . . . . . . . . . . . . . . . . . .(Not Applicable)
8(a) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
(b) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
9 . . . . . . . . . . . . . . . . .FINANCIAL HIGHLIGHTS
Part B Statement of Additional Information
10(a) . . . . . . . . . . . . . . . . .Front Cover Page
10(b) . . . . . . . . . . . . . . . . TABLE OF CONTENTS
11(a) . . . . . . . . . . . . .DESCRIPTION OF THE TRUST
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
12(a) . . . . . . . . . . . . .DESCRIPTION OF THE TRUST
(b) . . . . . . . INVESTMENT POLICIES AND LIMITATIONS
(c) . . . . . . . INVESTMENT POLICIES AND LIMITATIONS
(d) . . . . . . . . . . . . . . . . . . . .Prospectus
(e) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
13(a) . . . . . . . . . . . . .DESCRIPTION OF THE TRUST
(b) . . . . . . . . . . . . . . TRUSTEES AND OFFICERS
(c) . . . . . . . . . . . . . . TRUSTEES AND OFFICERS
(d) . . . . . . . . . . . . . . TRUSTEES AND OFFICERS
14(a) . . . . . . . . . . . . . . . . . (Not Applicable)
(b) . . . . . . . . . PRINCIPAL HOLDERS OF SECURITIES
(c) . . . . . . . . . PRINCIPAL HOLDERS OF SECURITIES
15(a) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(b) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(c) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(d) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(e) . . . . . . . . . . . . . . . . . (Not Applicable)
(f) . . . . . . . . . . . . . Prospectus; DISTRIBUTOR
(g) . . . . . . . . . .SERVICE AND DISTRIBUTION PLANS
(h) . . . . . . . . . . . . . . . . . (Not Applicable)
16(a) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
(c) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
(d) . . . . . . . . . . . . . . . . . (Not Applicable)
(e) . . . . . . . . . . . . . . . . . (Not Applicable)
17(a) . . . . . . .Prospectus; DESCRIPTION OF THE TRUST
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
18(a) . . . . . . . Prospectus; ADDITIONAL PURCHASE AND
REDEMPTION INFORMATION
(b) . .ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
(c) . . . . . . . . . . . . . . . . . . . .Prospectus
(d) . . . . . . . . . . . . . . . . . . . .Prospectus
19(a) . . . . . . . . . . . . . DISTRIBUTIONS AND TAXES
(b) . . . . . . . . . . . . . DISTRIBUTIONS AND TAXES
20(a) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(b) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(C) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
21(a) . . . . . . . . . . . . . . . . . (Not Applicable)
(b) . . . . . . . . . . . PERFORMANCE; REPRESENTATIVE
PERFORMANCE INFORMATION
22(a) . Financial Statements (incorporated by reference)
(b) . Financial Statements (incorporated by reference)
<PAGE>
THORNBURG INVESTMENT TRUST
CROSS REFERENCE SHEETS
Thornburg Intermediate Municipal Fund
[Institutional Class]
Thornburg Limited Term U.S. Government Fund
[Institutional Class]
Thornburg Limited Term Income Fund
[Institutional Class]
Thornburg Value Fund
[Institutional Class]
Form N-1A Item Number
- ---------------------
Part A Prospectus Caption
1(a). . . . . . . . . . . . . . . . . .Front Cover Page
(b). . . . . . . . . . . . . . . . . . Back Cover Page
2(a). . . . . . . . . . . . . . . . . . . . . THE FUNDS
(b). . . . . . . . . . . . . . . . . . . . . THE FUNDS
(c). . . . . . . . . . . . . . . . . . . . . THE FUNDS
3 . . . . . . . . . . . . . . . . . . . . . . THE FUNDS
4 . . . . . . . . . . . . . . . . . . . . . . THE FUNDS
5 . . . . . . . .FUND PERFORMANCE AND INDEX COMPARISONS
6(a) . . . . . . . . . . . . . . . . INVESTMENT ADVISER
(b) . . . . . . . . . . . . . . . . . .(Not Applicable)
7(a) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
(b) . .YOUR ACCOUNT - BUYING FUND SHARES; Buying Class
A Shares; Buying Class C Shares
(c) . . . . . . . . . . . . . . . .SELLING FUND SHARES
(d) . . . . . . . . . . . .DIVIDENDS AND DISTRIBUTIONS
(e) . . . . . . . . . . . . . . . . . . . . . . .TAXES
(f) . . . . . . . . . . . . . . . . . .(Not Applicable)
8(a) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
(b) . . . . . . . . .YOUR ACCOUNT - BUYING FUND SHARES
9 . . . . . . . . . . . . . . . . .FINANCIAL HIGHLIGHTS
Part B Statement of Additional Information
10(a) . . . . . . . . . . . . . . . . .Front Cover Page
10(b) . . . . . . . . . . . . . . . . TABLE OF CONTENTS
11(a) . . . . . . . . . . . . ORGANIZATION OF THE FUNDS
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
12(a) . . . . . . . . . . . . ORGANIZATION OF THE FUNDS
(b) . . . . . . . .INVESTMENT OBJECTIVES AND POLICIES
(c) . . . . . . . INVESTMENT OBJECTIVES AND POLICIES;
INVESTMENT LIMITATIONS
(d) . . . . . . . . . . . . . . . . . . . .Prospectus
(e) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
13(a) . . . . . . ORGANIZATION OF THE FUNDS; MANAGEMENT
(b) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
(c) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
(d) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
14(a) . . . . . . . . . . . . . . . . . (Not Applicable)
(b) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
(c) . . . . . . .MANAGEMENT AND HOLDERS OF SECURITIES
15(a) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(b) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(c) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(d) . . . . . . . . . . . . . INVESTMENT ADVISORY AND
ADMINISTRATIVE SERVICES AGREEMENTS
(e) . . . . . . . . . . . . . . . . . (Not Applicable)
(f) . . . . . . . . . . . . . Prospectus; DISTRIBUTOR
(g) . . . . . . . . . .SERVICE AND DISTRIBUTION PLANS
(h) . . . . . . . . . . . . . . . . . (Not Applicable)
16(a) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
(c) . . . . . . . . . . . . . .PORTFOLIO TRANSACTIONS
(d) . . . . . . . . . . . . . . . . . (Not Applicable)
(e) . . . . . . . . . . . . . . . . . (Not Applicable)
17(a) . . . . . . Prospectus; ORGANIZATION OF THE FUNDS
(b) . . . . . . . . . . . . . . . . . (Not Applicable)
18(a) . . . . . . . Prospectus; PURCHASE OF FUND SHARES
(b) . . . . . . . . . . . . . PURCHASE OF FUND SHARES
(c) . . . . . . . . . . . . . . . . . . . .Prospectus
(d) . . . . . . . . . . . . . . . . . . . .Prospectus
19(a) . . DISTRIBUTIONS, TAXES AND SHAREHOLDER ACCOUNTS
(b) . . DISTRIBUTIONS, TAXES AND SHAREHOLDER ACCOUNTS
20(a) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(b) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
(C) . . . . . . . . . . . . . . . . . . . DISTRIBUTOR
21(a) . . . . . . . . . . . . . . . . . (Not Applicable)
(b) . . . . . . . . . . YIELD AND RETURN COMPUTATION;
REPRESENTATIVE PERFORMANCE INFORMATION
22(a) . Financial Statements (incorporated by reference)
(b) . Financial Statements (incorporated by reference)
<OUTSIDE FRONT COVER>
PART A
THORNBURG LIMITED TERM INCOME FUNDS
Thornburg Limited Term U.S. Government Fund
Thornburg Limited Term Income Fund
Prospectus
June 1, 1999
Thornburg Limited Term U.S. Government Fund ("Government Fund")
Thornburg Limited Term Income Fund ("Income Fund")
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.
NOT FDIC INSURED MAY LOSE VALUE -
NO BANK GUARANTEE
<PAGE>
Table of Contents
__ Thornburg Limited Term U.S. Government Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of the Fund
Fees and Expenses
__ Thornburg Limited Term Income Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of the Fund
Fees and Expenses
__ Management Discussion of Fund Performance and Index
Comparisons
__ Additional Information About the Funds' Investments
__ Description of Potential Investors and Advantages
__ Your Account - Buying Fund Shares
__ Selling Fund Shares
__ Dividends and Distributions
__ Taxes
__ Investor Services, Individual Retirement Accounts
__ and Retirement Plans, Transaction Services
__ Dividends and Distributions
__ Taxes
__ Transaction Details
__ Exchange Restrictions
__ Investment Adviser and Management Fees
__ Financial Highlights
__ Additional Information
<PAGE>
Limited Term U.S. Government Fund
Investment Goals
- -----------------
The primary goal of Government Fund is to provide as high a level of
current income as is consistent, in the view of The Fund's investment
adviser, with safety of capital. As a secondary goal, the Fund seeks to
reduce changes in its share price compared to longer term portfolios. The
Fund's primary and secondary goals are fundamental Fund policies, and may
not be changed without a majority vote of the Fund's shareholders.
Principal Investment Strategies
- ---------------------------------
Thornburg Management Company, Inc. (TMC) actively manages the Fund's
investments in pursuing the Fund's primary investment goal. Investment
decisions are based upon general economic and financial trends such as
domestic and international economic developments, outlooks for securities
markets, interest rates and inflation, the supply and demand for debt
securities, and other factors. The Fund's investments are determined by
individual security analyses.
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.
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.
Because the magnitude of changes in the value of interest bearing
obligations is greater for obligations with longer terms, the Fund seeks to
reduce changes in its share value by maintaining a portfolio of investments
with a dollar-weighed average maturity or expected life normally less than
five years. There is no limitation on the maturity of any specific
security the Fund may purchase, and the Fund may sell any security before
it matures. The Fund also attempts to reduce changes in share value
through credit analysis, selection and diversification.
Principal Risks of Investing in the Fund
- ---------------------------------------
The value of the Fund's shares and its dividends will change in response to
changes in market interest rates. When interest rates increase, the value
of the Fund's investments declines and the Fund's share value is reduced.
When interest rates decline, the value of the Fund's investments increases.
Dividends also will vary over time. Value changes in response to interest
rate changes may be more pronounced for mortgage backed securities owned by
the Fund. Additionally, decreases in market interest rates may result in
prepayments of certain obligations the Fund will acquire. These
prepayments may require the Fund to reinvest at a lower rate of return.
Some investments owned by the Fund may be subject to default or delays in
payment, or could be downgraded by rating agencies, reducing the value of
the Fund's shares. A fall in worldwide demand for U.S. Government
Securities or general economic decline could lower the value of these
securities.
An investment in the Fund is not a deposit of any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. If your sole objective is preservation of capital, then
the Fund may not be suitable for you because the Fund's share value will
move up and down as interest rates change. Investors whose sole objective
is preservation of capital may wish to consider a high quality money market
fund.
Past Performance of the Fund
- ---------------------------
The following information provides some indication of the risks of
investing in the Fund by showing how the Fund's investment results vary.
The bar chart shows how the annual total returns for Class A shares have
been different in each full year shown, and the average annual total return
figures compare Class A and Class C share performance to the Lehman
Brothers Intermediate Government Bond Index, a broad measure of market
performance.
<The following are presented as bar graphs in the Prospectus>
Limited Term U.S. Government Fund Annual Total Returns For Class A Shares
- -------------------------------------------------------------------------
15%
12.53% 12.98%
10% 10.58%
8.59% 7.38% 6.99%
5% 6.19% 6.58%
4.29%
0%
(2.07%)
- -5
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Year to date return, period ending 3/31/99: 0.06%.
Highest quarterly results for time period shown: 5.03% (quarter ended
6/30/89)
Lowest quarterly results for time period shown: (1.52)% (quarter ended
3/31/94).
Limited Term U.S. Government Fund Average Annual Total Returns
- ------------------------------------------------------------
(periods ended 12/31/98)
One Year Five Years Ten Years Since Inception
-------- ---------- --------- ---------------
Class A Shares 5.37% 5.33% 7.20% 7.07% (11/16/87)
Lehman Index 8.49% 6.55% 8.39% 8.22%
Class C Shares .94% N/A N/A 6.37% (9/1/94)
Lehman Index 8.49% N/A N/A 7.80%
The sales charge for Class A shares was not reflected in the returns shown
in the bar chart, and the returns would be less if the sales charge was
taken into account. The figures shown in the average annual total return
table do reflect maximum sales charges imposed, assuming a redemption at
the end of each period shown. Performance in the past is not necessarily
an indication of how the Fund will perform in the future.
FEES AND EXPENSES OF THE FUND
(The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund)
Shareholder Fees (fees paid directly from your investment)
- ----------------
Limited Term U.S. Government Fund Class A Class C
------- -------
Maximum Sales Charge (Load) imposed on 1.50% none
purchases (as a percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a 0.50%* 0.50%**
percentage of the lesser of redemption proceeds
or original offering price)
* imposed only on redemptions of purchases greater than $1 million in
the event of a redemption within 12 months of purchase
** imposed only on redemptions of Class C shares within 12 months
of purchase
Annual Fund Operating Expenses (expenses that are deducted
- ------------------------------ from Fund assets)
Limited Term U.S. Government Class A Class C
Management Fee .38% .38%
Distribution and Service (12b-1) Fees .25% 1.00%
Other Expenses .35% .83%
---- -----
Total Annual Fund Operating Expenses .98% 2.21%
Expenses reflect rounding and are restated to reflect current expenses.
Thornburg Management Company, Inc. (TMC) and Thornburg Securities
Corporation (TSC) intend to waive a portion of the Class C 12b-1 fees, and
TMC intends to reimburse a portion of the Class C other expenses, so that
actual Class C 12b-1 fees are .50%, actual Class C other expenses are .52%,
and actual total Fund operating expenses for Class C are 1.40%. TMC's and
TSC's waiver of fees and TMC's reimbursement of expenses may be terminated
at any time.
Example. This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $248 $456 $682 $1,333
Class C Shares 276 696 1,195 2,570
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $248 $456 $682 $1,333
Class C Shares 226 696 1,195 2,570
Limited Term Income Fund
Investment Goals
- ----------------
The primary goal of Income Fund is to provide as high a level of current
income as is consistent, in the view of the Fund's investment adviser, with
safety of capital. As a secondary goal, the Fund seeks to reduce changes
in its share prices compared to longer term portfolios. The Fund's primary
and secondary goals are fundamental Fund policies, and may not be changed
without a majority of the Fund's shareholders.
Principal Investment Strategies
- -------------------------------
Thornburg Management Company, Inc. (TMC) actively manages the Fund's
portfolio in attempting to meet the Fund's primary investment goal.
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 Fund's investments are determined
by individual security analyses. The Fund seeks to enhance its income by
taking advantage of yield disparities, trends or other factors in the fixed
income markets. Although the Fund ordinarily will acquire securities for
investment rather than for realization of gains on market fluctuations, it
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.
The Fund will invest at least 65% of its net assets in (i) obligations of
the U.S. Government, and its agencies and instrumentalities, and (ii) debt
securities rated investment grade, or if not rated, judged to be of
comparable quality by TMC. Debt securities the Fund may purchase include
corporate debt obligations, mortgage backed securities, other asset-backed
securities, municipal securities, and commercial paper and bankers'
acceptances. The Fund emphasizes investments in U.S. Government securities
and other issuers domiciled in the United States, but may purchase foreign
securities of the same types and quality as the domestic securities it
purchases, when TMC anticipates foreign securities offer more investment
potential.
Because the magnitude of changes in the value of interest bearing
obligations is greater for obligations with longer terms, the Fund seeks to
reduce changes in its share value by maintaining a portfolio of investments
with a dollar-weighted average maturity or expected life normally less than
five years. There is no limitation on the maturity of any specific
security the Fund may purchase, and the Fund may sell any security before
it matures. The Fund also attempts to reduce changes in share value
through credit analysis, selection and diversification.
Principal Risks of Investing in the Fund
- -----------------------------------------
The value of the Fund's shares and its dividends will change in response to
changes in market interest rates. When interest rates increase, the value of
the Fund's investments declines and the Fund's share value is reduced. When
interest rates decline, the value of the Fund's investments increases. Value
changes in response to interest rate changes may be more pronounced for
mortgage and asset backed securities owned by the Fund. Additionally,
decreases in market interest rates may result in prepayments of certain
obligations the Fund will acquire.
Some investments owned by the Fund may be subject to default or delays in
payment, or could be downgraded by rating agencies, reducing the value of the
Fund's shares. A fall in worldwide demand for U.S. Government Securities or
general economic decline could lower the value of these Securities.
Additionally, foreign securities the Fund may purchase are subject to
additional risks, including changes in currency exchange rates which may
adversely affect the Fund's investments, political instability, confiscation,
inability to sell foreign investments and reduced legal protections for
investments.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. If your sole objective is preservation of capital, then
the Fund may not be suitable for you because the Fund's share value will move
up and down as interest rates change. Investors whose sole objective is
preservation of capital may wish to consider a high quality money market
fund.
Past Performance of the Fund
- ----------------------------
The following information provides some indication of the risks of investing
in the Fund by showing how the Fund's investment results vary. The bar chart
shows how the annual total returns for Class A shares have been different in
each full year shown, and the average annual total return figures compare
Class A and Class C share performance to the Lehman Intermediate Corporate
Bond Index, a broad measure of market performance.
<The following are presented as bar graphs in the Prospectus>
Limited Term Income Fund Annual Total Returns for Class A Shares
- ------------------------------------------------------------
15% 15.42%
10% 9.57%
7.58% 6.40%
5% 5.58%
0%
- -5 (3.04%)
1993 1994 1995 1996 1997 1998
Year to date return, period ending 3/31/99: 0.04%.
Highest quarterly results for time period shown: 4.87% (quarter ended
6/30/95).
Lowest quarterly results for time period shown: (2.45)% (quarter ended
12/31/94).
Limited Term Income Fund Average Annual Total Returns
- ---------------------------------------------------
(periods ended 12/31/98)
One Year Five Years Since Inception
-------- ---------- ---------------
Class A Shares 4.80% 5.90% 6.28% (10/1/92)
Lehman Index 8.45% 6.52% 6.54%
Class C Shares 5.47% N/A 6.79% (9/1/94)
Lehman Index 8.45% N/A 7.95%
The sales charge for Class A shares was not reflected in the returns shown
in the bar charts, and the returns would be less if the sales charge was
taken into account. The figures shown in the average annual total return
table do reflect maximum sales charges imposed, assuming a redemption at
the end of each period shown. Performance in the past is not necessarily
an indication of how the Fund will perform in the future.
FEES AND EXPENSES OF THE FUND
(The following tables describe the fees and expenses that you may pay if you
buy and hold shares of the Fund)
Shareholder Fees (fees paid directly from your investment)
- ---------------
Limited Term Income Fund Class A Class C
------- -------
Maximum Sales Charge (Load)imposed on 1.50% none
purchases as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 0.50 0.50%**
as a percentage of the lesser of redemption
proceeds or original offering price)
* imposed only on redemptions of purchases greater than $1 million in
the event of a redemption within 12 months of purchase.
** impose only on redemptions of Class C shares within 12 months of
purchase
Annual Fund Operating Expenses (expenses that are deducted
- ------------------------------ from Fund assets)
Limited Term Income Fund Class A Class C
------- -------
Management Fee .50% .50%
Distribution and Service (12b-1) Fees .25% 1.00%
Other Expenses .47% .80%
----- -----
Total Annual Fund Operating Expenses 1.22% 2.30%
Expenses reflect rounding. Thornburg Management Company, Inc. (TMC)
intends to reimburse a portion of the Class A other expenses, so that
actual Class A other expenses are .25%, and actual total fund operating
expenses are 1.00%. TMC and Thornburg Securities Corporation (TSC) intend
to waive a portion of the Class C 12b-1 fees, and TMC intends to reimburse
a portion of the Class C other expenses, so that actual Class C 12b-1
expenses are .50%, actual Class C other expenses are .40%, and actual total
fund operating expenses for Class C are 1.40%. TMC's and TSC's waiver of
fees and TMC's reimbursement of expenses may be terminated at any time.
Example. This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $273 $534 $816 $1,620
Class C Shares 285 727 1,246 2,674
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $273 $534 $816 $1,620
Class C Shares 236 727 1,246 2,674
MANAGEMENT DISCUSSION OF FUND PERFORMANCE AND INDEX COMPARISONS
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.
Interest rates decreased through the end of 1997, but began increasing in
January 1998 and, then stayed approximately the same between February 1998
and May 1998, before decreasing again in June through September. In
general, interest rates have decreased since September 1997. For example,
the generic 30 year Treasury bond yielded 6.44% in October, 1997. Its yield
dropped to 5.7% in January 1998 before rising to 6.1% in May and then
dropping again to close at 4.98% on September 30, 1998.
In general, interest rate decreases since September 1997 have led to higher
bond prices and falling bond yields, although the yield premiums on
corporate bonds and mortgage backed securities over treasury bonds have
increased substantially. Five, ten and thirty year treasury bond prices
have increased by 5.5%, 11.8% and 18.5%, respectively, between October 1,
1997 and September 30, 1998. The net asset values of the Government Fund
and the Income Fund also increased 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 rise, but the
dividends would be expected to decrease.
GOVERNMENT FUND
Index Comparisons
Compares performance of the Government Fund Class A shares and Class C shares
to the Lehman Brothers Intermediate Government Bond Index, and the Consumer
Price Index for the periods ended September 30, 1998. On September 30, 1998,
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 3.9 years and 4.2 years, respectively. Class A
shares became available on November 16, 1987, and 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 10,232
6/91 13,046 13,866 11,778 7/95 10,683 10,808 10,243
10/91 13,755 14,690 11,908 8/95 10,750 10,897 10,263
2/92 14,068 15,124 12,015 9/95 10,852 10,972 10,273
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 10,408
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 10,470
10/94 15,816 17,322 12,950 5/96 11,097 11,239 10,502
2/95 16,298 17,924 13,067 6/96 11,177 11,353 10,512
6/95 17,037 18,866 13,211 7/96 11,213 11,388 10,544
10/95 17,497 19,372 13,304 8/96 11,222 11,401 10,565
2/96 17,835 19,784 13,437 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
12/97 19,802 22,291 14,055 12/97 12,278 12,765 10,886
3/98 20,099 22,762 14,069 3/98 12,439 13,034 10,897
6/98 20,396 23,184 14,153 6/98 12,610 13,276 10,962
9/98 21,159 24,264 14,210 9/98 13,066 13,894 11,006
</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 9/30/98): 8.19%
9/30/98): 5.99% From Inception (9/1/94): 6.77%
Five Years: 5.08%
10 Years: 7.11%
From Inception (11/16/87): 7.13%
INCOME FUND
Index Comparisons
Compares performance of the Income Fund Class A shares and Class C shares to
the Lehman Brothers Intermediate Government Corporate Bond Index, and the
Consumer Price Index for the periods ended September 30, 1998. On
September 30, 1998, 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. Class A shares became available on October 1, 1992 and 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>
9/92 $ 9,750 $10,000 $10,000 8/94 $10,000 $10,000 $10,000
12/92 9,778 9,964 10,090 9/94 9,928 9,908 10,020
3/93 10,168 10,359 10,171 12/94 9,688 9,896 10,060
6/93 10,374 10,583 10,232 3/95 10,065 10,331 10,141
9/93 10,661 10,821 10,284 6/95 10,543 10,847 10,232
12/93 10,715 10,839 10,366 9/95 10,808 11,027 10,273
3/94 10,550 10,544 10,428 12/95 11,122 11,450 10,335
6/94 10,506 10,480 10,491 3/96 11,074 11,355 10,439
9/94 10,646 10,566 10,575 6/96 11,220 11,425 10,512
12/94 10,385 10,554 10,618 9/96 11,578 11,628 10,596
3/95 10,802 11,017 10,703 10/96 11,834 11,834 10,628
6/95 11,328 11,568 10,799 11/96 12,014 11,990 10,660
9/95 11,627 11,759 10,843 12/96 11,928 11,913 10,692
12/95 11,986 12,211 10,908 1/97 11,910 11,960 10,703
3/96 11,937 12,109 11,017 2/97 11,928 11,982 10,735
6/96 12,107 12,184 11,094 3/97 11,840 11,900 10,746
9/96 12,504 12,400 11,183 4/97 11,917 12,040 10,756
12/96 12,895 12,705 11,284 5/97 12,044 12,140 10,767
3/97 12,813 12,690 11,341 6/97 12,161 12,251 10,778
6/97 13,162 13,064 11,375 . . .
9/97 13,449 13,417 11,443 9/97 12,403 12,581 10,843
12/97 13,615 13,704 11,489 12/97 12,544 12,851 10,886
3/98 13,815 14,040 11,501 3/98 12,726 13,165 10,897
6/98 13,969 14,304 11,570 6/98 12,844 13,413 10,962
9/98 14,400 14,945 11,616 9/98 13,228 14,014 11,006
</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 9/30/98): 6.65%
9/30/98): 4.40% From Inception (9/1/94): 7.09%
Five Years: 5.66%
From Inception (10/01/92): 6.27%
ADDITIONAL INFORMATION ABOUT THE FUNDS' INVESTMENTS
Intermediate Term Bonds and Price Stability
Normally, the Funds expect to offer greater price stability than a higher
yielding long-term bond fund and higher yields than most short-term
investments. Historically, intermediate-term government bonds enjoyed higher
returns, compounded annually over the period 1926-1994, as compared to
long-term government bonds and 90-day U.S. Treasury Bills. Intermediate-term
bonds outperformed longer-term issues because intermediate-term bonds did not
suffer the large capital losses which befell higher yielding long-term bonds
when bond yields rose. Intermediate-term bonds, which have less price
stability than short-term obligations, nonetheless outperformed short-term
bills because the yield on intermediate-term obligations typically is higher
than the yield on short-term obligations. The combination of price stability
and relatively high yield enjoyed by intermediate-term bonds caused these
bonds to 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.
U.S. Government Securities. U.S. Government securities either Fund may
purchase 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. Either Fund also may purchase obligations issued by various
U.S. government agencies when those obligations are more attractive
investments. Some of these "agency obligations" are backed by the full faith
and credit of the U.S. Government, but other agency obligations are supported
by the agency's authority to borrow from the U.S. Government or the
discretionary authority of the Treasury to purchase obligations of the
issuing agency.
GNMA Certificates. From time to time either Fund may invest in "GNMA"
certificates issued by the Government National Mortgage Association. These
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.
Participations. To facilitate its investment in any of the types of
obligations which the Funds may acquire, a 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 credit support passes through or is otherwise available
to the participants or the trustee for all participants. Similarly, either
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, in the case of Income Fund, mortgage loans. A 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.
Repurchase Agreements. When a 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 price will include a margin of profit or return for the Fund. 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.
Either 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 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. the Fund will not enter into any reverse
repurchase agreement if, as a result, more 5% of its total assets would be
subject to such obligations.
Securities Ratings. 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.
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.
Mortgage and Other Asset-Backed Securities. Income Fund may 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. Some mortgage-backed securities which the Fund
may purchase will not be backed by the full faith and credit of the U.S.
Government. 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. 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,
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.
In addition to its investments in foreign securities, Income Fund may 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. 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.
Strategic Positions. Income Fund may use futures, options and other
derivative instruments to "hedge" or protect its investments from adverse
movements in securities prices and interest rates. Limited Term Income Fund
may use currency hedging techniques, including forward currency contracts, to
manage exchange rate risk. The Fund also may use these techniques to obtain
potential gains, but no more than 5% of the Fund's assets will be committed
to these techniques entered into for purposes other than bona fide hedging,
risk management or portfolio management. The Fund believes that use of
derivatives will benefit the Fund, but the Fund's performance could be
reduced if TMC's judgment is incorrect. Risks resulting from the use of
derivatives include:
* the risk that interest rates or markets (including currency values)
will not move in the direction the portfolio manager anticipates;
* some futures and options markets may not always be liquid, and the
Fund may not be able to close out a transaction without loss;
* daily margin calls for futures contracts may create a greater risk
of loss;
* imperfect correlations may occur between the price of the derivative
instrument and movement in the price of securities, interest rates or
currencies being hedged;
* inability to close out hedged positions may occur because of illiquidity
or disruption in markets, or exchange-imposed limitations or
restrictions;
* the other party to a transaction may not fulfill its obligations;
* price changes in an instrument may result in a loss greater than the
Fund's actual investment.
YEAR 2000
The inability of some computer systems to recognize dates after December 31,
1999 could cause some disruptions in the securities industry.
Thornburg Fund's Transfer Agent and Custody Bank National Financial Data
Services/DST (Transfer Agent) and State Street Bank (Custodian) have been
preparing for year 2000 conversion since 1988. Beta testing has been done
using 1999/2000 conversions all the way out to 2009/2010 conversions
(including leap year calculations). Firewalls have been built to isolate
non-complaint third party transmissions and testing has begun with all third
party electronic communicators. Detailed Y2K information is available over
the Internet at www.dstsystems.com. DST's stated goal is to be Y2K Ready by
the end of 1998.
The Funds' internal systems take no electronic downloads other than from DST
Systems. We do, however, purchase information and research delivered
electronically. We also use analytical programs provided by such vendors,
e.g. bond analytics. Failure of such externally supplied services would
impair our efficiency, and that of our entire industry. It would not,
however, preclude our ability to analyze securities or monitor and adjust
portfolios.
In addition, although we don't expect it to be the case, issuers of
securities owned by the Funds might have difficulties that would delay or
disrupt their payments of interest or dividends to the Funds.
DESCRIPTION OF POTENTIAL INVESTORS AND ADVANTAGES
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
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,
and could result in increased capital gains distributions to shareholders.
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. 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
Class A shares are sold subject to a front-end sales charge. The sales
charge is deducted from the offering price when you purchase shares, and the
balance is invested at net asset value (NAV). the sales charge is not
imposed on shares that are purchased with reinvested dividends or other
distributions. Class A shares are also subject to a Rule 12b-1 Service Plan,
which provides for the Fund's payment to TMC of up to 1/4 of 1% of the
class's net assets each year, to obtain various shareholder related services.
Because this service fee is paid out of the class's assets on an ongoing
basis, over time these fees will increase the cost of your investment and may
cost more than paying other types of sales charges.
Because the fees for Class A shares of each Fund are lower than the fees for
Class C shares of the same Fund, Class A shares of each Fund pay higher
dividends than Class C shares of the same Fund. The deduction of the initial
sales charge, however, means that you purchase fewer Class A shares than
Class C shares of each Fund for a given amount invested. If you are in any
of the special classes of investors who can buy Class A shares at net asset
value or at a reduced sales charge, you should consider buying Class A
shares. If you are planning a large purchase or purchases under the Right of
Accumulation or Letter of Intent you should consider if your overall costs
will be lower by buying Class A shares, particularly if you plan to hold your
shares for an extended period of time.
<TABLE>
Class A Shares
Total Sales Charge
As Percentage As Percentage
of Offering Price of Net Asset Value
<S> <C> <C>
Less than $250,000.00 1.50% 1.52%
$250,000 to 499,999.99 1.25% 1.27%
$500,000 to 999,999.99 1.00% 1.01%
$1,000,000 and up 0.00% 0.00%
</TABLE>
SALES CHARGE REDUCTIONS AND WAIVERS FOR CLASS A SHARES
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.
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.
BUYING CLASS C SHARES
Class C shares are sold at the NAV next determined after your order is
received. Class C shares are subject to a 1% contingent deferred sales
charge (CDSC) if the shares are redeemed within one year of purchase. The
percentage is calculated on the amount of the redemption proceeds for each
share, or the original purchase price, whichever is lower. Shares not
subject to the CDSC are considered redeemed first. The CDSC is not imposed
on shares purchased with reinvested dividends or other distributions. Class
C shares are subject to a Rule 12b-1 Service Plan providing for payment of a
service fee of up to 1/4 of 1% of the class's net assets each year, to obtain
shareholder related services. Class C shares are also subject to a
Rule 12b-1 Distribution Plan providing for payment of a distribution fee of
up to 3/4 of 1% of the class's net assets each year, to pay for commissions
and other distribution expenses. Because these service and distribution fees
are paid out of the class's assets on an ongoing basis, over time these fees
will increase the cost of your investment and may cost more than paying other
types of sales charges. Purchases of $1,000,000 or more of Class C shares
will not be accepted.
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
Through Your Financial Consult with your Consult with your
Advisor financial advisor. financial advisor
By Telephone Exchange from another Exchange from another
1-800-847-0200 Thornburg Fund account Thornburg Fund account
with the same registra- with the same registra-
tion, including name, tion, including name,
address, and taxpayer address, and taxpayer
ID number. ID number.
By Mail Complete and sign the Make your check payable
application. Make your to the applicable
check payable to the Thornburg Fund. Indicate
applicable Thornburg your Fund account number
Fund. Mail to the on your check and mail to
address indicated on the the address printed on
application. your account statement.
Automatic Investment Use one of the above Use Automated Clearing
Plan procedures to open your House funds. Sign up for
account. Obtain an this service when opening
Automatic Investment your account, or call
Plan form to sign up 1-800-847-0200 to add
for this service. to it.
- ----------------------------------------------------------------------------
Complete and sign an account application and give it, along with your check,
to your financial advisor. You may also open your account by wire or mail as
described above. If there is no application accompanying this prospectus,
call 1-800-847-0200. If you buy shares by check and then redeem those
shares, the payment may be delayed for up to 15 business days to ensure that
your previous investment has cleared.
STREET NAME OWNERSHIP OF SHARES
Some securities dealers offer to act as owner of record of Fund shares as a
convenience to investors who are clients of those firms and shareholders of
an individual Fund. Neither the Fund nor the Transfer Agent can be
responsible for failures or delays in crediting shareholders for dividends or
redemption proceeds, or for delays in reports to shareholders if a
shareholder elect s to hold Fund shares in street-name through a brokerage
firm account rather than directly in the shareholder's own name. Further,
neither the Fund nor the Transfer Agent will be responsible to the investor
for any loss to the investor due to the brokerage firm's failure, its loss of
property or funds, or its acts or omissions. Prospective investors are urged
to confer with their financial advisor to learn about the different options
available for owning mutual fund shares. You may receive share certificates
or hold shares in your name with the Transfer Agent upon request.
SELLING FUND SHARES
You can withdraw money from your Fund account at any time by redeeming some
or all of your shares (by selling them back to the Fund or by selling the
shares through you r financial advisor). Your shares will be purchased by the
Fund at the next share price (NAV) calculated after your order is received in
proper form. 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
INTERNET REDEMPTION. You may redeem shares of any account other than
retirement accounts by contacting Thornburg at its Website, www.thornburg.com
and following the instructions.
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
Accounts 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
Internet All Account Types www.thornburg.com
- ----------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
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 its 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.
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.
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.
Thornburg Website. Thornburg's Website on the Internet provides you with
helpful information 24 hours a day, at: www.thornburg.com
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
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.
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.
TRANSACTION DETAILS
The Funds are open for business each day the New York Stock Exchange (NYSE)
is open. Each class of shares of each 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 __. 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.
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.
The minimum account size is $1,000. Each Fund reserves the right to redeem
the shares of any shareholder whose shares have a net asset value of less
than $1,000. The Fund will notify the shareholder before performing the
redemption.
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 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.
* Each 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. Each Fund may, however, limit such cash in respect to
each shareholder during any 90 day period to the lesser of $250,000 or 1%
of the net asset value of the Fund at the beginning of such period. This
election has been made pursuant to Rule 18f-1 under the Investment Company
Act of 1940 and is irrevocable while the Rule is in effect unless the
Securities and Exchange Commission, by order, permits its withdrawal. In
the case of a redemption in kind, securities delivered in payment for
shares would be valued at the same value assigned to them in computing the
net asset value per share of the Fund. A shareholder receiving such
securities would incur brokerage costs when selling the securities.
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 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.
INVESTMENT ADVISER AND MANAGEMENT FEES
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 below and paid monthly as a percentage of each Fund's average
daily assets.
<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>
For the Funds' most recent fiscal year ended September 30, 1998, Government
Fund and Income Fund paid an annual management fee of .375% and .50%,
respectively, of average daily net 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,
Thornburg Value Fund, and Thornburg Global Value Fund, in addition to the
Funds described in this prospectus. The Thornburg Funds total approximately
$2.2 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, is the portfolio manager 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 "Buying Fund Shares."
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.
FINANCIAL HIGHLIGHTS
The Financial Highlights table is intended to help you understand the Funds'
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate an investor would have earned or lost on an investment in
the Fund, assuming reinvestment of all dividends and distributions for the
fiscal years and periods shown. The information has been audited by McGladrey
& Pullen, LLP, independent auditors, whose report, along with the Funds'
financial statements, are included in the Funds' Annual Reports, which are
available on request.
FINANCIAL HIGHLIGHTS
<TABLE>
- -------------------------
THORNBURG GOVERNMENT FUND
- -------------------------
FISCAL YEAR OR PERIOD
---------------------------------------------------------------------------------------
CLASS A CLASS C
------------------------------------------ ------------------------------------------
Period
9/1/94
to
Year Ended September 30: Year ended September 30: 9/30/94
1998 1997 1996 1995 1994 1998 1997 1996 1995 <F(a)>
<CAPTION> ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.31 $12.24 $12.40 $12.03 $12.92 $12.37 $12.29 $12.45 $12.08 $12.21
Net Investment Income .69 .75 .76 .75 .67 .64 .70 .71 .69 .06
Net Gains (or Losses) on Securities .35 .07 (.16) .37 (.89) .34 .08 (.16) .37 (.13)
(Realized and Unrealized) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations $1.04 $.82 $.60 $1.12 $(.22) $.98 $.78 $.55 $1.06 $(.07)
Dividends (from Net Investment Income) (.69) (.75) (.76) (.75) (.67) (.64) (.70) (.71) (.69) (.06)
Distributions (from Capital Gains) - - - - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (.69) (.75) (.76) (.75) (.67) (.64) (.70) (.71) (.69) (.06)
Net Asset Value, End of Period $12.66 $12.31 $12.24 $12.40 $12.03 $12.71 $12.37 $12.29 $12.45 $12.08
Total Return <F(b)> 8.75% 6.86% 4.92% 9.66% (1.72)% 8.19% 6.49% 4.51% 9.07% (.50)%
Net Assets, End of Period (000's omitted) $129,312 133,711 139,510 142,849 177,439 6,446 4,299 2,780 2,217 1,005
Ratio of Expenses to Average Net Assets (.97)% (.97)% (.99)% (.99)% (.95)% (1.40)% (1.40)% (1.39)% (1.52)% (1.63)%
(After Expense Reductions) <F(c)>
Ratio of Net Income to Average Net Assets 5.61% 6.09% 6.11% 6.23% 5.38% 5.16% 5.65% 5.72% 5.68% 5.45%
(After Expense Reductions) <F(c)>
Portfolio Turnover Rate 29.77% 41.10% 23.27% 28.31% 80.58% 29.77% 41.10% 23.27% 28.31% 80.58%
Ratio of Expenses to Average Net Assets (.97)% (.97)% (.99)% (.99)% (.95)% (1.70)% (2.24)% (2.35)% (2.30)% (1.63)%
(Before Expense Reductions)
- ---------------------
THORNBURG INCOME FUND
- ---------------------
FISCAL YEAR OR PERIOD
---------------------------------------------------------------------------------------
CLASS A CLASS C
------------------------------------------ ------------------------------------------
Period
9/1/94
to
Year Ended September 30: Year ended September 30: 9/30/94
1998 1997 1996 1995 1994 1998 1997 1996 1995 <F(a)>
<CAPTION> ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.37 $12.23 $12.11 $11.83 $12.55 $12.34 $12.20 $12.08 $11.78 $11.92
Net Investment Income .72 .76 .76 .76 .67 .66 .71 .71 .70 .06
Net Gains (or Losses) on Securities .13 .14 .12 .28 (.69) .13 .14 .12 .30 (.14)
(Realized and Unrealized) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations $.85 $.90 $.88 $1.04 $(.02) $.79 $.85 $.83 $1.00 $(.08)
Dividends (from Net Investment Income) (.72) (.76) (.76) (.76) (.67) (.66) (.71) (.71) (.70) (.06)
Distributions (from Capital Gains) - - - - (.03) - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (.72) (.76) (.76) (.76) (.70) (.66) (.71) (.71) (.70) (.06)
Net Asset Value, End of Period $12.50 $12.37 $12.23 $12.11 $11.83 $12.47 $12.34 $12.20 $12.08 $11.78
Total Return <F(b)> 7.08% 7.56% 7.54% 9.22% (.14)% 6.65% 7.13% 7.12% 8.87% (.72)%
Net Assets, End of Period (000's omitted) $35,866 31,281 23,433 23,222 21,683 7,147 5,382 2,695 1,032 53
Ratio of Expenses to Average Net Assets 1.00% 1.00% .95% .83% .66% 1.40% 1.40% 1.36% 1.36% (1.20)%
(After Expense Reductions) <F(c)>
Ratio of Net Income to Average Net Assets 5.81% 6.16% 6.31% 6.50% 5.51% 5.40% 5.76% 5.91% 6.03% 5.14%
(After Expense Reductions) <F(c)>
Portfolio Turnover Rate 41.01% 13.87% 44.35% 43.12% 84.35% 41.01% 13.87% 44.35% 43.12% 84.35%
Ratio of Expenses to Average Net Assets 1.22% 1.27% 1.37% 1.48% 1.47% 1.80% 2.44% 3.20% 4.75% 1.20%
(Before Expense Reductions)
<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>
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.
General Counsel
Legal matters in connection with the issuance of shares of the
Funds are passed upon by White, Koch, Kelly & McCarthy,
Professional Association, Post Office Box 787, Santa Fe, New Mexico
87504-0787.
INVESTMENT ADVISER
Thornburg Management Company, Inc.
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
DISTRIBUTOR
Thornburg Securities Corporation
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
AUDITOR
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017
CUSTODIAN
State Street Bank & Trust Co.
Boston, Massachusetts
TRANSFER AGENT
State Street Bank & Trust Co.
c/o NFDS Servicing Agent
Post Office Box 419017
Kansas City, Missouri 64141-6017
<OUTSIDE BACK COVER>
The current Statement of Additional Information (SAI) for the Funds
includes additional information about the Funds, and additional
information about each Fund's investments is available in the
Fund's annual and semiannual reports to shareholders.
Shareholder inquiries and requests for copies of the Funds' SAI,
annual and semiannual reports, and other Fund information may be
made to Thornburg Securities Corporation at 119 East Marcy Street,
Suite 202, Santa Fe, New Mexico 87501 (800) 847-0200. SAIs and
annual and semiannual reports are furnished at no charge.
Information about the Funds (including the SAI) may be reviewed and
copied at the Securities and Exchange Commission's Public Reference
Room in Washington, D.C. Information about the Public Reference
Room may be obtained by calling the Commission at 1-800-SEC-0330.
Reports and other information about the Funds are also available on
the Commission's Internet site at http://www.sec.gov and copies of
information may be obtained, upon payment of a duplicating fee, by
writing the Commission's Public Reference Section, Washington, D.C.
20549-6009.
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. Neither 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]
Securities and Exchange Commission Investment Company Act of 1940
file number
811-05201
<OUTSIDE FRONT COVER>
THORNBURG MUNICIPAL FUNDS
Prospectus
June 1, 1999
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.
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 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")
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.
NOT FDIC-INSURED MAY LOSE VALUE
NO BANK GUARANTEE
<PAGE>
TABLE OF CONTENTS
__ Limited Term National Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of Fund
Fees and Expenses
__ Limited Term California Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of Fund
Fees and Expenses
__ Intermediate National Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of Fund
Fees and Expenses
__ Intermediate New Mexico Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of Fund
Fees and Expenses
__ Intermediate Florida Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of Fund
Fees and Expenses
__ Intermediate New York Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of Fund
Fees and Expenses
__ Management Discussion of Fund Performance and Index Comparisons
__ Additional Information About Fund Investments
__ Your Account - Buying Fund Shares
__ Selling Fund Shares
__ Investor Services, Transaction Services
__ Dividends and Distributions
__ Taxes
__ Transaction Details
__ Exchange Restrictions
__ Organization of the Funds
__ Investment Adviser
__ Financial Highlights
__ Additional Information
<PAGE>
Limited Term National Fund
Investment Goals
- ----------------
The primary investment goal of Limited Term National Fund is to obtain as
high a level of current income exempt from federal individual income tax as
is consistent, in the view of the Fund's investment adviser, with
preservation of capital. The secondary goal of the Fund is to reduce
expected changes in its share price compared to longer intermediate and
long-term bond portfolios. The Fund's primary and secondary goals are
fundamental policies, and may not be changed without a majority vote of the
Fund's shareholders.
Principal Investment Strategies
- ------------------------------
The Fund pursues its primary goal by investing in investment grade or
equivalent municipal obligations issued by states and state agencies, local
governments and their agencies and by certain United States territories and
possessions. Thornburg Management Company, Inc. (TMC) actively manages the
Fund's portfolio, and investment decisions are based upon general economic
and financial trends, outlooks for interest rates and securities markets,
the supply of debt securities, and analysis of specific securities. The
Fund invests in obligations which are rated as investment grade or, if
unrated, which are issued by obligors which have comparable investment
grade obligations outstanding or which are deemed by TMC to be comparable
to obligors with outstanding investment grade obligations.
The Fund seeks to enhance its income by taking advantage of yield
disparities, trends or other factors in the fixed income markets. Although
the Fund ordinarily will acquire securities for investment rather than for
realization of gains on market fluctuations, it 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. The objective of preserving capital may prevent the Fund from
obtaining the highest yields available.
The Fund normally invests 100% of its net assets in municipal obligations.
As a fundamental policy, the Fund normally invests at least 80% of its
assets in municipal obligations. The Fund may invest up to 20% of its net
assets in taxable securities which produce income not exempt from federal
income tax. These investments may be made due to market conditions,
pending investment of idle funds or to afford liquidity. The Fund's
temporary taxable investments may exceed 20% of its net assets when made
for defensive purposes during periods of abnormal market conditions.
Because the magnitude of changes in value of interest bearing obligations
is greater for obligations with longer terms, the Fund seeks to reduce
changes in its share value by maintaining a portfolio of investments with a
dollar-weighed average maturity normally less than five years. There is no
limitation on the maturity of any specific security the Fund may purchase.
The Fund may dispose of any security before it matures. The Fund also
attempts to reduce changes in it share value through credit analysis,
selection and diversification.
Principal Risks of Investing in the Fund
- -----------------------------------------
The value of the Fund's shares and its dividends will fluctuate in response
to changes in interest rates. When interest rates increase, the value of
the Fund's investments declines and the Fund's share value is reduced.
When interest rates decline, the value of the Fund's investments increases.
During periods of declining interest rates the Fund's dividends decline.
The value of Fund shares also could be reduced if municipal obligations
held by the Fund were downgraded by rating agencies, or went into default,
or if legislation or other government action reduces the ability of issuers
to pay principal and interest when due or changes the tax treatment of
interest on municipal obligations. The loss of money is a risk of
investing in the Fund, and when you sell your shares they may be worth more
or less than what you paid for them.
An investment in the Fund is not a deposit in any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Past Performance of the Fund
- ----------------------------
The following information provides some indication of the risks of
investing in the Fund by showing how the Fund's investment results vary.
The bar chart shows how the annual total returns for Class A shares have
been different in each full year shown, and the average annual total return
figures compare Class A and Class C share performance to the Lehman
Five-Year General Obligation Bond Index, a broad measure of market
performance.
The sales charge for Class A shares is not reflected in the returns shown
in the bar charts, and the returns would be less if the charge was taken
into account. The figures shown in the average annual total return table
do reflect maximum sales charges imposed, assuming a redemption at the end
of each period shown. Performance in the past is not necessarily an
indication of how the Fund will perform in the future.
<The following are presented as bar graphs in the Prospectus>
Limited Term National Fund Annual Total Returns Class A Shares
- ---------------------------------------------------------------
15%
10% 9.97
7.79 8.61 8.81
5% 6.48 7.74 5.47
3.97
0%
(1.48)
- -5
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Year to date return, period ending 3/31/99: 0.57%.
Highest quarterly results for time period shown: 3.56% (quarter ended
3/31/95).
Lowest quarterly results for time period shown: (2.10)% (quarter ended
3/31/94).
Limited Term National Fund Average Annual Total Returns
- -----------------------------------------------------
(periods ended 12/31/98)
One Year Five Years Ten Years Since Inception
-------- ---------- --------- ---------------
Class A Shares 3.20% 6.78 6.01% 6.86% (9/28/84)
Lehman Index 5.85% 5.36% 6.99% 7.67%
Class C Shares 3.86% N/A N/A 4.76% (9/1/94)
Lehman Index 5.85% N/A N/A 6.28%
<PAGE>
FEES AND EXPENSES OF THE FUND
Class A Class C
------- -------
Maximum Sales Charge (Load) imposed on 1.50% none
purchases (as a percentage of offering price)
Maximum Deferred Sales Charge on Redemptions 0.50%* 0.50%**
(as a percentage of redemption proceeds or
original purchase price, whichever is lower)
* Imposed only on redemptions of purchases greater than $1 million in
the event of a redemption within 12 months of purchase.
** Imposed only on redemptions of Class C shares within 12 months
of purchase.
Annual Fund Operating Expenses (expenses that are deducted
- ------------------------------ from Fund assets)
Thornburg Limited Term Municipal Fund-National Portfolio
Class A Class C
Management Fee .45% .45%
Distribution and Service (12b-1) Fees .25% 1.00%
Other Expenses .27% .38%
---- -----
Total Annual Operating Expenses .97% 1.83%
Thornburg Management Company, Inc. (TMC) intends to reimburse a portion of
the Class C other expenses, and Thornburg Securities Corporation intends to
waive a portion of the Class C 12b-1 fees, so that actual Class C other
expenses are .30%, actual Class C 12b-1 fees are .63%, and so that actual
total Fund operating expenses are 1.38% for Class C shares. TMC's and
TSC's reimbursement of expenses and waiver of these fees may be terminated
at any time.
Example. This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $248 $456 $602 $1,331
Class C Shares 238 581 1,001 2,175
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $248 $456 $602 $1,331
Class C Shares 188 581 1,002 2,175
<PAGE>
Limited Term California Fund
Investment Goals
- -----------------
The primary investment goal of Limited Term California Fund is to obtain as
high a level of current income exempt from federal and California state
individual income taxes as is consistent, in the view of the Fund's
investment adviser, with preservation of capital. The secondary goal of
the Fund is to reduce expected changes in its share price compared to
longer intermediate and long-term bond portfolios. The Fund's primary and
secondary goals are fundamental policies, and may not be changed without a
majority vote of the Fund's shareholders.
Principal Investment Strategies
- --------------------------------
The Fund pursues its primary goal by investing principally in municipal
obligations issued by California state and California state agencies, local
governments and their agencies and by certain United States territories and
possessions. Thornburg Management Company, Inc. (TMC) actively manages the
Fund's portfolio, and investment decisions are based upon general economic
and financial trends, outlooks for interest rates and securities markets,
the supply of debt securities, and analysis of specific securities. The
Fund invests in obligations which are rated as investment grade or, if
unrated, which are issued by obligors which have comparable investment
grade obligations outstanding or which are deemed by TMC to be comparable
to obligors with outstanding investment grade obligations.
The Fund seeks to enhance its income by taking advantage of yield
disparities, trends or other factors in the fixed income markets. Although
the Fund ordinarily will acquire securities for investment rather than for
realization of gains on market fluctuations, it 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. The objective of preserving capital may prevent the Fund from
obtaining the highest yields available.
The Fund normally invests 100% of its net assets in municipal obligations.
As a fundamental policy, the Fund normally invests at least 80% of its
assets in municipal obligations. Under normal conditions the Fund invests
100% of its assets in obligations originating in California or issued by
United States territories and possessions, and as a matter of fundamental
policy, invests at least 65% of its total assets in Municipal obligations
originating in California. The Fund may invest up to 20% of its net assets
in taxable securities which would produce income not exempt from federal or
California income tax. These investments may be made due to market
conditions, pending investment of idle funds or to afford liquidity. The
Fund's temporary taxable investments may exceed 20% of its net assets when
made for defensive purposes during periods of abnormal market conditions.
Because the magnitude of changes in value of interest bearing obligations
is greater for obligations with longer terms, the Fund seeks to reduce
changes in its share value by maintaining a portfolio of investments with a
dollar-weighed average maturity normally less than five years. There is no
limitation on the maturity of any specific security the Fund may purchase.
The Fund may dispose of any security before it matures. The Fund also
attempts to reduce changes in it share value through credit analysis,
selection and diversification.
Principal Risks of Investing in the Fund
- ----------------------------------------
The value of the Fund's shares and its dividends will fluctuate in response
to changes in interest rates. When interest rates increase, the value of
the Fund's investments declines and the Fund's share value is reduced.
When interest rates decline, the value of the Fund's investments increases.
During periods of declining interest rates the Fund's dividends decline.
The value of Fund shares also could be reduced if municipal obligations
held by the Fund were downgraded by rating agencies, or went into default,
or if legislation or other government action reduces the ability of issuers
to pay principal and interest when due or changes the tax treatment of
interest on municipal obligations. Because the Fund invests primarily in
obligations originating in California, the Fund's share value may be more
sensitive to adverse economic or political developments in that state. A
portion of the Fund's dividends could be subject to the federal alternative
minimum tax. The loss of money is a risk of investing in a Fund, and when
you sell your shares they may be worth more or less than what you paid for
them.
An investment in a Fund is not a deposit in any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Past Performance of the Fund
- ----------------------------
The following information provides some indication of the risks of
investing in the Fund by showing how the Fund's investment results vary.
The bar chart shows how the annual total returns for Class A shares have
been different in each full year shown, and the average annual total return
figures compare Class A and Class C share performance to the Lehman
Five-Year General Obligation Bond Index, a broad measure of market
performance.
The sales charge for Class A shares is not reflected in the returns shown
in the bar charts, and the returns would be less if the charge was taken
into account. The figures shown in the average annual total return table
reflect maximum sales charges imposed, assuming a redemption at the end of
each period shown. Performance in the past is not necessarily an
indication of how the Fund will perform in the future.
<The following are presented as bar graphs in the Prospectus>
Limited Term California Fund Annual Total Returns Class A Shares
- -----------------------------------------------------------------
15%
10% 8.21 10.27
7.52 7.52 7.53 5.84
5% 6.77 4.81 4.97
0%
(2.13)
- -5
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Year to date return, period ending 3/31/99: 0.80%.
Highest quarterly results for time period shown: 3.77% (quarter ended
3/31/95).
Lowest quarterly results for time period shown: (2.08)% (quarter ended
3/31/94).
Limited Term California Fund Average Annual Total Returns
- -------------------------------------------------------
(periods ended 12/31/98)
One Year Five Years Ten Years Since Inception
-------- ---------- --------- ---------------
Class A Shares 3.37% 4.25% 5.87% 5.90% (2/19/87)
Lehman Index 5.85% 5.36% 6.99% 6.39%
Class C Shares 4.46% N/A N/A 4.96% (9/1/94)
Lehman Index 5.85% N/A N/A 6.28%
<PAGE>
FEES AND EXPENSES OF THE FUND
SHAREHOLDER FEES (Fees paid directly from your investment)
Limited Term Municipal Funds
Class A Class C
------- -------
Maximum Sales Charge on Purchases 1.50% none
(as a percentage of offering price)
Maximum Deferred Sales Charge on Redemptions 0.50%* 0.50%**
(as a percentage of redemption proceeds or
original purchase price, whichever is lower)
* Imposed only on redemptions of purchases greater than $1 million in
the event of a redemption within 12 months of purchase.
** Imposed only on redemptions of Class C shares within 12 months
of purchase.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets)
Thornburg Limited Term Municipal Fund-California Portfolio
Class A Class C
Management Fee .50% .50%
Distribution and Service (12b-1) Fees .25% 1.00%
Other Expenses .29% .47%
---- -----
Total Annual Operating Expenses 1.04% 1.97%
Expenses reflect rounding. Thornburg Management Company, Inc. (TMC)
intends to reimburse a portion of the Class A other expenses, so that
actual Class A other expenses are .25%, and actual total fund operating
expenses are 1.00%. TMC and Thornburg Securities Corporation (TSC) intend
to waive a portion of the Class C 12b-1 fees, and TMC intends to reimburse
a portion of the Class C other expenses, so that actual Class C 12b-1
expenses are .63%, actual Class C other expenses are .27%, and actual total
fund operating expenses for Class C are 1.40%. TMC's and TSC's waiver of
fees and TMC's reimbursement of expenses may be terminated at any time.
Example. This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $255 $478 $720 $1,414
Class C Shares 252 625 1,075 2,326
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $255 $478 $720 $1,414
Class C Shares 202 625 1,075 2,326
<PAGE>
Intermediate National Fund
Investment Goals
- ----------------
The primary investment goal of Intermediate National Fund is to obtain as
high a level of current income exempt from federal individual income tax as
is consistent, in the view of the Fund's investment adviser, with
preservation of capital. The secondary goal of the Fund is to reduce
expected changes in its share price compared to long-term bond portfolios.
The Fund's primary and secondary goals are fundamental policies, and may
not be changed without a majority vote of the Fund's shareholders.
Principal Investment Strategies
- ------------------------------
The Fund pursues its primary goal by investing principally in municipal
obligations issued by states and state agencies, local governments and
their agencies and by certain United States territories and possessions.
Thornburg Management Company, Inc. (TMC) actively manages the Fund's
portfolio, and investment decisions are based upon general economic and
financial trends, outlooks for interest rates and securities markets, the
supply of debt securities, and analysis of specific securities. The Fund
invests in obligations which are rated as investment grade or, if unrated,
which are issued by obligors which have comparable investment grade
obligations outstanding or which are deemed by TMC to be comparable to
obligors with outstanding investment grade obligations.
The Fund seeks to enhance its income by taking advantage of yield
disparities, trends or other factors in the fixed income markets. Although
the Fund ordinarily will acquire securities for investment rather than for
realization of gains on market fluctuations, it 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. The objective of preserving capital may prevent the Fund from
obtaining the highest yields available.
The Fund normally invests 100% of its net assets in municipal obligations.
As a fundamental policy, the Fund normally invests at least 80% of its
assets in municipal obligations. The Fund may invest up to 20% of its net
assets in taxable securities which would produce income not exempt from
federal income tax. These investments may be made due to market
conditions, pending investment of idle funds or to afford liquidity. The
Fund's temporary taxable investments may exceed 20% of its net assets when
made for defensive purposes during periods of abnormal market conditions.
Because the magnitude of changes in value of interest bearing obligations
is greater for obligations with longer terms, the Fund seeks to reduce
changes in its share value by maintaining a portfolio of investments with a
dollar-weighed average maturity of normally three to ten years. During
temporary periods the Fund's portfolio maturity may be reduced for
defensive purposes. There is no limitation on the maturity of any specific
security the Fund may purchase. The Fund may dispose of any security
before it matures. The Fund also attempts to reduce changes in its share
value through credit analysis, selection and diversification.
Principal Risks of Investing in the Fund
- -----------------------------------------
The value of the Fund's shares and its dividends will fluctuate in response
to changes in interest rates. When interest rates increase, the value of
the Fund's investments declines and the Fund's share value is reduced.
When interest rates decline, the value of the Fund's investments increases.
Dividends also will vary over time. During periods of declining interest
rates the Fund's dividends decline. The value of Fund shares also could be
reduced if municipal obligations held by the Fund were downgraded by rating
agencies, or went into default, or if legislation or other government
action reduces the ability of issuers to pay principal and interest when
due or changes the tax treatment of interest on municipal obligations. A
portion of the Fund's dividends could be subject to the federal alternative
minimum tax. The loss of money is a risk of investing in the Fund, and
when you sell your shares they may be worth more or less than what you paid
for them.
An investment in the Fund is not a deposit in any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
Past Performance of the Fund
- ----------------------------
The following information provides some indication of the risks of
investing in the Fund by showing how the Fund's investment results vary.
The bar chart shows how the annual total returns for Class A shares have
been different in each full year shown, and the average annual total return
figures compare Class A and Class C share performance to the Merrill Lynch
Municipal (7-12 years) Bond Index, a broad measure of market performance.
The sales charge for Class A shares is not reflected in the returns shown
in the bar charts, and the returns would be less if the charge was taken
into account. The figures shown in the average annual total return table
does reflect maximum sales charges imposed, assuming a redemption at the
end of each period shown. Performance in the past is not necessarily an
indication of how the Fund will perform in the future.
<The following are presented as bar graphs in the Prospectus>
Intermediate National Fund Annual Total Returns Class A Shares
- ------------------------------------------------------------
15%
12.29 13.22
10% 9.81
5.47
5%
4.45
0% 0.72
(2.48)
- -5
1992 1993 1994 1995 1996 1997 1998
Year to date return, period ending 3/31/99: 0.55%.
Highest quarterly results for time period shown: 4.91% (quarter ended
3/31/95)
Lowest quarterly results for time period shown: (3.33)% (quarter ended
3/31/94).
Intermediate National Fund Average Annual Total Returns
- -------------------------------------------------------
(periods ended 12/31/98)
One Year Five Years Since Inception
-------- ---------- ---------------
Class A Shares 3.34% 5.03% 6.95% (7/23/91)
Merrill Lynch Index 6.83% 6.27% 7.48%
Class C Shares 5.04% N/A 6.04% (9/1/94)
Merrill Lynch Index 6.83% N/A 7.63%
<PAGE>
FEES AND EXPENSES OF THE FUND
SHAREHOLDER FEES (Fees paid directly from your investment)
Class A Class C
------- -------
Maximum Sales Charge on Purchases 2.00% none
(as a percentage of offering price)
Maximum Deferred Sales Charge on Redemptions 0.50%* 0.60%**
(as a percentage of redemption proceeds or
original purchase price, whichever is lower)
* Imposed only on redemptions of purchases greater than $1 million in
the event of a redemption within 12 months of purchase.
** Imposed only on redemptions of Class C shares within 12 months
of purchase.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets)
Thornburg Intermediate Municipal Fund
Class A Class C
------- -------
Management Fee .50% .50%
Distribution and Service (12b-1) Fees .25% 1.00%
Other Expenses .29% .43%
----- -----
Total Annual Fund Operating Expenses 1.04% 1.93%
Expenses reflect rounding. Thornburg Management Company, Inc. (TMC)
intends to reimburse a portion of the Class A other expenses, so that
actual Class A other expenses are .25%, and actual total fund operating
expenses are 1.00%. TMC and Thornburg Securities Corporation (TSC) intend
to waive a portion of the Class C 12b-1 fees, and TMC intends to reimburse
a portion of the Class C other expenses, so that actual Class C 12b-1
expenses are .60%, actual Class C other expenses are .30%, and actual total
fund operating expenses for Class C are 1.40%. TMC's and TSC's waiver of
fees and TMC's reimbursement of expenses may be terminated at any time.
Example. This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $304 $526 $777 $1,458
Class C Shares 258 613 1,054 2,283
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $304 $526 $777 $1,458
Class C Shares 198 613 1,054 2,283
<PAGE>
Intermediate New Mexico Fund
Investment Goals
- ----------------
The primary investment goal of Intermediate New Mexico Fund is to obtain as
high a level of current income exempt from federal and New Mexico state
individual income taxes as is consistent, in the view of the Fund's
investment adviser, with preservation of capital. The secondary goal of
the Fund is to reduce expected changes in its share price compared to
long-term bond portfolios. The Fund's primary and secondary goals are
fundamental policies, and may not be changed without a majority vote of the
Fund's shareholders.
Principal Investment Strategies
- --------------------------------
The Fund pursues its primary goal by investing principally in municipal
obligations issued by the State of New Mexico and by New Mexico state
agencies, local governments and their agencies and by certain United States
territories and possessions. Thornburg Management Company, Inc. TMC
actively manages the Fund's portfolio, and investment decisions are based
upon general economic and financial trends, outlooks for interest rates and
securities markets, the supply of debt securities, and analysis of specific
securities. The Fund invests in obligations which are rated as investment
grade or, if unrated, which are issued by obligors which have comparable
investment grade obligations outstanding or which are deemed by TMC to be
comparable to obligors with outstanding investment grade obligations.
The Fund seeks to enhance its income by taking advantage of yield
disparities, trends or other factors in the fixed income markets. Although
the Fund ordinarily will acquire securities for investment rather than for
realization of gains on market fluctuations, it 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. The objective of preserving capital may prevent the Fund from
obtaining the highest yields available.
The Fund normally invests 100% of its net assets in municipal obligations.
As a fundamental policy, the Fund normally invests at least 80% of its
assets in municipal obligations. Under normal conditions the Fund invests
100% of its assets in obligations originating in New Mexico or issued by
United States territories or possessions, and as a matter of fundamental
policy, invests at least 65% of its total assets in municipal obligations
originating in New Mexico. The Fund may invest up to 20% of its net assets
in taxable securities which produce income not exempt from federal or New
Mexico income tax. These investments may be made due to market conditions,
pending investment of idle funds or to afford liquidity. The Fund's
temporary taxable investments may exceed 20% of its net assets when made
for defensive purposes during periods of abnormal market conditions.
Because the magnitude of changes in value of interest bearing obligations
is greater for obligations with longer terms, the Fund seeks to reduce
changes in its share value by maintaining a portfolio of investments with a
dollar-weighed average maturity of normally three to ten years. During
temporary periods the Fund's portfolio maturity may be reduced for
defensive purposes. There is no limitation on the maturity of any specific
security the Fund may purchase. The Fund may dispose of any security
before it matures. The Fund also attempts to reduce changes in it share
value through credit analysis, selection and diversification.
Principal Risks of Investing in the Fund
- ---------------------------------------
The value of the Fund's shares and its dividends will fluctuate in response
to changes in interest rates. When interest rates increase, the value of
the Fund's investments declines and the Fund's share value is reduced.
When interest rates decline, the value of the Fund's investments increases.
During periods of declining interest rates the Fund's dividends decline.
The value of Fund shares also could be reduced if municipal obligations
held by the Fund were downgraded by rating agencies, or went into default,
or if legislation or other government action reduces the ability of issuers
to pay principal and interest when due or changes the tax treatment of
interest on municipal obligations. Because the Fund invests primarily in
obligations originating in New Mexico, the Fund's share value may be more
sensitive to adverse economic or political developments in that state. A
portion of the Fund's dividends could be subject to the federal alternative
minimum tax. The loss of money is a risk of investing in the Fund, and
when you sell your shares they may be worth more or less than what you paid
for them.
An investment in the Fund is not a deposit in any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund is a nondiversified investment company, and means that it may
invest a greater proportion of its assets in the securities of a single
issuer. This may be riskier, because a default or other adverse condition
affecting such an issuer could cause the Fund's share price to decline to a
greater degree.
Past Performance of the Fund
- -----------------------------
The following information provides some indication of the risks of
investing in the Fund by showing how the Fund's investment results vary.
The bar chart shows how the annual total returns for Class A shares have
been different in each full year shown, and the average annual total return
figures compare Class A share performance to the Merrill Lynch Municipal
(7-12 years) Bond Index, a broad measure of market performance. No figures
are shown for Class C shares, which became available on ____________.
The sales charge for Class A shares is not reflected in the returns shown
in the bar charts, and the returns would be less if the charge was taken
into account. The figures shown in the average annual total return table
do reflect maximum sales charges imposed, assuming a redemption at the end
of each period shown. Performance in the past is not necessarily an
indication of how the Fund will perform in the future.
<The following are presented as bar graphs in the Prospectus>
Intermediate New Mexico Fund Annual Total Returns Class A Shares
- --------------------------------------------------------------
15%
10.31 11.15
10%
8.63 6.49
5% 4.89
0% 0.42
- -5 (1.19)
1992 1993 1994 1995 1996 1997 1998
Year to date return, period ending 3/31/99: 0.61%.
Highest quarterly results for time period shown: 4.43% (quarter ended
3/31/95).
Lowest quarterly results for time period shown: (2.91)% (quarter ended
3/31/94).
Intermediate New Mexico Fund Average Annual Total Returns
- -------------------------------------------------------
(periods ending 12/31/98)
One Year Five Years Since Inception
(6/21/91)
-------- ---------- --------------
Class A Shares 2.81% 4.46% 6.29%
M-L Bond Index 6.83% 6.27% 7.32%
<PAGE>
FEES AND EXPENSES OF THE FUND
SHAREHOLDER FEES (Fees paid directly from your investment)
Class A Class C
------- -------
Maximum Sales Charge on Purchases 2.00% 0.00%
(as a percentage of offering price)
Maximum Deferred Sales Charge on Redemptions 0.50%* 0.60%**
(as a percentage of redemption proceeds or
original purchase price, whichever is lower)
* Imposed only on redemptions of purchases greater than $1 million in
the event of a redemption within 12 months of purchase.
** Imposed only on redemptions of Class C shares within 12 months of
purchase.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets)
Thornburg New Mexico Intermediate Municipal Fund
Class A Class C
------- -------
Management Fee .50% .50%
Distribution and Service (12b-1) Fees .25% 1.00%
Other Expenses .26% .43%
----- -----
Total Annual Fund Operating Expenses 1.01% 1.93%
Expenses reflect rounding and are restated to reflect current expenses.
Thornburg Management Company, Inc. (TMC) intends to reimburse a portion of
the Class A other expenses, so that actual Class A other expenses are .25%,
and actual total fund operating expenses are 1.00%. TMC and Thornburg
Securities Corporation (TSC) intend to waive a portion of the Class C 12b-1
fees, and TMC intends to reimburse a portion of the Class C other expenses,
so that actual class C 12b-1 expenses are .50, actual Class C other
expenses .30, and actual total fund operating expenses for Class C are
1.30%. Reimbursement of expenses and waivers of fees may be terminated at
any time.
Example. This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $304 $517 $751 $1,423
Class C Shares 198 613 1,054 2,283
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $304 $517 $751 $1,423
Class C Shares 148 613 1,054 2,283
<PAGE>
Intermediate Florida Fund
Investment Goals
- ----------------
The primary investment goal of Intermediate Florida Fund is to obtain as
high a level of current income exempt from federal individual income tax as
is consistent, in the view of the Fund's investment adviser, with
preservation of capital. The Fund also seeks exemption of its shares from
the Florida "intangibles" tax on securities owned by individuals. The
secondary goal of the Fund is to reduce expected changes in its share price
compared to long-term bond portfolios. The Fund's primary and secondary
goals are fundamental policies, and may not be changed without a majority
vote of the Fund's shareholders.
Principal Investment Strategies
- -------------------------------
The Fund pursues its primary goal by investing principally in municipal
obligations issued by the State of Florida and Florida State agencies,
local governments and their agencies and by certain United States
territories and possessions. Thornburg Management Company, Inc. (TMC)
actively manages the Fund's portfolio, and investment decisions are based
upon general economic and financial trends, outlooks for interest rates and
securities markets, the supply of debt securities, and analysis of specific
securities. The Fund invests in obligations which are rated as investment
grade or, if unrated, which are issued by obligors which have comparable
investment grade obligations outstanding or which are deemed by TMC to be
comparable to obligors with outstanding investment grade obligations.
The Fund seeks to enhance its income by taking advantage of yield
disparities, trends or other factors in the fixed income markets. Although
the Fund ordinarily will acquire securities for investment rather than for
realization of gains on market fluctuations, it 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. The objective of preserving capital may preclude the Fund from
obtaining the highest yields available.
The Fund normally invests 100% of its net assets in municipal obligations.
As a fundamental policy, the Fund normally invests at least 80% of its
assets in municipal obligations. Under normal conditions the Fund invests
100% of its total assets in municipal obligations originating in Florida or
issued by United States territories and possessions. As a matter of
fundamental policy, the Fund invests at least 65% of its total assets in
municipal obligations originating in Florida. The Fund may invest up to
20% of its net assets in taxable securities which would produce income not
exempt from federal income tax. These investments may be made due to
market conditions, pending investment of idle funds or to afford liquidity.
The Fund's temporary taxable investments may exceed 20% of its net assets
when made for defensive purposes during periods of abnormal market
conditions.
Because the magnitude of changes in value of interest bearing obligations
is greater for obligations with longer terms, the Fund seeks to reduce
changes in its share value by maintaining a portfolio of investments with a
dollar-weighed average maturity of normally three to ten years. During
temporary periods the Fund's portfolio maturity may be reduced for
defensive purposes. There is no limitation on the maturity of any specific
security the Fund may purchase. The Fund may dispose of any security
before it matures. The Fund also attempts to reduce changes in its share
value through credit analysis, selection and diversification.
Principal Risks of Investing in the Fund
- -----------------------------------------
The value of the Fund's shares and its dividends will fluctuate in response
to changes in interest rates. When interest rates increase, the value of
the Fund's investments declines and the Fund's share value is reduced.
When interest rates decline, the value of the Fund's investments increases.
During periods of declining interest rates the Fund's dividends decline.
The value of Fund shares also could be reduced if municipal obligations
held by the Fund were downgraded by rating agencies, or went into default,
or if legislation or other government action reduces the ability of issuers
to pay principal and interest when due or changes the tax treatment of
interest on municipal obligations. Because the Fund invests primarily in
obligations originating in Florida, the Fund's share value may be more
sensitive to adverse political or economic developments in that state. A
portion of the Fund's dividends may be subject to the federal alternative
minimum tax. The loss of money is a risk of investing in the Fund, and
when you sell your shares they may be worth more or less than what you paid
for them.
An investment in the Fund is not a deposit in any bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund is a nondiversified investment company, and means that it may
invest a greater proportion of its assets in the securities of a single
issuer. This may be riskier, because a default or other adverse condition
affecting such an issuer could cause the Fund's share price to decline to a
greater degree.
Past Performance of the Fund
- ----------------------------
The following information provides some indication of the risks of
investing in the Fund by showing how the Fund's investment results vary.
The bar chart shows how the annual total returns for Class A shares have
been different in each full year shown, and the average annual total return
figures compare Class A share performance to the Merrill Lynch Municipal
(7-12 years) Bond Index, a broad measure of market performance.
The sales charge for Class A shares is not reflected in the returns shown
in the bar chart, and the returns would be less if the charge was taken
into account. The figures shown in the average annual total return table
do reflect maximum sales charges imposed, assuming a redemption at the end
of each period shown. Performance in the past is not necessarily an
indication of how the Fund will perform in the future.
<The following are presented as bar graphs in the Prospectus>
Intermediate Florida Fund Annual Total Returns Class A Shares
- -----------------------------------------------------------
15%
12.19
10%
7.28
5% 5.81
4.67
0%
- -5
1995 1996 1997 1998
Year to date return, period ending 3/31/99: 0.60%.
Highest quarterly results for time period shown: 4.68% (quarter ended
3/31/95).
Lowest quarterly results for time period shown: (3.09)% (quarter ended
3/31/94).
Intermediate Florida Fund Average Annual Total Returns
- ----------------------------------------------------
(periods ended 12/31/98)
One Year Since Inception
(2/1/94)
-------- --------------
Class A Shares 3.08% 4.99%
M-L Bond Index 6.83% 6.18%
SHAREHOLDER FEES (Fees paid directly from your investment)
Class A
-------
Maximum Sales Charge on Purchases 2.00%
(as a percentage of offering price)
Maximum Deferred Sales Charge on Redemptions 0.50%*
(as a percentage of redemption proceeds or
original purchase price, whichever is lower)
* Imposed only on redemptions of purchases greater than $1 million in
the event of a redemption within 12 months of purchase.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets)
Thornburg Florida Intermediate Municipal Fund
Class A
-------
Management Fee .50%
Distribution and Service (12b-1) Fees .25%
Other Expenses .36%
-----
Total Annual Fund Operating Expenses 1.11%
Expenses reflect rounding and are restated to reflect current expenses.
Thornburg Management Company, Inc. (TMC) intends to reimburse a portion of
the Class A other expenses, so that actual Class A other expenses are .23%,
and actual total fund operating expenses are .98%. TMC's reimbursement of
expenses may be terminated at any time.
Example. This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $311 $458 $804 $1,538
<PAGE>
Intermediate New York Fund
Investment Goals
- ----------------
The primary investment goal of Intermediate New York Fund is to obtain as
high a level of current income exempt from federal, New York State and New
York City individual income taxes as is consistent, in the view of the
Fund's investment adviser, with preservation of capital. The secondary
goal of the Fund is to reduce expected changes in its share price compared
to long-term bond portfolios. The Fund's primary and secondary goals are
fundamental policies, and may not be changed without a majority vote of the
Fund's shareholders.
Principal Investment Strategies
- -------------------------------
The Fund pursues its primary goal by investing principally in municipal
obligations issued by New York State and by New York State agencies, local
governments and their agencies and by certain United States territories and
possessions. Thornburg Management Company, Inc. (TMC) actively manages the
Fund's portfolio, and investment decisions are based upon general economic
and financial trends, outlooks for interest rates and securities markets,
the supply of debt securities, and analysis of specific securities. The
Fund invests in obligations which are rated as investment grade or, if
unrated, which are issued by obligors which have comparable investment
grade obligations outstanding or which are deemed by TMC to be comparable
to obligors with outstanding investment grade obligations.
The Fund seeks to enhance its income by taking advantage of yield
disparities, trends or other factors in the fixed income markets. Although
the Fund ordinarily will acquire securities for investment rather than for
realization of gains on market fluctuations, it 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. The objective of preserving capital may prevent the Fund from
obtaining the highest yields available.
The Fund normally invests 100% of its net assets in municipal obligations.
As a fundamental policy, the Fund normally invests at least 80% of its
assets in municipal obligations. Under normal conditions the Fund invests
100% of its total assets in Municipal obligations originating in New York
or issued by United States territories and possessions, and as a matter of
fundamental policy, invests at least 65% of its total assets in municipal
obligations originating in New York. The Fund may invest up to 20% of its
net assets in taxable securities which would produce income not exempt from
federal or New York income tax. These investments may be made due to
market conditions, pending investment of idle funds or to afford liquidity.
The Fund's temporary taxable investments may exceed 20% of its net assets
when made for defensive purposes during periods of abnormal market
conditions.
Because the magnitude of changes in value of interest bearing obligations
is greater for obligations with longer terms, the Fund seeks to reduce
changes in its share value by maintaining a portfolio of investments with a
dollar-weighed average maturity of normally three to ten years. During
temporary periods the Fund's portfolio maturity may be reduced for
defensive purposes. There is no limitation on the maturity of any specific
security the Fund may purchase. The Fund may dispose of any security
before it matures. The Fund also attempts to reduce changes in it share
value through credit analysis, selection and diversification.
Principal Risks of Investing in the Fund
- ----------------------------------------
The value of the Fund's shares and its dividends will fluctuate in response
to changes in interest rates. When interest rates increase, the value of
the Fund's investments declines and the Fund's share value is reduced.
When interest rates decline, the value of the Fund's investments increases.
During periods of declining interest rates the Fund's dividends decline.
The value of Fund shares also could be reduced if municipal obligations
held by the Fund were downgraded by rating agencies, or went into default,
or if legislation or other government action reduces the ability of issuers
to pay principal and interest when due or changes the tax treatment of
interest on municipal obligations. Because the Fund invests primarily in
obligations originating in New York, the Fund's share value may be more
sensitive to adverse economic or political developments in that state. A
portion of the Fund's dividends could be subject to the federal alternative
minimum tax. The loss of money is a risk of investing in a Fund, and when
you sell your shares they may be worth more or less than what you paid for
them.
An investment in a Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund is a nondiversified investment company, and means that it may
invest a greater proportion of its assets in the securities of a single
issuer. This may be riskier, because a default or other adverse condition
affecting such an issuer could cause the Fund's share price to decline to a
greater degree.
Past Performance of the Fund
- ----------------------------
The following information provides some indication of the risks of
investing in the Fund by showing how the Fund's investment results vary.
The bar chart shows annual total returns for Class A shares, and the
average annual total return figures compare Class A share performance to
the Merrill Lynch Municipal (7-12 years) Bond Index, a broad measure of
market performance.
The sales charge for Class A shares is not reflected in the returns shown
in the bar chart, and the returns would be less if the charge was taken
into account. The figures shown in the average annual total return table
does reflect maximum sales charges imposed, assuming a redemption at the
end of each period shown. Performance in the past is not necessarily an
indication of how the Fund will perform in the future.
<The following are presented as bar graphs in the Prospectus>
Intermediate New York Fund Annual Total Returns Class A Shares
- -------------------------------------------------------------
15%
10%
5% 5.88
0%
- -5
1998
Year to date return, period ending 3/31/99: 0.02%.
Highest quarterly results for time period shown: 2.61% (quarter ended
9/30/98).
Lowest quarterly results for time period shown: 0.42% (quarter ended
12/31/98).
Intermediate New York Fund Average Annual Total Returns
- ------------------------------------------------------
(periods ended 12/31/98)
One Year Since Inception
(9/4/97)
-------- --------------
Class A Shares 3.75% 5.23%
M-L Bond Index 6.83% 8.21%
FEES AND EXPENSES OF THE FUND
The following tables describe the fees and expenses that you may pay if you
buy and hold shares of the Fund.
SHAREHOLDER FEES (Fees paid directly from your investment)
Class A
-------
Maximum Sales Charge on Purchases 2.00%
(as a percentage of offering price)
Maximum Deferred Sales Charge on Redemptions 0.50%*
(as a percentage of redemption proceeds or
original purchase price, whichever is lower)
* Imposed only on redemptions of purchases greater than $1 million in
the event of a redemption within 12 months of purchase.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets)
Thornburg New York Intermediate Municipal Fund
Class A
-------
Management Fee .50%
Distribution and Service (12b-1) Fees .25%
Other Expenses .44%
-----
Total Annual Fund Operating Expenses 1.19%
Expenses reflect rounding and are restated to reflect current expenses.
Thornburg Management Company, Inc. (TMC) intends to reimburse the Class A
other expenses, so that actual Class A other expenses are 0%, and actual
total fund operating expenses are .75%. TMC's reimbursement of expenses
may be terminated at any time.
Example. This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and redeem all of your shares at the end of these
periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares $320 $573 $846 $1,629
MANAGEMENT DISCUSSION OF FUND PERFORMANCE AND INDEX COMPARISONS
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 laddered 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.
In general, interest rates have continued, with some fluctuations, to
decline over the one-year period ended September 30, 1998. Interest rates
have dropped more for intermediate-term bonds than for short-term bonds or
long-term bonds, leading to a flatter yield curve. For instance, 30-year
treasury bond yields fell 1.43% to 4.97% while five-year bond yields fell
1.76% to 4.21% and one-year bond yields dropped 1.03% to 4.39%.
The municipal bond market, facing the largest volume of supply in several
years, has underperformed the treasury bond market. Thirty-year AA-rated
municipal bond yields declined by 0.38% to 4.89% over the one-year period
ended September 30, 1998. Meanwhile, five-year AA-rated municipal yields
declined by 0.44% to 3.88% and ten-year AA-rated municipal bond yields
declined by 0.45% to 4.25%. These yield declines have caused price
increases of 1.61% and 3.34% for the five-year and ten-year bonds,
respectively. Over the same one-year period, the net asset values of
Limited Term National and California Portfolios have increased 0.97% and
1.68%, respectively. The net asset values of the Intermediate National
Fund has similarly increased by 2.30%. While the net asset values of all
the Funds rose over the period described, the dividend yields of all
declined slightly. If interest rates continue to fall, the net asset
values of all the 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, the Lehman 5-Year
General Obligation Bond Index and the Consumer Price Index for the periods
ending June 30, 1998. On June 30, 1998, 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 5.0
years and 4.1 years, respectively. Past performance of the Index and the
Fund may not be indicative of future performance.
<TABLE> <The following tables appear as side-by-side graphs 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 22,677 14,582
6/95 21,390 23,254 14,713
9/95 21,755 23,890 14,772
12/95 22,190 24,327 14,861
3/96 22,232 24,403 15,010
6/96 22,374 24,510 15,116
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
9/97 24,007 26,612 15,591
12/97 24,332 27,102 15,653
3/98 24,552 27,420 15,669
6/98 24,787 27,698 15,763
</TABLE>
Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 6/30/98): 2.46%
Five Years: 4.09%
Ten Years: 5.92%
From Inception (9/28/84): 6.82%
<TABLE>
<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 10,202
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 10,982 10,314
12/95 10,786 11,043 10,335
1/96 10,848 11,174 10,376
2/96 10,838 11,136 10,408
3/96 10,788 11,077 10,439
4/96 10,786 11,060 10,470
5/96 10,808 11,047 10,501
6/96 10,847 11,125 10,512
7/96 10,910 11,199 10,544
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 10,767
6/97 11,391 11,822 10,778
. . .
9/97 11,578 12,080 10,843
12/97 11,723 12,302 10,886
3/98 11,817 12,446 10,897
6/98 11,927 12,573 11,229
</TABLE>
Average Annual Total Returns
C Shares One Year (12 mos. ended 6/30/98): 4.70%
From Inception (9/1/94): 4.71%
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 periods
ending June 30, 1998. On June 30, 1998, 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 5.0
years and 4.8 years, respectively. Past performance of the Index and the
Fund may not be indicative of future performance.
<TABLE> <This appears as two side-by-side graphs in the prospectus>
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 10,982 10,314
12/90 12,496 12,426 12,027 12/95 10,756 11,043 10,335
3/91 12,707 12,694 12,099 1/96 10,833 11,174 10,376
6/91 12,904 12,916 12,184 2/96 10,828 11,136 10,408
9/91 13,121 13,376 12,282 3/96 10,781 11,076 10,439
12/91 13,436 13,825 13,405 4/96 10,793 11,060 10,470
3/92 13,566 17,790 12,480 5/96 10,805 11,047 10,502
6/92 13,950 14,239 12,580 6/96 10,861 11,125 10,512
9/92 14,261 14,597 12,655 7/96 10,925 11,199 10,544
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 16,542 13,545 5/97 11,328 11,719 10,767
6/95 16,266 16,964 13,667 6/97 11,410 11,822 10,778
9/95 16,549 17,427 13,722 7/97 11,564 12,036 10,799
12/95 16,871 17,746 13,804 8/97 11,521 11,972 10,821
3/96 16,927 17,802 13,943 9/97 11,613 12,080 10,843
6/96 17,670 17,880 14,040 10/97 11,641 12,154 10,864
9/96 17,332 18,171 14,153 11/97 11,679 12,192 10,875
12/96 17,597 18,567 14,281 12/97 11,789 12,302 10,886
3/97 17,655 18,537 14,352 1/98 11,854 12,410 10,886
6/97 18,004 18,999 14,395 2/98 11,883 12,425 10,897
9/97 18,342 19,413 14,482 3/98 11,893 12,446 10,897
12/97 18,625 19,771 14,540 4/98 11,857 12,387 10,919
3/98 18,808 20,002 14,555 5/98 11,959 12,534 10,951
6/98 19,006 20,206 14,642 6/98 11,997 12,573 10,962
Average Annual Total Returns Average Annual Total Returns
(at max. offering price)
A Shares One Year (12 mos. ended C Shares One Year (12 mos. ended
6/30/98): 2.90% 6/30/98): 5.14%
Five Years: 4.16% From Inception (9/1/94): 4.87%
Ten Years: 5.79%
From Inception (2/19/87): 5.81%
</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, for periods
ending September 30, 1998. On September 30, 1998, 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 8.4 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
9/91 9,819 10,428 10,080
12/91 10,099 10,647 10,181
3/92 10,207 10,593 10,243
6/92 10,586 10,982 10,325
9/92 10,876 11,220 10,387
12/92 11,090 11,440 10,480
3/93 11,496 11,834 10,565
6/93 11,847 12,164 10,628
9/93 12,291 12,456 10,681
12/93 12,453 12,682 10,767
3/94 12,039 12,114 10,832
6/94 12,160 12,187 10,897 8/94 $10,000 $10,000 $10,000
9/94 12,244 12,306 10,984 9/94 9,903 9,848 10,020
12/94 12,145 12,227 11,028 12/94 9,813 9,785 10,060
3/95 12,742 12,860 11,117 3/95 10,286 10,291 10,141
6/95 13,066 13,334 11,217 6/95 10,530 10,671 10,232
9/95 13,365 13,573 11,262 9/95 10,754 10,862 10,273
12/95 13,751 14,054 11,330 12/95 11,052 11,247 10,335
3/96 13,699 14,059 11,443 3/96 11,000 11,251 10,439
6/96 13,814 14,107 11,524 6/96 11,082 11,290 10,512
9/96 14,120 14,398 11,616 9/96 11,307 11,523 10,596
12/96 14,363 14,762 11,721 12/96 11,499 11,814 10,692
3/97 14,413 14,729 11,779 3/97 11,528 11,787 10,746
6/97 14,772 15,218 11,815 6/97 11,803 12,179 10,778
9/97 15,094 15,682 11,886 9/97 12,048 12,550 10,843
12/97 15,397 16,087 11,933 12/97 12,227 12,874 10,886
3/98 15,567 16,276 11,945 3/98 12,391 13,025 10,897
6/98 15,759 16,508 12,017 6/98 12,541 13,211 10,962
9/98 16,162 17,104 12,065 9/98 12,839 13,688 11,006
Average Annual Total Returns Average Annual Total Returns
(at max. offering price)
A Shares One Year (12 mos. ended C Shares One Year (12 mos. Ended
9/30/98): 3.32% 9/30/98): 6.57%
5 Years: 4.88% From Inception (9/1/94): 6.31%
From Inception (7/23/91): 6.90% </TABLE
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, 1998. On March 31, 1998, 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 7.0 years, respectively. Past performance of the Index and the Fund
may not be indicative of future performance.
</TABLE>
<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 13,266 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 11,547
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
12/97 14,874 16,005 11,957
3/98 15,012 16,193 11,969
6/98 15,203 16,424 12,041
9/98 15,494 17,016 12,089
</TABLE>
Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 9/30/98): 1.25%
5 Years: 4.14%
From Inception (6/21/91): 6.07%
<PAGE>
INTERMEDIATE FLORIDA FUND
Index Comparison
Compares performance of Intermediate Florida Fund, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, February 1,
1994 to September 30, 1998. On September 30, 1998, 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 8.5 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 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 10,703
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
12/97 11,897 12,572 11,083
3/98 12,011 12,719 11,095
6/98 12,168 12,901 11,161
9/98 12,437 13,366 11,206
</TABLE>
Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 9/30/98): 2.89%
From Inception (2/01/94): 4.79%
INTERMEDIATE NEW YORK FUND
Index Comparison
Compares performance of Intermediate New York Fund, the Merrill Lynch
Municipal Bond (7-12 year) Index and the Consumer Price Index, September 4,
1997 to June 30, 1998. On June 30, 1998, 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 10 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>
9/4/97 10,000 10,000 10,000
9/97 11,153 11,510 10,940
10/97 11,387 11,892 10,973
11/97 11,665 12,255 11,039
12/97 11,897 12,572 11,083
. . .
3/98 12,011 12,719 11,095
6/98 12,168 12,901 11,161
</TABLE>
Average Annual Total Returns (at max. offering price)
From Inception (9/04/97): 1.03%
<PAGE>
ADDITIONAL INFORMATION ABOUT FUND 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.
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. 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. 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.
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.
Securities Ratings And Credit Quality
Each Fund's assets will normally consist of (1) municipal obligations
(including municipal leases) or participation interests therein that are
rated at the time of purchase within the four highest grades by Moody's
Investors Service ("Moody's"), Fitch Investors Service ("Fitch"), or Standard
& Poor's Corporation ("S&P"), (2) municipal obligations (including municipal
leases) or participation interests therein that are not rated by a rating
agency, but are issued by obligors that either have other comparable debt
obligations that are rated within the four highest grades (Baa or BBB or
better) by Moody's or S&P or Fitch or, in the case of obligors whose
obligations are unrated, are deemed by TMC to be comparable with issuers
having such debt ratings, and (3) cash. Securities rated in the described
categories are described as "investment grade," and are regarded as having a
capacity to pay interest and repay principal that varies from "extremely
strong" to "adequate." According to S&P, for example, BBB bonds normally
exhibit adequate protection parameters, although adverse economic conditions
or other changes are more likely to lead to a weakened capacity compared to
higher rated categories, and AAA bonds exhibit extremely strong capacity.
Securities rated Baa are regarded by Moody's as having some speculative
characteristics. Securities rated BBB by Fitch are considered to have
adequate capacity, although adverse changes in economic conditions and
circumstances are more likely to have an adverse impact than for higher rated
categories. Please see the Statement of Additional Information for Thornburg
Investment Trust - Intermediate Municipal Funds or the Statement of
Additional Information for Thornburg Limited Term Municipal Fund, Inc. for
detailed descriptions of these ratings.
Investments in municipal obligations may also include (i) variable rate
demand instruments that are rated within the two highest grades of either
rating agency or, if unrated, are deemed by TMC to be of high quality and
minimal credit risk, (ii) tax-exempt commercial paper that is rated within
the two highest grades of a rating agency, and (iii) municipal notes that are
rated within the two highest grades of a rating agency or, if unrated, are
deemed by TMC to be of comparable quality to such rated municipal notes. To
the extent that unrated municipal obligations may be less liquid, there may
be somewhat greater risk in purchasing unrated Municipal Obligations than in
purchasing comparable, rated Municipal Obligations. If a Fund experienced
unexpected net redemptions, it could be forced to sell such unrated municipal
obligations at disadvantageous prices without regard to the obligations'
investment merits, depressing the Fund's net asset value and possibly
reducing the Fund's overall investment performance.
Credit ratings do not reflect the risk that market values of municipal
obligations will fluctuate with changes in interest rates, and credit rating
firms may fail to change credit ratings in a timely fashion to reflect events
subsequent to initial ratings. Accordingly, in addition to using credit
rating information, TMC subjects each issue under consideration for
investment to its own credit analysis in an effort to assess the issuer's
financial soundness. This analysis is performed on a continuing basis for all
issues held by the Funds, and TMC may determine to dispose of portfolio
securities upon a change in ratings or adverse events or market conditions
not reflected in ratings. TMC evaluates the credit quality of unrated
municipal obligations purchased by each Fund under 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.
YEAR 2000
The inability of some computer systems to recognize dates after December 31,
1999 could cause some disruptions in the securities industry.
Thornburg Fund's Transfer Agent and Custody Bank National Financial Data
Services/DST (Transfer Agent) and State Street Bank (Custodian) have been
preparing for year 2000 conversion since 1988. Beta testing has been done
using 1999/2000 conversions all the way out to 2009/2010 conversions
(including leap year calculations). Firewalls have been built to isolate
non-complaint third party transmissions and testing has begun with all third
party electronic communicators. Detailed Y2K information is available over
the Internet at www.dstsystems.com. DST's stated goal is to be Y2K Ready by
the end of 1998.
The Funds' internal systems take no electronic downloads other than from DST
Systems. We do, however, purchase information and research delivered
electronically. We also use analytical programs provided by such vendors,
e.g. bond analytics. Failure of such externally supplied services would
impact our efficiency, and that of our entire industry. It would not,
however, preclude our ability to analyze securities or monitor and adjust
portfolios.
In addition, although we don't expect it to be the case, issuers of
securities owned by the Funds might have difficulties that would delay or
disrupt their payments of interest or dividends to the Funds.
PORTFOLIO TURNOVER
Each Fund anticipates that is annual portfolio turnover rate will be less
than 100%. TMC does not consider portfolio turnover rate a limiting factor
in making investment decisions. High rates of turnover may result in
increased transaction costs, and could result in increased capital gains
distributions to shareholders.
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. 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**
Class A shares are sold subject to a front-end sales charge. The sales
charge is deducted from the offering price when you purchase shares, and the
balance is invested at net asset value (NAV). The sales charge is not
imposed on shares that are purchased with reinvested dividends or other
distributions. Class A shares are also subject to a Rule 12b-1 Service Plan,
which provides for the Fund's payment to TMC of up to 1/4 of 1% of the
class's net assets each year, to obtain various shareholder related services.
Because this service fee is paid out of the class's assets on an ongoing
basis, over time these fees will increase the cost of your investment and may
cost more than paying other types of sales charges.
Because the fees for Class A shares of each Fund are lower than the fees for
Class C shares of the same Fund, Class A shares of each Fund pay higher
dividends than Class C shares of the same Fund. The deduction of the initial
sales charge, however, means that you purchase fewer Class A shares than
Class C shares of each Fund for a given amount invested.
If you are in any of the special classes of investors who can buy Class A
shares at net asset value or at a reduced sales charge, you should consider
buying Class A shares. If you are planning a large purchase or purchases
under the Right of Accumulation or Letter of Intent you should consider if
your overall costs will be lower by buying Class A shares, particularly if
you plan to hold your shares for an extended period of time.
<TABLE>
Class A Shares
Total Sales Charge
As Percentage As Percentage
of Offering Price of Net Asset Value
<S> <C> <C>
Limited Term Municipal Funds
- ----------------------------
Less than $250,000.00 1.50% 1.52%
$250,000 to 499,999.99 1.25% 1.27%
$500,000 to 999,999.99 1.00% 1.01%
$1,000,000 and up 0.00% 0.00%*
Intermediate Municipal Funds
- ----------------------------
Less than $250,000.00 2.00% 2.04%
$250,000 to 499,999.99 1.50% 1.52%
$500,000 to 999,999.99 1.25% 1.27%
$1,000,000 and up 0.00% 0.00%
</TABLE>
* 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.
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
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.
BUYING CLASS C SHARES
Class C shares are sold at the NAV next determined after your order is
received. Class C shares are subject to a 1% contingent deferred sales
charge (CDSC) if the shares are redeemed within one year of purchase. The
percentage is calculated on the amount of the redemption proceeds for each
share, or the original purchase price, whichever is lower. Shares not
subject to the CDSC are considered redeemed first. The CDSC is not imposed
on shares purchased with reinvested dividends or other distributions. Class
C shares are subject to a Rule 12b-1 Service Plan providing for payment of a
service fee of up to 1/4 of 1% of the class's net assets each year, to obtain
shareholder related services. Class C shares are also subject to a Rule 12b-
1 Distribution Plan providing for payment of a distribution fee of up to 3/4
of 1% of the class's net assets each year, to pay for commissions and other
distribution expenses. Because these service and distribution fees are paid
out of the class's assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost more than paying other
types of sales charges. 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.
OPENING AN ACCOUNT
___________________________________________________________________________
Buying Shares To Open an Account To Add to an Account
- ---------------------------------------------------------------------------
In Minimum Minimum
- -- ------- -------
Regular Accounts $5,000 $ 100
Through Your Financial Consult with your Consult with your
Advisor financial advisor. financial advisor
By Telephone Exchange from another Exchange from another
1-800-847-0200 Thornburg Fund account Thornburg Fund account
with the same registra- with the same registra-
tion, including name, tion, including name,
address, and taxpayer address, and taxpayer
ID number. ID number.
By Mail Complete and sign the Make your check payable
application. Make your to the applicable
check payable to the Thornburg Fund. Indicate
applicable Thornburg your Fund account number
Fund. Mail to the on your check and mail to
address indicated on the the address printed on
application. your account statement.
Automatic Investment Use one of the above Use Automated Clearing
Plan procedures to open your House funds. Sign up for
account. Obtain an this service when opening
Automatic Investment your account, or call
Plan form to sign up 1-800-847-0200 to add
for this service. to it.
Complete and sign an account application and give it, along with your check,
to your financial advisor. You may also open your account by wire or mail as
described above. If there is no application accompanying this prospectus,
call 1-800-847-0200.
If you buy shares by check and then redeem those shares, the payment may be
delayed for up to 15 business days to ensure that your previous investment
has cleared.
STREET NAME OWNERSHIP OF SHARES
Some securities dealers offer to act as owner of record of Fund shares as a
convenience to investors who are clients of those firms and shareholders of
an individual Fund. Neither the Fund nor the Transfer Agent can be
responsible for failures or delays in crediting shareholders for dividends or
redemption proceeds, or for delays in reports to shareholders if a
shareholder elect s to hold Fund shares in street-name through a brokerage
firm account rather than directly in the shareholder's own name. Further,
neither the Fund nor the Transfer Agent will be responsible to the investor
for any loss to the investor due to the brokerage firm's failure, its loss of
property or funds, or its acts or omissions. Prospective investors are urged
to confer with their financial advisor to learn about the different options
available for owning mutual fund shares. You may receive share certificates
or hold shares in your name with the Transfer Agent upon request.
SELLING FUND SHARES
You can withdraw money from your Fund account at any time by redeeming some
or all of your shares (by selling them back to the Fund or by selling the
shares through you r financial advisor). Your shares will be purchased by the
Fund at the next share price (NAV) calculated after your order is received in
proper form. The amount of the CDSC, if any, will be deducted and the
remaining proceeds sent to you. No CDSC is imposed on the amount by which the
value of a share may have appreciated. Similarly, no CDSC is imposed on
shares obtained through reinvestment of dividends or capital gains. Shares
not subject to a CDSC will be redeemed first. Share price is normally
calculated at 4 p.m. Eastern time.
To sell shares in an account, you may use any of the methods described on the
following page.
If you are selling some but not all of your shares, leave at least $1,000
worth of shares in the account to keep it open.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and your Fund from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
* You wish to redeem more than $10,000 worth of shares,
* Your account registration has changed within the last 30 days,
* The check is being mailed to a different address than the one on your
account (record address),
* The check is being made payable to someone other than the account owner,
or
* The redemption proceeds are being transferred to a Thornburg account with
a different registration.
You should be able to obtain a signature guarantee from a bank, broker
dealer, credit union (if authorized under state law), securities exchange or
association, clearing agency, savings association or participant in the
Securities Transfer Agent Medallion Program (STAMP). A notary public cannot
provide a signature guarantee.
TELEPHONE REDEMPTION. If you completed the telephone redemption section of
your application when you first purchased your shares, you may easily redeem
any class of shares of any Fund by telephone simply by calling a Fund
Customer Service Representative. Money can be wired directly to the bank
account designated by you on the application or sent to you in a check. The
Funds' Transfer Agent may charge a fee for a bank wire. This fee will be
deducted from the amount wired.
If you did not complete the telephone redemption section of your application,
you may add this feature to your account by calling the Fund for a telephone
redemption application. Once you receive it, please fill it out, have it
signature guaranteed and send it to: NFDS
c/o Thornburg Funds
P.O. Box 419017
Kansas City, MO 64141-6017
Internet redemption. You may redeem shares of any Fund by contacting
Thornburg at its Website, www.thornburg.com and following the instructions.
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
Accounts 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
Internet All Account Types www.thornburg.com
____________________________________________________________________________
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 a.m. to 6:30 p.m. 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.
Thornburg Website. Thornburg's Website on the Internet provides you with
helpful information 24 hours a day, at: www.thornburg.com
Statements and reports that Thornburg Funds send to you include the
following:
* Account statements after every transaction affecting your account
* Monthly account statements
* Financial reports (every six months)
* Cost basis statement (at the end of any year in which you redeem shares)
TRANSACTION SERVICES
Exchange Privilege. You may exchange Class A shares of any other Thornburg
Fund for Class A shares of one of the Thornburg Municipal Funds.
If you are exchanging from one of the Funds covered by this prospectus into
another Thornburg Fund, you may (i) have to pay the difference between the
front end sales charge you paid on the Fund out of which you are exchanging
and the front end sales charge applicable to the Fund into which you are
exchanging; or (ii) you may qualify for a reduced sales charge or no sales
charge on that Fund. Please consult the exchange an d reinvestment privilege
information in the Prospectus of the other Thornburg Fund.
Note that exchanges out of a Fund may have tax consequences for you. For
details on policies and restrictions governing exchanges, including
circumstances under which a shareholder's exchange privilege may be suspended
or revoked, see page 28.
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.
DIVIDENDS AND DISTRIBUTIONS
The Funds distribute substantially all of their net income and realized
capital gains, if any, to shareholders each year. Each Fund declares its net
investment income daily and distributes it monthly. Each Fund will distribute
net realized capital gains, if any, at least annually. Capital gain
distributions normally will be declared and payable in December.
Distribution Options
Each Fund earns interest from bond, money market, and other investments.
These are passed along as dividend distributions. Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them.
These are passed along as capital gain distributions.
When you open an account, specify on your application how you want to receive
your distributions. Each Fund offers four options, (which you can change at
any time).
Dividends
1. Reinvestment Option. Your dividend distributions will be automatically
invested in additional shares of your Fund. If you do not indicate a
choice on your application, you will be assigned this option. You may
also instruct the Fund to invest your dividends in the shares of any
other Thornburg Fund.
2. Cash Option. You will be sent a check for your dividend distributions.
Cash distribution checks are normally mailed on the third business day
after the month-end.
Capital Gains
1. Reinvestment Option. Your capital gain distributions, if any, will be
automatically reinvested in additional shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
You may also instruct the Fund to re invest your capital gain
distributions in shares of any other Thornburg Fund.
2. Cash Option. You will be sent a check for any capital gain distributions.
Shares of any Thornburg Fund purchased through reinvestment of dividend and
capital gain distributions are not subject to sales charges or contingent
deferred sales charges. No interest is accrued or paid on amounts
represented by 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.
TAXES
Federal Taxes
Each Fund 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.
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.
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 California, New Mexico and
New York 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.
Florida does not currently impose an income tax on individuals. 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.
TRANSACTION DETAILS
The Funds are open for business each day the New York Stock Exchange (NYSE)
is open. Each class of shares of the Fund normally calculates its NAV (and
offering price for Class A shares) as of the close of business of the NYSE,
normally 4 p.m. Eastern time. Each Fund's assets are valued on the basis of
valuations obtained from independent pricing services.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require the Fund to
withhold 31% of your taxable distributions and redemptions.
You may initiate many transactions by telephone. Note that a Fund will not be
responsible for any losses resulting from unauthorized transactions if it
follows reasonable procedures designed to verify the identity of the caller.
The Fund will request personalized security codes or other information, and
may also record calls. You should verify the accuracy of your confirmation
statements immediately after you receive them. If you want the ability to
redeem and exchange by telephone, fill in the appropriate section of the
application. If you have an existing account to which you wish to add this
feature, call the Fund for a telephone redemption application. If you are
unable to reach the Fund by phone (for example, during periods of unusual
market activity), consider placing your order by mail or by using your
financial advisor.
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:
* All of your purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks.
* The Funds do not accept cash.
* If your check does not clear, your purchase will be cancelled and you
could be liable for any losses or fees the Fund or its Transfer Agent has
incurred.
When you buy shares of a Fund or sell them through your financial advisor,
you may be charged a fee for this service. Please read your financial
advisor's program materials for any additional procedures, service features
or fees that may apply.
Certain financial institutions that have entered sales agreements with TSC
may enter confirmed purchase orders on behalf of customers by phone, with
payment to follow no later than the time when the Fund is priced on the
following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
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.
The minimum account size is $1,000. Each Fund reserves the right to redeem
the shares of any shareholder whose shares have a net asset value of less
than $1,000. The Fund will notify the shareholder before performing the
redemption.
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.
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.
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.
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, 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.
INVESTMENT ADVISER AND MANAGEMENT FEES
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.
<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>
For the most recent fiscal year of Limited Term National Fund, Limited Term
California Fund and Intermediate New York Fund, ended June 30, 1998, the
investment management fee percentage was .45%, .50% and .50%, respectively.
For the most recent fiscal year of Intermediate National fund, Intermediate
New Mexico Fund and Intermediate Florida Fund, ended September 30, 1998, the
investment management fee percentage was .50% for each Fund.
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 $2.2 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, are the portfolio managers for 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.
TMC may, from time to time, agree to waive its fees or to reimburse any Fund
for expenses above a specified percentage of average daily net assets. TMC
retains the ability to be repaid by the Fund receiving these reimbursements
if expenses fall below the limit prior to the end of the fiscal year. Fee
waivers and expense reimbursements will increase a Fund's yield, and
repayment of waivers or reimbursements will lower the Fund's yield.
In addition to TMC's fees, each Fund will pay all other costs and expenses of
its operations. Funds will not bear any costs of sales or promotion incurred
in connection with the distribution of their shares, except as provided for
under the service and distribution plans applicable to each Fund class, as
described above under "Your Account - Buying Fund Shares."
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.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand each
Fund's financial performance for the past five years (or if shorter, the
period of the Fund's operations). Certain information reflects financial
results for a single Fund share. The total returns in the table represent
the rate that an investor would have earned (or lost) on an investment in the
Fund (assuming reinvestment of all dividends and distributions). Information
for all period except the six month periods ended December 31, 1998 for
Limited Term National Fund, Limited Term California Fund and Intermediate New
York Fund has been audited by McGladrey & Pullen, LLP, independent auditors,
whose report, along with each Fund's financial statements, are included in
the Fund's Annual Report, which is available upon request.
<TABLE>
- ------------------------------------
THORNBURG LIMITED TERM NATIONAL FUND
- ------------------------------------
---------------------------------------------------------------------------------------------------------
CLASS A CLASS C
--------------------------------------------------- -------------------------------------------------
Period
Six Six from
Months Month 9/1/94 <F(a)>
Ended Year Ended June 30: Ended Year Ended June 30: to
12/31/98 1998 1997 1996 1995 1994 12/31/98 1998 1997 1996 6/30/95
-------- ------ ------ ------ ------ ------ -------- ----- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $13.50 $13.44 $13.35 $13.37 $13.27 $13.59 $13.53 $13.46 $13.37 $13.40 $13.29
Income from Investment
Operations:
Net Investment Income 0.30 .61 .62 .63 .64 .63 0.27 .55 .57 .57 .46
Net Gains (or Losses) on
Securities 0.09 .06 .09 (.02) .10 (.32) 0.08 .07 .09 (.03) .11
(Realized and
Unrealized) ------- ------ ------ ------ ------ ------ -------- ------ ------ ------ ------
Total from Investment
Operations 0.39 .67 .71 .61 .74 .31 (0.35) .62 .66 .54 .57
Less Distributions:
Dividends
(from Net Investment
Income) (0.39) (.61) (.62) (.63) (.64) (.63) (0.27) (.55) (.57) (.57) (.46)
Distributions
(from Capital Gains) - - - - - - - - - - -
Total Distributions (0.39) (.61) (.62) (.63) (.64) (.63) (0.27) (.55) (.57) (.57) (.46)
Net Asset Value,
End of Period $13.59 $13.50 $13.44 $13.35 $13.37 $13.27 $13.61 $13.53 $13.46 $13.37 $13.40
Total Return <FN(b)> 4.80% 5.05% 5.46% 4.60% 5.76% 2.25% 4.36% 4.70% 5.02% 4.05% 4.25%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's omitted) $821,913 836,947 837,621 917,831 931,987 1,030,293 25,011 $22,729 19,475 15,948 6,469
Ratio of Expenses to
- ------------------------------------
THORNBURG LIMITED TERM NATIONAL FUND
- ------------------------------------
---------------------------------------------------------------------------------------------------------
CLASS A CLASS C
--------------------------------------------------- -------------------------------------------------
Period
Six Six from
Months Month 9/1/94 <F(a)>
Ended Year Ended June 30: Ended Year Ended June 30: to
12/31/98 1998 1997 1996 1995 1994 12/31/98 1998 1997 1996 6/30/95
-------- ------ ------ ------ ------ ------ -------- ----- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Net Assets (0.96)(c) (0.97)% (0.96) (0.97)% (0.97)% (0.95)% (1.38)%(c) (1.38)% (1.38)% (1.41)% (1.60)%<F(c)>
(After Expense
Reimbursements)
Ratio of Net Income
to Average Net Assets 4.31(c) 4.50% 4.65% 4.66% 4.86% 4.60% 3.89%(c) 4.08% 4.24% 4.22% 4.22% <F(c)>
(After Expense
Reimbursements)
Ratio of Expenses to
Average Net Assets (0.96)(c) (0.97)% (0.96)% (0.97)% (0.97)% (0.95)% (1.78)%(c) (1.45)% (1.86)% (1.63)% (1.84)%<F(c)>
(Before Expense
Reimbursements)
Portfolio Turnover Rate 10.20% 24.95% 23.39% 20.60% 23.02% 15.63% 10.20% 24.95% 23.39% 20.60% 23.02%
- ------------------------------------
THORNBURG LIMITED TERM NATIONAL FUND
- ------------------------------------
---------------------------------------------------------------------------------------------------------
CLASS A CLASS C
--------------------------------------------------- -------------------------------------------------
Period
Six Six from
Months Month 9/1/94 <F(a)>
Ended Year Ended June 30: Ended Year Ended June 30: to
12/31/98 1998 1997 1996 1995 1994 12/31/98 1998 1997 1996 6/30/95
-------- ------ ------ ------ ------ ------ -------- ----- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $12.90 $12.75 $12.64 $12.61 $12.57 $12.85 $12.91 $12.76 $12.65 $12.62 $12.55
Income from Investment
Operations:
Net Investment Income .27 .55 .57 .58 .58 .58 .24 .50 .52 .53 .42
Net Gains (or Losses) on
Securities .10 .15 .11 .03 .04 (.28) .10 .15 .11 .03 .07
(Realized and
Unrealized) ------- ------ ------ ------ ------ ------ ------- ------ ------ ------ ------
Total from Investment
Operations .37 .70 .68 .61 .62 .30 .34 .65 .63 .56 .49
Less Distributions:
Dividends
(from Net Investment
Income) (.27) (.55) (.57) (.58) (.58) (.58) (.24) (.50) (.52) (.53) (.42)
Distributions
(from Capital Gains) - - - - - - - - - - -
Total Distributions (.27) (.55) (.57) (.58) (.58) (.58) (.24) (.50) (.52) (.53) (.42)
Net Asset Value,
End of Period $13.00 $12.90 $12.75 $12.64 $12.61 $12.57 $13.01 $12.91 $12.76 $12.65 $12.62
Total Return <FN(b)> 4.97% 5.57% 5.47% 4.49% 5.12% 2.37% 4.46% 5.14% 5.06% 4.46% 3.98%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's omitted) $116,395 122,231 94,253 94,379 98,841 111,723 8,156 7,843 5,882 2,444 790
Ratio of Expenses to
Average Net Assets (0.99)(c) (1.00)% (1.00)% (1.00)% (1.00)% (1.00)% (1.40)%(c) (1.40)% (1.40)% (1.43)% (1.63)%<F(c)>
- ------------------------------------
THORNBURG LIMITED TERM NATIONAL FUND
- ------------------------------------
---------------------------------------------------------------------------------------------------------
CLASS A CLASS C
--------------------------------------------------- -------------------------------------------------
Period
Six Six from
Months Month 9/1/94 <F(a)>
Ended Year Ended June 30: Ended Year Ended June 30: to
12/31/98 1998 1997 1996 1995 1994 12/31/98 1998 1997 1996 6/30/95
-------- ------ ------ ------ ------ ------ -------- ----- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(After Expense
Reimbursements)
Ratio of Net Income
to Average Net Assets 4.08(c) 4.25% 4.47% 4.59% 4.69% 4.51% 3.67%(c) 3.85% 4.06% 4.16% 4.07% <F(c)>
(After Expense
Reimbursements)
Ratio of Expenses to
Average Net Assets (1.02)(c) (1.04)% (1.03)% (1.05)% (1.04)% (1.03)% (1.92%)(c) (1.60)% (2.15)% (2.92)% (3.21)%<F(c)>
(Before Expense
Reimbursements)
Portfolio Turnover Rate 9.52% 21.21% 20.44% 22.68% 18.54% 15.26% 9.52% 22.21% 20.44% 22.68% 18.54%
- ------------------------------------
THORNBURG INTERMEDIATE NATIONAL FUND
- ------------------------------------
---------------------------------------------------------------------------------------
CLASS A CLASS C
------------------------------------------ ------------------------------------------
Period
from
9/1/94
<F(a)>
Year Ended September 30: Year Ended September 30: to
1998 1997 1996 1995 1994 1998 1997 1996 1995 9/30/94
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.46 $13.23 $13.18 $12.73 $13.47 $13.48 $13.24 $13.20 $12.73 $12.91
Income from Investment Operations:
Net Investment Income .63 .66 .68 .68 .67 .58 .61 .63 .60 .05
Net Gains (or Losses) on Securities .30 .23 .05 .45 (.72) .29 .24 .04 .47 (.18)
(Realized and Unrealized) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations .93 .89 .73 1.13 (.05) .87 .85 .67 1.07 (.13)
Less Distributions:
Dividends (from Net Investment Income) (.63) (.66) (.68) (.68) (.67) (.58) (.61) (.63) (.60) (.05)
Distributions (from Capital Gains) - - - - (.02) - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (.63) (.66) (.68) (.68) (.69) (.58) (.61) (.63) (.60) (.05)
Net Asset Value, End of Period $13.76 $13.46 $13.23 $13.18 $12.73 $13.77 $13.48 $13.24 $13.20 $12.73
Total Return <FN(b)> 7.08% 6.90% 5.64% 9.16% (0.38)% 6.57 6.55% 5.14% 8.60% (0.97)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $368,108 309,293 246,128 227,881 207,718 $20,852 11,292 7,586 4,001 139
Ratio of Expenses to Average Net Assets (1.00)% (1.00)% (1.00)% (1.00)% (.95)% (1.40)% (1.40)% (1.40)% (1.66)% (1.76)%
(After Expense Reimbursements) <F(c)>
Ratio of Net Income to Average Net Assets 4.65% 4.96% 5.12% 5.31% 5.23% 4.23% 4.55% 4.73% 4.62% 4.51%
(After Expense Reimbursements) <F(c)>
Ratio of Expenses to Average Net Assets (1.04)% (1.05)% (1.09)% (1.08)% (1.05)% (1.53)% (1.99)% (1.97)% (2.35)% (1.76)%
(Before Expense Reimbursements) <F(c)>
Portfolio Turnover Rate 16.28% 15.36% 12.64% 32.20% 27.37% 16.28% 15.36% 12.64% 32.20% 27.37%
- --------------------------------------
THORNBURG INTERMEDIATE NEW MEXICO FUND
- --------------------------------------
------------------------------------------
CLASS A
------------------------------------------
Year Ended September 30:
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.28 $13.09 $13.12 $12.72 $13.36
Income from Investment Operations:
Net Investment Income .62 .64 .63 .60 .60
Net Gains (or Losses) on Securities .17 .19 (.03) .40 (.63)
(Realized and Unrealized) ------ ------ ------ ------ ------
Total from Investment Operations .79 .83 .60 1.00 (.03)
Less Distributions:
Dividends (from Net Investment Income) (.62) (.64) (.63) (.60) (.60)
Distributions (from Capital Gains) - - - - -
------ ------ ------ ------ ------
Total Distributions (.62) (.64) (.63) (.60) (.60)
Net Asset Value, End of Period $13.45 $13.28 $13.09 $13.12 $12.72
Total Return <FN(b)> 6.08% 6.51% 4.68% 8.10% (0.26)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $153,118 145,850 131,307 136,742 143,910
Ratio of Expenses to Average Net Assets (1.00)% (1.00)% (1.00)% (1.00)% (.90)%
(After Expense Reimbursements)
Ratio of Net Income to Average Net Assets 4.64% 4.88% 4.81% 4.71% 4.85%
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets (1.02)% (1.05)% (1.07)% (1.06)% (1.04)%
(Before Expense Reimbursements)
Portfolio Turnover Rate 13.74% 10.06% 10.88% 17.06% 6.87%
- -----------------------------------
THORNBURG INTERMEDIATE FLORIDA FUND
- -----------------------------------
------------------------------------------
CLASS A
------------------------------------------
Period
from
2/01/94
<F(a)>
Year Ended September 30: to
1998 1997 1996 1995 9/30/94
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.14 $11.88 $11.83 $11.54 $12.06
Income from Investment Operations:
Net Investment Income .56 .56 .57 .63 .40
Net Gains (or Losses) on Securities .23 .26 .05 .29 (.52)
(Realized and Unrealized) ------ ------ ------ ------ ------
Total from Investment Operations .79 .82 .62 .92 (.12)
Less Distributions:
Dividends (from Net Investment Income) (.56) (.56) (.57) (.63) (.40)
Distributions (from Capital Gains) - - - - -
------ ------ ------ ------ ------
Total Distributions (.56) (.56) (.57) (.63) (.40)
Net Asset Value, End of Period $12.37 $12.14 $11.88 $11.83 $11.54
Total Return <FN(b)> 6.62% 7.04% 5.37% 8.22% (0.95)%
Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $28,091 24,663 19,501 14,822 8,076
Ratio of Expenses to Average Net Assets (.98)% (.83)% (.61)% (.38)% (.25)%
(After Expense Reimbursements) <F(c)>
Ratio of Net Income to Average Net Assets 4.54% 4.65% 4.80% 5.41% 5.09%
(After Expense Reimbursements) <F(c)>
Ratio of Expenses to Average Net Assets (1.11)% (1.13)% (1.34)% (1.44)% (1.95)%
(Before Expense Reimbursements) <F(c)>
Portfolio Turnover Rate 70.91% 51.48% 77.12% 89.60% 19.94%
- ------------------------------------
THORNBURG INTERMEDIATE NEW YORK FUND
- ------------------------------------
--------
CLASS A
--------
Period
from
Six 9/04/97
Months <F(a)>
Ended to
12/31/98 6/30/98
-------- -------
<S> <C> <C>
Net Asset Value, Beginning of Period $12.71 $12.50
Income from Investment Operations:
Net Investment Income .32 .52
Net Gains (or Losses) on Securities .09 .21
(Realized and Unrealized) ------- ------
Total from Investment Operations .41 .73
Less Distributions:
Dividends (from Net Investment Income) (.32) (.52)
Distributions (from Capital Gains) (.02) -
------ ------
Total Distributions (.34) (.52)
Net Asset Value, End of Period $12.78 $12.71
Total Return <FN(b)> 5.88% 5.92%
Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $25,392 $25,472
Ratio of Expenses to Average Net Assets (0.75)%(c) (.78)%<F(c)>
(After Expense Reimbursements)
Ratio of Net Income to Average Net Assets 4.96%(c) 4.90%<F(c)>
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets (1.20)%(c) (1.19)%<F(c)>
(Before Expense Reimbursements)
Portfolio Turnover Rate 3.04% 42.27%
</TABLE>
[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.
ADDITIONAL INFORMATION
Reports to Shareholders
Shareholders will receive annual reports of their Fund containing financial
statements audited by the Funds' independent auditors, and also will
receive unaudited semi-annual reports. In addition, each shareholder will
receive an account statement no less often than quarterly.
Custodian and Transfer Agent
The custodian of each Fund's assets is State Street Bank & Trust Co.
National Financial Data Services is the transfer agent for the Funds and
performs bookkeeping, data processing and administrative services incident
to the maintenance of shareholder accounts.
General Counsel
Legal matters in connection with the issuance of shares of the Funds are
passed upon by White, Koch, Kelly & McCarthy, Professional Association,
Post Office Box 787, Santa Fe, New Mexico 87504-0787.
INVESTMENT ADVISER
Thornburg Management Company, Inc.
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
DISTRIBUTOR
Thornburg Securities Corporation
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
AUDITOR
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017
CUSTODIAN
State Street Bank & Trust Co.
Boston, Massachusetts
TRANSFER AGENT
State Street Bank & Trust Co.
c/o NFDS Servicing Agent
Post Office Box 419017
Kansas City, Missouri 64141-6017
<OUTSIDE BACK COVER>
The current Statement of Additional Information (SAI) for each of the Funds
includes additional information about the Funds, and additional information
about each Fund's investments is available in the Fund's annual and
semiannual reports to shareholders.
Shareholder inquiries and requests for copies of the Funds' SAI, annual and
semiannual reports, and other Fund information may be made to Thornburg
Securities Corporation at 119 East Marcy Street, Suite 202, Santa Fe, New
Mexico 87501 (800) 847-0200. SAIs and annual and semiannual reports are
furnished at no charge.
Information about the Funds (including the SAI) may be reviewed and copied
at the Securities and Exchange Commission's Public Reference Room in
Washington, D.C. Information about the Public Reference Room may be
obtained by calling the Commission at 1-800-SEC-0330. Reports and other
information about the Funds are also available on the Commission's Internet
site at http://www.sec.gov and copies of information may be obtained, upon
payment of a duplicating fee, by writing the Commission's Public Reference
Section, Washington, D.C. 20549-6009.
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
www.thornburg.com email: [email protected]
Securities and Exchange Commission Investment Company Act of 1940 file
numbers:
Thornburg Investment Trust: 811-05201
Thornburg Limited Term Municipal Fund, Inc.: 811-4302
<PAGE>
PART B
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 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.
Certain financial information is incorporated by reference into this
Statement of Additional Information, as specifically described at the end of
the Statement of Additional Information under the heading "Financial
Statements."
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Funds' Prospectus dated June 1, 1998. A copy
of the Prospectus and copies of the Funds' most recent Annual and Semiannual
Reports to Shareholders 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 June 1, 1999.
<PAGE> i
Table of Contents
Page
----
ORGANIZATION OF THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . __
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . __
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . __
Government Fund Investment Limitations. . . . . . . . . . . . . . . __
Income Fund Investment Limitations. . . . . . . . . . . . . . . . . __
YIELD AND RETURN COMPUTATION . . . . . . . . . . . . . . . . . . . . . . __
REPRESENTATIVE PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . __
Government Fund (Classes A and C) . . . . . . . . . . . . . . . . . __
Income Fund (Classes A and C) . . . . . . . . . . . . . . . . . . .__
DISTRIBUTIONS, TAXES AND SHAREHOLDER ACCOUNTS . . . . . . . . . . . . . .__
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . __
Federal Income Tax Considerations . . . . . . . . . . . . . . . . . __
State and Local Income Tax Considerations . . . . . . . . . . . . . __
Accounts of Shareholders . . . . . . . . . . . . . . . . . . . . . .__
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS . . . . . . . __
Investment Advisory Agreements . . . . . . . . . . . . . . . . . . .__
Administrative Services Agreement . . . . . . . . . . . . . . . . . __
SERVICE AND DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . __
Service Plans - All Classes . . . . . . . . . . . . . . . . . . . . __
Class C Distribution Plan . . . . . . . . . . . . . . . . . . . . . __
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . __
MANAGEMENT AND HOLDERS OF SECURITIES . . . . . . . . . . . . . . . . . . __
PURCHASE OF FUND SHARES . . . . . . . . . . . . . . . . . . . . . . . . .__
Discussion of Reduced Sales Charges - Class A Shares . . . . . . . .__
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . __
i
<PAGE>
DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .__
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . __
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . __
ii
<PAGE>
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 Trust was originally organized on June 3, 1987.
Government Fund also was organized as a series of the Trust on June 3, 1987
and commenced investment operations on November 6, 1987. Income Fund was
organized as a series of the Trust on June 26, 1992, and commenced investment
operations on October 1, 1992. 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 the Thornburg Limited Term Income Funds Prospectus.
The Trustees are authorized to divide the Trust's shares into additional
series and classes.
Each Fund may hold special shareholder meetings and mail proxy
materials. These meetings may be called to elect or remove Trustees, change
fundamental investment policies, or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. Each Fund will mail
proxy materials in advance, including a voting card and information about the
proposals to be voted on. The number of votes you are entitled to is based
upon the number of shares you own. Shares do not have cumulative voting
rights or pre-emptive rights.
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.
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.
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.
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.
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.
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.
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.
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
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.
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
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
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.
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.
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, the Adviser 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 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
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
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.
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.
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.
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 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.
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,
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.
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
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 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;
(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";
(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;
(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 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.
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;
(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;
(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;
(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;
(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;
(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;
(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
(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.
YIELD AND RETURN COMPUTATION
Performance and Portfolio Information
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 that 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.
Any current yield 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 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 price;
(5) The non-standardized return quotation may include the effective return
obtained by compounding the monthly dividends.
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.
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.
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 30-day period ended
September 30, 1998 in accordance with the standardized calculation described
above, were 5.26% and 4.92% for Class A shares and Class C shares,
respectively. 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, 1998. 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 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 5.99% 5.08% N/A 7.13% (11/6/87)
Class C 8.19% N/A N/A 6.77% (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 30-day period ended
September 30, 1998 in accordance with the standardized calculation described
above, were 4.85% and 4.59% for Class A shares and Class C shares,
respectively. 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, 1998.
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 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 4.40% 5.66% N/A 6.27% (10/1/92)
Class C 6.65% N/A N/A 7.09% (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
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.
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 after 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
generally will be subject to a maximum federal income tax rate of 20% to the
extent that gain exceeds any net short-term capital losses realized by the
taxpayer.
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.
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 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.
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.
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.
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, Thornburg Value Fund and Thornburg Global Value Fund,
separate series of Thornburg Investment Trust which have aggregate net assets
of approximately $825,000,000 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, including custodian and transfer agent fees, the
fees and expenses for valuation services, auditors and other professional
services. 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".
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, 1996, 1997
and 1998 with respect to each Fund, the amounts paid to TMC by each Fund were
as follows:
1996 1997 1998
---- ---- ----
Government Fund $678,979 $512,612 $521,022
Income Fund $44,213 $63,046 $228,636
TMC has waived its rights to fees in the foregoing periods as follows:
1996 1997 1998
---- ---- ----
Government Fund -0- -0- -0-
Income Fund $106,223 $72,224 -0-
A portion of the foregoing figures 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, 1998, the Government Fund
and the Income Fund reimbursed TMC in the amounts of $15,952 and $5,309,
respectively, for certain accounting expenses incurred by TMC on behalf of
that Fund.
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 regulated
regulatory compliance and legal affairs, and review and administration of
functions delivered by outside service providers to or for shareholders, and
other related or similar functions as may from time to time be agreed. The
Administrative Services Agreement specific to each Fund's Class A and Class C
shares provides that the class will pay a fee calculated at an annual
percentage of .125% of the class's average daily net assets, paid monthly,
together with any applicable sales or similar tax. Services are currently
provided under these agreements by TMC. For the fiscal years shown, each of
the Funds paid the following amounts to TMC under its Administrative Services
Agreements for the share classes shown:
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
September 30, 1998: Class A Class C
------- -------
Government Fund $162,998 $5,909
Income Fund $41,718 $8,171
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 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
September 30, 1998 Class A Class C
------- -------
Government Fund $315,717 $49,021
Income Fund $78,430 $35,704
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, paid to TSC $9,816 (Government Fund) and $11,396 (Income Fund) under
the Plan for the fiscal year ended September 30, 1997, and paid to TSC
$11,816 (Government Fund) and $16,341 (Income Fund) for the fiscal year ended
September 30, 1998. 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.
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
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:
1997 1998
---- ----
Government Fund 41.10% 29.77%
Income Fund 13.87% 41.01%
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 Trustee who is an "interested person" of the Funds
indicated by an asterisk:
H. Garrett Thornburg, Jr.,* 52, Trustee, Chairman of Trustees / Director,
Chairman (since January of 1987) and Treasurer (since its inception in 1984)
of Thornburg Limited Term Municipal Fund, Inc. (a mutual fund investing in
certain municipal securities); Chairman and Director of Thornburg Mortgage
Advisory Corporation since its formation in 1989; Chairman and Director of
Thornburg Mortgage Asset Corporation (real estate investment trust) since its
formation in 1993; Executive Vice President of Daily Tax Free Income Fund,
Inc. (mutual fund) since its formation in 1982 and a Director from 1982 to
June 1993; Director and Treasurer of TMC since its formation in 1982 and
President from 1982 to August 1997.
David A. Ater, 51, Trustee / Principal in Ater & Ater Associates, Santa Fe,
New Mexico (developer, planner and broker of residential and commercial real
estate) since 1990; owner, developer and broker for various real estate
projects; Director of Thornburg Mortgage Asset Corporation (real estate
investment trust) since 1994.
J. Burchenal Ault, 70, Trustee / Independent Fund Raising Counsel, May 1986
to present; Trustee, Woodrow Wilson International Center for Scholars;
Director of Thornburg Limited Term Municipal Fund, Inc. since its formation
in 1984; Director of Farrar, Strauss & Giroux (publishers) since 1968.
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, 42, 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.
Jonathan Ullrich, 28, Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since July 1992.
Jack Lallement, 59, 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, 27, Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since September 1997; Fund
Accountant for TMC since 1994; BBA, University of New Mexico, 1993.
Van Billops, 32, Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since September 1997; Fund
Accountant for TMC since 1993.
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.
Leigh Moiola, 31, Assistant Vice President / Vice President of TMC since
November 1995, and Managing Director since December 1998, Assistant Vice
President of Thornburg Limited Term Municipal Fund, Inc. since June 1997.
Sophia Franco, 27, Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since June 1998; Associate of TMC
since August 1994.
Claiborne Booker, 36, Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since June 1998; Associate of TMC
since February 1998; Partner, Brinson Partners, Inc., 1994 to 1997.
Kerry Lee, 31, Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since June 1998; Associate of TMC
since November 1995.
Richard Brooks, 51, Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since June 1998; Associate of TMC
since September 1994.
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.
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, 1998, 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 - $14,000
Ault
Forrest S. $7,000 - 0 - - 0 - $7,000
Smith
James W. $6,000 - 0 - - 0 - $6,000
Weyhrauch
</TABLE>
The Trust does not pay retirement or pension benefits.
As of March 31, 1999, the Government Fund had 10,693,124.688 shares
outstanding, of which 9,672,166.291 were Class A shares and 630,227.056 were
Class C shares; as of the same date, the Income Fund had 4,437,133.466 shares
outstanding, of which 3,155,095.004 were Class A shares and 573,224.963 were
Class C shares. As of March 31, 1999, no person was known to own, of record
or beneficially, 5% or more of the issued and outstanding shares of the
Government Fund. As of the same date, no person was known to own, of record
or beneficially, 5% or more of the issued and outstanding shares of the
Income Fund. As of March 31, 1999, 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 and the
Income Fund, respectively.
PURCHASE OF FUND SHARES
Determination of Purchase Price for Shares
- ------------------------------------------
Each of the Funds offers Class A and Class C shares. Class A shares are
sold subject to a sales charge which is deducted at the time you purchase
shares. The Funds' distributor deducts the Class A sales charge shown in the
sales charge table in the Prospectus and invests the balance of your
investment at net asset value. The Class A sales charge is typically used to
compensate financial advisors and others who sell Fund shares; and the
distributor retains the balance to pay for its own operations. 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. Class C shares are sold at net asset value, but
are subject to a deferred sales charge if redeemed within one year of
purchase. Class A and Class C shares are subject to a service fee charged
under a "Rule 12b-1 plan," and Class C shares are also subject to a
distribution fee charged under a separate Rule 12b-1 plan. These fees are
described in the Prospectus. See also the discussion of Service and
Distribution Plans in this Statement of Additional Information.
Share prices are determined by reference to the "net asset value" of
shares next determined after receipt of a purchase order for the shares. The
net asset value is the value of the underlying assets represented by each
share, and is computed separately for each class of a Fund by adding the
value of investments, cash and other assets for the class, and dividing by
the number of shares outstanding. The value of assets is determined by
independent valuation services employed by each Fund. The trustees
periodically review the performance of each valuation service. Share price
is normally calculated at 4:00 p.m. Eastern time on each day the New York
Stock Exchange is open for business.
Discussion of Reduced Sales Charges - Class A Shares
The Prospectus states that certain classes of investors, specified
below, may purchase Class A shares of the Funds at variations to the Public
Scale. The Trust may change or eliminate these variations at any time.
(1) Existing shareholders of a Fund may purchase shares upon the
reinvestment of dividends and capital gains distributions with no sales
charge. This practice is followed by many investment funds that charge sales
loads for new investments.
(2) 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
redemption. 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.
(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.
(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.
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,
1997 and 1998, except for amounts paid under Rule 12b-1 plans, which are
described above under the caption "Service and Distribution Plans."
<TABLE>
Net Compensation
Fiscal Underwriting on
Year Aggregate Discounts and Redemptions
Ended Underwriting Commissions and Brokerage Other
9/30 Fund Commissions Paid to TSC Repurchases Commissions Compensation
- ---- ---- ------------ ------------- ------------ ----------- ------------
<C> <C> <C> <C> <C> <C> <C>
1996
Government $96,524 $24,515 $1,557 - 0 - *
Income $95,939 $ 9,784 $1,647 - 0 - *
1997
Government $133,824 $18,119 $1,793 - 0 - *
Income $141,380 $18,484 $6,628 - 0 - *
1998
Government $144,896 $19,451 $2,108 - 0 - *
Income $109,057 $16,479 $2,584 - 0 - *
</TABLE>
* See "Service and Distribution Plans"
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, 1999. 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, 1998, Statements of
Operations for the year ended September 30, 1998 and Statements of
Changes in Net Assets for the two years in the period ended
September 30, 1998, Notes to Financial Statements, Financial
Highlights, and Independent Auditor's Reports dated October 23,
1998 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.
<PAGE>
THORNBURG INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
for
THORNBURG INTERMEDIATE MUNICIPAL FUNDS
119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501
Thornburg Intermediate Municipal Funds (the "Funds") are series of
Thornburg Investment Trust (the "Trust"), each with a separate investment
portfolio and each having one or more classes of shares:
Thornburg 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")
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 June 1, 1999. A copy
of the Prospectus and copies of the Funds' most recent Annual and Semiannual
Reports to Shareholders 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 June 1, 1999.
<PAGE> i
TABLE OF CONTENTS
Page
----
ORGANIZATION OF THE FUNDS. . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . _
Municipal Obligations . . . . . . . . . . . . . . . . . . _
Ratings . . . . . . . . . . . . . . . . . . . . . . . . . _
Temporary Investments . . . . . . . . . . . . . . . . . . _
Repurchase Agreements . . . . . . . . . . . . . . . . . . _
U.S. Government Obligations . . . . . . . . . . . . . . . _
Special Risks of Investment in Single-State Funds . . . . _
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . .__
YIELD AND RETURN COMPUTATION:
Performance and Portfolio Information . . . . . . . . . . . . __
Computation of Yield and Return - In General . . . . . . __
Additional Portfolio and Performance Information . . . . __
REPRESENTATIVE PERFORMANCE INFORMATION . . . . . . . . . . . .__
Thornburg Intermediate Municipal Fund
(Classes A and C) . . . . . . . . . . . . . . .__
Thornburg New Mexico Intermediate Municipal Fund
(Class A) . . . . . . . . . . . . . . . . . . .__
Thornburg Florida Intermediate Municipal Fund
(Class A) . . . . . . . . . . . . . . . . . . .__
Thornburg New York Intermediate Municipal Fund
(Class A) . . . . . . . . . . . . . . . . . . .__
DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . . . __
Distributions . . . . . . . . . . . . . . . . . . . . . .__
Federal Income Tax Matters . . . . . . . . . . . . . . . __
State and Local Tax Aspects . . . . . . . . . . . . . . .__
Accounts of Shareholders . . . . . . . . . . . . . . . . __
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS . .__
Investment Advisory Agreement . . . . . . . . . . . . . .__
Administrative Services Agreement . . . . . . . . . . . .__
SERVICE AND DISTRIBUTION PLANS . . . . . . . . . . . . . . . .__
Service Plans - All Classes . . . . . . . . . . . . . . .__
Class C Distribution Plan . . . . . . . . . . . . . . . .__
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . .__
i
<PAGE> ii
MANAGEMENT AND HOLDERS OF SECURITIES . . . . . . . . . . . . .__
HOW TO PURCHASE FUND SHARES . . . . . . . . . . . . . . . . . __
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . __
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . .__
DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . __
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . .__
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . .__
ii
<PAGE> 1
ORGANIZATION OF THE FUNDS
Each of the Intermediate Municipal Funds are series of Thornburg
Investment Trust, a Massachusetts business trust (the "Trust") organized in
1987 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 14 authorized Funds, four of which are
described in the Prospectus. The Trustees are authorized to divide the
Trust's shares into additional series and classes.
Each Fund may hold special shareholder meetings and mail proxy
materials. These meetings may be called to elect or remove Trustees, change
fundamental investment policies, or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. Each Fund will mail
proxy materials in advance, including a voting card and information about the
proposals to be voted on. The number of votes you are entitled to is based
upon the number of shares you own. Shares do not have cumulative voting
rights or preemptive rights.
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 New Mexico and New York 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 Fund seeks exemption from Florida's 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 Funds were organized on June 4, 1991. The New
York Fund was organized on March 12, 1997. 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
purchasing comparable, rated Municipal Obligations. If a Fund experienced
unexpected net redemptions, it could be forced to sell such unrated Municipal
Obligations at disadvantageous prices without regard to the Obligations'
investment merits, depressing the Fund's net asset value and possibly
reducing the Fund's overall investment performance.
Except to the extent that the Funds are invested in temporary
investments for defensive purposes, each Fund will, under normal conditions,
invest 100% of its net assets in Municipal Obligations and normally will not
invest less than 80% of its net assets in Municipal Obligations. This 80%
policy is a fundamental investment policy of the Funds and may be changed
only with the approval of a majority of the outstanding voting securities of
a given series of the Fund. Under normal conditions, each single state Fund
will attempt to invest 100%, and as a matter of fundamental policy, will
invest at least 65% of its net assets in Municipal Obligations which
originate in the state having the same name as the Fund.
The ability of the Funds to achieve their investment objectives is
dependent upon the continuing ability of issuers of Municipal Obligations in
which the Funds invest to meet their obligations for the payment of interest
and principal when due. In addition to using information provided by the
rating agencies, TMC will subject each issue under consideration for
investment to its own credit analysis in an effort to assess each issuer's
financial soundness. This analysis is performed on a continuing basis for
all issues held by the Funds. TMC subjects each issue under consideration
for investment to the same or similar credit analysis that TMC applies to
rated issues.
Credit ratings are helpful in evaluating bonds, but are relevant
primarily to the safety of principal and interest payments under the bonds.
These ratings do not reflect the risk that market values of bonds will
fluctuate with changes in interest rates. Additionally, credit rating
agencies may fail to change credit ratings in a timely fashion to reflect
events subsequent to initial ratings. The Funds' investment adviser, TMC,
reviews data respecting the issuers of the Funds' portfolio assets on an
ongoing basis, and may dispose of portfolio securities upon a change in
ratings or adverse events not reflected in ratings.
The Funds have reserved the right to invest up to 20% of each Fund's net
assets in "temporary investments" in taxable securities (of comparable
quality to the above tax-exempt investments) that would produce interest not
exempt from Federal income tax. Such temporary investments, which may
include repurchase agreements with dealers, banks or recognized financial
institutions that in the opinion of TMC represent minimal credit risk, may be
made due to market conditions, pending investment of idle funds or to afford
liquidity. See "Temporary Investments," at page 8. Such investments are,
like any investment, subject to market risks and fluctuations in value. In
addition, each Fund's temporary taxable investments may exceed 20% of its net
assets when made for defensive purposes during periods of abnormal market
conditions. The Funds do not expect to find it necessary to make temporary
investments in taxable investments.
No Fund will purchase securities if, as a result, more than 25% of the
Fund's total assets would be invested in any one industry. However, this
restriction will not apply to purchase of (i) securities of the United States
Government and its agencies, instrumentalities and authorities, or (ii) tax
exempt securities issued by other governments or political subdivisions,
because these issuers are not considered to be members of any industry. This
restriction may not be changed as to any Fund unless approved by a majority
of the outstanding shares of the Fund.
The Funds' investment objectives and policies, unless otherwise
specified, are not fundamental policies and may be changed by the Trustees
without shareholder approval.
Municipal Obligations
Municipal Obligations include debt and lease obligations issued by
states, cities and local authorities to obtain funds for various public
purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass transportation,
schools, streets and water and sewer works. Other public purposes for which
Municipal Obligations may be issued include the refunding of outstanding
obligations, the procurement of funds for general operating expenses and the
procurement of funds to lend to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or on
behalf of public authorities to obtain funds to provide privately-operated
housing facilities, sports facilities, convention or trade show facilities,
airport, mass transit, port or parking facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal. Municipal Obligations have
also been issued to finance single-family mortgage loans and to finance
student loans. Such obligations are included within the term "Municipal
Obligations" if the interest paid thereon is exempt from federal income tax.
The two principal classifications of Municipal Obligations are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a specific revenue source. Industrial development bonds
are in most cases revenue bonds and are generally not secured by the pledge
of the credit or taxing power of the issuer of such bonds. There are, of
course, variations in the security of Municipal Obligations, both within a
particular classification and between classifications, depending on numerous
factors.
The Funds may invest in a variety of types of Municipal Obligations,
including but not limited to bonds, notes (such as tax anticipation and
revenue anticipation notes), commercial paper and variable rate demand
instruments. Variable rate demand instruments are Municipal Obligations or
participations therein, either publicly underwritten and traded or privately
purchased, that provide for a periodic adjustment of the interest rate paid
on the instrument and permit the holder to demand payment of the unpaid
principal amount and accrued interest upon not more than seven days' notice
either from the issuer or by drawing on a bank letter of credit, a guarantee
or insurance issued with respect to such instrument. Such Letters of Credit,
guarantees or insurance will be considered in determining whether a Municipal
Obligation meets a Fund's investment criteria. See the Prospectus under the
caption "Investment Objectives and Policies - Municipal Obligations." The
issuer of a variable rate demand instrument may have the corresponding right
to prepay the principal amount prior to maturity.
The Funds also may purchase fixed rate municipal demand instruments
either in the public market or privately. Such instruments may provide for
periodic adjustment of the interest rate paid to the holder. The "demand"
feature permits the holder to demand payment of principal and interest prior
to their final stated maturity, either from the issuer or by drawing on a
bank letter of credit, a guarantee or insurance issued with respect to the
instrument. In some cases these demand instruments may be in the form of
units, each of which consists of (i) a Municipal Obligation and (ii) a
separate put option entitling the holder to sell to the issuer of such option
the Municipal Obligation in such unit, or an equal aggregate principal amount
of another Municipal Obligation of the same issuer, issue and maturity as
such Municipal Obligation, at a fixed price on specified dates during the
term of the put option. In those cases, each unit taken as a whole will be
considered a Municipal Obligation, based upon an accompanying opinion of
counsel. A Fund will invest in a fixed rate municipal demand instrument only
if the instrument or the associated letter of credit, guarantee or insurance
is rated within the three highest grades of a nationally recognized rating
agency, or, if unrated, is deemed by TMC to be of comparable quality with
issues having such debt ratings. The credit quality of such investments will
be determined on a continuing basis by TMC under the supervision of the
Trustees.
A Fund also may purchase and sell Municipal Obligations on a when-issued
or delayed delivery basis. When-issued and delayed delivery transactions
arise when securities are purchased or sold with payment and delivery beyond
the regular settlement date. (When-issued transactions normally settle
within 30-45 days.) On such transactions the payment obligation and the
interest rate are fixed at the time the buyer enters into the commitment.
The commitment to purchase securities on a when-issued or delayed delivery
basis may involve an element of risk because the value of the securities is
subject to market fluctuation, no interest accrues to the purchaser prior to
settlement of the transaction, and at the time of delivery the market value
may be less than cost. At the time a Fund makes the commitment to purchase a
Municipal Obligation on a when-issued or delayed delivery basis, it will
record the transaction and reflect the value of the security in determining
its net asset value. That Fund also will maintain liquid assets at least
equal in value to commitments for when-issued or delayed delivery securities,
such assets to be segregated by State Street Bank & Trust Co., the Fund's
custodian, specifically for the settlement of such commitments. The value of
the segregated assets will be marked to the market daily so that the Fund
will at all times maintain assets in the segregated account equal in value to
the amount of these commitments. The Funds will only make commitments to
purchase Municipal Obligations on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities, but the Funds
reserve the right to sell these securities before the settlement date if it
is deemed advisable. If a when-issued security is sold before delivery any
gain or loss would not be tax-exempt.
TMC will evaluate the liquidity of each Municipal Lease upon its
acquisition and periodically while it is held based upon factors established
by the Trustees, including (i) the frequency of trades and quotes for the
obligation, (ii) the number of dealers who will buy or sell the obligation
and the potential buyers for the obligation, (iii) the willingness of dealers
to make a market for the obligation, and (iv) the nature and timing of
marketplace trades. An unrated Municipal Lease with non-appropriation risk
that is backed by an irrevocable bank letter of credit or an insurance
policy, issued by a bank or insurer deemed by TMC to be of high quality and
minimal credit risk, will not be deemed to be "illiquid" solely because the
underlying Municipal Lease is unrated, if TMC determines that the Municipal
Lease is readily marketable because it is backed by such letter of credit or
insurance policy.
The Funds will seek to reduce further the special risks associated with
investment in Municipal Leases by investing in Municipal Leases only where,
in TMC's opinion, certain factors established by the Trustees have been
satisfied, including (i) the nature of the leased equipment or property is
such that its ownership or use is deemed essential to a governmental function
of the governmental issuer, (ii) the Municipal Lease has a shorter term to
maturity than the estimated useful life of the leased property and the lease
payments will commence amortization of principal at an early date,
(iii) appropriate covenants will be obtained from the governmental issuer
prohibiting the substitution or purchase of similar equipment for a specified
period (usually 60 days or more) in the event payments are not appropriated,
(iv) the underlying equipment has elements of portability or use that enhance
its marketability in the event foreclosure on the underlying equipment was
ever required, and (v) the governmental issuer's general credit is adequate.
The enforceability of the "non-substitution" provisions referred to in (iii)
above has not been tested by the courts. Investments not meeting certain of
these criteria (such as the absence of a non-substitution clause) may be made
if the Municipal Lease is subject to an agreement with a responsible party
(such as the equipment vendor) providing warranties to the Funds that satisfy
such criteria.
Municipal Leases usually grant the lessee the option to purchase the
leased property prior to maturity of the obligation by payment of the unpaid
principal amount of the obligation and, in some cases, a prepayment fee.
Such prepayment may be required in the case of loss or destruction of the
property. The prepayment of the obligation may reduce the expected yield on
the invested funds if interest rates have declined below the level prevailing
when the obligation was purchased.
A Fund will not invest in illiquid securities if, as a result of the
investment, more than 10% of its net assets will be invested in illiquid
securities. For purposes of this limitation, "illiquid securities" shall be
deemed to include (1) Municipal Leases subject to non-appropriation risk
which are not rated at the time of purchase within the four highest grades by
Moody's or S&P and not subject to remarketing agreements (or not currently
subject to remarketing, pursuant to the conditions of any such agreement then
in effect, with a responsible remarketing party, deemed by TMC to be capable
of performing its obligations), (2) repurchase agreements maturing in more
than seven days, (3) securities which the Funds are restricted from selling
to the public without registration under the Securities Act of 1933, and
(4) other securities or participations not considered readily marketable by
the Funds, provided that for purposes of the foregoing an unrated Municipal
Lease which is backed by an irrevocable bank letter of credit or an insurance
policy, issued by a bank or insurer deemed by TMC to be of high quality and
minimal credit risk, will not be deemed to be illiquid.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption
for interest on municipal securities. Similar proposals may be introduced in
the future. These proposals, if enacted, may have the effect of reducing the
availability of investments for the Funds. Moreover, the value of the Funds'
portfolios may be affected. The Funds could be compelled to reevaluate their
investment objectives and policies and submit possible changes in the
structure of the Funds for the approval of their respective shareholders.
The yields on Municipal Obligations are dependent on a variety of
factors, including the condition of the general market and the Municipal
Obligation market, the size of a particular offering, the maturity of the
obligation and the rating of the issue. The ratings of Moody's, S&P and
Fitch represent their opinions as to the quality of the Municipal Obligations
which they undertake to rate. See "Ratings." It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, Municipal Obligations with the same maturity, coupon and rating
may have different yields, while Municipal Obligations of the same maturity
and coupon with different ratings may have the same yield. The market value
of outstanding Municipal Obligations will vary with changes in prevailing
interest rate levels and as a result of changing evaluations of the ability
of their issuers to meet interest and principal payments. Such variations in
market value of Municipal Obligations held in a Fund's portfolio arising from
these or other factors will cause changes in the net asset value of the
Fund's shares.
Ratings
Tax-Exempt Bonds. The four highest ratings of Moody's for tax-exempt
bonds are Aaa, Aa, A and Baa. Tax-exempt bonds rated Aaa are judged to be of
the "best quality." The rating of Aa is assigned to tax-exempt bonds which
are of "high quality by all standards," but as to which margins of protection
or other elements make long-term risks appear somewhat larger than Aaa rated
tax-exempt bonds. The Aaa and Aa rated tax-exempt bonds comprise what are
generally known as "high grade bonds." Tax-exempt bonds which are rated A by
Moody's possess many favorable investment attributes and are considered
"upper medium grade obligations." Factors giving security to principal and
interest of A rated tax-exempt bonds are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. Tax-exempt bonds rated Baa are considered "medium grade"
obligations. They are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such tax-exempt bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well. The foregoing ratings are sometimes presented in parentheses preceded
with "Con." indicating the bonds are rated conditionally. Bonds for which
the security depends upon the completion of some act or the fulfillment of
some condition are rated conditionally. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of projects unseasoned
in operating experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
The parenthetical rating denotes the probable credit status upon completion
of construction or elimination of the basis of the condition.
The four highest ratings of S&P and Fitch for tax-exempt bonds are AAA,
AA, A, and BBB. Tax-exempt bonds rated AAA bear the highest rating assigned
by S&P and Fitch to a debt obligation and indicates an extremely strong
capacity to pay principal and interest. Tax-exempt bonds rated AA also
qualify as high-quality debt obligations. Capacity to pay principal and
interest is very strong, and in the majority of instances they differ from
AAA issues only in small degree. Bonds rated A have a strong capacity to pay
principal and interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions. The BBB
rating, which is the lowest "investment grade" security rating by S&P or
Fitch, indicates an adequate capacity to pay principal and interest.
Whereas BBB rated Municipal Obligations they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay principal and interest
for bonds in this category than for bonds in the A category. The foregoing
ratings are sometimes followed by a "p" indicating that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of default upon failure of, such
completion.
Municipal Notes. The ratings of Moody's for municipal notes are MIG 1,
MIG 2, MIG 3 and MIG 4. Notes bearing the designation MIG 1 are judged to be
of the best quality, enjoying strong protection from established cash flows
of funds for their servicing or from established and broad-based access to
the market for refinancing, or both. Notes bearing the designation MIG 2 are
judged to be of high quality, with margins of protection ample although not
so large as in the preceding group. Notes bearing the designation of MIG 3
are judged to be of favorable quality, with all security elements accounted
for but lacking the undeniable strength of the preceding grades. Market
access for refinancing, in particular, is likely to be less well established.
Notes bearing the designation MIG 4 are judged to be of adequate quality,
carrying specific risk but having protection commonly regarded as required of
an investment security and not distinctly or predominantly speculative.
The S&P ratings for municipal notes are SP-1+, SP-1, SP-2 and SP-3.
Notes bearing an SP-1+ rating are judged to possess overwhelming safety
characteristics, with either a strong or very strong capacity to pay
principal and interest. Notes rated SP-1 are judged to have either a strong
or very strong capacity to pay principal and interest but lack the
overwhelming safety characteristics of notes rated SP-1+. Notes bearing an
SP-2 rating are judged to have a satisfactory capacity to pay principal and
interest, and notes rated SP-3 are judged to have a speculative capacity to
pay principal and interest.
Tax-Exempt Demand Bonds. The rating agencies may assign dual ratings to
all long term debt issues that have as part of their provisions a demand or
multiple redemption feature. The first rating addresses the likelihood of
repayment of principal and interest as due and the second rating addresses
only the demand feature. The long term debt rating symbols are used for
bonds to denote the long term maturity and the commercial paper rating
symbols are used to denote the put option (for example, "AAA/A-1+"). For
newer "demand notes" maturing in 3 years or less, the respective note rating
symbols, combined with the commercial paper symbols, are used (for example.
"SP-1+/A-1+").
Commercial Paper. The ratings of Moody's for issuers of commercial
paper are Prime-1, Prime-2 and Prime-3. Issuers rated Prime-1 are judged to
have superior ability for repayment which is normally evidenced by (i)
leading market positions in well established industries, (ii) high rates of
return on funds employed, (iii) conservative capitalization structures with
moderate reliance on debt and ample asset protection, (if) broad margins in
earnings coverage of fixed financial charges and high internal cash
generation, and (v) well established access to a range of financial markets
and assured sources of alternate liquidity. Issuers rated Prime-2 are judged
to have a strong capacity for repayment which is normally evidenced by many
of the characteristics cited under the discussion of issuers rated Prime-1
but to a lesser degree. Earnings trends, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may
be more affected by external conditions. Adequate liquidity is maintained.
Issuers rated Prime-3 are judged to have an acceptable capacity for
repayment. The effect of industry characteristics and market composition may
be more pronounced. Variability of earnings and profitability may result in
changes in the level of debt-protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.
The ratings of S&P for commercial paper are A (which is further
delineated by Categories A-1+, A-1, A-2 and A-3), B, C and D. Commercial
paper rated A is judged to have the greatest capacity for timely payment.
Commercial paper rated A-1+ is judged to possess overwhelming safety
characteristics. Commercial paper rated A-1 is judged to possess an
overwhelming or very strong degree of safety. Commercial paper rated A-2 is
judged to have a strong capacity for payment although the relative degree of
safety is not as high as for paper rated A-1. Commercial paper rated A-3 is
judged to have a satisfactory capacity for timely payment but is deemed to be
somewhat more vulnerable to the adverse changes in circumstances than paper
carrying the higher ratings. Commercial paper rated B is judged to have an
adequate capacity for timely payment but such capacity may be impaired by
changing conditions or short-term adversities.
Temporary Investments
Each Fund has reserved the right to invest up to 20% of its net assets
in "temporary investments" in taxable securities that would produce interest
not exempt from federal income tax. See "Distributions and Tax Matters."
Such temporary investments may be made due to market conditions, pending
investment of idle funds or to afford liquidity. These investments are
limited to the following short-term, fixed-income securities (maturing in one
year or less from the time of purchase): (i) obligations of the United
States government or its agencies, instrumentalities or authorities; (ii)
prime commercial paper within the two highest ratings of Moody's or S&P;
(iii) certificates of deposit of domestic banks with assets of $1 billion or
more; and (iv) repurchase agreements with respect to the foregoing types of
securities. Repurchase agreements will be entered into only with dealers,
domestic banks or recognized financial institutions that in the opinion of
TMC represent minimal credit risk. Investments in repurchase agreements are
limited to 5% of a Fund's net assets. See "Repurchase Agreements." In
addition, temporary taxable investments may exceed 20% of a Fund's net assets
when made for defensive purposes during periods of abnormal market
conditions. The Funds do not expect to find it necessary to make such
temporary investments.
Repurchase Agreements
Any Fund may enter into repurchase agreements with respect to taxable
securities constituting "temporary investments" in its portfolio. A
repurchase agreement is a contractual agreement whereby the seller of
securities agrees to repurchase the same security at a specified price on a
future date agreed upon by the parties. The agreed upon repurchase price
determines the yield during the Fund's holding period. Repurchase agreements
may be viewed as loans collateralized by the underlying security that is the
subject of the repurchase agreement. A Fund will not enter into a repurchase
agreement if, as a result, more than 5% of the value of its net assets would
then be invested in repurchase agreements. The Funds will enter into
repurchase agreements only with dealers, banks or recognized financial
institutions that in the opinion of TMC represent minimal credit risk. The
risk to a Fund is limited to the ability of the seller to pay the agreed upon
repurchase price on the delivery date; however, although the value of the
underlying collateral at the time the transaction is entered into always
equals or exceeds the agreed upon repurchase price, if the value of the
collateral declines there is a risk of loss of both principal and interest if
the seller defaults. In the event of a default, the collateral may be sold.
A Fund might incur a loss if the value of the collateral has declined, and
the Fund might incur disposition costs or experience delays in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon the
collateral by the Fund may be delayed or limited. The Funds' investment
adviser will monitor the value of the collateral at the time the transaction
is entered into and at all subsequent times during the term of the repurchase
agreement in an effort to determine that the value always equals or exceeds
the agreed upon repurchase price. In the event the value of the collateral
declines below the repurchase price, the investment adviser will demand
additional collateral from the seller to increase the value of the collateral
to at least that of the repurchase price.
U.S. Government Obligations
The Funds' temporary investments in taxable securities may include
obligations of the U.S. government. These include bills, certificates of
indebtedness, notes and bonds issued or guaranteed as to principal or
interest by the United States or by agencies or authorities controlled or
supervised by and acting as instrumentalities of the U.S. government and
established under the authority granted by Congress, including, but not
limited to, the Government National Mortgage Association, the Tennessee
Valley Authority, the Bank for Cooperatives, the Farmers Home Administration,
Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land
Banks, Farm Credit Banks and the Federal National Mortgage Association. Some
obligations of U.S. government agencies, authorities and other
instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others only by the credit of the issuing agency, authority or other
instrumentality. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment, and may not be
able to assert a claim against the United States itself in the event the
agency or instrumentality does not meet its commitments.
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.
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 showed significant
increases in 1997 and 1998 over 1996 levels.
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 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. The budget for the 1997-'98 fiscal year anticipated
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 the
State might otherwise have enjoyed. 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 currently has a revenue surplus, the state has an accumulated
deficit. 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.
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.
A Fund may not:
(1) Invest in securities other than Municipal Obligations (including
participations therein) and temporary investments within the percentage
limitations specified in the Prospectus under the caption "Investment
Objective and Policies";
(2) The Intermediate National Fund may not purchase any security if,
as a result, more than 5% of its total assets would be invested in securities
of any one issuer, excluding obligations of, or guaranteed by, the United
States government, its agencies, instrumentalities and authorities. Any
single state Fund may invest more than 5% of its portfolio assets in the
securities of a single issuer provided that it may not purchase any security
(other than securities issued or guaranteed as to principal or interest by
the United States or its instrumentalities) if, as a result, more than 5% of
the Trust's total assets would be invested in securities of a single issuer;
(3) Borrow money, except for temporary or emergency purposes and not
for investment purposes, and then only in an amount not exceeding 5% of the
value of the Fund's total assets at the time of borrowing;
(4) Pledge, mortgage or hypothecate its assets, except to secure
borrowings permitted by subparagraph (3) above;
(5) Issue senior securities as defined in the Investment Company Act
of 1940, except insofar as either Fund may be deemed to have issued a senior
security by reason of (a) entering into any repurchase agreement; (b)
purchasing any securities on a when-issued or delayed delivery basis; or (c)
borrowing money in accordance with the restrictions described above;
(6) Underwrite any issue of securities, except to the extent that, in
connection with the disposition of portfolio securities, it may be deemed to
be an underwriter under the federal securities laws;
(7) Purchase or sell real estate and real estate mortgage loans, but
this shall not prevent the Funds from investing in Municipal Obligations
secured by real estate or interests therein;
(8) Purchase or sell commodities or commodity futures contracts or
oil, gas or other mineral exploration or development programs;
(9) Make loans, other than by entering into repurchase agreements and
through the purchase of Municipal Obligations or temporary investments in
accordance with its investment objectives, policies and limitations;
(10) Make short sales of securities or purchase any securities on
margin, except for such short-term credits as are necessary for the clearance
of transactions;
(11) Write or purchase puts, calls, straddles, spreads or other
combinations thereof, except to the extent that securities subject to a
demand obligation or to a remarketing agreement may be purchased as set forth
in the Prospectus under the captions "Investment Objectives and Policies --
Municipal Obligations";
(12) Invest more than 5% of its total assets in securities of
unseasoned issuers which, together with their predecessors, have been in
operation for less than three years excluding (i) obligations of, or
guaranteed by, the United States government, its agencies, instrumentalities
and authorities and (ii) obligations secured by the pledge of the faith,
credit and taxing power of any entity authorized to issue Municipal
Obligations;
(13) Invest more than 5% of its total assets in securities which the
Fund is restricted from selling to the public without registration under the
Securities Act of 1933;
(14) Purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of any such issuer
to be held by a Fund;
(15) Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;
(16) Purchase securities (other than securities of the United States
government, its agencies, instrumentalities and authorities) if, as a result,
more than 25% of a Fund's total assets would be invested in any one industry;
(17) Purchase or retain the securities of any issuer other than the
securities issued by that Fund itself if, to the Fund's knowledge, those
officers and trustees of the Fund, or those officers and directors of TMC,
who individually own beneficially more than 1/2 of 1% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
outstanding securities; or
(18) Purchase the securities of any issuer if as a result more than 10%
of the value of the Fund's net assets would be invested in restricted
securities, unmarketable securities and other illiquid securities (including
repurchase agreements of more than seven days maturity and other securities
which are not readily marketable).
For the purpose of applying the limitations set forth in paragraphs (2)
and above, an issuer shall be deemed a separate issuer when its assets and
revenues are separate from other governmental entities and its securities are
backed only by its assets and revenues. Similarly, in the case of a
nongovernmental user, such as an industrial corporation or a privately owned
or operated hospital, if the security is backed only by the assets and
revenues of the nongovernmental user, then such nongovernmental user would be
deemed to be the sole issuer. Where a security is also guaranteed by the
enforceable obligation of another entity it shall also be included in the
computation of securities owned that are issued by such other entity. In
addition, for purposes of paragraph (2) above, a remarketing party entering
into a remarketing agreement with the Fund as described in the Prospectus
under the caption "Investment Objective and Policies -- Municipal
Obligations" shall not be deemed an "issuer" of a security or a "guarantor"
pursuant to such agreement.
With respect to temporary investments, in addition to the foregoing
limitations a Fund will not enter into a repurchase agreement if, as a result
thereof, more than 5% of its net assets would be subject to repurchase
agreements.
Although the Funds have the right to pledge, mortgage or hypothecate
their assets in order to comply with certain state statutes on investment
restrictions, the Funds will not, as a matter of operating policy (which
policy may be changed by the Trustees without shareholder approval), pledge,
mortgage or hypothecate their portfolio securities to the extent that at any
time the percentage of pledged securities will exceed 10% of its total
assets.
In the event the Funds acquire disposable assets as a result of the
exercise of a security interest relating to Municipal Obligations, they will
dispose of such assets as promptly as possible.
Rule 18f-2 under the Act provides that any matter required to be
submitted by the provisions of the Act or applicable state law, or otherwise,
to the holder of the outstanding voting securities of series investment
companies such as the Funds shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each series affected by such matter. Rule 18f-2 further provides
that a series shall be deemed to be affected by a such a matter unless it is
clear that the interests of each series in the matter are substantially
identical or that the matter does not affect any interest of such series
deemed not to be affected. However, the Rule exempts the selection of
independent public accountants, the approval of principal distribution
contracts and the election of directors and trustees from the separate voting
requirements of the Rule.
YIELD AND RETURN COMPUTATION:
Performance and Portfolio Information
Computation of Yield and Return - In General
The Funds may quote their yields and returns in reports, sales
literature and advertisements. Yield and return information are computed
separately for Class A and Class C shares. Yield and return for Class C
shares of a Fund ordinarily will be less than t hat of Class A shares of the
same Fund because of the additional distribution fees imposed upon Class C
shares. Additionally, yield and return could differ in minor respects among
classes of the same Fund because of allocation of certain expenses to one or
more specific classes to which the expenses relate. Any return quoted should
not be considered a representation of the return in the future since return
figures are based upon historical earnings. Actual performance will vary.
Current yield quotations will include a standardized calculation which
computes yield for a 30-day or one-month period by dividing a Fund's net
investment income per share during the period by the maximum offering price
on the last day of the period and annualizing the result. Provided that any
such quotation is also accompanied by the standardized calculation referred
to above, any of the Funds also may quote non-standardized yields for a
specified period by dividing the net investment income per share of that Fund
for that period by either the Fund's average public offering price per share
for that same period or the offering price per share on the first or last day
of the period and annualizing the result. The primary differences between the
yield calculations 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) 30-day or 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.
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 Statement of Additional Information.
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 30-day period ended
September 30, 1998, computed in accordance with the standardized calculation
described above, were 3.62% and 3.34% for Class A shares and Class C shares,
respectively. This method of computing yield 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 standardized method described above for the period ending September 30,
1998, using a maximum federal tax rate of 39.6%, were 5.99% and 5.53% for
Class A and Class C shares, respectively.
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, 1998. 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 3.32% 4.88% N/A 6.90%
Class C 6.57% N/A N/A 6.31%
</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 30-day period ended September 30,
1998, computed in accordance with the standardized calculation described
above, was 3.66%. This method of computing yield 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
standardized method described above for the 30-day period ended September 30,
1998, using a maximum federal tax rate of 39.6% and a maximum New Mexico tax
rate of 8.5%, was 6.64%.
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, 1998. 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 2.38% 4.24% N/A 6.19%
</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 30-day period ended September 30, 1998,
computed in accordance with the standardized calculation described above, was
3.85%. This method of computing yield does not take into account changes in
net asset value.
Taxable Equivalent Yield. The Intermediate Florida Fund's taxable
equivalent yield for Class A, computed in accordance with the standardized
method described above for the 30-day period ended September 30, 1998, using
a maximum federal tax rate of 39.6%, was 6.37%.
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, 1998. 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 2.89% N/A N/A 4.79%
</TABLE>
Thornburg New York Intermediate Municipal Fund (Class A)
THE FOLLOWING DATA FOR INTERMEDIATE NEW YORK 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 York Fund Class A shares for the one month period ended December 31,
1998, computed in accordance with the standardized calculation described
above, was 3.56%. This method of computing yield does not take into account
changes in net asset value.
Taxable Equivalent Yield. The Intermediate New York Fund's taxable
equivalent yield for Class A, computed in accordance with the method
described above, using a maximum federal tax rate of 39.6%, a maximum New
York State tax rate of 6.85% and a maximum New York City tax rate of 4.46%,
was 6.65% for the one-month period ended on December 31, 1998.
Average Annual Total Return. The Intermediate New York Fund's Class A
total return figures are set forth below for the periods shown ending
December 31, 1998. Class A shares were first offered on September 4, 1997.
The data for Class A shares reflect deduction of a maximum sales charge of
2.00% 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 3.75% N/A N/A 5.23%
</TABLE>
Any quoted yield or return should not be considered a representation of
the yield or return in the future because neither the yield nor the return
are fixed. Actual performance will depend not only on the type, quality and
maturities of the investments held by the Funds and changes in interest rates
on those investments, but also on changes in a Fund's expenses during the
period. In addition, any change in a Fund's net asset value will affect its
yield and return.
DISTRIBUTIONS AND TAXES
Distributions
All of the net income of the Funds is declared daily as a dividend on
shares for which they have received payment. Net income of a Fund consists
of all interest income accrued on portfolio assets less all expenses of that
Fund. Expenses of the Funds are accrued each day. Dividends are paid
monthly and are reinvested in additional shares of the Funds at the net asset
value per share at the close of business on the dividend payment date or, at
the shareholder's option, paid in cash. Net realized capital gains, if any,
will be distributed annually and reinvested in additional shares of the Fund
at the net asset value per share at the close of business on the distribution
date, or, at the shareholder's option, paid in cash. See "Accounts of
Shareholders."
Federal Income Tax Matters
Each of the National, New Mexico, Florida and New York 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. This tax treatment relieves each of the Funds from
paying federal income tax on income which is currently distributed to its
shareholders. Each of the Funds also intends to satisfy conditions
(including requirements as to the proportion of its assets invested in
Municipal Obligations) which will enable it to designate distributions from
the interest income generated by its investments in Municipal Obligations,
which are exempt from federal income tax when received by the Funds, as
Exempt Interest Dividends. Shareholders receiving Exempt Interest Dividends
will not be subject to federal income tax on the amount of those dividends,
except to the extent the alternative minimum tax may be applicable.
Under the Code, interest on indebtedness incurred or continued to
purchase or carry shares is not deductible. Under rules issued by the
Department of the Treasury for determining when borrowed funds are considered
used for the purpose of purchasing or carrying particular assets, the
purchase of shares may be considered to have been made with borrowed funds
even though the borrowed funds are not directly traceable to the purchase of
shares. Investors with questions regarding this issue should consult with
their own tax advisers.
Shares of the Funds may not be an appropriate investment for persons who
are "substantial users" of facilities financed by industrial development
bonds (including any Municipal Lease that may be deemed to constitute an
industrial development bond) or persons related to such "substantial users."
Such persons should consult their own tax advisers before investing in Fund
shares.
Distributions by the Funds of net interest income received from certain
temporary investments (such as certificates of deposit, commercial paper and
obligations of the United States government, its agencies, instrumentalities
and authorities), amounts attributable to market discount on bonds and net
short-term capital gains realized by the Funds, if any, will be taxable to
shareholders as ordinary income whether received in cash or additional
shares. Distributions to shareholders will not qualify for the dividends
received deduction for corporations.
Any net long-term capital gains realized by the Funds, whether
distributed in cash or reinvested in additional shares, must be treated as
long-term capital gains by shareholders regardless of the length of time
investors have held their shares. If a Fund should have net undistributed
capital gains in any year, the Fund would pay the tax on such gains and each
shareholder would be deemed, for federal tax purposes, to have paid his or
her pro rata share of such tax.
If in any year a Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, (i) that Fund would incur a
regular corporate federal income tax upon its net interest income, other than
interest income from Municipal Obligations, for that year, and (ii)
distributions to its shareholders out of net interest income from Municipal
Obligations or other investments, or out of net capital gains, would be
taxable to shareholders as ordinary dividend income for federal income tax
purposes to the extent of that Fund's current or accumulated earnings or
profits. That Fund would fail to qualify under Subchapter M if, among other
requirements, in any year (i) 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 (ii) 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 ten investment portfolios and four
series of shares outstanding at the date of this Statement of Additional
Information, the Funds' Trustees are authorized to divide the shares into
other separate series, and to establish additional portfolios pertaining
thereto. Each additional series of shares would relate to a separate
investment portfolio that would be different from the portfolios covered by
this Statement of Additional Information. The Trust expects that it may
create other separate state or regional portfolios with investments
concentrated in a particular state or region. The additional separate
portfolios may be attractive for investors seeking to concentrate their
investments and to minimize their liability for state income taxes on
interest income earned by the respective portfolios or for minimizing taxes
on intangibles, depending upon the particular states. Separate series of the
Trust will be treated under the Code as separate corporations except with
respect to the definitional requirements under Section 851 (a) of the Code.
The legislative history of the Tax Reform Act of 1986, which amended the
Code, indicates that the term "fund" means a segregated portfolio of assets,
the beneficial interest of which is owned by the holders of a class or series
of stock of the regulated investment company that is preferred over all other
classes or series in respect of such portfolio of assets. The capital gains
and losses of each series will belong solely to the holders of the shares of
that series and will not be aggregated with the capital gains and losses of
other series.
As is the case with other types of income, including other tax-exempt
interest income, Exempt Interest Dividends received by an individual
shareholder will be added to his or her "modified adjusted gross income" in
determining what portion, if any, of the individual's Social Security
benefits will be subject to federal income taxation. Shareholders are
advised to consult their own tax advisers as to the effect of this treatment.
The Code treats interest on certain Municipal Obligations which are
private activity bonds under the Code 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.
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 after 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 20% to the extent that gain
exceeds any net short-term capital losses realized by the taxpayer.
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 New
Mexico and New York 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 dividends of the Fund 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.
Florida does not currently impose an individual income tax on
distributions 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 Intermediate Florida Fund shares if the Fund's assets as of
the close of the preceding taxable year consist only of cash, obligations of
Florida and its political subdivisions, and obligations of the United States,
Puerto Rico, Guam or the United States Virgin Islands.
With respect to distributions of interest income from the Intermediate
National Fund, the laws of the several states and local taxing authorities
vary with respect to the taxation of such distributions, and shareholders of
the Fund are advised to consult their own tax advisers in that regard. In
particular, prospective investors who are not individuals are advised that
the preceding discussion relates primarily to tax consequences affecting
individuals, and the tax consequences of an investment by a person which is
not an individual may be very different. The Intermediate National Fund will
advise shareholders within 60 days of the end of each calendar year as to the
percentage of income derived from each state as to which it has any Municipal
Obligations in order to assist shareholders in the preparation of their state
and local tax returns.
Accounts of Shareholders
When an investor makes an initial investment in shares of any Fund, the
Transfer Agent will open an account on the books of that Fund, and the
investor will receive a confirmation of the opening of the account.
Thereafter, whenever a transaction, other than the reinvestment of interest
income, takes place in the account - such as a purchase of additional shares
or redemption of shares or a withdrawal of shares represented by certificates
- - the investor will receive a confirmation statement giving complete details
of the transaction. Shareholders will also receive at least quarterly
statements setting forth all distributions of interest income and other
transactions in the account during the period and the balance of full and
fractional shares. The final statement for the year will provide the
information for purposes described in the Prospectus under the caption
"Taxes."
The monthly distributions of interest income, net of expenses, and the
annual distributions of net realized capital gains, if any, will be credited
to the accounts of shareholders in full and fractional shares of their Fund
at net asset value on the payment or distribution date, as the case may be.
The issuance and delivery of certificates for shares is unnecessary, and
shareholders are thereby relieved of the responsibility of safekeeping. Upon
written request to the Transfer Agent, a certificate will be issued for any
or all of the full shares credited to a shareholder's account. Certificates
which have been issued to a shareholder may be returned at any time for
credit to his or her account.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS
Investment Advisory Agreement
Pursuant to the Investment Advisory Agreement for each Fund, Thornburg
Management Company, Inc., 119 East Marcy Street, Suite 202, Santa Fe, New
Mexico 87501 (TMC), will act as the investment adviser for, and will manage
the investment and reinvestment of the assets of each Fund in accordance with
each Fund's investment objectives and policies, subject to the general
supervision and control of the Funds' Trustees.
TMC is investment adviser for Thornburg Limited Term Municipal Fund,
Inc., a series investment company with two fund series having aggregate
assets of approximately $1,072,176,000 as of June 30, 1998. TMC also acts as
investment adviser for Thornburg Limited Term U.S. Government Fund, Thornburg
Limited Term Income Fund, Thornburg Value Fund, and Thornburg Global Value
Fund, separate series of the Trust which had assets of approximately
$143,000,000, $47,000,000 and $192,000,000,and $8,000,000,respectively, as of
September 30, 1998. 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 and the Intermediate National 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 for the Intermediate Florida Fund. 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.
The shareholders of Intermediate National Fund, Intermediate New Mexico
Fund and Intermediate Florida Fund approved a restatement of the Investment
Advisory Agreement then applicable to each of those Funds 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 years, with respect to each Fund, the
amounts paid to TMC by each Fund were as follows:
<TABLE>
<S> <C> <C> <C>
Sept. 30, Sept. 30, Sept. 30,
1996 1997 1998
-------- -------- ----------
Intermediate National Fund $1,227,432 $1,248,058 $1,855,808
Intermediate New Mexico Fund $688,883 $606,946 $752,824
Intermediate Florida Fund -0- $45,786 $99,858
June 30, June 30, June 30,
1996 1997 1998
-------- -------- --------
Intermediate New York Fund N/A N/A $19,857
</TABLE>
The Florida Fund commenced operations on February 1, 1994. The New York
Fund commenced operations on September 4, 1997. TMC has waived and deferred
its rights to fees in the foregoing periods as follows:
<TABLE>
<S> <C> <C> <C>
Sept. 30, Sept. 30, Sept. 30,
1996 1997 1998
-------- -------- --------
Intermediate National Fund $219,377 $169,343 0
Intermediate New Mexico Fund $99,214 $61,752 0
Intermediate Florida Fund $111,985 $70,565 0
June 30, June 30, June 30,
1996 1997 1998
-------- -------- -------
Intermediate New York Fund N/A N/A $89,203
</TABLE>
The foregoing figures a portion of 1996 for the intermediate National
Fund and the Intermediate New Mexico Fund, are based upon the rates
applicable before restatement of the Investment Advisory Agreement applicable
to Intermediate National Fund, Intermediate New Mexico Fund and Intermediate
Florida 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 their fiscal year ended September 30, 1998, the Intermediate
National Fund, Intermediate New Mexico Fund and Intermediate Florida Fund
reimbursed TMC in the amounts of $39,514,(National), $16,282 (New Mexico) and
$2,853 (Florida), and for its fiscal year ended June 30, 1998 Intermediate
New York Fund reimbursed TMC $2,482, for certain accounting expenses incurred
by TMC on behalf of those Funds.
The Agreement may be terminated by either party, at any time without
penalty, upon 60 days' written notice, and will terminate automatically in
the event of its assignment. Termination will not affect the right of TMC to
receive payments on any unpaid balance of the compensation earned prior to
termination. The Agreement further provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of TMC, or of reckless
disregard of its obligations and duties under the Agreement, TMC will not be
liable for any action or failure to act in accordance with its duties
thereunder.
Administrative Services Agreements
Administrative services are provided to each class of shares issued by
each of the Funds under an Administrative Services Agreement which requires
the delivery of administrative functions necessary for the maintenance of the
shareholders of the class, supervision and direction of shareholder
communications, assistance and review in preparation of reports and other
communications to shareholders, administration of shareholder assistance,
supervision and review of bookkeeping, clerical, shareholder and account
administration and accounting functions, supervision or conduct of regulated
regulatory compliance and legal affairs, and review and administration of
functions delivered by outside service providers to or for shareholders, and
other related or similar functions as may from time to time be agreed. The
Administrative Services Agreement specific to each Fund's Class A shares, and
Class C shares if applicable, provides that the class will pay a fee
calculated at an annual percentage of .125% of the class's average daily net
assets, paid monthly, together with any applicable sales or similar tax.
Services are currently provided under these agreements by TMC. For their
fiscal years ended September 30, 1996, 1997 and 1998, Intermediate National
Fund, Intermediate New Mexico Fund and Intermediate Florida Fund each paid
the following amounts to TMC under its Administrative Services Agreements for
the share classes shown:
--------------------------
Intermediate National Fund
--------------------------
September 30, 1996 September 30, 1997 September 30, 1998
Class A $76,163 Class A $329,737 Class A $421,366
Class C $2,250 Class C $11,773 Class C $19,241
----------------------------
Intermediate New Mexico Fund
----------------------------
September 30, 1996 September 30, 1997 September 30, 1998
Class A $40,674 Class A $167,174 Class A $188,206
-------------------------
Intermediate Florida Fund
-------------------------
September 30, 1996 September 30, 1997 September 30, 1998
Class A $6,249 Class A $29,088 Class A $33,028
For its most recent fiscal year ended June 30, 1998, Intermediate New York
Fund paid the following amount to TMC under its Administrative Services
Agreement for the share class shown:
--------------------------
Intermediate New York Fund
--------------------------
June 30, 1998
Class A $27,265
Intermediate New York Fund commenced investment operations on September 5,
1997.
The agreements applicable to each class may be terminated by either
party, at any time without penalty, upon 60 days' written notice, and will
terminate automatically upon assignment. Termination will not affect the
service provider's right to receive fees earned before termination. The
agreements further provide that in the absence of willful misfeasance, bad
faith or gross negligence on the part of the service provider, or reckless
disregard of its duties thereunder, the provider will not be liable for any
action or failure to act in accordance with its duties thereunder.
H. Garrett Thornburg, Jr., Chairman and a Trustee of the Trust, is also
a Director and controlling stockholder of TMC.
SERVICE AND DISTRIBUTION PLANS
Service Plans - All Classes
Each of the Funds has adopted a plan and agreement of distribution
pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("Service
Plan") which is applicable to Class A shares of the Fund and Class C shares
of each Fund which offers Class C shares. The Plan permits each Fund to pay
to TMC (in addition to the management fee and reimbursements described above)
an annual amount not exceeding .25 of 1% of the Fund's assets attributable to
the class of shares to reimburse TMC for specific expenses incurred by it in
connection with certain shareholder services and the distribution of that
class's shares to investors. TMC may, but is not required to, expend
additional amounts from its own resources in excess of the currently
reimbursable amount of expenses. Reimbursable expenses include the payment
of amounts, including incentive compensation , to securities dealers and
other financial institutions, including banks (to the extent permissible
under the Glass-Steagall Act and other federal banking laws), for
administration and shareholder services. The nature and scope of services
provided by dealers and other entities likely will vary from entity to
entity, but may include, among other things, processing new account
applications, preparing and transmitting to the Transfer Agent computer
processable tapes of shareholder account transactions, and serving as a
source of information to customers concerning the Funds and transactions with
the Funds. The Service Plan does not provide for accrued but unpaid
reimbursements to be carried over and paid to TMC in later years.
Intermediate National Fund, Intermediate New Mexico Fund and
Intermediate Florida Fund each paid to TMC the amounts shown in the table
below, under the terms of the Service Plan, for their fiscal years ended
September 30, 1996, 1997, and 1998.
<TABLE>
Year ended 09/30/96 Year ended 09/30/97 Year ended 09/30/98
------------------- ------------------- -------------------
Class A Class C Class A Class C Class A Class C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
National $595,596 $27,058 $637,240 $23,542 $802,947 $53,876
New Mexico $331,338 N/A $328,762 N/A $360,716 N/A
Florida $46,492 N/A $52,250 N/A $61,932 N/A
</TABLE>
Intermediate New York Fund paid to TMC under its Service Plan the amount
shown in the table below for its most recent fiscal year ended June 30, 1998.
The Fund commenced investment operations on September 5, 1997.
<TABLE>
Year ended 06/30/98
-------------------
Class A
-------
<S> <C>
New York $52,748
Amounts reimbursed to TMC under the Service Plans were paid by TMC
principally as compensation to securities dealers and other persons selling
the Funds' shares, for administration and shareholder services.
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.
Intermediate National Fund paid to TSC $11,210, $32,968 and $38,480
respectively, for the fiscal years ending September 30, 1996, 1997 and 1998,
under its Class C Distribution Plan. Amounts paid to TSC under the Plan were
paid by TSC principally as compensation to securities dealers and other
persons selling the Funds' shares.
The Glass-Steagall Act prohibits certain banks from underwriting mutual
fund shares, but the Funds do not believe that this prohibition will apply to
the arrangements described in the Plans. However, no assurance can be given
that the Glass-Steagall Act will not be interpreted so as to prohibit these
arrangements. In that event, the Funds' ability to market their shares could
be impaired to a small extent. The Funds do not foresee that they will give
preference to banks or other depository institutions which receive payments
from TMC when selecting investments for the Funds.
Each Plan continues in effect for periods of 12 months each unless
terminated pursuant to its terms and may be continued from year to year
thereafter, provided that the continuance is approved at lease annually by a
vote of a majority of the Trustees, including a majority of the independent
Trustees cast in person at a meeting called for the purpose of voting on such
continuance. Each Plan also may be terminated at any time, without penalty,
if a majority of the independent Trustees or shareholders of a Fund class
vote to terminate the Plan for that class. So long as a Plan is in effect,
the selection and nomination of Trustees who are not "interested persons" of
a Fund shall be committed to the discretion of the Trustees who are not
"interested persons." The Plans may not be amended to increase materially
the amount of a Fund's payments thereunder without approval of the
shareholders of the affected classes. Under each Plan, the investment
adviser or the principal underwriter (as the case may be), or the Funds, by a
vote of a majority of the independent Trustees or of the holders of a
majority of the outstanding shares, may terminate the provisions retaining
the services of TMC or TSC under the Plan, without penalty. The Trustees
have the authority to approve continuance of a Plan without similarly
approving a continuance of the provisions retaining TMC or TSC thereunder.
To the extent that a Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act, it will remain in effect as such,
so as to authorize the use of the Fund's assets in the amounts and for the
purposes set forth therein, notwithstanding the occurrence of an assignment,
as defined by the 1940 Act and the rules thereunder. To the extent it
constitutes an agreement pursuant to a plan, it will terminate automatically
in the event of an "assignment." Upon termination, no further payments may
be made under the agreement except for amounts previously accrued by unpaid.
The Funds may continue to make payments pursuant to the Plan of the amounts
authorized to be paid, which may or may not be to TMC or TSC, as the case may
be, or the adoption of other similar arrangements, in each case by the Funds'
Trustees, including a majority of the independent Trustees by vote cast in
person at a meeting called for that purpose.
Information regarding the services rendered under the Plan and the
amounts paid therefor is provided to, and reviewed by, the Trustees on a
quarterly basis. In their quarterly review, the Trustees consider the
continued appropriateness of the Plan and the level of compensation provided
therein.
PORTFOLIO TRANSACTIONS
TMC, in effecting purchases and sales of portfolio securities for the
accounts of the Funds, will place orders in such manner as, in the opinion of
TMC, will offer the best price and market for the execution of each
transaction. Securities normally will be purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in
such securities, unless it appears that a better price or execution may be
obtained elsewhere. Purchases from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include the spread between the bid and asked price. Given the best
price and execution obtainable, it will be the practice of the Funds to
select dealers which, in addition, furnish research information (primarily
credit analyses of issuers) and statistical and other services to TMC. It is
not possible to place a dollar value on information and statistical and other
services received from dealers. Since it is only supplementary to TMC's own
research efforts, the receipt of research information is not expected
significantly to reduce TMC's expenses. In selecting among the firms
believed to meet the criteria for handling a particular transaction, TMC may
also give consideration to those firms which have sold or are selling shares
of the Funds. While TMC will be primarily responsible for the placement of
the Funds' business, the policies and practices of TMC in this regard must be
consistent with the foregoing and will at all times be subject to review by
the Trustees of the Funds.
TMC reserves the right to manage other investment companies and
investment accounts for other clients which may have investment objectives
similar to those of the Funds. Subject to applicable laws and regulations,
TMC will attempt to allocate equitably portfolio transactions among the Funds
and the portfolios of its other clients purchasing securities whenever
decisions are made to purchase or sell securities by the Funds and one or
more of such other clients simultaneously. In making such allocations the
main factors to be considered will be the respective investment objectives of
the Funds and such other clients, the size of investment commitments
generally held by the Funds and such other clients and opinions of the
persons responsible for recommending investments to the Funds and such other
clients. While this procedure could have a detrimental effect on the price
or amount of the securities available to the Funds from time to time, it is
the opinion of the Funds' Trustees that the benefits available from TMC's
organization will outweigh any disadvantage that may arise from exposure to
simultaneous transactions. The Trustees will review simultaneous
transactions.
Funds' portfolio turnover rates for the two most recent fiscal years are
as follows:
</TABLE>
<TABLE>
<S> <C> <C>
Sept. 30, Sept. 30,
1997 1998
--------- ---------
Intermediate National Fund 15.36% 16.28%
Intermediate New Mexico Fund 10.06% 13.67%
Intermediate Florida Fund 51.48% 71.15%
June 30, June 30,
1997 1998
-------- --------
Intermediate New York Fund N/A 42.27%
</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 Trustee who is an "interested person" of the Fund
indicated by an asterisk:
H. Garrett Thornburg, Jr.,* 52, Trustee, Chairman of Trustees / Director,
Chairman (since January of 1987) and Treasurer (since its inception in 1984)
of Thornburg Limited Term Municipal Fund, Inc. (a mutual fund investing in
certain municipal securities); Chairman and Director of Thornburg Mortgage
Advisory Corporation since its formation in 1989; Chairman and Director of
Thornburg Mortgage Asset Corporation (real estate investment trust) since its
formation in 1993; Executive Vice President of Daily Tax Free Income Fund,
Inc. (mutual fund) since its formation in 1982 and a Director from 1982 to
June 1993; Director and Treasurer of TMC since its formation in 1982 and
President from 1982 to August 1997.
David A. Ater, 51, Trustee / Principal in Ater & Ater Associates, Santa Fe,
New Mexico (developer, planner and broker of residential and commercial real
estate) since 1990; owner, developer and broker for various real estate
projects; Director of Thornburg Mortgage Asset Corporation (real estate
investment trust) since 1994.
J. Burchenal Ault, 70, Trustee / Independent Fund Raising Counsel, May 1986
to present; Trustee, Woodrow Wilson International Center for Scholars;
Director of Thornburg Limited Term Municipal Fund, Inc. since its formation
in 1984; Director of Farrar, Strauss & Giroux (publishers) since 1968.
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, 42, 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.
Jonathan Ullrich, 28, Assistant Vice President / Assistant Vice President of
Thornburg Limited Municipal Fund, Inc. since July 1992.
Jack Lallement, 59, 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, 27, Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since September 1997; Fund
Accountant for TMC from 1993 to 1998 and portfolio analyst from 1998; BBA,
University of New Mexico, 1993.
Van Billops, 32, Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since September 1997; Fund
Accountant for TMC since 1993.
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.
Leigh Moiola, 31, Assistant Vice President /Vice President of TMC since
November 1995, and Managing Director since December 1998; Assistant Vice
President of Thornburg Limited Term Municipal Fund, Inc. since June 1997.
Sophia Franco, 27, Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since June 1998; Associate of TMC
since August 1994.
Claiborne Booker, 36, Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since June 1998; Associate of TMC
since February 1998; Partner, Brinson Partners, Inc., 1994 - 1997.
Kerry Lee, 31, Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since June 1998; Associate of TMC
since November 1995.
Richard Brooks, 51, Assistant Vice President / Assistant Vice President of
Thornburg Limited Term Municipal Fund, Inc. since June 1998; Associate of TMC
since September 1994.
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, 1998, 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 - $14,000
Ault
Forrest S. $7,000 - 0 - - 0 - $7,000
Smith
James W. $6,000 - 0 - - 0 - $6,000
Weyhrauch
</TABLE>
The Trust does not pay retirement or pension benefits.
As of March 31, 1999, National Fund had 31,638,836.622 shares
outstanding, of which 28,002,634.915 were Class A shares and 1,873,776.447
were Class C shares, New Mexico Fund had 11,934,025.881 shares outstanding,
Florida Fund had 2,567,224.540 shares outstanding, and New York Fund had
1,981,902.181 shares outstanding.
As of March 31, 1999, 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>
BancOne Securities Corp. National Fund 3,629,521.343 11.47%
FBO The One Investment
Solution
733 Greencrest Drive
Westerville, Ohio 43081
Merrill Lynch Pierce, New Mexico Fund 778,775.204 6.53%
Fenner & Smith
FBO Customers
4800 Deer Lake Drive
Jacksonville, FL 32246
Merrill Lynch Pierce, Florida Fund 192,340,444 7.50%
Fenner & Smith
FBO Customers
4800 Deer Lake Drive
Jacksonville, FL 32246
Alex Brown & Sons, Inc. Florida Fund 134,853.044 5.25%
P. O. Box 1346
Baltimore, MD 21203-1346
</TABLE>
<PAGE>
As of the same date, officers and trustees of the Trust, as a group
(together with family members), owned themselves or through affiliated
persons 319,419.085 shares of the Intermediate New Mexico Fund representing
2.68% 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.
HOW TO PURCHASE FUND SHARES
Procedures with respect to the manner in which shares of the Funds may
be purchased and how the offering price is determined are set forth in the
Prospectus under the caption "BUYING FUND SHARES IN GENERAL."
The Prospectus states that certain classes of investors, specified
below, may purchase Class A shares of the Funds at variations to the Public
Scale. The Trust may change or eliminate these variations at any time.
(1) Existing shareholders of a Fund may purchase shares upon the
reinvestment of dividends and capital gains distributions with no sales
charge. This practice is followed by many investment funds that charge sales
loads for new investments.
(2) 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
redemption. The shareholder's dealer or the shareholder must notify TSC or
the Transfer Agent at the time an order is placed that the purchase qualifies
for this variation to the Public Scale.
The special 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, 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.
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.
NET ASSET VALUE
Procedures for determining the net asset value of the Funds' shares are
set forth in the Prospectus.
<PAGE>
The Funds will calculate the net asset value at least once daily on days
when the New York Stock Exchange is open for trading, and more frequently if
deemed desirable by the Trust. Net asset value will not be calculated on New
Year's Day, Washington's Birthday (on the third Monday in February), Good
Friday, Memorial Day (on the last Monday in May), Independence Day, Labor
Day, Thanksgiving Day, Christmas Day, on the preceding Friday if any of the
foregoing holidays falls on a Saturday, and on the following Monday if any of
the foregoing holidays falls on a Sunday. Under the Investment Company Act
of 1940, net asset value must be computed at least once daily on each day
(i) in which there is a sufficient degree of trading in a Fund's portfolio
securities that the current net asset value of its shares might be materially
affected by changes in the value of such securities and (ii) on which an
order for purchase or redemption of its shares is received.
REDEMPTION OF SHARES
Procedures with respect to redemption of Fund shares are set forth in
the Prospectus under the caption "Selling Fund Shares."
The Funds may suspend the right of redemption or delay payment more than
seven days (a) during any period when the New York Stock Exchange is closed
(other than customary weekend and holiday closings), (b) when trading in the
markets the Funds normally utilize is restricted, or an emergency exists as
determined by the Securities and Exchange Commission so that disposal of the
Funds' investments or determination of its net asset value is not reasonably
practicable, or (c) for such other periods as the Securities and Exchange
Commission by order may permit for protection of the shareholders of a Fund.
DISTRIBUTOR
Pursuant to a Distribution Agreement with the Trust, Thornburg
Securities Corporation (TSC) acts as the principal underwriter of Fund shares
in a continuous offering of those shares. The Funds do not bear selling
expenses except (i) those involved in registering shares with the Securities
and Exchange Commission and qualifying them or the Funds with state
regulatory authorities, and (ii) expenses paid under the Service and
Distribution Plans which might be considered selling expenses. Terms of
continuation, termination and assignment under the Distribution Agreement are
identical to those described above with regard to the Investment Advisory
Agreement, except that termination other than upon assignment requires six
months' notice.
H. Garrett Thornburg, Jr. President, Treasurer and a Trustee of the
Funds, is also Director and controlling stockholder of TSC.
The following table shows the commissions and other compensation received
by TSC from each of the Funds for the three most recent fiscal years, except
for compensation or other amounts paid under Rule 12b-1 plans, which are
described above under the caption "Service and Distribution Plans."
<TABLE> Net Underwriting
Aggregate Discounts and Compensation on
Underwriting Commissions Redemptions and Brokerage Other
Fiscal Year Ended Commissions Paid to TSC Repurchases Commissions Compensation
September 30, 1996 ------------ ------------- ---------------- ----------- ------------
- ------------------
<S> <C> <C> <C> <C> <C>
Intermediate $646,924 $75,160 - 0 - - 0 - *
National Fund
Intermediate 223,862 26,797 - 0 - - 0 - *
New Mexico Fund
Intermediate 120,852 14,827 - 0 - - 0 - *
Florida Fund
Fiscal Year Ended
September 30, 1997
- ------------------
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
Fiscal Year Ended
June 30, 1998
- -----------------
Intermediate 11,478 1,380 - 0 - - 0 - *
New York Fund
Fiscal Year Ended
September 30, 1998
- ------------------
Intermediate $704,602 $82,991 $53,715 - 0 - *
National Fund
Intermediate 396,130 43,019 - 0 - - 0 - *
New Mexico Fund
Intermediate 109,057 16,479 - 0 - - 0 - *
Florida Fund
* See "Service and Distribution Plans."
</TABLE>
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, 1999, and is the independent auditor of the Intermediate New
York Fund for the fiscal year ending June 30, 1999. 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, 1998 Statements of Operations for the year ended
September 30, 1998, 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 23, 1998 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, 1998.
Statement of Assets and Liabilities including Schedules of Investments
as of June 30, 1998, Statement of Operations for the period from September 5,
1997 to June 30, 1998, Statement of Changes in Net Assets for the period
September 5, 1997 to June 30, 1998, Notes to Financial Statements, Financial
Highlights and Independent Auditor's Report dated July 24, 1998 for Thornburg
New York Intermediate Municipal Fund are incorporated herein by reference
from the Fund's Annual Report to Shareholders, June 30, 1998.
Statement of Assets and Liabilities included Schedules of Investments as
of December 31, 1998, Statement of Operations for the six months ended
December 31, 1998, Statement of Changes in Net Assets for the six months
ended December 31, 1998, Notes to Financial Statements and Financial
Highlights for Thornburg New York Intermediate Municipal Fund are
incorporated herein by reference from the Fund's Semiannual Report to
Shareholders, December 31, 1998.
<PAGE>
PART C
OTHER INFORMATION
Items 22 and 23. Financial Statements and Exhibits.
(a) Financial Statements
(i) Thornburg Limited Term U.S. Government Fund (Class A,
Class C and Class I shares),
(ii) Thornburg Limited Term Income Fund (Class A,
Class C and Class I shares),
(iii) Thornburg Intermediate Municipal Fund (Class A,
Class C and Class I shares),
(iv) Thornburg New Mexico Intermediate Municipal Fund (Class A
shares),
(v) Thornburg Florida Intermediate Municipal Fund (Class A
shares),
(vi) Thornburg Value Fund and Thornburg Global Value Fund
(Class A and Class C shares):
Reports of Independent Auditors dated October 23, 1998,
Statements of Assets and Liabilities including Schedules of
Investments as of September 30, 1998, Statements of
Operations for the year ended September 30, 1998, Statements
of Changes in Net Assets for the two years (or shorter
period, if applicable) ended September 30, 1998, Notes to
Financial Statements, Financial Highlights are incorporated
by reference to Registrant's 1997 Annual Reports to
Shareholders in respect of Thornburg Limited Term U.S.
Government Fund, Thornburg Limited Term Income Fund,
Thornburg Intermediate Municipal Fund, Thornburg New Mexico
Intermediate Municipal Fund, Thornburg Florida Intermediate
Municipal Fund, Thornburg Value Fund and Thornburg Global
Value Fund previously filed with the Securities and Exchange
Commission.
(vii) Thornburg New York Intermediate Municipal Fund: (1) Satement
of Assets and Liabilities including Schedule of Investments
as of June 30, 1998, Statement of Operations for the period
ended June 30, 1998, Statement of Changes in Net Assets
for the period ended June 30, 1998, Notes to Financial
Statements and Financial Highlights, Report of Independent
Auditors dated July 24, 1998, are incorporated by
reference to Registrant's Annual Report to Shareholders in
respect of Thornburg New York Intermediate Municipal Fund
previously filed with the Securities and Exchange
Commission. (2) Statement of Assets and Liabilities
including Schedule of Investments as of December 31, 1998,
Statement of Operations for the period ended December 31,
1998, Statement of Changes in Net Assets for the period
ended December 31, 1998, Notes to Financial Statements and
Financial Highlights, and incorporated by reference to
Registrant's Semiannual Report to Shareholders in respect of
Thornburg New York Intermediate Municipal Fund previously
filed with the Securities and Exchange Commission.
(b) Exhibits
The following Exhibits are incorporated herein by reference to Registrant's
Registration Statement on Form N-1A as initially filed on June 12, 1987.
(1) Limited Term Trust, Agreement and Declaration of Trust,
dated June 3, 1987.
(2) By-Laws of Limited Term Trust, dated June 3, 1987.
(3) Not applicable.
(4) Not applicable.
(5) Form of Investment Advisory Agreement between
Registrant and Thornburg Management Company, Inc.
(6) (a) Form of Distribution Agreement between Registrant
and Thornburg Securities Corporation.
(b) Form of Agency Agreement.
(7) Not applicable.
(11) Not applicable.
(12) Not applicable.
(13) Form of Subscription to Shares by Thornburg Management
Company, Inc.
(15) Form of Plan and Agreement of Distribution Pursuant to
Rule 12b-1 between Registrant and Thornburg Management
Company, Inc.
The following exhibits are incorporated herein by reference to Registrant's
pre-effective amendment No. 1 to its Registration Statement on Form N-1A as
filed on October 28, 1987:
(1) Thornburg Income Trust - First Amendment and Supplement
to Agreement and Declaration of Trust, dated August 11,
1987.
(8) Form of Custodian Agreement between Registrant and
State Street Bank and Trust Company. This exhibit
supersedes the form of Custodian Agreement filed with
the Registrant's initial Registration Statement on Form
N-1A on June 12, 1987.
(9) Form of Transfer Agency Agreement between Registrant
and State Street Bank and Trust Company. This exhibit
supersedes the form of Transfer Agency Agreement filed
with the Registrant's initial Registration Statement on
Form N-1A on June 12, 1987.
The following exhibits are incorporated herein by reference to Registrant's
post-effective amendment No. 1 to its Registration Statement on Form N-1A
as filed on March 3, 1988:
(1) Thornburg Income Trust-Second Amendment and Supplement
to Agreement and Declaration of Trust, dated October 28,
1987.
The following exhibits are incorporated herein by reference to Registrant's
post-effective amendment No. 7 to its Registration Statement on Form N-1A
as filed on April 19, 1991:
(16) Powers of Attorney from Messrs. Bemis, Smith and
Thornburg.
The following exhibits are incorporated herein by reference to Registrant's
post-effective amendment No. 9 to its Registration Statement on Form N-1A
as filed on March 3, 1992:
(16) Power of Attorney from J. Burchenal Ault
The following exhibits are incorporated herein by reference to the
Registrant's post-effective amendment No. 10 to its Registration Statement
on Form N-1A as filed on July 23, 1992:
(5) Revised form of Investment Advisory Agreement between
Registrant and Thornburg Management Company, Inc.
(13) Form of Subscription to Shares
(15) Revised form of Plan and Agreement of Distribution
Pursuant to Rule 12b-1 between Registrant and Thornburg
Management Company, Inc.
The following exhibits are incorporated herein by reference to the
Registrant's post-effective amendment No. 13 to its Registration Statement
on Form N-1A as filed on December 3, 1993:
(1) Thornburg Income Trust -- Third, Fourth, Fifth, Sixth
and Seventh Amendments and Supplements to Agreement and
Declaration of Trust
The following exhibits are incorporated herein by reference to the
Registrant's post-effective amendment No. 14 to its Registration Statement
on Form N-1A as filed on May 13, 1994:
(18) Power of attorney (B. McMahon)
The following exhibits are incorporated herein by reference to the
Registrant's post-effective amendment no. 17 to its Registration Statement
on Form N-1A as filed on July 27, 1994:
(1) Thornburg Income Trust Amended and Restated Designation
of Series.
(15.2) Form of Plan and Agreement pursuant to Rule 12b-1
(Class B Distribution Plan)
(15.3) Form of Plan and Agreement pursuant to Rule 12b-1
(Class C Distribution Plan)
The following exhibits are incorporated herein by reference to the
Registrant's post-effective amendment no. 18 to its Registration Statement
on Form N-1A as filed on December 3, 1994:
(15.2) Form of Plan and Agreement pursuant to Rule 12b-1
(Class B Service Plan)
(15.3) Form of Plan and Agreement pursuant to Rule 12b-1
(Class C Service Plan)
The following exhibits are incorporated by reference to the Registrant's
post-effective amendment no. 20 to its Registration Statement on Form N-1A
as filed on July 5, 1995:
(1.1) Thornburg Income Trust - Ninth Amendment and
Supplement to Agreement and Declaration of Trust
(1.2) Thornburg Income Trust - Tenth Amendment and
Supplement to Agreement and Declaration of Trust
(5) Investment Advisory Agreement - in respect of
Thornburg Value Fund
(15.1) Form of Plan and Agreement Pursuant to Rule 12b-1
(Service Plan - all classes) - Thornburg Value Fund
(15.2) Form of Plan and Agreement Pursuant to Rule 12b-1
(Class B Distribution Plan) - Thornburg Value Fund
(15.3) Form of Plan and Agreement Pursuant to Rule 12b-1
(Class C Distribution Plan) - Thornburg Value Fund
(19) Power of attorney from David A. Ater
The following exhibit is incorporated by reference to the Registrant's
post-effective amendment no. 22 to its Registration Statement on Form N-1A
as filed on October 2, 1995:
(1) Thornburg Income Trust - Corrected Tenth Amendment
and Supplement to Agreement and Declaration of Trust
The following exhibits are incorporated by reference to the Registrant's
post-effective amendment no. 26 to its Registration Statement on Form N-1A
as filed on May 6, 1996:
(1) First Supplement to Amended and Restated Designation of Series
(15) Form of Institutional Class Service Plan (12b-1 plan and
agreement)
The following exhibits are incorporated by reference to the Registrant's
post-effective amendment no. 27 to its Registration Statement on Form N-1A
as filed on August 30, 1996:
(5) Form of Restated Investment Advisory Agreement
(9) Form of Administrative Services Agreement
The following exhibits are incorporated by reference from the Registrant's
post-effective amendment no. 29 to its Registration Statement on Form N-1A
as filed on March 14, 1997:
(1.1) Eleventh Amendment and Supplement to Agreement and Declaration
of Trust
(1.2) Twelfth Amendment and Supplement to Agreement and Declaration
of Trust
(5) Amended Form of Restated Investment Advisory Agreement (re
Thornburg New York Intermediate Municipal Fund)
(9) Form of Administrative Services Agreement (re Class A Shares
of Thornburg New York Intermediate Municipal Fund)
(14) Model IRA Plan
(15) Form of Class A Service Plan for Thornburg New York
Intermediate Municipal Fund (12b-1 plan and agreement)
(19.1) Power of attorney from Brian J. McMahon
(19.2) Power of attorney from James W. Weyhrauch
The following exhibits are incorporated by reference from the
Registrant's post-effective amendment no. 30 to its Registration Statement
on Form N-1A as filed on September 3, 1997:
(18) Rule 18f-3 plan
The following exhibits are incorporated by reference from the Registrant's
post-effective amendment no. 32 to its Registration Statement on Form N-1A
as filed on February 17, 1998:
(5) Amended and Restated Investment Advisory Agreement
(6) Thornburg Investment Trust Distribution Agreement
(9.1) Administrative Services Agreement (Class A and Class C shares)
(9.2) Administrative Services Agreement (Class I Shares)
(9.3) Memorandum of Reimbursement
(15.1) Plan and Agreement of Distribution Pursuant to Rule 12b-1
(Service Plan - Classes A, C and I)
(15.2) Plan and Agreement of Distribution Pursuant to Rule 12b-1
(Distribution Plan - Class C)
The following exhibits are incorporated by reference from Registrant's
post-effective amendment no. 33 to its Registration Statement on Form N-1A
as filed on March 10, 1998:
(1) Thirteenth Amendment and Supplement to Agreement and
Declaration of Trust
(14) IRA plan/disclosure statement
The following exhibits are incorporated by reference from Registrant's
post-effective amendment no. 34 to its Registration Statement on Form N-1A
as filed on September 2, 1998:
(16.1) Schedule of performance computations as of June 30, 1998
for Thornburg New York Intermediate Municipal Fund
(16.2) Financial data schedule as of June 30, 1998 for Thornburg New
York Intermediate Municipal Fund
The following exhibit is incorporated by reference from Registrant's
post-effective amendment no. 35 to its Registration Statement on Form N-1A
as filed on November 20, 1998:
For Thornburg Global Value Fund Statement of Assets and Liabilities
including Schedule of Investments as of September 30, 1998,
Statement of Operations for the period ended September 30, 1998,
Statement of Changes in Net Assets for the period ended September 30,
1998, Notes to Financial Statements and Financial Highlights
The following exhibits are incorporated by reference from the
Registrant's post-effective amendment no. 36 to its Registration Statement
on Form N-1A as filed on December 3, 1998;
Schedules of performance computations as of September 30, 1998
for Thornburg Limited Term U.S. Government Fund (Class A, Class
C and Class I shares); Thornburg Limited Term Income Fund
(Class A, Class C and Class I shares); Thornburg Intermediate
Municipal Fund (Class A, Class C and Class I shares);
Thornburg New Mexico Intermediate Municipal Fund (Class A
shares); Thornburg Florida Intermediate Municipal Fund (Class A
shares); Thornburg Value Fund (Class A and Class C shares); and
Thornburg Global Value Fund (Class A and Class C shares)
Financial data schedule as of September 30, 1998 for Thornburg
Limited Term U.S. Government Fund, Thornburg Limited Term Income
Fund, Thornburg Intermediate Municipal Fund, Thornburg New
Mexico Intermediate Municipal Fund, Thornburg Florida
Intermediate Municipal Fund, Thornburg Value Fund and Thornburg
Global Value Fund
The following exhibits are filed herewith:
j.1 Consent of Counsel to be named in Registration Statement
j.2 Consent of Independent Auditors to be named in Registration
Statement.
N.1 Financial data schedule as of December 31, 1998 for Thornburg
New York Intermediate Municipal Fund.
N.2 Schedule of performance computations as of December 31, 1998
for Thornburg New York Intermediate Municipal Fund
Item 24. Persons Controlled By or Under Common Control With Registrant.
Not applicable.
Item 25. Indemnification.
(1) Please see Section 10.2 of the Agreement and Declaration of
Trust filed as Exhibit 1. Section 10.2 generally provides that each of the
Trust's officers and Trustees will be indemnified by the Trust against
liability and expenses in connection with his having been a Trustee or
officer unless it is determined that the individual is liable by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office, or if the individual did
not act in good faith in the reasonable belief that the action was in the
Trust's best interest.
(2) Please see Section 7 of the Distribution Agreement filed as
Exhibit 6(a). Section 7 generally provides that the Trust will indemnify
TSC, its officers and directors, and its controlling persons against
liabilities and expenses incurred because of any alleged untrue statement
of material fact contained in the Registration Statement, Prospectus or
annual or interim reports to shareholders, or any alleged omission to state
a material fact required to be stated therein, or necessary to make the
statements therein, not misleading, except where (i) the untrue statement
or omission arises from information furnished by TSC, or (ii) to the extent
the prospective indemnitee is an officer, trustee or controlling person
of the Trust, the indemnification is against public policy as expressed in
the 1933 Act, or (iii) the liability or expense arises from TSC's willful
misfeasance, bad faith, gross negligence, reckless performance of duties,
or reckless disregard of its obligations and duties under the Distribution
Agreement. Further, TSC agrees to indemnify the Trust, its officers and
trustees, and its controlling persons in certain circumstances.
(3) The directors and officers of TMC are insured, and it is
intended that the Trustees and officers of the Trust will become insured,
under a joint professional and directors and officers liability policy.
The described individuals are referred to as the "insureds." The policy
covers amounts which the insureds become legally obligated to pay by reason
of the act, error, omission, misstatement, misleading statement or neglect
or breach of duty in the performance of their duties as directors, trustees
and officers. In addition, the policy covers TMC, and is proposed to cover
the Registrant, to the extent that they have legally indemnified the
insureds for amounts incurred by the insureds as described in the preceding
sentence. The coverage excludes amounts that the insureds become obligated
to pay by reason of conduct which constitutes willful misfeasance, bad
faith, gross negligence or reckless disregard of the insured's duties. The
application of the foregoing provisions is limited by the following
undertaking set forth in the rules promulgated by the Securities and
Exchange Commission:
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policies expressed
in such Act and that if a claim for indemnification
against such liabilities other than the payment by the
Registrant of expenses incurred or paid by a Trustee,
officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding)
is asserted by such Trustee, officer or controlling
person in connection with the securities being
registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by
controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in such Act and will be governed by the
final adjudication of such issue.
Item 26. Business and Other Connections of the Investment Adviser. See
"MANAGEMENT" in the Statement of Additional Information.
Item 27. Principal Underwriters.
(a) The principal underwriter for the Registrant will be Thornburg
Securities Corporation ("TSC"). TSC is registered as a broker-dealer under
the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. TSC was formed for the purpose of
distributing the shares of the Registrant's series and other registered
investment companies sponsored by its affiliates, and does not currently
engage in the general securities business.
(b) The address of each of the directors and officers of TSC is 119
East Marcy Street, Suite 202, Santa Fe, New Mexico 87501.
Positions and Positions and
Offices Offices
Name with TSC with Registrant
- ---------------------- -------------- --------------------
H. Garrett Thornburg, Jr. Director Trustee; President
Kenneth Ziesenheim President Vice President
Dawn B. Fischer Secretary Secretary and
Assistant Treasurer
(c) Not applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder are maintained at the offices of State Street Bank and Trust
Company, at 470 Atlantic Avenue, Fifth Floor, Boston, Massachusetts 02210.
Item 29. Management Services.
The Registrant and Thornburg Management Company, Inc. ("TMC") have agreed
that TMC will perform for the Registrant certain telephone answering
services previously performed by the Registrant's transfer agent, National
Financial Data Services, Inc. ("NFDS"). These telephone services include
answering telephone calls placed to the Registrant or its transfer agent by
shareholders, securities dealers and others through the Registrant's toll
free number, and responding to those telephone calls by answering
questions, effecting certain shareholder transactions described in the
Registrant's current prospectuses, and performing such other, similar
functions as the Registrant may reasonably prescribe from time to time.
The Registrant will pay one dollar for each telephone call, which was the
charge previously imposed by the Registrant's transfer agent for this
service. The Registrant's transfer agent will no longer charge for this
service. The Registrant understands that (i) the telephone answering
service provided by TMC will be superior to that previously provided by the
transfer agent because TMC will devote greater attention to training the
telephone personnel, and those personnel will have immediate access to the
Registrant's and TMC's management, (ii) the per-call charge imposed upon
the Registrant for this service will be no greater than that charged by the
Registrant's transfer agent, and (iii) TMC will not receive any profit from
providing this service. The Registrant will reimburse TMC for a portion of
the depreciation on certain telephone answering equipment purchased by TMC
to render the described services. The Registrant paid $44,552.67,
$73,536.38 and $20,906 to TMC under the described arrangements in each of
the three most recent fiscal years ended September 30, 1995, 1996 and 1997.
It is not believed that these arrangements constitute a management-related
services agreement.
Item 30. Undertakings.
The Registrant undertakes, if requested to do so by the holders
of at least 10% of its outstanding shares to call a meeting of shareholders
for the purpose of voting upon the question of removal of a trustee or
trustees, and to assist in communications with other shareholders as
required by Section 16(c) of the Investment Company Act of 1940, as
amended.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Santa Fe, and State of New Mexico
on the 1st day of April, 1999.
THORNBURG INVESTMENT TRUST
Registrant
By *
------------------------------------
Brian J. McMahon, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
*
- ------------------------------------------
Brian J. McMahon, President and
principal executive officer
*
- ------------------------------------------
H. Garrett Thornburg, Jr., Trustee and
Chairman of Trustees
*
- ------------------------------------------
J. Burchenal Ault, Trustee
*
- ------------------------------------------
David A. Ater, Trustee
*
- ------------------------------------------
Forrest S. Smith, Trustee
*
- ------------------------------------------
James W. Weyhrauch, Trustee
* By: /s/
--------------------------------
Charles W.N. Thompson, Jr.
Attorney-In-Fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- -------
j.1 Consent of Counsel to be named in registration Statement
j.2 Consent of independent auditors to be named in registration
statement
n.1 Financial data schedule as of December 31, 1998 for Thornburg
New York Intermediate Municipal Fund.
n.2 Schedule of performance computations as of December 31, 1998
for Thornburg New York Intermediate Municipal Fund
EXHIBIT j.1
WHITE Attorneys and Counselors at Law
KOCH, KELLY William Booker Kelly Julie A. Wittenberger
& John F. McCarthy, Jr.
McCARTHY Benjamin Phillips
A Professional Association David F. Cunningham
Albert V. Gonzales Special Counsel
Janet Clow Paul L. Bloom
Kevin V. Reilly
C.W.N. Thompson, Jr.
M. Karen Kilgore
Sandra J. Brinck
Aaron J. Wolf
Mary E. Walta
Rebecca Dempsey
April 1, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 VIA EDGAR FILING
Re: Thornburg Limited Term Municipal Fund, Inc.
Thornburg Limited Term Municipal Fund National Portfolio
Thornburg Limited Term Municipal Fund California Portfolio
Registration Number Under the Securities Act of 1933: 2-89526
Registration Number Under the Investment Company Act of 1940: 811-4302
Ladies and Gentlemen:
We hereby consent to the references made to this firm in the post-
effective amendment no. 32 to the registration statement of Thornburg Limited
Term Municipal Fund, Inc. and the prospectus which is a part of that
registration statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
/S/ Charles W.N. Thompson, Jr.
CHARLES W. N. THOMPSON, JR.
433 Paseo de Peralta Post Office Box 787 Santa Fe, NM 87504-0787
Phone (505) 982-4374 Fax (505) 983-0350; 984-8631 e-mail [email protected]
<PAGE>
EXHIBIT j.2
McGLADREY & PULLEN, LLP
--------------------------------------------
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference of our reports
dated October 23, 1998 on the financial statements of Thornburg Limited
Term Income Fund, Thornburg Limited Term U.S. Government Fund, Thornburg
Intermediate Municipal Fund, Thornburg Florida Intermediate Municipal Fund,
Thornburg New Mexico Intermediate Municipal Fund, Thornburg Value Fund and
Thornburg Global Value Fund, series of Thornburg Investment Trust, and our
reports dated July 24, 1998 on the financial statements of the National
Portfolio and the California Portfolio of Thornburg Limited Term Municipal
Fund, Inc. and the financial statements of Thornburg New York Intermediate
Municipal Fund series of Thornburg Investment Trust, referred to therein in
Post-Effective Amendment No. 38 to the Registration Statement of Thornburg
Investment Trust on Form N-1A, File No. 33-14905 and Post-Effective
Amendment No. 32 to the Registration Statement of Thornburg Limited Term
Municipal Fund, Inc. on Form N-1A, File No. 2-89526 as filed with the
Securities and Exchange Commission.
We also consent to the reference to our firm in the Prospectuses under
the captions "Financial Highlights" and "Additional Information" and in the
Statements of Additional Information under the caption "Independent
Auditors."
/s/ McGladrey & Pullen, LLP
McGLADREY & PULLEN, LLP
New York, New York
April 1, 1999
<PAGE>
EXHIBIT N.1
[ARTICLE] 6
[CIK] 0000816153
[NAME] THORNBURG INVESTMENT TRUST
[SERIES]
[NUMBER] 1
[NAME] THORNBURG NEW YORK INTERMEDIATE MUNICIPAL FUND (A)
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] JUN-30-1999
[PERIOD-END] DEC-31-1998
[INVESTMENTS-AT-COST] 22,970,861
[INVESTMENTS-AT-VALUE] 25,231,733
[RECEIVABLES] 407,326
[ASSETS-OTHER] 116,296
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 25,755,354
[PAYABLE-FOR-SECURITIES] 175,105
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 187,910
[TOTAL-LIABILITIES] 363,015
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 23,120,515
[SHARES-COMMON-STOCK] 1,987,368
[SHARES-COMMON-PRIOR] 2,004,888
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 50,523
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 2,260,872
[NET-ASSETS] 25,392,340
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 729,547
[OTHER-INCOME] 0
[EXPENSES-NET] (95,865)
[NET-INVESTMENT-INCOME] 633,682
[REALIZED-GAINS-CURRENT] 11,540
[APPREC-INCREASE-CURRENT] 169,803
[NET-CHANGE-FROM-OPS] 815,025
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (633,682)
[DISTRIBUTIONS-OF-GAINS] (39,569)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 30,524
[NUMBER-OF-SHARES-REDEEMED] (95,300)
[SHARES-REINVESTED] 31,747
[NET-CHANGE-IN-ASSETS] (79,917)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 38,983
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 63,910
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 153,442
[AVERAGE-NET-ASSETS] 25,359,266
[PER-SHARE-NAV-BEGIN] 12.71
[PER-SHARE-NII] .32
[PER-SHARE-GAIN-APPREC] .07
[PER-SHARE-DIVIDEND] (.32)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.78
[EXPENSE-RATIO] .75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
EXHIBIT N.2
<PAGE>
SCHEDULE OF PERFORMANCE COMPUTATION FORMULAS - A SHARES
THORNBURG NEW YORK INTERMEDIATE MUNICIPAL FUND
Standardized yield calculation - Dec-98 = 3.56%
------ -----
Yield = 2[({[(a-b)/cd]+1}to the 6th power)-1]
Where: a = $93,547.83 net interest income attributable to outstanding
share
b = $16,158.80 expenses accrued for the period net of
reimbursements
c = 1,983,887.3 average daily number of shares of beneficial
interest outstanding during period
d = $13.24 maximum offering price per share of beneficial
interest on: 12/31/98
Total Return for the year ended* 12/31/98 = 3.75%
-------- -----
p(1+T)to the nth power = erv
p = $1,000.00
n = 1
erv = $1,037.50
T = 3.75% Total Return
Average annual return for the period from inception* 9/04/97 - 12/31/98
------------------
p(1+A)to the nth power = erv 483 days = 5.23%
p = $1,000.00
n = 1.32 (Total days since inception/365 days)
erv = $1,614.21
A = 5.23% Average Annual Return
* Assumes 2.00% sales load at inception