THORNBURG DEVELOPING WORLD FUND

Transcription

1 Annual Report September 30, 2017 THORNBURG DEVELOPING WORLD FUND

2 About Thornburg Investment Management It s more than what we do. It s how we do it. At Thornburg, we are very different in how we think, invest, and are structured. We believe this difference is what makes us successful in helping individuals reach their long-term financial goals. Flexible Perspective Our perspective on investment opportunities is more flexible than most, viewing a wide range of opportunities beyond conventional boundaries to find hidden value. Collaboration Collectively, we hone ideas via borderless cross-pollination for better judgment and better results. Portfolio Construction Disciplined construction guided more by our convictions than convention. CONVICTION Thorough analysis and our relative-value framework lead to conviction in our securities selection. UNCONVENTIONAL Active management means we seek the best value for our clients rather than using conventional benchmarks as our starting point. Structured for Excellence How we think and how we invest is made possible by how we re structured. TEAM APPROACH FAR FROM THE HERD ACCESS & TRANSPARENCY 2 Annual Report

3 Thornburg Developing World Fund Annual Report September 30, 2017 Table of Contents Letter to Shareholders...4 Performance Summary...6 Fund Summary...7 Schedule of Investments...8 Statement of Assets and Liabilities...11 Statement of Operations...13 Statements of Changes in Net Assets...15 Notes to Financial Statements...16 Financial Highlights...24 Report of Independent Registered Public Accounting Firm...26 Expense Example...27 Trustees and Officers...28 Other Information...31 Trustees Statement to Shareholders SHARE CLASS NASDAQ SYMBOL CUSIP Class A THDAX Class C THDCX Class I THDIX Class R5 THDRX Class R6 TDWRX Class I, R5, and R6 shares may not be available to all investors. Minimum investments for Class I shares may be higher than those for other classes. Investments carry risks, including possible loss of principal. Additional risks may be associated with investments outside the United States, especially in emerging markets, including currency fluctuations, illiquidity, volatility, and political and economic risks. Investments in small- and mid-capitalization companies may increase the risk of greater price fluctuations. Please see the Fund s prospectus for a discussion of the risks associated with an investment in the Fund. Investments in the Fund are not FDIC insured, nor are they bank deposits or guaranteed by a bank or any other entity. Funds invested in a smaller number of holdings may expose an investor to greater volatility. Annual Report 3

4 Letter to Shareholders Thornburg Developing World Fund September 30, 2017 (Unaudited) October 13, 2017 Dear Fellow Shareholder: The end of the latest fiscal year marked the third straight quarter of strong, positive returns for the MSCI Emerging Markets (EM) Index. It was also a continuation of the emerging market recovery that kicked off in early 2016, leading to positive performance in six of the last seven quarters. The more recent index moves have been driven more by an increase in valuation as positive earnings revisions have slowed. However, at 12.5x 2018 earnings per share, valuations are still not stretched, especially considering the relative valuation compared to developed market indices the S&P 500 Index at 17.8x and the MSCI EAFE Index at 14.8x 2018 earnings per share. During the fiscal year completed September 30, 2017, Thornburg Developing World Fund delivered a total return of 17.58% (A shares without sales charge), which trailed the MSCI Emerging Markets Index return of 22.46%. While we are disappointed our return trailed that of the index, the Fund performed generally as expected considering our preference for companies that demonstrate stronger business fundamentals such as consistent free cash flow and low leverage. We believe stronger companies like those we tend to hold in the Fund should outperform the broader market over a long period but tend to underperform during strong up markets, such as that experienced for the last six to seven quarters. Typically, early market recoveries are led by companies with high debt levels and poor free cash flow, characteristics that we actively try to avoid in our investment process. After the start of the calendar year, leadership became more broad based and as a result our holdings have performed more favorably compared to the benchmark, especially in the last two quarters of the fiscal year. Leading Chinese e-commerce company Alibaba Group was the top contributor for the period, with shares rising more than 60%. The firm is quickly becoming one of the dominant internet platforms in China, along with Tencent, covering major needs from entertainment to financial services. It continues to benefit from better-thanexpected performance in its marketplace business, which Alibaba attributes to better customer engagement and effective deployment of data analytics tools, and has made significant gains in addressing concerns over counterfeit goods. Longtime Fund investment Tencent Holdings provides internet and mobile services to almost a billion Chinese consumers. Similar to Alibaba, Tencent has ambitions to become the main provider of a range of consumer services, including streaming video, gaming, and banking. It continues to perform in excess of expectations as advertising revenue from its gaming and social media platforms grow, and adoption of its payments platforms continues to grow among offline merchants. Samsung Electronics is a Korean technology firm that produces a wide array of consumer and industrial electronic equipment. Several factors helped drive Samsung s return during the period, among them earnings upgrades amid undersupply in a strong electronic memory market, strong reception of a smartphone release in the second quarter, and demand for its world-class organic light-emitting diode (OLED) screens. Investors have also become more optimistic that management is moving toward a more shareholder-friendly posture. Baidu is the leading Chinese internet search firm. During the period it generally performed in line or slightly ahead of our expectations, with decent revenue growth and significant progress in managing costs from its loss-making offline-to-online segment. This cost management helped to drive margin and earnings upside compared to consensus expectations. Hangzhou Hikvision Digital Technology Company is the largest video surveillance company in the world. Shares of the firm experienced significant price appreciation during the period, as its price multiple expanded to reflect optimism that the wider adoption of artificial intelligence (AI) technology would increase demand for its products. Additionally, it launched its own AI technology platform for smart city and factory automation applications. Grape King Bio is principally engaged in the sale of health supplements that are a cross between traditional Chinese medicine and Western supplements. Near the end of 2016, news emerged that the company had sold expired product after changing the sell-by date. This caused the stock to decline. While the financial impacts of the scandal were small, the impacts on the brand equity were large. We exited the position due to concerns about future revenue growth, which could be impacted by the scandal. GT Capital is an investment holding company based in the Philippines. A combination of Philippine peso depreciation and concerns around falling margins in its Toyota Motors subsidiary, which imports some parts from other markets, hurt the stock price. We have trimmed the position to fund higher conviction ideas considering the weaker near- to medium-term earnings outlook. CT Environmental Group is a Chinese water supply services company that focuses on industrial wastewater treatment. In the fourth quarter of 2016, when the majority of underperformance occurred, the company was the target of a poorly understood short sale attack that was launched just prior to the Thanksgiving holiday and caused great confusion in the marketplace. The company defended itself, causing shares to re-rate slightly and giving us an opportunity to exit the position. Liberty LiLAC Group is a Latin-American focused telecom and cable operator that is part of the Liberty Global group. In the final quarter of 2016 it reported much lower-than-expected earnings before interest, taxes, depreciation, and amortization after closing an acquisition. Concurrent with this announcement, the market became concerned that it had overpaid for an asset with limited growth. After disappointing performance from the acquired assets over multiple quarters, we decided to exit the position for better opportunities. South Korean company Amorepacific Corp is a leading global cosmetics brand with significant opportunities to expand beyond the Korean market. The largest international opportunity would be its sales into the China market. Unfortunately, geopolitical tensions between China and South Korea following installation of an American-made missile defense system led to China imposing 4 Annual Report

5 Letter to Shareholders, Continued Thornburg Developing World Fund September 30, 2017 (Unaudited) restrictions on travel to South Korea in addition to Korea cosmetics imports. Given the changes in the medium-term opportunity we decided to exit the position after it rebounded from its lows. Looking forward, we see the fundamentals in many emerging markets continuing to strengthen. In particular, we are positive about the potential impact from the ongoing reform agendas in China and India. We remain optimistic about the opportunity for reform in Brazil, as well. We are also constructive about future returns for emerging market equities as we continue to find strong businesses at attractive valuations throughout emerging markets, although perhaps slightly fewer than we did at the beginning of We will continue to search for the highest-quality businesses at the best prices. Thank you for investing alongside us in Thornburg Developing World Fund. Sincerely, Ben Kirby, CFA Portfolio Manager Managing Director Charlie Wilson, PhD Portfolio Manager Managing Director The matters discussed in this report may constitute forward-looking statements made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of These include any advisor or portfolio manager prediction, assessment, analysis or outlook for individual securities, industries, investment styles, market sectors and/or markets. These statements involve risks and uncertainties. In addition to the general risks described for each fund in its current prospectus, other factors bearing on these reports include the accuracy of the advisor s or portfolio manager s forecasts and predictions, the appropriateness of the investment strategies designed by the advisor or portfolio manager and the ability of the advisor or portfolio manager to implement their strategies efficiently and successfully. Any one or more of these factors, as well as other risks affecting the securities markets generally, could cause the actual results of any fund to differ materially as compared to its benchmarks. The views expressed are subject to change and do not necessarily reflect the views of Thornburg Investment Management, Inc. This information should not be relied upon as a recommendation or investment advice and is not intended to predict the performance of any investment or market. Annual Report 5

6 Performance Summary Thornburg Developing World Fund September 30, 2017 (Unaudited) AVERAGE ANNUAL TOTAL RETURNS 1-YR 3-YR 5-YR SINCE INCEP. Class A Shares (Incep: 12/16/09) Without sales charge 17.58% 2.49% 5.00% 6.89% With sales charge 12.29% 0.92% 4.03% 6.27% Class C Shares (Incep: 12/16/09) Without sales charge 16.65% 1.70% 4.20% 6.13% With sales charge 15.65% 1.70% 4.20% 6.13% Class I Shares (Incep: 12/16/09) 18.06% 2.93% 5.46% 7.43% Class R5 Shares (Incep: 2/1/13) 18.06% 2.93% % Class R6 Shares (Incep: 2/1/13) 18.16% 3.03% % MSCI Emerging Markets Index (Since 12/16/09) 22.46% 4.90% 3.99% 3.86% GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT $20,000 $15,000 $10,000 FINAL VALUE Thornburg Developing World Fund, A Shares (with sales charge) $16,052 MSCI Emerging Markets Index $13,427 $5,000 $0 Dec Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Sep-17 Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate so shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than quoted. For performance current to the most recent month end, visit thornburg.com or call The performance information does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of Fund shares. Returns reflect the reinvestment of dividends and capital gains as well as applicable sales charges. Class A shares are sold with a maximum sales charge of 4.50%. Class C shares are subject to a 1% CDSC for the first year only. There is no sales charge for Class I, R5, and R6 shares. As disclosed in the most recent prospectus, the total annual fund operating expenses before any fee waivers or expense reimbursements are as follows: A shares, 1.57%; C shares, 2.34%; I shares, 1.16%; R5 shares, 1.75%; R6 shares, 1.17%. Thornburg Investment Management and/or Thornburg Securities Corporation have contractually agreed to waive fees and reimburse expenses through at least April 10, 2018, for some of the share classes, resulting in net expense ratios of the following: I shares, 1.09%; R5 shares, 1.09%; R6 shares, 0.99%. For more detailed information on fund expenses and waivers/reimbursements please see the Fund s prospectus. Glossary The MSCI EAFE (Europe, Australasia, Far East) Index is an unmanaged index. It is a generally accepted benchmark for major overseas markets. Index weightings represent the relative capitalizations of the major overseas developed markets on a U.S. dollar adjusted basis. The index is calculated with net dividends reinvested in U.S. dollars. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 23 emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. The S&P 500 Index is an unmanaged broad measure of the U.S. stock market. The performance of any index is not indicative of the performance of any particular investment. Unless otherwise noted, index returns reflect the reinvestment of income dividends and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. Investors may not make direct investments into any index. Leverage An investment strategy using borrowed money: specifically, the use of various financial instruments or borrowed capital to increase the potential return of an investment. Leverage can also refer to the amount of debt used to finance assets. When one refers to something (a company, a property or an investment) as highly leveraged, it typically means that item has more debt than equity. 6 Annual Report

7 Fund Summary Thornburg Developing World Fund September 30, 2017 (Unaudited) OBJECTIVES AND STRATEGIES The Fund seeks long-term capital appreciation. Under normal market conditions the Fund invests at least 80% of its assets in equity securities and debt obligations of developing country issuers. A developing country issuer is a company or sovereign entity that is domiciled or otherwise tied economically to one or more developing countries. The Fund expects that investments in the Fund s portfolio normally will be weighted in favor of equity securities. MARKET CAPITALIZATION EXPOSURE BASKET STRUCTURE TOP TEN EQUITY HOLDINGS Small Cap (< $2.5 B) 2.1% Mid Cap ($ B) 22.5% Large Cap (> $12 B) 75.4% Basic Value 41.4% Consistent Earners 41.5% Emerging Franchises 12.9% Other Assets Less Liabilities 4.2% Alibaba Group Holding Ltd. ADR 6.1% Tencent Holdings Ltd. 5.3% Samsung Electronics Co. Ltd. 4.0% Baidu, Inc. ADR 3.6% Kroton Educacional S.A. 3.0% HDFC Bank Ltd. 3.0% Cielo S.A. 2.9% Sberbank ADR 2.7% AIA Group Ltd. 2.7% British American Tobacco plc ADR 2.6% There is no guarantee that the Fund will meet its investment objective. All portfolio information is subject to change. Charts may not add up to 100% due to rounding. SECTOR EXPOSURE Information Technology 30.4% Financials 26.8% Consumer Discretionary 8.8% Consumer Staples 6.7% Health Care 5.4% Real Estate 4.9% Energy 4.8% Telecommunication Services 3.6% Materials 2.4% Industrials 2.0% Other Assets Less Liabilities 4.2% TOP TEN INDUSTRY GROUPS Software & Services 20.6% Banks 20.1% Consumer Services 7.0% Technology Hardware & Equipment 6.2% Insurance 5.2% Food, Beverage & Tobacco 5.1% Real Estate 4.9% Energy 4.8% Telecommunication Services 3.6% Semiconductors & Equipment 3.6% COUNTRY EXPOSURE* (percent of equity holdings) China 28.7% India 9.1% South Korea 7.9% United States 7.3% Brazil 7.1% United Kingdom 6.2% Russia 6.0% Hong Kong 5.0% Mexico 4.3% South Africa 2.6% Argentina 2.5% Macao 2.4% Indonesia 2.3% Switzerland 2.2% Taiwan 2.0% Philippines 1.6% United Arab Emirates 1.6% Peru 1.0% * The country assignment of each equity holding is determined by the Fund s Advisor based on various factors, including the location of the issuer s head office, the issuer s jurisdiction of incorporation and the country from which a majority of the issuer s revenue is derived. The Advisor may deem certain issuers to be developing country issuers, as defined in the Fund s prospectus, even if those issuers have country exposure in a developed country. Annual Report 7

8 Schedule of Investments Thornburg Developing World Fund September 30, 2017 SHARES VALUE COMMON STOCK 95.83% BANKS 20.05% Banks 20.05% BBVA Banco Frances SA ADR 1,235,362 $ 25,189,031 Citigroup, Inc. 261,436 19,016,855 Credicorp Ltd. 50,726 10,399,845 Grupo Financiero Banorte, S.A.B. de C.V. 1,431,207 9,853,400 HDFC Bank Ltd. 381,484 10,608,199 HDFC Bank Ltd. ADR 219,926 21,194,269 ICICI Bank Ltd. ADR 3,134,340 26,829,950 Industrial and Commercial Bank of China Ltd. 37,085,270 27,535,276 Itau Unibanco Holding SA ADR 722,533 9,898,702 PT Bank Central Asia 15,567,229 23,462,376 Sberbank ADR 2,028,799 28,950, ,938,865 CONSUMER DURABLES & APPAREL 0.70% Household Durables 0.70% Coway Co., Ltd. 91,177 7,482,986 7,482,986 CONSUMER SERVICES 7.05% Diversified Consumer Services 3.00% Kroton Educacional S.A. 5,037,458 31,890,196 Hotels, Restaurants & Leisure 4.05% MGM China Holdings Ltd. 10,338,353 24,775,202 a Yum China Holdings, Inc. 454,604 18,170,522 74,835,920 DIVERSIFIED FINANCIALS 1.54% Diversified Financial Services 1.54% GT Capital Holdings, Inc. 714,427 16,327,912 16,327,912 ENERGY 4.75% Energy Equipment & Services 1.65% Halliburton Co. 381,545 17,562,516 Oil, Gas & Consumable Fuels 3.10% Lukoil PJSC ADR 221,931 11,769,001 Reliance Industries Ltd. 1,769,378 21,161,024 50,492,541 FOOD, BEVERAGE & TOBACCO 5.07% Beverages 0.80% Kweichow Moutai Co., Ltd. 108,206 8,429,832 Tobacco 4.27% British American Tobacco plc ADR 446,258 27,868,812 KT&G Corp. 190,006 17,501,753 53,800,397 HEALTH CARE EQUIPMENT & SERVICES 3.34% Health Care Providers & Services 3.34% a Celltrion Healthcare Co., Ltd. 260,137 12,605,407 Sinopharm Group Co., Ltd. 5,190,478 22,857,346 35,462,753 HOUSEHOLD & PERSONAL PRODUCTS 1.59% Personal Products 1.59% Unilever N.V. 285,436 16,852,141 16,852,141 8 Annual Report

9 Schedule of Investments, Continued Thornburg Developing World Fund September 30, 2017 SHARES VALUE INSURANCE 5.21% Insurance 5.21% AIA Group Ltd. 3,849,652 $ 28,385,984 Sanlam Ltd. 5,395,144 26,962,271 55,348,255 MATERIALS 2.43% Metals & Mining 2.43% Mining and Metallurgical Co. Norilsk Nickel PJSC ADR 421,599 7,257,827 Rio Tinto plc ADR 392,596 18,526,605 25,784,432 MEDIA 1.02% Media 1.02% a IMAX China Holding, Inc. 3,585,512 10,832,363 10,832,363 PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 2.11% Pharmaceuticals 2.11% a,b China Animal Healthcare Ltd. 35,787,582 0 Novartis AG ADR 260,870 22,395,690 22,395,690 REAL ESTATE 4.90% Equity Real Estate Investment Trusts 2.26% Fibra Uno Administracion S.A. de C.V. 14,229,406 24,004,797 Real Estate Management & Development 2.64% China Resources Land Ltd. 3,875,770 11,858,122 Emaar Properties PJSC 7,015,581 16,218,015 52,080,934 SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 3.57% Semiconductors & Semiconductor Equipment 3.57% Applied Materials, Inc. 205,674 10,713,559 Qualcomm, Inc. 211,505 10,964,419 Taiwan Semiconductor Manufacturing Co., Ltd. 2,277,820 16,262,631 37,940,609 SOFTWARE & SERVICES 20.63% Information Technology Services 2.88% Cielo S.A. 4,404,087 30,564,335 Internet Software & Services 17.75% a Alibaba Group Holding Ltd. ADR 375,662 64,880,584 a Baidu, Inc. ADR 154,348 38,230,456 a Facebook, Inc. 91,878 15,699,194 Tencent Holdings Ltd. 1,303,900 56,117,976 a Yandex NV 411,428 13,556, ,049,097 TECHNOLOGY HARDWARE & EQUIPMENT 6.25% Electronic Equipment, Instruments & Components 2.23% Hangzhou Hikvision Digital Technology Co., Ltd. 3,958,536 19,069,241 Largan Precision Co., Ltd. 26,091 4,585,972 Technology, Hardware, Storage & Peripherals 4.02% Samsung Electronics Co. Ltd. 19,060 42,668,041 66,323,254 TELECOMMUNICATION SERVICES 3.63% Diversified Telecommunication Services 1.20% Bharti Infratel Ltd. 2,097,849 12,771,121 Annual Report 9

10 Schedule of Investments, Continued Thornburg Developing World Fund September 30, 2017 SHARES VALUE Wireless Telecommunication Services 2.43% China Mobile Ltd. 2,540,787 $ 25,744,187 38,515,308 TRANSPORTATION 1.99% Airlines 0.95% a Controladora Vuela Compania de Aviacion, S.A.B. de C.V. ADR 851,925 10,112,350 Transportation Infrastructure 1.04% Shanghai International Air Co., Ltd. 1,925,846 11,016,762 21,129,112 TOTAL COMMON STOCK (Cost $802,584,067) 1,017,592,569 SHORT TERM INVESTMENTS 4.63% c Thornburg Capital Management Fund 4,915,846 49,158,463 TOTAL SHORT TERM INVESTMENTS (Cost $49,158,463) 49,158,463 TOTAL INVESTMENTS % (Cost $851,742,530) $ 1,066,751,032 LIABILITIES NET OF OTHER ASSETS (0.46)% (4,870,530) NET ASSETS % $ 1,061,880,502 Footnote Legend a Non-income producing. b Security currently fair valued by the Valuation and Pricing Committee using procedures approved by the Trustees Audit Committee. c Investment in Affiliates - Shown below are holdings of voting securities of each portfolio company which is considered affiliated to the Fund under the Investment Company Act of 1940, including companies for which the Fund s holding represented 5% or more of the company s voting securities, and a series of the Thornburg Investment Trust in which the Fund invested for cash management purposes during the period: SHARES/PRINCIPAL SHARES/PRINCIPAL MARKET VALUE SEPTEMBER 30, GROSS GROSS SEPTEMBER 30, SEPTEMBER 30, INVESTMENT REALIZED ISSUER 2016 ADDITIONS REDUCTIONS INCOME GAIN (LOSS) UNREALIZED GAIN (LOSS) Thornburg Capital Management Fund 8,651,050 38,823,612 42,558,816 4,915,846 $49,158,463 $416,975 $ $ Total non-controlled affiliated issuers % of net assets $49,158,463 $416,975 $ $ Portfolio Abbreviations To simplify the listings of securities, abbreviations are used per the table below: ADR American Depositary Receipt See notes to financial statements. 10 Annual Report

11 Statement of Assets and Liabilities Thornburg Developing World Fund September 30, 2017 ASSETS Investments at value (Note 3) Non-affiliated issuers (cost $802,584,067) $ 1,017,592,569 Non-controlled affiliated issuer (cost $49,158,463) 49,158,463 Cash denominated in foreign currency (cost $651,907) 655,170 Receivable for investments sold 10,528,998 Receivable for fund shares sold 1,015,552 Dividends receivable 765,117 Dividend and interest reclaim receivable 140,200 Prepaid expenses and other assets 21,507 Total Assets 1,079,877,576 LIABILITIES Payable for investments purchased 13,151,604 Payable for fund shares redeemed 1,373,768 Payable to investment advisor and other affiliates (Note 4) 937,833 Deferred taxes payable (Note 2) 2,006,382 Accounts payable and accrued expenses 527,405 Dividends payable 82 Total Liabilities 17,997,074 NET ASSETS $ 1,061,880,502 NET ASSETS CONSIST OF Undistributed net investment income $ 18,851 Net unrealized appreciation on investments 212,965,201 Accumulated net realized gain (loss) (232,518,220) Net capital paid in on shares of beneficial interest 1,081,414,670 $ 1,061,880,502 Annual Report 11

12 Statement of Assets and Liabilities, Continued Thornburg Developing World Fund September 30, 2017 NET ASSET VALUE Class A Shares: Net asset value and redemption price per share ($125,426,677 applicable to 6,316,523 shares of beneficial interest outstanding - Note 5) $ Maximum sales charge, 4.50% of offering price 0.94 Maximum offering price per share $ Class C Shares: Net asset value and offering price per share* ($109,226,976 applicable to 5,769,601 shares of beneficial interest outstanding - Note 5) $ Class I Shares: Net asset value, offering and redemption price per share ($793,068,858 applicable to 39,242,061 shares of beneficial interest outstanding - Note 5) $ Class R5 Shares: Net asset value, offering and redemption price per share ($5,506,385 applicable to 273,371 shares of beneficial interest outstanding - Note 5) $ Class R6 Shares: Net asset value, offering and redemption price per share ($28,651,606 applicable to 1,417,349 shares of beneficial interest outstanding - Note 5) $ * Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. See notes to financial statements. 12 Annual Report

13 Statement of Operations Thornburg Developing World Fund Year Ended September 30, 2017 INVESTMENT INCOME Dividend income Non-affiliated issuers (net of foreign taxes withheld of $2,245,340) $ 21,162,193 Non-controlled affiliated issuer 416,975 Interest income (net of foreign taxes withheld of $21) 994,367 Total Income 22,573,535 EXPENSES Investment advisory fees (Note 4) 10,105,151 Administration fees (Note 4) Class A Shares 168,793 Class C Shares 141,717 Class I Shares 386,014 Class R5 Shares 2,852 Class R6 Shares 9,308 Distribution and service fees (Note 4) Class A Shares 336,722 Class C Shares 1,131,521 Transfer agent fees Class A Shares 214,301 Class C Shares 180,121 Class I Shares 733,929 Class R5 Shares 17,604 Class R6 Shares 8,001 Registration and filing fees Class A Shares 22,628 Class C Shares 18,218 Class I Shares 46,690 Class R5 Shares 21,005 Class R6 Shares 18,970 Custodian fees (Note 2) 761,508 Professional fees 74,230 Accounting fees (Note 4) 18,538 Trustee fees 44,134 Other expenses 168,560 Total Expenses 14,630,515 Less: Expenses reimbursed by investment advisor (Note 4) (467,850) Investment advisory fees waived by investment advisor (Note 4) (806,851) Net Expenses 13,355,814 Net Investment Income $ 9,217,721 Annual Report 13

14 Statement of Operations, Continued Thornburg Developing World Fund Year Ended September 30, 2017 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Non-affiliated issuer investments (net of realized capital gain taxes paid of $1,562,735) $ 30,114,286 Forward currency contracts (Note 7) (2,358,123) Foreign currency transactions (631,236) 27,124,927 Net change in unrealized appreciation (depreciation) on: Non-affiliated issuer investments (net of change in deferred taxes payable of $1,338,759) 127,800,674 Forward currency contracts (Note 7) 1,073,912 Foreign currency translations (100,234) 128,774,352 Net Realized and Unrealized Gain 155,899,279 Net Increase in Net Assets Resulting from Operations $ 165,117,000 See notes to financial statements. 14 Annual Report

15 Statements of Changes in Net Assets Thornburg Developing World Fund INCREASE (DECREASE) IN NET ASSETS FROM YEAR ENDED SEPTEMBER 30, 2017 YEAR ENDED SEPTEMBER 30, 2016 OPERATIONS Net investment income $ 9,217,721 $ 5,848,787 Net realized gain (loss) on investments, forward currency contracts, foreign currency transactions, and capital gain taxes 27,124,927 (9,043,921) Net unrealized appreciation (depreciation) on investments, forward currency contracts, foreign currency translations, and deferred taxes 128,774, ,540,479 Net Increase in Net Assets Resulting from Operations 165,117, ,345,345 DIVIDENDS TO SHAREHOLDERS From net investment income Class A Shares (661,266) (343,296) Class C Shares (220,121) Class I Shares (6,435,552) (4,899,868) Class R5 Shares (47,343) (35,207) Class R6 Shares (310,277) (276,797) FUND SHARE TRANSACTIONS (NOTE 5) Class A Shares (58,944,051) (61,310,070) Class C Shares (40,460,081) (36,759,558) Class I Shares (177,355,450) (267,526,805) Class R5 Shares (1,570,384) 200,879 Class R6 Shares (26,687,949) 23,520,145 Net Decrease in Net Assets (147,575,474) (196,085,232) NET ASSETS Beginning of Year 1,209,455,976 1,405,541,208 End of Year $ 1,061,880,502 $ 1,209,455,976 Undistributed (distribution in excess of) net investment income $ 18,851 $ (1,751,077) See notes to financial statements. Annual Report 15

16 Notes to Financial Statements Thornburg Developing World Fund September 30, 2017 NOTE 1 ORGANIZATION Thornburg Developing World Fund (the Fund ) is a diversified series of Thornburg Investment Trust (the Trust ). The Fund commenced operations on December 16, The Trust was organized as a Massachusetts business trust under a Declaration of Trust dated June 3, 1987 and is registered as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended. The Fund is currently one of twenty-one separate series of the Trust. Each series is considered to be a separate entity for financial reporting and tax purposes and bears expenses directly attributable to it. The Fund seeks long-term capital appreciation. The Fund currently offers five classes of shares of beneficial interest: Class A, Class C, Institutional Class ( Class I ) and Retirement Classes ( Class R5 and Class R6 ). Each class of shares of the Fund represents an interest in the same portfolio of investments, except that (i) Class A shares are sold subject to a front-end sales charge collected at the time the shares are purchased and bear a service fee, (ii) Class C shares are sold at net asset value without a sales charge at the time of purchase, but are subject to a contingent deferred sales charge upon redemption within one year of purchase, and bear both a service fee and a distribution fee, (iii) Class I and Class R5 shares are sold at net asset value without a sales charge at the time of purchase and may be subject to a service fee, (iv) Class R6 shares are sold at net asset value without a sales charge at the time of purchase, and (v) the respective classes may have different reinvestment privileges and conversion rights. Additionally, the Fund may allocate among its classes certain expenses, to the extent allocable to specific classes, including transfer agent fees, government registration fees, certain printing and postage costs, and administrative and legal expenses. Currently, class specific expenses of the Fund are limited to service and distribution fees, administration fees, and certain registration and transfer agent expenses. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund prepares its financial statements in conformity with United States generally accepted accounting principles ( GAAP ), including investment company accounting and reporting guidance in the Financial Accounting Standards Board (the FASB ) Accounting Standard Codification Topic 946. NOTE 2 SIGNIFICANT ACCOUNTING POLICIES Security Valuation: All investments in securities held by the Fund are valued as described in Note 3. Allocation of Income, Gains, Losses and Expenses: Net investment income (other than class specific expenses) and realized and unrealized gains and losses are allocated daily to each class of shares based upon the relative net asset value of outstanding shares (or the value of the dividend-eligible shares, as appropriate) of each class of shares at the beginning of the day (after adjusting for the current capital shares activity of the respective class). Expenses common to all Funds are allocated among the Funds comprising the Trust based upon their relative net asset values or other appropriate allocation methods. Operating expenses directly attributable to a specific class are charged against the operating income of that class. Dividends and Distributions to Shareholders: Dividends and distributions to shareholders, which are determined in accordance with federal income tax regulations and may differ from GAAP, are recorded on the ex-dividend date. Ordinary income distributions, if any, are declared and paid quarterly. Capital gain distributions, if any, are declared and paid annually and more often if deemed necessary by Thornburg Investment Management, Inc., the Trust s investment advisor (the Advisor ). Dividends are paid and are reinvested in additional shares of the Fund at net asset value per share at the close of business on the ex-dividend date, or at the shareholder s option, paid in cash. Investment Income: Dividend income is recorded on the ex-dividend date. Certain income from foreign investments is recognized as soon as information is available to the Fund. Interest income is accrued as earned. Premiums and discounts are amortized and accreted, respectively, to call dates or maturity dates using the effective yield method of the respective investments. These amounts are included in Interest income on the Statement of Operations. Custodian Fees: Custodian fees disclosed in the Statement of Operations may include interest expenses incurred by the Fund on any cash overdrafts of its custodian account during the period. Such cash overdrafts may result from the effects of failed trades in portfolio securities and from cash outflows resulting from unanticipated shareholder redemption activity. The Fund pays interest to its custodian on any such cash overdraft at a rate equal to 2.50% of the overdraft amount in excess of $50,000. Investment Transactions: Investment transactions are accounted for on a trade date basis. Realized gains and losses from the sale of investments are recorded on an identified cost basis. Repurchase Agreements: The Fund may invest excess cash in repurchase agreements whereby the Fund purchases investments, which serve as collateral, with an agreement to resell such collateral to the seller at an agreed upon price at the maturity date of the repurchase agreement. Investments pledged as collateral for repurchase agreements are held in custody until maturity of the repurchase agreement. Provisions in the agreements require that the market value of the collateral is at least equal to the repurchase value in the event of default. 16 Annual Report

17 Notes to Financial Statements, Continued Thornburg Developing World Fund September 30, 2017 In the event of default, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings. When-Issued and Delayed Delivery Transactions: The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio investments consistent with the Fund s investment objectives and not for the purpose of investment leverage or to speculate on interest rate or market changes. At the time the Fund makes a commitment to purchase an investment on a when-issued or delayed delivery basis, the Fund will record the transaction and reflect the value in determining its net asset value. When effecting such transactions, assets of an amount sufficient to make payment for the portfolio investments to be purchased will be segregated on the Fund s records on the trade date. Investments purchased on a when-issued or delayed delivery basis do not earn interest until the settlement date. Foreign Currency Translation: Portfolio investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against the U.S. dollar on the date of valuation. Purchases and sales of investments and income items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. When the Fund purchases or sells foreign investments, it will customarily enter into a foreign exchange contract to minimize foreign exchange risk from the trade date to the settlement date of such transactions. The values of such spot contracts are included in receivable for investments sold and payable for investments purchased on the Statement of Assets and Liabilities. The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on investments held. Such changes are included in net unrealized appreciation (depreciation) from investments. Reported net realized gains and losses from foreign currency transactions arise due to purchases and sales of foreign currencies, currency gains and losses realized between the trade and settlement dates on investment transactions and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund s books, and the U.S. dollar equivalent of the amounts actually received or paid. Net change in unrealized appreciation (depreciation) on foreign currency translations arise from changes in the fair value of assets and liabilities, other than investments at period end, resulting from changes in exchange rates. Guarantees and Indemnifications: Under the Trust s organizational documents (and under separate agreements with the independent Trustees), its officers and Trustees are provided with an indemnification against certain liabilities arising out of the performance of their duties to the Fund. In the normal course of business the Trust may also enter into contracts with service providers that contain general indemnifications. The Trust s maximum exposure under these arrangements is unknown. However, based on experience, the Trust expects the risk of loss to be remote. Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases (decreases) in net assets from operations during the reporting period. Actual results could differ from those estimates. Federal Income Taxes: It is the policy of the Trust to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders substantially all investment company taxable income including net realized gains on investments (if any), and tax exempt income of the Fund. Therefore, no provision for federal income or excise tax is required. The Fund files income tax returns in United States federal and applicable state jurisdictions. The statute of limitations on the Fund s tax return filings generally remains open for the three years following a return s filing date. The Fund has analyzed each uncertain tax position believed to be material in the preparation of the Fund s financial statements for the fiscal year ended September 30, 2017, including open tax years, to assess whether it is more likely than not that the position would be sustained upon examination, based on the technical merits of the position. The Fund has not identified any such position for which an asset or liability must be reflected in the Statement of Assets and Liabilities. At September 30, 2017, information on the tax components of capital was as follows: Cost of investments for tax purposes $ 852,546,096 Gross unrealized appreciation on a tax basis $ 259,794,609 Gross unrealized depreciation on a tax basis (45,570,823) Net unrealized appreciation (depreciation) on investments (tax basis) $ 214,223,786 Temporary book to tax adjustments made to the cost of investments and net unrealized appreciation (depreciation) for tax purposes result primarily from deferral of outstanding wash sale losses and marked-to-market of foreign currency transactions. Annual Report 17

18 Notes to Financial Statements, Continued Thornburg Developing World Fund September 30, 2017 At September 30, 2017, the Fund had deferred tax basis capital losses occurring subsequent to October 31, 2016 through September 30, 2017 of $8,658,757. For tax purposes, such capital losses will be recognized in the year ending September 30, At September 30, 2017, the Fund had cumulative tax basis capital losses of $223,037,046, (of which $223,037,046 are short-term and $0 are long-term) generated after September 30, 2011, which may be carried forward to offset future capital gains. To the extent such carryforwards are used, capital gain distributions may be reduced to the extent provided by regulations. Such capital loss carryforwards do not expire. In order to account for permanent book to tax differences, the Fund increased undistributed net investment income by $226,766, increased accumulated net realized loss by $164,865 and decreased net capital paid in on shares of beneficial interest by $61,901. Reclassifications have no impact upon the net asset value of the Fund and resulted primarily from foreign currency gains (losses), disposition of passive foreign investment company ( PFIC ) investments, and foreign capital gain taxes. At September 30, 2017, the Fund had no undistributed tax basis ordinary investment income or undistributed tax basis capital gains. The tax character of distributions paid during the year ended September 30, 2017, and September 30, 2016, was as follows: Distributions from: Ordinary income $ 7,674,559 $ 5,555,168 Capital gains Total $ 7,674,559 $ 5,555,168 Foreign Withholding Taxes: The Fund is subject to foreign tax withholding imposed by certain foreign countries in which the Fund may invest. Withholding taxes are incurred on certain foreign dividends and are accrued at the time the dividend is recognized based on applicable foreign tax laws. The Fund may file withholding tax reclaims in certain jurisdictions to recover a portion of amounts previously withheld, in view of various considerations, including recent decisions rendered by the courts in those and other jurisdictions. The Fund would expect to record a receivable for such a reclaim based on a variety of factors, including assessment of a jurisdiction s legal obligation to pay reclaims, the jurisdiction s administrative practices and payment history, and industry convention. To date the Fund has recorded no such receivable because there is limited precedent for collecting such prior year reclaims and the likelihood of collection remains uncertain. Deferred Foreign Capital Gain Taxes: The Fund is subject to a tax imposed on net realized gains of securities of certain foreign countries. The Fund records an estimated deferred tax liability for net unrealized gains on these investments as reflected in the accompanying financial statements. NOTE 3 SECURITY VALUATION Valuation of the Fund s portfolio investment securities is performed in accordance with policies and procedures adopted by and under the oversight of the Trustees. The Trustees of the Trust have appointed the Advisor to assist the Trustees to obtain market values for portfolio investments, evaluate and monitor professional pricing service providers appointed by the Trustees Audit Committee (the Audit Committee ) to assist in determining fair values for portfolio investments, assist in calculating fair values for portfolio investments in certain circumstances, and to perform other functions in connection with the valuation of investments. The Advisor acts through its Valuation and Pricing Committee (the Committee ) and other employees of the Advisor. The Committee regularly reviews its own valuation calculations, as well as the valuations, valuation techniques and services furnished by pricing service providers, considers circumstances which may require valuation calculations by the Committee, and reviews previous valuation calculations. The Committee reports to the Audit Committee on the Committee s activities, the performance of pricing service providers, and other matters relating to valuation of portfolio investments. In those instances when the Committee assists in calculating a fair value for a portfolio investment, the Committee seeks to determine the price that the Fund would reasonably expect to receive upon a sale of the investment in an orderly transaction between market participants on the valuation date. The Committee customarily utilizes quotations from securities broker dealers in calculating valuations, but also may utilize prices obtained from pricing service providers or other methods approved by the Audit Committee. Because fair values calculated by the Committee are estimates, the calculation of a value for an investment may differ from the price that would be realized by the Fund upon a sale of the investment, and the difference could be material to the Fund s financial statements. The Committee s calculation of a fair value for an investment may also differ from the prices obtained by other persons (including other mutual funds) for the investment. 18 Annual Report

19 Notes to Financial Statements, Continued Thornburg Developing World Fund September 30, 2017 Valuation of Securities: Securities and other portfolio investments which are listed or traded on a United States securities exchange are valued at the last reported sale price on the valuation date. Investments listed or traded on an exchange for which there has been no sale that day are valued at the mean between the last reported bid and asked prices on that valuation date. Portfolio investments reported by NASDAQ are valued at the official closing price on the valuation date. If an investment is traded on more than one exchange, the investment is considered traded on the exchange that is normally the primary market for that investment. Securities and other portfolio investments which are listed or traded on exchanges outside the United States are valued at the last price or the closing price of the investment on the exchange that is normally the primary market for the investment, as of the close of the exchange preceding the Fund s valuation date. Foreign investments listed or traded on an exchange for which there has been no sale that day are valued at the mean between the last reported bid and asked prices on that valuation date. In any case when a market quotation is not readily available for a portfolio investment ordinarily valued by market quotation, the Committee calculates a fair value for the investment using alternative methods approved by the Audit Committee. A market quotation is not readily available when the primary market or exchange for the investment is not open for the entire scheduled day of trading. Market quotations for an investment also may not be readily available if developments after the most recent close of the investment s primary exchange or market, but prior to the close of business on any Fund business day, or an unusual event or significant period of time occurring since the availability of a market quotation, create a serious question concerning the reliability of the most recent market quotation available for the investment. In particular, on days when market volatility thresholds established by the Audit Committee are exceeded, foreign equity investments held by the Fund may be valued using alternative methods. The Committee customarily obtains valuations in these instances from pricing service providers approved by the Audit Committee. Pricing service providers ordinarily calculate valuations using multi-factor models to adjust market prices based upon various inputs, including exchange data, depository receipt prices, futures, index data and other data. Debt obligations held by the Fund which are not listed or traded on exchanges or for which no reported market exists are ordinarily valued at the valuation obtained from a pricing service provider approved by the Audit Committee. In any case when a pricing service provider fails to provide a valuation for a debt obligation held by the Fund, the Committee calculates a fair value for the obligation using alternative methods under procedures approved by the Audit Committee. Additionally, in cases when management believes that a valuation obtained from a pricing service provider merits review for significant reasons, the Committee decides whether or not to use the valuation calculated by the pricing service provider or to use an alternative method approved by the Audit Committee to calculate a fair value for the obligation. Quotations for foreign investments expressed in foreign currency amounts are converted to U.S. dollar equivalents using a foreign exchange quotation from a third party service provider at the time of valuation. Foreign investments held by the Fund may be traded on days and at times when the Fund is not open for business. Consequently, the value of Fund investments may be significantly affected on days when shareholders cannot purchase or sell Fund shares. Futures contracts and other financial and derivative instruments traded on an exchange are valued at the latest published price for the instrument on its primary exchange. Listed options are valued at the last bid price. Valuation Hierarchy: The Fund categorizes its investments based upon the inputs used in valuing those investments, according to a threelevel hierarchy established in guidance from FASB. Categorization of investments using this hierarchy is intended by the FASB to maximize the use of observable inputs in valuing investments and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in valuing an investment based on available market information. Unobservable inputs are those that reflect assumptions about the information market participants would use in valuing an investment. An investment s level within the hierarchy is based on the lowest level input that is deemed significant to the valuation. The methodologies and inputs used to value investments are not necessarily indications of the risk or liquidity associated with those investments. Various inputs are used in calculating valuations for the Fund s investments. These inputs are generally summarized according to the three-level hierarchy below: Level 1: Quoted prices in active markets for identical investments. Level 2: Other direct or indirect significant observable inputs (including quoted prices for similar investments in active markets and other observable inputs, such as interest rates, prepayment rates, credit risk, etc.). Level 3: Significant unobservable inputs (including the Committee s own assumptions in calculating the fair values of investments). Valuations for debt obligations held by the Fund are typically calculated by pricing service providers approved by the Audit Committee and are generally characterized as Level 2 within the valuation hierarchy. On days when market volatility thresholds established by the Audit Committee are exceeded, foreign securities for which valuations are obtained from pricing service providers are fair valued. On these days, the foreign securities are characterized as Level 2 within the valuation hierarchy and revert to Level 1 after the threshold is no longer exceeded. Annual Report 19