THORNBURG INVESTMENT TRUST, 485APOS, 1999-09-01

THORNBURG INVESTMENT TRUST
485APOS, 1999-09-01

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33-14905

Filed with the Securities and Exchange Commission
September 1, 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. 39 [x]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 42 [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 November 1, 1999
----------------------
It is proposed that this filing will become effective (check appropriate
box):

[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[X] On November 1, 1999 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 and Class D 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])
(Thornburg Intermediate Municipal Fund
[Class A shares and Class C shares];
Thornburg New Mexico Intermediate Municipal Fund
[Class A and Class D shares];
Thornburg Florida Intermediate Municipal Fund
[Class A shares];
Thornburg New York Intermediate Municipal Fund
[Class A shares])
(Thornburg Value Fund [Class A shares and
Class C shares]; Thornburg Global Value Fund
[Class A shares and Class C shares])
Statement of Additional
Information (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]; 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, Class C shares and Class D shares])
Thornburg Intermediate Municipal Fund
Thornburg New Mexico Intermediate Municipal Fund
Thornburg Florida Intermediate Municipal Fund
Thornburg New York Intermediate Municipal Fund

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]

Part B Statement of Additional Information

THORNBURG LIMITED TERM INCOME FUNDS
Thornburg Limited Term U.S. Government Fund
Thornburg Limited Term Income Fund
Prospectus
November 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
__ Dividends and Distributions
__ Taxes
__ Transaction Details
__ Exchanges
__ 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 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. The Fund ordinarily
acquires securities for investment rather than for realization of gains on
market fluctuations. However, it may dispose of any security before its
scheduled maturity to enhance income or reduce loss, to change the
portfolio's average maturity, or to otherwise respond to market
conditions.

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. The Fund also may invest readily marketable
participations in such obligations or in repurchase agreements secured by
such obligations. "Participations" are undivided interests in pools of
securities where the underlying government credit support passes through to
the participants. Securities issued by agencies may include "Ginnie Mae"
certificates and other mortgage-backed securities.

Government Fund may 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. 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.
Although the Fund will acquire obligations issued or guaranteed by the U.S.
Government and its agencies or instrumentalities, neither the Fund's net
asset value nor its dividends are so guaranteed.

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. The loss of money is a risk of investing in the
Fund, and when you sell your shares they may be worth less than what you
paid for them. If your sole objective is preservation of capital, then the
Fund may not be suitable for you because the Fund's share value will
fluctuate 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 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 6/30/99: (0.60)%.

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).

The sales charge for Class A shares is not reflected in the returns shown
in the bar chart above, and returns would be less if the charge was taken
into account.

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% 5.23% 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%

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%*

*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 .52%, actual Class C 12b-1 fees are .50%, and so that actual
total Fund operating expenses are 1.40% for Class C shares. Reimbursement
of expenses and waiver 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, reimbursement of dividends and distributions, 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 Class A
shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class C Shares 226 696 1,195 2,570

<PAGE>
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 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 ordinarily acquires securities for investment rather than for
realization of gains on market fluctuations. However, 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. 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. 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.
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. The loss of money is a risk of investing in the Fund, and
when you sell your shares they may be worth less than what you paid for them.
If your sole objective is preservation of capital, then the Fund may not be
suitable for you because the Fund's share value will fluctuate 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 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%

- -5 (3.07%)
1993 1994 1995 1996 1997 1998

Year to date return, period ending 6/30/99: (0.19)%.

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).

The sales charge for Class A shares is not reflected in the returns shown in
the bar chart above, and returns would be less if the charge was taken into
account.

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%

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%*

*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 12b-1 expenses for Class C are .50%, actual Class C other
expenses are .40%, and actual total fund expenses for Class C are 1.40%.
Reimbursement of expenses and waiver 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, reinvestment of dividends and distributions, 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 Class C
shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
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.

Last autumn, many of the world's leading economists and investment
strategists predicted that the Russian financial crisis, coming immediately
after the Asian financial crisis, would depress the world economy. Bond
buyers at that time seemed to expect a severe and long-lasting economic
slowdown, and yields on 30-year U.S. Treasury bonds dropped below 4.75% for
the first time in 40 years. The expectations of economists and strategists
were incorrect. The U.S. economy delivered its strongest economic growth
in a generation during the period from October 1, 1998 to April 1, 1999.
Asian economies and many developing economies gathered momentum in the
summer of 1999. Interest rates are rising generally. The municipal bond
market is reacting with higher yields and increasing participation by
individual investors.

Interest rates stayed steady through most of 1998, before decreasing
rapidly between August and September and then rising steadily through the
end of March 1999. For example, the generic 30 year Treasury bond yielded
5.9% in January 1998. Its yield dropped to 4.7% in the beginning of
October 1998 before rising to 5.63 at the close on March 31, 1999.
Interest rates in March 1999 were, in general, higher than in September
1998 for all Treasury maturities.

Interest rate increases since September 1998 generally have led to lower
bond prices and higher bond yields, although the yield premiums on
corporate bonds and mortgage-backed securities have decreased since
September 1998. Five, ten and thirty year Treasury bonds have decreased in
price by 4.1%, 6.9% and 11.5%, respectively between October 1, 1998 and
March 31, 1999. The net asset values of Government Fund and Income Fund
also decreased slightly over the same period, and the Funds' dividends have
increased to a small extent. If interest rates continued to increase, the
net asset values of the Funds should fall, but the dividends would be
expected to increase.

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 March 31, 1999. On March 31,
1999, 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 3.9 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
12/98 21,186 24,324 14,296 12/98 13,069 13,929 11,072
3/99 21,174 24,258 14,353 3/99 13,058 13,891 11,117
</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 3/31/99): 4.98%
3/31/99): 2.69% From Inception (9/1/94): 6.00%
Five Years: 5.42%
10 Years: 7.00%
From Inception (11/16/87): 6.82%

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 March 31, 1999. On March 31, 1999,
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 4.4 years and 4.7 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
12/98 14,486 14,988 11,686 12/98 13,293 14,055 11,072
3/99 14,492 14,961 11,733 3/99 13,284 14,029 11,117

</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 3/31/99): 4.39%
3/31/99): 2.27% From Inception (9/1/94): 6.40%
Five Years: 6.02%
From Inception (10/01/92): 5.88%

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. The return of Fund
investments are based upon market values obtained from independent pricing
services. 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 brokers and dealers and investment advisors who charge fees
for service, including investment brokers and 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. 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.

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

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. You should verify the accuracy
of your confirmations when you receive them.

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.

SYSTEMATIC WITHDRAWAL PLANS lets 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.

____________________________________________________________________________
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.

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
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.

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 receive on its behalf
purchase and redemption orders received in good form, and some of those
brokers may be authorized to designate other intermediaries to receive
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 received 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 received by the
authorized broker or its designee.

When you place an order to sell shares, your shares will be sold at the next
NAV calculated after your request is received in proper form. (Except that a
CDSC will be deducted from Class C shares 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.

EXCHANGES

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. You
may qualify for a reduced or no sales charge on the Fund into which you
are exchanging.
* 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 as a
percentage of each Fund's average daily assets. The fee percentage decreases
with increases in each Fund's net assets, as described in the Statement of
Additional Information.

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 for all
periods shown through September 30, 1998 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. the information for the six month period ended March
31, 1999 is unaudited.

FINANCIAL HIGHLIGHTS
<TABLE>
- -------------------------
THORNBURG GOVERNMENT FUND
- -------------------------
FISCAL YEAR OR PERIOD
-------------------------------------------------------------------------------------------------
CLASS A CLASS C
------------------------------------------ -------------------------------------------
Period
Six Six 9/1/94
Month Month to
Ended Year Ended September 30: Ended Year ended September 30: 9/30/94
3/31/99 1998 1997 1996 1995 1994 3/31/99 1998 1997 1996 1995 <F(a)>
<CAPTION> ------- ------ ------ ------ ------ ------ ------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $12.66 $12.31 $12.24 $12.40 $12.03 $12.92 $12.71 $12.37 $12.29 $12.45 $12.08 $12.21

Net Investment Income .33 .69 .75 .76 .75 .67 .30 .64 .70 .71 .69 .06
Net Gains (or Losses)
on Securities (.32) .35 .07 (.16) .37 (.89) (.31) .34 .08 (.16) .37 (.13)
(Realized and
Unrealized) ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations .01 $1.04 $.82 $.60 $1.12 $(.22) (.01) $.98 $.78 $.55 $1.06 $(.07)

Dividends (from Net
Investment Income) (.33) (.69) (.75) (.76) (.75) (.67) (.30) (.64) (.70) (.71) (.69) (.06)
Distributions (from
Capital Gains) - - - - - - - - - - - -
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (.33) (.69) (.75) (.76) (.75) (.67) (.30) (.64) (.70) (.71) (.69) (.06)

Net Asset Value, End
of Period $12.34 $12.66 $12.31 $12.24 $12.40 $12.03 $12.40 $12.71 $12.37 $12.29 $12.45 $12.08
Total Return <F(b)> .07% 8.75% 6.86% 4.92% 9.66% (1.72)% (0.06)% 8.19% 6.49% 4.51% 9.07% (.50)%

Net Assets, End of
Period (000's omitted)$119,603 $129,312 133,711 139,510 142,849 177,439 $7,831 6,445 4,299 2,780 2,217 1,005

----------------------
THORNBURG GOVERNMENT FUND
- -------------------------
FISCAL YEAR OR PERIOD
-------------------------------------------------------------------------------------------------
CLASS A CLASS C
------------------------------------------ -------------------------------------------
Period
Six Six 9/1/94
Months Months to
Ended Year Ended September 30: Ended Year ended September 30: 9/30/94
3/31/99 1998 1997 1996 1995 1994 3/31/99 1998 1997 1996 1995 <F(a)>
<CAPTION> ------- ------ ------ ------ ------ ------ ------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Net Income
to Average Net Assets 5.28% 5.61% 6.09% 6.11% 6.23% 5.38% 4.38%(c) 5.16%(c) 5.65% 5.72% 5.68% 5.45%
(After Expense <F(c)>
Reimbursements)

Ratio of Expenses
to Average Net Assets .95% .97% .97% .99% .99% .95% 1.40%(c) 1.40%(c) 1.40% 1.39% 1.52% 1.63%
(After Expense Reductions) <F(c)> <F(c)>

Ratio of Expenses to
Average Net Assets .95% .97% .97% .99% .99% .95% 1.98%(c) 2.20% 2.24% 2.35% 2.30% 1.63%
(Before Expense <F(c)> <F(c)>
Reductions)

Portfolio Turnover Rate 9.25% 29.77% 41.10% 23.27% 28.31% 80.58% 9.25% 29.77% 41.10% 23.27% 28.31% 80.58%

------------------
THORNBURG INCOME FUND
- ---------------------
FISCAL YEAR OR PERIOD
-------------------------------------------------------------------------------------------------
CLASS A CLASS C
------------------------------------------ -------------------------------------------
Period
Six Six 9/1/94
Months Months to
Ended Year Ended September 30: Ended Year ended September 30: 9/30/94
3/31/99 1998 1997 1996 1995 1994 3/31/99 1998 1997 1996 1995 <F(a)>
<CAPTION> ------- ------ ------ ------ ------ ------ ------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $12.50 $12.37 $12.23 $12.11 $11.83 $12.55 $12.47 $12.34 $12.20 $12.08 $11.78 $11.92

Net Investment Income .35 .72 .76 .76 .76 .67 .32 .66 .71 .71 .70 .06
Net Gains (or Losses)
on Securities (.27) .13 .14 .12 .28 (.69) (.27) .13 .14 .12 .30 (.14)
(Realized and
Unrealized) ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from Investment
Operations .08 $ .85 $.90 $.88 $1.04 $(.02) (.05) $.79 $.85 $.83 $1.00 $(.08)

Dividends (from Net
Investment Income) (.35) (.72) (.76) (.76) (.76) (.67) (.32) (.66) (.71) (.71) (.70) (.06)
Distributions (from
Capital Gains) - - - - - (.03) - - - - - -
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (.35) (.72) (.76) (.76) (.76) (.70) (.32) (.66) (.71) (.71) (.70) (.06)

Net Asset Value, End
of Period $12.23 $12.50 $12.37 $12.23 $12.11 $11.83 $12.20 $12.47 $12.34 $12.20 $12.08 $11.78
Total Return <F(b)> .63% 7.08% 7.56% 7.54% 9.22% (.14)% (0.43)% 6.65% 7.13% 7.12% 8.87% (.72)%

Net Assets, End of
Period (000's omitted) $38,700 $35,866 $31,281 $23,433 $23,222 $21,683 $7,045 7,147 5,382 2,695 1,032 53

------------------
THORNBURG INCOME FUND
- ---------------------
FISCAL YEAR OR PERIOD
-------------------------------------------------------------------------------------------------
CLASS A CLASS C
------------------------------------------ -------------------------------------------
Period
Six Six 9/1/94
Month Month to
Ended Year Ended September 30: Ended Year ended September 30: 9/30/94
3/31/99 1998 1997 1996 1995 1994 3/31/99 1998 1997 1996 1995 <F(a)>
<CAPTION> ------- ------ ------ ------ ------ ------ ------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Net Income
to Average Net Assets 5.66% 5.81% 6.16% 6.31% 6.50% 5.51% $5.25% 5.40% 5.76% 5.91% 6.03% 5.14%
(After Expense <F(c)> <F(c)>
Reimbursements)

Ratio of Expenses
to Average Net Assets .99% 1.00% 1.00% .95% .83% .66% 1.40% 1.40% 1.40% 1.36% 1.36% (1.20)%
(After Expense <F(c)> <F(c)> <F(c)>
Reimbursements)

Ratio of Expenses to
Average Net Assets 1.18% 1.22% 1.27% 1.37% 1.48% 1.47% 2.23% 2.30% 2.44% 3.20% 4.75% (1.20)%
(Before Expense <F(c)> <F(c)> <F(c)>
Reductions)

Portfolio Turnover Rate 14.20% 41.01% 13.87% 44.35% 43.12% 84.35% 14.20% 41.01% 13.87% 44.35% 43.12% 84.35%

<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

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

<PAGE>
<OUTSIDE FRONT COVER>
THORNBURG MUNICIPAL FUNDS
Prospectus
November 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-Intermediate National Fund, Intermediate New Mexico
Fund, and Intermediate Florida Fund

__ Additional Information About Fund Investments

__ Your Account - Buying Fund Shares

__ Selling Fund Shares

__ Investor Services

__ Dividends and Distributions

__ Taxes

__ Transaction Details

__ Exchange

__ 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 a laddered maturity
portfolio of 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. Investment decisions are based upon
outlooks for interest rates and securities markets, the supply of municipal
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's portfolio is
"laddered" by investing so that some investments mature during each of the
coming years.

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.

The Fund ordinarily will acquire securities for investment rather than for
realization of gains on market fluctuations. However, 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.
The Fund may invest up to 20% of its net assets in taxable securities
which produce income not exempt from federal income tax because 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.
If the Fund found it necessary to own taxable investments, some of its
income would be subject to federal income tax.

Principal Risks of Investing in the Fund
- -----------------------------------------

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 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 4.80
0%
(1.48)
- -3
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Year to date return, period ending 6/30/99: (0.28)%.

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).

The sales charge for Class A shares is not reflected in the returns shown
in the bar chart above, and the returns would be less if the charge was
taken into account.

Limited Term National Fund Average Annual Total Returns
- -----------------------------------------------------

(periods ended 12/31/99)

One Year Five Years Ten Years Since Inception
-------- ---------- --------- ---------------
Class A Shares 3.20% 4.16% 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) on 1.50% none
purchases (as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 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 .26% .33%
---- -----
Total Annual Operating Expenses .96% 1.78%*

*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, that dividends and distributions are reinvested, 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 $247 $453 $677 $1,321
Class C Shares 232 566 975 2,121

You would pay the following expenses if you did not redeem your Class C
shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class C Shares 183 566 975 2,121

<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 a laddered
maturity portfolio of municipal obligations issued by the State of
California 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. Investment decisions are based upon outlooks for interest rates
and securities markets, the supply of municipal 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's portfolio is "laddered" by investing so that
some investments mature during each of the coming years.6/30/99)

Although the Fund ordinarily will acquire securities for investment rather
than for realization of gains on market fluctuations. However, 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
originating in California or issued by United States territories and
possessions. 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. If
the Fund found it necessary to own taxable investments, some of its income
would be subject to federal and California income taxes.

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.
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. In
particular, the California economy's dependence on Asian markets, an
employment rate which exceeds the national average, increases in
governmental expenditures and projected declines in the growth of
governmental revenues could impair the ability of some governmental issuers
to meet their debt payment 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 a Fund, and when you sell your shares they may be
worth 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 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 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)
- -3
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

Year to date return, period ending 6/30/99: 0.11%.

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).

The sales charge for Class A shares is not reflected in the returns shown
in the bar chart above, and the returns would be less if the charge was
taken into account.

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 (Load) 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 .27% .42%
---- -----
Total Annual Operating Expenses 1.02%* 1.92%*

*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, that dividends and distributions are reinvested, 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 $253 $472 $709 $1,391
Class C Shares 247 610 1,049 2,273

You would pay the following expenses if you did not redeem your Class C
shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class C Shares 197 610 1,049 2,273

<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 a laddered
maturity portfolio of 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. Investment decisions are based upon
outlooks for interest rates and securities markets, the supply of
municipal 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's
investment portfolio is "laddered" by investing so that some investments
mature during each of the coming years.

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.

The Fund normally invests 100% of its net 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, because of
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. If the Fund found it necessary to own taxable investments,
some of its income would be subject to federal income tax.

Principal Risks of Investing in the Fund
- -----------------------------------------

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 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)
- -3
1992 1993 1994 1995 1996 1997 1998

Year to date return, period ending 6/30/99: (1.05)%.

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).

The sales charge for Class A shares is not reflected in the returns shown
in the bar chart above, and the returns would be less if the charge was
taken into account.

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% 6.98% (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

The following tables describe the fees and expenses you may pay if you buy
and hold shares of the Fund.

SHAREHOLDER FEES (Fees paid directly from your investment)

Class A Class C
------- -------
Maximum Sales Charge (Load) on Purchases 2.00% none
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) 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%*

*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, dividends and distributions are reinvested, 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 Class C
shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
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 a laddered
maturity portfolio of 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. Investment decisions are based upon outlooks for interest rates
and securities markets, the supply of municipal 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's portfolio is "laddered" by investing so that
some investments mature during each of the coming years.

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.

The Fund normally invests 100% of its net assets in municipal obligations
originating in New Mexico or issued by United States territories or
possessions. 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. If
the Fund found it necessary to own taxable investments, some of the Fund's
income would be subject to federal and New Mexico income taxes.

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.
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.
Revenues of the state and certain political subdivisions may be
particularly dependent in some periods on fluctuating natural resource
severance taxes federal funding of research facilities such as Los Alamos
and Sandia Laboratories, and a relatively undiversified economy in some
regions. 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 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 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

- -3 (1.19)
1992 1993 1994 1995 1996 1997 1998

Year to date return, period ending 6/30/99: (0.22)%.

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).

The sales charge for Class A shares is not reflected in the returns shown
in the bar chart above, and the returns would be less if the charge was
taken into account.

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

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 Class D
------- -------
Maximum Sales Charge (Load) on Purchases 2.00% 0.00%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load)on
Redemptions 0.50%* 0.00%
(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 Mexico Intermediate Municipal Fund
Class A Class D
------- -------
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%*

Class A expenses are restated to reflect current expenses. Class D
expenses are estimated. 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 D 12b-1 fees, and TMC intends to reimburse a portion
of the Class D other expenses, so that actual Class D 12b-1 expenses are
.50%, actual Class D other expenses are .30%, and actual total fund
operating expenses for Class D 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, dividends and distributions are reinvested, 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 D 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 a laddered
maturity portfolio of 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. Investment
decisions are based upon outlooks for interest rates and securities
markets, the supply of municipal 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's portfolio is "laddered" by investing so that some investments mature
during each of the coming years.

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.

The Fund ordinarily will acquire securities for investment rather than for
realization of gains on market fluctuations. However, 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
originating in Florida or issued by United States territories and
possessions. The Fund may invest up to 20% of its net assets in taxable
securities which would produce income not exempt from federal income tax
because of 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. If the Fund found it necessary to own taxable
investments, some of the Fund's income would be subject to federal income
tax and the Florida intangibles tax could apply.

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.
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.
Rapid growth in Florida has increased the need for educational facilities
and other government infrastructure. Although recent government revenues
have increased, some slowing in revenue growth is expected, and
overdepedence on the sales tax increases the vulnerability to recession and
possible slower growth in the tax base. 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 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 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%

- -3
1995 1996 1997 1998

Year to date return, period ending 6/30/99: (0.77)%.

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).

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.

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%

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 (Load) on Purchases 2.00%
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load)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 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, dividends and distributions are reinvested, 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 a laddered
maturity portfolio of 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. Investment
decisions are based upon outlooks for interest rates and securities
markets, the supply of municipal 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's portfolio is "laddered" by investing so that some investments mature
during each of the coming years.

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.

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
originating in New York or issued by United States territories and
possessions. 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 because of 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. If the Fund found it necessary to
own taxable investments, some of the Fund's income would be subject to
federal and New York State and City income taxes.

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.
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.
Because of higher revenues from income taxes, New York State has not
addressed proposed spending reductions. Recession or adverse conditions
which affect specific industries such as financial services could have a
significant negative impact on New York public finance. 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 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.

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. 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. 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

- -3
1998

Year to date return, period ending 6/30/99: (0.84)%.

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).

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.

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)

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 .41%
-----
Total Annual Fund Operating Expenses 1.16%*

*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, dividends and distributions are reinvested, 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 $317 $564 $831 $1,595

MANAGEMENT DISCUSSION OF FUND PERFORMANCE AND INDEX COMPARISONS -
INTERMEDIATE NATIONAL FUND, INTERMEDIATE NEW MEXICO FUND, AND INTERMEDIATE
FLORIDA FUND

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. The Class A total return figures assume an
investment of $10,000 at the public offering price for purchases up to
$10,000. Information for Limited Term National Fund, Limited Term
California Fund and Intermediate New York Fund is displayed in the Annual
Report for each of those Funds.

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
Intermediate Municipal Funds maintain a weighted average maturity using
this technique which is normally three to ten years.

Last autumn, many of the world's leading economists and investment
strategies predicted that the Russian financial crisis, coming immediately
after the Asian financial crisis, would depress the world economy. Bond
buyers at that time seemed to expect a severe and long-lasting economic
slowdown, and yields on 30-year U.S. Treasury bonds dropped below 4.75% for
the first time in 40 years.

The expectations of economists and strategists were incorrect. The U.S.
economy delivered its strongest economic growth in a generation during the
period from October 1, 1998 to April 1, 1999. Asian economies and many
developing economics gathered momentum in the summer of 1999. Interest
rates are rising generally. The municipal bond market is reacting with
higher yields and increasing participation by individual investors.

Intermediate National Fund, Intermediate New Mexico Fund and
Intermediate Florida Fund are each well structured to adapt to changing
circumstances, and to benefit from higher yields if they become available.
The Funds' portfolios were postured towards the short end of their
targeted maturity ranges, and the passage of time shortens the maturities
of the bonds each Fund owns. During the winter and spring of 1999 Fund
cash flow was used to purchase bonds with maturities which have each Fund's
average maturity, taking advantage of the recent good selection of bonds
coming to market in that period. These Funds will continue this approach
if interest rates remain stable or decrease. If bond yields increase, the
Funds will extend the average portfolio maturity somewhat to increase
dividend yields.

The U.S. economy has broad fundamental strength. More people than ever
before are working, and wages remain firm. However, tax receipts are
slowing while government spending is increasing. If the current strength
of the U.S. economy persists, the Funds' portfolio managers expect interest
rates on long maturity obligations to increase further in 1999.

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 March 31, 1999. On March 31, 1999, 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 9.3 years and 8.6 years, respectively. Class C shares became available
on September 1, 1994. Past performance of the Index and the Fund may not be
indicative of future performance.

<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
12/98 16,240 17,199 12,138 12/98 12,897 13,764 11,072
3/99 16,329 17,282 12,187 3/99 12,955 13,830 11,117
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
3/31/99): 1.24% 3/31/99): 4.55%
5 Years: 5.52% From Inception (9/1/94): 5.81%
From Inception (7/23/91): 6.58% </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 March 31, 1999. On March 31, 1999, 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 9.3
years and 6.8 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
12/98 15,601 17,111 12,163
3/99 15,696 17,194 12,211

</TABLE>
Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 3/31/99): 0.92%
5 Years: 4.89%
From Inception (6/21/91): 5.96%

<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 March 31, 1999. On March 31, 1999, 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 9.3
years and 8.0 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
12/98 12,513 13,440 11,273
3/99 12,589 13,505 11,318

</TABLE>

Average Annual Total Returns (at max. offering price)
A Shares One Year (12 mos. ended 3/31/99): 1.17%
A shares Five years: 5.20%
From Inception (2/01/94): 4.56%

<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.

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.

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
market value of investments, cash and other assets for the class, subtracting
liabilities, and then dividing by the number of shares outstanding. The
market values of Fund investments are obtained from independent pricing
services. 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.

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.

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.

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 brokers and dealers and investment advisors who charge fees for
service, including investment brokers and 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 the sale and distribution of the Fund's shares and 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.

BUYING CLASS D SHARES

Class D shares are sold at the NAV next determined after your order is
received. Class D shares are currently available only for Intermediate New
Mexico Fund. Class D shares are not subject to a CDSC upon redemption.
Class D 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 D 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.

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 D shares.

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

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

STREET NAME OWNERSHIP OF SHARES

SELLING FUND SHARES

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

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

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. You should verify the accuracy of your
confirmations when you receive them. 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.

- ---------------------------------------------------------------------------
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.

* 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 Website. Thornburg's Website on the Internet provides you with
helpful information 24 hours a day, at: 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 bond, money market, and other investments.
These are passed along as dividend distributions. Each Fund realizes capital
gains whenever it sells securities for a higher price than it paid for them.
These are passed along as capital gain distributions. When you open an
account, specify on your application how you want to receive your
distributions. Each Fund offers four options, (which you can change at any
time).

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

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

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

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

Turnover and Capital Gains

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

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

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

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

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

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

When you place an order to sell shares, your shares will be sold at the next
NAV calculated after your request is received 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.

EXCHANGES

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.
* You may qualify for a reduced or no sales charge on the Fund into which
you are exchanging.
* 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.

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 as a percentage of each Fund's average daily net
assets. The percentage rate for the management fee for each Fund declines as
the Fund's assets increase, as described in the Statement of Additional
Information.

For the most recent fiscal year of Limited Term National Fund, Limited
Term California Fund and Intermediate New York Fund, ended June 30, 1999, 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.

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 periods except the six-month periods ended March 31, 1999 for
Intermediate National Fund, Intermediate New Mexico Fund and Intermediate
Florida 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
from
9/1/94 <F(a)>
Year Ended June 30: Year Ended June 30: to
1999 1998 1997 1996 1995 1999 1998 1997 1996 6/30/95
-------- ------ ------ ------ ------ -------- ----- ------ ------ ------------
<S> <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 $13.53 $13.46 $13.37 $13.40 $13.29

Income from Investment
Operations:
Net Investment Income .59 .61 .62 .63 .64 .53 .55 .57 .57 .46
Net Gains (or Losses) on
Securities (.24) .06 .09 (.02) .10 (.25) .07 .09 (.03) .11
(Realized and
Unrealized) ------- ------ ------ ------ ------ -------- ------ ------ ------ ------
Total from Investment
Operations .35 .67 .71 .61 .74 (.28) .62 .66 .54 .57

Less Distributions:
Dividends
(from Net Investment
Income) (.59) (.61) (.62) (.63) (.64) (.53) (.55) (.57) (.57) (.46)
Distributions
(from Capital Gains) - - - - - - - - - -
Total Distributions (.59) (.61) (.62) (.63) (.64) (.53) (.55) (.57) (.57) (.46)

Net Asset Value,
End of Period $13.26 $13.50 $13.44 $13.35 $13.37 $13.28 $13.53 $13.46 $13.37 $13.40

Total Return <FN(b)> 2.58% 5.05% 5.46% 4.60% 5.76% 2.08% 4.70% 5.02% 4.05% 4.25%

Ratios/Supplemental Data:
Net Assets, End of Period
(000's omitted) $807,232 836,947 837,621 917,831 931,987 28,048 $22,729 19,475 15,948 6,469

- ------------------------------------
THORNBURG LIMITED TERM NATIONAL FUND
- ------------------------------------
---------------------------------------------------------------------------------------------------------
CLASS A CLASS C
--------------------------------------------------- -------------------------------------------------
Period
from
9/1/94 <F(a)>
Year Ended June 30: Year Ended June 30: to
1999 1998 1997 1996 1995 1999 1998 1997 1996 6/30/95
-------- ------ ------ ------ ------ -------- ----- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Net Income
to Average Net Assets 4.35% 4.50% 4.65% 4.66% 4.86% 3.93% 4.08% 4.24% 4.22% 4.21% <F(c)>
(After Expense
Reimbursements)

Ratio of Expenses to
Average Net Assets .96% 0.97% 0.96 0.97% 0.97% 1.38% 1.38% 1.38% 1.41% 1.60%<F(c)>
(After Expense
Reimbursements)

Ratio of Expenses to
Average Net Assets .96% 0.97% 0.96% 0.97% 0.97% 1.78% 1.83% 1.86% 1.63% 1.84%<F(c)>
(Before Expense
Reimbursements)

Portfolio Turnover Rate 22.16% 24.95% 23.39% 20.60% 23.02% 22.16% 24.95% 23.39% 20.60% 23.02%

- --------------------------------------
THORNBURG LIMITED TERM CALIFORNIA FUND
- --------------------------------------
---------------------------------------------------------------------------------------------------------
CLASS A CLASS C
------------------------------------------- -------------------------------------------------
Period
from
9/1/94 <F(a)>
Year Ended June 30: Year Ended June 30: to
1999 1998 1997 1996 1995 1999 1998 1997 1996 6/30/95
-------- ------ ------ ------ ------ -------- ----- ------ ------ ------------
<S> <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 $12.91 $12.76 $12.65 $12.62 $12.55

Income from Investment
Operations:
Net Investment Income .53 .55 .57 .58 .58 .48 .50 .52 .53 .42
Net Gains (or Losses) on
Securities (.15) .15 .11 .03 .04 (.15) .15 .11 .03 .07
(Realized and
Unrealized) ------- ------ ------ ------ ------ ------- ------ ------ ------ ------
Total from Investment
Operations .38 .70 .68 .61 .62 .33 .65 .63 .56 .49

Less Distributions:
Dividends
(from Net Investment
Income) (.53) (.55) (.57) (.58) (.58) (.48) (.50) (.52) (.53) (.42)
Distributions
(from Capital Gains) - - - - - - - - - -
Total Distributions (.53) (.55) (.57) (.58) (.58) (.48) (.50) (.52) (.53) (.42)

Net Asset Value,
End of Period $12.75 $12.90 $12.75 $12.64 $12.61 $12.76 $12.91 $12.76 $12.65 $12.62

Total Return <FN(b)> 2.97% 5.57% 5.47% 4.94% 5.12% 2.56% 5.14% 5.06% 4.46% 3.98%

Ratios/Supplemental Data:
Net Assets, End of Period
(000's omitted) $113,835 122,231 94,253 94,379 98,841 7,892 7,843 5,882 2,444 790

- --------------------------------------
THORNBURG LIMITED TERM CALIFORNIA FUND
- --------------------------------------
---------------------------------------------------------------------------------------------------------
CLASS A CLASS C
-------------------------------------------- -------------------------------------------------
Period
from
9/1/94 <F(a)>
Year Ended June 30: Year Ended June 30: to
1999 1998 1997 1996 1995 1999 1998 1997 1996 6/30/95
-------- ------ ------ ------ ------ -------- ----- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Ratio of Net Income
to Average Net Assets 4.11% 4.25% 4.47% 4.59% 4.69% 3.70% 3.85% 4.06% 4.16% 4.07% <F(c)>
(After Expense
Reimbursements)

Ratio of Expenses to
Average Net Assets .99% 1.00% 1.00% 1.00% 1.00% 1.40% 1.40% 1.40% 1.43% 1.63%<F(c)>
(After Expense
Reimbursements)

Ratio of Expenses to
Average Net Assets 1.02% 1.04% 1.03% 1.05% 1.04% 1.92% 1.97% 2.15% 2.92% 3.21%<F(c)>
(Before Expense
Reimbursements)

Portfolio Turnover Rate 21.71% 21.21% 20.44% 22.68% 18.54% 21.71% 21.21% 20.44% 22.68% 18.54%

---------------------------------
THORNBURG INTERMEDIATE NATIONAL FUND
- ------------------------------------
---------------------------------------------------------------------------------------
CLASS A CLASS C
------------------------------------------ ------------------------------------------
Period
Six Six from
Months Months 9/1/94
Ended Ended <F(a)>
March 31, Year Ended September 30: March 31, Year Ended September 30: to
1999 1998 1997 1996 1995 1994 1999 1998 1997 1996 1995 9/30/94
-------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $13.76 $13.46 $13.23 $13.18 $12.73 $13.47 $13.77 $13.48 $13.24 $13.20 $12.73 $12.91

Income from Investment
Operations:
Net Investment Income .31 .63 .66 .68 .68 .67 .28 .58 .61 .63 .60 .05
Net Gains (or Losses)
on Securities (.17) .30 .23 .05 .45 (.72) (.16) .29 .24 .04 .47 (.18)
(Realized and
Unrealized) ------- ------ ------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Total from Investment
Operations .14 .93 .89 .73 1.13 (.05) (.12) .87 .85 .67 1.07 (.13)

Less Distributions:
Dividends (from Net
Investment Income) (.31) (.63) (.66) (.68) (.68) (.67) (.28) (.58) (.61) (.63) (.60) (.05)
Distributions
(from Capital Gains) - - - - - (.02) - - - - - -
------- ------ ------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Total Distributions (.31) (.63) (.66) (.68) (.68) (.69) (.28) (.58) (.61) (.63) (.60) (.05)

Net Asset Value,
End of Period $13.59 $13.76 $13.46 $13.23 $13.18 $12.73 $13.61 $13.77 $13.48 $13.24 $13.20 $12.73

Total Return <FN(b)> 1.03% 7.08% 6.90% 5.64% 9.16% (0.38)% .90% 6.57% 6.55% 5.14% 8.60% (0.97)%

---------------------------------------------------------------------------------------
CLASS A CLASS C
------------------------------------------ ------------------------------------------
Period
Six Six from
Months Months 9/1/94
Ended Ended <F(a)>
March 31, Year Ended September 30: March 31, Year Ended September 30: to
1999 1998 1997 1996 1995 1994 1999 1998 1997 1996 1995 9/30/94
-------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratios/Supplemental
Data:

Net Assets, End of
Period
(000's omitted) $380,636 368,108 309,293 246,128 227,881 207,718 25,660 20,852 11,292 7,586 4,001 139

Ratio of Net Income
to Average Net Assets 4.56% 4.65% 4.96% 5.12% 5.31% 5.23% 4.15%(c) 4.23% 4.55% 4.73% 4.62% 4.51%
(After Expense <F(c)> <F(c)>
Reimbursements)

Ratio of Expenses to
Average Net Assets .99% 1.00% 1.00% 1.00% 1.00% .95% 1.40%(c) 1.40% 1.40% 1.40% 1.66% 1.76%
(After Expense <F(c)> <F(c)>
Reimbursements)

Ratio of Expenses to
Average Net Assets 1.02% 1.04% 1.05% 1.09% 1.08% 1.05% 1.87%(c) 1.93% 1.99% 1.97% 2.35% 1.76%
(Before Expense <F(c)> <F(c)>

Reimbursements)

Portfolio Turnover Rate 3.69% 16.29% 15.36% 12.64% 32.20% 27.37% 3.69% 16.29% 15.36% 12.64% 32.20% 27.37%

- --------------------------------------
THORNBURG INTERMEDIATE NEW MEXICO FUND
- --------------------------------------
------------------------------------------
Six Months CLASS A
Ended ------------------------------------------
March 31, 1999 Year Ended September 30:
1998 1997 1996 1995 1994
--------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.45 $13.28 $13.09 $13.12 $12.72 $13.36

Income from Investment Operations:
Net Investment Income .30 .62 .64 .63 .60 .60
Net Gains (or Losses) on Securities (.13) .17 .19 (.03) .40 (.63)
(Realized and Unrealized) ------- ------ ------ ------ ------ ------
Total from Investment Operations .17 .79 .83 .60 1.00 (.03)

Less Distributions:
Dividends (from Net Investment Income) (.30) (.62) (.64) (.63) (.60) (.60)
Distributions (from Capital Gains) - - - - - (.01)
------ ------ ------ ------ ------ ------
Total Distributions (.30) (.62) (.64) (.63) (.60) (.61)

Net Asset Value, End of Period $13.32 $13.45 $13.28 $13.09 $13.12 $12.72

Total Return <FN(b)> 1.31% 6.08% 6.51% 4.68% 8.10% (0.26)%

Ratios/Supplemental Data:

Net Assets, End of Period (000's omitted) $159,385 $153,118 145,850 131,307 136,742 143,910

Ratio of Net Income to Average Net Assets 4.56% 4.64% 4.88% 4.81% 4.71% 4.58%
(After Expense Reimbursements) <F(c)>

Ratio of Expenses to Average Net Assets .99% 1.00% 1.00% 1.00% 1.00% .90%
(After Expense Reimbursements) <F(c)>

Ratio of Expenses to Average Net Assets 1.01% 1.02% 1.05% 1.07% 1.06% 1.04%
(Before Expense Reimbursements) <F(c)>

Portfolio Turnover Rate 5.31% 13.74% 10.06% 10.88% 17.06% 6.87%

- -----------------------------------
THORNBURG INTERMEDIATE FLORIDA FUND
- -----------------------------------
------------------------------------------
CLASS A
------------------------------------------
Period
from
Six Months 2/01/94
Ended <F(a)>
March 31, 1999 Year Ended September 30: to
1998 1997 1996 1995 9/30/94
-------------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.37 $12.14 $11.88 $11.83 $11.54 $12.06

Income from Investment Operations:
Net Investment Income .27 .56 .56 .57 .63 .40
Net Gains (or Losses) on Securities (.12) .23 .26 .05 .29 (.52)
(Realized and Unrealized) ------- ------ ------ ------ ------ ------
Total from Investment Operations .15 .79 .82 .62 .92 (.12)

Less Distributions:
Dividends (from Net Investment Income) (.27) (.56) (.56) (.57) (.63) (.40)
Distributions (from Capital Gains) - - - - - -
------ ------ ------ ------ ------ ------
Total Distributions (.27) (.56) (.56) (.57) (.63) (.40)

Net Asset Value, End of Period $12.25 $12.37 $12.14 $11.88 $11.83 $11.54

Total Return <FN(b)> 1.23% 6.62% 7.04% 5.37% 8.22% (0.95)%

Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $31,536 $28,091 24,663 19,501 14,822 8,076
Ratio of Net Income to Average Net Assets 4.41% 4.54% 4.65% 4.80% 5.41% 5.09%
(After Expense Reimbursements) <F(c)> <F(c)>
Ratio of Expenses to Average Net Assets .99% .98% .83% .61% .38% .25%
(After Expense Reimbursements) <F(c)> <F(c)>
Ratio of Expenses to Average Net Assets 1.08% 1.11% 1.13% 1.34% 1.44% 1.95%
(Before Expense Reimbursements) <F(c)> <F(c)>
Portfolio Turnover Rate 13.37% 70.81% 51.48% 77.12% 89.60% 19.94%

---------------------------------
THORNBURG INTERMEDIATE NEW YORK FUND
- ------------------------------------
--------
CLASS A
--------
Period
from
9/04/97
Year <F(a)>
Ended to
6/30/99 6/30/98
-------- -------
<S> <C> <C>
Net Asset Value, Beginning of Period $12.71 $12.50

Income from Investment Operations:
Net Investment Income .64 .52
Net Gains (or Losses) on Securities (.33) .21
(Realized and Unrealized) ------- ------
Total from Investment Operations .31 .73

Less Distributions:
Dividends (from Net Investment Income) (.64) (.52)
Distributions (from Capital Gains) (.02) -
------ ------
Total Distributions (.66) (.52)
Net Asset Value, End of Period $12.36 $12.71
Total Return <FN(b)> 2.38% 5.92%
Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $24,633 $25,472
Ratio of Net Income to Average Net Assets 5.00% 4.99%<F(c)>
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets 0.75% .78%<F(c)>
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets 1.16% 1.19%<F(c)>
(Before Expense Reimbursements)
Portfolio Turnover Rate 9.06% 42.26%

</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

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.

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>
<OUTSIDE FRONT COVER>
THORNBURG
VALUE FUND

THORNBURG
GLOBAL
VALUE FUND

Prospectus, November 1, 1999

Thornburg Value Fund and Thornburg Global Value Fund seek long-term capital
appreciation by investing in portfolios of securities selected on a value
basis.
___________________________________________________________________________

Mutual fund shares involve investment risks (including possible loss of
principal) and are not deposits or obligations of, or guaranteed or endorsed
by, and are not insured by, any bank, the federal deposit insurance
corporation, the federal reserve board, or any government agency.

Like all mutual funds, these securities have not been approved or disapproved
by the securities and exchange commission or any state securities commission,
nor has the securities and exchange commission or any state securities
commission passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
___________________________________________________________________________

Not FDIC-Insured May Lose Value
No Bank Guarantee

<PAGE>
TABLE OF
CONTENTS

__ Thornburg Value Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of the Fund
Fees and Expenses
__ Thornburg Global Value Fund
Investment Goals
Principal Investment Strategies
Principal Risks of Investing in the Fund
Past Performance of the Fund
Fees and Expenses
__ Fund Performance and Index Comparisons
__ Prior Performance of Investment Adviser
__ Investment Strategies and Risks
__ The Role of Financial Advisers
__ Your Account
__ Buying Fund Shares - In General
__ Buying Class A Shares
__ Buying Class C Shares
__ Opening an Account
__ Selling Fund Shares
__ Information Services
__ Individual Retirement Accounts
__ Transaction Services
__ Dividends and Distributions
__ Taxes
__ Transaction Details
__ Exchange Restrictions
__ Organization of the Funds
__ Investment Adviser and Management Fees
__ Financial Highlights
__ Additional Information

<PAGE>
Thornburg Value Fund

Investment Goals
- ----------------

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

Principal Investment Strategies
- ------------------------------

Value Fund expects to invest primarily in domestic equity securities selected
on a value basis. However, the Fund may own a variety of securities,
including foreign equity and debt securities, domestic debt securities and
securities that are not currently paying dividends, which in the opinion of
the Fund's investment adviser offer prospects for capital appreciation or
income.

The Fund's investment adviser, Thornburg Management Company, Inc. (TMC)
intends to invest on an opportunistic basis, where it believes there is
intrinsic value. The Fund's principal focus will be on traditional value
stocks. However, the portfolio may include stocks and other securities that
in TMC's opinion provide value in a broader or different context. The
relative proportions of these different types of securities will vary over
time. The Fund ordinarily invests in stocks that may be depressed or reflect
unfavorable market perceptions of company or industry fundamentals. TMC
believes that investments in undervalued stocks, in addition to offering
potential capital appreciation, will help limit loss in adverse markets. TMC
anticipates that the Fund ordinarily will have a weighted average dividend
yield, before Fund expense, that is higher than the yield of the Standard &
Poor's Composite Index of 500 Stocks.

TMC primarily uses individual company and industry analysis to make
investment decisions. The Fund typically makes equity investments in the
following three types of companies:

Companies which, in TMC's opinion, are financially sound companies with well
established businesses whose stock is selling at low valuations relative to
the companies' net assets or potential earning power. This type of company
is often cyclical, and generally does well when the economy or its industry
is doing well. TMC's judgment in evaluating these companies will likely be
contrary to the popular perception of the moment.

Consistent growth companies when they are selling at valuations below
historic norms. Stocks in this category generally sell at premium valuations
and show steady earnings and dividend growth. These companies may have less
risk because of their financial strength, high profitability and dominant
industry position.

Rapidly growing companies that in TMC's opinion are in the process of
establishing a leading position in a product, service or market and which TMC
expects will grow, or continue to grow, at an above average rate. Under
normal conditions the proportion of the Fund invested in companies of this
type will be modest.

The Fund selects foreign securities issued by companies domiciled in
countries whose currencies are freely convertible into U.S. dollars, or in
companies in other countries whose business is conducted primarily in U.S.
dollars (which could include developing counties).

Debt securities will be considered for investment when TMC believes them to
be more attractive than equity alternatives. When analyzing debt
securities, TMC will ordinarily consider the issuer's overall financial
strengths as well as prevailing market conditions for debt securities as
opposed to equities.

Principal Investment Risks
- --------------------------

The value of the Fund's investments varies from day to day, generally
reflecting changes in market conditions, political and economic news,
interest rates, dividends and specific corporate developments. The value
of the Fund's investments can be reduced by unsuccessful investment
strategies and risks affecting foreign securities. Principal foreign
investment risks are changes in currency exchange rates which may adversely
affect the Fund's investments, economic and political instability,
confiscation, inability to sell foreign investments, and reduced legal
protections for investments. Debt securities owned by the Fund may
decrease in value because of interest rate increases, defaults, or
downgrades by rating agencies. The loss of money is a risk of investing in
the Fund, and when you sell your shares they may be worth 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
governmental agency.

Past Performance of the Fund
- ----------------------------

The following information shows 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. The average annual total return figures
compare Class A share performance to the Standard & Poor's Composite Index of
500 Stocks, a broad measure of market performance. 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>
Value Fund Annual Total Returns for Class A Shares
- --------------------------------------------------

40%
37.82
30% 33.70

20% 22.25

10%

0%
1996 1997 1998

Year to date return, period ending June 30, 1999: 19.54%

Highest quarterly results for time period shown: 19.98% (quarter ended
12/31/98).
Lowest quarterly results for time period shown: (13.59)% (quarter ended
9/30/98).

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.

Value Fund Average Annual Total Return - Class A and C Shares
- -------------------------------------------------------------
(periods ended 12/31/98)
From Inception
1 Year (10/1/95)
------ --------------
Thornburg Value
Fund Class A 16.73% 26.39%

Thornburg Value
Fund Class C 19.27% 26.89%

S&P 500 28.55% 28.03%

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.

Shareholders Fees (Fees Paid Directly From Your Investment)
- ---------------------------------------------------------

Class A Class C
------- -------
Maximum Sales Charges (Load)
imposed on purchases (as a
percentage of offering price) 4.50% None

Maximum Deferred Sales Charge
(Load) (as a percentage
of the lesser of redemption
proceeds or original offering
price) 1.00% * 1.00%**

* Imposed only on redemption of purchase of $1 million or more or
redemptions by certain employee benefit plans and charitable
organizations, if redemption occurs within one year of purchase.

** Imposed only on redemptions within one year of purchase.

Annual Fund Operating Expenses (Expenses Are Deducted From Fund Assets)

Value Fund Class A Class C
- ---------- ------- -------

Management Fee .88% .88%

Distributions and Service (12b-1) Fees .25% 1.00%

Other Expenses .42% .57%
----- -----
Total Annual Fund Operating Expenses 1.55%* 2.45%*

*Expenses are restated to reflect current expenses.

Example: This Example is intended to help you compare the cost of investing
in Value 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,
dividends and distributions are reinvested, 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 $601 $919 $1,259 $2,222

Class C Shares $350 $771 $1,318 $2,818

You would pay the following expenses if you did not redeem your Class C
shares:

1 Year 3 Years 5 Years 10 Years
------ ------ ------- -------

Class C Shares $250 $771 $1,318 $2,818

<PAGE>
Thornburg Global Value Fund

Investment Goals
- ----------------

Principal Investment Strategies
- -------------------------------

The Fund invests throughout the world in a diversified portfolio consisting
primarily of equity securities. The Fund normally will invest more than
one-half of its assets in foreign securities, and may own a variety of
domestic and foreign equity and debt securities, and securities that are not
paying dividends, which in the opinion of the Fund's investment adviser,
offer prospects for capital appreciation or income. The Fund may invest in
developing countries.

The Fund's investment adviser, Thornburg Management Company, Inc. (TMC)
intends to invest on an opportunistic basis, where it believes there is
intrinsic value. The Fund's principal focus will be on traditional value
stocks. However, the portfolio may include stocks and other securities that
in TMC's opinion provide value in a broader or different context. The
relative proportions of these different securities will vary over time. The
Fund ordinarily invests in stocks that may be depressed or reflect
unfavorable market perceptions of company or industry fundamentals. TMC
believes that investments in undervalued stocks, in addition to offering
potential capital appreciation, will help limit loss in adverse markets. TMC
anticipates that the Fund ordinarily will have a weighted average dividend
yield, before Fund expense, that is higher than the yield of the Standard &
Poor's Composite Index of 500 Stocks.

TMC primarily uses individual company and industry analysis to make
investment decisions. The Fund typically makes equity investments in the
following three types of companies:

Rapidly growing companies that in TMC's opinion, are in the process of
establishing a leading position in a product, service or market and which TMC
expects will grow, or continue to grow, at an above average rate. Under
normal conditions the proportion of the Fund invested in companies of this
type will be modest.

Debt securities may be purchased when TMC believes them to be more
attractive than equity alternatives. When analyzing debt securities, TMC
will ordinarily consider the issuer's overall financial strengths as well
as prevailing market conditions for debt securities as opposed to equities.

Principal Investment Risks
- --------------------------

The value of the Fund's investments varies from day to day, generally
reflecting changes in market conditions, political and economic news,
interest rates, dividends and specific corporate developments. The value
of the Fund's investments may be reduced by unsuccessful investment
strategies, and is particularly subject to the risks affecting foreign
securities. Principal foreign investment risks are changes in currency
exchange rates which may adversely affect the Fund's investments, economic
and political instability, confiscation, inability to sell foreign
investments, and reduced legal protections for investments. These risks
may be more pronounced for investments in developing countries. Debt
securities owned by the Fund may decrease in value because of interest rate
increases, defaults, or downgrades by rating agencies. The loss of money
is a risk of investing in the Fund, and when you sell your shares they may
be worth 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
governmental agency.

Past Performance of the Fund
- -----------------------------

Global Value Fund commenced investment operations on May 26, 1998. Fund
performance results have not been provided because the Fund has not been in
existence for a full calendar year.

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.

Shareholders Fees (Fees Paid Directly From Your Investment)
- -----------------------------------------------------------

Class A Class C
------- --------
Maximum Sales Charges (Load)
imposed on purchases (as a
percentage of offering price) 4.50% None

Maximum Deferred Sales Charge
(Load) (as a percentage
of the lesser of redemption
proceeds or original offering
price) 1.00% * 1.00%**

* Imposed only on redemption of purchase of $1 million or more or
redemptions by certain employee benefit plans and charitable
organizations, if redemption occurs within one year of purchase.

** Imposed only on redemptions within one year of purchase.

Annual Fund Operating Expenses (Expenses Deducted From Fund Assets)

Value Fund Class A Class C
- ---------- -------- -------

Management Fee .88% .88%

Distributions and Service (12b-1) Fees .25% 1.00%

Other Expenses 1.75% 10.03%
----- ------
Total Annual Fund Operating Expenses 2.88% 11.91%

Other expenses in the table are estimated for the current fiscal year,
before expense reimbursements. Thornburg Management Company, Inc. (TMC)
intends to reimburse a portion of the Fund's other expenses so that the
Fund's actual other expenses are .50% for Class A and Class C shares, and so
that actual total Fund operating expenses are 1.63% and 2.38% for Class A and
Class C shares, respectively. 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,
dividends and distributions are reinvested, 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
------ -------

Class A Shares $ 732 $1,315

Class C Shares $1,321 $3,410

You would pay the following expenses if you did not redeem your Class C
shares:

1 Year 3 Years
------ --------

Class C Shares $1,221 $3,410

MANAGEMENT DISCUSSION OF FUND PERFORMANCE AND INDEX COMPARISONS

Investment results for Thornburg Value Fund and Global Value Fund have
been favorably affected by a healthy U.S. economy, a recovering economy in
the Far East and stability in Europe. Capital spending on telecommunications
infrastructure and continued growth in the semiconductor industry have had a
beneficial impact on a number of holdings in both portfolios. A number of
financial service stocks have also recovered materially after a sharp decline
in the summer of 1998. An improved commodity pricing environment has
resulted in positive performance for industrial holdings. Rising interest
rates have had an adverse impact on valuations generally. Banking, financial
services and technology sectors have important weightings in the Fund's
portfolio as of March 31, 1999.

Thornburg Value Fund Index Comparison

Compares performance of Thornburg Value Fund and the Standard & Poor's 500
Index for the period October 1, 1995 to March 31, 1999. Past performance of
the Index and the Fund may not be indicative of future performance.

<TABLE> <In the prospectus, this table appears as two side-by-side graphs>
Class A Shares Class C Shares
<CAPTION>
FUND S&P FUND S&P
A Shares 500 C Shares 500
-------- ------- -------- -------
<S> <C> <C> <S> <C> <C>
10/01/95 $9,552 $10,000 $10,000 $10,000
10/31/95 9,112 9,970 10/95 9,539 9,970
11/30/95 9,504 10,407 11/95 9,941 10,407
12/31/95 9,502 10,608 12/95 9,931 10,608
1/31/96 9,791 10,968 1/96 10,225 10,968
2/29/96 10,152 11,070 2/96 10,595 11,070
3/31/96 10,490 11,177 3/96 10,947 11,177
4/30/96 10,594 11,342 4/96 11,048 11,342
5/31/96 10,869 11,634 5/96 11,326 11,634
6/30/96 10,806 11,678 6/96 11,261 11,678
7/31/96 10,830 11,162 7/96 11,278 11,162
8/31/96 11,171 11,398 8/96 11,624 11,398
9/30/96 11,846 12,039 9/96 12,320 12,039
. . . . . . .
12/31/96 13,095 13,041 12/96 13,592 13,041
3/31/97 13,092 13,392 3/97 13,567 13,392
6/30/97 15,034 15,727 6/97 15,532 15,727
9/30/97 17,296 16,904 9/97 17,836 16,904
12/31/97 17,509 17,386 12/97 18,026 17,386
3/31/98 20,552 19,806 3/98 21,123 19,806
6/30/98 20,647 20,458 6/98 21,169 20,458
9/30/98 17,841 18,428 9/98 18,252 18,428
12/31/99 21,405 22,350 12/99 21,848 22,350
3/31/99 23,261 23,463 3/99 23,698 23,463
</TABLE>

Average Annual Total Return Average Annual Total Return
(at max. offering price) (at max. offering price)
Class A Shares One Year Class C Shares One Year
(12 mos. ended 3/31/99): (8.10)% (12 mos. ended 3/31/99): 12.19%
Since inception (10/2/95): 27.31% Since inception (10/2/95): 27.99%

Thornburg Global Value Fund Index Comparison

Compares performance of Thornburg Global Value Fund and Morgan Stanley
Capital International Europe, Australia and Far East Index for the period May
28, 1998 to March 31, 1999. 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 MSCI FUND MSCI
A Shares EAFE* C Shares EAFE*
-------- ------- -------- -------
<S> <C> <C> <S> <C> <C>
5/28/98 $9,552 $10,000 5/28/98 $10,000 $10,000
5/98 9,528 9,996 5/98 9,975 9,996
6/98 9,600 10,060 6/98 10,050 10,060
7/98 9,544 10,150 7/98 9,967 10,150
8/98 7,984 8,880 8/98 8,333 8,880
9/98 7,852 8,596 9/98 8,188 8,596
10/98 8,357 7,138 10/98 8,707 7,138
11/98 8,734 7,065 11/98 9,101 7,065
12/98 8,662 7,260 12/98 9,026 7,260
1/99 8,373 7,429 1/98 8,176 7,429
2/99 8,518 7,413 2/98 8,858 7,413
3/99 9,029 7,694 3/99 9,378 7,694

* Morgan Stanley Capital International Europe, Australia & Far East Index
</TABLE>

Total Return Total Return
(at max. offering price) Class C Shares
Class A Shares Since inception (5/28/98): (6.22)%
Since inception (5/28/98): (9.71)%

PRIOR PERFORMANCE OF INVESTMENT ADVISER

The graph below shows the performance data for TMC's Private Investment
Account for the period November 1, 1990 to August 25, 1995, which preceded
Thornburg Value Fund's commencement of investment operations. The graph shows
the change in a $10,000 investment in the Private Investment Account, and
compares that change to the change in the Standard & Poor's 500 Index for the
same period. This information is presented to assist prospective investors
in Thornburg Value Fund to evaluate TMC as an investment adviser.

TMC Private Investment Account
November 1, 1990 - August 25, 1995
<In the prospectus, this information appears as a graph>

Y-axis = $0.00 - $30,000
X-axis = Nov 90 - Aug 95

Private Account Private Account
S&P 500 adj. for Class A expense adj. for Class C expense
----------- ------------------------ ------------------------
Nov 90 $10,000 $ 9,500 $10,000
Oct 91 $13,210 $15,718 $16,381
Oct 92 $14,530 $18,686 $19,454
Oct 93 $16,530 $25,181 $26,249
Oct 94 $17,510 $22,710 $23,425
Aug 95 $21,067 $28,629 $29,373

Average Annual Total Return
November 1, 1990 - August 25, 1995
Private Investment
Account Performance
Adjusted for:
Class A Expenses 24.40%
Class C Expenses 25.06%

S&P 500: 16.67%

The Private Investment Account was owned by TMC and was managed by TMC
using investment objectives, policies and management techniques substantially
similar to those of Thornburg Value Fund. This was the only such account
managed by TMC. The performance of the account has been adjusted downward to
show what the results would have been assuming that expenses were charged at
annual rates comparable to the expenses currently charged to Class A and
Class C shares of Thornburg Value Fund. The current expense ratios for Class
A and Class C Shares of Thornburg Value Fund as of the date of this
prospectus are 1.55% and 2.45%, respectively. See "Expense Information."
The Class A expense adjustment assumes that the maximum Class A sales charge
was imposed. The Class C adjustment assumes that the 1% sales charge on
redemption was not imposed because no redemption occurred in the example
shown. The Standard & Poor's Composite Index of 500 Stocks (S&P 500) is a
group of unmanaged securities widely regarded by investors to be
representative of large company stocks in general; results shown for the S&P
500 assume the reinvestment of dividends, but do not include any expenses or
sales charges. The Private Investment Account was not subject to the
diversification requirements, investment limitations and tax restrictions
imposed on Thornburg Value Fund by the Investment Company Act of 1940 and the
mutual fund rules of the Internal Revenue Code, nor was the Private
Investment Account subject to the need to redeem shares. Consequently, the
performance results for the Account could have been adversely affected if the
Account had been subject to those requirements. The Private Investment
Account results are historical only, and are not intended to predict or
suggest the returns which may or may not be realized by a future investment
in Thornburg Value Fund. Investors should not consider this performance data
as an indication of future performance of the Fund.

ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS

The following discussion contains more detailed information about types of
investments the Funds may make. A complete listing of the Funds' policies
and limitations and more detailed information about the Funds' investments is
contained in the Funds' Statement of Additional Information (SAI). TMC may
not buy all of these securities or use all of these techniques to the full
extent permitted unless it believes that doing so will help a Fund achieve
its goal. Current holdings are described in the Funds' financial reports
which are sent to shareholders quarterly.

Equity Securities. Equity Securities may include common stocks, preferred
stocks, convertible securities, warrants, ADRs (American Depository Receipts
or GDR's), equity benchmark shares, partnership interests and publicly traded
real estate investment trusts. Common stocks, the most familiar type,
represent an equity (ownership) interest in a corporation. Although equity
securities have a history of long-term growth in value, their prices
fluctuate based on changes in a company's financial condition and on overall
market and economic conditions.

Investments in smaller companies. The Funds may invest in the stock or debt
securities of smaller or unseasoned issuers. Although investments in these
companies may offer greater prospects for appreciation, they involve
additional risks because of limited product lines, limited access to markets
and financial resources, and greater vulnerability to competition and changes
in markets. Additionally, the value of these securities may fluctuate more,
and they may be more difficult to sell, particularly in declining markets.

Investments in Other Investment Companies. The Funds may invest in
securities of closed end investment companies. Up to 5% of a Fund's total
assets at the time of purchase may be invested in any one investment company,
provided that after its purchase no more than 3% of that investment company's
outstanding stock is owned by the Fund, and provided further, that no more
than 10% of the Fund's total assets are invested in investment companies. TMC
will charge an advisory fee on the portion of the Funds' assets that are
invested in securities of other investment companies. Thus shareholders will
be paying a "double fee" on those assets since the advisers of the investment
companies also will be charging fees on the same assets. In addition, each
Fund may in the future pool its assets with other companies in one investment
company upon a specific determination by the Trustees that the investment is
in the best interests of shareholders. See "Organization of the Funds" on
page __.

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

Lower-quality debt securities (sometimes called "junk bonds" or "high yield
securities") are rated below investment grade by the primary rating agencies,
and are often considered to be speculative. These securities involve greater
risk of default or price changes due to changes in the issuer's
creditworthiness, or they may already be in default. The market prices of
these securities may fluctuate more than higher-quality securities and may
decline significantly in periods of general economic difficulty or increasing
interest rates, or in response to adverse publicity, reductions in ratings or
changes in investor perceptions. Either Fund may invest up to 35% of its
assets in these securities.

Foreign Securities and foreign currencies may involve additional risks.
Securities of foreign issuers, even if denominated in U.S. dollars, may be
affected significantly by fluctuations in the value of foreign currencies,
and the value of these securities in U.S. dollars may decline even if the
securities increase in value in their home country. Foreign securities also
are subject to greater political risk, including nationalization of assets,
confiscatory taxation, currency exchange controls, excessive or
discriminatory regulations, and restrictions on repatriation of assets and
earnings to the United States. In some countries, there may be political
instability or insufficient governmental supervision of markets and financial
institutions, and the legal protections for the Funds' investments could be
subject to unfavorable judicial or administrative changes. Further,
governmental issuers may be unwilling or unable to repay principal and
interest when due, and may require that the terms for payment be
renegotiated. Markets in some countries may be more volatile, and subject to
less stringent investor protection and disclosure requirements and it may be
difficult to sell securities in those markets. Moreover, the economies in
many countries may be relatively unstable because of weaker local currencies
or dependence on a few industries or economic sectors.

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

Other Securities each Fund may purchase include short-term, highly liquid
securities, such as time certificates of deposit, and investment grade
short-term corporate debt obligations and commercial paper. Each Fund may,
under normal conditions, hold a portion of its assets in other securities
pending investment of idle funds or to provide liquidity. During temporary
defensive conditions, each Fund may invest up to 100% of its assets in other
securities.

Repurchase Agreements. In a repurchase agreement, a Fund buys a security at
one price and simultaneously agrees to sell it back at a higher price. Delays
or losses could result if the other party to the agreement defaults or
becomes insolvent. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the security at a higher price. See
"Borrowing" below.

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

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

Portfolio Turnover. The Value Fund's portfolio turnover rate for the year
ended September 30, 1998 was 99.55% The Funds' investment adviser does not
anticipate that either Fund's portfolio turnover rate ordinarily will exceed
100%. This rate will vary from time to time, and higher turnover rates may
result in higher brokerage commissions, dealer mark-ups and transaction
costs, and also could result in taxable capital gains.

YEAR 2000 RISK

The inability of some computer systems to recognize dates after December 31,
1999 could cause some disruptions in the securities industry.

THE ROLE OF FINANCIAL ADVISORS

The Funds are generally available for purchase through professional financial
advisors who are either registered and licensed with the National Association
of Securities Dealers, Inc. or are registered as investment advisors with the
Securities and Exchange Commission or state securities administrators.
Professional financial advisors are often employed by full service investment
firms, financial planning firms, banks, insurance companies, or trust
companies, and offer their services to both individual and institutional
investors. Professional financial advisors may assist you in developing an
understanding of your financial needs and in formulating long-term investment
goals and objectives. In addition, financial advisors customarily may offer
individual investors help in developing realistic expectations, providing
assistance in creating customized financial plans, selecting investments, and
monitoring and reviewing portfolios on an ongoing basis to assure proper
positioning of investments within the context of an overall investment
strategy.

They are also available to answer questions as well as helping investors
"stay the course" of their long-term investment programs. These professionals
are often paid either by sales charges on the initial purchase of mutual
funds or by charging a fee for ongoing investment advice and services. (See
pages _____ for a full discussion of sales charges and exceptions for the
Funds.)

YOUR ACCOUNT

BUYING FUND SHARES - IN GENERAL

The Funds currently issue multiple classes of shares, and Class A and Class C
shares are offered through this Prospectus. Each share represents an equal
undivided interest in its Fund's assets, and each Fund has investment
objectives and an investment portfolio common to all classes. The different
classes may have different sales charges and other expenses which may affect
performance. 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. 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.

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. Sales charges are
described below. Share price is normally calculated at 4:00 p.m. Eastern
time on each day the New York Stock Exchange is open for business. See
"Transaction Details" below for information on how the Funds value their
assets.

Financial advisors and others who sell shares of the Funds receive different
compensation for selling different classes of the Funds' shares. Fund shares
may be purchased through firms which have agreements with the Funds'
distributor, Thornburg Securities Corporation (TSC), or through TSC in those
states where TSC is registered. Investors may telephone TSC at
1-800-847-0200 to obtain more information concerning classes of shares
available to them through their financial advisors. Investors also may
obtain information respecting the classes of shares through their financial
advisor or other person who is offering or making available the classes of
shares described in this Prospectus. All orders are subject to acceptance by
the Funds, and each Fund and TSC reserve the right to refuse any order in
whole or in part.

BUYING CLASS A SHARES

Class A shares are sold at the offering price, 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 a payment of a service fee 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 are lower than for Class C shares, Class
A shares pay higher dividends than Class C shares. The deduction of the
initial sales charge, however, means that you purchase fewer Class A shares
than Class C shares for a given amount invested. If you are in any of the
special classes of investors who can buy Class A shares at net asset value or
at a reduced sales charge, you should consider buying Class A shares. If you
are planning a large purchase or purchases under the Right of Accumulation or
Letter of Intent you should consider if your overall costs will be lower by
buying Class A shares, particularly if you plan to hold your shares for an
extended period of time.

<TABLE>
____________________________________________________________________________
Class A Shares
Total Sales Charge
As Percentage As Percentage
of Offering Price of Net Asset Value
----------------- ------------------
<S> <C> <C>
Less than $50,000 4.50% 4.71%
$50,000 to 99,999.99 4.00% 4.17%
$100,000 to 249,999.99 3.50% 3.63%
$250,000 to 499,999.99 3.00% 3.09%
$500,000 to 999,999.99 2.00% 2.04%
$1,000,000 and over 0.00% 0.00%
</TABLE>

TSC intends to pay a commission of 1% to financial advisors who place
orders from $1 million to $2 million, a commission of .7% for portions
of any such trade exceeding $2 million and less than $4 million, and a
commission of .5% for portions of any such trade exceeding $4 million.
A 1% CDSC will be imposed on redemptions of any such purchases which
occur within 1 year. TMC and TSC also will make payments to dealers
described below under "Service and Distribution Plans."

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

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

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

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

A shareholder who redeemed Class A shares of a Thornburg Fund. For two
years after such a redemption you will pay no sales charge on amounts
you reinvest in Class A shares of Thornburg Value Fund or Global Value
Fund, if you held the original shares for at least 60 days before the
redemption. If you held the original shares for less than 60 days, you
will pay a sales charge equal to the amount, if any, by which the
Thornburg Value Fund or Global Value Fund sales charge exceeds the sales
charge you paid when buying the original shares.

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

A shareholder of a Thornburg Bond Fund who is automatically reinvesting
bond fund dividends into shares of either Fund.

An officer, trustee, director, or employee of TMC (or any investment
company managed by TMC), TSC, any affiliated Thornburg Company, the
Fund's Custody Bank or Transfer Agent and members of their families.

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

Investors purchasing $1 million or more. However, a contingent deferred
sales charge of 1% applies to shares redeemed within one year of
purchase.

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

Certain employee benefit plan and insurance company separate
accounts used to fund annuity contracts may purchase shares of the Funds
at no sales charge. TMC or TSC intend to pay a sales fee of up to 1% to
financial advisors who place orders for these plans. If such a fee is
paid, a contingent deferred sales charge of the same percentage will be
imposed on any redemption within one year of purchase.

Charitable organizations or foundations, including trusts established
for the benefit of charitable organizations or foundations. TMC or
TSC intend to pay a commission of up to 1% to financial advisors who
place orders for these purchasers. If such a fee is paid, a contingent
deferred sales charge of the same percentage will be imposed on any
redemption within one year of purchase.

Those persons who are determined by the Trustees to have acquired their
shares under special circumstances not involving any sales expenses to
a Fund or Distributor.

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

BUYING CLASS C SHARES

Class C shares are sold at the NAV next determined after your order is
received. Class C shares are 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.

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

If you are investing through a tax-sheltered retirement plan (such as an IRA)
for the first time, you will need a special application. Retirement investing
also involves its own investment procedures. See "Individual Retirement
Accounts and Retirement Plans" and consult your financial advisor or call
800-847-0200 for more information.

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

OPENING AN ACCOUNT
____________________________________________________________________________
Buying Shares To Open An Account To Add To An Account
- ----------------------------------------------------------------------------
In Minimum Minimum
-- ------- -------
Regular Accounts $5,000 $100

Retirement Accounts $2,000 $100

Automatic Investment Plans $ 100 $100

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

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

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

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

Street-Name Ownership of Shares

Some securities dealers offer to act as owner of record of Fund shares as a
convenience to investors who are clients of those firms and shareholders of
the Funds. Neither the Funds nor the Transfer Agent can be responsible for
failures or delays in crediting shareholders for dividends or redemption
proceeds, or for delays in reports to shareholders if a shareholder elects to
hold Fund shares in street-name through a brokerage firm account rather than
directly in the shareholder's own name. Further, neither the Fund nor the
Transfer Agent will be responsible to the investor for any loss to the
investor due to the brokerage firm's failure, its loss of property or funds,
or its acts or omissions. Shareholders whose shares are held of record by a
broker or other financial advisor should direct account inquiries to the
broker or financial advisor, instead of their Fund or TSC. Prospective
investors are urged to confer with their financial advisor to learn about the
different options available for owning mutual fund shares.
____________________________________________________________________________
REDEEMING SHARES ACCOUNT TYPES SPECIAL REQUIREMENTS
- ----------------------------------------------------------------------------
Through Your Financial Advisor All account types Consult with your
financial advisor.
By Mail Individual, Your financial
Send to: Joint Tenant, advisor may charge a
NFDS Sole Proprietorship, fee. The letter of
c/o Thornburg Funds UGMA, UTMA instruction must be
P.O. Box 419017 signed by all persons
Kansas City, MO required to sign for
64141-6017 transactions, exactly
as their names appear
on the account, and
must include:
* Your name,
* The Fund's name,
* Your Fund account
number,
* The dollar amount
or number of
shares to be
redeemed,
* Any other
applicable
requirements
listed above,
* Signature
guarantee,
if required.
Retirement Account The account owner
should complete a
retirement distri-
bution form. Call
800-847-0200 to
request one.

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

Business or At least one person
Organization authorized by corpo-
rate resolution to
act on the account
must sign the letter
which must be signa-
ture guaranteed.
Include a corporate
resolution with
corporate seal.

Executor, Adminis- Call 800-847-0200
trator, Conservator for instructions.
Guardian

By Telephone All Account Types You must sign up for
800-847-0200 Except Retirement this feature before
and Street-Name using it.
Accounts Minimum Wire $1,000
Minimum Check $50.00

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

SELLING FUND SHARES

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

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

To sell shares in a State Street Bank (Custodian) retirement account, your
request must be made in writing, except for exchanges to other Thornburg
funds, which can be requested by phone or in writing. Call 1-800-847-0200 for
further information.

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.

INVESTOR SERVICES

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

INFORMATION SERVICES

Thornburg Funds' telephone representatives are available Monday through
Friday from 7:30 am to 4:30 pm Mountain Time. Whenever you call, you can
speak with someone equipped to provide the information or service you need.

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

* Account statements after every transaction affecting your account
* Quarterly account statements
* Financial reports (every six months)
* Cost basis statement (at the end of any year in which you redeem
shares)

INDIVIDUAL RETIREMENT ACCOUNTS AND RETIRMENT PLANS

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

A standardized IRA is available through TSC for individuals wishing to open
an IRA. The cost to open an IRA under this program is $10,the annual fee is
$10 for each Fund purchased through the IRA, and the fee for a termination of
the IRA or a rollover or transfer to a successor custodian is $10. State
Street Bank and Trust Company, as custodian for the program, may amend the
provisions of the IRA's opened through the program to assure continued
qualification under the Internal Revenue Code or for other reasons.

TRANSACTION SERVICES

Automatic investment plan. One easy way to pursue your financial goals is to
invest money regularly. Thornburg Funds let you transfer as little as $100
from your bank account into your Fund account on a weekly, monthly or
quarterly basis, automatically. Because the Fund's Automatic Investment Plan
has a lower minimum than a regular purchase, it is an ideal way for beginning
investors to invest in the Fund. While regular investment plans do not
guarantee a profit and will not protect you against loss in a declining
market, they can be an excellent way to invest for retirement, a home,
educational expenses, and other long-term financial goals. Certain
restrictions apply for retirement accounts. Call 800-847-0200 and speak to a
Fund Customer Service Representative for more information.

Exchange privilege. You may exchange Class A shares of any other Thornburg
Fund for Class A shares of Thornburg Value Fund or Thornburg Global Value
Fund. You will pay the difference between the front end sales charge you
paid, if any, on the other fund and the front end sales charge applicable to
the Fund if you have not held the original shares for a minimum of 60 days.
If you are exchanging from the Fund into another Thornburg fund, you may
qualify for a reduced sales charge or no sales charge on that fund. Please
consult the reinvestment privilege information in the Prospectus of the other
Thornburg fund. Note that exchanges out of a fund may have tax consequences
for you. For details on policies and restrictions governing exchanges,
including circumstances under which a shareholder's exchange privilege may be
suspended or revoked, see page ___.

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

Telephone Redemption. If you completed the telephone redemption section of
your application when you first purchased your shares, you may easily redeem
any class of shares by telephone simply by calling a Fund Customer Service
Representative before 2:30 Eastern time. Money can be wired directly to the
bank account designated by you on the application or sent to you in a check.
The Funds' Transfer Agent may charge a fee for a bank wire. This fee will be
deducted from the amount wired.

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

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

DIVIDENDS AND DISTRIBUTIONS

Each Fund distributes substantially all of its net income and realized
capital gains to shareholders each year. Each Fund will distribute its net
investment income quarterly, and will distribute any net realized capital
gains at least annually. Capital gains distributions normally will be
declared and payable in December.

Distribution Options Each Fund earns dividends from stocks and interest from
bond, money market, and other investments. These are passed along as dividend
distributions. Each Fund realizes capital gains whenever it sells securities
for a higher price than it paid for them. These are passed along as capital
gain distributions. When you open an account, specify on your application
how you want to receive your distributions. Each Fund offers four options,
which you can change at any time.

Capital Gains

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

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

Dividends

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

Cash Option. You will be sent a check for your dividend distributions.

Shares purchased through reinvestment of a Fund's dividend and capital gain
distributions are not subject to the Fund's sales charge or contingent
deferred sales charge.

TAXES

As with any investment, you should consider how your investment in either
Fund will be taxed. The following paragraphs outline the federal income tax
consequences of an individual's investment in the Funds. Investments by
persons who are not individuals, and investments through tax-deferred
retirement accounts will have different consequences and state tax rules may
differ. Prospective investors having questions about these issues should
consult their tax advisors.

Taxes on Distributions. Distributions are subject to federal income tax, and
may also be subject to state or local taxes. If you live outside the United
States, your distributions could also be taxed by the country in which you
reside. Your distributions are taxable when they are paid, whether you take
them in cash or reinvest them. For federal tax purposes, a Fund's income and
short-term capital gains distributions are taxed as dividends; long-term
capital gains distributions are taxed as long-term capital gains. These gains
will be taxed at different rates depending upon how long the Fund held the
assets which were sold. Every January, the Fund will send you and the IRS a
statement showing the taxable distributions paid to you in the previous year.
You should consult with your tax advisor for the correct federal and state
treatment of distributions.
____________________________________________________________________________
TURNOVER AND CAPITAL GAINS

The Funds do not intend to engage in short-term trading for profits. Their
primary goal is long-term capital appreciation. Nevertheless, when a Fund
believes that a security will no longer contribute to that goal, it will
normally sell that security. When a Fund sells a security at a profit it
realizes a capital gain. When it sells a security at a loss it realizes a
capital loss. A fund must, by law, distribute capital gains, net of any
losses, to its shareholders. Whether you reinvest your capital gains
distributions or take them in cash, the distribution is taxable. To
minimize taxable capital gain distributions, each Fund will realize available
capital losses, when, in the judgment of the portfolio manager, the integrity
and potential appreciation of the portfolio would be unaffected by doing so.
____________________________________________________________________________

Taxes on Transactions. Your redemptions, including exchanges to other
Thornburg funds, are subject to capital gains tax. A capital gain or loss is
the difference between the cost of your shares and the price you receive when
you sell them. Whenever you sell shares of a Fund you will be sent a
confirmation statement showing how many shares you sold and at what price.
At the end of the year your Fund will also send you a statement showing the
average cost basis of the shares you redeemed. However, it is up to you or
your tax preparer to determine whether this sale resulted in a capital gain
and, if so, the amount of federal and state taxes to be paid. Be sure to keep
your regular account statements; the information they contain will be
essential in calculating the amount of your capital gains.

Effect of Foreign taxes. The Funds may pay withholding or other taxes to
foreign governments during the year. These taxes reduce the Funds'
distributions, but are included in the taxable income reported on your tax
statement. You may be able to claim an offsetting tax credit or itemized
deduction for foreign taxes paid by the Fund. Your tax statement will
generally show the amount of foreign tax for which a credit or deduction may
be available.

TRANSACTION DETAILS

Each Fund is open for business each day the New York Stock Exchange (NYSE) is
open. Each Fund normally calculates its NAV for each class of shares (and
offering price for Class A shares) as of the close of business of the NYSE,
normally 4 p.m. Eastern time. Each Fund's assets are valued primarily on the
basis of market quotations. Foreign securities are valued on the basis of
quotations from the primary market in which they are traded, and are
translated from the local currency into U.S. dollars using current exchange
rates. Because these foreign markets may trade on days when the Funds do not
price their shares, the net asset value of Fund shares may change on days
when shareholders cannot purchase or redeem Fund shares. If quotations are
not readily available, assets are valued by a method that the Trustees
believe accurately reflects fair value.

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

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.

Each Fund reserves the right to suspend the offering of shares for a period
of time. Each Fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page ___. 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:

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

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

Each Fund may authorize certain securities brokers to accept on its behalf
purchase and redemption orders received in good form, and some or these
brokers may be authorized to designate other intermediaries to accept
purchase and redemption orders on the Fund's behalf. Provided the order is
promptly transmitted to the Fund, the Fund will be deemed to have received a
purchase or redemption order at the time it is received 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 received by the
authorized broker or its designee.

When you place an order to sell shares your shares will be sold at the next
NAV calculated after your request is received in proper form. (Except that a
CDSC will be deducted from Class C share redemptions within one year of share
purchase, and from Class A share redemptions within one year of purchase if
the initial purchase was $1 million or more or purchase was made by certain
charitable organizations or employee benefit plans.) Note the following:

* Consult your financial advisor for procedures governing redemption
through his or her firm.
* If you redeem by mail the proceeds will normally be mailed to you on
the next business day, but if making immediate payment could adversely
affect the Fund, it may take up to seven days to pay you.
* Telephone redemptions sent over the wire generally will be credited to
your bank account on the business day after your phone call.
* Each Fund may hold payment on redemptions until it is reasonably
satisfied that investments made by check have been collected, which
can take up to 15 business days.
* Redemptions may be suspended or payment dates postponed when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the SEC.
* No interest or earnings will accrue or be paid on amounts represented
by uncashed distribution or redemption checks.
* To the extent consistent with state and federal law each Fund may make
payment of share redemptions either in cash or in kind.

EXCHANGE RESTRICTIONS

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

* The fund you are exchanging into must be registered for sale in your
state.
* You may only exchange between accounts that are registered in the same
name, address, and taxpayer identification number.
* Before exchanging into a fund, read its prospectus.
* If you exchange into a fund with a higher sales charge you will pay
the percentage-point difference between that fund's sales charge and
any sales charge you have previously paid in connection with the
shares you are exchanging if the shares originally purchased have been
held less than 60 days. For example, if you had already paid a sales
charge of 2.5% on your shares and you exchange them within 60 days
of purchase into a fund with a 4.5% sales charge, you would pay an
additional 2% sales charge.
* Exchanges may have tax consequences for you.
* Because excessive trading can hurt fund performance and shareholders,
each Fund reserves the right to temporarily or permanently terminate
the exchange privilege of any investor who makes more than four
exchanges out of the Fund in any calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the
four exchange limit.
* The exchange limit may be modified for accounts in certain
institutional retirement plans to conform to plan exchange limits and
Department of Labor regulations.
* Each Fund reserves the right to refuse exchange purchases by any
person or group if, in TMC's judgement, the Fund would be unable to
invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.
* Your exchanges may be restricted or refused if either Fund receives or
anticipates simultaneous orders affecting significant portions of the
Fund's assets. In particular, a pattern of exchanges that coincide
with a "market timing" strategy may be disruptive to a Fund.

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

ORGANIZATION OF THE FUNDS

Each of the Funds is a diversified series of Thornburg Investment Trust, a
Massachusetts business trust organized as a diversified, open-end investment
company.

Each of the Funds may in the future, rather than invest in securities
generally, seek to achieve its investment objectives by pooling its assets
with assets of other funds for investment in another investment company
having the same investment objective and substantially similar investment
policies and restrictions as the Fund. The purpose of such an arrangement is
to achieve greater operational efficiencies and to reduce cost. It is
expected that any such investment company would be managed by TMC in a manner
substantially similar to the corresponding Fund. Shareholders of each Fund
would receive prior written notice of any such investment, but may not be
entitled to vote on the action. Such an investment would be made only if at
least a majority of the Trustees determined it to be in the best interest of
the participating Fund and its shareholders.

INVESTMENT ADVISER AND MANAGEMENT FEES

The Funds are managed by TMC, which chooses the Funds' investments and
handles their business affairs. TMC performs investment management services
for the Funds under the terms of an Investment Advisory Agreement which
specifies that TMC will select investments for the Funds, monitor those
investments and the markets generally, and perform related services. TMC
also performs administrative services specific to Class A and Class C
shareholders under an Administrative Services Agreement which requires TMC to
supervise, administer and perform certain services necessary for the
maintenance of shareholders' accounts.

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

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

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

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

The Investment Advisory Agreement which provides for an investment
management fee, payable monthly, and computed for each Fund at an annual rate
as a percentage of the Fund's average daily net assets. For the most recent
fiscal year ended September 30, 1998, the actual annual investment advisory
fee rate was .875% for each Fund. The rate declines as assets increase, as
described in the Statement of Additional Information.

TMC also receives a monthly fee from each Fund for performing certain
administrative services for Class A and Class C shares calculated at an
annual rate of .125% of average daily net assets.

TMC may, from time to time, agree to reimburse a Fund for management fees and
other expenses above a specified limit. TMC retains the ability to be repaid
by the Fund if expenses fall below the specified limit prior to the end of
the fiscal year. These arrangements may be terminated by TMC at any time.
Fee waivers and expense reimbursements will increase a Fund's return (or
reduce losses), and repayment of waivers or reimbursements will lower a
Fund's return.

While the investment management and administrative services fees are
significant components of the Funds' annual operating costs, each Fund has
other expenses as well. These expenses include legal, transfer agency,
audit, and custodian fees; transaction costs and commissions for buying and
selling portfolio securities; proxy solicitation costs; and the compensation
of Trustees who are not affiliated with TMC.

FINANCIAL HIGHLIGHTS

The Financial Highlights table is intended to help you understand each
Fund's financial performance for 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). The information through September 30, 1998 has
been audited by McGladrey & Pullen, LLP, independent auditors, whose report,
along with the Funds' financial statements, is included in the Fund's Annual
Reports, which are available upon request. The information for the six-month
period ended March 31, 1999 is unaudited.

<TABLE>
FINANCIAL HIGHLIGHTS
THORNBURG VALUE FUND
- --------------------
FISCAL YEAR OR PERIOD
------------------ ----------------------------------------------
Six Month Ended Year Ended September 30:
March 31, 1999
1998 1997 1996<FN(a)
CLASS A C A C A C A C
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $19.48 $19.45 $20.42 $20.40 $14.50 $14.51 $11.94 $11.94

Income from Investment Operations:
Net Investment Income .09 .00 .20 .03 .21 .07 .28 .18
Net Gains (or Losses) on Securities
(Realized and Unrealized) 5.82 5.80 .40 .39 6.28 6.27 2.56 2.57
------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations 5.91 5.80 .60 .42 6.49 6.34 2.84 2.75

Less Distributions
Dividends (from Net Investment Income) (.11) (.04) (.17) (.20) (.08) (.28) (.18)
Distributions (from Capital Gains) .00 .00 (1.35) (1.35) (.37) (.37)
Return of Capital .00 .00 (.02) (.02)
------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (.11) (.04) (1.54) (1.37) (.57) (.45) (.28) (.18)

Net Asset Value, End of Period $25.28 $25.21 $19.48 $19.45 $20.42 $20.40 $14.50 $14.51
====== ====== ====== ====== ====== ====== ====== ======
Total Return <FN(b)> 30.38% 29.89% 3.15% 2.34% 46.01% 44.77% 24.02% 23.20%

Ratios/Supplemental Data
Net Assets, End of Period (000's
omitted) $248,302 $82,742 $150,492 $41,513 $66,893 $9,999 $15,438 $1,267
Ratio of Net Income to Average Net Assets
(after expense reimbursements) .81 .02% .95% .14% 1.35% .48% 2.48% 1.73%
Ratio of Expenses to Average Net Assets <F(c)> <F(c)>
(after expense reimbursements) 1.47(c) 2.25%(c) 1.54% 2.36% 1.61% 2.49% 1.55% 2.30%
Ratio of Expenses to Average Net Assets <F(c)> <F(c)>
(before expense reimbursements) 1.47%(c) 2.25%(c) 1.54% 2.37% 1.61% 2.73% 2.16% 6.51%
<F(c)> <F(c)>
Portfolio Turnover Rate 23.04% 23.04% 99.55% 99.55% 78.83% 78.83% 59.62% 59.62%

- ---------------------------
THORNBURG GLOBAL VALUE FUND
- ---------------------------
FISCAL YEAR OR PERIOD
----------------- --------------------------
Six Month Ended Period Ended September 30:
March 31, 1999 1998
CLASS A C A C
----- ----- ------ ------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.79 $9.77 $11.94 $11.94
Income from Investment Operations:
Net Investment Income .05 .01 .03 .01
Net Gains (or Losses) on Securities
(Realized and Unrealized) 1.42 1.41 (2.15) (2.17)
------ ------ ------ ------
Total from Investment Operations 1.47 1.42 (2.12) (2.16)
Less Distributions Dividends
(from Net Investment Income) (.05) (.02) (.03) (.01)
Distributions (from Capital Gains) - - - -
------ ------ ------- ------
Total Distributions (.05) (.02) (.03) (.01)
Net Asset Value, End of Period $11.21 $11.17 $9.79 $9.77
====== ====== ====== ======
Total Return <FN(b)> 14.99% 14.53% (17.80)% (18.12)%
Ratios/Supplemental Data
Net Assets, End of Period (000's omitted) $9,221 $1,503 $7,440 $577

Ratio of Net Income to Average Net Assets
(after expense reimbursements) 1.01% 0.16% 1.04% (.02)%
<F(c)> <F(c)>
Ratio of Expenses to Average Net Assets
(after expense reimbursements) 1.63% 2.37% 1.63% 2.38%
<F(c)> <F(c)>
Ratio of Expenses to Average Net Assets
(before expense reimbursements) 2.34% 4.23% 2.88% 11.91%
<F(c)> <F(c)>
Portfolio Turnover Rate 23.04% 23.04% 44.66% 44.66%
<FN>
<FN(a)> Value Fund commenced operations on October 2, 1995 and Global Value Fund
commenced operations on May 28, 1998.
<FN(b)> Sales loads are not reflected in computing total return, which is not
annualized in periods less than a year.
</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.

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

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>
Additional information about the Funds' investments is available in the
Funds' Annual and Semiannual Reports to Shareholders. The Funds' Statement
of Additional Information (SAI) and the Funds' Annual and Semiannual Reports
are available without charge upon request. Shareholders may make inquiries
about the Funds, and investors may request copies of the SAI, Annual and
Semiannual Reports, and obtain other Fund information, by contacting
Thornburg Securities Corporation at 119 East Marcy Street, Suite 202, Santa
Fe, New Mexico 87501 (800) 847-0200. The Funds' SAI is incorporated in this
Prospectus by reference (legally forms a part of this Prospectus).

Information about the Funds may be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. Information
on the operation of the Public Reference Room may be obtained by calling the
Commission at 1-800-SEC-0330. Reports and other information about each Fund
are available on the Commission's Internet site at http://www.sec.gov, and
copies of that 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 the
Prospectus and, if given or made, the information or representation must not
be relied upon as having been authorized by the Fund or the Distributor. This
Prospectus constitutes an offer to sell securities of the Fund only in those
states where the Fund's shares have been registered or otherwise qualified
for sale. The Fund will not accept applications from persons residing in
states where the Fund's shares are not registered.

[LOGO]

Thornburg Securities Corporation, Distributor
119 East Marcy Street, Santa Fe, New Mexico 87501
(800)847-0200

Investment Company Act of 1940 File Number: 811-5201

THORNBURG FUNDS
Institutional Class Shares

Prospectus
November 1, 1999

Limited Term National Fund and Limited Term California Fund are separate
investment portfolios of Thornburg Limited Term Municipal Fund, Inc.
Intermediate National Fund, Government Fund, Income Fund and Value Fund are
separate investment portfolios of Thornburg Investment Trust.

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

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

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

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- MAY LOSE VALUE
INSURED NO BANK GUARANTEE

<PAGE>
TABLE OF CONTENTS

__ The Funds
Limited Term National Fund
Limited Term California Fund
Intermediate National Fund
Limited Term U.S. Government Fund
Limited Term Income Fund
Value Fund

<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 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 a laddered maturity
portfolio of 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. Investment decisions are based upon outlooks for interest
rates and securities markets, the supply of municipal 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's portfolio is "laddered" by investing so that some
investments mature during each of the coming years.

The Fund ordinarily will acquire securities for investment rather than for
realization of gains on market fluctuations. However, 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.
The Fund may invest up to 20% of its net assets in taxable securities which
produce income not exempt from federal income tax because 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. If the Fund
found it necessary to own taxable investments, some of its income would be
subject to federal income tax.

Principal Risks of Investing in the Fund
- -----------------------------------------

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.

Past Performance of the Fund
- -----------------------------

The following information provides some indication of the risks of
investment in the Fund by showing how the Fund's investment results vary.
The bar chart shows how the annual total returns for Class I shares have been
different in each full year shown. The average annual total return figures
compare Class I share performance to the Lehman Five-Year General Obligation
Bond Index, a broad measure of market performance. 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 I Shares
- ----------------------------------------------------------------
15%

10%

5% 5.86 5.81

- -5
1997 1998

Year to date return for the period ended 6/30/99: 0.11%

Highest quarterly results for time period shown: 2.20% (quarter ended
9/30/96).
Lowest quarterly results for time period shown: 0.51% (quarter ended
3/31/97).

Limited Term National Fund Average Annual Total Returns
Class I Shares (periods ending 12/31/98)
- -------------------------------------------------------
Inception
One Year (7/5/96)
-------- ---------
Class I Shares 5.18% 6.01%
Lehman Bond Index 5.85% 6.49%

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)

Maximum Sales Charge (Load) On Purchases none
(as a percentage of offering price)

Maximum Deferred Sales Charge (Load) on Redemption none
(as a percentage of the lesser of redemption
proceeds or original offering price)

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)

Thornburg Limited Term National Fund
- ------------------------------------
Management Fee .45%
Distribution and Service (12b-1) Fees .00%
Other Expenses .16%
----
Total Annual Operating Expenses .61%*

Thornburg Management Company, Inc. (TMC) intends to reimburse a portion of
the other expenses, so that actual other expenses are .15% and the actual
total Fund operating expenses for Class I shares are .60%. 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,
dividends and distributions are reinvested, 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 I Shares $63 $196 $342 $768

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 a laddered
maturity portfolio of municipal obligations issued by the State of California
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. Investment
decisions are based upon outlooks for interest rates and securities markets,
the supply of municipal 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's portfolio
is "laddered" by investing so that some investments mature during each of the
coming years.

Although the Fund ordinarily will acquire securities for investment rather
than for realization of gains on market fluctuations. However, 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
originating in California or issued by United States territories and
possessions. 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. If the Fund found it
necessary to own taxable investments, some of its income would be subject to
federal and California income taxes.

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. 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 the Fund, and when
you sell your shares they may be worth 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 is presented as a bar graph in the Profile>
Limited Term California Fund Annual Total Returns Class I Shares
- ----------------------------------------------------------------
15%

10%

5% 5.25

- -5%
1998

Year to date return for period ending 6/30/99: 0.28%

Highest quarterly results for time period shown: 2.38% (quarter ended
9/30/98).
Lowest quarterly results for time period shown: 0.64% (quarter ended
12/31/98).

Limited Term California Fund Average Annual Total Returns
Class I Shares (periods ending 12/31/98)
- ---------------------------------------------------------
Since Inception
One Year (4/1/97)
-------- --------------
Class I Shares 5.25% 6.37%
Lehman Bond Index 5.83% 7.16%

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)

Maximum Sales Charge (Load) on Purchases none
(as a percentage of offering price)

Maximum Deferred Sales Charge (Load) on Redemptions none
(as a percentage of the lesser of redemption
proceeds or original offering price)

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)

Limited Term California Fund
- ------------------------------
Management Fee .50%
Distribution and Service (12b-1) Fees .00%
Other Expenses .28%
----
Total Annual Operating Expenses .78%

*Thornburg Management Company, Inc. (TMC) intends to reimburse a portion
of the other expenses, so that actual other expenses are .15% and the actual
total Fund operating expenses for Class I shares are .65%. 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,
dividend and distributions and reinvested, 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 I Shares $80 $250 $436 $975

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 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 a laddered
maturity portfolio of 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. Investment decisions are based upon
outlooks for interest rates and securities markets, the supply of municipal
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's portfolio is
"laddered" by investing so that some investments mature during each of the
coming years.

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.

The Fund ordinarily will acquire securities for investment rather than
for realization of gains on market fluctuations. However, 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. The Fund may invest up to 20% of its net assets in taxable
securities which would produce income not exempt from federal income tax,
because of 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. If the Fund found it necessary to own taxable
investments, some of its income would be subject to federal income tax.

Principal Risks of Investing in the Fund
- -----------------------------------------

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 is presented as a bar graph in the Profile>
Intermediate National Fund Annual Total Returns Class I Shares
- ----------------------------------------------------------------
15%

10%
7.38
5% 5.79

- -5%
1997 1998

Year to date return for period ending 6/30/99: (0.91)%

Highest quarterly results for time period shown: 3.11% (quarter ended
9/30/96).
Lowest quarterly results for time period shown: 0.28% (quarter ended
3/31/97).

Intermediate National Fund Average Annual Total Returns
Class I Shares (periods ending 12/31/98)
- ---------------------------------------------------------
Since Inception
One Year (7/5/96)
-------- --------------
Class I Shares 5.79% 7.32%
Merrill Index 6.83% 8.20%

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)

Maximum Sales Charge (Load) on Purchases none
(as a percentage of offering price)

Maximum Deferred Sales Charge (Load) on Redemptions none
(as a percentage of the lesser of redemption
proceeds or original offering price)

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)

Intermediate National Fund
- ----------------------------
Management Fee .50%
Distribution and Service (12b-1) Fees .00%
Other Expenses .29%
----
Total Annual Operating Expenses .79%*

*Thornburg Management Company, Inc. (TMC) intends to reimburse a portion
of the other expenses, so that actual other expenses are .25% and the
actual total Fund operating expenses for Class I shares 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, reinvestment of dividends and distributions, 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 I Shares $81 $254 $442 $987

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 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. The Fund ordinarily
acquires securities for investment rather than for realization of gains on
market fluctuations. However, 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.

Government Fund invests at least 65% of its total assets in obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities. The Fund also may invest in readily marketable
participations in such obligations or in repurchase agreements secured by
such obligations. "Participations" are undivided interests in pools of
securities where the underlying government credit support passes through to
the participants. Securities issued by agencies may include "Ginnie Mae"
certificates and other mortgage-backed securities.

Government Fund may under certain market conditions invest up to 20% of its
assets in (i) time certificates of deposit maturing in one year or less
after the date of acquisition which are issued by United States banks
having assets of one billion dollars or more, or (ii) time certificates of
deposit insured as to principal by the Federal Deposit Insurance
Corporation.

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. 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.
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.

Past Performance of the Fund
- -----------------------------

<The following are presented as bar graphs in the Prospectus>
Limited Term U.S. Government Fund Annual Total Returns Class I Shares
- ----------------------------------------------------------------------
15%

10%
6.97 7.29
5%

- -5
1997 1998

Year to date return for period ended 6/30/99: (0.35)%

Highest quarterly results for time period shown: 3.84% (quarter ended
9/30/98).
Lowest quarterly results for time period shown: 0.21% (quarter ended
12/31/98).

Government Fund Average Annual Total Returns
Class I Shares (periods ending 12/31/98)
- ---------------------------------------------

Inception
One Year (7/5/96)
-------- ---------
Class I Shares 7.29% 7.63%
Lehman Bond Index 8.49% 8.26%

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)

Maximum Sales Charge (Load) on Purchases none
(as a percentage of offering price)

Maximum Deferred Sales Charge (Load) on Redemptions none
(as a percentage of the lesser of redemption
proceeds or original offering price)

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)

Government Fund
- ----------------
Management Fee .38%
Distribution and Service (12b-1) Fees .00%
Other Expenses .80%
----
Total Annual Operating Expenses 1.18%*

*Thornburg Management Company, Inc. (TMC) intends to reimburse a portion
of the other expenses, so that actual other expenses are .22% and the
actual total Fund operating expenses for Class I shares are .60%. 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, dividends and distributions are reinvested, 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 I Shares $121 $377 $654 $1,446

Limited Term Income Fund

Investment Goals
- ----------------

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 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.
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. "Investment grade" securities are rated in the
four highest grades of a recognized ratings agency. 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
- ---------------------------------------

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. The loss of money is a risk of investing in the Fund, and
when you sell your shares they may be worth less than what you paid for them.
If your sole objective is preservation of capital, then the Fund may not be
suitable for you because the Fund's share value fluctuate 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 the Fund's investment results vary. The
bar chart shows how the annual total returns for Class I shares have been
different in each full year shown. The average annual total return figures
compare Class I share performance to the Lehman Intermediate Government and
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 Class I Shares
- ----------------------------------------------------------------------
15%

10%
6.72
5% 5.91

- -5
1997 1998

Year to date return for period ended 6/30/99: (0.04)%

Highest quarterly results for time period shown: 3.97% (quarter ended
9/30/86).
Lowest quarterly results for time period shown: (0.56)% (quarter ended
3/31/97).

Limited Term Income Fund Average Annual Total Returns
Class I Shares (periods ending 12/31/98)
- ----------------------------------------------

Inception
One Year (7/5/96)
-------- ---------
Class I Shares 6.72% 8.06%
Lehman Bond Index 8.45% 8.26%

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)

Maximum Sales Charge (Load) imposed on purchases none
(as a percentage of offering price)

Maximum Deferred Sales Charge (Load) (as a none
percentage of the lesser of redemption
proceeds or original offering price)

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)

Income Fund
- -----------
Management Fee .50%
Distribution and Service (12b-1) Fees .00%
Other Expenses .69%
----
Total Annual Operating Expenses 1.19%*

*Thornburg Management Company, Inc. (TMC) intends to reimburse a portion
of the other expenses, so that actual other expenses are .19% and the
actual total Fund operating expenses for Class I shares are .69%. 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, dividends and distributions are reinvested, 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 I Shares $122 $381 $660 $1,450

Thornburg Value Fund

Investment Goals of Value Fund
- ------------------------------

Principal Investment Strategies of Value Fund
- -------------------------------------------

The Fund's investment adviser, Thornburg Management Company, Inc. (TMC)
intends to invest on an opportunistic basis, where it believes there is
intrinsic value. The Fund's principal focus will be on traditional value
stocks. However, the portfolio may include stocks and other securities that
in TMC's opinion provide value in a broader or different context. The
relative proportions of these different types of securities will vary over
time. The Fund ordinarily reflects a bias towards stocks or industries when
those stocks or industries are depressed, reflecting unfavorable market
perceptions of company or industry fundamentals. TMC believes that
investments in undervalued stocks, in addition to offering potential capital
appreciation, will help limit loss in adverse markets. TMC anticipates that
the Fund ordinarily will have a weighed average dividend yield, before Fund
expense, that is higher than the yield of the Standard & Poor's Composite
Index of 500 Stocks.

TMC primarily uses individual company and industry analysis to make
investment decisions. The Fund typically makes equity investments in the
following three types of companies:

Principal Investment Risks of Value Fund
- ----------------------------------------

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
governmental 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. The average annual total return
figures compare Class A share performance to the Standard & Poor's
Composite Index of 500 Stocks, a broad measure of market performance. The
returns reflected in the bar chart and in the table below are for a class
of shares that is not offered in this Prospectus but that would have
substantially similar annual returns because the shares are invested in the
same portfolio of securities. Annual returns would differ only to the
extent Class A shares and Class I shares do not have the same expenses.
Value Fund commenced its offering of Class A shares on October 2, 1995 and
commenced offering Class I shares on November 2, 1998.

<The following are presented as bar graphs in the Prospectus>
Value Fund Annual Total Returns Class A Shares
- -------------------------------------------------
40%
37.82
30% 33.70

20% 22.25

10%

0%
1996 1997 1998

Year to date return for the period ended 6/30/99: 19.82%

Highest quarterly results for time period shown: 19.98% (quarter ended
12/31/98).
Lowest quarterly results for time period shown: (13.59)% (quarter ended
9/30/98).

Value Fund Average Annual Total Returns
Class A Shares (periods ending 12/31/98)
- -----------------------------------------
Since
Inception
One Year (10/2/95)
-------- ---------
Class A Shares 16.73% 26.39%
Standard & Poor's
500 Index 28.55% 28.03%

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)

Maximum Sales Charge (Load) on Purchases none
(as a percentage of offering price)

Maximum Deferred Sales Charge (Load) on Redemptions none
(as a percentage of the lesser of redemption
proceeds or original offering price)

ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)

Value Fund
- -----------
Management Fee .88%
Distribution and Service (12b-1) Fees .00%
Other Expenses .11%
----
Total Annual Operating Expenses .99%

Other expenses are estimated.

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, reinvestment of dividends and distributions, 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
------ -------
Class I Shares $102 $317

FUND PERFORMANCE AND INDEX COMPARISONS

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

Comparison of Fund performance to widely used indices is imperfect,
because the indices do not reflect the laddered maturity strategy each of the
fixed income Funds uses. Each index shown attempts to model the total return
of a constant maturity bond portfolio, including bonds from throughout the
United States. Each index also assumes no trading costs for buying and
selling bonds, no custodial or accounting costs, and coupons are immediately
reinvested at no transactional cost. Consequently, the reader should remain
aware of the inherent limitations in comparing a theoretical index to actual
results of a Fund portfolio. Data for Limited Term National Fund and Limited
Term California Fund is displayed in the Annual Reports for these Funds,
dated June 30, 1999. No data is given for Value Fund, which commenced its
offering of Class I shares on November 2, 1998.

Management Discussion of Fund Performance. Intermediate National Fund,
Government Fund and Income Fund.

In General.
Last autumn, many of the world's leading economists and investment
strategists predicted that the Russian financial crisis, coming immediately
after the Asian financial crisis, would depress the world economy. Bond
buyers at that time seemed to expect a severe and long-lasting economic
slowdown, and yields on 30-year U.S. Treasury bonds dropped below 4.75% for
the first time in 40 years. The expectations of economists and strategists
were incorrect. The U.S. economy delivered its strongest economic growth in
a generation during the period from October 1, 1998 to April 1, 1999. Asian
economies and many developing economies gathered momentum in the summer of
1999. Interest rates are rising generally. The municipal bond market is
reacting with higher yields and increasing participation by individual
investors.

Interest rates stayed steady through most of 1998, before decreasing
rapidly between August and September and then rising steadily through the
end of March 1999. For example, the generic 30 year Treasury bond yielded
5.9% in January 1998. Its yield dropped to 4.7% in the beginning of
October 1998 before rising to 5.63 at the close on March 31, 1999.
Interest rates in March 1999 were, in general higher than in September 1998
for all Treasury maturities.

Intermediate National Fund.
Intermediate National Fund is well structured to adapt to changing
circumstances, and to benefit from higher yields if they become available.
The Fund Portfolio was postured towards the short end of its targeted
maturity range. The passage of time shortens the maturities of the bonds
the Fund owns. During the winter and spring of 1999 Fund cash flow was
used to purchase bonds with maturities which have maintained the Fund's
average maturity, taking advantage of the recent good selection of bonds
coming to market in that period. This Fund will continue this approach if
interest rates remain stable or decrease. If bond yields increase, the
Fund will extend the average portfolio maturity somewhat to increase
dividend yields.

Government Fund and Income Fund.
Interest rate increases since September 1998 generally have led to lower
bond prices and higher bond yields, although the yield premiums on
corporate bonds and mortgage-backed securities have decreased since
September 1998. Five, ten and 30-year Treasury bonds have decreased in
price by 4.1%, 6.9% and 11.5%, respectively, between October 1, 1998 and
March 31, 1999. The net asset values of Government Fund and Income Fund
also decreased slightly over the same period, and the Funds' dividends have
increased to a small extent. If interest rates continued to increase, the
net asset values of the Funds should fall, but the dividends would be
expected to increase.

The U.S. economy has broad fundamental strength. More people than ever
before are working, and wages remain firm. However, government spending is
increasing. If the current strength of the U.S. economy persists, the Funds'
portfolio managers expect interest rates on long maturity obligations to
increase further in 1999.

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

Compares performance of the Intermediate National Fund Class I shares, the
Merrill Lynch Municipal Bond (7-12 Year) Index and the Consumer Price Index
for the period July 5, 1996 to March 31, 1999. On March 31, 1999, 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 9.3 years and 8.6 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
I Shares 7-12 Yrs. CPI
-------- --------- -------
<S> <C> <C> <C>
7/5/96 10,000 10,000 10,000
7/31/96 10,164 10,107 10,030
8/31/96 10,195 10,113 10,050
9/30/96 10,311 10,206 10,080
10/31/96 10,404 10,324 10,110
11/30/96 10,521 10,486 10,141
12/31/96 10,497 10,464 10,171
1/31/97 10,511 10,490 10,181
2/28/97 10,590 10,568 10,212
3/31/97 10,526 10,440 10,222
4/30/97 10,589 10,497 10,232
5/31/97 10,692 10,676 10,243
6/30/97 10,804 10,787 10,253
9/30/97 11,040 11,116 10,314
12/31/97 11,271 11,403 10,356
3/31/98 11,403 11,537 10,366
6/30/98 11,553 11,702 10,428
9/30/98 11,858 12,124 10,470
12/31/98 11,923 12,192 10,533
3/31/99 11,998 12,250 10,575
</TABLE>

I Shares Average Annual Total Return
One year (12 mos. ended 3/31/99): 5/64%
From Inception (7/5/96): 6.93%

Government Fund
- ---------------
Index Comparison

Compares performance of the Government Fund Class I shares, the Lehman
Brothers Intermediate Government Bond Index, and the Consumer Price Index for
the period July 5, 1996 to March 31, 1999. On March 31, 1999, 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 3.9 years, respectively. Past performance of the
Index and the Fund may not be indicative of future performance.

<TABLE> <This appears as a graph in the prospectus.>
FUND Lehman CPI
I Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
7/5/96 10,000 10,000 10,000
7/31/96 10,116 10,031 10,030
8/31/96 10,131 10,042 10,050
9/30/96 10,245 10,172 10,080
10/31/96 10,385 10,338 10,110
11/30/96 10,501 10,463 10,141
12/31/96 10,464 10,407 10,171
1/31/97 10,504 10,447 10,181
2/28/97 10,525 10,463 10,212
3/31/97 10,488 10,404 10,222
4/30/97 10,588 10,521 10,232
5/31/97 10,654 10,603 10,243
6/30/97 10,755 10,694 10,253
9/30/97 10,989 10,968 10,314
12/31/97 11,194 11,243 10,356
3/31/98 11,372 11,481 10,366
6/30/98 11,542 11,693 10,428
9/30/98 11,984 12,238 10,470
12/31/98 12,010 12,269 10,533
3/31/99 12,013 12,235 10,575
</TABLE>

I Shares Average Annual Total Return
One year (12 mos. ended 3/31/99): 5.64%
From Inception (07/05/96): 6.93%

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

Compares performance of the Income Fund Class I shares, the Lehman
Brothers Intermediate Government Corporate Bond Index, and the Consumer Price
Index for the period July 5, 1996 to March 31, 1999. On March 31, 1999, 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 4.4 years and 4.7 years, respectively. Past performance of the
Index and the Fund may not be indicative of future performance.

<TABLE> <In the prospectus, this table appears as a graph>
FUND Lehman CPI
I Shares Government
-------- ---------- ---------
<S> <C> <C> <C>
7/5/96 $10,000 $10,000 $10,000
7/31/96 10,123 10,030 10,030
8/31/96 10,230 10,038 10,050
9/30/96 10,397 10,178 10,080
10/31/96 10,624 10,358 10,110
11/30/96 10,801 10,494 10,141
12/31/96 10,730 10,427 10,171
1/31/97 10,720 10,468 10,181
2/28/97 10,742 10,488 10,212
3/31/97 10,670 10,415 10,222
4/30/97 10,737 10,538 10,232
5/31/97 10,857 10,626 10,243
6/30/97 10,969 10,723 10,253
9/30/97 11,208 11,012 10,314
12/31/97 11,365 11,248 10,356
3/31/98 11,540 11,523 10,366
6/30/98 11,677 11,740 10,428
9/30/98 12,047 12,266 10,470
12/31/98 12,128 12,302 10,533
3/31/99 12,142 12,279 10,575
</TABLE>

I Shares Average Annual Total Return
One year (12 mos. ended 3/31/99): 5.22%
From Inception (07/05/96): 7.35%

ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS

Additional Information About the Municipal Funds' Investments

Municipal Obligations

Municipal Obligations are obligations bearing interest exempt from federal
income taxes, which are issued by or on behalf of states, territories and
possessions of the United States and the District of Columbia, and their
political subdivisions, agencies and instrumentalities. Municipal
Obligations include notes (including tax-exempt commercial paper), bonds,
municipal leases and participation interests in these obligations. Interest
on Municipal Obligations may be subject to the alternative minimum tax or
state income taxes. See "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 issues. The market value of outstanding
Municipal Obligations will vary with changes in prevailing interest rates and
as a result of changing evaluations of the ability of their issuers to meet
interest and principal payments. Variations in market value of Municipal
Obligations held in a Fund's portfolio arising from these or other factors
will cause changes in the net asset value of its shares. Municipal
Obligations often grant the issuer the option to pay off the obligation prior
to its final maturity. Prepayment of Municipal Obligations may reduce the
expected yield on invested funds, the net asset value of the Fund, or both if
interest rates have declined below the level prevailing when the obligation
was purchased. If interest rates have declined, reinvestment of the proceeds
from the prepayment of Municipal Obligations may result in a lower yield to
the Fund. In addition, the federal income tax treatment of gains from market
discount as ordinary income may increase the price volatility of Municipal
Obligations when interest rates rise.

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

Variable Rate Securities; Inverse Floaters; and
Demand Instruments

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

Municipal Leases

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

When Issued Securities

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

ADDITIONAL INFORMATION ABOUT THE INCOME FUNDS' INVESTMENTS

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. The
Government 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. Either Income Fund may purchase assets 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, CMOs. 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 government credit support passes through or is otherwise
available to the participants or the trustee for all participants.
Similarly, the Fund may acquire collateralized mortgage obligations ("CMOs"),
which are obligations issued by a trust or other entity organized to hold a
pool of U.S. Government insured mortgage-backed securities (such as GNMA
certificates) or, 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.

Either Fund may enter into reverse repurchase agreements to obtain short-term
liquidity. In such a transaction the Fund sells a security to a purchaser
and agree to repurchase the security in the future. The Fund will enter into
reverse repurchase agreements only with dealers, banks or recognized
financial institutions. These agreements are subject to the risk that the
underlying security will decline in value during the period when the Fund is
obligated to repurchase it. 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.

See "Securities Ratings and Credit Quality," Below.

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. See description under "Government Fund -
Investment Strategies and Risks" above. Some mortgage-backed securities which
the Fund may purchase will not be backed by the full faith and credit of the
U.S. Government. The Income Fund may also invest in securities representing
interests in pools of certain consumer loans, such as automobile loans and
credit card receivables. Variations in interest rates and other factors may
result in prepayments of the loans underlying these securities, reducing the
potential for capital appreciation and requiring reinvestment of the
prepayment proceeds by the Fund at lower interest rates. Additionally, in
periods of rising interest rates these securities may suffer capital
depreciation because of decreased prepayments.

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

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. The Income Fund
may enter into multiple futures, options and foreign currency transactions or
a combination of these transactions, instead of a single transaction, as part
of a hedging strategy.

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 Strategic Positions 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:

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

SECURITIES RATINGS
AND CREDIT QUALITY

Each of the Municipal Funds' assets will normally consist of (1) securities,
or participation interests therein, that are rated at the time of purchase
within the four highest grades by Moody's Investors Service ("Moody's"),
Fitch Investors Service ("Fitch"), or Standard & Poor's Corporation ("S&P"),
(2) securities, or participation interests therein, that are not rated by a
rating agency, but are issued by obligors that, at the time of purchase,
either have other comparable debt obligations that are rated within the four
highest grades (Baa or BBB or better) by Moody's or S&P or Fitch or, in the
case of obligors whose obligations are unrated, are deemed by TMC to be
comparable to issuers having such debt ratings, and (3) cash. Government
Fund invests at least 65% of its total assets in obligations issued or
guaranteed by the U. S. Government or its agencies or instrumentalities, and
may invest in participations, repurchase agreements and other obligations
described above beginning on page 14. Such obligations are not typically
rated. At least 65% of Income Fund's net assets will be invested in (1)
obligations of the U. S. Government, its agencies and instrumentalities, and
in (2) debt securities rated at the time of purchase in one of the three
highest categories of Standard & Poor's Corporation (AAA, AA or A) or Moody's
Investor's Service, Inc. (Aaa, Aa or A) or, if not rated, judged to be of
comparable quality by TMC. Income Fund will not invest in any debt security
rated at the time of purchase lower than BBB by Standard & Poor's or Baa by
Moody's or of equivalent quality as determined by TMC.

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

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

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

ADDITIONAL INFORMATION ABOUT VALUE FUND'S INVESTMENTS

The following discussion contains more detailed information about types of
investments Value Fund may make. TMC may not buy all of these instruments or
use all of these techniques to the full extent permitted unless it believes
that doing so will help the Fund achieve its goals. Current holdings are
described in the Fund's financial reports which are sent to shareholders
twice a year. For a free Statement of Additional Information or financial
report, call 800-847-0200.

Equity Securities. Equity Securities may include common stocks, preferred
stocks, convertible securities, warrants, ADRs (American Depository Receipts
or GDR's), partnership interests and publicly traded real estate investment
trusts. Common stocks, the most familiar type, represent an equity
(ownership) interest in a corporation. Although equity securities have a
history of long-term growth in value, their prices fluctuate based on changes
in a company's financial condition and on overall market and economic
conditions.

Investments in smaller companies. The Fund may invest in the stock or debt
securities of smaller or unseasoned issuers. Although investments in these
companies may offer greater prospects for appreciation, they involve
additional risks because of limited product lines, limited access to markets
and financial resources, and greater vulnerability to competition and changes
in markets. Additionally, the value of these securities may fluctuate more,
and they may be more difficult to sell, particularly in declining markets.

Investments in Other Investment Companies. The Fund may invest in securities
of closed end investment companies. Up to 5% of its total assets at the time
of purchase may be invested in any one investment company, provided that
after its purchase no more than 3% of that investment company's outstanding
stock is owned by the Fund, and provided further, that no more than 10% of
the Fund's total assets are invested in investment companies. TMC will
charge an advisory fee on the portion of the Fund's assets that are invested
in securities of other investment companies. Thus shareholders will be paying
a "double fee" on those assets since the advisers of the investment companies
also will be charging fees on the same assets.

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

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

Foreign Securities and foreign currencies may involve additional risks.
Securities of foreign issuers, even if denominated in U.S. dollars, may be
affected significantly by fluctuations in the value of foreign currencies,
and the value of these securities in U.S. dollars may decline even if the
securities increase in value in their home country. Foreign securities also
are subject to greater political risk, including nationalization of assets,
confiscatory taxation, currency exchange controls, excessive or
discriminatory regulations, and restrictions on repatriation of assets and
earnings to the United States. In some countries, there may be political
instability or insufficient governmental supervision of markets, and the
legal protections for the Fund's investments could be subject to unfavorable
judicial or administrative changes. Further, governmental issuers may be
unwilling or unable to repay principal and interest when due, and may require
that the terms for payment be renegotiated. Markets in some countries may be
more volatile, and subject to less stringent investor protection and
disclosure requirements and it may be difficult to sell securities in those
markets. Moreover, the economies in many countries may be relatively
unstable because of dependence on a few industries or economic sectors.

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

Other Securities the Fund may purchase include short-term, highly liquid
securities, such as time certificates of deposit, and investment grade
short-term corporate debt obligations and commercial paper. The Fund may,
under normal conditions, hold a portion of its assets in other securities
pending investment of idle funds or to provide liquidity. During temporary
defensive conditions, the Fund may invest up to 100% of its assets in other
securities.

Repurchase Agreements. In a repurchase agreement, the Fund buys a security at
one price and simultaneously agrees to sell it back at a higher price. Delays
or losses could result if the other party to the agreement defaults or
becomes insolvent. In a reverse repurchase agreement, the Fund sells a
security and agrees to repurchase the security at a higher price. See
"Borrowing," below.

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

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 by a Fund were sold and replaced within one year. TMC does
not consider the portfolio turnover rate a limiting factor in making
investment decisions for a Fund which are otherwise consistent with that
Fund's investment objectives and management policies. A higher rate of
turnover, may, however, result in increased transaction costs and taxable
capital gains.

YEAR 2000

The inability of some computer systems to recognize the date January 1, 2000
may result in the failure of specific computer systems used by persons who
have issued securities owned by the Funds or by persons who provide services
used directly or indirectly by the Funds. This could result in delays or
disruptions in the receipt and crediting of payments on portfolio securities
held by the Funds, adverse effects on the issuers of securities held by the
Funds (and a decline in the value of those securities), and possible
inefficiencies or temporary difficulties in some Fund transactions. It is
also possible that failures of computer systems may result in general
economic and financial disruption not specific to the issuers of Fund
securities or the Funds, but the nature or extent of any general disruption
is controversial and difficult to estimate.

YOUR ACCOUNT

Buying Fund Shares

The Institutional Class shares of the Funds are sold on a continuous basis
with no initial sales charge or contingent deferred sales charge at the net
asset value (NAV) per share next determined after a purchase order is
received by the Funds' transfer agent and accepted. The NAV of each Fund is
computed at least once each day the Funds conduct business, by adding the
value of the Fund's assets, subtracting its liabilities and dividing the
result by the number of shares outstanding. NAV is normally calculated at
four o'clock p. m. Eastern time on each day the New York Stock Exchange is
open. Debt securities are ordinarily valued using prices obtained from
independent valuation services. Equity securities are valued primarily on
the basis of market quotations from the primary market on which the
securities are traded. If quotations are not available, or if values have
been materially affected after the close of foreign markets, assets are
valued by a method that the Trustees of the Fund believe accurately reflects
fair value. See the table below for instructions on how to place your order.

Institutional Class shares of each Fund are subject to a Rule 12b-1 Service
Plan, which permits each Fund to reimburse the investment adviser (TMC) for
costs to obtain various shareholder services from persons who sell shares.
The maximum annual reimbursement under the plan is 1/4 of 1% of the class's
net assets, but TMC has never sought a reimbursement of any expenses under
the plan for Class I shares. TMC has advised that it has no current
intention to do so. Because this fee is paid out of the class's assets,
payment of the fee on an ongoing basis would increase the cost of your
investment and might cost more than paying other types of sales charges.

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

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

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

Qualified Plans Consult your Plan Consult your Plan
Administrator Administrator

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

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

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

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

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

The minimum account size is $1,000 for accounts established through wrap
programs. The minimum for other accounts is $25,000. Each Fund reserves the
right to redeem the shares of any shareholder whose shares have a net asset
value of less than the stated minimum. The Fund will notify the shareholder
before performing such a redemption.

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

Opening an Account

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

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

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

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

Each Fund may authorize certain securities brokers to receive on its
behalf purchase and redemption orders received in good form, and some of
those brokers may be authorized to designate other intermediaries to receive
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 received 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 received by the
authorized broker or its designee.

Investors may be charged a fee if they effect transactions in Fund shares
through a broker or agent.

Street Name Accounts

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

SELLING FUND SHARES

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

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

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

Through a Financial All Account Types Consult with your
Intermediary financial advisor.
They may charge a fee.

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

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

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

Executor, Call 888-598-0400
Administrator,
Conservator,
Guardian

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

Internet All Account Types www.Thornburg.com
- ---------------------------------------------------------------------------

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

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

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

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

If you are a qualified individual or qualified institution selling some but
not all of your shares, leave at least $25,000 worth of shares in the account
to keep it open. If you own shares through a "wrap" or fee based program,
you must leave at least $1,000 worth of shares in the account to keep it
open. Accounts below these minimums may be closed by the Fund, and the
proceeds returned to the investor. There is no minimum balance requirement
for Qualified Plans.

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

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

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

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

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

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

Telephone Redemption

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

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

Considerations With Respect to Telephone Redemption

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

Internet Redemption

You may redeem shares of any Fund by contacting Thornburg at its Website,
www.thornburg.com and following the instructions.

INVESTOR SERVICES

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

Investor Services

Thornburg Funds' telephone representatives are available Monday through
Friday from 8:30 am to 6:30 p.m. Eastern time. Whenever you call, you can
speak with someone equipped to provide the information or service you need.

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

* Account statements after every transaction affecting your account

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

* Financial reports (every six months)

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

Thornburg's Website on the Internet provides you with helpful information 24
hours a day, at www.thornburg.com

Exchange Privilege

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

Exchange Restrictions

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

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

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

* Before exchanging into a Fund, read its prospectus.

* Exchanges may have tax consequences for you.

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

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

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

Systematic Withdrawal Plans

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

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.

DIVIDENDS AND DISTRIBUTIONS

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

Distribution Options

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

Dividends

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

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

Capital Gain

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

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

Turnover and Capital Gains

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

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

TAXES

Federal Taxes - In General

Certain general aspects of federal income taxation of individual shareholders
are discussed below. Aspects of investment by shareholders who are not
individuals are addressed in a limited manner. Prospective investors, and in
particular persons who are not individuals, should consult their own tax
advisers concerning federal, state and local tax consequences respecting
investments in the Funds.

Federal Tax Treatment of Distributions - Municipal Funds

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

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

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

Federal Tax Treatment of Distributions - Income Funds

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

Federal Taxes - Value Fund

Federal Tax Treatment of Sales or Redemptions of Shares - All Funds

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

State Taxes

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

ORGANIZATION OF THE FUNDS

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

Intermediate Municipal Fund, Government Fund, Income Fund and Value Fund are
diversified series of Thornburg Investment Trust, a Massachusetts business
trust (the "Trust") organized as a diversified, open-end management
investment company under a Declaration of Trust (the "Declaration"). The
Trust currently has 14 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

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

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

For the most recent fiscal year of each of the Funds, the investment advisory
and administrative services fee rates for each of the Funds were:

Advisory Fee Rate Administrative Services Rate
----------------- ----------------------------
Year Ended June 30, 1998
------------------------
Limited Term National Fund .45% .05%

Limited Term California Fund .50% .05%

Year Ended September 30, 1998
-----------------------------
Intermediate National Fund .50% .05%

Limited Term Government Fund .375% .05%

Limited Term Income Fund .50% .05%

The advisory fee rate for each Fund decreases as assets increase, as
described in the Statement of Additional Information. Value Fund Class I
shares became available on November 2, 1998. The current advisory fee rate
and administrative services fee rate for Value Fund are .875% and .05%,
respectively.

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

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

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

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

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

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

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

FINANCIAL HIGHLIGHTS

The Financial Highlights table for each Fund is intended to help you
understand the Funds' financial performance for the periods shown. 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. The information for Limited Term National Fund and for
Limited Term California Fund, and for periods through September 30, 1998
for Intermediate National Fund, Government Fund and Income Fund, 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. The information for
Intermediate National Fund, Government Fund, Income Fund, and Value Fund,
for the six-month period ended March 31, 1999, is unaudited.

<TABLE>

- --------------------------
LIMITED TERM NATIONAL FUND
- -------------------------- FISCAL YEAR OR PERIOD
---------------------
CLASS I
---------------------
Year Year Period
Ended Ended from
June 30, June 30, 7/5/96(a)
1999 1998 to 6/30/97
-------- -------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $13.51 $13.44 $13.27

Income from Investment Operations:
Net Investment Income .64 .66 .66
Net Gains (or Losses) on Securities (.25) .07 .17
(Realized and Unrealized) ------- ------- -------
Total from Investment Operations .39 .73 .83

Less Distributions:
Dividends (from Net Investment Income) (.64) (.66) (.66)
Distributions (from Capital Gains) - - -
Total Distributions (.64) (.66) (.66)

Net Asset Value, End of Period $13.26 $13.51 $13.44

Total Return(b) 2.87% 5.52% 6.42%

Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $81,326 $77,605 $35,476
Ratio of Expenses to Average Net Assets (0.60)%(c) (0.60)% (0.60)%(c)
(After Expense Reimbursements)
Ratio of Net Income to Average Net Assets 4.71%(c) 4.85% 5.01%(c)
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets (0.61)%(c) (0.66)% (0.79)%(c)
(Before Expense Reimbursements)

Portfolio Turnover Rate 22.16% 24.95% 23.39%

- ----------------------------
LIMITED TERM CALIFORNIA FUND
- ---------------------------- FISCAL YEAR OR PERIOD
---------------------
CLASS I
---------------------
Year Year Period
Ended Ended from
June 30, June 30, 4/1/97(a)
1999 1998 to 6/30/97
-------- -------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $12.90 $12.75 $12.64

Income from Investment Operations:
Net Investment Income .58 .59 .15
Net Gains (or Losses) on Securities (.15) .15 .11
(Realized and Unrealized) ------- ------- -------
Total from Investment Operations .43 .74 .26

Less Distributions:
Dividends (from Net Investment Income) (.58) (.59) (.15)
Distributions (from Capital Gains) - - -
Total Distributions (.58) (.59) (.15)

Net Asset Value, End of Period $12.75 $12.90 $12.75

Total Return(b) 3.33% 5.93% 2.07%

Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $12,724 $8,284 3,949
Ratio of Expenses to Average Net Assets (.65)%(c) (0.65)% (0.63)%(c)
(After Expense Reimbursements)
Ratio of Net Income to Average Net Assets 4.45%(c) 4.60% 4.77%(c)
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets (.78)%(c) (0.92)% (1.32)%(c)
(Before Expense Reimbursements)

Portfolio Turnover Rate 2.79% 21.21% 20.44%

- --------------------------
INTERMEDIATE NATIONAL FUND
- -------------------------- FISCAL YEAR OR PERIOD
-------------------------------
CLASS I
-------------------------------
Six Months Year Period
Ended Year Ended from
March 31, September 30, 7/5/96(a)
1999 1998 1997 to 6/30/97
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $13.74 $13.44 $13.23 $13.00

Income from Investment
Operations:
Net Investment Income .33 .67 .70 .17
Net Gains (or Losses) on
Securities (.17) .30 .21 .23
(Realized and Unrealized) ------- ------ ------ ------
Total from Investment
Operations .16 .97 .91 .40

Less Distributions:
Dividends (from Net Investment
Income) (.33) (.67) (.70) (.17)
Distributions (from Capital
Gains) - - - -
Total Distributions (.33) (.67) (.70) (.17)

Net Asset Value, End of Period $13.57 $13.74 $13.44 $13.23

Total Return(b) 1.18% 7.41% 7.07% 3.11

Ratios/Supplemental Data:
Net Assets, End of Period
(000's omitted) $23,959 $20,461 16,615 689
Ratio of Expenses to Average Net
Assets (0.60)%(c) (0.69)% (0.69)% (.70)(c)
(After Expense Reimbursements)
Ratio of Net Income to Average
Net Assets 4.86%(c) 4.95% 5.16% 5.49(c)
(After Expense Reimbursements)
Ratio of Expenses to Average
Net Assets (0.78)%(c) (0.79)% (1.24)% (6.10)(c)
(Before Expense Reimbursements)

Portfolio Turnover Rate 3.69% 16.29% 15.36% 12.64%

- ---------------------------------
LIMITED TERM U.S. GOVERNMENT FUND
- --------------------------------- FISCAL YEAR OR PERIOD
-------------------------------
CLASS I
-------------------------------
Six Months Year Period
Ended Year Ended from
March 31, September 30, 7/5/96(a)
1999 1998 1997 to 6/30/97
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $12.65 $12.31 $12.24 $12.14

Income from Investment
Operations:
Net Investment Income .35 .74 .79 .20
Net Gains (or Losses) on
Securities (.32) .34 .07 .10
(Realized and Unrealized) ------- ------ ------ ------
Total from Investment
Operations .03 1.08 .86 .30

Less Distributions:
Dividends (from Net Investment
Income) (.35) (.74) (.79) (.20)
Distributions (from Capital
Gains) - - - -
Total Distributions (.35) (.74) (.79) (.20)

Net Asset Value, End of Period $12.33 $12.65 $12.31 $12.24

Total Return(b) 0.24% 9.06% 7.26% 2.45%

Ratios/Supplemental Data:
Net Assets, End of Period
(000's omitted) $4,840 $2,250 5,263 9
Ratio of Expenses to Average Net
Assets (0.60)%(c) (0.60)% (0.60)% (.58)(c)
(After Expense Reimbursements)
Ratio of Net Income to Average Net
Assets 5.62%(c) 6.01% 6.35% 6.64(c)
(After Expense Reimbursements)
Ratio of Expenses to Average
Net Assets (1.14)%(c) (1.18)% (6.57)% (305.74)(c)
(Before Expense Reimbursements)

Portfolio Turnover Rate 9.25% 29.77% 41.10% 23.27%

- ------------------------
LIMITED TERM INCOME FUND
- ------------------------ FISCAL YEAR OR PERIOD
-------------------------------
CLASS I
-------------------------------
Six Months Year Period
Ended Year Ended from
March 31, September 30, 7/5/96(a)
1999 1998 1997 to 6/30/97
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $12.50 $12.36 $12.23 $11.95

Income from Investment
Operations:
Net Investment Income .37 .75 .80 .19
Net Gains (or Losses) on
Securities (.27) .14 .13 .28
(Realized and Unrealized) ------- ------ ------ ------
Total from Investment
Operations .10 .89 .93 .47

Less Distributions:
Dividends (from Net Investment
Income) (.37) (.75) (.80) (.19)
Distributions (from Capital
Gains) - - - -
Total Distributions (.37) (.75) (.80) (.19)

Net Asset Value, End of Period $12.23 $12.50 $12.36 $12.23

Total Return(b) 0.79% 7.49% 7.80% 3.97%

Ratios/Supplemental Data:
Net Assets, End of Period
(000's omitted) $8,591 $7,768 4,495 797
Ratio of Expenses to Average
Net Assets (0.69)%(c) (0.69)% (0.69)% (.69)(c)
(After Expense Reimbursements)
Ratio of Net Income to Average
Net Assets 5.96%(c) 6.10% 6.44% 6.67(c)
(After Expense Reimbursements)
Ratio of Expenses to Average Net
Assets (1.02)%(c) (1.19)% (1.98)% (4.26)(c)
(Before Expense Reimbursements)

Portfolio Turnover Rate 14.20% 41.01% 13.87% 44.35%

(a) Commencement of operations.
(b) Total return is not annualized for periods less than one year.
(c) Annualized.

- -----------------------
LIMITED TERM VALUE FUND
- ----------------------- FISCAL YEAR OR PERIOD
---------------------
CLASS I
---------------------
Period
from
11/2/98 (a)
to 3/31/99
----------
<S> <C>
Net Asset Value, Beginning of Period $21.33

Income from Investment Operations:
Net Investment Income .15
Net Gains (or Losses) on Securities 3.95
(Realized and Unrealized) -------
Total from Investment Operations 4.10

Less Distributions:
Dividends (from Net Investment Income) (.13)
Distributions (from Capital Gains) -
Returns of Capital -
Total Distributions (.13)

Net Asset Value, End of Period $25.30

Total Return(b) 16.80%

Ratios/Supplemental Data:
Net Assets, End of Period (000's omitted) $21,821
Ratio of Expenses to Average Net Assets (0.82)%(c)
(After Expense Reimbursements)
Ratio of Net Income to Average Net Assets 1.27%(c)
(After Expense Reimbursements)
Ratio of Expenses to Average Net Assets (1.02)%(c)
(Before Expense Reimbursements)

Portfolio Turnover Rate 23.04%

</TABLE>

ADDITIONAL
INFORMATION

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

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

CUSTODIAN
State Street Bank & Trust Co.
Boston, Massachusetts

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

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

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

Limited Term National Fund and Limited Term California Fund are separate
series of Thornburg Limited Term Municipal Fund, Inc., which files its
registration statements and certain other information with the Securities and
Exchange Commission under Investment Company Act of 1940 file number 811-
4302.

Intermediate National Fund, Government Fund, Income Fund and Value Fund are
separate series of Thornburg Investment Trust, which files its registration
statements and certain other information with the Commission under Investment
Company Act of 1940 file number 811-05201.

Statement of Additional Information
for
Thornburg Limited Term Municipal Fund National Portfolio
("Limited Term National Fund")
Thornburg Limited Term Municipal Fund California Portfolio
("Limited Term California Fund")
Thornburg Intermediate Municipal Fund
("Intermediate National Fund")
Thornburg New Mexico Intermediate Municipal Fund
("Intermediate New Mexico Fund")
Thornburg Florida Intermediate Municipal Fund
("Intermediate Florida Fund")
Thornburg New York Intermediate Municipal Fund
("Intermediate New York Fund")
Thornburg Limited Term U.S. Government Fund
("Government Fund")
Thornburg Limited Term Income Fund
("Income Fund")
Thornburg Value Fund
("Value Fund")
Thornburg Global Value Fund
("Global Value Fund")

119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501

Thornburg Limited Term Municipal Fund National Portfolio ("Limited
Term National Fund") and Thornburg Limited Term Municipal Fund California
Portfolio ("Limited Term California Fund") are investment portfolios
established by Thornburg Limited Term Municipal Fund, Inc. (the "Company").
Thornburg Intermediate Municipal Fund ("Intermediate National Fund"),
Thornburg New Mexico Intermediate Municipal Fund ("Intermediate New Mexico
Fund"), Thornburg Florida Intermediate Municipal Fund ("Intermediate
Florida Fund"), Thornburg New York Intermediate Municipal Fund
("Intermediate New York Fund"), Thornburg Limited Term U.S. Government Fund
("Government Fund"), Thornburg Limited Term Income Fund ("Income Fund"),
Thornburg Value Fund ("Value Fund"), and Thornburg Global Value Fund
("Global Value Fund") are investment portfolios established by Thornburg
Investment Trust (the "Trust"). This Statement of Additional Information
relates to the investments made or proposed to be made by the Funds,
investment policies governing the Funds, the Funds' management, and other
issues of interest to a prospective purchaser of Class A, Class C or Class
D shares offered by the Funds.

This Statement of Additional Information is not a prospectus but
should be read in conjunction with the Funds' Institutional Class
Prospectus dated November 1, 1999. A copy of the Prospectus for each of
the Funds and the most recent Annual and Semiannual Reports for each of the
Funds 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.

Prior to June 28, 1985 the Company's name was "Tax-Free Municipal
Lease Fund, Inc."; and prior to October 1, 1995, the Trust's name was
"Thornburg Income Trust."

The date of this Statement of Additional Information is November 1,
1999.

<PAGE>
TABLE OF CONTENTS

ORGANIZATION OF THE FUNDS . . . . . . . . . . . . . . . . . . .__

INVESTMENT POLICIES. . . . . . . . . . . . . . . . . . . . . . __
Municipal Funds. . . . . . . . . . . . . . . . . . . . . . . __
Funds Investments-In General . . . . . . . . . . . . . . . . __
Municipal Obligations. . . . . . . . . . . . . . . . . . . . __
Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . __
Temporary Investments. . . . . . . . . . . . . . . . . . . . __
Repurchase Agreements. . . . . . . . . . . . . . . . . . . . __
U.S. Government Obligations. . . . . . . . . . . . . . . . . __
Special Risks Affecting Limited Term California Fund . . . . __
Special Risks Affecting Intermediate New Mexico Fund . . . . __
Special Risks Affecting Intermediate Florida Fund. . . . . . __
Special Risks Affecting Intermediate New York Fund . . . . . __

TAXABLE INCOME FUNDS . . . . . . . . . . . . . . . . . . . . . __
Determining Portfolio Average Maturity -
Government Fund and Income Fund. . . . . . . . . . . . . . __
Purchase of Certificates of Deposit
Government Fund and Income Fund. . . . . . . . . . . . . . __
Asset-Backed Securities - Government Fund and Income Fund. . __
Mortgage-Backed Securities and Mortgage Pass-
Through Securities . . . . . . . . . . . . . . . . . . . . __
Collateralized Mortgage Obligations ("CMOs") . . . . . . . . __
FHLMC Collateralized Mortgage Obligations. . . . . . . . . . __
Other Mortgage-Backed Securities . . . . . . . . . . . . . . __
Other Asset-Backed Securities. . . . . . . . . . . . . . . . __
Repurchase Agreements-Government Fund and Income Fund. . . . __
When Issued Securities-Government Fund and Income Fund . . . __
Reverse Repurchase Agreements-Government Fund and
Income Fund . . . . . . . . . . . . . . . . . . . . . . . . __
Dollar Roll Transactions-Government Fund and Income Fund . . __
Lending of Portfolio Securities - Government Fund
and Income Fund . . . . . . . . . . . . . . . . . . . . . . __
Other Investment Strategies-Income Fund. . . . . . . . . . . __
General Characteristics of Options-Income Fund . . . . . . . __
General Characteristics of Futures-Income Fund . . . . . . . __
Options on Securities Indices and Other Financial
Indices - Income Fund . . . . . . . . . . . . . . . . . . . __
Currency Transactions-Income Fund. . . . . . . . . . . . . . __
Risks of Currency Transactions-Income Fund . . . . . . . . . __
Combined Transactions-Income Fund. . . . . . . . . . . . . . __
Swaps, Caps, Floors and Collars-Income Fund. . . . . . . . . __
Eurodollar Instruments-Income Fund . . . . . . . . . . . . . __
Risks of Strategic Transactions Outside
the United States-Income Fund. . . . . . . . . . . . . . . __
Use of Segregated and Other Special Accounts-Income Fund . . __
Foreign Securities-Income Fund . . . . . . . . . . . . . . . __

-i

VALUE FUND AND GLOBAL VALUE FUND . . . . . . . . . . . . . . . __

Illiquid Investments-Value Fund and Global Value Fund. . . . __
Restricted Securities-Value Fund. . . . . . . . . . . . . . __
Swap Agreements, Caps, Floors, Collars-
Value Fund and Global Value Fund. . . . . . . . . . . . . __
Indexed Securities-Value Fund and Global Value Fund . . . . __
Repurchase Agreements-Value Fund and Global Value Fund. . . __
Reverse Repurchase Agreements-Value Fund and
Global Value Fund. . . . . . . . . . . . . . . . . . . . . __
Securities Lending-Value Fund and Global Value Fund . . . . __
Lower-Quality Debt Securities-Value Fund and
Global Value Fund. . . . . . . . . . . . . . . . . . . . . __
Foreign Investments-Value Fund and Global Value Fund. . . . __
Foreign Currency Transactions-Value Fund and
Global Value Fund. . . . . . . . . . . . . . . . . . . . . __
Limitations on Futures and Options Transactions-
Value Fund and Global Value Fund. . . . . . . . . . . . . __
Real Estate-Related Instruments-Value Fund and
Global Value Fund. . . . . . . . . . . . . . . . . . . . . __
Futures Contracts-Value Fund and Global Value Fund. . . . . __
Futures Margin Payments-Value Fund and
Global Value Fund. . . . . . . . . . . . . . . . . . . . . __
Purchasing Put and Call Options-Value Fund and
Global Value Fund. . . . . . . . . . . . . . . . . . . . . __
Writing Put and Call Options-Value Fund and
Global Value Fund. . . . . . . . . . . . . . . . . . . . . __
Combined Positions-Value Fund and Global Value Fund . . . . __
Correlations of Price Changes-Value Fund and
Global Value Fund. . . . . . . . . . . . . . . . . . . . . __
Liquidity of Options and Futures Contracts-
Value Fund and Global Value Fund . . . . . . . . . . . . . __
OTC Options-Value Fund and Global Value Fund. . . . . . . . __
Option and Futures Relating to Foreign Currencies-
Value Fund and Global Value Fund . . . . . . . . . . . . . __
Asset Coverage for Futures and Options Positions-
Value Fund and Global Value Fund . . . . . . . . . . . . . __
Short Sales-Value Fund and Global Value Fund. . . . . . . . __

INVESTMENT LIMITATIONS. . . . . . . . . . . . . . . . . . . . __
Investment Limitations-Limited Term National Fund and
Limited Term California Fund . . . . . . . . . . . . . . . __
Investment Limitations-Intermediate National Fund,
Intermediate New Mexico Fund; Intermediate Florida Fund
and Intermediate New York Fund . . . . . . . . . . . . . . __
Investment Limitations-Government Fund. . . . . . . . . . . __
Investment Limitations-Income Fund. . . . . . . . . . . . . __
Investment Limitations-Value Fund and Global Value Fund . . __

YIELD AND RETURN COMPUTATION. . . . . . . . . . . . . . . . . __
Performance and Portfolio Information . . . . . . . . . . . __

-ii-

REPRESENTATIVE PERFORMANCE INFORMATION. . . . . . . . . . . . __
Representative Performance Information-
Limited Term National Fund (Class A and C). . . . . . . . __
Standardized Method of Computing Yields . . . . . . . . __
Taxable Equivalent Yield. . . . . . . . . . . . . . . . __
Average Annual Total Return . . . . . . . . . . . . . . __
Representative Performance Information-
Limited Term California Fund (Class A and C) . . . . . . . __
Standardized Method of Computing Yields . . . . . . . . __
Taxable Equivalent Yield. . . . . . . . . . . . . . . . __
Average Annual Total Return . . . . . . . . . . . . . . __
Representative Performance Information-Intermediate
National Fund (Class A and C) . . . . . . . . . . . . . . __
Standardized Method of Computing Yields . . . . . . . . __
Taxable Equivalent Yield. . . . . . . . . . . . . . . . __
Average Annual Total Return . . . . . . . . . . . . . . __
Intermediate New Mexico Fund (Class A). . . . . . . . . . __
Standardized Method of Computing Yields . . . . . . . . __
Taxable Equivalent Yield. . . . . . . . . . . . . . . . __
Average Annual Total Return . . . . . . . . . . . . . . __
Representative Performance Information-Intermediate
Florida Fund (Class A). . . . . . . . . . . . . . . . . . __
Standardized Method of Computing Yields . . . . . . . . __
Taxable Equivalent Yield. . . . . . . . . . . . . . . . __
Average Annual Total Return . . . . . . . . . . . . . . __
Representative Performance Information-Intermediate
New York Fund (Class A) . . . . . . . . . . . . . . . . . __
Standardized Method of Computing Yields . . . . . . . . __
Taxable Equivalent Yield. . . . . . . . . . . . . . . . __
Average Annual Total Return . . . . . . . . . . . . . . __
Representative Performance Information-
Government Fund (Class A and C) . . . . . . . . . . . . . __
Standardized Method of Computing Yields . . . . . . . . __
Representative Performance Information-Income
Fund (Class A and Class C Shares) . . . . . . . . . . . . __
Standardized Method of Computing Yields . . . . . . . . __
Representative Performance Information-Value
Fund (Class A and Class C Shares) . . . . . . . . . . . . __

TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . __
Federal Income Taxes-In General . . . . . . . . . . . . . . __
Federal Income Taxation-Municipal Funds . . . . . . . . . . __
State and Local Tax Aspects of the Municipal Funds. . . . . __
Federal Income Taxes - Taxable Income Funds . . . . . . . . __
State and Local Income Tax Considerations-
Taxable Income Funds. . . . . . . . . . . . . . . . . . . __
Federal Income Taxes-Value Fund . . . . . . . . . . . . . . __
State and Local Income Tax Considerations-Value Fund. . . . __

-iii-

DISTRIBUTIONS AND SHAREHOLDERS ACCOUNTS . . . . . . . . . . . __

INVESTMENT ADVISER, INVESTMENT ADVISORY AGREEMENT, AND
ADMINISTRATIVE SERVICES AGREEMENT . . . . . . . . . . . . . __
Investment Advisory Agreement . . . . . . . . . . . . . . . __
Administrative Services Agreement . . . . . . . . . . . . . __

SERVICE AND DISTRIBUTION PLANS. . . . . . . . . . . . . . . . __

PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . . . . . . __
In General. . . . . . . . . . . . . . . . . . . . . . . . . __
Municipal Funds and Taxable Income Funds. . . . . . . . . . __
Value Fund. . . . . . . . . . . . . . . . . . . . . . . . . __
Portfolio Turnover Rates. . . . . . . . . . . . . . . . . . __

MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . __
Limited Term National Fund and
Limited Term California Fund. . . . . . . . . . . . . . . __
Intermediate National Fund; Government Fund;
Income Fund; and Value Fund . . . . . . . . . . . . . . . __

PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . . . . . . . __
Limited Term National Fund. . . . . . . . . . . . . . . . . __
Limited Term California Fund. . . . . . . . . . . . . . . . __
Intermediate National Fund. . . . . . . . . . . . . . . . . __
Government Fund . . . . . . . . . . . . . . . . . . . . . . __
Income Fund . . . . . . . . . . . . . . . . . . . . . . . . __
Value Fund. . . . . . . . . . . . . . . . . . . . . . . . . __

NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . __

DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . __

INDEPENDENT AUDITORS. . . . . . . . . . . . . . . . . . . . . __

FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . __

-iv-

<PAGE>
ORGANIZATION OF THE FUNDS

Limited Term National Fund and Limited Term California Fund are
diversified series of Thornburg Limited Term Municipal Fund, Inc., a
Maryland corporation organized in 1984 as a diversified, open-end
management investment company (the "Company"). The Company currently
offers two series of stock, Limited Term National Fund and Limited
California Fund, each in multiple classes, and the Board of Directors is
authorized to divide authorized but unissued shares into additional series
and classes.

Intermediate Municipal Fund, Intermediate New Mexico Fund,
Intermediate Florida Fund, Intermediate New York Fund, Government Fund,
Income Fund, Value Fund, and Global Value Fund are diversified series of
Thornburg Investment Trust, a Massachusetts business trust (the "Trust")
organized on June 3, 1987 as a diversified, open-end management investment
company under a Declaration of Trust (the "Declaration"). The Trust
currently has eight active Funds, all of which are described in this
prospectus. The Trustees are authorized to divide the Trust's shares into
additional series and classes.

The assets received for the issue or sale of shares of each Fund and
all income, earnings, profits, and proceeds thereof, subject only to the
rights of creditors, are especially allocated to the Fund, and constitute
the underlying assets of that Fund. The underlying assets of each Fund are
segregated on the books of account, and are charged with the liabilities
with respect to that Fund and with a share of the general expense of the
Company (if the Fund is a series of the Company), or of the Trust.
Expenses with respect to the Company and the Trust are allocated in
proportion to the asset value of the respective series and classes of the
Company or the Trust except where allocations of direct expense can
otherwise be fairly made. The officers of the Company, subject to the
general supervision of the Company's directors, determine which expenses
are allocable to a given Fund of the Company, or which are generally
allocable to both Funds offered by the Company. Similarly, the officers of
the Trust, subject to the general supervision of the Trustees, determine
which expenses are allocable to a given Fund, or generally allocable to all
of the Funds of the Trust. In the event of the dissolution or liquidation
of the Trust or the Company, shareholders of each Fund are entitled to
receive the underlying assets of that Fund which are available for
distribution.

Each of the Funds may in the future, rather than invest in securities
generally, seek to achieve its investment objectives by pooling its assets
with assets of other funds for investment in another investment company
having the same investment objective and substantially similar investment
policies and restrictions as the Fund. The purpose of such an arrangement
is to achieve greater operational efficiencies and to reduce cost. It is
expected that any such investment company would be managed by TMC in a
manner substantially similar to the corresponding Fund. Shareholders of
each Fund would receive prior written notice of any such investment, but
may not be entitled to vote on the action. Such an investment would be
made only if at least a majority of the Directors or Trustees of the Fund
determined it to be in the best interest of the participating Fund and its
shareholders.

The Company is a corporation organized under Maryland law, which
provides generally that shareholders will not be held personally liable for
the obligations of the corporation. The Trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts
law, shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of
Trust provides that the Trust shall not have any claim against shareholders
except for the payment of the purchase price of shares. However, the risk
of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which a fund itself would be
unable to meet its obligations. TMC believes that, in view of the above,
the risk of personal liability to shareholders is remote.

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

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

State Street Bank and Trust, Boston, Massachusetts, is custodian of
the assets of the Funds. The Custodian is responsible for the safekeeping
of the Funds' assets and the appointment of subcustodian banks and clearing
agencies. The Custodian takes no part in determining the investment
policies of the Funds or in deciding which securities are purchased or sold
by the Funds.

INVESTMENT POLICIES

Municipal Funds
- ---------------

Limited Term National Fund, Limited Term California Fund, Intermediate
National Fund, Intermediate New Mexico Fund, Intermediate Florida Fund, and
Intermediate New York Fund are sometimes referred to in this Statement of
Additional Information as the "Municipal Funds." The primary investment
objective of each of the Municipal Funds is to seek as high a level of
current investment income exempt from the individual federal income tax as
is consistent, in the view of the Funds' investment adviser, with the
preservation of capital. In addition, the Limited Term California Fund
seeks exemption of its income dividends from California State individual
income taxes, Intermediate New Mexico Fund seeks exemption of its income
dividends from New Mexico state individual income taxes, and Intermediate
New York Fund seeks exemption of its income dividends from New York State
and New York City individual income taxes. Intermediate Florida Fund seeks
exemption from the "intangibles" tax normally imposed on securities held by
individuals resident in the State of Florida. The objective of preserving
capital may preclude the Municipal Funds from obtaining the highest
possible yields.

The Limited Term National Fund and Limited Term California Fund each
will maintain a portfolio having a dollar-weighted average maturity of
normally not more than five years, with the objective of reducing
fluctuations in its net asset value relative to municipal bond portfolios
with longer average maturities while expecting lower yields than those
received on portfolios with longer average maturities. Intermediate
National Fund, Intermediate New Mexico Fund, Intermediate Florida Fund, and
Intermediate New York Fund each will maintain a portfolio having a
dollar-weighted average maturity of normally three to ten years, with the
objective of reducing fluctuations in net asset value relative to long-term
municipal bond portfolios. The Intermediate Funds may receive lower yields
than those received on long-term bond portfolios, while seeking higher
yields and expecting higher share price volatility than the Limited Term
Funds.

The following discussion supplements the disclosures in the Thornburg
Municipal Funds Prospectus respecting the Municipal Funds' investment
policies, techniques and investment limitations.

Fund Investments - In General
- -----------------------------

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

Except to the extent that the Municipal Funds are invested in
temporary investments for defensive purposes, each municipal fund will,
under normal conditions, invest 100% of its net assets in municipal
obligations and normally will not invest less than 80% of its net assets in
municipal obligations. This 80% policy is a fundamental investment policy
of each of the Municipal Funds and may be changed only with the approval of
a majority of the outstanding voting securities of a given series of the
Fund. Under normal conditions each of the single State Municipal Funds
invests 100%, of its assets in obligations originating in the state having
the same name as the Fund or issued by United States territories or
possessions, and as a matter of fundamental policy, invests 65% of its
total assets in municipal obligations originating in the state having the
same name as the Fund.

Each of the Municipal Funds has reserved the right to invest up to 20%
of its net assets in "temporary investments" in taxable securities (of
comparable quality to the above tax-exempt investments) that would produce
interest not exempt from Federal or state 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 ___. Such investments are, like any investment,
subject to market risks and fluctuations in value. In addition, each
Fund's temporary taxable investments may exceed 20% of its net assets when
made for defensive purposes during periods of abnormal market conditions.
The Municipal Funds do not expect to find it necessary to make temporary
investments.

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

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

Municipal Obligations
- ---------------------

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

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

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

TMC will evaluate the liquidity of each municipal lease upon its
acquisition and periodically while it is held based upon factors
established for the Limited Term National Fund and Limited Term California
Fund by the Company's directors, and for Intermediate National Fund,
Intermediate New Mexico Fund, Intermediate Florida Fund and Intermediate
New York Fund, by the Trust's trustees, including (i) the frequency of
trades and quotes for the obligation, (ii) the number of dealers who will
buy or sell the obligation and the potential buyers for the obligation,
(iii) the willingness of dealers to make a market for the obligation, and
(iv) the nature and timing of marketplace trades. An unrated municipal
lease with non-appropriation risk that is backed by an irrevocable bank
letter of credit or an insurance policy, issued by a bank or insurer deemed
by TMC to be of high quality and minimal credit risk, will not be deemed to
be "illiquid" solely because the underlying municipal lease is unrated, if
TMC determines that the municipal lease is readily marketable because it is
backed by the letter of credit or insurance policy.

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

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.

No Municipal Fund will invest in illiquid securities if, as a result
of the investment, more than 10% of its net assets will be invested in
illiquid securities. For purposes of this limitation, "illiquid
securities" shall be deemed to include (1) municipal leases subject to
non-appropriation risk which are not rated at the time of purchase within
the four highest grades by Moody's or S&P and not subject to remarketing
agreements (or not currently subject to remarketing, pursuant to the
conditions of any such agreement then in effect, with a responsible
remarketing party, deemed by TMC to be capable of performing its
obligations), (2) repurchase agreements maturing in more than seven days,
(3) securities which the Funds are restricted from selling to the public
without registration under the Securities Act of 1933, and (4) other
securities or participations not considered readily marketable by the
Funds, provided that for purposes of the foregoing an unrated municipal
lease which is backed by an irrevocable bank letter of credit or an
insurance policy, issued by a bank or insurer deemed by TMC to be of high
quality and minimal credit risk, will not be deemed to be illiquid.

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 adversely 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. 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 normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest for bonds in this category than for bonds in the A
category. The foregoing ratings are sometimes followed by a "p" indicating
that the rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the bonds being
rated and indicates that payment of debt service requirements is largely or
entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality subsequent
to completion of the project, makes no comment on the likelihood of, or the
risk of default upon failure of, the completion.

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

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

Repurchase Agreements
- ---------------------

Each Municipal Fund may enter into repurchase agreements with respect
to taxable securities constituting "temporary investments" in its
portfolio. A repurchase agreement is a contractual agreement whereby the
seller of securities agrees to repurchase the same security at a specified
price on a future date agreed upon by the parties. The agreed upon
repurchase price determines the yield during the Fund's holding period.
Repurchase agreements may be viewed as loans collateralized by the
underlying security that is the subject of the repurchase agreement. No
Municipal Fund will enter into a repurchase agreement if, as a result, more
than 5% of the value of its net assets would then be invested in repurchase
agreements. The Funds will enter into repurchase agreements only with
dealers, banks or recognized financial institutions that in the opinion of
TMC represent minimal credit risk. The risk to a Fund is limited to the
ability of the seller to pay the agreed upon repurchase price on the
delivery date; however, although the value of the underlying collateral at
the time the transaction is entered into always equals or exceeds the
agreed upon repurchase price, if the value of the subject security declines
there is a risk of loss of both principal and interest if the seller
defaults. In the event of a default, the collateral may be sold. A Fund
might incur a loss if the value of the collateral has declined, and the
Fund might incur disposition costs or experience delays in connection with
liquidating the security. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon the
subject security by the Fund may be delayed or limited. The Municipal
Funds' investment adviser will monitor the value of the security at the
time the transaction is entered into and at all subsequent times during the
term of the repurchase agreement in an effort to determine that the value
always equals or exceeds the agreed upon repurchase price. In the event
the value of the subject security declines below the repurchase price, TMC
will demand additional securities from the seller to increase the value of
the property held to at least that of the repurchase price.

U.S. Government Obligations
- ---------------------------

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

Special Risks Affecting Limited Term California Fund
- ----------------------------------------------------

Limited Term California Fund invests primarily in California state,
municipal, and agency obligations. For this reason, an investment in the
Limited Term California Fund may be riskier than an investment in the
Limited Term National Fund, which buys municipal obligations from
throughout the United States. Prospective investors should consider the
risks inherent in the investment concentration of the Limited Term
California Fund before investing.

California's economy is the largest among the 50 states and one of the
largest in the world. The state's July 1, 1995 population of approximately
32.1 million represents 12.2 percent of the total United States population
and total personal income in the state, at an estimated $810 billion in
1996, accounts for 12.6 percent of all personal income in the nation.
Total employment is about 14.5 million, the majority of which is in the
service, trade and manufacturing sectors.

California constitutional and other laws raise questions about the
ability of California state and municipal issuers to obtain sufficient
revenue to pay their bond obligations in all situations. In 1978,
California voters approved an amendment to the California Constitution
known as Proposition 13, which has had an affect on California issuers that
rely in whole or in part, directly or indirectly, on ad valorem real
property taxes as a source of revenue. Proposition 13 limits ad valorem
taxes on real property and restricts the ability of taxing entities to
increase real property taxes. In 1979, California voters approved another
constitutional amendment, Article XIIIB, which may have an adverse impact
on California state and municipal issuers. Article XIIIB prohibits
government agencies and the state from spending "appropriations subject to
limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes",
which consist of tax revenues, certain state subventions and certain other
funds, including proceeds from regulatory licenses, user charges or other
fees to the extent that such proceeds exceed "the cost reasonably borne by
such entity in providing the regulation, product or service". No limit is
imposed on appropriations of funds which are not "proceeds of taxes", such
as debt service on indebtedness existing or authorized before January 1,
1979, or subsequently authorized by the voters, appropriations required to
comply with mandates of the courts or the federal government, reasonable
user charges or fees and certain other non-tax funds. The amendment
restricts the spending authority of state and local government entities.
If revenues exceed such appropriations limits, such revenues must be
returned either as revisions in the tax rate or fee schedules.

California obtains roughly 45% of general fund revenues from personal
income taxes (individual and corporate) compared to an average of only 30%
for other states. Income taxes serve as a bellwether which is frequently a
leading indicator of economic weakness. Recent deficits were caused by
lower than projected income tax receipts. California's other principal
revenue source is sales taxes. The state's budget problems in recent years
have also been caused by a structural imbalance in that the largest General
Fund Programs -- K-12 education, health, welfare and corrections -- were
increasing faster than the revenue base, driven by the state's rapid
population growth. These pressures are expected to continue as population
trends maintain strong demand for health and welfare services, as the
school age population continues to grow, and as the state's corrections
program responds to a "Three-Strikes" law enacted in 1994, which requires
mandatory life prison terms for certain third-time felony offenders.

As a result of these factors and others, from the late 1980's until
1992-'93, the state had a period of budget imbalance. During this period,
expenditures exceeded revenues in four out of six years, and the state
accumulated and sustained a budget deficit approaching $2.8 billion at its
peak at June 30, 1993. Economic recovery allowed a return to financial
stability in recent years. Revenues exceeded expenditures in the 1996-'97
and 1997-'98 fiscal years, to the extent that the accumulated deficit could
be paid and some reserves established.

Although the state continues to enjoy a healthy economy, with good
employment gains since 1995, some slowing in evident. The state's 1999-'00
executive budge reflected a decline in revenue increases and reductions in
reserves, as a result of projected slowing of employment growth and Asian
economic problems. Budget restrictions and the effects of restructuring
initiatives limit budget flexibility could also create difficulties for
public finance if revenues weaken and expenditures are not controlled.

Special Risks Affecting Intermediate New Mexico Fund
- ----------------------------------------------------

Intermediate New Mexico Fund invests primarily in New Mexico municipal
obligations. For this reason, an investment in Intermediate New Mexico
Fund may be riskier than an investment in Intermediate National Fund, which
buys municipal obligations from throughout the United States. Prospective
investors should consider the risks inherent in the investment
concentration of Intermediate New Mexico Fund before investing.

New Mexico is the fifth largest state in area, containing
approximately 121,593 square miles, but has a relatively small population
of approximately 1,730,000 persons (1997). Major industries in New Mexico
are energy resources, semi-conductor manufacturing, tourism, services, arts
and crafts, agriculture-agribusiness, government, manufacturing and mining.
In fiscal year 1998, a value of energy resources production (crude
petroleum, natural gas, and coal) was approximately $5.2 billion. Total
value of mineral production was $930 million. The mining industry employed
about 15,700 New Mexicans in 1997. Major federally funded scientific
research facilities at Los Alamos, Albuquerque and White Sands are also a
notable part of the state's economy. Agriculture is a major part of the
state's economy, with crop and livestock sales in excess of $1.7 billion in
1996. As a high, relatively dry region with extensive grasslands, the
State is attractive for raising cattle, sheep and other livestock. Because
of irrigation and a variety of climatic conditions, the state's farmers are
able to produce a diverse assortment of products. The state's farmers are
major producers of alfalfa hay, wheat, chili peppers, cotton, fruits and
pecans. Agricultural businesses include chili canneries, milk processing
and cheese plants, dairies, wineries, alfalfa, pellets, chemical and
fertilizer plans, farm machinery, feet lots and commercial slaughter
plants.

Fiscal year 1997-98 state revenues were approximately $3.23 billion, a
growth of 6.5 percent over the preceding year. Strength in oil and gas
revenue and growth in personal income taxes and for gross receipts tax
collections contributed to most revenue growth. Revenues exceeded
appropriations by $167 million. Ending balances in the state's operating
reserves rose to $246 million.

Fiscal year 1998-99 revenues are estimated at $3.20 billion, a decline
of 0.9 percent over the preceding fiscal year. The projected decrease is a
result of declines in oil and gas revenue and a decrease in corporate
income tax. Further, following a perceived national trend, personal income
tax growth is expected to decelerate. Nonrecurring revenues are expected
to be smaller.

The state's legislature and local government must address a growing
perception that the state's educational system is deficient, which may
entail an increase in educational expenditures. Education represents the
largest state budget item. Potential future economic vulnerabilities for
the state or specific portions of the state include declines in mineral
extraction and fluctuations in gas and oil production and prices, possible
budget decreases at national laboratories located at White Sands,
Albuquerque and Los Alamos, and a possible general slowdown in the nation's
economy.

Special Risks Affecting Intermediate Florida Fund
- -------------------------------------------------

Intermediate Florida Fund invests primarily in Florida municipal
obligations. For this reason, an investment in Intermediate Florida Fund
may be riskier than an investment in Intermediate National Fund, which buys
municipal obligations from throughout the United States. Prospective
investors should consider the risks inherent in the investment
concentration of Intermediate Florida Fund before investing.

Florida has one of the fastest growing economies in the nation. State
per capita income has grown more rapidly than the nation's average, so that
Florida's 1997 per capita income was 20th in the nation. Employment growth
continues to outpace the nation. The state's population of 14,166,000 was
about 5.4 percent of the United States' population.

Major industries for the state include agriculture, tourism,
insurance, banking and import-export trade. The state's general fund
revenues are highly dependent upon the sales tax, and the state does not
impose an individual income tax.

Forecasted population increases and expanding demand for public
education, infrastructure improvements and certain other governmental
services will exert pressure on governmental budgets in coming years.
Recent and projected borrowings by the state and local governments are
similarly expanding.

Although recent state economic performance and governmental revenues
have been better than expected, and currently appear adequate for projected
governmental expenditures and borrowings, expected slowing in the growth of
personal income and the national economy will present budget challenges to
the state and some local governments. Florida's experience in the 1990-91
recession indicates that higher unemployment and increased costs for
"safety net" programs for unemployed persons reduce governmental revenues
and increase costs. Although the state has established substantial
revenues and continues to add to those revenues, against such an
eventuality, a recession likely would require budget reductions to avoid
constitutionally prohibited deficit spending, and reduce funds for debt
payment.

Special Risks Affecting Intermediate New York Fund
- --------------------------------------------------

Intermediate New York Fund invests primarily in New York municipal
obligations. For this reason, an investment in Intermediate New York Fund
may be riskier than an investment in Intermediate National Fund, which buys
municipal obligations from throughout the United States. Prospective
investors should consider the risks inherent in the investment
concentration of Intermediate New York Fund before investing.

New York has a broad and diverse economy. Although the state's
manufacturing sector has continued to contract over time, the state's
service sector has expanded. Services provide about one-third of overall
employment and 31% of income. Finance, insurance and real estate and
particularly important to the state's economy and employment.

Employment rates have increased in the state, but at a rate less than
the national average. Per capita personal income was 120% of the national
average in 1997. Employment rates are expected to increase, absent
recession or other economic disruption.

In recent years, government has enjoyed greater than expected revenue
growth. Personal income taxes have contributed to most of these revenue
increases. The State has enjoyed operating surpluses in fiscal years 1995-
1996, 1996-1997 and 997-1998. However, these surpluses appear to have
reduced the incentive to control expenditures, and the 1998-1999 budget did
not include significant reductions in expenditures. An economic slowdown
and consequent reductions in personal income tax collections could
adversely affect the ability of the state and its political subdivisions to
meet financial obligations.

In 1995-1996, revenues exceeded estimates, and the growth fund closed
with a balance of $287 million. In 1996-1997, revenues surged, and
previously proposed spending cuts were never implemented tax collections
were large enough, however, that the general fund closed the year with a
balance of $433 million. Again in 1997-1998, continuing revenue growth
permitted the state to extinguish its accumulated deficit and close the
year with a general fund balance of $638 million. General Fund balances do
not include a reserve created from personal income taxes in previous years,
representing a reserve of approximately $1.8 billion in 1998-1999.

Personal income tax collections have continued to increase in 1998-
1999, exceeding estimates. Projections for 1999-2000 anticipate a decline
in revenue increases, and a decline in the rate of employment increase.
The state projects revenue gaps in 2000-2001 and 2001-2002. The state's
indebtedness is above average in amount, but is moderate relative to
currently available revenue resources.

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 ability of the
state to respond to these challenges could be impaired significantly
because the state and some local governments have failed to reduce
chronically high expenditures and address governmental economic and
spending inefficiencies. These problems could be further enhanced by the
state's historic inability to adopt timely budgets, which disrupts
financial planning by local governments, agencies, and contractors.

INCOME FUNDS

Government Fund and Income Fund (the "Income Funds") each has the
primary investment goal of providing, through investment in a
professionally managed portfolio of fixed income obligations as high a
level of current income as is consistent, in TMC's view, with safety of
capital. The Government Fund will seek to achieve its primary investment
goal by investing primarily in obligations issued or guaranteed by the U.S.
government or by its agencies or instrumentalities and in participations in
such obligations or in repurchase agreements secured by such obligations.
The Income Fund will seek to achieve its primary goal by investing
primarily in investment grade short and intermediate maturity bonds and
asset backed securities such as mortgage backed securities and
collateralized mortgage obligations. The Income Fund also may invest in
other securities, and utilize other investment strategies to hedge market
risks, manage cash positions or to enhance potential gain. Additionally,
each of the Funds has the secondary goal of reducing fluctuations in its
net asset value compared to longer term portfolios, and will pursue this
goal by investing in obligations with an expected dollar-weighted average
maturity of normally not more than five years.

The following discussion supplements the disclosures in the Funds'
Prospectus respecting Government Fund's and Income Fund's investment
policies, techniques and investment limitations.

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 TMC, will result in the
instrument being valued in the market as though it has an earlier maturity.

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

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

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.

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 might tend to limit to
some degree the increase in net asset value of the Fund because the value
of some 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, on
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 Income Fund, but will not be
purchased by 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 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. Income Fund may buy mortgage-related
securities without insurance or guarantees, if through an examination of
the loan experience and practices of the originators/servicers and poolers,
TMC determines that the securities meet Income Fund's quality standards.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.

Collateralized Mortgage Obligations ("CMO's")
- ---------------------------------------------

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 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
Government Fund nor Income Fund will purchase mortgage-backed securities or
any other assets which, in the opinion of TMC, are illiquid and exceed, as
a percentage of the Fund's assets, the percentage limitations on the Fund's
investment in securities which are not readily marketable, as discussed
below. TMC will, consistent with the Funds' respective investment
objectives, policies and quality standards, consider making investments in
such new types of mortgage-related securities.

Other Asset-Backed Securities
- -----------------------------

The securitization techniques used to develop mortgage-backed
securities are now being applied to a broad range of assets. Through the
use of trusts and special purpose corporations, various types of assets,
including automobile loans, computer leases and credit card receivables,
are being securitized in pass-through structures similar to the mortgage
pass-through structures described above or in structures similar to the CMO
pattern. If otherwise consistent with the Income Fund's investment
objectives and policies, Income 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. 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.

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 a Fund holding these securities to dispose of the
securities.

Repurchase Agreements - Government Fund and Income Fund
- -------------------------------------------------------

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

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

For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the purchasing Fund to the seller of the Obligations subject to
the repurchase agreement and is therefore subject to that Fund's investment
restriction applicable to loans. It is not clear whether a court would
consider the Obligation purchased by a Fund subject to a repurchase
agreement as being owned by the Fund or as being collateral for a loan by
the Fund to the seller. In the event of the commencement of bankruptcy or
insolvency proceedings with respect to the seller of the Obligation before
repurchase of the Obligation under a repurchase agreement, the Fund may
encounter delay and incur costs before being able to sell the security.
Delays may involve loss of interest or decline in the price of the
Obligation. If the court characterized the transaction as a loan and the
Fund has not perfected a security interest in the Obligation, the Fund may
be required to return the Obligation to the seller's estate and be treated
as an unsecured creditor of the seller. As an unsecured creditor, the Fund
would be at risk of losing some or all of the principal and income involved
in the transaction. As with any unsecured debt obligation purchased for
the Fund, TMC seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case
the seller of the Obligation. Apart from the risk of bankruptcy or
insolvency proceedings, there is also the risk that the seller may fail to
repurchase the Obligation, in which case the purchasing Fund may incur a
loss if the proceeds to the Fund of the sale to a third party are less than
the repurchase price. However, if the market value (including interest) of
the Obligation subject to the repurchase agreement becomes less than the
repurchase price (including interest), the Fund will direct the seller of
the Obligation to deliver additional securities so that the market value
(including interest) of all securities subject to the repurchase agreement
will equal or exceed the repurchase price. It is possible that the Fund
will be unsuccessful in seeking to impose on the seller a contractual
obligation to deliver additional securities.

When Issued Securities - Government Fund and Income Fund
- --------------------------------------------------------

Either Government Fund or Income Fund may purchase securities offered
on a "when-issued" or "forward delivery" basis. When so offered, the
price, which is generally expressed in yield terms, is fixed at the time
the commitment to purchase is made, but delivery and payment for the
when-issued or forward delivery securities take place at a later date.
During the period between purchase and settlement, no payment is made by
the purchaser to the issuer and no interest on the when-issued or forward
delivery security accrues to the purchaser. To the extent that assets of a
Fund are not invested prior to the settlement of a purchase of securities,
the Fund will earn no income; however, it is intended that each Fund will
be fully invested to the extent practicable and subject to the Fund's
investment policies. While when-issued or forward delivery securities may
be sold prior to the settlement date, it is intended that each Fund will
purchase such securities with the purpose of actually acquiring them unless
sale appears desirable for investment reasons. At the time a Fund makes the
commitment to purchase a security on a when-issued or forward delivery
basis, it will record the transaction and reflect the value of the security
in determining its net asset value. The market value of when-issued or
forward delivery securities may be more or less than the purchase price.
Neither Fund believes that its net asset value or income will be adversely
affected by its purchase of securities on a when-issued or forward delivery
basis. Each Fund will establish a segregated account for commitments for
when-issued or forward delivery securities.

Reverse Repurchase Agreements - Government Fund and Income Fund
- ----------------------------------------------------------------

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

Dollar Roll Transactions - Government Fund and Income Fund
- -----------------------------------------------------------

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

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

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

Lending of Portfolio Securities - Government Fund and Income Fund
- -----------------------------------------------------------------

Each Fund may seek to increase its income by lending portfolio
securities. Under present regulatory policies, including those of the Board
of Governors of the Federal Reserve System and the Securities and Exchange
Commission, such loans may be made to member firms of the New York Stock
Exchange, and would be required to be secured continuously by collateral in
cash, cash equivalents or U.S. Treasury bills maintained on a current basis
at an amount at least equal to the market value and accrued interest of the
securities loaned. The lending Fund would have the right to call a loan
and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund would continue to receive the equivalent
of the interest paid by the issuer on the securities loaned and would also
receive compensation based on investment of the collateral. As with other
extensions of credit there are risks of delay in recovery or even loss of
rights in the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms deemed by TMC
to be of good standing, and when, in the judgment of TMC, the consideration
which can be earned currently from securities loans of this type justifies
the attendant risk.

Other Investment Strategies - Income Fund
- -----------------------------------------

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, 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 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 Income Fund to
utilize these Strategic Transactions successfully will depend on TMC's
ability to predict pertinent market movements, which cannot be assured.
The Fund will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments.

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

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. 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 Income Fund or fails to
make a cash settlement payment due in accordance with the terms of that
option, the Fund will lose any premium it paid for the option as well as
any anticipated benefit of the transaction. Accordingly, TMC must assess
the creditworthiness of each counterparty or any guarantor or credit
enhancement of the counterparty's credit to determine the likelihood that
the terms of the OTC option will be satisfied. Income Fund will engage in
OTC option transactions only with United States government securities
dealers recognized by the Federal Reserve Bank in New York as "primary
dealers," broker dealers, domestic or foreign banks or other financial
institutions which have received a short-term credit rating of "A-1" from
Standard & Poor's Corporation or "P-1" from Moody's Investor Services or
have been determined by TMC to have an equivalent credit rating. The staff
of the SEC currently takes the position that the amount of Income Fund's
obligation pursuant to an OTC option is illiquid, and is subject to the
Income Fund's limitation on investing no more than 15% its assets in
illiquid instruments.

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

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.

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
- -------------------------------------------------

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.

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.

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 in-the-money amount may be excluded in
computing the 5% limit. The segregation requirements with respect to
futures and options thereon are described below.

Options on Securities Indices and Other Financial Indices - Income Fund
- -----------------------------------------------------------------------

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
- -----------------------------------

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.

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.

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.

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

Risks of Currency Transactions - Income Fund
- ---------------------------------------------

Currency transactions are subject to risks different from other
transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to 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 the issuing country's economy.

Combined Transactions - Income Fund
- -----------------------------------

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

Swaps, Caps, Floors and Collars - Income Fund
- ---------------------------------------------

Among the Strategic Transactions into which Income Fund may enter are
interest rate, currency and index swaps and the purchase or sale of related
caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a
later date. Income Fund intends to use these transactions as hedges and
not as speculative investments and will not sell interest rate caps or
floors where it does not own securities or other instruments providing the
income stream the Fund may be obligated to pay. An interest rate swap is
an agreement between two parties to exchange payments that are based on
specified interest rates and a notional amount. The exchange takes place
over a specified period of time. A currency swap is an agreement to
exchange cash flows on a notional amount of two or more currencies based on
the relative value differential among them and an index swap is an
agreement to swap cash flows on a notional amount based on changes in the
values of the reference indices. Although swaps can take a variety of
forms, typically one party pays fixed and receives floating rate payments
and the other party receives fixed and pays floating rate payments. An
interest rate cap is an agreement between two parties over a specified
period of time where one party makes payments to the other party equal to
the difference between the current level of an interest rate index and the
level of the cap, if the specified interest rate index increases above the
level of the cap. An interest rate floor is similar except the payments
are the difference between the current level of an interest rate index and
the level of the floor if the specified interest rate index decreases below
the level of the floor. An interest rate collar is the simultaneous
execution of a cap and floor agreement on a particular interest rate index.
The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling the cap to the extent that
a specified index exceeds a predetermined interest rate or amount.
Purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling the floor to the extent
that a specified index falls below a predetermined interest rate or amount.
A collar is a combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates or values.

Income Fund may enter into swaps, caps, floors or collars on either an
asset-based or liability-based basis, depending on whether it is hedging
its assets or its liabilities, and will usually enter into swaps on a net
basis, i.e., the two payment streams are netted out in a cash settlement on
the payment date or dates specified in the instrument, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Inasmuch as these swaps, caps, floors and collars are entered
into for good faith hedging purposes, TMC and the Fund believe such
obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to its borrowing
restrictions. The Fund will not enter into any swap, cap, floor or collar
transaction unless, at the time of entering into the transaction, the
unsecured long term debt rating of the counterparty combined with any
credit enhancements, satisfies credit criteria established by the Trust's
trustees. If there is a default by the counterparty, the Fund will have
contractual remedies pursuant to the agreements related to the transaction,
but the value of the swap or other agreement likely would decline,
potentially resulting in losses. 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 is less highly developed and, accordingly, they may be less
liquid than swaps.

Eurodollar Instruments - Income Fund
- ------------------------------------

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 Income
Fund's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States, (iv) the imposition of
different exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lower trading volume and
liquidity.

Use of Segregated and Other Special Accounts - Income Fund
- ----------------------------------------------------------

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

Except when 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 Income Fund, including those on
securities, currency, financial instruments or indices, OCC issued and
exchange listed index options, swaps, caps, floors and collars will
generally provide for cash settlement. As a result, with respect to these
instruments the Fund will only segregate an amount of assets equal to its
accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of
the exercise price in the case of a put, or the in-the-money amount in the
case of a call. In addition, when the Fund sells a call option on an index
at a time when the in-the-money amount exceeds the exercise price, the Fund
will segregate, until the option expires or is closed out, cash or cash
equivalents equal in value to such excess. Other OCC issued and exchange
listed options sold by the Fund, other than those above, generally settle
with physical delivery, and the Fund will segregate an amount of assets
equal to the full value of the option. OTC options settling with physical
delivery, if any, will be treated the same as other options settling with
physical delivery.

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

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
- --------------------------------

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.
Income Fund's ability and decisions to purchase and sell portfolio
securities may be affected by laws or regulations relating to the
convertability and repatriation of assets. Further, it may be more
difficult for the Fund's agents to keep currently informed about corporate
actions which may affect the prices of portfolio securities. Foreign
securities and cash held in foreign custody or in foreign depositories may
not enjoy the same or comparable legal protections prevailing in the United
States. In addition, with respect to certain foreign countries, there is
the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments which could affect United
States investments in those countries, and it may be more difficult to
obtain and enforce a judgment against a foreign issuer. Foreign securities
may be subject to foreign government taxes which will reduce the yield on
such securities.

Value Fund And Global Value Fund
- --------------------------------

Thornburg Value Fund ("Value Fund") and Thornburg Global Value Fund
("Global Value Fund") each seek long term capital appreciation by investing
in equity and debt securities of all types. The secondary goal of each
Fund is to seek some current income.

Value Fund expects to invest primarily in domestic equity securities
selected on a value basis. However, the Fund may own a variety of
securities, including foreign equity and debt securities, domestic debt
securities and securities that are not currently paying dividends.

Global Value Fund invests throughout the world in a diversified
portfolio consisting primarily of equity securities. The Fund normally
invests more than one-half of its assets in foreign securities, and may own
a variety of domestic and foreign equity and debt securities, and
securities that are not paying dividends.

The following discussion supplements the disclosures in the Prospectus
respecting Value Fund's investment policies, techniques and investment
limitations.

Illiquid Investments - Value Fund and Global Value Fund
- -------------------------------------------------------

Illiquid investments are investments that cannot be sold or disposed
of in the ordinary course of business at approximately the prices at which
they are valued. Under the supervision of the Trustees, TMC determines the
liquidity investments by Value Fund and Global Value Fund and, through
reports from TMC, the Trustees monitor investments in illiquid instruments.
In determining the liquidity of the Funds' investments, TMC may consider
various factors, including (1) the frequency of trades and quotations, (2)
the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security
(including any demand or lender features), and (5) the nature of the market
place for trades (including the ability to assign or offset each Fund's
rights and obligations relating to the investment).

Investments currently considered by Value Fund and Global Value Fund
to be illiquid include repurchase agreements not entitling the holder to
payment of principal and interest within seven days, over-the-counter
options, and non-government stripped fixed-rate mortgage-backed securities.
Also TMC may determine some restricted securities, government-stripped
fixed-rate mortgage-backed securities, emerging market securities, and swap
agreements to be illiquid. However, with respect to over-the-counter
options either Fund writes, all or a portion of the value of the underlying
instrument may be illiquid depending on the assets held to cover the option
and the nature and terms of any agreement the Fund any have to close out
the option before expiration.

In the absence of market quotations, illiquid investments are priced
at fair value as determined utilizing procedures and methods reviewed by
the Trustees. If through a change in values, net assets, or other
circumstances, a Fund were in a position where more than 10% of its net
assets was invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.

Restricted Securities - Value Fund and Global Value Fund
- --------------------------------------------------------

Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a Fund could be obligated to pay all or part of
the registration expense and a considerable period may elapse between the
time it decides to seek registration and the time it is permitted to sell a
security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a
less favorable price than prevailed when it decided to seek registration of
the security.

Swap Agreements, Caps, Floors, Collars - Value Fund and Global Value Fund
- --------------------------------------------------------------------------

Swap agreements can be individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors. Depending on their structure, swap agreements may increase or
decrease the Fund's exposure to long or short-term interest rates (in the
U.S. or abroad), foreign currency values, mortgage securities, corporate
borrowing rates, or other factors such as security prices or inflation
rates. The Fund is not limited to any particular form of swap agreement if
TMC determines it is consistent with the Fund's investment objective and
policies.

Although swaps can take a variety of forms, typically one party pays
fixed and receives floating rate payments and the other party receives
fixed and pays floating payments. An interest rate cap is an agreement
between two parties over a specified period of time where one party makes
payments to the other party equal to the difference between the current
level of an interest rate index and the level of the cap, if the specified
interest rate index increases above the level of the cap. An interest rate
floor is similar except the payments are the difference between the current
level of an interest rate index and the level of the floor, if the
specified interest rate index decreases below the level of the floor. An
interest rate collar is the simultaneous execution of a cap and floor
agreement on a particular interest rate index. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount
from the party selling such cap to the extent that a specified index
exceeds a predetermined interest rate or amount. Purchase of a floor
entitles the purchaser to receive payments on a notional principal amount
from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.

Inasmuch as these swaps, floors, caps and collars are entered into for
good faith hedging purposes, TMC and the Funds believe these obligations do
not constitute senior securities under the 1940 Act and, accordingly, will
not treat them as being subject to borrowing restrictions. 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 is less highly developed and,
accordingly, may be less liquid than swaps.

Swap agreements will tend to shift the Fund's investment exposure from
one type of investment to another. For example, if the Fund agreed to
exchange payments in dollars for payments in foreign currency, the swap
agreement would tend to decrease the Fund's exposure to U.S. interest rates
and increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of the Fund's investments and its share price and yield. The
most significant factor in the performance of swap agreements is the change
in the specific interest rate, currency, or other factors that determine
the amounts of payments due to and from the Fund. If a swap agreement
calls for payments by the Fund, the Fund must be prepared to make such
payments when due. In addition, if the counterparty's credit worthiness
declined, the Fund will have contractual remedies available to it, but the
value of the swap or other agreement would be likely to decline,
potentially resulting in losses. The Fund expects to be able to eliminate
its exposure under swap agreements either by assignment or other
disposition, or by entering into an offsetting swap agreement with the same
party or a similarly creditworthy party.

Value Fund and Global Value Fund will maintain appropriate liquid
assets in a segregated custodial account to cover its current obligations
under swap agreements. If Fund enters into a swap agreement on other than
a net basis, it will segregate assets with a value equal to the full amount
of the Fund's accrued obligations under the agreement.

Indexed Securities - Value Fund and Global Value Fund
- -----------------------------------------------------

Each Fund may purchase securities whose prices are indexed to the
prices of other securities, securities indices, currencies, precious metals
or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument
or statistic. Gold-indexed securities, for example, typically provide for a
maturity value that depends on the price of gold, resulting in a security
whose price tends to rise and fall together with gold prices. Currency
indexed securities typically are short-term to intermediate-term debt
securities whose maturity values or interest rates are determined by
reference to the values of one or more specified foreign currencies, and
may offer higher yields than U.S. dollar-denominated securities of
equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increases, resulting in a security whose
price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values
of a number of different foreign currencies relative to each other.

The performance of indexed securities depends to a great extent on the
performance of the security, currency or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S.
and abroad. At the same time, indexed securities are subject to the credit
risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates.
Recent issuers of indexed securities have included banks, corporations, and
certain U.S. government agencies. Indexed securities may be more volatile
than their underlying instruments.

Repurchase Agreements - Value Fund and Global Value Fund
- --------------------------------------------------------

In a repurchase agreement, the Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed
upon price on an agreed upon date within a number of days from the date of
purchase. The resale price reflects the purchase price plus an agreed upon
incremental amount which is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the
seller to pay the agreed upon price, which obligation is in effect secured
by the value (at least equal to the amount of the agreed upon resale price
and marked to market daily) of the underlying security. The Fund may
engage in a repurchase agreements with respect to any security in which it
is authorized to invest.

The Fund may enter into these arrangements with member banks of the
Federal Reserve System or any domestic broker-dealer if the
creditworthiness of the bank or broker-dealer has been determined by TMC to
be satisfactory. These transactions may not provide the Fund with
collateral marked-to-market during the term of the commitment.

For purposes of the Investment Company Act of 1940, a repurchase
agreement is deemed to be a loan from the Fund to the seller of the
security subject to the repurchase agreement and is therefore subject to
the Fund's investment restriction applicable to loans. It is not clear
whether a court would consider the security purchased by the Fund subject
to a repurchase agreement as being owned by the Fund or as being collateral
for a loan by the Fund to the seller. In the event of the commencement of
bankruptcy or insolvency proceedings with respect to the seller of the
security before repurchase of the security under a repurchase agreement,
the Fund may encounter delay and incur costs before being able to sell the
security. Delays may involve loss of interest or decline in the price of
the underlying security. If the court characterized the transaction as a
loan and the Fund has not perfected a security interest in the underlying
security, the Fund may be required to return the security to the seller's
estate and be treated as an unsecured creditor of principal and income
involved in the transaction. As with any unsecured debt obligation
purchased for the Fund, TMC seeks to minimize the risk of loss through
repurchase agreements by analyzing the creditworthiness of the obligor, in
this case the seller of the security. Apart from the risk of bankruptcy or
insolvency proceedings, there is also the risk that the seller may fail to
repurchase the security, in which case the Fund may incur a loss if the
proceeds to the Fund of the sale to a third party are less than the
repurchase price. However, if the market value (including interest) of the
security subject to the repurchase agreement becomes less than the
repurchase price (including interest), the Fund will direct the seller of
the security to deliver additional securities so that the market value
(including interest) of all securities subject to the repurchase agreement
will equal or exceed the repurchase price. It is possible that the Fund
will be unsuccessful in seeking to impose on the seller a contractual
obligation to deliver additional securities.

Reverse Repurchase Agreements - Value Fund and Global Value Fund
- ----------------------------------------------------------------

In a reverse repurchase agreement, a Fund sells a portfolio instrument
to another party, such as a bank or broker-dealer, in return for cash and
agrees to repurchase the instrument at a particular price and time. While
a reverse repurchase agreement is outstanding, the Fund will maintain
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The Funds will enter into reverse
repurchase agreements only with parties whose creditworthiness has been
found satisfactory by TMC. Such transactions may increase fluctuations in
the market value of the Funds' assets and may be viewed as a form of
leverage.

Securities Lending - Value Fund and Global Value Fund
- -----------------------------------------------------

The Funds may lend securities to parties such as broker-dealers or
institutional investors. Securities lending allows the Funds to retain
ownership of the securities loaned and, at the same time, to earn
additional income. Since there may be delays in the recovery of loaned
securities, or even a loss of rights in collateral supplied should the
borrower fail financially, loans will be made only to parties deemed by TMC
to be of good standing. Furthermore, they will only be made if, in TMC's
judgment, the consideration to be earned from such loans would justify the
risk.

TMC understands that it is the current view of the SEC Staff that a
Fund may engage in loan transactions only under the following conditions:
(1) the Fund must receive 100% collateral in the form of cash or cash
equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2)
the borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of
the collateral; (3) after giving notice, the Fund must be able to
terminate the loan at any time; (4) the Fund must receive reasonable
interest on the loan or a flat fee from the borrower, as well as amounts
equivalent to any dividends, interest, or other distributions on the
securities loaned and to any increase in market value; (5) the Fund may
pay only reasonable custodian fees in connection with the loan; and (6)
the Trustees must be able to vote proxies on the securities loaned, either
by terminating the loan or by entering into an alternative arrangement with
the borrower.

Cash received through loan transactions may be invested in any
security in which a Fund is authorized to invest. Investing this cash
subjects that investment, as well as the security loaned, to market forces
(i.e., capital appreciation or depreciation).

Lower-Quality Debt Securities - Value Fund and Global Value Fund
- ----------------------------------------------------------------

Either Fund may purchase lower-quality debt securities (those rated
below Baa by Moody's Investors Service, Inc. or BBB by Standard and Poor's
Corporation, and unrated securities judged by TMC to be of equivalent
quality) that have poor protection with respect to the payment of interest
and repayment of principal, or may be in default. These securities are
often considered to be speculative and involve greater risk of loss or
price changes due to changes in the issuer's capacity to pay. The market
prices of lower-quality debt securities may fluctuate more than those of
higher-quality debt securities and may decline significantly in periods of
general economic difficulty, which may follow periods of rising interest
rates.

While the market for high-yield corporate debt securities has been in
existence for many years and has weathered previous economic downturns, the
1980's brought a dramatic increase in the use of such securities to fund
highly leveraged corporate acquisitions and restructuring. Past experience
may not provide an accurate indication of the future performance of the
high-yield bond market, especially during periods of economic recession.
In fact, from 1989 to 1991, the percentage of lower-quality securities that
defaulted rose significantly above prior levels, although the default rate
decreased in 1992 and 1993.

The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can adversely
affect the prices at which the former are sold. If market quotations are
not available, lower-quality debt securities will be valued in accordance
with procedures established by the Trustees, including the use of outside
pricing services. Judgment plays a greater role in valuing high-yield
corporate debt securities than is the case for securities for which more
external sources for quotations and last-sale information are available.
Adverse publicity and changing investor perceptions may affect the ability
of outside pricing services to value lower-quality debt securities and the
Fund's ability to sell these securities. Since the risk of default is
higher for lower-quality debt securities, TMC's research and credit
analysis are an especially important part of managing securities of this
type held by the Funds. In considering investments for the Funds, TMC will
attempt to identify those issuers of high-yielding securities whose
financial condition is adequate to meet future obligations, has improved,
or is expected to improve in the future. TMC's analysis focuses on
relative values based on such factors as interest or dividend coverage,
asset coverage, earnings prospects, and the experience and managerial
strength of the issuer.

Either Fund may choose, at its expense or in conjunction with others,
to pursue litigation or otherwise to exercise its rights as a security
holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the Fund's shareholders.

Foreign Investments - Value Fund and Global Value Fund
- ------------------------------------------------------

Foreign investments can involve significant risks in addition to the
risks inherent in U.S. investments. The value of securities denominated in
or indexed to foreign currencies, and of dividends and interest from such
securities, can change significantly when foreign currencies strengthen or
weaken relative to the U.S. dollar. Foreign securities markets generally
have less trading volume and less liquidity than U.S. markets, and prices
on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those
applicable to U.S. companies, and it may be more difficult to obtain
reliable information regarding an issuer's financial condition and
operations. It may be more difficult to obtain and enforce a judgment
against a foreign issuer. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions, and custodial costs,
are generally higher than for U.S. investments.

Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers, and securities markets may be subject
to less government supervision. Foreign security trading practices,
including those involving the release of assets in advance of payment, may
involve increased risks in the event of a failed trade or the insolvency of
a broker-dealer, and may involve substantial delays. It may also be
difficult to enforce legal rights in foreign countries.

Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments
adverse to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention.
There may be a greater possibility of default by foreign governments or
foreign government-sponsored enterprises, and securities issued or
guaranteed by foreign 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. Investments in foreign
countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.
There is no assurance that TMC will be able to anticipate these potential
events or counter their effects.

The considerations noted above generally are intensified for
investments in developing countries. Developing countries may have
relatively unstable governments, economies based on only a few industries,
and securities markets that trade a small number of securities.

The Funds may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject to
transfer restrictions may be marketable abroad, they may be less liquid
than foreign securities of the same class that are not subject to such
restrictions.

American Depository Receipts and European Depository Receipts (ADR's
and EDR's) are certificates evidencing ownership of shares of a foreign-
based issuer held in trust by a bank or similar financial institution.
Designed for use in U.S. and European securities markets, respectively,
ADR's and EDR's are alternatives to the purchase of the underlying
securities in their national markets and currencies.

Foreign Currency Transactions - Value Fund and Global Value Fund
- -----------------------------------------------------------------

The Funds may conduct foreign currency transactions on a spot (i.e.,
cash) basis or by entering into forward contracts to purchase or sell
foreign currencies at a future date and price. Both Funds will convert
currency on a spot basis from time to time, and investors should be aware
of the costs of currency conversion. Although foreign exchange dealers
generally do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
currency to a Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.

Forward contracts are generally traded in an interbank market
conducted directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before its maturity, or may hold the
contract to maturity and complete the contemplated currency exchange. The
Funds may use currency forward contracts for any purpose consistent with
their investment objectives. The following discussion summarizes the
principal currency management strategies involving forward contracts that
could be used by the Funds. The Funds may also use swap agreements,
indexed securities, and options and futures contracts relating to foreign
currencies for the same purposes. When a Fund agrees to buy or sell a
security denominated in a foreign currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract for
the purchase or sale, for a fixed amount of U.S. dollars, of the amount of
foreign currency involved in the underlying security transaction, the Fund
will be able to protect itself against an adverse change in foreign
currency values between the date the security is purchased or sold and the
date on which payment is made or received. This technique is sometimes
referred to as a "settlement hedge" or "transaction hedge." Each Fund also
may enter into forward contracts to purchase or sell a foreign currency in
anticipation of future purchases or sales of securities denominated in
foreign currency, even if the specific investments have not yet been
selected by TMC.

The Funds may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For
example, if a Fund owned securities denominated in pounds sterling, it
could enter into a forward contract to sell pounds sterling in return for
U.S. dollars to hedge against possible declines in the pound's value. Such
a hedge, sometimes referred to as a "position hedge, " would tend to offset
both positive and negative currency fluctuations, but would not offset
changes in security values caused by other factors. The Fund could also
hedge the position by selling another currency expected to perform
similarly to the pound sterling for example, by entering into a forward
contract to sell Deutschemarks or European Currency Units in return for
U.S. dollars. This type of hedge, sometimes referred to as a "proxy
hedge," could offer advantages in terms of cost, yield, or efficiency, but
generally would not hedge currency exposure as effectively as a simple
hedge into U.S. dollars. Proxy hedges may result in losses if the currency
used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.

The Funds may enter into forward contracts to shift investment
exposure from one currency into another. This may include shifting
exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. For example, if a Fund held
investments denominated in deutschemarks, the Fund could enter into forward
contracts to sell deutschemarks and purchase Swiss francs. This type of
strategy, sometimes known as a "cross hedge," will tend to reduce or
eliminate exposure to the currency that is sold, and increase exposure to
the currency that is purchased, much as if the Fund had sold a security
denominated in one currency and purchased an equivalent security
denominated in another. Cross-hedges protect against losses resulting from
a decline in the hedged currency, but will cause the Fund to assume the
risk of fluctuations in the value of the currency it purchases. Under
certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by SEC guidelines, each Fund will
segregate assets to cover currency forward contracts, if any, whose purpose
is essentially speculative. The Funds will not segregate assets to cover
forward contracts entered into for hedging purposes, including settlement
hedges, position hedges, and proxy hedges.

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. Those can result in losses to a Fund
if it is unable to deliver or receive currency 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.
Currency futures are also subject to risks pertaining to futures contracts
generally. See "Futures Contracts," below. Options trading on currency
futures is subject to market liquidity, and establishing and closing
positions may be difficult. Currency exchange rates may fluctuate based on
factors extrinsic to the issuing country's own economy.

Successful use of currency management strategies will depend on TMC's
skill in analyzing and predicting currency values. Currency management
strategies may substantially change a Fund's investment exposure to changes
in currency exchange rates, and could result in losses to the Fund if
currencies do not perform as TMC anticipates. For example, if a currency's
value rose at a time when TMC had hedged the Fund by selling that currency
in exchange for dollars, the Fund would be unable to participate in the
currency's appreciation. If TMC hedges currency exposure through proxy
hedges, the Fund could realize currency losses from the hedge and the
security position at the same time if the two currencies do not move in
tandem. Similarly, if TMC increases the Fund's exposure to a foreign
currency, and that currency's value declines, the Fund will realize a loss.
There is no assurance that TMC's use of currency management strategies will
be advantageous to the Funds or that it will hedge at an appropriate time.

Limitations on Futures and Options Transactions -
Value Fund and Global Value Fund
- -----------------------------------------------

The Fund will not: (a) sell futures contracts, purchase put options,
or write call options if, as a result, more than 25% of the Fund's total
assets would be hedged with futures and options under normal conditions;
(b) purchase futures contracts or write put options if, as a result, the
Fund's total obligations upon settlement or exercise of purchased futures
contracts and written put options would exceed 25% of its total assets; or
(c) purchase call options if, as a result, the current value of option
premiums for call options purchased by the Fund would exceed 5% of the
Fund's total assets. These limitations do not apply to options attached to
or acquired or traded together with their underlying securities, and do not
apply to securities that incorporate features similar to options.

The above limitations on the Fund's investments in futures contracts
and options, and the Fund's policies regarding futures contracts and
options discussed elsewhere in this Statement of Additional Information,
are not fundamental policies and may be changed as regulatory agencies
permit.

Real Estate-Related Instruments - Value Fund and Global Value Fund
- ------------------------------------------------------------------

Real estate-related instruments include real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors such
as changes in real estate values and property taxes, interest rates, cash
flow of underlying real estate assets, over building, and the management
skill and creditworthiness of the issuer. Real estate-related instruments
may also be affected by tax and regulatory requirements, such as those
relating to the environment.

Futures Contracts - Value Fund and Global Value Fund
- ----------------------------------------------------

When a Fund purchases a futures contract, it agrees to purchase a
specified underlying instrument at a specified future date. When the Fund
sells a futures contract, it agrees to sell the underlying instrument at a
specified future date. The price at which the purchase and sale will take
place is fixed when the Fund enters into the contract. Some currently
available futures contracts are based on specific securities, such as U.S.
Treasury bonds or notes, and some are based on indices of securities
prices, such as the Standard & Poor's 500 Composite Stock Price Index (S&P
500). Futures can be held until their delivery dates, or can be closed out
before then if a liquid secondary market is available. The value of a
futures contract tends to increase and decrease in tandem with the value of
its underlying instrument. Therefore, purchasing futures contracts will
tend to increase a Fund's exposure to positive and negative price
fluctuations in the underlying instrument, much as if it had purchased the
underlying instrument directly. When a Fund sells a futures contract, by
contrast, the value of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore will
tend to offset both positive and negative market price changes, much as if
the underlying instrument had been sold.

Futures Margin Payments - Value Fund and Global Value Fund
- ----------------------------------------------------------

The purchaser or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract is held
until the delivery date. However both the purchaser and seller are
required to deposit "initial margin" with a futures broker, known as a
futures commission merchant (FCM), when the contract is entered into.
Initial margin deposits are typically equal to a percentage of the
contract's value. If either party's position declines, that party will be
required to make additional "variation margin" payments to settle the
change in value on a daily basis. The party that has a gain may be
entitled to receive all or a portion of this amount. Initial and variation
margin payments do not constitute purchasing securities on margin for
purposes of the Fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of a Fund, the Fund may be
entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the Fund.

Purchasing Put and Call Options - Value Fund and Global Value Fund
- ------------------------------------------------------------------

By purchasing a put option, a Fund obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed strike
price. In return for this right, the Fund pays the current market price
for the option (known as the option premium). Options have various types
of underlying instruments, including specific securities, indices of
securities prices, and futures contracts. The Fund may terminate its
position in a put option it has purchased by allowing it to expire or by
exercising the option. If the option is allowed to expire, the Fund will
lose the entire premium it paid. If the Fund exercises the option, it
completes the sale of the underlying instrument at the strike price. The
Fund may also terminate a put option position by closing it out in the
secondary market at its current price, if a liquid secondary market exists.

The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of purchasing
the option, a put buyer can expect to suffer a loss (limited to the amount
of the premium paid, plus related transaction costs).

The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.

Writing Put and Call Options - Value Fund and Global Value Fund
- ---------------------------------------------------------------

When a Fund writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the
premium, the Fund assumes the obligation to pay the strike price for the
option's underlying instrument if the other party to the option chooses to
exercise it. When writing an option on a futures contract a Fund will be
required to make margin payments to an FCM as described above for futures
contracts. The Fund may seek to terminate its position in a put option it
writes before exercise by closing out the option in the secondary market at
its current price. If the secondary market is not liquid for a put option
the Fund has written, however, the Fund must continue to be prepared to pay
the strike price while the option is outstanding, regardless of price
changes, and must continue to set aside assets to cover its position.

If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates a Fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those
of writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline.

At the same time, because a call writer must be prepared to deliver
the underlying instrument in return for the strike price, even if its
current value is greater, a call writer gives up some ability to
participate in security price increases.

Combined Positions - Value Fund and Global Value Fund
- -----------------------------------------------------

The Funds may purchase and write options in combination with each
other, or in combination with futures or forward contracts, to adjust the
risk and return characteristics of the overall position. For example, a
Fund may purchase a put option and write a call option on the same
underlying instrument, in order to construct a combined position whose risk
and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult
to open and close out. 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 upon TMC's
judgment that the combined strategies will reduce risk or otherwise achieve
a portfolio management goal, it is possible that the combination will
instead increase risk or hinder achievement of the goal.

Correlation of Price Changes - Value Fund and Global Value Fund
- ---------------------------------------------------------------

Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts
available will not match a Fund's current or anticipated investments
exactly. A Fund may invest in options and futures contracts based on
securities with different issuers, maturities, or other characteristics
from the securities in which it typically invests, which involves a risk
that the options or futures position will not track the performance of the
Fund's other investments. Options and futures prices can also diverge from
the prices of their underlying instruments, even if the underlying
instruments match the Fund's investments well. Options and futures prices
are affected by such factors as current and anticipated short-term interest
rates, changes in volatility of the underlying instrument, and the time
remaining until expiration of the contract, which may not affect security
prices the same way. Imperfect correlation may also result from differing
levels of demand in the options and futures markets and the securities
markets, from structural differences in how options and futures and
securities are traded, or from imposition of daily price fluctuation limits
or trading halts. A Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to
hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although
this may not be successful in all cases. If price changes in the Fund's
options or futures positions are poorly correlated with its other
investments, the positions may fail to produce anticipated gains or result
in losses that are not offset by gains in other investments.

Liquidity of Options and Futures Contracts -
Value Fund and Global Value Fund
- -------------------------------------------

There is no assurance a liquid secondary market will exist for any
particular options or futures contract at any particular time. Options may
have relatively low trading volume and liquidity if their strike prices are
not close to the underlying instrument's current price. In addition,
exchanges may establish daily price fluctuation limits for options and
futures contracts, and may halt trading if a contract's price moves upward
or downward more than the limit in a given day. On volatile trading days
when the price fluctuation limit is reached or a trading halt is imposed,
it may be impossible for a Fund to enter into new positions or close out
existing positions. If the secondary market for a contract is not liquid
because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the
Fund to continue to hold a position until delivery or expiration regardless
of changes in its value. As a result, the Fund's access to other assets
held to cover its options or futures positions could also be impaired.

OTC Options - Value Fund and Global Value Fund
- ----------------------------------------------

Unlike exchange-traded options, which are standardized with respect to
the underlying instrument, expiration date, contract size, and strike
price, the terms of over-the-counter options (options not traded on
exchanges) generally are established through negotiation with the other
party to the option contract. While this type of arrangement allows a Fund
greater flexibility to tailor an option to its needs, OTC options generally
involve greater credit risk than exchange-traded options, which are
guaranteed by the clearing organization of the exchanges where they are
traded. The staff of the SEC currently takes the position that OTC options
are illiquid, and investments by each Fund in those instruments are subject
to each Fund's limitation on investing no more than 10% of its assets in
illiquid instruments.

Option and Futures Relating to Foreign Currencies -
Value Fund and Global Value Fund
- --------------------------------------------------

Currency futures contracts are similar to forward currency exchange
contracts, except that they are traded on exchanges (and have margin
requirements) and are standardized as to contract size and delivery date.
Most currency futures contracts call for payment or delivery in U.S.
dollars. The underlying instrument of a currency option may be a foreign
currency, which generally is purchased or delivered in exchange for U.S.
dollars, or may be a futures contract. The purchaser of a currency call
obtains the right to purchase the underlying currency, and the purchaser of
a currency put obtains the right to sell the underlying currency.

The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed above.
The Funds may purchase and sell currency futures and may purchase and write
currency options to increase or decrease its exposure to different foreign
currencies. A Fund also may purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of
the Fund's investments. A currency hedge, for example, should protect a
Yen-denominated security from a decline in the Yen, but will not protect
the Fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of each Fund's foreign-
denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency
options and futures to the value of the Fund's investments exactly over
time. See "Foreign Currency Transactions - Value Fund and Global Value
Fund," above.

Asset Coverage for Futures and Options Positions -
Value Fund and Global Value Fund
- -------------------------------------------------

The Funds will comply with guidelines established by the SEC with
respect to coverage of options and futures strategies by mutual funds, and
if the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in
a segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of large percentage of a
Fund's assets could impede Fund management or the Fund's ability to meet
redemption requests or other current obligations.

Short Sales - Value Fund and Global Value Fund
- ----------------------------------------------

Either Fund may enter into short sales with respect to stocks
underlying its convertible security holdings. For example, if TMC
anticipates a decline in the price of the stock underlying a convertible
security a Fund holds, it may sell the stock short. If the stock price
subsequently declines, the proceeds of the short sale could be expected to
offset all or a portion of the effect of the stock's decline on the value
of the convertible security. Each Fund currently intends to hedge no more
than 15% of its total assets with short sales on equity securities
underlying its convertible security holdings under normal circumstances.
When the Fund enters into a short sale, it will be required to set aside
securities equivalent in kind and amount to those sold short (or securities
convertible or exchangeable into such securities) and will be required to
continue to hold them while the short sale is outstanding. The Funds will
incur transaction costs, including interest expense, in connection with
opening, maintaining , and closing short sales.

INVESTMENT LIMITATIONS

Investment Limitations -
Limited Term National Fund and Limited Term California Fund
- -----------------------------------------------------------

Thornburg Limited Term Municipal Fund, Inc. has adopted the following
fundamental investment policies applicable to each of Limited Term National
Fund and Limited Term California Fund which may not be changed unless
approved by a majority of the outstanding shares of each Fund. Neither
Fund may:

(1) Invest in securities other than municipal obligations (including
participations therein) and temporary investments within the percentage
limitations specified 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 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 the Fund may be deemed to have issued a senior
security by reason of (a) entering into any repurchase agreement; (b)
purchasing any securities on a when-issued or delayed delivery basis; or
(c) borrowing money in accordance with the restrictions described above;

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

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

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

(9) Make loans, other than by entering into repurchase agreements and
through the purchase of municipal obligations or temporary investments in
accordance with its investment objective, 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 or this Statement of Additional Information;

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

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

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

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

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

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

For the purpose of applying the limitations set forth in paragraphs
(2) and (12) above, an issuer shall be deemed a separate issuer when its
assets and revenues are separate from other governmental entities and its
securities are backed only by its assets and revenues. Similarly, in the
case of a nongovernmental user, such as an industrial corporation or a
privately owned or operated hospital, if the security is backed only by the
assets and revenues of the nongovernmental user, then such nongovernmental
user would be deemed to be the sole issuer. Where a security is also
guaranteed by the enforceable obligation of another entity it shall also be
included in the computation of securities owned that are issued by such
other entity. In addition, for purposes of paragraph (2) above, a
remarketing party entering into a remarketing agreement with a Fund as
described in the Prospectus or this Statement of Additional Information
shall not be deemed an "issuer" of a security or a "guarantor" of a
Municipal Lease subject to that agreement.

Neither of these Funds will purchase securities if, as a result, more
than 25% of the Fund's total assets would be invested in any one industry.
However, this restriction will not apply to purchases of (i) securities of
the United States government and its agencies, instrumentalities and
authorities, or (ii) tax exempt securities issued by different governments,
agencies, or political subdivisions, because these issuers are not
considered to be members of any one industry.

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

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

In the event the Limited Term National Fund or the Limited Term
California Fund acquires disposable assets as a result of the exercise of a
security interest relating to municipal obligations, the Fund will dispose
of such assets as promptly as possible.

Investment Limitations - Intermediate National Fund, Intermediate New
Mexico Fund, Intermediate Florida Fund and Intermediate New York Fund
- ---------------------------------------------------------------------------

Thornburg Investment Trust has adopted the following fundamental
investment policies respecting Intermediate National Fund, Intermediate New
Mexico Fund, Intermediate Florida Fund and Intermediate New York Fund,
which may not be changed as to any of these Funds unless approved by a
majority of the outstanding shares of the Fund.

(1) Invest in securities other than municipal obligations (including
participations therein) and temporary investments within the percentage
limitations specified in the Prospectus;

(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 of the single state Intermediate Funds 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;

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

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

(7) Purchase or sell real estate and real estate mortgage loans, but
this shall not prevent the 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;

(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;

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

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

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

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

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

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

Although each Fund has the right to pledge, mortgage or hypothecate
its assets, each Fund will not, as a matter of operating policy (which
policy may be changed by its Trustees without shareholder approval),
pledge, mortgage or hypothecate its portfolio securities to the extent that
at any time the percentage of pledged securities will exceed 10% of its
total assets.

In the event a Fund acquires disposable assets as a result of the
exercise of a security interest relating to municipal obligations, it will
dispose of such assets as promptly as possible.

Investment Limitations - Government Fund
- ----------------------------------------

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

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

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

(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 in the Prospectus;

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

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

(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 in
the Prospectus or this Statement of Additional Information and as limited
by the foregoing investment limitations.

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

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.

Investment Limitations - Income Fund
- ------------------------------------

As a matter of fundamental policy, 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 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.

Investment Limitations - Value Fund and Global Value Fund
- ---------------------------------------------------------

The following policies and limitations supplement those set forth in
the Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a Fund's assets that may be
invested in any security or other asset, that percentage limitation will be
determined immediately after and as a result of the Fund's acquisition of
such security or other asset. Accordingly, any subsequent change in
values, net assets, or other circumstances will not be considered when
determining whether the investment complies with the Fund's investment
policies and limitations.

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

(1) with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities) if, as a
result, (a) more than 5% of the Fund's total assets would be invested in
the securities of that issuer, or (b) the Fund would hold more than 10% of
the outstanding voting securities of that issuer;

(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;

(3) borrow money, except for temporary or emergency purposes or
except in connection with reverse repurchase agreements; in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;

(4) underwrite any issue of securities (except to the extent that the
Fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);

(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry;

(6) purchase or sell real estate unless acquired as a result or
ownership of securities or other instruments (but this shall not prevent
the Fund from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business);

(7) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not prevent
the Fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities) ; or

(8) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.

The following investment limitations are not fundamental and may be
changed without shareholder approval as to each Fund:

(i) The Fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short, and provided that transactions in
futures contracts and options are not deemed to constitute selling
securities short.

(ii) The Fund does not currently intend to purchase securities on
margin, except that the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.

(iii) The Fund may borrow money only (a) from a bank or (b) by
engaging in reverse repurchase agreements with any party. The Fund will
not purchase any security while borrowings representing more than 5% of its
total assets are outstanding.

(iv) The Fund does not currently intend to purchase any security if,
as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to legal
or contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.

(v) The Fund does not currently intend to purchase interests in real
estate investment trusts that are not readily marketable or interests in
real estate limited partnerships that are not listed on an exchange or
traded on the NASDAQ National Market System if, as a result, the sum of
such interests and other investments considered illiquid under the
limitation in the preceding paragraph would exceed the Fund's limitations
on investments in illiquid securities.

(vi) The Fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.

(vii) The Fund does not currently intend to purchase the securities
of any issuer (other than securities issue or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years of continuous operation.

(viii) The Fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of the Fund's net
assets. Included in that amount, but not to exceed 2% of the Fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
or the American Stock exchange. Warrants acquired by the Fund in units or
attached to securities are not subject to these restrictions.

(ix) The Fund does not currently intend to invest in oil, gas or
other mineral exploration or development programs or leases.

(x) The Fund does not currently intend to purchase the securities of
any issuer if those officers and Trustees of the trust and those officers
and directors of TMC who individually own more than 1/2 of 1% of the
securities of such issuer together own more than 5% of such issuer's
securities.

For each Fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions -
Value Fund and Global Value Fund."

YIELD AND RETURN COMPUTATION

Performance and Portfolio Information
- -------------------------------------

Each Fund will from time to time display performance information,
including yield, dividend returns total return, and average annual total
return, in advertising, sales literature, and reports to shareholders.
Yield is computed by dividing the Fund's net interest and dividend income
for a given 30 days or one month period by the maximum share offering price
at the end of the period. The result is "annualized" to arrive at an
annual percentage rate. In addition, the Fund may use the same method for
90 day or quarterly periods. Total return is the change in share value
over time, assuming reinvestment of any dividends and capital gains.
"Cumulative total return" describes total return over a stated period,
while "average annual total return" is a hypothetical rate of return which,
if achieved annually, would have produced the same cumulative total return
if performance had been constant for the period shown. Average annual
return tends to reduce variations in return over the period, and investors
should recognize that the average figures are not the same as actual annual
returns. The Fund may display return information for differing periods
without annualizing the results and without taking sales charges into
effect.

All performance figures are calculated separately for Class A and
Class C shares. The figures are historical, and do not predict future
returns. Actual performance will depend upon the specific investments held
by a Fund, and upon the Fund's expenses for the period.

Yield quotations 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 piece; (5) The
non-standardized return quotation may include the effective return obtained
by compounding the monthly dividends.

For the Funds' investments denominated in foreign currencies, income
and expenses are calculated first in their respective currencies, and are
then converted to U.S. dollars, either when they are actually converted or
at the end of the 30-day or one month period, whichever is earlier.
Capital gains and losses generally are excluded from the calculation as are
gains and losses from currency exchange rate fluctuations.

Income calculated for the purposes of calculating the Funds' yields
differs from income as determined for other accounting purposes. Because
of the different accounting methods used, and because of the compounding of
income assumed in yield calculations, a Fund's yield may not equal its
distribution rate, the income paid to a shareholder's account, or the
income reported in the Fund's financial statements.

Yield information may be useful in reviewing a Fund's performance and
in providing a basis for comparison with other investment alternatives.
However, each Fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.

Total returns quoted in advertising reflect all aspects of a Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value (NAV) over a
stated period. Average annual total returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in a
Fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example,
a cumulative total return of 100% over ten years would produce an average
annual return of 7.18%, which is the steady annual rate of return that
would equal 100% growth on a compounded basis in ten years. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that a Fund's performance is not constant over
time, but changes from year to year, and the average annual returns
represent averaged figures as opposed to the actual year-to-year
performance of the Fund. In addition to average annual total returns, a
Fund may quote unaveraged or cumulative total returns reflecting the simple
change in value an investment over a stated period. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar
amount, and may be calculated for a single investment, a series of
investments, or a series of redemptions, over any time period. Total
returns may be broken down into their components of income and capital
(including capital gains and changes to share price) in order to illustrate
the relationship of these factors and their contributions to total return.
Total returns may be quoted on a before-tax or after-tax basis and may be
quoted with or without taking a Fund's maximum sales charge into account.
Excluding a Fund's sales charge from a total return calculation produces a
higher total return figure. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.

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

Charts and graphs using the Fund's net asset values, adjusted net
asset values, and benchmark indices may be used to exhibit performance. An
adjusted NAV includes any distributions paid by the Fund and reflects all
elements of its return. Unless otherwise indicated, the Fund's adjusted
NAV's are not adjusted for sales charges, if any.

The Funds may illustrate performance using moving averages. A long-
term moving average is the average of each week's adjusted closing NAV or
total return for a specified period. A short-term moving average NAV is
the average of each day's adjusted closing NAV for a specified period.
Moving average activity indicators combine adjusted closing NAV's from the
last business day of each week with moving averages for a specified period
the produce indicators showing when an NAV has crossed, stayed above, or
stayed below its moving average.

Each Fund's performance may be compared to the performance of other
mutual funds in general, or to the performance of particular types of
mutual funds. These comparisons may be expressed as mutual fund ranking
prepared by Lipper Analytical Services, Inc. (Lipper), an independent
service located in Summit, New Jersey that monitors the performance of
mutual funds. Lipper generally ranks funds on the basis of total return,
assuming reinvestment of distributions, but does not take sales charges or
redemption fees into consideration, and is prepared without regard to tax
consequences. In addition to the mutual fund rankings the Fund's
performance may be compared to stock, bond, and money market mutual fund
performance indices prepared by Lipper or other organizations. When
comparing these indices, it is important to remember the risk and return
characteristics of each type of investment. For example, while stock
mutual funds may offer higher potential returns, they also carry the
highest degree of share price volatility. Likewise, money market funds may
offer greater stability of principal, but generally do not offer the higher
potential returns from stock mutual funds. From time to time, the Fund's
performance may also be compared to other mutual funds tracked by financial
or business publications and periodicals. For example, the Fund may quote
Morningstar, Inc. in its advertising materials. Morningstar, Inc. is a
mutual fund rating service that rates mutual funds on the basis of risk-
adjusted performance. Rankings that compare the performance of Thornburg
funds to one another in appropriate categories over specific periods of
time may also be quoted in advertising. Performance rankings and ratings
reported periodically in financial publications such as "MONEY" magazine,
"Forbes" and "BARRON's" also may be used. These performance analyses
ordinarily do not take sales charges into consideration and are prepared
without regard to tax consequences.

Each Fund may be compared in advertising to Certificates of Deposit
(CD's) or other investments issued by banks or other depository
institutions. Mutual funds differ from bank investments in several
respects. For example, while a Fund may offer greater liquidity or higher
potential returns than CD's, a Fund does not guarantee a shareholder's
principal or return, and Fund shares are not FDIC insured.

TMC may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs bases on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of other
Thornburg mutual funds.

Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States, including
common stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the CPI), and combinations of
various capital markets. The performance of these capital markets is based
on the returns of differed indices.

The Funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
the capital market may or may not correspond directly to those of a Fund.
A Fund may also compare performance to that of other compilations or
indices that may be developed and made available in the future, and
advertising, sales literature and shareholder reports also may discuss
aspects of periodic investment plans, dollar cost averaging and other
techniques for investing to pay for education, retirement and other goals.
In addition, a Fund may quote or reprint financial or business
publications and periodicals, including model portfolios or allocations, as
they relate to current economic and political conditions, fund management,
portfolio composition, investment philosophy, investment techniques and the
desirability of owning a particular mutual fund. A Fund may present its
fund number, Quotron (trademark) number, and CUSIP number, and discuss or
quote its current portfolio manager.

The Funds may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Funds may compare these
measures to those of other funds. Measures of volatility seek to compare a
Fund's historical share price fluctuations or total returns to those of a
benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data. In advertising, a Fund
may also discuss or illustrate examples of interest rate sensitivity.

Momentum Indicators show a Fund's price movements over specific
periods of time. Each point on the momentum indicator represents the
Fund's percentage change in price movements over that period. A Fund may
advertise examples of the effects of periodic investment plans, including
the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices
are low. While such a strategy does not assure a profit or guard against
loss in a declining market, the investor's average cost per share can be
lower than if fixed numbers of shares are purchased at the same intervals.
In evaluating such a plan, investors should consider their ability to
continue purchasing shares during periods of low price levels. The Funds
may be available for purchase through retirement plans or other programs
offering deferral of, or exemption from, income taxes, which may produce
superior after-tax returns over time. For example, a $1,000 investment
earning a taxable return of 10% annually would have an after-tax value of
$1,949 after ten years, assuming tax was deducted from the return each year
at a 31% rate. An equivalent tax-deferred investment would have an after-
tax value of $2,100 after ten years, assuming tax was deducted at a 31%
rate from the tax-deferred earnings at the end of the ten-year period.

REPRESENTATIVE PERFORMANCE INFORMATION

Representative Performance Information -
Limited Term National Fund (Class A and C)
- ------------------------------------------

The following data for Limited Term National Fund represent past
performance, and the investment return and principal value of an investment
in the Fund will fluctuate. An investor's shares, when redeemed, may be
worth more or less than their original cost.

Standardized Method of Computing Yield. The yield of the Limited Term
National Fund Class A and Class C shares for the 30-day period ended June
30, 1999, computed in accordance with the standardized calculation
described above, was 3.28% and 5.43% for Class A and Class C shares,
respectively.

Taxable Equivalent Yield. The Intermediate National Fund's taxable
equivalent yield, computed in accordance with the standardized method for
the 30-day period ending June 30, 1999, using a maximum federal tax rate of
39.6%, was 6.06% and 5.43% for Class A and Class C shares, respectively.

Average Annual Total Return. The average annual total returns for
Limited Term National Fund for Class A and Class C shares are set forth for
the periods ending June 30, 1999. Shares denoted as Class A were first
offered on September 28, 1984, and Class C shares were first offered on
September 1, 1994. This computation assumes that an investor reinvested
all dividends, and further assumes the deduction of the maximum sales
commission of 1.50% imposed on Class A shares. Class C shares are subject
to a contingent deferred sales charge if redeemed within one year of
purchase, and the one-year return figure below reflects deduction of the
sales charge. "Total return," unlike the standardized yield figures shown
above, takes into account changes in net asset value over the periods
shown.

Since
1 Year 5 Years 10 Years Inception
------ ------- -------- ---------
Class A 1.01% 4.37% 5.56% 6.60%
Class C 1.58% N/A N/A 4.16%

Representative Performance Information -
Limited Term California Fund (Class A and C)
- --------------------------------------------

The following data for Limited Term California Fund represent past
performance, and the investment return and principal value of an investment
in the fund will fluctuate. An investor's shares, when redeemed, may be
worth more or less than their original cost.

Standardized Method of Computing Yield. The Limited Term California
Fund's yields for the 30-day period ended on June 30, 1999, computed in
accordance with the standardized calculation described above, were 3.30%
and 2.94% for Class A and Class C shares, respectively. This method of
computing yield does not take into account changes in net asset value.

Taxable Equivalent Yield. The Limited Term California Fund's taxable
equivalent yield for the 30-day period ended on June 30, 1999, computed in
accordance with the standardized method described above, using a maximum
federal tax rate of 39.6% and a maximum California tax rate of 9.3%, was
6.46% and 5.75% for Class A and Class C shares, respectively.

Average Annual Total Return. The average annual total returns for
Limited Term California Fund for Class A and Class C shares are set forth
for the periods ending June 30, 1999. Shares denoted as Class A were first
offered on February 19, 1987, and Class C shares were first offered on
September 1, 1994. This computation assumes that an investor reinvested
all dividends, and further assumes the deduction of the maximum sales
charge of 1.50% imposed upon purchases of Class A shares. Class C shares
are subject to a contingent deferred sales charge if redeemed within one
year of purchase, and the one-year return figure below reflects deduction
of the sales charge. "Total return," unlike the standardized yield figures
shown above, takes into account changes in net asset value over the periods
shown.

Since
1 Year 5 Years 10 Years Inception
------ ------- -------- ---------

Class A 1.40% 4.50% 5.47% 5.67%
Class C 2.06% N/A N/A 4.39%

Representative Performance Information -
Intermediate National Fund (Class A and C)
- ------------------------------------------

The following data for Intermediate National Fund represent past
performance, and the investment return and principal value of an investment
in the Fund will fluctuate. An investor's shares, when redeemed, may be
worth more or less than their original cost.

Standardized Method of Computing Yield. The Intermediate National Fund
yields for the 30-day period ended on March 31, 1999, computed in
accordance with the standardized calculation described above, were 4.02%
and 3.68% for Class A 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 yield for 30-day period ended on March 31, 1999, computed in
accordance with the standardized method using a maximum federal tax rate of
39.6%, was 6.65% and 6.69% 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 March 31, 1999. 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 2.00% 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.

Since
1 Year 5 Years 10 Years Inception
------ ------- -------- ---------
Class A 1.24% 5.52% N/A 6.58% (7/23/91)
Class C 3.95% N/A N/A 6.88% (9/1/94)

Representative Performance Information -
Intermediate New Mexico Fund (Class D
- --------------------------------------

The following data for Intermediate New Mexico Fund represents 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 March 31, 1999,
computed in accordance with the standardized calculation described above,
was 3.75%. 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 March 31,
1999, using a maximum federal tax rate of 39.6% and a maximum New Mexico
tax rate of 8.5%, was 6.80%.

Average Annual Total Return. The Intermediate New Mexico Fund's Class
A total return figures are set forth below for the periods shown ending
March 31, 1999. Class A shares were first offered on June 21, 1991. No
figures are shown for Class D shares, which were first offered on June 1,
1999. The data for Class A shares reflect deduction of the maximum sales
charge of 2.00% upon purchase. These data assume reinvestment of all
dividends at net asset value.

Since
1 Year 5 Years 10 Years Inception
------ ------- -------- ---------
Class A 0.92% 4.89% N/A 5.96% (6/21/91)

Representative Performance Information -
Intermediate Florida Fund (Class A)
- ---------------------------------------

The following data for Intermediate Florida fund represents 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 March 31, 1999,
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 Florida Fund's taxable
equivalent yield for Class A, computed in accordance with the standardized
method described above for the 30-day period ended March 31, 1999, using a
maximum federal tax rate of 39.6%, was 5.89%.

Average Annual Total Return. The Intermediate Florida Fund's Class A
total return figures are set forth below for the periods shown ending March
31, 1999. Class A shares were first offered on February 1, 1994. The data
for Class A shares reflect deduction of the maximum sales charge of 2.00%
upon purchase. These data also assume reinvestment of all dividends at net
asset value.

Since
1 Year 5 Years 10 Years Inception
------ ------- -------- ---------
Class A 1.17% 5.20% N/A 4.56% (2/1/94)

Representative Performance Information -
Intermediate New York Fund (Class A)
- --------------------------------------

The Following Data for Intermediate New York Fund represents 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 June 30, 1999,
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 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 7.19% for the one-month period ended on June 30, 1999.

Average Annual Total Return. The Intermediate New York Fund's Class A
total return figures are set forth below for the periods shown ending June
30, 1999. Class A shares were first offered on September 4, 1997. The
data for Class A shares reflect deduction of the maximum sales charge of
2.00% upon purchase. These data also assume reinvestment of all dividends
at net asset value.

Since
1 Year 5 Years 10 Years Inception
------ ------- -------- ---------
Class A 0.33% N/A N/A 3.38% (9/4/97)

Representative Performance Information - Government Fund (Class 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.

Standardized Method of Computing Yield. Government Fund's yields for
Class A shares and Class C shares, computed for the 30-day period ended
March 31, 1999 in accordance with the standardized calculation described
above, were 5.24% and 4.87% for Class A and Class C shares, respectively.
This method of computing yield does not take into account changes in net
asset value.

Government Fund's average annual 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 March 31, 1999. 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 1.50% 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.

Since
1 Year 5 Years 10 Years Inception
------ ------- -------- ---------
Class A 2.69% 5.42% 7.00% 8.82% (11/6/87)
Class C 4.48% N/A N/A 6.00% (9/1/94)

Representative Performance Information -
Income Fund (Class A and Class C Shares)
- ------------------------------------------

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. Income Fund's yields for Class
A and Class C shares, computed for the 30-day period ended March 31, 1999
in accordance with the standardized calculation described above, were 5.36%
and 5.09% for Class A and Class C shares, respectively. This method of
computing yield does not take into account changes in net asset value.

Income Fund's average annual 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 March 31, 1999. 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 1.50% on Class A shares. Class C shares 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.

Since
1 Year 5 Years 10 Years Inception
------ ------- -------- ---------
Class A 2.27% 6.02% N/A 5.88% (10/1/92)
Class C 3.89% N/A N/A 6.40% (09/1/94)

Representative Performance Information -
Value Fund (Class A and Class C Shares)
- -----------------------------------------

Value Fund's average annual total returns for Class A 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 March
31, 1999. Value Fund commenced sales of its Class A and Class C shares on
October 2, 1995. The Class A total return figures assume the deduction of
the maximum sales charge of 4.50% on Class A shares. Class C shares are
subject to a contingent deferred sales charge of 1.00% 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 and capital gains distributions of net asset value.

Since
1 Year 5 Years 10 Years Inception
------ ------- -------- ---------
Class A 8.10% N/A N/A 27.31% (10/2/95)
Class C 12.19% N/A N/A 27.99% (10/2/95)

Representative Performance Information - Global Value Fund (Class A and
Class C Shares)
- ------------------------------------------------------------------------

Global Value Fund's average annual total returns for Class A 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 March 31, 1999. Global Value Fund commenced sales of its Class A
and Class C shares on May 28, 1998. the Class A total return figures
assume the deduction of the maximum sales charge of 4.50% on Class A
shares. Class C shares are subject to a contingent deferred sales charge
of 1.00% 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 and capital gains distributions
of net asset value.

Since
1 Year 5 Years 10 Years Inception
------ ------- -------- ---------
Class A N/A N/A N/A (9.71)% (5/28/98)
Class C N/A N/A N/A (6.22)% (5/28/98)

TAXES

Federal Income Taxes - In General

Each Fund has elected and intends to qualify for treatment as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code").

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 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.

Effective for sales charges incurred after October 3, 1989 if the
shareholder disposes of shares within 90 days after purchasing them, and
later acquires shares for which the sales charge is eliminated or reduced
pursuant to a reinvestment right, then the original sales charge to the
extent of the reduction is not included in the basis of the shares sold for
determining gain or loss. Instead, the reduction is included in
determining the basis of the reinvested shares.

Distributions by a Fund result in a reduction in the net asset value
of the Fund's shares. Should distributions reduce the net asset value below
a shareholder's cost basis, the distribution would nevertheless be taxable
to the shareholder as ordinary income or capital gain as described above,
even though, from an investment standpoint, it may constitute a partial
return of capital. In particular, investors should consider the tax
implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then
receive a partial return of capital upon the distribution, which will
nevertheless be taxable to them.

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.

Federal Income Taxation - Municipal Funds

The Municipal Funds each intend to satisfy conditions (including
requirements as to the proportion of its assets invested in municipal
obligations) which will enable each Fund to designate distributions from
the interest income generated by its investments in municipal obligations,
which are exempt from federal income tax when received by the Fund, as
Exempt Interest Dividends. Shareholders receiving Exempt Interest
Dividends will not be subject to federal income tax on the amount of those
dividends, except to the extent the alternative minimum tax may apply. A
Municipal Fund would be unable to make Exempt Interest Dividends if, at the
close of any quarter of its taxable year, more than 50% of the value of the
Fund's total assets consisted of assets other than municipal obligations.
Additionally, if in any year the Fund qualified as a regulated investment
company but failed to distribute all of its net income, the Fund would be
taxable on the undistributed portion of its net income. Although each Fund
intends to distribute all of its net income currently, it could have
undistributed net income if, for example, expenses of the Fund were reduced
or disallowed on audit.

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

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

Any net long-term capital gains realized by a Municipal Fund, whether
or not distributed in cash or reinvested in additional shares, must be
treated as long-term capital gains by shareholders regardless of the length
of time investors have held their shares. If a Fund should have net
undistributed capital gain in any year, the Fund would pay the tax on such
gains and each shareholder would be deemed, for federal tax purposes, to
have paid his or her pro rata share of such tax.

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

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

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

In addition, the Code provides that a portion of the adjusted current
earnings of a corporation reported on its financial statement and not
otherwise included in the minimum tax base will be included for purposes of
calculating the alternative minimum tax for such years. The adjusted
current earnings of a corporation will include Exempt Interest Dividends in
calculating the alternative minimum tax on corporations to the extent that
such dividends are not otherwise treated as a preference item for the
reasons discussed above.

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 Municipal Funds and their individual
shareholders, and this summary primarily addresses tax consequences to
individual shareholders. For complete provisions, reference should be made
to the pertinent Code sections and Treasury Regulations. The Code and
Treasury Regulations are subject to change by legislative or administrative
action, and any such change may be retroactive with respect to Fund
transactions. Shareholders are advised to consult their own tax advisers
for more detailed information concerning the federal taxation of the Funds
and the income tax consequences to their shareholders.

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.

State and Local Tax Aspects of the Municipal Funds
- -----------------------------------------------------

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.

The exemption from the State of California personal income taxes for
distributions of interest income in the Limited Term California Fund
applies only to shareholders who are residents of the State of California,
and only to the extent such income qualifies as "exempt-interest dividends"
under Section 17145 of the California Revenue and Taxation Code and is not
derived from interest on obligations from any state other than from
California or its political subdivisions.

Distributions by Intermediate New Mexico Fund attributable to interest
on obligations of the State of New Mexico and its political subdivisions
and their agencies (and interest on obligations of certain United States
territories and possessions) will not be subject to individual income taxes
imposed by the State of New Mexico. Capital gains distributions will be
subject to the New Mexico personal income tax.

Florida does not currently impose an individual income tax. 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 and the United States
Virgin Islands.

Distributions by Intermediate New York Fund attributable to interest
on obligations of the State of New York, its agencies and political
subdivisions (and interest on obligations of certain United States
territories and possessions) is excluded in determining the New York
adjusted gross income of individuals resident in New York. These
distributions are similarly excludable by individuals resident in New York
City for purposes of computing the New York City income tax.

Distributions by Intermediate National Fund will be subject to
treatment under the laws of the different states and local taxing
authorities. Shareholders should consult their own tax advisors in this
regard.

Investors who are not individuals are advised that the preceding
discussion relates primarily to tax consequences affecting individuals, and
the tax consequences of an investment by a person which is not an
individual may be very different. Each Fund will advise shareholders
within 60 days of the end of each calendar year as to the percentage of
income derived from each state in which the Fund has any municipal
obligations in order to assist shareholders in the preparation of their
state and local tax returns.

Federal Income Taxes - Income Funds
- ---------------------------------------

Each of the Income Funds has elected and intends to qualify for
treatment as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Distributions representing net
interest and net short-term capital gains will be taxable as ordinary
income to the recipient shareholders, whether the distributions are
actually taken in cash or are reinvested by the recipient shareholders in
additional shares. Fund distributions will not be eligible for the
dividends received deduction for corporations. Distributions of net
long-term capital gains, if any, will be treated as long-term capital gains
to the distributee shareholders, whether the distributions are actually
taken as cash or are reinvested by the recipient shareholders in additional
shares.

Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a mutual fund accrues interest
or other receivables or accrues expenses or other liabilities denominated
in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary
income or ordinary loss. Similarly, on a disposition of debt securities
denominated in a foreign currency and on disposition of certain futures
contracts, forward contracts and options, gains or losses attributable to
fluctuations in the value of foreign currency between the date of
acquisition of the security or contract and the date of disposition are
also treated as ordinary gain or loss. These gains or losses, referred to
under the Code as "Section 988" gains or losses, may increase or decrease
the amount of the Income Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.

The foregoing is a general and abbreviated summary of the provisions
of the Code and Treasury Regulations presently in effect as they directly
govern the taxation of the Taxable Income Funds and their individual
shareholders, and this summary primarily addresses tax consequences to
individual shareholders. For complete provisions, reference should be made
to the pertinent Code sections and Treasury Regulations. The Code and
Treasury Regulations are subject to change by legislative or administrative
action, and any such change may be retroactive with respect to Fund
transactions. Shareholders are advised to consult their own tax advisers
for more detailed information concerning the federal and state taxation of
the Fund and the income tax consequences to its shareholders.

State and Local Income Tax Considerations - Income Funds
- -----------------------------------------------------------

A portion of each Fund's dividends derived from certain U.S.
Government obligations may be exempt from state and local taxation. The
income tax treatment of the shareholders in the respective states will
depend upon the specific laws applicable in those states, and prospective
investors are urged to confer with their own tax advisers concerning their
particular situations.

Federal Income Taxes - Value Fund and Global Value Fund
- -----------------------------------------------------------

Gains (losses) attributable to foreign currency fluctuations are
generally taxable as ordinary income and therefore will increase (decrease)
dividend distributions. Net short-term capital gains are distributed as
dividend income. Value Fund and Global Value Fund will send each
shareholder a notice in January describing the tax status of dividends and
capital gain distributions for the prior year.

Long-term capital gains earned by the Funds on the sale of securities
and distributed to shareholders are federally taxable as long-term capital
gains, regardless of the length of time shareholders have held their
shares. If a shareholder receives a long-term capital gain distribution on
shares of the Value Fund and such shares are held 12 months or less and are
sold at a loss, the portion of the loss equal to the amount of the long-
term capital gain distribution will be considered a long-term loss for tax
purposes. Net short-term capital gains distributed by the Fund are taxable
to shareholders as dividends, not as capital gains.

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.

Foreign governments may withhold taxes on dividends and interest paid
with respect to foreign securities typically at a rate between 10% and 35%.
Foreign governments may also impose taxes on other payments or gains with
respect to foreign securities. Because Value Fund does not currently
anticipate that securities of foreign issuers will constitute more than 50%
of its total assets at the end of its fiscal year, shareholders of Value
Fund should not expect to claim a foreign tax credit or deduction on their
federal income tax returns with respect to foreign taxes withheld.

The foregoing is a general and abbreviated summary of the provisions
of the Code and Treasury Regulations currently in effect as they directly
govern the income taxation of Fund shareholders. This summary primarily
addresses income tax consequences to shareholders who are individuals. The
Code and Regulations are subject to change at any time, in some cases
retroactively. Shareholders are advised to consult their own tax advisers
for more detailed information concerning the federal tax consequences of an
investment in the Value Fund.

State and Local Income Tax Considerations -
Value Fund and Global Value Fund
- ---------------------------------------------

Shareholders may be subject to state and local taxes on Fund
distributions, and capital gains taxation on disposition of shares. Shares
also may be subject, in some jurisdictions, to state and local property
taxes. A portion of the Value Fund's dividends derived from certain U.S.
Government obligations may be exempt from state and local taxation.
Shareholders should consult their own tax advisers for information
concerning the state and local taxation of an investment in Value Fund and
Global Value Fund.

DISTRIBUTIONS AND SHAREHOLDERS ACCOUNTS

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

The monthly or quarterly distributions of interest income, net of
expenses, and the annual distributions of net realized capital gains, if
any, will be credited to the accounts of shareholders in full and
fractional shares of the Fund at net asset value on the payment or
distribution date, as the case may be. Upon written notice to the Transfer
Agent, a shareholder may elect to receive periodic distributions of net
interest income in cash. Such an election will remain in effect until
changed by written notice to the Transfer Agent, which change may be made
at any time in the sole discretion of the shareholder.

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 ADVISER, INVESTMENT ADVISORY AGREEMENTS,
AND ADMINISTRATIVE SERVICES AGREEMENTS

Investment Advisory Agreement

Pursuant to an Investment Advisory Agreement in respect of each Fund,
Thornburg Management Company, Inc. ("TMC"), 119 East Marcy Street, Suite
202, Santa Fe, New Mexico 87501, acts as investment adviser for, and will
manage the investment and reinvestment of the assets of, each of the Funds
in accordance with the Funds' respective investment objectives and
policies, subject to the general supervision and control of the directors
of Thornburg Limited Term Municipal Fund, Inc. with respect to Limited Term
National Fund and Limited Term California Fund, and subject to the general
supervision and control of the trustees of Thornburg Investment Trust with
respect to Intermediate National Fund, Intermediate New Mexico Fund,
Intermediate Florida Fund, Intermediate New York Fund, Government Fund,
Income Fund, Value Fund, and Global Value Fund. TMC is also a subadviser
to Daily Tax-Free Income Fund, Inc., a registered investment company.

TMC is paid a fee by each Fund, in the percentage amounts set forth in
the table below:

- -----------------------------------------------------------
Limited Term National Fund and Limited Term California Fund
- -----------------------------------------------------------
Net Assets of Fund Advisory Fee Rate
- ------------------ -----------------

0 to $500 million .50%
$500 million to $1 billion .40%
$1 billion to $1.5 billion .30%
$1.5 billion to $2 billion .25%
Over $2 billion .225%

- ----------------------------------------------------------------------
Intermediate National Fund, Intermediate New Mexico Fund, Intermediate
- ----------------------------------------------------------------------
Florida Fund, Intermediate New York Fund, and Income Fund
- ----------------------------------------------------------------------
Net Assets of Fund Advisory Fee Rate
- ------------------ -----------------

0 to $500 million .50%
0$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 of Fund Advisory Fee Rate
- ------------------ -----------------

0 to $1 billion .375%
$1 billion to $2 billion .325%
Over $2 billion .275%

- --------------------------------
Value Fund and Global Value Fund
- --------------------------------
Net Assets of Fund Advisory Fee Rate
- ------------------ -----------------

0 to $500 million .875%
$500 million to $1 billion .825%
$1 billion to $1.5 billion .775%
$1.5 billion to $2 billion .725%
Over $2 billion .625%

- ---------------------------------------------------------------------------
The fee paid by each Fund is allocated among the different classes of
shares offered by the Fund based upon the average daily net assets of each
class of shares. All fees and expenses are accrued daily and deducted
before payment of dividends. In addition to the fees of TMC, each Fund
will pay all other costs and expenses of its operations. Each Fund also
will bear the expenses of registering and qualifying the Fund and its
shares for distribution under federal and state securities laws, including
legal fees.

The Company's directors (including a majority of the directors who are
not "interested persons" within the meaning of the Investment Company Act
of 1940) have approved the Investment Advisory Agreement applicable to each
of Limited Term National Fund and Limited Term California Fund, and the
Trust's trustees (including a majority of the trustees who are not
"interested persons") have similarly approved the Investment Advisory
Agreement applicable to each of Intermediate National Fund, Intermediate
New Mexico Fund, Intermediate Florida Fund, Intermediate New York Fund,
Government Fund, Income Fund, Value Fund and Global Value Fund.

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

For the three most recent fiscal years with respect to each Fund, the
amounts paid to TMC by each Fund under the Investment Advisory Agreement
applicable to each Fund were as follows:

June 30, 1997 June 30, 1998 June 30, 1999
------------- ------------- -------------

Limited Term National Fund $4,159,938 $4,213,345 $4,227.634
Limited Term California Fund $496,821 $649,445 $651,326
Intermediate New York Fund N/A $19,857 $22,267

Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1998
-------------- -------------- --------------

Intermediate National Fund $1,446,809 $1,248,058 $1,855,808
Intermediate New Mexico Fund $688,883 $606,946 $752,824
Intermediate Florida Fund -0- $45,786 $99,858
Government Fund $678,979 $529,056 $521,022
Income Fund $150,436 $170,199 $228,636
Value Fund $105,914 $376,424 $1,214,207
Global Value Fund N/A N/A $22,883

TMC has waived its rights to fees in the foregoing periods as follows:

June 30, 1997 June 30, 1998 June 30, 1999
------------- ------------- -------------

Limited Term National Fund $0 0 0
Limited Term California Fund $27,360 0 $31,212
Intermediate New York Fund N/A $89,203 $104,116

Sept. 30, 1999 Sept. 30, 1997 Sept. 30,
1998
-------------- -------------- -------------

Intermediate National Fund 0 $144,709 0
Intermediate New Mexico Fund $99,214 $61,752 0
Intermediate Florida Fund $111,985 $70,565 0
Government Fund 0 0 0
Income Fund 0 0 0
Value Fund 0 0 0
Global Value Fund N/A N/A 0

The foregoing figures for the time periods before July 1, 1996 reflect,
in whole or in part, fee rates applicable before a restatement of the
Investment Advisory Agreement for each Fund, which reduced the fee rates
then 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 June 30, 1999,
Limited Term National Fund and Limited Term California Fund each reimbursed
TMC $88,975 and $13,207, respectively, for accounting expenses incurred on
behalf of each Fund, during the fiscal year ended June 30, 1999,
Intermediate New York Fund reimbursed TMC $2,407 for accounting services,
and during the fiscal year ended September 30, 1998, Intermediate National
Fund, Intermediate New Mexico Fund and Intermediate Florida Fund,
Government Fund, Income Fund and Global Value Fund each reimbursed TMC
$39,514, $16,282, $2,853, $15,952, $5,309 and $474, respectively, for
accounting services.

H. Garrett Thornburg, Jr., Treasurer, Director and Chairman of the
Board of Thornburg Limited Term Municipal Fund, Inc., and President and
Trustee of Thornburg Investment Trust, is also Director and controlling
shareholder of TMC.

Administrative Services Agreement
- ---------------------------------

Administrative services are provided to each class of shares issued by
each of the Funds under an Administrative Services Agreement which requires
the delivery of administrative functions necessary for the maintenance of
the shareholders of the class, supervision and direction of shareholder
communications, assistance and review in preparation of reports and other
communications to shareholders, administration of shareholder assistance,
supervision and review of bookkeeping, clerical, shareholder and account
administration and accounting functions, supervision or conduct of
regulatory compliance and legal affairs, review and administration of
functions delivered by outside service providers to or for shareholders,
and other related or similar functions as may from time to time be agreed.
The Administrative Services Agreement specific to each Fund's Class A,
Class C, and Class D 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 three most recent fiscal years with respect to each Fund, the
amounts paid to TMC by each Fund under the Administrative Services
Agreement applicable to Class A, Class C and Class D shares offered by each
Fund were as follows:

<TABLE>

June 30, 1997 June 30, 1998 June 30,
1999
------------- ------------- ------------
<S> <C> <C> <C>
Limited Term National Fund
Class A $1,013,060 $1,067,228 $1,032,057
Class C $21,000 $25,308 $32,214

Limited Term California Fund
Class A $108,917 $144,672 $147,428
Class C $4,366 $9,139 $10,030

Intermediate New York Fund
Class A N/A $27,265* $31,596

Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1998
-------------- -------------- --------------
Intermediate National Fund
Class A $76,163 $329,737 $421,366
Class C $2,250 $11,773 $19,241

Intermediate New Mexico Fund
Class A $40,674 $167,174 $188,206
Class D N/A N/A N/A

Intermediate Florida Fund
Class A $6,249 $29,088 $32,028

Government Fund
Class A $44,204 $170,871 $162,998
Class C $977 $4,909 $5,909

Income Fund
Class A $7,210 $33,817 $41,718
Class C $756 $5,702 $8,171

Value Fund
Class A $4,253 $48,098 $143,043
Class C $358 $5,667 $30,145

Global Value Fund
Class A N/A N/A $3,075**
Class C N/A N/A $194**

* Fiscal period September 5, 1997 to June 30, 1998
** Fiscal period May 28, 1998 to September 30, 1998

</TABLE>

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

SERVICE AND DISTRIBUTION PLANS

Service Plans - All Classes

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 and, if offered by that Fund, Class C
and Class D of the Fund. The Plan permits each Fund to pay to TMC (in
addition to the management fee and reimbursements described above) an
annual amount not exceeding .25 of 1% of the Fund's assets to reimburse TMC
for specific expenses incurred by it in connection with certain shareholder
services and the distribution of that Fund's shares to investors. 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 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.

<TABLE>
Year Ended Year Ended
June 30, 1997 June 30, 1998
------------- -------------
<S> <C> <C>
Limited Term National Fund
Class A $2,134,444 $2,064,113
Class C $50,626 $64,427

Limited Term California Fund
Class A $289,344 $294,856
Class C $18,292 $20,060

Intermediate New York Fund
Class A N/A $63,192

Year Ended Year Ended
Sept. 30, 1997 Sept. 30, 1998
------------- --------------
Intermediate National Fund
Class A $637,240 $802,947
Class C $23,542 $53,876

Intermediate New Mexico Fund
Class A $328,762 $360,716
Class D N/A N/A

Intermediate Florida Fund
Class A $52,250 $61,932

Government Fund
Class A $330,420 $315,717
Class C $982 $49,021

Income Fund
Class A $64,185 $78,430
Class C $11,411 $35,704

Value Fund
Class A $96,195 $286,087
Class C $11,354 $182,569

Global Value Fund
Class A N/A $6,151
Class C N/A $397

</TABLE>

Class C Distribution Plan

Each Fund offering 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"). 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.

Each of the Funds named below paid to TSC or for the account of TSC
the amounts shown in the table below under the Class C Distribution Plan
for each of those Funds for the fiscal years shown below. All amounts
received by or for TSC under the Plan were paid principally as compensation
(as reimbursed for compensatory previously paid) to securities dealers and
other persons selling the Funds' shares.

<TABLE>
Year Ended Year Ended
June 30, 1998 June 30, 1999
------------- -------------
<S> <C> <C>
Limited Term National Fund $75,916 $96,641
Limited Term California Fund $63,985 $30,091

Year Ended Year Ended
Sept. 30, 1997 Sept. 30, 1998
-------------- --------------

Intermediate National Fund $32,968 $38,480
Government Fund $9,816 $11,816
Income Fund $11,396 $16,341
Value Fund $34,063 $60,750
Global Value Fund N/A $1,152

</TABLE>

PORTFOLIO TRANSACTIONS

All orders for the purchase or sale of portfolio securities are placed
on behalf of each of the Funds by TMC pursuant to its authority under each
Fund's investment advisory agreement. TMC also is responsible for the
placement of transaction orders for other clients for whom it acts as
investment adviser.

TMC, in effecting purchases and sales of portfolio securities for the
account of each of the Municipal Funds and the Income Funds, place orders
in such a manner as, in the opinion of TMC, offers 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.

Similarly, TMC places orders for transactions in portfolio securities
for Value Fund and Global Value Fund in such a manner as, in the opinion of
TMC, will offer the best price and market for the execution of these
transactions. In selecting broker dealers, subject to applicable legal
requirements, TMC considers various relevant factors, including, but not
limited to: the size and type of the transaction; the nature and character
of the markets for the security to be purchases or sold; the execution
efficiency, settlement capability, and financial condition of the broker-
dealer firm; the broker-dealer's execution services rendered on a
continuing basis; and the reasonableness of any commissions; and
arrangements for payment of Fund expenses. Generally commissions for
foreign investments traded will be higher than for U.S. investments and may
not be subject to negotiation.

TMC may execute a Fund's portfolio transactions with broker-dealers
who provide research and execution services to the Fund. Such services may
include advice concerning the value of securities; the availability of
securities or the purchasers or sellers of securities; furnishing analyses
and reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; and effecting
securities transactions and performing functions incidental thereto (such
as clearance and settlement). The selection of such broker-dealers is made
by TMC based upon the quality of such research and execution services
provided. The receipt of research from broker-dealers who execute
transactions on behalf of the Funds may be useful to TMC in rendering
investment management services to the Funds. The receipt of such research
may not reduce TMC's normal independent research activities; however, it
may enable TMC to avoid the additional expenses that could be incurred if
TMC tried to develop comparable information through its own efforts.

Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause a
Fund to pay such higher commissions, TMC must determine in good faith that
such commissions are reasonable in relation to the value of the brokerage
and research services provided by the executing broker-dealers, viewed in
terms of a particular transaction or TMC's overall responsibilities to the
Fund. In reaching this determination, TMC will not attempt to place a
specific dollar value on the brokerage and research services provided, or
to determine what portion of the compensation would be related to those
services.

TMC is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the Funds to the extent permitted by law.
TMC may use research services provided by and place agency transactions
with Thornburg Securities Corporation (TSC) if the commissions are fair,
reasonable, and comparable to commissions charged by non-affiliated,
qualified brokerage firms for similar services. TMC may allocate brokerage
transactions to broker-dealers who have entered into arrangements with TMC
under which the broker-dealer allocates a portion of the commissions paid
by the Fund toward payment of the Fund's expenses, such as transfer agent
fees or custodian fees. The transaction quality must, however, be
comparable to those of other qualified broker-dealers.

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

The Directors and Trustees of the respective Funds periodically review
TMC's performance of its responsibilities in connection with the placement
of portfolio transactions for the Funds.

Portfolio Turnover Rates

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

<TABLE>

Year ended Year ended
June 30, 1998 June 30, 1999
------------- -------------

Limited Term National Fund 24.95% 22.16%
Limited Term California Fund 21.21% 21.71%
Intermediate New York Fund 42.27%* 9.06%

Year ended Year ended
Sept. 30, 1997 Sept. 30, 1998
-------------- --------------
<S> <C> <C>
Intermediate National Fund 15.36% 16.28%
Intermediate New Mexico Fund 10.06% 13.67%
Intermediate Florida Fund 51.48% 71.15%
Government Fund 41.10% 29.81%
Income Fund 13.87% 40.75%
Value Fund 78.83% 99.55%
Global Value Fund N/A 44.66%**

* Fiscal period from September 4, 1997 to June 30, 1998.
** Fiscal period from May 28, 1998 to September 30, 1998.

</TABLE>

Limited Term National Fund and Limited Term California Fund

Limited Term National Fund and Limited Term California Fund are separate
"series" or investment portfolios of Thornburg Limited Term Municipal Fund,
Inc., a Maryland corporation (the "Company"). The management of Limited Term
National Fund and Limited Term California Fund, including general supervision
of TMC's performance of duties under the Investment Advisory Agreement and
Administrative Services Agreements applicable to the Funds, is the
responsibility of the Board of Directors of the Company. There are five
Directors of the Company, one of whom is an "interested person" (as the term
"interested" is defined in the Investment Company Act of 1940) and four of
whom are "disinterested" persons. The names of the Directors and officers
and their principal occupations and other affiliations during the past five
years are set forth below, with those Directors who are "interested persons"
of the Company indicated by an asterisk:

H. Garrett Thornburg, Jr., 53 Director Trustee of Thornburg
Chairman Investment Trust since June,
and Treasurer 1987, Chairman of Trustees
since September 1998 and
President from 1987 to 1998;
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; a Director and Treasurer
of TMC since its formation in
1982 and President from 1982
to August 1997.

J. Burchenal Ault, 71 Director Consultant to and fundraiser
for charities, 1990 to
present; Trustee of Thornburg
Investment Trust since June
1987; Director of Farrar,
Strauss & Giroux (publishers)
since 1968.

Eliot R. Cutler, 51 Director Partner, Cutler & Stanfield,
Attorneys, Washington, D.C.
since 1988.

James E. Monaghan, Jr., 50 Director President, Monaghan &
Associates, Inc. and
Strategies West, Inc. Denver,
Colorado, (business
consultants) since 1983.

A.G. Newmyer III, 49 Director of the Company; President,
from 1983 to December 1992,
and Senior Officer from
January 1993, Newmyer
Associates, Inc., Washington,
D.C., (business consultants).

Richard M. Curry, 58 Advisory Director Director of the Company from
1984 to 1997; Senior Vice
President McDonald & Co.,
Cincinnati, Ohio (securities
dealers) since May 1984.

Brian J. McMahon, 43 President Vice President of Thornburg
Investment Trust from June
1987 to September 1998, a
Trustee from June, 1996 to
August 1997 and President
since September 1998; Managing
Director of TMC since December
1985, Vice President from
April 1984 to July 1997 and
President from August 1997.

Steven J. Bohlin, 39 Vice President Vice President of Thornburg
Investment Trust since June
1987 and Treasurer since 1989;
a Managing Director and a Vice
President of TMC since 1991.

Dawn B. Fischer, 51 Secretary Secretary and Assistant
Treasurer of Thornburg
Investment Trust since June
1987; Managing Director of TMC
since December 1985 and Vice
President and Secretary of TMC
since January 1984.

George Strickland, 35 Assistant Vice Vice President of Thornburg
President Investment Trust; Associate of
TMC from 1991 to 1996 and a
Managing Director since 1996;
Vice President of TMC since
December 1995.

Leigh Moiola, 31 Assistant Vice Assistant Vice President of
President Thornburg Investment Trust
since November 1995; Associate
of TMC since December 1991 and
Vice President of TMC since
November 1995.

William Fries, 58 Vice President Managing Director of TMC since
1995 and Vice President of
Thornburg Investment Trust
since 1995; Vice President of
USAA Investment Management
Company from 1982 to 1995.

Ken Ziesenheim, 44 Vice President Managing Director of TMC since
1995; Vice President of
Thornburg Investment Trust
since 1995; President of
Thornburg Securities
Corporation since 1995; Senior
Vice President of Financial
Services, Raymond James &
Associates, Inc. from 1991 to
1995.

Jonathan Ullrich, 29 Assistant Vice Assistant Vice President of
President Thornburg Investment Trust
since 1992; Associate of TMC
since September 1991 and
Assistant Vice President since
December 1995.

Jack Lallement, 60 Assistant Vice Assistant Vice President of
President Thornburg Investment Trust
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, 28 Assistant Vice Assistant Vice President of
President Thornburg Investment Trust
since September 1997; Fund
Accountant for TMC since 1993;
BBA, University of New Mexico,
1993.

Van Billops, 33 Assistant Vice Assistant Vice President of
President Thornburg Investment Trust
since September 1997; Fund
Accountant for TMC since 1992.

Dale Van Scoyk, 51 Assistant Vice Assistant Vice President of
President Thornburg Investment Trust
since 1997; Account
Manager for TMC since 1997;
National Account Manager for
the Heartland Funds 1993 -
1997.

Sophia Franco, 28 Assistant Vice Assistant Vice President of
President Thornburg Investment Trust
since 1998; Associate of TMC
since 1994.

Claiborne Booker, 37 Assistant Vice Assistant Vice President of
President Thornburg Investment Trust
since 1998; Associate of TMC
since 1998; Partner, Brinson
Partners, Inc., 1994 - 1997.

Kerry Lee, 32, Assistant Vice Assistant Vice President of
President Thornburg Investment Trust
since 1998; Associate of TMC
since 1995.

Richard Brooks, 52, Assistant Vice Assistant Vice President of
President Thornburg Investment Trust
since 1998; Associate of TMC
since 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 Executive Vice President of Daily Tax-Free Income Fund, Inc. Mr.
Ziesenheim is president of TSC, and Ms. Fischer is secretary of TSC.

The officers and Directors affiliated with TMC will serve without any
compensation from the Company. The Company pays each Director who is not
an employee of TMC or an affiliated company a quarterly fee of $1,000 plus
a $500 fee for each meeting of the Board of Directors attended by the
Director. In addition, the Company pays a $1,000 annual stipend to each
member of the audit committee, and reimburses all Directors for travel and
out-of-pocket expenses incurred in connection with attending such meetings.

The Company paid fees to the Directors and the Advisory Director during
the year ended June 30, 1999 as follows:

<TABLE>
Pension or
Retirement Estimated Total
Aggregate Benefits Annual Compensation
Name of Compensation Accrued as Benefits from Company and
Person, from Part of Upon Fund Complex
Position Company Fund Expenses Retirement Paid to Directors
- -------- ------------ ------------- ------------- -----------------
<S> <C> <C> <C> <C>
H. Garrett 0 0 0 0
Thornburg,
Jr.

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

Eliot R. $6,000 0 0 $ 6,000
Cutler

James E. $6,500 0 0 $ 6,500
Monaghan, Jr.

A. G. $7,000 0 0 $ 7,000
Newmyer, III

Richard M. $5,500 0 0 $ 5,500
Curry
(Advisory Director)

</TABLE>

The Company does not pay retirement or pension benefits.

Intermediate National Fund; Intermediate New Mexico Fund; Intermediate
Florida Fund; Intermediate New York Fund; Government Fund; Income Fund;
Value Fund; and Global Value Fund

Intermediate National Fund, Intermediate New Mexico Fund; Intermediate
Florida Fund; Intermediate New York Fund; Government Fund, Income Fund, Value
Fund and Global Value Fund are separate "series" or investment portfolios of
Thornburg Investment Trust, a Massachusetts business trust (the "Trust").
The management of these Funds, including the general supervision of TMC's
performance of its duties under the Investment Advisory Agreements and
Administrative Services Agreements applicable to the Funds, is the
responsibility of the Trust's Trustees. There are five Trustees, one of whom
is an "interested person" (as the term "interested" is defined in the
Investment Company Act of 1940) and four of whom are "disinterested" persons.
The names of Trustees and officers and their principal occupations and
affiliations during the past five years are set forth below, with the Trustee
who is an "interested person" of the Trust indicated by an asterisk.

H. Garrett Thornburg, Jr.,* 53 Trustee Chairman of Trustees; Director,
Chairman (since 1987) and
Treasurer (since its inception
in 1984) of Thornburg Limited
Term Municipal Fund, Inc.;
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, 52 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, 71 Trustee Independent Fund Raising
Counsel; 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, 67 Trustee Attorney in private practice
and shareholder Catron, Catron
& Sawtell (law firm), Santa Fe,
New Mexico.

James W. Weyhrauch, 39 Trustee Executive Vice President and
Director, Nambe' Mills, Inc.
(manufacturer), Santa Fe, New
Mexico.

Brian J. McMahon, 43 President President of Thornburg Limited
Assistant Secretary Limited Term Municipal Fund,
Inc. since 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, 39 Vice President Vice President of Thornburg
Treasurer Limited Term Municipal Fund,
Inc. since 1988; a Managing
Director and a Vice President
of TMC.

Dawn B. Fischer, 51 Secretary Secretary of Thornburg Limited
Assistant Treasurer Term Municipal Fund, Inc. since
its formation in 1984; Vice
President, Daily Tax Free
Income Fund, Inc. (Mutual Fund)
since 1989; Managing Director
of TMC since 1985 and a Vice
President since January 1984.

William Fries, 58 Vice President Managing Director of TMC since
1995 and Vice President of
Thornburg Limited Term
Municipal Fund, Inc. since
1995; Vice President
of USAA Investment Management
Company from 1982 to 1995.

Ken Ziesenheim, 44 Vice President Managing Director of TMC since
1995; 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, 35 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.

Leigh Moiola, 31 Assistant Vice Assistant Vice President of
President Thornburg Limited Term
Municipal Fund, Inc. since
1997; Vice President of TMC
since 1995 and Managing
Director commencing in 1998.

Jonathan Ullrich, 29 Assistant Vice Assistant Vice President of
President Thornburg Limited Term
Municipal Fund, Inc. since July
1992.

Jack Lallement, 60 Assistant Vice Assistance Vice President of
President 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, 28 Assistant Vice Assistant Vice President of
President Thornburg Limited Term
Municipal Fund, Inc. since
1997; Fund Accountant for TMC
since 1994; BBA, University of
New Mexico, 1993.

Van Billops, 33 Assistant Vice Assistant Vice President of
President Thornburg Limited Term
Municipal Fund, Inc. since
1997; Fund Accountant for TMC
since 1993.

Dale Van Scoyk, 51 Assistant Vice Assistant Vice President of
President Thornburg Limited Term
Municipal Fund, Inc. since
1997; Account Manager for TMC
since 1997; National Account
Manager for the Heartland Funds
1993 - 1997.

Sophia Franco, 28 Assistant Vice Assistant Vice President of
President Thornburg Limited Term
Municipal Fund, Inc. since
1998; Associate of TMC since
1994.

Claiborne Booker, 37 Assistant Vice Assistant Vice President of
President Thornburg Limited Term
Municipal Fund, Inc. since
1998; Associate of TMC since
1998; Partner, Brinson
Partners, Inc., 1994 - 1997.

Kerry Lee, 32 Assistant Vice Assistant Vice President of
President Thornburg Limited Term
Municipal Fund, Inc. since
1998; Associate of TMC since
1995.

Richard Brooks, 52 Assistant Vice Assistant Vice President of
President Thornburg Limited Term
Municipal Fund, Inc. since
1998; Associate of TMC since
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 a
Chairman and Treasurer of Thornburg Limited Term Municipal Fund, Inc. Mr.
Ziesenheim and Ms. Fischer are president and secretary, respectively, of
TSC.

The officers and Trustees affiliated with TMC serve without any
compensation from the Trust. The Trust pays each Trustee who is not an
employee of TMC or an affiliated person a quarterly fee of $1,000 plus $500
for each meeting of the Trustees attended by the Trustee. In addition, the
Trust pays a $1,000 annual stipend to each member of each committee
established by the Trustees, and reimburses all Trustees for travel and
out-of-pocket expenses incurred in connection with attending those
meetings. The Trustees have established one committee, the audit committee,
on which Messrs. Ater, Ault and Smith currently serve.

The Trust paid fees to the Trustees during the year ended September
30, 1998 as follows:

<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
- -------- ------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C>
H. Garret
Thornburg, Jr. 0 0 0 0

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.

PRINCIPAL HOLDERS OF SECURITIES

Limited Term National Fund

As of August 5, 1999, Limited Term National Fund had an aggregate of
68,445,505.6 shares outstanding, of which 60,405,607.913 were Class A
shares and 2,019,105.853 were Class C shares. No persons are known to have
held of record or beneficially 5% or more of Limited Term National Fund's
outstanding shares on August 5, 1999. On the same date, the officers,
Directors and related persons of Thornburg Limited Term Municipal Fund,
Inc., as a group, held less than one percent of the outstanding shares of
the Fund.

Limited Term California Fund

As of August 5, 1999, Limited Term California Fund had an aggregate of
10,473,292.438 shares outstanding, of which 8,808,015.655 were Class A
shares and 635,220.376 were Class C shares. No persons are known to have
held of record or beneficially 5% or more of Limited Term California Fund's
outstanding shares on August 5, 1999. On the same date, the officers,
Directors and related persons of Thornburg Limited Term Municipal Fund,
Inc., as a group, held less than one percent of the outstanding shares of
the Fund.

Intermediate National Fund

As of August 5, 1999, Intermediate National Fund had an aggregate of
32,267,110.845 shares outstanding, of which 28,328,188.989 were Class A
shares and 2,387,694.369 were Class C shares. On August 5, 1999 the
officers, Trustees and related persons of Thornburg Investment Trust, as a
group, held less than one percent of the outstanding shares of the Fund.

As of the same date, the following person owned 5% or more of
Intermediate National Fund's outstanding shares:

No of % of
Shareholder Shares Total Shares
- ----------- ------ ------------

BancOne Securities Corp. 4,589,999.154 14.23%
FBO The One Investment Solution
733 Greencrest Drive
Westerville, Ohio 43081

Intermediate New Mexico Fund

As of August 5, 1999, Intermediate New Mexico Fund had 1,303,265.941
shares outstanding, of which 1,216,660.658 were Class A shares. On August
5, 1999, the officers, Trustees and related persons of Thornburg Investment
Trust, as a group, held less than one percent of the Fund's outstanding
shares. As of the same date, the following person owned 5% or more of
Intermediate New Mexico Fund's outstanding shares:

No of % of
Shareholder Shares Total Shares
- ----------- ------ ------------

MLPF&S for the Benefit 750,886.682 5.76%
of Its Customers
4800 Deer Lake Dr E FL 2
Jacksonville, Florida 32246

Intermediate Florida Fund

As of August 5, 1999, Intermediate Florida Fund had 2,566,017.911
shares outstanding, all of which were Class A shares. On August 5, 1999,
the officers, Trustees and related persons of Thornburg Investment Trust,
as a group, held less than one percent of the Fund's outstanding shares.
As of the same date, the following persons owned 5% or more of Intermediate
Florida Fund's outstanding shares:

No of % of
Shareholder Shares Total Shares
- ----------- ------ ------------

BT Alex Brown, Inc. 134,853.044 5.26%
P.O. Box 1346
Baltimore, Maryland 21203

MLPF&S for the Sale 191,341.968 7.46%
Benefit of its Customers
4800 Deer Lake Dr E FL 2
Jacksonville, Florida 32246

Intermediate New York Fund

As of August 5, 1999, Intermediate New York Fund had 2,011,897.310
shares outstanding, all of which were Class A shares. On August 5, 1999,
the officers, Trustees and related persons of Thornburg Investment Trust,
as a group, held less than one percent of the Fund's outstanding shares.
As of the same date, no persons were known to have held or record or
beneficially 5% or more of the Fund's outstanding shares.

Government Fund
As of August 5, 1999, Government Fund had an aggregate of
10,639,084.264 shares outstanding, of which 9,594,469.663 were Class A
shares and 624,923.048 were Class C shares. No persons are known to have
held of record or beneficially 5% or more of Government Fund's outstanding
shares on August 4, 1999. On the same date, the officers, Trustees and
related persons of Thornburg Investment Trust, as a group, held less than
one percent of the outstanding shares of the Fund.

Income Fund
As of August 5, 1999, Income Fund had an aggregate of 4,684,917.73
shares outstanding, of which 3,215,365.972 were Class A shares and
625,501.880 were Class C shares. As of August 5, 1999, officers and
Trustees of the Trust as a group, together with related persons, owned less
than one percent of the Fund's outstanding shares. As of the same date, no
persons are known to have held of record or beneficially 5% or more of the
Fund's outstanding shares.

Value Fund
As of August 5, 1999, Value Fund had an aggregate of 19,101,241.642
shares outstanding, of which 12,872,076.223 were Class A shares and
4,479,474.296 were Class C shares. On August 5, 1999, the officers,
Trustees and related persons owned 506,178.251 shares of Value Fund,
representing approximately 2.65% of the Fund's issued and outstanding
shares. As of the same date, no persons are known to have held of record
or beneficially 5% or more of the Fund's outstanding shares.

NET ASSET VALUE

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

DISTRIBUTOR

Pursuant to a Distribution Agreement with Thornburg Limited Term
Municipal Fund, Inc., Thornburg Securities Corporation ("TSC") acts as
principal underwriter of Limited Term National Fund and Limited Term
California Fund shares, and pursuant to a separate Distribution Agreement
with Thornburg Investment Trust, TSC also acts as principal underwriter for
Intermediate National Fund, Intermediate New Mexico Fund, Intermediate
Florida Fund, Intermediate New York Fund, Government Fund, Income Fund,
Value Fund and Global Value Fund. The Funds do not bear selling expenses
except (i) those involved in registering its shares with the Securities and
Exchange Commission and qualifying them or the Fund with state regulatory
authorities, and (ii) expenses paid under the Service Plans and which might
be considered selling expenses. Terms of continuation, termination and
assignment under the Distribution Agreement are identical to those
described above with regard to the Investment Advisory Agreements, except
that termination other than upon assignment requires six months' notice.

H. Garrett Thornburg, Jr., Treasurer, a Director and Chairman of the
Board of Thornburg Limited Term Municipal Fund, Inc. and President and a
Trustee of Thornburg Investment Trust, is also Director and controlling
stockholder of TSC.

The following table shows the commissions and other compensation
received by TSC from each of the Funds for the fiscal years shown, except
for amounts paid under Rule 12b-1 plans, which are described above under
the caption "Service and Distribution Plans."

<TABLE>

Aggregate Net Underwriting
Year Underwriting Discounts and Commissions Compensation on Brokerage Other
Ended Fund Commissions Paid to TSC Redemptions and Repurchases Commissions Compensation
- ----- ---- ------------ -------------------------- --------------------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
6/30/98 Limited Term
National Fund $669,745 $104,037 $2,946 -0- *

Limited Term
California Fund $89,135 $11,884 $1,807 -0- *

Intermediate
New York Fund $11,478 $1,380 -0- -0- *

6/30/99 Limited Term
National Fund $543,696 $84,513 $10,880 -0- *

Limited Term
California Fund $93,857 $14,173 782 -0- *

Intermediate
New York Fund $30,828 $3,578 -0- -0- *

9/30/99 Intermediate
National Fund $759,925 $85,221 $8,535 -0- *

Intermediate
New Mexico Fund $319,131 $37,140 -0- -0- *

Intermediate
Florida Fund $103,044 $12,481 -0- -0- *

Government Fund $133,824 $18,119 $1,793 -0- *

Income Fund $141,380 $18,484 $6,628 -0- *

Global Value Fund N/A N/A N/A N/A N/A

9/30/98 Intermediate
National Fund $704,602 $82,991 $53,715 -0- *

Intermediate
New Mexico Fund $396,130 $43,019 -0- -0- *

Intermediate
Florida Fund $109,057 $16,479 -0- -0- *

Government Fund $144,896 $19,451 $2,108 -0- *

Income Fund $109,057 $16,479 $2,584 -0- *

Value Fund $1,847,274 $225,963 $341,070 -0- *

Global Value
Fund ** $70,592 $8,959 $8,112 -0- *'

* See "Service and Distribution Plans
** Period from May 28, 1998 to September 30, 1998

</TABLE>

INDEPENDENT AUDITORS

McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017,
is the independent auditor of the Limited Term National Fund and Limited
Term California Fund for their fiscal year ending June 30, 1999, and is the
independent auditor of Intermediate National Fund, Government Fund, Income
Fund and Value Fund for their fiscal year ending September 30, 1999.

FINANCIAL STATEMENTS

Statements of Assets and Liabilities, including Schedules of
Investments, as of June 30, 1999, Statements of Operations for the year
ended June 30, 1999 and Statements of Changes in Net Assets for the two
years in the period ended June 30, 1999, Notes to Financial Statements and
Financial Highlights, and Independent Auditor's Reports dated July 27,
1999, for Limited Term National Fund and Limited Term California Fund are
incorporated herein by reference from the Funds' Annual Reports to
Shareholders, June 30, 1999.

Statements of Assets and Liabilities, including Schedules of
Investments, as of June 30, 1999, Statements of Operations for the year
ended June 30, 1999 and Statements of Changes in Net Assets for the period
ended June 30, 1999 Notes to Financial Statements and Financial Highlights,
and Independent Auditor's Reports dated July 27, 1999, for Intermediate New
York Fund are incorporated herein by reference from the Funds' Annual
Reports to Shareholders, June 30, 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 and Statements of Changes in Net Assets for
the two years in the period ended September 30, 1998 (one year for Value
Fund and period ending September 30, 1998 for Global Value Fund), Notes to
Financial Statements and Financial Highlights, and Independent Auditor's
Reports dated October 24, 1998, for Government Fund, Income Fund,
Intermediate National Fund, Intermediate New Mexico Fund, Intermediate
Florida Fund, Value Fund and Global Value Fund, are incorporated herein by
reference from the Funds' Annual Reports to Shareholders, September 30,
1998.

Statements of Assets and Liabilities, including Schedules of
Investments, as of March 31, 1999, Statements of Operations for the six
months ended March 31, 1999 and Statements of Changes in Net Assets for the
year ended September 30, 1998 and six months period ended March 31, 1999
(period ended September 30, 1998 and six month period ended March 31, 1999
for Global Value Fund), Notes to Financial Statements and Financial
Highlights, for Government Fund, Income Fund, Intermediate National Fund,
Intermediate New Mexico Fund, Intermediate Florida Fund, Value Fund and
Global Value Fund, are incorporated herein by reference from the Funds'
Semiannual Reports to Shareholders, March 31, 1999.

<PAGE>
<PAGE>
Statement of Additional Information
for
Institutional Class Shares
of
Thornburg Limited Term Municipal Fund National Portfolio
("Limited Term National Fund")
Thornburg Limited Term Municipal Fund California Portfolio
("Limited Term California Fund")
Thornburg Intermediate Municipal Fund
("Intermediate National Fund")
Thornburg Limited Term U.S. Government Fund
("Government Fund")
Thornburg Limited Term Income Fund
("Income Fund")
Thornburg Value Fund
("Value Fund")

119 East Marcy Street, Suite 202
Santa Fe, New Mexico 87501

Thornburg Limited Term Municipal Fund National Portfolio ("Limited Term
National Fund") and Thornburg Limited Term Municipal Fund California
Portfolio ("Limited Term California Fund") are investment portfolios
established by Thornburg Limited Term Municipal Fund, Inc. (the "Company"),
and Thornburg Intermediate Municipal Fund ("Intermediate National Fund"),
Thornburg Limited Term U.S. Government Fund ("Government Fund"), Thornburg
Limited Term Income Fund ("Income Fund") and Thornburg Value Fund ("Value
Fund") are investment portfolios established by Thornburg Investment Trust
(the "Trust"). This Statement of Additional Information relates to the
investments made or proposed to be made by the Funds, investment policies
governing the Funds, the Funds' management, and other issues of interest to a
prospective purchaser of Institutional Class shares offered by the Funds.

This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Funds' Institutional Class Prospectus dated
November 1, 1999. A copy of the Institutional Class Prospectus for the Funds
and the most recent Annual and Semiannual Reports for each of the Funds may
be obtained at no charge by writing to the distributor of the Funds'
Institutional Class shares, Thornburg Securities Corporation, at 119 East
Marcy Street, Suite 202, Santa Fe, New Mexico 87501.

Prior to June 28, 1985 the Company's name was "Tax-Free Municipal Lease
Fund, Inc."; and prior to October 1, 1995, the Trust's name was "Thornburg
Income Trust."

The date of this Statement of Additional Information is November 1,
1999.

<PAGE>
TABLE OF CONTENTS

ORGANIZATION OF THE FUNDS . . . . . . . . . . . . . . . . . . .__

INVESTMENT POLICIES. . . . . . . . . . . . . . . . . . . . . . __
MUNICIPAL FUNDS. . . . . . . . . . . . . . . . . . . . . . . __
TAXABLE INCOME FUNDS . . . . . . . . . . . . . . . . . . . . __
VALUE FUND. . . . . . . . . . . . . . . . . . . . . . . . . __

INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . __
Investment Limitations - Limited Term National Fund
and Limited Term California Fund . . . . . . . . . . . . .__
Investment Limitations - Intermediate National Fund. . . . __
Investment Limitations - Government Fund . . . . . . . . . __
Investment Limitations - Income Fund . . . . . . . . . . . __
Investment Limitations - Value Fund. . . . . . . . . . . . __

YIELD AND RETURN COMPUTATION . . . . . . . . . . . . . . . . . __
Performance and Portfolio Information - Municipal
Funds and Taxable Income Funds . . . . . . . . . . . . . .__
Performance and Portfolio Information - Value Fund . . . . __

REPRESENTATIVE PERFORMANCE INFORMATION . . . . . . . . . . . . __
Representative Performance Information - Limited Term
National Fund (Institutional Class) . . . . . . . . . . . __
Representative Performance Information - Limited Term
California Fund (Institutional Class) . . . . . . . . . . __
Representative Performance Information - Intermediate
National Fund (Institutional Class) . . . . . . . . . . . __
Representative Performance Information - Government Fund
(Institutional Class) . . . . . . . . . . . . . . . . . . __
Representative Performance Information - Income Fund
(Institutional Class) . . . . . . . . . . . . . . . . . . __

TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . __
Federal Income Taxes - In General. . . . . . . . . . . . . __
Federal Income Taxation - Municipal Funds. . . . . . . . . __
State and Local Tax Aspects of the Municipal Funds . . . . __
Federal Income Taxes - Taxable Income Funds. . . . . . . . __
State and Local Income Tax Considerations - Taxable
Income Funds . . . . . . . . . . . . . . . . . . . . . . .__
Federal Income Taxes - Value Fund. . . . . . . . . . . . . __
State and Local Income Tax Considerations - Value Fund . . __

DISTRIBUTIONS AND SHAREHOLDERS ACCOUNTS. . . . . . . . . . . . __

INVESTMENT ADVISER, INVESTMENT ADVISORY AGREEMENT, AND
ADMINISTRATIVE SERVICES AGREEMENT. . . . . . . . . . . . . . . __
Investment Advisory Agreement. . . . . . . . . . . . . . . __
Administrative Services Agreement. . . . . . . . . . . . . __

SERVICE PLANS. . . . . . . . . . . . . . . . . . . . . . . . . __

i
<PAGE>
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . __
In General . . . . . . . . . . . . . . . . . . . . . . . . __
Municipal Funds and Taxable Income Funds . . . . . . . . . __
Value Fund . . . . . . . . . . . . . . . . . . . . . . . . __
Portfolio Turnover Rates . . . . . . . . . . . . . . . . . __

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . __
Limited Term National Fund and
Limited Term California Fund. . . . . . . . . . . . . . . __
Intermediate National Fund; Government Fund;
Income Fund; Value Fund . . . . . . . . . . . . . . . . . __

PRINCIPAL HOLDERS OF SECURITIES. . . . . . . . . . . . . . . . __
Limited Term National Fund . . . . . . . . . . . . . . . . __
Limited Term California Fund . . . . . . . . . . . . . . . __
Intermediate National Fund . . . . . . . . . . . . . . . . __
Government Fund. . . . . . . . . . . . . . . . . . . . . . __
Income Fund. . . . . . . . . . . . . . . . . . . . . . . . __
Value Fund . . . . . . . . . . . . . . . . . . . . . . . . __

NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . . __

DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . __

INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . __

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . __

<PAGE> ORGANIZATION OF THE FUNDS

Limited Term National Fund and Limited Term California Fund are
diversified series of Thornburg Limited Term Municipal Fund, Inc., a Maryland
corporation organized in 1984 as a diversified, open-end management
investment company (the "Company"). The Company currently offers two series
of stock, Limited Term National Fund and Limited California Fund, each in
multiple classes, and the Board of Directors is authorized to divide
authorized but unissued shares into additional series and classes.

Intermediate Municipal Fund, Government Fund and Value Fund are
diversified series of Thornburg Investment Trust, a Massachusetts business
trust (the "Trust") organized on June 3, 1987 as a diversified, open-end
management investment company under a Declaration of Trust (the
"Declaration"). The Trust currently has 14 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.

The assets received for the issue or sale of shares of each Fund and all
income, earnings, profits, and proceeds thereof, subject only to the rights
of creditors, are especially allocated to the Fund, and constitute the
underlying assets of that Fund. The underlying assets of each Fund are
segregated on the books of account, and are to be charged with the
liabilities with respect to that Fund and with a share of the general expense
of the Company (if the Fund is a series of the Company), or of the Trust.
Expenses with respect to the Company and the Trust are to be allocated in
proportion in the asset value of the respective series and classes of the
Company or the Trust except where allocations of direct expense can otherwise
be fairly made. The officers of the Company, subject to the general
supervision of the Company's directors, determine which expenses are
allocable to a given Fund of the Company, or which are generally allocable to
both Funds offered by the Company. Similarly, the officers of the Trust,
subject to the general supervision of the Trustees, determine which expenses
are allocable to a given Fund, or generally allocable to all of the Funds of
the Trust. In the event of the dissolution or liquidation of the Trust or
the Company, shareholders of each Fund are entitled to receive as a class and
underlying assets of such Fund available for distribution.

Each of the Funds may in the future, rather than invest in securities
generally, seek to achieve its investment objectives by pooling its assets
with assets of other funds for investment in another investment company
having the same investment objective and substantially similar investment
policies and restrictions as the Fund. The purpose of such an arrangement is
to achieve greater operational efficiencies and to reduce cost. It is
expected that any such investment company would be managed by TMC in a manner
substantially similar to the corresponding Fund. Shareholders of each Fund
would receive prior written notice of any such investment, but would not be
entitled to vote on the action. Such an investment would be made only if at
least a majority of the Directors or Trustees of the Fund determined it to be
in the best interest of the participating Fund and its shareholders.

The Company is a corporation organized under Maryland law, which
provides generally that shareholders will not be held personally liable for
the obligations of the corporation. The Trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of Trust
provides that the Trust shall not have any claim against shareholders except
for the payment of the purchase price of shares. However, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a fund itself would be unable to meet its
obligations. TMC believes that, in view of the above, the risk of personal
liability to shareholders is remote.

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

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

State Street Bank and Trust, Boston, Massachusetts, is custodian of the
assets of the Funds. The Custodian is responsible for the safekeeping of the
Funds' assets and the appointment of subcustodian banks and clearing
agencies. The Custodian takes no part in determining the investment policies
of the Funds or in deciding which securities are purchased or sold by the
Funds.

INVESTMENT POLICIES

MUNICIPAL FUNDS

The primary investment objective of Limited Term National Fund and
Intermediate National Fund is to provide for their respective shareholders as
high a level of current investment income exempt from federal income tax as
is consistent, in the view of the Funds' investment adviser, Thornburg
Management Company, Inc. ("TMC"), with preservation of capital. The primary
investment objective of Limited Term California Fund is to provide for its
shareholders as high a level of current investment income exempt from federal
income tax and California state personal income tax as is consistent, in
TMC's view, with preservation of capital. Limited Term National Fund,
Limited Term California Fund and Intermediate National Fund are sometimes
referred to in this Statement of Additional Information as the "Municipal
Funds." This objective of preservation of capital may preclude the Municipal
Funds from obtaining the highest possible yields.

Limited Term National Fund and Intermediate National Fund will each seek
to achieve their primary investment objective by investing in a diversified
portfolio of obligations issued by state and local governments the interest
on which is exempt from federal income tax ("Municipal Obligations").
Limited Term California Fund will seek to achieve its primary investment
objective by investing in a portfolio of Municipal Obligations originating
primarily in California. The Funds may invest in Municipal Obligations (or
participation interests therein) that constitute leases or installment
purchase or conditional sale contracts by state of local governments or
authorities to obtain property or equipment ("Municipal Leases").

The Limited Term National Fund and Limited Term California Fund each
will maintain a portfolio having a dollar-weighted average maturity of
normally not more than five years, with the objective of reducing
fluctuations in its net asset value relative to municipal bond portfolios
with longer average maturities while expecting lower yields than those
received on portfolios with longer average maturities. The Intermediate
National Fund will maintain a portfolio having a dollar-weighted average
maturity of normally three to ten years, with the objective of reducing
fluctuations in net asset value relative to long-term municipal bond
portfolios. The Intermediate National Fund may receive lower yields than
those received on long-term bond portfolios, while seeking higher yields and
expecting higher share price volatility than the Limited Term National Fund.

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

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

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

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

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

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

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

Municipal Obligations

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

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

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

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

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

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.

No Municipal Fund will invest in illiquid securities if, as a result
of the investment, more than 10% of its net assets will be invested in
illiquid securities. For purposes of this limitation, "illiquid securities"
shall be deemed to include (1) Municipal Leases subject to non-appropriation
risk which are not rated at the time of purchase within the four highest
grades by Moody's or S&P and not subject to remarketing agreements (or not
currently subject to remarketing, pursuant to the conditions of any such
agreement then in effect, with a responsible remarketing party, deemed by TMC
to be capable of performing its obligations), (2) repurchase agreements
maturing in more than seven days, (3) securities which the Funds are
restricted from selling to the public without registration under the
Securities Act of 1933, and (4) other securities or participations not
considered readily marketable by the Funds, provided that for purposes of the
foregoing an unrated Municipal Lease which is backed by an irrevocable bank
letter of credit or an insurance policy, issued by a bank or insurer deemed
by TMC to be of high quality and minimal credit risk, will not be deemed to
be illiquid.

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 normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds
in this category than for bonds in the A category. The foregoing ratings are
sometimes followed by a "p" indicating that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, the completion.

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

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 Municipal Fund has reserved the right to invest up to 20% of its
net assets in "temporary investments" in taxable securities that would
produce interest not exempt from federal income tax. See "Taxes." Such
temporary investments may be made due to market conditions, pending
investment of idle funds or to afford liquidity. These investments are
limited to the following short-term, fixed-income securities (maturing in one
year or less from the time of purchase): (i) obligations of the United
States government or its agencies, instrumentalities or authorities; (ii)
prime commercial paper within the two highest ratings of Moody's or S&P;
(iii) certificates of deposit of domestic banks with assets of $1 billion or
more; and (iv) repurchase agreements with respect to the foregoing types of
securities. Repurchase agreements will be entered into only with dealers,
domestic banks or recognized financial institutions that in TMC's opinion
represent minimal credit risk. Investments in repurchase agreements are
limited to 5% of a Fund's net assets. See the next paragraph respecting
repurchase agreements. In addition, temporary taxable investments may exceed
20% of a Fund's net assets when made for defensive purposes during periods of
abnormal market conditions. None of the Municipal Funds expect to find it
necessary to make such temporary investments.

Repurchase Agreements

Each Municipal Fund may enter into repurchase agreements with respect
to taxable securities constituting "temporary investments" in its portfolio.
A repurchase agreement is a contractual agreement whereby the seller of
securities agrees to repurchase the same security at a specified price on a
future date agreed upon by the parties. The agreed upon repurchase price
determines the yield during the Fund's holding period. Repurchase agreements
may be viewed as loans collateralized by the underlying security that is the
subject of the repurchase agreement. No Municipal Fund will enter into a
repurchase agreement if, as a result, more than 5% of the value of its net
assets would then be invested in repurchase agreements. The Funds will enter
into repurchase agreements only with dealers, banks or recognized financial
institutions that in the opinion of TMC represent minimal credit risk. The
risk to a Fund is limited to the ability of the seller to pay the agreed upon
repurchase price on the delivery date; however, although the value of the
underlying collateral at the time the transaction is entered into always
equals or exceeds the agreed upon repurchase price, if the value of the
subject security declines there is a risk of loss of both principal and
interest if the seller defaults. In the event of a default, the collateral
may be sold. A Fund might incur a loss if the value of the collateral has
declined, and the Fund might incur disposition costs or experience delays in
connection with liquidating the security. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the subject security by the Fund may be delayed or limited.
The Funds' investment adviser will monitor the value of the security at the
time the transaction is entered into and at all subsequent times during the
term of the repurchase agreement in an effort to determine that the value
always equals or exceeds the agreed upon repurchase price. In the event the
value of the subject security declines below the repurchase price, TMC will
demand additional securities from the seller to increase the value of the
property held to at least that of the repurchase price.

U.S. Government Obligations

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

Special Risks Affecting Limited Term California Fund

Due to Limited Term California Fund's policy of concentrating its
investments in municipal securities exempt from California personal income
taxes, this Fund will invest primarily in California state, municipal, and
agency obligations. For this reason, an investment in the Limited Term
California Fund may be considered riskier than an investment in the Limited
Term National Fund, which buys Municipal Obligations from throughout the
United States. Prospective investors should consider the risks inherent in
the investment concentration of the Limited Term California Fund before
investing.

California's economy is the largest among the 50 states and one of the
largest in the world. The state's July 1, 1995 population of approximately
32.1 million represents 12.2 percent of the total United States population
and total personal income in the state, at an estimated $810 billion in 1996,
accounts for 12.6 percent of all personal income in the nation. Total
employment is about 14.5 million, the majority of which is in the service,
trade and manufacturing sectors.

California constitutional and other laws raise questions about the
ability of California state and municipal issuers to obtain sufficient
revenue to pay their bond obligations in all situations. In 1978, California
voters approved an amendment to the California Constitution known as
Proposition 13, which has had an affect on California issuers that rely in
whole or in part, directly or indirectly, on ad valorem real property taxes
as a source of revenue. Proposition 13 limits ad valorem taxes on real
property and restricts the ability of taxing entities to increase real
property taxes. In 1979, California voters approved another constitutional
amendment, Article XIIIB, which may have an adverse impact on California
state and municipal issuers. Article XIIIB prohibits government agencies and
the state from spending "appropriations subject to limitation" in excess of
the appropriations limit imposed. "Appropriations subject to limitation" are
authorizations to spend "proceeds of taxes", which consist of tax revenues,
certain state subventions and certain other funds, including proceeds from
regulatory licenses, user charges or other fees to the extent that such
proceeds exceed "the cost reasonably borne by such entity in providing the
regulation, product or service". No limit is imposed on appropriations of
funds which are not "proceeds of taxes", such as debt service on indebtedness
existing or authorized before January 1, 1979, or subsequently authorized by
the voters, appropriations required to comply with mandates of the courts or
the federal government, reasonable user charges or fees and certain other
non-tax funds. The amendment restricts the spending authority of state and
local government entities. If revenues exceed such appropriations limits,
such revenues must be returned either as revisions in the tax rate or fee
schedules.

California obtains roughly 45% of general fund revenues from personal
income taxes (individual and corporate) compared to an average of only 30%
for other states. Income taxes serve as a bellwether which is frequently a
leading indicator of economic weakness. Recent deficits were caused by lower
than projected income tax receipts. California's other principal revenue
source is sales taxes. The state's budget problems in recent years have also
been caused by a structural imbalance in that the largest General Fund
Programs -- K-12 education, health, welfare and corrections -- were
increasing faster than the revenue base, driven by the state's rapid
population growth. These pressures are expected to continue as population
trends maintain strong demand for health and welfare services, as the school
age population continues to grow, and as the state's corrections program
responds to a "Three-Strikes" law enacted in 1994, which requires mandatory
life prison terms for certain third-time felony offenders.

TAXABLE INCOME FUNDS

Government Fund and Income Fund (the "Taxable Income Funds") each has
the primary investment objective of providing, through investment in a
professionally managed portfolio of fixed income obligations as high a level
of current income as is consistent, in TMC's view, with safety of capital.
The Government Fund will seek to achieve its primary investment objective by
investing primarily in obligations issued or guaranteed by the U.S.
government or by its agencies or instrumentalities and in participations in
such obligations or in repurchase agreements secured by such obligations.
The Income Fund will seek to achieve its primary objective by investing in
primarily in investment grade short and intermediate maturity bonds and asset
backed securities such as mortgage backed securities and collateralized
mortgage obligations. The Income Fund also may invest in other securities,
and utilize other investment strategies to hedge market risks, manage cash
positions or to enhance potential gain. Additionally, each of the Taxable
Income Funds has the secondary objective of reducing fluctuations in its net
asset value compared to longer term portfolios, and will seek to attain this
objective by investing in obligations with an expected dollar-weighted
average maturity of normally not more than five years.

Determining Portfolio Average Maturity - Government Fund and Income Fund

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

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

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 Taxable Income Fund may
purchase, each Taxable Income Fund is authorized to purchase bank
certificates of deposit under certain circumstances. The Government Fund may
under certain market conditions invest up to 20% of its assets in (i) time
certificates of deposit maturing in one year or less after the date of
acquisition which are issued by United States banks having assets of
$1,000,000,000 or more, and (ii) time certificates of deposit insured as to
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.

Mortgage-Backed Securities and Mortgage Pass-Through Securities

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

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

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

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, TMC
determines that the securities meet the Income Fund's quality standards.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.

Collateralized Mortgage Obligations ("CMO's")

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 or defaults.

Other Mortgage-Backed Securities

TMC expects that governmental, government-related or private entities
may create mortgage loan pools and other mortgage-related securities offering
mortgage pass-through and mortgage-collateralized investments in addition to
those described above. The mortgages underlying these securities may include
alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payments may vary or whose terms to maturity may differ
from customary long-term fixed rate mortgages. Neither the Government Fund
nor the Income Fund will purchase mortgage-backed securities or any other
assets which, in the opinion of TMC, are illiquid and exceed, as a percentage
of the Fund's assets, the percentage limitations on the Fund's investment in
securities which are not readily marketable, as discussed below. TMC will,
consistent with the Funds' respective investment objectives, policies and
quality standards, consider making investments in such new types of
mortgage-related securities.

Other Asset-Backed Securities

The securitization techniques used to develop mortgage-backed securities
are now being applied to a broad range of assets. Through the use of trusts
and special purpose corporations, various types of assets, including
automobile loans, computer leases and credit card receivables, are being
securitized in pass-through structures similar to the mortgage pass-through
structures described above or in structures similar to the CMO pattern.
Consistent with the Funds' respective investment objectives and policies,
each Fund may invest in these and other types of asset-backed securities that
may be developed in the future. In general, the collateral supporting these
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments with interest rate fluctuations.

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.

Repurchase Agreements - Government Fund and Income Fund

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

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

For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the purchasing Fund to the seller of the Obligations subject to the
repurchase agreement and is therefore subject to that Fund's investment
restriction applicable to loans. It is not clear whether a court would
consider the Obligation purchased by a Fund subject to a repurchase agreement
as being owned by the Fund or as being collateral for a loan by the Fund to
the seller. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, the Fund may encounter delay and
incur costs before being able to sell the security. Delays may involve loss
of interest or decline in the price of the Obligation. If the court
characterized the transaction as a loan and the Fund has not perfected a
security interest in the Obligation, the Fund may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of
the seller. As an unsecured creditor, the Fund would be at risk of losing
some or all of the principal and income involved in the transaction. As with
any unsecured debt obligation purchased for the Fund, TMC seeks to minimize
the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the Obligation, in which case
the purchasing Fund may incur a loss if the proceeds to the Fund of the sale
to a third party are less than the repurchase price. However, if the market
value (including interest) of the Obligation subject to the repurchase
agreement becomes less than the repurchase price (including interest), the
Fund will direct the seller of the Obligation to deliver additional
securities so that the market value (including interest) of all securities
subject to the repurchase agreement will equal or exceed the repurchase
price. It is possible that the Fund will be unsuccessful in seeking to
impose on the seller a contractual obligation to deliver additional
securities.

When Issued Securities - Government Fund and Income Fund

Either Taxable Income Fund may purchase securities offered on a
"when-issued" or "forward delivery" basis. When so offered, the price, which
is generally expressed in yield terms, is fixed at the time the commitment to
purchase is made, but delivery and payment for the when-issued or forward
delivery securities take place at a later date. During the period between
purchase and settlement, no payment is made by the purchaser to the issuer
and no interest on the when-issued or forward delivery security accrues to
the purchaser. To the extent that assets of a Fund are not invested prior to
the settlement of a purchase of securities, the Fund will earn no income;
however, it is intended that each Fund will be fully invested to the extent
practicable and subject to the Fund's investment policies. While when-issued
or forward delivery securities may be sold prior to the settlement date, it
is intended that each Fund will purchase such securities with the purpose of
actually acquiring them unless sale appears desirable for investment reasons.
At the time a Fund makes the commitment to purchase a security on a
when-issued or forward delivery basis, it will record the transaction and
reflect the value of the security in determining its net asset value. The
market value of when-issued or forward delivery securities may be more or
less than the purchase price. Neither Fund believes that its net asset
value or income will be adversely affected by its purchase of securities on a
when-issued or forward delivery basis. Each Fund will establish a segregated
account for commitments for when-issued or forward delivery securities as
described above.

Reverse Repurchase Agreements - Government Fund and Income Fund

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

Dollar Roll Transactions - Government Fund and Income Fund

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

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

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

Lending of Portfolio Securities - Government Fund and Income Fund

Each Taxable Income Fund may seek to increase its income by lending
portfolio securities. Under present regulatory policies, including those of
the Board of Governors of the Federal Reserve System and the Securities and
Exchange Commission, such loans may be made to member firms of the New York
Stock Exchange, and would be required to be secured continuously by
collateral in cash, cash equivalents or U.S. Treasury bills maintained on a
current basis at an amount at least equal to the market value and accrued
interest of the securities loaned. The lending Fund would have the right to
call a loan and obtain the securities loaned on no more than five days'
notice. During the existence of a loan, the Fund would continue to receive
the equivalent of the interest paid by the issuer on the securities loaned
and would also receive compensation based on investment of the collateral.
As with other extensions of credit there are risks of delay in recovery or
even loss of rights in the collateral should the borrower of the securities
fail financially. However, the loans would be made only to firms deemed by
TMC to be of good standing, and when, in the judgment of TMC, the
consideration which can be earned currently from securities loans of this
type justifies the attendant risk.

Other Investment Strategies - Income Fund

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

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

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

General Characteristics of Options - Income Fund

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

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

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
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 the issuing country's economy.

Combined Transactions - Income Fund

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

Swaps, Caps, Floors and Collars - Income Fund

Among the Strategic Transactions into which the Income Fund may enter
are interest rate, currency and index swaps and the purchase or sale of
related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a
later date. The Income Fund intends to use these transactions as hedges and
not as speculative investments and will not sell interest rate caps or floors
where it does not own securities or other instruments providing the income
stream the Fund may be obligated to pay. An interest rate swap is an
agreement between two parties to exchange payments that are based on
specified interest rates and a notional amount. The exchange takes place
over a specified period of time. A currency swap is an agreement to exchange
cash flows on a notional amount of two or more currencies based on the
relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. Although swaps can take a variety of forms, typically one
party pays fixed and receives floating rate payments and the other party
receives fixed and pays floating rate payments. An interest rate cap is an
agreement between two parties over a specified period of time where one party
makes payments to the other party equal to the difference between the current
level of an interest rate index and the level of the cap, if the specified
interest rate index increases above the level of the cap. An interest rate
floor is similar except the payments are the difference between the current
level of an interest rate index and the level of the floor if the specified
interest rate index decreases below the level of the floor. An interest rate
collar is the simultaneous execution of a cap and floor agreement on a
particular interest rate index. The purchase of a cap entitles the purchaser
to receive payments on a notional principal amount from the party selling the
cap to the extent that a specified index exceeds a predetermined interest
rate or amount. Purchase of a floor entitles the purchaser to receive
payments on a notional principal amount from the party selling the floor to
the extent that a specified index falls below a predetermined interest rate
or amount. A collar is a combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates or values.

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

Eurodollar Instruments - Income Fund

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 Income
Fund's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States, (iv) the imposition of
different exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lower trading volume and
liquidity.

Use of Segregated and Other Special Accounts - Income Fund

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

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 Income Fund, including those on
securities, currency, financial instruments or indices, OCC issued and
exchange listed index options, swaps, caps, floors and collars will generally
provide for cash settlement. As a result, with respect to these instruments
the Fund will only segregate an amount of assets equal to its accrued net
obligations, as there is no requirement for payment or delivery of amounts in
excess of the net amount. These amounts will equal 100% of the exercise
price in the case of a put, or the in-the-money amount in the case of a call.
In addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate,
until the option expires or is closed out, cash or cash equivalents equal in
value to such excess. Other OCC issued and exchange listed options sold by
the Fund, other than those above, generally settle with physical delivery,
and the Fund will segregate an amount of assets equal to the full value of
the option. OTC options settling with physical delivery, if any, will be
treated the same as other options settling with physical delivery.

In the case of a futures contract or an option thereon, the Income Fund
must deposit initial margin and possible daily variation margin in addition
to segregating assets sufficient to meet its obligation to purchase or
provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such assets may consist of cash, cash
equivalents, or high grade liquid debt instruments.

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

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

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. Income Fund's ability and decisions to purchase and
sell portfolio securities may be affected by laws or regulations relating to
the convertability and repatriation of assets. Further, it may be more
difficult for the Fund's agents to keep currently informed about corporate
actions which may affect the prices of portfolio securities. Foreign
securities and cash held in foreign custody or in foreign depositories may
not enjoy the same or comparable legal protections prevailing in the United
States. In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect United States
investments in those countries, and it may be more difficult to obtain and
enforce a judgment against a foreign issuer. Foreign securities may be
subject to foreign government taxes which will reduce the yield on such
securities.

VALUE FUND

Thornburg Value Fund ("Value Fund") seeks long term capital appreciation
by investing in equity and debt securities of all types. The secondary goal
of the Fund is to seek some current income.

Value Fund expects to invest primarily in domestic equity securities
selected on a value basis. However, the Fund may own a variety of
securities, including foreign equity and debt securities, domestic debt
securities and securities that are not currently paying dividends.

The following discussion supplements the disclosures in the Prospectus
respecting Value Fund's investment policies, techniques and investment
limitations.

Illiquid Investments - Value Fund

Illiquid investments are investments that cannot be sold or disposed of
in the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Trustees, TMC determines the
liquidity of the Fund's investments and, through reports from TMC, the
Trustees monitor investments in illiquid instruments. In determining the
liquidity of the Fund's investments, TMC may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or lender features), and (5) the nature of the market place for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment).

Investments currently considered by the Fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days, over-the-counter options, and non-government
stripped fixed-rate mortgage-backed securities. Also TMC may determine some
restricted securities, government-stripped fixed-rate mortgage-backed
securities, emerging market securities, and swap agreements to be illiquid.
However, with respect to over-the-counter options the Fund writes, all or a
portion of the value of the underlying instrument may be illiquid depending
on the assets held to cover the option and the nature and terms of any
agreement the Fund any have to close out the option before expiration.

In the absence of market quotations, illiquid investments are priced at
fair value as determined utilizing procedures and methods reviewed by the
Trustees. If through a change in values, net assets, or other circumstances,
the Fund were in a position where more than 10% of its net assets was
invested in illiquid securities, it would seek to take appropriate steps to
protect liquidity.

Restricted Securities - Value Fund

Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
required, the Fund could be obligated to pay all or part of the registration
expense and a considerable period may elapse between the time it decides to
seek registration and the time it is permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to seek registration of the security.

Swap Agreements, Caps, Floors, Collars - Value Fund

Swap agreements can be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease the
Fund's exposure to long or short-term interest rates (in the U.S. or abroad),
foreign currency values, mortgage securities, corporate borrowing rates, or
other factors such as security prices or inflation rates. The Fund is not
limited to any particular form of swap agreement if TMC determines it is
consistent with the Fund's investment objective and policies.

Although swaps can take a variety of forms, typically one party pays
fixed and receives floating rate payments and the other party receives fixed
and pays floating payments. An interest rate cap is an agreement between two
parties over a specified period of time where one party makes payments to the
other party equal to the difference between the current level of an interest
rate index and the level of the cap, if the specified interest rate index
increases above the level of the cap. An interest rate floor is similar
except the payments are the difference between the current level of an
interest rate index and the level of the floor, if the specified interest
rate index decreases below the level of the floor. An interest rate collar
is the simultaneous execution of a cap and floor agreement on a particular
interest rate index. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to
the extent that a specified index exceeds a predetermined interest rate or
amount. Purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent
that a specified index falls below a predetermined interest rate or amount.
A collar is a combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates or values.

Inasmuch as these swaps, floors, caps and collars are entered into for
good faith hedging purposes, TMC and the Fund believe these obligations do
not constitute senior securities under the 1940 Act and, accordingly, will
not treat them as being subject to borrowing restrictions. 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 is less highly developed and, accordingly,
may be less liquid than swaps.

Swap agreements will tend to shift the Fund's investment exposure from
one type of investment to another. For example, if the Fund agreed to
exchange payments in dollars for payments in foreign currency, the swap
agreement would tend to decrease the Fund's exposure to U.S. interest rates
and increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on how
they are used, swap agreements may increase or decrease the overall
volatility of the Fund's investments and its share price and yield. The most
significant factor in the performance of swap agreements is the change in the
specific interest rate, currency, or other factors that determine the amounts
of payments due to and from the Fund. If a swap agreement calls for payments
by the Fund, the Fund must be prepared to make such payments when due. In
addition, if the counterparty's credit worthiness declined, the Fund will
have contractual remedies available to it, but the value of the swap
agreement would be likely to decline, potentially resulting in losses. The
Fund expects to be able to eliminate its exposure under swap agreements
either by assignment or other disposition, or by entering into an offsetting
swap agreement with the same party or a similarly creditworthy party.

The Fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap agreements. If
the Fund enters into a swap agreement on other than a net basis, it will
segregate assets with a value equal to the full amount of the Fund's accrued
obligations under the agreement.

Indexed Securities - Value Fund

The Fund may purchase securities whose prices are indexed to the prices
of other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically,
but not always, are debt securities or deposits whose value at maturity or
coupon rate is determined by reference to a specific instrument or statistic.
Gold-indexed securities, for example, typically provide for a maturity value
that depends on the price of gold, resulting in a security whose price tends
to rise and fall together with gold prices. Currency indexed securities
typically are short-term to intermediate-term debt securities whose maturity
values or interest rates are determined by reference to the values of one or
more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting in
a security that performs similarly to a foreign-denominated instrument, or
their maturity value may decline when foreign currencies increases, resulting
in a security whose price characteristics are similar to a put on the
underlying currency. Currency-indexed securities may also have prices that
depend on the values of a number of different foreign currencies relative to
each other.

The performance of indexed securities depends to a great extent on the
performance of the security, currency or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers
of indexed securities have included banks, corporations, and certain U.S.
government agencies. Indexed securities may be more volatile than their
underlying instruments.

Repurchase Agreements - Value Fund

In a repurchase agreement, the Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed
upon price on an agreed upon date within a number of days from the date of
purchase. The resale price reflects the purchase price plus an agreed upon
incremental amount which is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the
seller to pay the agreed upon price, which obligation is in effect secured by
the value (at least equal to the amount of the agreed upon resale price and
marked to market daily) of the underlying security. The Fund may engage in a
repurchase agreements with respect to any security in which it is authorized
to invest.

The Fund may enter into these arrangements with member banks of the
Federal Reserve System or any domestic broker-dealer if the creditworthiness
of the bank or broker-dealer has been determined by TMC to be satisfactory.
These transactions may not provide the Fund with collateral marked-to-market
during the term of the commitment.

For purposes of the Investment Company Act of 1940, a repurchase
agreement is deemed to be a loan from the Fund to the seller of the security
subject to the repurchase agreement and is therefore subject to the Fund's
investment restriction applicable to loans. It is not clear whether a court
would consider the security purchased by the Fund subject to a repurchase
agreement as being owned by the Fund or as being collateral for a loan by the
Fund to the seller. In the event of the commencement of bankruptcy or
insolvency proceedings with respect to the seller of the security before
repurchase of the security under a repurchase agreement, the Fund may
encounter delay and incur costs before being able to sell the security.
Delays may involve loss of interest or decline in the price of the underlying
security. If the court characterized the transaction as a loan and the Fund
has not perfected a security interest in the underlying security, the Fund
may be required to return the security to the seller's estate and be treated
as an unsecured creditor of principal and income involved in the transaction.
As with any unsecured debt obligation purchased for the Fund, TMC seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the security.
Apart from the risk of bankruptcy or insolvency proceedings, there is also
the risk that the seller may fail to repurchase the security, in which case
the Fund may incur a loss if the proceeds to the Fund of the sale to a third
party are less than the repurchase price. However, if the market value
(including interest) of the security subject to the repurchase agreement
becomes less than the repurchase price (including interest), the Fund will
direct the seller of the security to deliver additional securities so that
the market value (including interest) of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is
possible that the Fund will be unsuccessful in seeking to impose on the
seller a contractual obligation to deliver additional securities.

Reverse Repurchase Agreements - Value Fund

In a reverse repurchase agreement , the Fund sells a portfolio
instrument to another party, such as a bank or broker-dealer, in return for
cash and agrees to repurchase the instrument at a particular price and time.
While a reverse repurchase agreement is outstanding, the Fund will maintain
appropriate liquid assets in a segregated custodial account to cover its
obligation under the agreement. The Fund will enter into reverse repurchase
agreements only with parties whose creditworthiness has been found
satisfactory by TMC. Such transactions may increase fluctuations in the
market value of the Fund's assets and may be viewed as a form of leverage.

Securities Lending - Value Fund

The Fund may lend securities to parties such as broker-dealers or
institutional investors. Securities lending allows the Fund to retain
ownership of the securities loaned and, at the same time, to earn additional
income. Since there may be delays in the recovery of loaned securities, or
even a loss of rights in collateral supplied should the borrower fail
financially, loans will be made only to parties deemed by TMC to be of good
standing. Furthermore, they will only be made if, in TMC's judgment, the
consideration to be earned from such loans would justify the risk.

TMC understands that it is the current view of the SEC Staff that the
Fund may engage in loan transactions only under the following conditions: (1)
the Fund must receive 100% collateral in the form of cash or cash equivalents
(e.g., U.S. Treasury bills or notes) from the borrower; (2) the borrower
must increase the collateral whenever the market value of the securities
loaned (determined on a daily basis) rises above the value of the collateral;
(3) after giving notice, the Fund must be able to terminate the loan at any
time; (4) the Fund must receive reasonable interest on the loan or a flat
fee from the borrower, as well as amounts equivalent to any dividends,
interest, or other distributions on the securities loaned and to any increase
in market value; (5) the Fund may pay only reasonable custodian fees in
connection with the loan; and (6) the Trustees must be able to vote proxies
on the securities loaned, either by terminating the loan or by entering into
an alternative arrangement with the borrower.

Cash received through loan transactions may be invested in any security
in which the Fund is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).

Lower-Quality Debt Securities - Value Fund

The Fund may purchase lower-quality debt securities (those rated below
Baa by Moody's Investors Service, Inc. or BBB by Standard and Poor's
Corporation, and unrated securities judged by TMC to be of equivalent
quality) that have poor protection with respect to the payment of interest
and repayment of principal, or may be in default. These securities are often
considered to be speculative and involve greater risk of loss or price
changes due to changes in the issuer's capacity to pay. The market prices of
lower-quality debt securities may fluctuate more than those of higher-quality
debt securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates.

While the market for high-yield corporate debt securities has been in
existence for may years and has weathered previous economic downturns, the
1980's brought a dramatic increase in the use of such securities to fund
highly leveraged corporate acquisitions and restructuring. Past experience
may not provide an accurate indication of the future performance of the high-
yield bond market, especially during periods of economic recession. In fact,
from 1989 to 1991, the percentage of lower-quality securities that defaulted
rose significantly above prior levels, although the default rate decreased in
1992 and 1993.

The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can adversely
affect the prices at which the former are sold. If market quotations are not
available, lower-quality debt securities will be valued in accordance with
procedures established by the Trustees, including the use of outside pricing
services. Judgment plays a greater role in valuing high-yield corporate debt
securities than is the case for securities for which more external sources
for quotations and last-sale information are available. Adverse publicity
and changing investor perceptions may affect the ability of outside pricing
services to value lower-quality debt securities and the Fund's ability to
sell these securities. Since the risk of default is higher for lower-quality
debt securities, TMC's research and credit analysis are an especially
important part of managing securities of this type held by the Fund. In
considering investments for the Fund, TMC will attempt to identify those
issuers of high-yielding securities whose financial condition is adequate to
meet future obligations, has improved, or is expected to improve in the
future. TMC's analysis focuses on relative values based on such factors as
interest or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.

The Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be
in the best interest of the Fund's shareholders.

Foreign Investments - Value Fund

Foreign investments can involve significant risks in addition to the
risks inherent in U.S. investments. The value of securities denominated in
or indexed to foreign currencies, and of dividends and interest from such
securities, can change significantly when foreign currencies strengthen or
weaken relative to the U.S. dollar. Foreign securities markets generally
have less trading volume and less liquidity than U.S. markets, and prices on
some foreign markets can be highly volatile. Many foreign countries lack
uniform accounting and disclosure standards comparable to those applicable to
U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. It may be more
difficult to obtain and enforce a judgment against a foreign issuer. In
addition, the costs of foreign investing, including withholding taxes,
brokerage commissions, and custodial costs, are generally higher than for
U.S. investments.

Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers, and securities markets may be subject to
less government supervision. Foreign security trading practices, including
those involving the release of assets in advance of payment, may involve
increased risks in the event of a failed trade or the insolvency of a broker-
dealer, and may involve substantial delays. It may also be difficult to
enforce legal rights in foreign countries.

Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse
to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention. There
may be a greater possibility of default by foreign governments or foreign
government-sponsored enterprises, and securities issued or guaranteed by
foreign 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. Investments in foreign countries
also involve a risk of local political, economic, or social instability,
military action or unrest, or adverse diplomatic developments. There is no
assurance that TMC will be able to anticipate these potential events or
counter their effects.

The considerations noted above generally are intensified for investments
in developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.

The Fund may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject to
transfer restrictions may be marketable abroad, they may be less liquid than
foreign securities of the same class that are not subject to such
restrictions.

American Depository Receipts and European Depository Receipts (ADR's and
EDR's) are certificates evidencing ownership of shares of a foreign-based
issuer held in trust by a bank or similar financial institution. Designed
for use in U.S. and European securities markets, respectively, ADR's and
EDR's are alternatives to the purchase of the underlying securities in their
national markets and currencies.

Foreign Currency Transactions - Value Fund

The Fund may conduct foreign currency transactions on a spot (i.e.,
cash) basis or by entering into forward contracts to purchase or sell foreign
currencies at a future date and price. The Fund will convert currency on a
spot basis from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers generally do not
charge a fee for conversion, they do realize a profit based on the difference
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer. Forward contracts are generally traded in an
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. The parties to a forward contract may
agree to offset or terminate the contract before its maturity, or may hold
the contract to maturity and complete the contemplated currency exchange.
The Fund may use currency forward contracts for any purpose consistent with
its investment objective. The following discussion summarizes the principal
currency management strategies involving forward contracts that could be used
by the Fund. The Fund may also use swap agreements, indexed securities, and
options and futures contracts relating to foreign currencies for the same
purposes. When the Fund agrees to buy or sell a security denominated in a
foreign currency, it may desire to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale, for
a fixed amount of U.S. dollars, of the amount of foreign currency involved in
the underlying security transaction, the Fund will be able to protect itself
against an adverse change in foreign currency values between the date the
security is purchased or sold and the date on which payment is made or
received. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." The Fund may also enter into forward contracts to
purchase or sell a foreign currency in anticipation of future purchases or
sales of securities denominated in foreign currency, even if the specific
investments have not yet been selected by TMC.

The Fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For
example, if the Fund owned securities denominated in pounds sterling, it
could enter into a forward contract to sell pounds sterling in return for
U.S. dollars to hedge against possible declines in the pound's value. Such a
hedge, sometimes referred to as a "position hedge, " would tend to offset
both positive and negative currency fluctuations, but would not offset
changes in security values caused by other factors. The Fund could also
hedge the position by selling another currency expected to perform similarly
to the pound sterling for example, by entering into a forward contract to
sell Deutschemarks or European Currency Units in return for U.S. dollars.
This type of hedge, sometimes referred to as a "proxy hedge," could offer
advantages in terms of cost, yield, or efficiency, but generally would not
hedge currency exposure as effectively as a simple hedge into U.S. dollars.
Proxy hedges may result in losses if the currency used to hedge does not
perform similarly to the currency in which the hedged securities are
denominated.

The Fund may enter into forward contracts to shift its investment
exposure from one currency into another. This may include shifting exposure
from U.S. dollars to a foreign currency, or from one foreign currency to
another foreign currency. For example, if the Fund held investments
denominated in deutschemarks, the Fund could enter into forward contracts to
sell deutschemarks and purchase Swiss francs. This type of strategy,
sometimes known as a "cross hedge," will tend to reduce or eliminate exposure
to the currency that is sold, and increase exposure to the currency that is
purchased, much as if the Fund had sold a security denominated in one
currency and purchased an equivalent security denominated in another. Cross-
hedges protect against losses resulting from a decline in the hedged
currency, but will cause the Fund to assume the risk of fluctuations in the
value of the currency it purchases. Under certain conditions, SEC guidelines
require mutual funds to set aside appropriate liquid assets in a segregated
custodial account to cover currency forward contracts. As required by SEC
guidelines, the Fund will segregate assets to cover currency forward
contracts, if any, whose purpose is essentially speculative. The Fund will
not segregate assets to cover forward contracts entered into for hedging
purposes, including settlement hedges, position hedges, and proxy hedges.

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 issues to the Fund if it is
unable to deliver or receive currency 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. Currency
futures are also subject to risks pertaining to future contracts generally.
See "Futures Contracts," below. Options trading on currency futures is
subject to market liquidity, and establishing and closing positions may be
difficult. Currency exchange rates may fluctuate based on factors extrinsic
to the issuing country's own economy.

Successful use of currency management strategies will depend on TMC's
skill in analyzing and predicting currency values. Currency management
strategies may substantially change the Fund's investment exposure to changes
in currency exchange rates, and could result in losses to the Fund if
currencies do not perform as TMC anticipates. For example, if a currency's
value rose at a time when TMC had hedged the Fund by selling that currency in
exchange for dollars, the Fund would be unable to participate in the
currency's appreciation. If TMC hedges currency exposure through proxy
hedges, the Fund could realize currency losses from the hedge and the
security position at the same time if the two currencies do not move in
tandem. Similarly, if TMC increases the Fund's exposure to a foreign
currency, and that currency's value declines, the Fund will realize a loss.
There is no assurance that TMC's use of currency management strategies will
be advantageous to the Fund or that it will hedge at an appropriate time.

Limitations on Futures and Options Transactions - Value Fund

The Fund will not: (a) sell futures contracts, purchase put options, or
write call options if, as a result, more than 25% of the Fund's total assets
would be hedged with futures and options under normal conditions; (b)
purchase futures contracts or write put options if, as a result, the Fund's
total obligations upon settlement or exercise of purchased futures contracts
and written put options would exceed 25% of its total assets; or (c) purchase
call options if, as a result, the current value of option premiums for call
options purchased by the Fund would exceed 5% of the Fund's total assets.
These limitations do not apply to options attached to or acquired or traded
together with their underlying securities, and do not apply to securities
that incorporate features similar to options.

The above limitations on the Fund's investments in futures contracts and
options, and the Fund's policies regarding futures contracts and options
discussed elsewhere in this statement of Additional Information, are not
fundamental policies and may be changed as regulatory agencies permit.

Real Estate-Related Instruments - Value Fund

Real Estate-Related Instruments include real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors such as
changes in real estate values and property taxes, interest rates, cash flow
of underlying real estate assets, over building, and the management skill and
creditworthiness of the issuer. Real estate-related instruments may also be
affected by tax and regulatory requirements, such as those relating to the
environment.

Futures Contracts - Value Fund

When the Fund purchases a futures contract, it agrees to purchase a
specified underlying instrument at a specified future date. When the Fund
sells a futures contract, it agrees to sell the underlying instrument at a
specified future date. The price at which the purchase and sale will take
place is fixed when the Fund enters into the contract. Some currently
available futures contracts are based on specific securities, such as U.S.
Treasury bonds or notes, and some are based on indices of securities prices,
such as the Standard & Poor's 500 Composite Stock Price Index (S&P 500).
Futures can be held until their delivery dates, or can be closed out before
then if a liquid secondary market is available. The value of a futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Fund's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying
instrument directly. When the Fund sells a futures contract, by contrast,
the value of its futures position will tend to move in a direction contrary
to the market. Selling futures contracts, therefore will tend to offset both
positive and negative market price changes, much as if the underlying
instrument had been sold.

Futures Margin Payments - Value Fund

The purchaser or seller of a futures contract is not required to deliver
or pay for the underlying instrument unless the contract is held until the
delivery date. However both the purchaser and seller are required to deposit
"initial margin" with a futures broker, known as a futures commission
merchant (FCM), when the contract is entered into. Initial margin deposits
are typically equal to a percentage of the contract's value. If either
party's position declines, that party will be required to make additional
"variation margin" payments to settle the change in value on a daily basis.
The party that has a gain may be entitled to receive all or a portion of this
amount. Initial and variation margin payments do not constitute purchasing
securities on margin for purposes of the Fund's investment limitations. In
the event of the bankruptcy of an FCM that holds margin on behalf of the
Fund, the Fund may be entitled to return of margin owed to it only in
proportion to the amount received by the FCM's other customers, potentially
resulting in losses to the Fund.

Purchasing Put and Call Options - Value Fund

By purchasing a put option, the Fund obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed strike
price. In return for this right, the Fund pays the current market price for
the option (known as the option premium). Options have various types of
underlying instruments, including specific securities, indices of securities
prices, and futures contracts. The Fund may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option.
If the option is allowed to expire, the Fund will lose the entire premium it
paid. If the Fund exercises the option, it completes the sale of the
underlying instrument at the strike price. The Fund may also terminate a put
option position by closing it out in the secondary market at its current
price, if a liquid secondary market exists.

The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying instrument's
price does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium paid,
plus related transaction costs).

The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost
of the option.

Writing Put and Call Options - Value Fund

When the Fund writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the
premium, the Fund assumes the obligation to pay the strike price for the
option's underlying instrument if the other party to the option chooses to
exercise it. When writing an option on a futures contract the Fund will be
required to make margin payments to an FCM as described above for futures
contracts. The Fund may seek to terminate its position in a put option it
writes before exercise by closing out the option in the secondary market at
its current price. If the secondary market is not liquid for a put option
the Fund has written, however, the Fund must continue to be prepared to pay
the strike price while the option is outstanding, regardless of price
changes, and must continue to set aside assets to cover its position.

If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received.
If security prices remain the same over time, it is likely that the writer
will also profit, because it should be able to close out the option at a
lower price. If security prices fall, the put writer would expect to suffer
a loss. This loss should be less than the loss from purchasing the
underlying instrument directly, however, because the premium received for
writing the option should mitigate the effects of the decline. Writing a
call option obligates the Fund to sell or deliver the option's underlying
instrument, in return for the strike price, upon exercise of the option. The
characteristics of writing call options are similar to those of writing put
options, except that writing calls generally is a profitable strategy if
prices remain the same or fall. Through receipt of the option premium, a
call writer mitigates the effects of a price decline.

At the same time, because a call writer must be prepared to deliver the
underlying instrument in return for the strike price, even if its current
value is greater, a call writer gives up some ability to participate in
security price increases.

Combined Positions - Value Fund

The Fund may purchase and write options in combination with each other,
or in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, the Fund may
purchase a put option and write a call option on the same underlying
instrument, in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of the
written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out. 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 upon TMC's judgment that the combined strategies
will reduce risk or otherwise achieve a portfolio management goal, it is
possible that the combination will increase risk or hinder achievement of the
goal.

Correlation of Price Changes - Value Fund

Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts available
will not match the Fund's current or anticipated investments exactly. The
Fund may invest in options and futures contracts based on securities with
different issuers, maturities, or other characteristics from the securities
in which it typically invests, which involves a risk that the options or
futures position will not track the performance of the Fund's other
investments. Options and futures prices can also diverge from the prices of
their underlying instruments, even if the underlying instruments match the
Fund's investments well. Options and futures prices are affected by such
factors as current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until
expiration of the contract, which may not affect security prices the same
way. Imperfect correlation may also result from differing levels of demand
in the options and futures markets and the securities markets, from
structural differences in how options and futures and securities are traded,
or from imposition of daily price fluctuation limits or trading halts. The
Fund may purchase or sell options and futures contracts with a greater or
lesser value than the securities it wishes to hedge or intends to purchase in
order to attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in all
cases. If price changes in the Fund's options or futures positions are
poorly correlated with its other investments, the positions may fail to
produce anticipated gains or result in losses that are not offset by gains in
other investments.

Liquidity of Options and Futures Contracts - Value Fund

There is no assurance a liquid secondary market will exist for any
particular options or futures contract at any particular time. Options may
have relatively low trading volume and liquidity if their strike prices are
not close to the underlying instrument's current price. In addition,
exchanges may establish daily price fluctuation limits for options and
futures contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when
the price fluctuation limit is reached or a trading halt is imposed, it may
be impossible for the Fund to enter into new positions or close out existing
positions. If the secondary market for a contract is not liquid because of
price fluctuation limits or otherwise, it could prevent prompt liquidation of
unfavorable positions, and potentially could require the Fund to continue to
hold a position until delivery or expiration regardless of changes in its
value. As a result, the Fund's access to other assets held to cover its
options or futures positions could also be impaired.

OTC Options - Value Fund

Unlike exchange-traded options, which are standardized with respect to
the underlying instrument, expiration date, contract size, and strike price,
the terms of over-the-counter options (options not traded on exchanges)
generally are established through negotiation with the other party to the
option contract. While this type of arrangement allows the Fund greater
flexibility to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded. The staff of
the SEC currently takes the position that OTC options are illiquid, and
investments by the Fund in those instruments are subject to the Fund's
limitation on investing no more than 10% of its assets in illiquid
instruments.

Option and Futures Relating to Foreign Currencies - Value Fund

Currency futures contracts are similar to forward currency exchange
contracts, except that they are traded on exchanges (and have margin
requirements) and are standardized as to contract size and delivery date.
Most currency futures contracts call for payment or delivery in U.S. dollars.
The underlying instrument of a currency option may be a foreign currency,
which generally is purchased or delivered in exchange for U.S. dollars, or
may be a futures contract. The purchaser of a currency call obtains the
right to purchase the underlying currency, and the purchaser of a currency
put obtains the right to sell the underlying currency.

The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed above.
The Fund may purchase and sell currency futures and may purchase and write
currency options to increase or decrease its exposure to different foreign
currencies. The Fund may also purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of
the Fund's investments. A currency hedge, for example, should protect a Yen-
denominated security from a decline in the Yen, but will not protect the Fund
against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the Fund's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to
the value of the Fund's investments exactly over time. See "Foreign Currency
Transactions-Value Fund," above.

Asset Coverage for Futures and Options Positions - Value Fund

The Fund will comply with guidelines established by the SEC with
respect to coverage of options and futures strategies by mutual funds, and if
the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of large percentage of the
Fund's assets could impede Fund management or the Fund's ability to meet
redemption requests or other current obligations.

Short Sales - Value Fund

The Fund may enter into short sales with respect to stocks underlying
its convertible security holdings. For example, if TMC anticipates a decline
in the price of the stock underlying a convertible security the Fund holds,
it may sell the stock short. If the stock price subsequently declines, the
proceeds of the short sale could be expected to offset all or a portion of
the effect of the stock's decline on the value of the convertible security.
The Fund currently intends to hedge no more than 15% of its total assets with
short sales on equity securities underlying its convertible security holdings
under normal circumstances. When the Fund enters into a short sale, it will
be required to set aside securities equivalent in kind and amount to those
sold short (or securities convertible or exchangeable into such securities)
and will be required to continue to hold them while the short sale is
outstanding. The Fund will incur transaction costs, including interest
expense, in connection with opening, maintaining , and closing short sales.

INVESTMENT LIMITATIONS

Investment Limitations - Limited Term National Fund and
Limited Term California Fund

(1) Invest in securities other than Municipal Obligations (including
participations therein) and temporary investments within the percentage
limitations specified in the Prospectus;

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

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

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

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

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

(9) Make loans, other than by entering into repurchase agreements and
through the purchase of Municipal Obligations or temporary investments in
accordance with its investment objective, 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 or this Statement of Additional Information;

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

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

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

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

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

For the purpose of applying the limitations set forth in paragraphs (2)
and (12) above, an issuer shall be deemed a separate issuer when its assets
and revenues are separate from other governmental entities and its securities
are backed only by its assets and revenues. Similarly, in the case of a
nongovernmental user, such as an industrial corporation or a privately owned
or operated hospital, if the security is backed only by the assets and
revenues of the nongovernmental user, then such nongovernmental user would be
deemed to be the sole issuer. Where a security is also guaranteed by the
enforceable obligation of another entity it shall also be included in the
computation of securities owned that are issued by such other entity. In
addition, for purposes of paragraph (2) above, a remarketing party entering
into a remarketing agreement with a Fund as described in the Prospectus or
this Statement of Additional Information shall not be deemed an "issuer" of a
security or a "guarantor" of a Municipal Lease subject to that agreement.

In the event the Limited Term National Fund or the Limited Term
California Fund acquires disposable assets as a result of the exercise of a
security interest relating to Municipal Obligations, the Fund will dispose of
such assets as promptly as possible.

Investment Limitations - Intermediate National Fund

Thornburg Investment Trust has adopted the following fundamental
investment policies respecting the Intermediate National Fund which may not
be changed unless approved by a majority of the outstanding shares of the
Fund.

The Intermediate National Fund may not:

(1) Invest in securities other than Municipal Obligations (including
participations therein) and temporary investments within the percentage
limitations specified in the Prospectus;

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

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

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

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

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

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

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

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

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

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

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

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

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

Although the Fund has the right to pledge, mortgage or hypothecate its
assets, the Fund will not, as a matter of operating policy (which policy may
be changed by its Trustees without shareholder approval), pledge, mortgage or
hypothecate its portfolio securities to the extent that at any time the
percentage of pledged securities will exceed 10% of its total assets.

In the event the Fund acquires disposable assets as a result of the
exercise of a security interest relating to Municipal Obligations, it will
dispose of such assets as promptly as possible.

Investment Limitations - Government Fund

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

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

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

(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;

(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;

(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;

(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 in the
Prospectus or this Statement of Additional Information and as limited by the
foregoing investment limitations.

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

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.

Investment Limitations - Income Fund

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

(3) purchase or sell real estate (except that the Fund may invest in
(i) securities of companies which deal in real estate or mortgages, and (ii)
securities secured by real estate or interests therein and that the Fund
reserves freedom of action to hold and sell real estate acquired as a result
of the Fund's ownership of securities) or purchase or sell physical
commodities or contracts relating to physical commodities;

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

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

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

(a) purchase or retain securities of any open-end investment company,
or securities of any closed-end investment company except by purchase in the
open market where no commission or profit to a sponsor or dealer results from
such purchases, or except when such purchase, though not made in the open
market, is part of a plan of merger, consolidation, reorganization or
acquisition of assets. The Fund will not acquire any security issued by
another investment company ( the "acquired company") if the Fund thereby
would own (i) more than 3% of the total outstanding voting securities of the
acquired company, or (ii) securities issued by the acquired company having an
aggregate value exceeding 5% of the Fund's total assets, or (iii) securities
issued by investment companies having an aggregate value exceeding 10% of the
Fund's total assets;

(b) pledge, mortgage or hypothecate its assets in excess, together with
permitted borrowings, of 1/3 of its total assets;

(c) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Fund
or a member, officer, director or trustee of the investment adviser of the
Fund if one or more of such individuals owns beneficially more than one-half
of one percent (1/2%) of the outstanding shares or securities or both (taken
at market value) of such issuer and such shares or securities together own
beneficially more than 5% of such shares or securities or both;

(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.

Investment Limitations - Value Fund

The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of the Fund's assets that may be
invested in any security or other asset, that percentage limitation will be
determined immediately after and as a result of the Fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the Fund's investment policies and
limitations.

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

(1) with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the Fund's total assets would be invested in the
securities of that issuer, or (b) the Fund would hold more than 10% of the
outstanding voting securities of that issuer;

(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;

(3) borrow money, except for temporary or emergency purposes or except
in connection with reverse repurchase agreements; in an amount not exceeding
33 1/3% of its total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings that come to exceed this amount will
be reduced within three days (not including Sundays and holidays) to the
extent necessary to comply with the 33 1/3% limitation;

(4) underwrite any issue of securities (except to the extent that the
Fund may be deemed to be an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities);

(5) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total assets
would be invested in the securities of companies whose principal business
activities are in the same industry;

(6) purchase or sell real estate unless acquired as a result or
ownership of securities or other instruments (but this shall not prevent the
Fund from investing in securities or other instruments backed by real estate
or securities of companies engaged in the real estate business);

(8) lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.

The following investment limitations are not fundamental and may be
changed without shareholder approval:

(i) The Fund does not currently intend to sell securities short, unless
it owns or has the right to obtain securities equivalent in kind and amount
to the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.

(iii) The Fund may borrow money only (a) from a bank or (b) by engaging
in reverse repurchase agreements with any party. The Fund will not purchase
any security while borrowings representing more than 5% of its total assets
are outstanding.

(iv) The Fund does not currently intend to purchase any security if, as
a result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or disposed
of in the ordinary course of business at approximately the prices at which
they are valued.

(v) The Fund does not currently intend to purchase interests in real
estate investment trusts that are not readily marketable or interests in real
estate limited partnerships that are not listed on an exchange or traded on
the NASDAQ National Market System if, as a result, the sum of such interests
and other investments considered illiquid under the limitation in the
preceding paragraph would exceed the Fund's limitations on investments in
illiquid securities.

(vii) The Fund does not currently intend to purchase the securities of
any issuer (other than securities issue or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5%
of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation.

(viii) The Fund does not currently intend to purchase warrants, valued
at the lower of cost or market, in excess of 5% of the Fund's net assets.
Included in that amount, but not to exceed 2% of the Fund's net assets, may
be warrants that are not listed on the New York Stock Exchange or the
American Stock exchange. Warrants acquired by the Fund in units or attached
to securities are not subject to these restrictions.

(ix) The Fund does not currently intend to invest in oil, gas or other
mineral exploration or development programs or leases.

(x) The Fund does not currently intend to purchase the securities of
any issuer if those officers and Trustees of the trust and those officers and
directors of TMC who individually own more than 1/2 of 1% of the securities
of such issuer together own more than 5% of such issuer's securities.

For the Fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions".

YIELD AND RETURN COMPUTATION

Performance and Portfolio Information -

Each Fund will from time to time display performance information,
including yield, dividend returns, total return, and average annual total
return, in advertising, sales literature, and reports to shareholders. Yield
is computed by dividing the Fund's net interest and dividend income for a
given 30 days or one month period by the maximum share offering price at the
end of the period. The result is "annualized" to arrive at an annual
percentage rate. In addition, the Fund may use the same method for 90 day or
quarterly periods. Total return is the change in share value over time,
assuming reinvestment of any dividends and capital gains. "Cumulative total
return" describes total return over a stated period, while "average annual
total return" is a hypothetical rate of return which, if achieved annually,
would have produced the same cumulative total return if performance had been
constant for the period shown. Average annual return tends to reduce
variations in return over the period, and investors should recognize that the
average figures are not the same as actual annual returns. A Fund may
display return information for differing periods without annualizing the
results and without taking sales charges into effect.

Yield quotations 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 piece; (5) The non-standardized return quotation may
include the effective return obtained by compounding the monthly dividends.

For the Funds' investments denominated in foreign currencies, income and
expenses are calculated first in their respective currencies, and are then
converted to U.S. dollars, either when they are actually converted or at the
end of the 30-day or one month period, whichever is earlier. Capital gains
and losses generally are excluded from the calculation as are gains and
losses from currency exchange rate fluctuations.

Income calculated for the purposes of calculating the Funds' yields
differs from income as determined for other accounting purposes. Because of
the different accounting methods used, and because of the compounding of
income assumed in yield calculations, a Fund's yield may not equal its
distribution rate, the income paid to a shareholder's account, or the income
reported in the Fund's financial statements.

Yield information may be useful in reviewing a Fund's performance and in
providing a basis for comparison with other investment alternatives.
However, each Fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.

Total returns quoted in advertising reflect all aspects of a Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value (NAV) over a
stated period. Average annual total returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in a
Fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example, a
cumulative total return of 100% over ten years would produce an average
annual return of 7.18%, which is the steady annual rate of return that would
equal 100% growth on a compounded basis in ten years. While average annual
returns are a convenient means of comparing investment alternatives,
investors should realize that a Fund's performance is not constant over time,
but changes from year to year, and the average annual returns represent
averaged figures as opposed to the actual year-to-year performance of the
Fund. In addition to average annual total returns, a Fund may quote
unaveraged or cumulative total returns reflecting the simple change in value
an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
to share price) in order to illustrate the relationship of these factors and
their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis and may be quoted with or without taking a
Fund's maximum sales charge into account. Excluding a Fund's sales charge
from a total return calculation produces a higher total return figure. Total
returns, yields, and other performance information may be quoted numerically
or in a table, graph, or similar illustration.

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

Charts and graphs using the Fund's net asset values, adjusted net asset
values, and benchmark indices may be used to exhibit performance. An
adjusted NAV includes any distributions paid by the Fund and reflects all
elements of its return. Unless otherwise indicated, the Fund's adjusted
NAV's are not adjusted for sales charges, if any.

The Funds may illustrate performance using moving averages. A long-term
moving average is the average of each week's adjusted closing NAV or total
return for a specified period. A short-term moving average NAV is the
average of each day's adjusted closing NAV for a specified period. Moving
average activity indicators combine adjusted closing NAV's from the last
business day of each week with moving averages for a specified period the
produce indicators showing when an NAV has crossed, stayed above, or stayed
below its moving average.

Each Fund's performance may be compared to the performance of other
mutual funds in general, or to the performance of particular types of mutual
funds. These comparisons may be expressed as mutual fund ranking prepared by
Lipper Analytical Services, Inc. (Lipper), an independent service located in
Summit, New Jersey that monitors the performance of mutual funds. Lipper
generally ranks funds on the basis of total return, assuming reinvestment of
distributions, but does not take sales charges or redemption fees into
consideration, and is prepared without regard to tax consequences. In
addition to the mutual fund rankings the Fund's performance may be compared
to stock, bond, and money market mutual fund performance indices prepared by
Lipper or other organizations. When comparing these indices, it is important
to remember the risk and return characteristics of each type of investment.
For example, while stock mutual funds may offer higher potential returns,
they also carry the highest degree of share price volatility. Likewise,
money market funds may offer greater stability of principal, but generally do
not offer the higher potential returns from stock mutual funds. From time to
time, the Fund's performance may also be compared to other mutual funds
tracked by financial or business publications and periodicals. For example,
the Fund may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on
the basis of risk-adjusted performance. Rankings that compare the performance
of Thornburg Funds to one another in appropriate categories over specific
periods of time may also be quoted in advertising. Performance rankings and
ratings reported periodically in financial publications such as "MONEY"
magazine, "Forbes" and "BARRON's" also may be used. These performance
analyses ordinarily do not take sales charges into consideration and are
prepared without regard to tax consequences.

Each Fund may be compared in advertising to Certificates of Deposit
(CD's) or other investments issued by banks or other depository institutions.
Mutual funds differ from bank investments in several respects. For example,
while a Fund may offer greater liquidity or higher potential returns than
CD's, a Fund does not guarantee a shareholder's principal or return, and Fund
shares are not FDIC insured.

Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate
of inflation (based on the CPI), and combinations of various capital markets.
The performance of these capital markets is based on the returns of differed
indices.

The Funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any of
these capital markets. The risks associated with the security types in the
capital market may or may not correspond directly to those of a Fund. A Fund
may also compare performance to that of other compilations or indices that
may be developed and made available in the future, and advertising, sales
literature and shareholder reports also may discuss aspects of periodic
investment plans, dollar cost averaging and other techniques for investing to
pay for education, retirement and other goals. In addition, a Fund may quote
or reprint financial or business publications and periodicals, including
model portfolios or allocations, as they relate to current economic and
political conditions, fund management, portfolio composition, investment
philosophy, investment techniques and the desirability of owning a particular
mutual fund. A Fund may present its fund number, Quotron (trademark) number,
and CUSIP number, and discuss or quote its current portfolio manager.

The Funds may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Funds may compare these
measures to those of other funds. Measures of volatility seek to compare a
Fund's historical share price fluctuations or total returns to those of a
benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation are
calculated using averages of historical data. In advertising, a Fund may
also discuss or illustrate examples of interest rate sensitivity.

Momentum indicators show a Fund's price movements over specific periods
of time. Each point on the momentum indicator represents the Fund's
percentage change in price movements over that period. A Fund may advertise
examples of the effects of periodic investment plans, including the principle
of dollar cost averaging. In such a program, an investor invests a fixed
dollar amount in a fund at periodic intervals, thereby purchasing fewer
shares when prices are high and more shares when prices are low. While such
a strategy does not assure a profit or guard against loss in a declining
market, the investor's average cost per share can be lower than if fixed
numbers of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing shares
during periods of low price levels. The Funds may be available for purchase
through retirement plans or other programs offering deferral of, or exemption
from, income taxes, which may produce superior after-tax returns over time.
For example, a $1,000 investment earning a taxable return of 10% annually
would have an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent tax-deferred
investment would have an after-tax value of $2,100 after ten years, assuming
tax was deducted at a 31% rate from the tax-deferred earnings at the end of
the ten-year period.

REPRESENTATIVE PERFORMANCE INFORMATION

Representative Performance Information - Limited Term National Fund
(Institutional Class)

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

Yield Computations

Standardized Method of Computing Yield. The yield of the Limited Term
National Fund Institutional Class shares for the 30-day period ended June 30,
1999, computed in accordance with the standardized calculation described
above, was 4.07%. This method of computing yield does not take into account
changes in net asset value.

Taxable Equivalent Yield. The Limited Term National Fund's taxable
equivalent yield for Institutional Class shares, computed in accordance with
the standardized method, using a maximum federal tax rate of 39.6%, was 6.74%
for the 30-day period ended June 30, 1999.

Average Annual Total Return. The Limited Term National Fund's
Institutional Class total return figures are set forth below for the period
shown ending June 30, 1999. Institutional Class shares were first offered on
July 5, 1996. These total return figures assume reinvestment of all
dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
2.87% N/A N/A 4.95%

Representative Performance Information - Limited Term California Fund
(Institutional Class)

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

Yield Computations

Standardized Method of Computing Yield. The yield of the Limited Term
California Fund Institutional Class shares for the 30-day period ended June
30, 1999, computed in accordance with the standardized calculation described
above, was 3.69%. This method of computing yield does not take into account
changes in net asset value.

Taxable Equivalent Yield. The Limited Term California Fund's taxable
equivalent yield for Institutional Class shares, computed in accordance with
the standardized method, using a maximum federal tax rate of 39.6% and a
maximum California tax rate of 9.3%, was 7.22% for the 30-day period ended
June 30, 1999.

Average Annual Total Return. The Limited Term California Fund's
Institutional Class total return figures are set forth below for the period
shown ending June 30, 1999. Institutional Class shares were first offered on
April 1, 1997. These total return figures assume reinvestment of all
dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
3.33% N/A N/A 5.06%

Representative Performance Information - Intermediate National Fund
(Institutional Class)

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

Yield Computations

Standardized Method of Computing Yield. The yield of the Intermediate
National Fund Institutional Class shares for the 30-day period ended March
31, 1999, computed in accordance with the standardized calculation described
above, was 3.87%. 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 yield for Institutional Class shares, computed in accordance with
the standardized method described above using a maximum federal tax rate of
39.6% was 6.41% for the period ended September 30, 1999.

Average Annual Total Return. The Intermediate National Fund's
Institutional Class total return figures are set forth below for the period
shown ending March 31, 1999. Institutional Class shares were first offered
on July 5, 1996. These total return figures assume reinvestment of all
dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
5.22% N/A N/A 6.88%

Representative Performance Information - Government Fund
(Institutional Class)

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

Yield Computations

Standardized Method of Computing Yield. The Government Fund's yield for
Institutional Class shares, computed for the 30-day period ended March 31,
1999 in accordance with the standardized calculation described above, was
5.74%. This method of computing yield does not take into account changes in
net asset value.

Average Annual Total Return. The Government Fund's total returns for
Institutional Class shares, computed in accordance with the total return
calculation described above, are displayed in the table below for the periods
shown ended March 31, 1999. The Government Fund commenced sales of
Institutional Class shares on July 5, 1996. "Total return," unlike the
standardized yield figures shown above, takes into account changes in net
asset value over the described periods. These data assume reinvestment of
all dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
5.64% N/A N/A 6.93% (7/5/96)

Total return figures are average annual total returns for the periods shown.

Representative Performance Information - Income Fund
(Institutional Class)

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

Yield Computations

Standardized Method of Computing Yield. The Income Fund's yield for
Institutional Class shares, computed for the 30-day period ended March 31,
1999 in accordance with the standardized calculation described above, was
5.81%. This method of computing yield does not take into account changes in
net asset value.

Average Annual Total Return. The Income Fund's total returns for
Institutional Class shares, computed in accordance with the total return
calculation described above, are displayed in the table below for the periods
shown ended March 31, 1999. The Income Fund commenced sales of Institutional
Class shares on July 5, 1996. "Total return," unlike the standardized yield
figures shown above, takes into account changes in net asset value over the
described periods. These data assume reinvestment of all dividends at net
asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
5.22% N/A N/A 7.35% (7/5/96)

Total return figures are average annual total returns for the periods shown.

Representative Performance Information - Value Fund
(Institutional Class)

Value Fund's average annual total returns for Institutional Class
shares, computed in accordance with the average annual total return
calculation described above, are displayed in the table below for the periods
shown ending March 31, 1999. Value Fund commenced sales of its Institutional
Class shares on November 2, 1998. "Total return" takes into account changes
in net asset value over the described periods. These data assume
reinvestment of all dividends at net asset value.

1 Year 5 Years 10 Years Since Inception
------ ------- -------- ---------------
N/A N/A N/A 16.80% (11/2/98)

TAXES

Federal Income Taxes - In General

Each Fund has elected and intends to qualify for treatment as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code").

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 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.

Distributions by a Fund result in a reduction in the net asset value of
the Fund's shares. Should distributions reduce the net asset value below a
shareholder's cost basis, the distribution would nevertheless be taxable to
the shareholder as ordinary income or capital gain as described above, even
though, from an investment standpoint, it may constitute a partial return of
capital. In particular, investors should consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those
purchasing just prior to a distribution will then receive a partial return of
capital upon the distribution, which will nevertheless be taxable to them.

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.

Federal Income Taxation - Municipal Funds

The Municipal Funds each intend to satisfy conditions (including
requirements as to the proportion of its assets invested in Municipal
Obligations) which will enable each Fund to designate distributions from the
interest income generated by its investments in Municipal Obligations, which
are exempt from federal income tax when received by the Fund, as Exempt
Interest Dividends. Shareholders receiving Exempt Interest Dividends will
not be subject to federal income tax on the amount of those dividends, except
to the extent the alternative minimum tax may apply. A Municipal Fund would
be unable to make Exempt Interest Dividends if, at the close of any quarter
of its taxable year, more than 50% of the value of the Fund's total assets
consisted of assets other than Municipal Obligations. Additionally, if in
any year the Fund qualified as a regulated investment company but failed to
distribute all of its net income, the Fund would be taxable on the
undistributed portion of its net income. Although each Fund intends to
distribute all of its net income currently, it could have undistributed net
income if, for example, expenses of the Fund were reduced or disallowed on
audit.

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.

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

Any net long-term capital gains realized by a Municipal Fund, whether or
not distributed in cash or reinvested in additional shares, must be treated
as long-term capital gains by shareholders regardless of the length of time
investors have held their shares. If a Fund should have net undistributed
capital gain in any year, the Fund would pay the tax on such gains and each
shareholder would be deemed, for federal tax purposes, to have paid his or
her pro rata share of such tax.

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

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

In addition, the Code provides that a portion of the adjusted current
earnings of a corporation reported on its financial statement and not
otherwise included in the minimum tax base will be included for purposes of
calculating the alternative minimum tax for such years. The adjusted current
earnings of a corporation will include Exempt Interest Dividends in
calculating the alternative minimum tax on corporations to the extent that
such dividends are not otherwise treated as a preference item for the reasons
discussed above.

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 Municipal Funds and their individual shareholders, and
this summary primarily addresses tax consequences to individual shareholders.
For complete provisions, reference should be made to the pertinent Code
sections and Treasury Regulations. The Code and Treasury Regulations are
subject to change by legislative or administrative action, and any such
change may be retroactive with respect to Fund transactions. Shareholders
are advised to consult their own tax advisers for more detailed information
concerning the federal taxation of the Funds and the income tax consequences
to their shareholders.

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.

State and Local Tax Aspects of the Municipal Funds

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.

The exemption from the State of California personal income taxes for
distributions of interest income in the Limited Term California Fund applies
only to shareholders who are residents of the State of California, and only
to the extent such income qualifies as "exempt-interest dividends" under
Section 17145 of the California Revenue and Taxation Code and is not derived
from interest on obligations from any state other than from California or its
political subdivisions.

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

Federal Income Taxes - Income Funds

Each of the Income Funds has elected and intends to qualify for
treatment as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"). Distributions representing net
interest and net short-term capital gains will be taxable as ordinary income
to the recipient shareholders, whether the distributions are actually taken
in cash or are reinvested by the recipient shareholders in additional shares.
Fund distributions will not be eligible for the dividends received deduction
for corporations. Distributions of net long-term capital gains, if any, will
be treated as long-term capital gains to the distributee shareholders,
whether the distributions are actually taken as cash or are reinvested by the
recipient shareholders in additional shares.

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. If any
capital gain distribution by a Fund represents gain on the sale of property
before 1998, the shareholder receiving the distribution may have to pay
federal income tax at a rate of 28% if the property was owned for more than a
year but not more than 18 months when sold.

Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a mutual fund accrues interest or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Fund actually collects such receivables or
pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on a disposition of debt securities denominated in a
foreign currency and on disposition of certain futures contracts, forward
contracts and options, gains or losses attributable to fluctuations in the
value of foreign currency between the date of acquisition of the security or
contract and the date of disposition are also treated as ordinary gain or
loss. These gains or losses, referred to under the Code as "Section 988"
gains or losses, may increase or decrease the amount of the Income Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.

The foregoing is a general and abbreviated summary of the provisions of
the Code and Treasury Regulations presently in effect as they directly govern
the taxation of the Taxable Income Funds and their individual shareholders,
and this summary primarily addresses tax consequences to individual
shareholders. For complete provisions, reference should be made to the
pertinent Code sections and Treasury Regulations. The Code and Treasury
Regulations are subject to change by legislative or administrative action,
and any such change may be retroactive with respect to Fund transactions.
Shareholders are advised to consult their own tax advisers for more detailed
information concerning the federal and state taxation of the Fund and the
income tax consequences to its shareholders.

State and Local Income Tax Considerations - Taxable Income Funds

A portion of each Fund's dividends derived from certain U.S. Government
obligations may be exempt from state and local taxation. The income tax
treatment of the shareholders in the respective states will depend upon the
specific laws applicable in those states, and prospective investors are urged
to confer with their own tax advisers concerning their particular situations.

Federal Income Taxes - Value Fund

Gains (losses) attributable to foreign currency fluctuations are
generally taxable as ordinary income and therefore will increase (decrease)
dividend distributions. Net short-term capital gains are distributed as
dividend income. The Value Fund will send each shareholder a notice in
January describing the tax status of dividends and capital gain distributions
for the prior year.

Long-term capital gains earned by the Value Fund on the sale of
securities and distributed to shareholders are federally taxable as long-term
capital gains, regardless of the length of time shareholders have held their
shares. If a shareholder receives a long-term capital gain distribution on
shares of the Value Fund and such shares are held 12 months or less and are
sold at a loss, the portion of the loss equal to the amount of the long-term
capital gain distribution will be considered a long-term loss for tax
purposes. Net short-term capital gains distributed by the Fund are taxable
to shareholders as dividends, not as capital gains.

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.

Foreign governments may withhold taxes on dividends and interest paid
with respect to foreign securities typically at a rate between 10% and 35%.
Foreign governments may also impose taxes on other payments or gains with
respect to foreign securities. Because the Fund does not currently
anticipate that securities of foreign issuers will constitute more than 50%
of its total assets at the end of its fiscal year, shareholders should not
expect to claim a foreign tax credit or deduction on their federal income tax
returns with respect to foreign taxes withheld.

The foregoing is a general and abbreviated summary of the provisions of
the Code and Treasury Regulations currently in effect as they directly govern
the income taxation of Value Fund shareholders. This summary primarily
addresses income tax consequences to shareholders who are individuals. The
Code and Regulations are subject to change at any time, in some cases
retroactively. Shareholders are advised to consult their own tax advisers
for more detailed information concerning the federal tax consequences of an
investment in the Value Fund.

State and Local Income Tax Considerations - Value Fund

Shareholders may be subject to state and local taxes on Value Fund
distributions, and capital gains taxation on disposition of shares. Shares
also may be subject, in some jurisdictions, to state and local property
taxes. A portion of the Value Fund's dividends derived from certain U.S.
Government obligations may be exempt from state and local taxation.
Shareholders should consult their own tax advisers for information concerning
the state and local taxation of an investment in the Value Fund.

DISTRIBUTIONS AND SHAREHOLDERS ACCOUNTS

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

The monthly or quarterly distributions of interest income, net of
expenses, and the annual distributions of net realized capital gains, if any,
will be credited to the accounts of shareholders in full and fractional
shares of the Fund at net asset value on the payment or distribution date, as
the case may be. Upon written notice to the Transfer Agent, a shareholder
may elect to receive periodic distributions of net interest income in cash.
Such an election will remain in effect until changed by written notice to the
Transfer Agent, which change may be made at any time in the sole discretion
of the shareholder.

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 ADVISER, INVESTMENT ADVISORY AGREEMENT,
AND ADMINISTRATIVE SERVICES AGREEMENT

Investment Advisory Agreement

Pursuant to an Investment Advisory Agreement in respect of each Fund,
Thornburg Management Company, Inc. ("TMC"), 119 East Marcy Street, Suite 202,
Santa Fe, New Mexico 87501, acts as investment adviser for, and will manage
the investment and reinvestment of the assets of, each of the Funds in
accordance with the Funds' respective investment objectives and policies,
subject to the general supervision and control of the directors of Thornburg
Limited Term Municipal Fund, Inc. with respect to Limited Term National Fund
and Limited Term California Fund, and subject to the general supervision and
control of the trustees of Thornburg Investment Trust with respect to
Intermediate National Fund, Government Fund, Income Fund and Value Fund.

TMC is also investment adviser to Thornburg New Mexico Intermediate
Municipal Fund, Thornburg New York Intermediate Municipal Fund, Thornburg
Florida Intermediate Municipal Fund and Thornburg Global Value Fund, separate
series of Thornburg Investment Trust. TMC is a subadviser to Daily Tax-Free
Income Fund, Inc., a registered investment company.

TMC is paid a fee by each Fund, in the percentage amounts set forth in
the table below:

0 to $500 million .50%
$500 million to $1 billion .40%
$1 billion to $1.5 billion .30%
$1.5 billion to $2 billion .25%
Over $2 billion .225%

- ------------------------------------------
Intermediate National Fund and Income Fund
- ------------------------------------------
Net Assets of Fund Advisory Fee Rate
- ------------------ -----------------

0 to $500 million .50%
0$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 of Fund Advisory Fee Rate
- ------------------ -----------------

0 to $1 billion .375%
$1 billion to $2 billion .325%
Over $2 billion .275%

- ----------
Value Fund
- ----------
Net Assets of Fund Advisory Fee Rate
- ------------------ -----------------

0 to $500 million .875%
$500 million to $1 billion .825%
$1 billion to $1.5 billion .775%
$1.5 billion to $2 billion .725%
Over $2 billion .625%

- ----------------------------------------------------------------------------

The fee paid by each Fund is allocated among the different classes of
shares offered by the Fund based upon the average daily net assets of each
class of shares. All fees and expenses are accrued daily and deducted before
payment of dividends. In addition to the fees of TMC, each Fund will pay all
other costs and expenses of its operations. Each Fund also will bear the
expenses of registering and qualifying the Fund and its shares for
distribution under federal and state securities laws, including legal
fees.

The Company's directors (including a majority of the directors who are
not "interested persons" within the meaning of the Investment Company Act of
1940) have approved the Investment Advisory Agreement applicable to each of
Limited Term National Fund and Limited Term California Fund, and the Trust's
trustees (including a majority of the trustees who are not "interested
persons") have similarly approved the Investment Advisory Agreement
applicable to each of Intermediate National Fund, Government Fund, Income
Fund and Value Fund. Certain administrative services are provided under the
terms of an Administrative Services Agreement applicable to each class of
shares issued by each Fund. The Administrative Services Agreements are
described below.

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

For the three most recent fiscal periods with respect to each Fund, the
amounts paid to TMC by each Fund under the Investment Advisory Agreement
applicable to each Fund were as follows:

<TABLE>

June 30, 1997 June 30, 1998 June 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Limited Term National Fund $4,159,938 $4,213,345 $4,227,732
Limited Term California Fund $496,821 $649,445

Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Intermediate National Fund $1,446,809 $1,248,058 $1,855,808
Government Fund $678,979 $529,056 $521,022
Income Fund $150,436 $170,199 $228,636
Value Fund $105,914 $376,424 $1,214,207

TMC has waived its rights to fees in the foregoing periods as follows:
<CAPTION>
June 30, 1997 June 30, 1998 June 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Limited Term National Fund 0 0 0
Limited Term California Fund $27,360 0

Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Intermediate National Fund 0 $144,709 0
Government Fund 0 0 0
Income Fund 0 0 0
Value Fund 0 0 0

</TABLE>

The foregoing figures for the time periods before July 1, 1996 reflect, in
whole or in part, fee rates applicable before restatement of the Investment
Advisory Agreement for each Fund. TMC may (but is not obligated to) waive
its rights to any portion of its fees in the future, and may use any portion
of its fee for purposes of shareholder and administrative services and
distribution of fund shares. During the fiscal year ended June 30, 1999,
Limited Term National Fund and Limited Term California Fund each reimbursed
TMC $88,975 and $13,207, respectively, for accounting expenses incurred on
behalf of each Fund, and during the fiscal year ended September 30, 1998,
Intermediate National Fund, Government Fund and Income Fund reimbursed TMC
$39,514, $15,952 and $5,309, respectively, for accounting services.

H. Garrett Thornburg, Jr., Treasurer, Director and Chairman of the Board
of Thornburg Limited Term Municipal Fund, Inc., and Chairman and Trustee of
Thornburg Investment Trust, is also Director and controlling shareholder of
TMC.

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 regulatory
compliance and legal affairs, review and administration of functions
delivered by outside service providers to or for shareholders, and other
related or similar functions as may from time to time be agreed. The
Administrative Services Agreement specific to each Fund's Institutional
Class shares provides that the class will pay a fee calculated at an annual
percentage of .05% of the class's average daily net assets, paid monthly,
together with any applicable sales or similar tax. Services are currently
provided under these agreements by TMC.

For the three most recent fiscal periods with respect to each Fund, the
amounts paid to TMC by each Fund under the Institutional Class Administrative
Services Agreement applicable to Institutional Class shares of each Fund were
as follows:

<TABLE>

June 30, 1997 June 30, 1998 June 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>

Limited Term National Fund 8.588 $27,156 $40,246
Limited Term California Fund N/A $3,420 $5,271

Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>

Intermediate National Fund $57 $2,673 $9,338
Limited Term California Fund $ 1 $229 $1,907
Income Fund $89 $1,212 $2,908
Value Fund N/A N/A N/A

</TABLE>

SERVICE PLANS

Each of the Funds has adopted a plan and agreement of distribution
pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("Service
Plan") which is applicable to Institutional Class shares of each Fund. The
Plan permits each Fund to pay to TMC (in addition to the management and
administration fees and reimbursements described above) an annual amount not
exceeding .25 of 1% of the Fund's Institutional Class assets to reimburse TMC
for specific expenses incurred by it in connection with certain shareholder
services and the distribution of that Fund's shares to investors. TMC may,
but is not required to, expend additional amounts from its own resources in
excess of the currently reimbursable amount of expenses. Reimbursable
expenses include the payment of amounts, including incentive compensation, to
securities dealers and other financial institutions, including banks (to the
extent permissible under the Glass-Steagall Act and other federal banking
laws), for administration and shareholder services, and in connection with
the distribution of Institutional Class shares. The nature and scope of
services provided by dealers and other entities likely will vary from entity
to entity, but may include, among other things, processing new account
applications, preparing and transmitting to the Transfer Agent information
respecting shareholder account transactions, and serving as a source of
information to customers concerning the Funds and transactions with the
Funds. TMC has no current intention to request or receive any reimbursement
under the Service Plans applicable to the Institutional Classes of any of the
Funds. The Service Plan does not provide for accrued but unpaid
reimbursements to be carried over and paid to TMC in later years.

PORTFOLIO TRANSACTIONS

TMC, in effecting purchases and sales of portfolio securities for the
account of each of the Municipal Funds and Taxable Income Funds, places
orders in such manner as, in the opinion of TMC, offers 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.

Similarly, TMC places orders for transactions in portfolio securities
for Value Fund in such manner as, in the opinion of TMC, will offer the
best price and market for the execution of those transactions. In
selecting broker dealers, subject to applicable legal requirements, TMC
considers various relevant factors, including, but not limited to: the
size and type of the transaction; the nature and character of the markets
for the security to be purchases or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer firm;
the broker-dealer's execution services rendered on a continuing basis; and
the reasonableness of any commissions; and arrangements for payment of Fund
expenses. Generally commissions for foreign investments traded will be
higher than for U.S. investments and may not be subject to negotiation.

TMC may execute portfolio transactions with broker-dealers who provide
research and execution services to the Fund. Such services may include
advice concerning the value of securities; the availability of securities
or the purchasers or sellers of securities; furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance
and settlement). The selection of such broker-dealers is made by TMC based
upon the quality of such research and execution services provided. The
receipt of research from broker-dealers who execute transactions on behalf
of the Funds may be useful to TMC in rendering investment management
services to the Funds. The receipt of such research may not reduce TMC's
normal independent research activities; however, it may enable TMC to avoid
the additional expenses that could be incurred if TMC tried to develop
comparable information through its own efforts.

TMC is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the Funds or shares of other Thornburg
funds to the extent permitted by law. TMC may use research services
provided by and place agency transactions with Thornburg Securities
Corporation (TSC) if the commissions are fair, reasonable, and comparable
to commissions charged by non-affiliated, qualified brokerage firms for
similar services. TMC may allocate brokerage transactions to broker-
dealers who have entered into arrangements with TMC under which the broker-
dealer allocates a portion of the commissions paid by the Fund toward
payment of the Fund's expenses, such as transfer agent fees or custodian
fees. The transaction quality must, however, be comparable to those of
other qualified broker-dealers.

The Directors and Trustees of the respective Funds periodically review
TMC's performance of its responsibilities in connection with the
performance of its responsibilities in connection with the placement of
portfolio transactions for the Funds.

Portfolio Turnover Rates

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

Year ended Year ended
June 30, 1998 June 30, 1999
------------- -------------
Limited Term National Fund 24.95% 21.16%
Limited Term California Fund 21.21% 21.71%

Year ended Year ended
Sept. 30, 1997 Sept. 30, 1998
-------------- --------------
Intermediate National Fund 15.36% 16.28%
Government Fund 41.10% 29.81%
Income Fund 13.87% 40.75%
Value Fund 78.83% 99.55%

MANAGEMENT