UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05201
Thornburg Investment Trust
(Exact name of registrant as specified in charter)
c/o Thornburg Investment Management, Inc.
2300 North Ridgetop Road, Santa Fe, New Mexico 87506
(Address of principal executive offices) (Zip code)
Garrett Thornburg, 2300 North Ridgetop Road, Santa Fe, New Mexico 87506
(Name and address of agent for service)
Registrant’s telephone number, including area code: 505-984-0200
Date of fiscal year end: September 30, 2010
Date of reporting period: September 30, 2010
Explanatory Note: The Registrant is filing this amendment to its Form N-CSR for the period ended September 30, 2010, originally filed with the Securities and Exchange Commission on November 23, 2010, to add to or revise certain information in the Letter to Shareholders in the annual report for each of Thornburg Strategic Municipal Income Fund, Thornburg Value Fund and Thornburg Investment Income Builder Fund. This amendment does not modify in any way the annual reports for any other Fund of the Registrant.
Item 1. Reports to Stockholders
The following annual reports are attached hereto, in order:
Thornburg Value Fund
Thornburg Investment Income Builder Fund
Thornburg Strategic Municipal Income Fund
Each annual report is preceded by a supplement containing the additional or revised information in that report. Such information is also incorporated into the annual reports.
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.
The maximum sales charge for Class A shares is 4.50%. Class A shares are subject to a 1% 30-day redemption fee. The total annual fund operating expense of Class A shares is 1.34%, as disclosed in the most recent Prospectus.
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Important Information
The information presented on the following pages was current as of September 30, 2010. The managers’ views, portfolio holdings, and sector diversification are provided for the general information of the Fund’s shareholders; they are historical and subject to change. This material should not be deemed a recommendation to buy or sell any of the securities mentioned.
Investments in the Fund carry risks, including possible loss of principal. Special risks may be associated with investments outside the United States, especially in emerging markets, including currency fluctuations, illiquidity and volatility. Investments in small 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 deposits of or guaranteed by a bank or any other entity. There is no guarantee that the Fund will meet its investment objectives. Funds invested in a limited number of holdings may expose an investor to greater volatility.
Performance data given at net asset value (NAV) does not take into account the applicable sales charges. If the sales charges had been included, the performance would have been lower.
Class I, R3, R4, and R5 shares may not be available to all investors. Minimum investments for Class I shares may be higher than those for other classes.
Share Class | NASDAQ Symbol | Cusip | ||
Class A | TVAFX | 885-215-731 | ||
Class B | TVBFX | 885-215-590 | ||
Class C | TVCFX | 885-215-715 | ||
Class I | TVIFX | 885-215-632 | ||
Class R3 | TVRFX | 885-215-533 | ||
Class R4 | TVIRX | 885-215-277 | ||
Class R5 | TVRRX | 885-215-376 |
Glossary
Standard & Poor’s 500 Stock Index (S&P 500) – The S&P 500 Index is a broad measure of the U.S. stock market.
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. The performance of any index is not indicative of the performance of any particular investment.
Alpha – A measure of the difference between a fund’s actual returns and its expected performance, given its level of risk as measured by beta.
Beta – A measure of market-related risk. Less than one means the portfolio is less volatile than the index, while greater than one indicates more volatility than the index.
Forward P/E – Price to earnings ratio, using earnings estimates for the next four quarters.
Median Market Capitalization – Market capitalization (market cap) is the total value of a company’s stock, calculated by multiplying the number of outstanding common shares by the current share price. The company whose market cap is in the middle of the portfolio is the median market cap. Half the companies in the portfolio have values greater than the median and half have values that are less.
Price to Book Value (P/B) – A ratio used to compare a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value (book value is simply assets minus liabilities).
Price to Cash Flow Ratio – A measure of the market’s expectations of a firm’s future financial health. It is calculated by dividing the price per share by cash flow per share.
Price to Earnings Ratio (P/E) – A valuation ratio equaling a company’s market value per share divided by earnings per share.
This page is not part of the Annual Report. 3
Thornburg Value Fund
CO-PORTFOLIO MANAGERS
Left to right:
Connor Browne, CFA, and Edward Maran, CFA.
IMPORTANT
PERFORMANCE INFORMATION
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.
The maximum sales charge for Class A shares is 4.50%. Class A shares are subject to a 1% 30-day redemption fee. The total annual fund operating expense of Class A shares is 1.34%, as disclosed in the most recent Prospectus.
Finding Promising Companies at a Discount
The Thornburg Value Fund seeks to find promising companies at a discounted valuation. It differs from many other equity funds in two key ways. First, it focuses on a limited number of stocks, and second, it takes a more comprehensive approach to value investing.
Our team is dedicated to providing value to shareholders. We accomplish this through the application of seasoned investment principles with hands-on, company-oriented research. We use a collaborative research approach in identifying and analyzing investment ideas. Our focus is on finding promising companies available at a discount to our estimate of their intrinsic value.
In managing the Thornburg Value Fund, we take a bottom-up approach to stock selection. The Fund is not predisposed to an industry or sector. We use a combination of financial analysis, collaborative research, and business evaluation in an effort to gauge the intrinsic value of a company based on its past record and future potential. The continuum of process moves from screens and idea generation, through conventional “Wall Street” research and documentation, to company contact, the last often including on-site visits. The focus of the analysis is on what’s behind the numbers, its revenue and cash-generating model. We make an effort to get to know the company’s reputation in the industry, its people and its corporate culture.
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED 9/30/10
1 Yr | 3 Yrs | 5 Yrs | 10 Yrs | Since Inception | ||||||||||||||||
A Shares (Incep: 10/2/95) | ||||||||||||||||||||
Without sales charge | 3.21 | % | -7.83 | % | 2.05 | % | 1.32 | % | 9.27 | % | ||||||||||
With sales charge | -1.44 | % | -9.23 | % | 1.11 | % | 0.85 | % | 8.94 | % | ||||||||||
S&P 500 Index | ||||||||||||||||||||
(Since 10/2/95) | 10.16 | % | -7.16 | % | 0.64 | % | -0.43 | % | 6.49 | % |
4 This page is not part of the Annual Report.
The current posture is to maintain a portfolio of 40–55 companies diversified by sector, industry, market capitalization, and our three categories of stocks: Basic Value, Consistent Earners and Emerging Franchises. Because of the limited number of stocks in the portfolio, every holding counts. At the time of purchase, we set a 12–18 month price target for each stock. The target is reviewed as the fundamentals of the stock change during the course of ownership.
The bottom line? Engendering a wide-open, collegial environment fosters information flow and critical thinking intended to benefit portfolio decision making. We do not view our location in Santa Fe, New Mexico, as a disadvantage. While we have access to the best of Wall Street’s analysis, we are not ruled by it. Distance from the crowd serves to fortify independent and objective thinking.
STOCKS CONTRIBUTING AND DETRACTING
FOR THE YEAR ENDED 9/30/10
Top Contributors | Top Detractors | |
Smith International Inc. | Transocean Ltd. | |
DIRECTV Group, Inc. | Gilead Sciences, Inc. | |
ConocoPhillips | Monsanto Co. | |
Varian Medical Systems, Inc. | Dell, Inc. | |
ING Groep N.V. | Alere, Inc. | |
Source: FactSet |
KEY PORTFOLIO ATTRIBUTES
As of 9/30/10
Portfolio P/E Trailing 12-months* | 12.9x | |||
Portfolio Price to Cash Flow* | 5.3x | |||
Portfolio Price to Book Value* | 1.4x | |||
Median Market Cap* | $ | 10.2 B | ||
7-Year Beta (A Shares vs. S&P 500)* | 1.07 | |||
Number of Companies | 50 | |||
* Source: FactSet |
MARKET CAPITALIZATION EXPOSURE
As of 9/30/10
BASKET STRUCTURE
As of 9/30/10
This page is not part of the Annual Report. 5
Thornburg Value Fund
September 30, 2010
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This report is certified under the Sarbanes-Oxley Act of 2002, which requires that public companies, including mutual funds, affirm that the information provided in their annual and semiannual shareholder reports fully and fairly represents their financial position.
6 Certified Annual Report
Connor Browne, CFA Co-Portfolio Manager
Edward E. Maran, CFA Co-Portfolio Manager | October 18, 2010
Dear Fellow Shareholder:
It was a challenging fiscal year for the Thornburg Value Fund in terms of relative performance. While our results were positive, 3.21% for the total return of Class A shares at net asset value (NAV), we did not keep pace with the S&P 500 Index over the same period, which returned 10.16%. We think it is important to put this year’s performance in context, however. The fiscal year ended September 2009 was a terrific year for the Fund returning 7.65%, Class A shares at NAV vs. negative 6.91% for the S&P 500 Index. There are some reasons for optimism as we look ahead. Most of the investments that have been a drag on our performance this year are sound businesses with good growth prospects and attractive valuations. We are hopeful that these stocks may recover, as the underlying value of their businesses appears intact.
While we generally shy away from any macroeconomic prognostications in these pages, we do have an opinion on a current topic of interest in the press and media. It is your co-managers’ belief that any current discount in the valuation of equities that reflects the possibility of deflation is unwarranted. We believe that Ben Bernanke and the Federal Open Market Committee that he leads will fight deflation aggressively. We expect a second round of quantitative easing in the United States. We believe that this monetary stimulus will be effective and that expectations for economic growth and inflation will rise. In our opinion, the environment we anticipate should be favorable for equities in general and we believe the Thornburg Value Fund could benefit, too.
Let’s start out with what hurt performance during the year. In terms of the positioning of the portfolio, our overweight in the health care sector and our underweight in the industrials sector both weighed on performance. That said, weak stock price performance by a few of our individual holdings was a much greater driver of underperformance. Specifically, Transocean, Gilead Sciences, Actelion, Monsanto, Dell, and Alere were all weak performers during the period. All of these stocks remain in the portfolio today. In each case we remain bullish in the outlook for these companies and confident that they will contribute alpha, rather than destroy it, in future periods.
We wrote about Transocean in our semi-annual letter this year. Regarding the Deepwater Horizon oil spill in the Gulf of Mexico (Transocean owned the drilling rig), we stated, “The injuries, loss of life, and economic and environmental impacts of this incident are truly tragic.” But also that,“We currently believe the costs to Transocean associated with the Horizon disaster will be materially less than the | |
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.
The maximum sales charge for Class A shares is 4.50%. Class A shares are subject to a 1% 30-day redemption fee. The total annual fund operating expense of Class A shares is 1.34%, as disclosed in the most recent Prospectus.
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Certified Annual Report 7
Letter to Shareholders, | ||
Continued |
decline in the market capitalization of the company since the incident.” We continue to believe this to be the case, and added to our Transocean position after the spill. We added another deepwater drilling company, Ensco, to the portfolio as well. Everyone is relieved that the environmental impact seems to be much better than worst case. Further, as the moratorium on Gulf of Mexico (GOM) drilling was recently lifted, we expect Transocean’s stock price to better reflect the true fundamentals of the business over time. Transocean was a very tough stock for us during the fiscal year, but it remains a large position and is an investment that we remain excited about.
Gilead and Actelion are both biotechnology/pharmaceutical companies. Gilead has seen a tremendous decline in the value investors are willing to ascribe to its earnings. Gilead’s forward P/E multiple has declined from over 25x two years ago to under 10x today. Why? We think it has been a combination of concerns regarding health care reform in the United States, austerity measures in the European Union, and further investor attention on their 2017/2018 patent expirations. Gilead continues to dominate the treatment of HIV/AIDS, and has grown both revenues and earnings consistently for over a decade. We don’t believe the current low valuation is justified. Actelion reported a number of new drug development setbacks during the fiscal year that were disappointing to us and investors more broadly. At time of purchase, we believed the stock was cheap, even if we attributed value only to its currently marketed products and ignored the value of its pipeline. As of this writing, Actelion’s share price has improved dramatically since the end of our fiscal year as reports of a potential takeover have surfaced.
Monsanto has faced an avalanche of bad news. When we first invested, the company derived 15%–20% of its earnings from a herbicide product called Roundup, which was facing generic competition from China. Given the low growth and declining profitability of that business line, we attributed very little value to it, but we were very enthusiastic about their genetically modified seeds business, which contributed 80% of profits and had strong growth prospects. Since that time, competition intensified and the company is now selling Roundup at a price at or near breakeven. This was disappointing news, but even worse has been weak reported yields for Monsanto’s newest corn seed, their SuperStax. While we are monitoring these developments closely, we continue to believe that limited acreage available for farming and rising consumption of meat and poultry in emerging markets will put upward pressure on grain prices and that the value added of Monsanto’s genetically modified seeds will continue to rise.
Rounding out the weak performers for the year were Dell and Alere (formerly Inverness Medical). Dell’s current valuation looks very compelling to us today. While the substitution of tablets (Apple’s iPad) for laptops may hurt Dell’s future revenue growth opportunities, we believe that the company’s strong enterprise relationships, brand, and strong position in many emerging markets are often overlooked by investors. Alere is a health care company that operates two main businesses, the development and sales of point of care testing devices, and the management of chronic diseases. We believe the testing business should be a steady growth business and justifies more than the current stock price today. To the extent that Alere is successful in chronic disease management, the company could be a very strong investment for the Fund.
On the bright side, many stocks did perform well during the period. Smith International, an oil field services company, was acquired by Schlumberger during the fiscal year. Two other energy holdings, ConocoPhillips (the large integrated energy company) and Ensco (a drilling rig operator like Transocean) also performed very well. DIRECTV (DTV), the satellite television provider, was a great holding for us during the recession. We purchased DTV in August of 2007, just as we
8 Certified Annual Report
were headed into this terrible downturn. We viewed DTV as a Consistent Earning company, rather than as an at risk consumer discretionary holding, its sector categorization. Because of this differentiated view, we held on to our shares through the downturn, and captured 73% cumulative performance in DTV through our price target sale in June of this year. In contrast, the S&P 500 Index moved 22% lower during that same time period.
Recent performance has been trying for you and for us, but through it all we have consistently remained faithful to our process and philosophy. This process and philosophy has delivered strong results to investors since inception and we remain confident that it has the potential to deliver similar results in the future. We invite you to visit our web site at www.thornburg.com where you will find useful information on the Thornburg Value Fund as well as our other funds and investment topics.
Thank you for your trust and confidence.
Sincerely, | ||||
![]() | ![]() | |||
Connor Browne, CFA Co-Portfolio Manager Managing Director | Edward E. Maran, CFA Co-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 1995. 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.
Certified Annual Report 9
SCHEDULE OF INVESTMENTS | ||
Thornburg Value Fund | September 30, 2010 |
TOP TEN HOLDINGS
As of 9/30/10
Gilead Sciences, Inc. | 4.2 | % | Google, Inc. | 3.3 | % | |||||
Transocean Ltd. | 3.9 | % | General Electric Co. | 3.2 | % | |||||
Dell, Inc. | 3.8 | % | Inpex Corp. | 3.0 | % | |||||
Fiserv, Inc. | 3.5 | % | Eli Lilly & Co. | 2.9 | % | |||||
ING Groep N.V. | 3.4 | % | Comcast Corp. | 2.8 | % |
SUMMARY OF INDUSTRY EXPOSURE
As of 9/30/10
Energy | 17.1 | % | Telecommunication Services | 4.9 | % | |||||
Software & Services | 15.5 | % | Health Care Equipment & Services | 4.3 | % | |||||
Pharmaceuticals, Biotechnology & Life Sciences | 13.2 | % | Media | 4.3 | % | |||||
Diversified Financials | 9.1 | % | Insurance | 3.9 | % | |||||
Materials | 6.9 | % | Semiconductors & Semiconductor Equipment | 2.6 | % | |||||
Technology Hardware & Equipment | 5.6 | % | Consumer Services | 1.7 | % | |||||
Banks | 5.0 | % | Food & Staples Retailing | 0.2 | % | |||||
Capital Goods | 5.0 | % | Other Assets & Cash Equivalents | 0.7 | % |
Shares/ Principal Amount | Value | |||||||
COMMON STOCK — 96.41% | ||||||||
BANKS — 4.31% | ||||||||
COMMERCIAL BANKS — 4.31% | ||||||||
Mitsubishi UFJ Financial Group, Inc. | 16,426,201 | $ | 76,542,791 | |||||
a,b Sterling Financial Corp. | 12,000,000 | 2,400,000 | ||||||
U.S. Bancorp | 4,421,058 | 95,583,274 | ||||||
174,526,065 | ||||||||
CAPITAL GOODS — 4.97% | ||||||||
AEROSPACE & DEFENSE — 1.76% | ||||||||
Lockheed Martin Corp. | 1,001,983 | 71,421,348 | ||||||
INDUSTRIAL CONGLOMERATES — 3.21% | ||||||||
General Electric Co. | 8,014,900 | 130,242,125 | ||||||
201,663,473 | ||||||||
CONSUMER SERVICES — 1.70% | ||||||||
HOTELS, RESTAURANTS & LEISURE — 1.70% | ||||||||
b Life Time Fitness, Inc. | 1,746,636 | 68,939,723 | ||||||
68,939,723 | ||||||||
DIVERSIFIED FINANCIALS — 9.06% | ||||||||
CAPITAL MARKETS — 0.51% | ||||||||
AllianceBernstein Holding LP | 787,430 | 20,796,026 |
10 Certified Annual Report
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Value Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
DIVERSIFIED FINANCIAL SERVICES — 8.55% | ||||||||
Bank of America Corp. | 7,672,000 | $ | 100,579,920 | |||||
b ING Groep N.V. | 13,269,200 | 137,659,125 | ||||||
JPMorgan Chase & Co. | 2,844,125 | 108,275,839 | ||||||
367,310,910 | ||||||||
ENERGY — 17.06% | ||||||||
ENERGY EQUIPMENT & SERVICES — 6.46% | ||||||||
Ensco plc ADR | 2,320,000 | 103,773,600 | ||||||
b Transocean Ltd. | 2,457,200 | 157,973,388 | ||||||
OIL, GAS & CONSUMABLE FUELS — 10.60% | ||||||||
ConocoPhillips | 1,512,475 | 86,861,439 | ||||||
Inpex Corp. | 25,960 | 122,212,267 | ||||||
Marathon Oil Corp. | 2,643,300 | 87,493,230 | ||||||
OAO Gazprom ADR | 3,869,420 | 81,064,349 | ||||||
b Sandridge Energy, Inc. | 9,215,065 | 52,341,569 | ||||||
691,719,842 | ||||||||
FOOD & STAPLES RETAILING — 0.20% | ||||||||
FOOD & STAPLES RETAILING — 0.20% | ||||||||
b Rite Aid Corp. | 8,717,107 | 8,220,232 | ||||||
8,220,232 | ||||||||
HEALTH CARE EQUIPMENT & SERVICES — 4.28% | ||||||||
HEALTH CARE EQUIPMENT & SUPPLIES — 3.74% | ||||||||
b Alere, Inc. | 2,029,900 | 62,784,807 | ||||||
b Varian Medical Services, Inc. | 1,468,090 | 88,819,445 | ||||||
HEALTH CARE PROVIDERS & SERVICES — 0.54% | ||||||||
b Community Health Systems, Inc. | 706,024 | 21,865,563 | ||||||
173,469,815 | ||||||||
INSURANCE — 3.93% | ||||||||
INSURANCE — 3.93% | ||||||||
Hartford Financial Services Group, Inc. | 2,700,540 | 61,977,393 | ||||||
Transatlantic Holdings, Inc. | 1,914,600 | 97,299,972 | ||||||
159,277,365 | ||||||||
MATERIALS — 6.21% | ||||||||
CHEMICALS — 2.28% | ||||||||
Monsanto Co. | 1,923,600 | 92,198,148 | ||||||
METALS & MINING — 3.93% | ||||||||
Tokyo Steel Mfg. | 7,435,600 | 87,734,379 | ||||||
United States Steel Corp. | 1,636,100 | 71,726,624 | ||||||
251,659,151 | ||||||||
MEDIA — 4.26% | ||||||||
MEDIA — 4.26% | ||||||||
Comcast Corp. | 6,792,675 | 115,543,402 | ||||||
Dish Network Corp. | 2,983,838 | 57,170,336 | ||||||
172,713,738 | ||||||||
Certified Annual Report 11
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Value Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES — 13.21% | ||||||||
BIOTECHNOLOGY — 6.36% | ||||||||
b Actelion Ltd. | 1,080,600 | $ | 43,294,380 | |||||
b Gilead Sciences, Inc. | 4,797,905 | 170,853,397 | ||||||
b Talecris Biotherapeutics Holdings Corp. | 1,920,400 | 43,938,752 | ||||||
LIFE SCIENCES TOOLS & SERVICES — 2.07% | ||||||||
b Thermo Fisher Scientific, Inc. | 1,754,365 | 83,998,996 | ||||||
PHARMACEUTICALS — 4.78% | ||||||||
Eli Lilly & Co. | 3,167,730 | 115,717,177 | ||||||
Roche Holdings AG | 570,800 | 77,953,859 | ||||||
535,756,561 | ||||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT — 2.64% | ||||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT — 2.64% | ||||||||
b MEMC Electronic Materials, Inc. | 6,469,851 | 77,120,624 | ||||||
b ON Semiconductor Corp. | 4,126,527 | 29,752,260 | ||||||
106,872,884 | ||||||||
SOFTWARE & SERVICES — 15.49% | ||||||||
INFORMATION TECHNOLOGY SERVICES — 7.92% | ||||||||
b Amdocs Ltd. | 3,023,348 | 86,649,154 | ||||||
Computer Sciences Corp. | 1,981,218 | 91,136,028 | ||||||
b Fiserv, Inc. | 2,663,570 | 143,353,337 | ||||||
INTERNET SOFTWARE & SERVICES — 3.31% | ||||||||
b Google, Inc. | 255,554 | 134,367,738 | ||||||
SOFTWARE — 4.26% | ||||||||
b Adobe Systems, Inc. | 2,447,400 | 63,999,510 | ||||||
b ANSYS, Inc. | 993,025 | 41,955,306 | ||||||
Microsoft Corp. | 2,722,100 | 66,664,229 | ||||||
628,125,302 | ||||||||
TECHNOLOGY HARDWARE & EQUIPMENT — 5.65% | ||||||||
COMPUTERS & PERIPHERALS — 4.91% | ||||||||
b Dell, Inc. | 11,801,700 | 152,950,032 | ||||||
b NCR Corp. | 3,368,100 | 45,907,203 | ||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS — 0.74% | ||||||||
Corning, Inc. | 1,650,735 | 30,175,436 | ||||||
229,032,671 | ||||||||
TELECOMMUNICATION SERVICES — 3.44% | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 0.92% | ||||||||
b Level 3 Communications, Inc. | 39,653,356 | 37,167,091 | ||||||
WIRELESS TELECOMMUNICATION SERVICES — 2.52% | ||||||||
China Mobile Ltd. | 8,188,500 | 83,902,350 | ||||||
b Leap Wireless International, Inc. | 1,498,818 | 18,510,402 | ||||||
139,579,843 | ||||||||
TOTAL COMMON STOCK (Cost $4,029,042,909) | 3,908,867,575 | |||||||
12 Certified Annual Report
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Value Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
PREFERRED STOCK — 0.68% | ||||||||
BANKS — 0.68% | ||||||||
COMMERCIAL BANKS — 0.68% | ||||||||
a,b Sterling Financial Corp. Pfd, 0.00% | 300,000 | $ | 27,600,000 | |||||
TOTAL PREFERRED STOCK (Cost $27,600,000) | 27,600,000 | |||||||
CORPORATE BONDS — 1.19% | ||||||||
TELECOMMUNICATION SERVICES — 1.19% | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 1.19% | ||||||||
Level 3 Financing, Inc., 9.25%, 11/1/2014 | $ | 51,489,000 | 48,399,660 | |||||
TOTAL CORPORATE BONDS (Cost $44,632,016) | 48,399,660 | |||||||
CONVERTIBLE BONDS — 1.04% | ||||||||
MATERIALS — 0.73% | ||||||||
METALS & MINING — 0.73% | ||||||||
c Anglogold Holdings Ltd., 3.50%, 5/22/2014 | 25,000,000 | 29,618,750 | ||||||
29,618,750 | ||||||||
TELECOMMUNICATION SERVICES — 0.31% | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 0.31% | ||||||||
Level 3 Communications, Inc., 6.50%, 10/1/2016 | 12,049,000 | 12,320,102 | ||||||
TOTAL CONVERTIBLE BONDS (Cost $37,044,212) | 41,938,852 | |||||||
SHORT TERM INVESTMENTS — 1.16% | ||||||||
Atmos Energy Corp., 0.29%, 10/1/2010 | 47,000,000 | 47,000,000 | ||||||
TOTAL SHORT TERM INVESTMENTS (Cost $47,000,000) | 47,000,000 | |||||||
TOTAL INVESTMENTS — 100.48% (Cost $4,185,319,137) | $ | 4,073,806,087 | ||||||
LIABILITIES NET OF OTHER ASSETS — (0.48)% | (19,444,232 | ) | ||||||
NET ASSETS — 100.00% | $ | 4,054,361,855 | ||||||
Footnote Legend
a | Security currently fair valued by the valuation and pricing committee using procedures approved by the Trustees. |
b | Non-income producing. |
c | Securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may only be resold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. As of September 30, 2010, the aggregate value of these securities in the Fund’s portfolio was $29,618,750, representing 0.73% of the Fund’s net assets. |
Portfolio Abbreviations
To simplify the listings of securities, abbreviations are used per the table below:
ADR | American Depository Receipt | |
Pfd | Preferred Stock |
See notes to financial statements.
Certified Annual Report 13
STATEMENT OF ASSETS AND LIABILITIES | ||
Thornburg Value Fund | September 30, 2010 |
ASSETS | ||||
Investments at value (cost $4,185,319,137) (Note 2) | $ | 4,073,806,087 | ||
Cash | 724,816 | |||
Receivable for fund shares sold | 9,329,094 | |||
Dividends receivable | 5,967,596 | |||
Dividend and interest reclaim receivable | 636,965 | |||
Interest receivable | 2,321,944 | |||
Prepaid expenses and other assets | 65,023 | |||
Total Assets | 4,092,851,525 | |||
LIABILITIES | ||||
Payable for securities purchased | 935,124 | |||
Payable for fund shares redeemed | 17,075,569 | |||
Unrealized depreciation on forward currency contracts (Note 7) | 15,756,867 | |||
Payable to investment advisor and other affiliates (Note 3) | 3,087,374 | |||
Accounts payable and accrued expenses | 1,616,474 | |||
Dividends payable | 18,262 | |||
Total Liabilities | 38,489,670 | |||
NET ASSETS | $ | 4,054,361,855 | ||
NET ASSETS CONSIST OF: | ||||
Undistributed net investment income | $ | 1,815,153 | ||
Net unrealized depreciation on investments | (127,194,751 | ) | ||
Accumulated net realized gain (loss) | (775,813,245 | ) | ||
Net capital paid in on shares of beneficial interest | 4,955,554,698 | |||
$ | 4,054,361,855 | |||
14 Certified Annual Report
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED | ||
Thornburg Value Fund | September 30, 2010 |
NET ASSET VALUE: | ||||
Class A Shares: | ||||
Net asset value and redemption price per share ($1,131,593,792 applicable to 37,176,030 shares of beneficial interest outstanding - - Note 4) | $ | 30.44 | ||
Maximum sales charge, 4.50% of offering price | 1.43 | |||
Maximum offering price per share | $ | 31.87 | ||
Class B Shares: | ||||
Net asset value and offering price per share * ($22,036,462 applicable to 764,827 shares of beneficial interest outstanding - Note 4) | $ | 28.81 | ||
Class C Shares: | ||||
Net asset value and offering price per share * ($329,760,484 applicable to 11,301,772 shares of beneficial interest outstanding - Note 4) | $ | 29.18 | ||
Class I Shares: | ||||
Net asset value, offering and redemption price per share ($2,087,380,037 applicable to 67,449,169 shares of beneficial interest outstanding - Note 4) | $ | 30.95 | ||
Class R3 Shares: | ||||
Net asset value, offering and redemption price per share ($200,362,111 applicable to 6,624,857 shares of beneficial interest outstanding - Note 4) | $ | 30.24 | ||
Class R4 Shares: | ||||
Net asset value, offering and redemption price per share ($54,460,797 applicable to 1,791,881 shares of beneficial interest outstanding - Note 4) | $ | 30.39 | ||
Class R5 Shares: | ||||
Net asset value, offering and redemption price per share ($228,768,172 applicable to 7,399,016 shares of beneficial interest outstanding - Note 4) | $ | 30.92 | ||
* | Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. |
See notes to financial statements.
Certified Annual Report 15
STATEMENT OF OPERATIONS | ||
Thornburg Value Fund | Year Ended September 30, 2010 |
INVESTMENT INCOME: | ||||
Dividend income (net of foreign taxes withheld of $1,135,337) | $ | 61,950,591 | ||
Interest income (net of premium amortized of $20,037) | 14,601,399 | |||
Total Income | 76,551,990 | |||
EXPENSES: | ||||
Investment advisory fees (Note 3) | 29,279,476 | |||
Administration fees (Note 3) | ||||
Class A Shares | 1,547,184 | |||
Class B Shares | 36,605 | |||
Class C Shares | 447,041 | |||
Class I Shares | 940,989 | |||
Class R3 Shares | 235,693 | |||
Class R4 Shares | 73,248 | |||
Class R5 Shares | 106,767 | |||
Distribution and service fees (Note 3) | ||||
Class A Shares | 3,088,219 | |||
Class B Shares | 292,332 | |||
Class C Shares | 3,576,325 | |||
Class R3 Shares | 942,508 | |||
Class R4 Shares | 146,393 | |||
Transfer agent fees | ||||
Class A Shares | 2,011,115 | |||
Class B Shares | 66,475 | |||
Class C Shares | 561,408 | |||
Class I Shares | 2,038,020 | |||
Class R3 Shares | 467,713 | |||
Class R4 Shares | 177,728 | |||
Class R5 Shares | 619,266 | |||
Registration and filing fees | ||||
Class A Shares | 47,820 | |||
Class B Shares | 16,977 | |||
Class C Shares | 21,689 | |||
Class I Shares | 140,496 | |||
Class R3 Shares | 20,263 | |||
Class R4 Shares | 21,274 | |||
Class R5 Shares | 19,927 | |||
Custodian fees (Note 3) | 550,475 | |||
Professional fees | 132,155 | |||
Accounting fees | 167,260 | |||
Trustee fees | 98,255 | |||
Other expenses | 395,667 | |||
Total Expenses | 48,286,763 | |||
Less: | ||||
Expenses reimbursed by investment advisor (Note 3) | (1,003,299 | ) | ||
Net Expenses | 47,283,464 | |||
Net Investment Income | $ | 29,268,526 | ||
16 Certified Annual Report
STATEMENT OF OPERATIONS, CONTINUED | ||
Thornburg Value Fund | Year Ended September 30, 2010 |
REALIZED AND UNREALIZED GAIN (LOSS) | ||||
Net realized gain (loss) from: | ||||
Investments | $ | 399,144,302 | ||
Forward currency contracts (Note 7) | (4,208,059 | ) | ||
Foreign currency transactions | (863,395 | ) | ||
394,072,848 | ||||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (303,173,201 | ) | ||
Forward currency contracts (Note 7) | (15,756,867 | ) | ||
Foreign currency translations | 53,064 | |||
(318,877,004 | ) | |||
Net Realized and Unrealized Gain | 75,195,844 | |||
Net Increase in Net Assets Resulting from Operations | $ | 104,464,370 | ||
See notes to financial statements.
Certified Annual Report 17
STATEMENTS OF CHANGES IN NET ASSETS
Thornburg Value Fund
Year Ended September 30, 2010 | Year Ended September 30, 2009 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM | ||||||||
OPERATIONS: | ||||||||
Net investment income | $ | 29,268,526 | $ | 45,726,331 | ||||
Net realized gain (loss) on investments, forward currency contracts and foreign currency transactions | 394,072,848 | (886,084,841 | ) | |||||
Increase (Decrease) in unrealized appreciation (depreciation) on investments, forward currency contracts and foreign currency translations | (318,877,004 | ) | 899,659,702 | |||||
Net Increase (Decrease) in Net Assets Resulting from Operations | 104,464,370 | 59,301,192 | ||||||
DIVIDENDS TO SHAREHOLDERS: | ||||||||
From net investment income | ||||||||
Class A Shares | (7,120,379 | ) | (16,118,746 | ) | ||||
Class B Shares | (57,103 | ) | (326,779 | ) | ||||
Class C Shares | (815,194 | ) | (2,935,911 | ) | ||||
Class I Shares | (17,633,649 | ) | (24,133,460 | ) | ||||
Class R3 Shares | (1,025,249 | ) | (2,185,830 | ) | ||||
Class R4 Shares | (339,423 | ) | (535,872 | ) | ||||
Class R5 Shares | (1,893,225 | ) | (2,440,948 | ) | ||||
FUND SHARE TRANSACTIONS (NOTE 4): | ||||||||
Class A Shares | (100,540,665 | ) | 64,047,983 | |||||
Class B Shares | (17,635,969 | ) | (22,207,742 | ) | ||||
Class C Shares | (40,055,751 | ) | (43,229,232 | ) | ||||
Class I Shares | 479,233,524 | (326,092,244 | ) | |||||
Class R3 Shares | 34,129,445 | (5,811,678 | ) | |||||
Class R4 Shares | 10,529,029 | 11,324,512 | ||||||
Class R5 Shares | 60,623,632 | 21,262,560 | ||||||
Net Increase (Decrease) in Net Assets | 501,863,393 | (290,082,195 | ) | |||||
NET ASSETS: | ||||||||
Beginning of Year | 3,552,498,462 | 3,842,580,657 | ||||||
End of Year | $ | 4,054,361,855 | $ | 3,552,498,462 | ||||
Undistributed net investment income | $ | 1,815,153 | $ | 1,871,097 |
See notes to financial statements.
18 Certified Annual Report
NOTES TO FINANCIAL STATEMENTS | ||
Thornburg Value Fund | September 30, 2010 |
NOTE 1 – ORGANIZATION
Thornburg Value Fund, hereinafter referred to as the “Fund,” is a diversified series of Thornburg Investment Trust (the “Trust”). The Trust is 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 sixteen 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 by investing in equity and debt securities of all types. As a secondary objective, the Fund also seeks some current income.
The Fund currently offers seven classes of shares of beneficial interest: Class A, Class B, Class C, Institutional Class (Class I), and Retirement Classes (Class R3, Class R4, and Class R5). 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 B 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 and bear both a service fee and distribution fee, (iii) 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, (iv) Class I shares are sold at net asset value without a sales charge at the time of purchase, (v) Class R3 shares are sold at net asset value without a sales charge at the time of purchase, but bear both a service fee and distribution fee, (vi) Class R4 shares are sold at net asset value without a sales charge at the time of purchase, but bear a service fee, (vii) Class R5 shares are sold at net asset value without a sales charge at the time of purchase, and (viii) the respective classes may have different reinvestment privileges and conversion rights. Additionally, the Fund may allocate among its classes certain expenses, to the extent allowable 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. Class B shares of the Fund outstanding for eight years will convert to Class A shares of the Fund.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies of the Trust are as follows:
Valuation of Investments: Portfolio securities listed or traded on a national securities exchange are valued on the valuation date at the last reported sale price on the exchange that is the primary market for the security. Portfolio securities traded on an exchange for which there has been no sale that day and other equity securities traded in the over-the-counter market are valued at the mean between the last reported bid and asked prices. Portfolio securities reported by NASDAQ are valued at the NASDAQ official closing price. Any foreign security traded on exchanges outside the United States is valued at the price of the security on the exchange that is normally the security’s primary market, as of the close of that exchange preceding the time of the Fund’s valuation.
Debt obligations held by the Fund have a primary market over the counter and are valued by an independent pricing service approved by the Trustees of the Trust. The pricing service ordinarily values debt obligations at quoted bid prices. When quotations are not available, debt obligations held by the Fund are valued at evaluated prices determined by the pricing service using methods which include consideration of yields or prices of debt obligations of comparable quality, type of issue, coupon, maturity and rating, and indications as to value from dealers and general market conditions. Short-term obligations having remaining maturities of 60 days or less are valued at amortized cost, which approximates market value.
Quotations in foreign currencies for foreign portfolio investments are converted to U.S. dollar equivalents using the foreign exchange quotation in effect at the time of valuation.
In any case where the market value of an equity security held by the Fund is not readily available, the Trust’s valuation and pricing committee determines a fair value for the security using procedures approved by the Trustees, which may include the use of a price obtained from an independent pricing service. The pricing service ordinarily values equity securities in these instances using multi-factor models to adjust market prices based upon various inputs, including exchange data, depository receipt prices, futures and index data and other data. A security’s market value is deemed not readily available whenever the exchange or market on which the security is primarily traded is closed for the entire scheduled day of trading. Additionally, a security’s market value may be deemed not readily available under other circumstances identified by the Trustees, including when developments occurring after the most recent close of
Certified Annual Report 19
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Value Fund | September 30, 2010 |
the security’s primary exchange or market, but before the most recent close of trading in Fund shares, create a serious question about the reliability of the security’s market value.
In any case where a pricing service fails to provide a price for a debt obligation held by the Fund, the valuation and pricing committee determines a fair value for the debt obligation using procedures approved by the Trustees. Additionally, in any case where management believes that a price provided by a pricing service for a debt obligation held by the Fund may be unreliable, the valuation and pricing committee decides whether or not to use the pricing service’s valuation or to determine a fair value for the debt obligation.
In determining fair value for any portfolio security or other investment, the valuation and pricing committee seeks to determine the amount that an owner of the investment might reasonably expect to receive upon a sale of the investment. However, because fair value prices are estimated prices, the valuation and pricing committee’s determination of fair value for an investment may differ from the value that would be realized by the Fund upon a sale of the investment, and that difference could be material to the Fund’s financial statements. The valuation and pricing committee’s determination of fair value for an investment may also differ from the prices obtained by other persons (including other mutual funds) for the investment.
Valuation Measurements: Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three levels listed below.
Level 1: Quoted prices in active markets for identical investments.
Level 2: Other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment rates, credit risk, etc.).
Level 3: Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments).
The following table displays a summary of the inputs used to value the Fund’s net assets as of September 30, 2010. In any instance when valuation inputs from more than one level are used to determine the fair value of a specific investment, the investment is placed in the level of the table based upon the lowest level input that is significant in determining the fair value of the investment:
Fair Value Measurements at September 30, 2010 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets | ||||||||||||||||
Investments in Securities* | ||||||||||||||||
Common Stock(a) | $ | 3,908,867,575 | $ | 3,906,467,575 | $ | — | $ | 2,400,000 | ||||||||
Preferred Stock(a) | 27,600,000 | — | — | 27,600,000 | ||||||||||||
Corporate Bonds | 48,399,660 | — | 48,399,660 | — | ||||||||||||
Convertible Bonds | 41,938,852 | — | 41,938,852 | — | ||||||||||||
Short Term Investments | 47,000,000 | — | 47,000,000 | — | ||||||||||||
Total Investments in Securities | $ | 4,073,806,087 | $ | 3,906,467,575 | $ | 137,338,512 | $ | 30,000,000 | ||||||||
Liabilities | ||||||||||||||||
Other Financial Instruments** | ||||||||||||||||
Forward Currency Contracts | $ | (15,756,867 | ) | $ | — | $ | (15,756,867 | ) | $ | — |
(a) | Industry classifications for Level 3 valuations consisted of $2,400,000 in Common Stock and $27,600,000 in Preferred Stock, both in Banks at September 30, 2010. |
* | See Schedule of Investments for a summary of the industry exposure as grouped according to the Global Industry Classification Standard (GICS), which is an industry taxonomy developed by MSCI Barra and Standard & Poor’s (S&P). |
** | Other Financial Instruments include investments not reflected in the Schedule of Investments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation (depreciation) on the investment. |
20 Certified Annual Report
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Value Fund | September 30, 2010 |
A rollforward of fair value measurements using significant unobservable inputs (Level 3) for the year ended September 30, 2010, was as follows:
Beginning Balance 9/30/2009 | Gross Purchases(b) | Gross Sales | Net Realized Gain/(Loss) | Net Unrealized Appreciation/ (Depreciation) | Net Transfers in/(out) of Level 3 | Ending Balance 9/30/2010 | ||||||||||||||||||||||
Investments in Securities(a) | $ | — | $ | 30,000,000 | $ | — | $ | — | $ | — | $ | — | $ | 30,000,000 |
(a) | Level 3 Securities represent 0.74% of Total Net Assets at the year ended September 30, 2010. |
(b) | Assets valued using Level 3 inputs comprised of purchases of unregistered stock during the year ended September 30, 2010. |
Other Notes: It is the policy of the Fund to recognize significant transfers between Levels 1 and 2 and to disclose those transfers at the last date of the reporting period. The Fund recognized no significant transfers into and out of Levels 1 and 2 during the year ended September 30, 2010.
Foreign Currency Translation: Portfolio securities 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 securities and income items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the translation date. When the Fund purchases or sells foreign securities, 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 Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities 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 unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.
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 taxable income, including any net realized gain on investments of the Fund. Therefore, no provision for federal income taxes is required.
Management reviews each tax position believed to be material to the preparation of the Fund’s financial statements, to assess if it is more likely than not that the position would be sustained upon examination, based upon the technical merits of the position. As of September 30, 2010, management has not identified any such position for which a liability must be reflected in the Statement of Assets and Liabilities. The Fund’s tax returns remain subject to examination for three years after filing.
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 securities consistent with the Fund’s investment objectives and not for the purpose of investment leverage or to speculate on interest rate and/or market changes. At the time the Fund makes a commitment to purchase a security 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 securities to be purchased will be segregated on the Fund’s records on the trade date. Securities purchased on a when-issued or delayed delivery basis do not earn interest until the settlement date.
Dividends: Dividends, if any, to shareholders are generally paid quarterly and are reinvested in additional shares of the Fund at net asset value per share at the close of business on the dividend payment date or, at the shareholder’s option, paid in cash. Net realized capital gains, to the extent available, will be distributed at least annually. Distributions to shareholders are based on income tax regulations and therefore, their characteristics may differ for financial statement and tax purposes.
Certified Annual Report 21
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Value Fund | September 30, 2010 |
General: Securities transactions are accounted for on a trade date basis. Interest income is accrued as earned and dividend income is recorded on the ex-dividend date. Certain income from foreign securities is recognized as soon as information is available to the Fund. Realized gains and losses from the sale of securities are recorded on an identified cost basis. 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 of each class of shares at the beginning of the day (after adjusting for the current share 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.
Guarantees and Indemnifications: Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business the Trust enters into contracts with service providers that contain general indemnification clauses. 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 generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
NOTE 3 – INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an investment advisory agreement, Thornburg Investment Management, Inc. (the “Advisor”) serves as the investment advisor and performs services to the Fund for which the fees are payable at the end of each month. For the year ended September 30, 2010, these fees were payable at annual rates ranging from .875 of 1% to .675 of 1% per annum of the average daily net assets of the Fund depending on the Fund’s asset size. The Trust also has entered into administrative services agreements with the Advisor, whereby the Advisor will perform certain administrative services for the shareholders of each class of the Fund’s shares, and for which fees will be payable at an annual rate of up to .125 of 1% per annum of the average daily net assets attributable to each class of shares. For the year ended September 30, 2010, the Advisor contractually reimbursed certain class specific expenses, administrative fees, and distribution fees of $576,336 for Class R3 shares, $138,710 for Class R4 Shares, and $288,253 for Class R5 shares.
The Trust has an underwriting agreement with Thornburg Securities Corporation (the “Distributor,” an affiliate of the Advisor), which acts as the distributor of the Fund’s shares. For the year ended September 30, 2010, the Distributor has advised the Fund that it earned net commissions aggregating $78,214 from the sale of Class A shares, and collected contingent deferred sales charges aggregating $26,809 from redemptions of Class C shares of the Fund.
Pursuant to a service plan under Rule 12b-1 of the Investment Company Act of 1940, the Fund may reimburse to the Advisor an amount not to exceed .25 of 1% per annum of the average daily net assets attributable to each class of shares of the Fund for payments made by the Advisor to securities dealers and other financial institutions to obtain various shareholder and distribution related services. For the year ended September 30, 2010, there were no 12b-1 service plan fees charged for Class I and Class R5 shares. The Advisor may pay out of its own resources additional expenses for distribution of the Fund’s shares.
The Trust has also adopted distribution plans pursuant to Rule 12b-1, applicable only to the Fund’s Class B, Class C, and Class R3 shares, under which the Fund compensates the Distributor for services in promoting the sale of Class B, Class C, and Class R3 shares of the Fund at an annual rate of up to .75 of 1% per annum of the average daily net assets attributable to Class B, Class C, and Class R3 shares. Total fees incurred by the Distributor for each class of shares of the Fund under their respective Service and Distribution Plans for the year ended September 30, 2010, are set forth in the Statement of Operations.
The Trust has an agreement with the custodian bank to indirectly pay a portion of the custodian’s fees through credits earned by the Fund’s cash on deposit with the bank. This deposit agreement is an alternative to overnight investments. Custodial fees have been adjusted to reflect amounts that would have been paid without this agreement, with a corresponding adjustment reflected as fees paid indirectly in the Statement of Operations. For the year ended September 30, 2010, there were no fees paid indirectly.
Certain officers and Trustees of the Trust are also officers and/or directors of the Advisor and Distributor. The compensation of independent Trustees is borne by the Trust.
22 Certified Annual Report
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Value Fund | September 30, 2010 |
NOTE 4 – SHARES OF BENEFICIAL INTEREST
At September 30, 2010, there were an unlimited number of shares of beneficial interest authorized. Transactions in shares of beneficial interest were as follows:
Year Ended September 30, 2010 | Year Ended September 30, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class A Shares | ||||||||||||||||
Shares sold | 8,919,655 | $ | 275,295,386 | 21,996,783 | $ | 495,137,300 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 185,067 | 5,782,360 | 526,363 | 12,590,999 | ||||||||||||
Shares repurchased | (12,535,727 | ) | (381,632,085 | ) | (20,767,504 | ) | (443,715,236 | ) | ||||||||
Redemption fees received* | — | 13,674 | — | 34,920 | ||||||||||||
Net Increase (Decrease) | (3,431,005 | ) | $ | (100,540,665 | ) | 1,755,642 | $ | 64,047,983 | ||||||||
Class B Shares | ||||||||||||||||
Shares sold | 33,963 | $ | 1,007,852 | 123,500 | $ | 2,607,505 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 1,560 | 46,442 | 12,305 | 270,413 | ||||||||||||
Shares repurchased | (640,143 | ) | (18,690,579 | ) | (1,177,554 | ) | (25,087,288 | ) | ||||||||
Redemption fees received* | — | 316 | — | 1,628 | ||||||||||||
Net Increase (Decrease) | (604,620 | ) | $ | (17,635,969 | ) | (1,041,749 | ) | $ | (22,207,742 | ) | ||||||
Class C Shares | ||||||||||||||||
Shares sold | 1,160,118 | $ | 34,417,962 | 1,876,368 | $ | 41,683,603 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 23,192 | 698,534 | 110,865 | 2,523,300 | ||||||||||||
Shares repurchased | (2,561,879 | ) | (75,176,179 | ) | (4,196,286 | ) | (87,447,481 | ) | ||||||||
Redemption fees received* | — | 3,932 | — | 11,346 | ||||||||||||
Net Increase (Decrease) | (1,378,569 | ) | $ | (40,055,751 | ) | (2,209,053 | ) | $ | (43,229,232 | ) | ||||||
Class I Shares | ||||||||||||||||
Shares sold | 33,481,948 | $ | 1,049,288,699 | 22,175,103 | $ | 544,582,100 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 436,183 | 13,744,602 | 780,762 | 18,926,149 | ||||||||||||
Shares repurchased | (18,718,597 | ) | (583,820,763 | ) | (39,596,078 | ) | (889,646,618 | ) | ||||||||
Redemption fees received* | — | 20,986 | — | 46,125 | ||||||||||||
Net Increase (Decrease) | 15,199,534 | $ | 479,233,524 | (16,640,213 | ) | $ | (326,092,244 | ) | ||||||||
Class R3 Shares | ||||||||||||||||
Shares sold | 3,017,720 | $ | 92,556,011 | 1,686,345 | $ | 39,658,963 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 31,966 | 989,285 | 89,721 | 2,114,046 | ||||||||||||
Shares repurchased | (1,927,763 | ) | (59,417,965 | ) | (2,071,335 | ) | (47,589,434 | ) | ||||||||
Redemption fees received* | — | 2,114 | — | 4,747 | ||||||||||||
Net Increase (Decrease) | 1,121,923 | $ | 34,129,445 | (295,269 | ) | $ | (5,811,678 | ) | ||||||||
Certified Annual Report 23
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Value Fund | September 30, 2010 |
Year Ended September 30, 2010 | Year Ended September 30, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class R4 Shares | ||||||||||||||||
Shares sold | 1,194,182 | $ | 37,191,449 | 808,447 | $ | 20,006,549 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 9,282 | 288,552 | 18,317 | 442,047 | ||||||||||||
Shares repurchased | (898,513 | ) | (26,951,640 | ) | (392,575 | ) | (9,125,077 | ) | ||||||||
Redemption fees received* | — | 668 | — | 993 | ||||||||||||
Net Increase (Decrease) | 304,951 | $ | 10,529,029 | 434,189 | $ | 11,324,512 | ||||||||||
Class R5 Shares | ||||||||||||||||
Shares sold | 3,281,252 | $ | 103,225,130 | 2,235,661 | $ | 55,055,512 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 59,336 | 1,869,704 | 99,135 | 2,411,510 | ||||||||||||
Shares repurchased | (1,440,353 | ) | (44,473,586 | ) | (1,587,441 | ) | (36,208,743 | ) | ||||||||
Redemption fees received* | — | 2,384 | — | 4,281 | ||||||||||||
Net Increase (Decrease) | 1,900,235 | $ | 60,623,632 | 747,355 | $ | 21,262,560 | ||||||||||
* | The Fund charges a redemption fee of 1% of the Class A and Class I shares redeemed or exchanged within 30 days of purchase. Redemption fees charged to any class are allocated to all classes upon receipt of payment based on relative net asset values of each class or other appropriate allocation methods. |
NOTE 5 – SECURITIES TRANSACTIONS
For the year ended September 30, 2010, the Fund had purchase and sale transactions of investment securities (excluding short-term investments) of $3,297,887,462 and $2,762,149,653, respectively.
NOTE 6 – INCOME TAXES
At September 30, 2010, information on the tax components of capital is as follows:
Cost of investments for tax purposes | $ | 4,205,776,427 | ||
Gross unrealized appreciation on a tax basis | $ | 273,579,001 | ||
Gross unrealized depreciation on a tax basis | (405,549,341 | ) | ||
Net unrealized appreciation (depreciation) on investments (tax basis) | $ | (131,970,340 | ) | |
Distributable earnings – ordinary income (tax basis) | $ | 1,182,245 |
At September 30, 2010, the Fund had deferred tax basis currency losses occurring subsequent to October 31, 2009 of $840,449. For tax purposes, such losses will be reflected in the year ending September 30, 2011.
24 Certified Annual Report
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Value Fund | September 30, 2010 |
At September 30, 2010 the Fund had tax basis capital losses, 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 expire as follows:
2017 | $ | 527,267,206 | ||
2018 | 242,353,997 | |||
$ | 769,621,203 | |||
In order to account for permanent book/tax differences, the Fund decreased undistributed net investment income by $17,101 and decreased net realized investment loss by $17,101. This reclassification has no impact on the net asset value of the Fund. Reclassifications result primarily from currency losses and the disposition of a partnership investment.
The tax character of distributions paid during the year ended September 30, 2010, and September 30, 2009, was as follows:
2010 | 2009 | |||||||
Distributions from: | ||||||||
Ordinary income | $ | 28,884,222 | $ | 48,677,546 | ||||
Capital gains | — | — | ||||||
Total Distributions | $ | 28,884,222 | $ | 48,677,546 | ||||
NOTE 7 – DERIVATIVE FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FOREIGN INVESTMENT RISK
The Fund may use a variety of derivative financial instruments to hedge or adjust the risks affecting its investment portfolio or to enhance investment returns. Provisions of FASB Accounting Standards Codification ASC 815-10-50, (“ASC 815”) require certain disclosures. This requirement amends and expands disclosures related to derivative instruments to provide users of financial statements with an enhanced understanding of the use of derivative instruments by the Fund and how these derivatives affect the financial position, financial performance and cash flows of the Fund. The Fund does not designate any derivative instruments as hedging instruments under ASC 815. During the year ended September 30, 2010, the Fund’s principal exposure to derivative financial instruments of the type addressed by ASC 815 was investment in foreign exchange contracts. A foreign exchange contract is an agreement between two parties to exchange different currencies at a specified rate of exchange at an agreed upon future date. Foreign exchange contracts involve risks to the Fund, including the risk that a contract counterparty will not meet its obligations to the Fund, the risk that a change in a contract’s value may not correlate perfectly with the currency the contract was intended to track, and the risk that the Fund’s advisor is unable to correctly implement its strategy in using a contract. In any such instance, the Fund may not achieve the intended benefit of entering into a contract, and may experience a loss.
The Fund entered into forward currency contracts during the year ended September 30, 2010 in the normal course of pursuing its investment objectives, in anticipation of purchasing foreign investments or with the intent of reducing the risk to the value of the Fund’s foreign investments from adverse changes in the relationship between the U.S. dollar and foreign currencies. In each case these contracts have been initiated in conjunction with foreign investment transactions.
These contracts are accounted for by the Fund under ASC 815. Unrealized gains and unrealized losses on outstanding contracts are reported in the Fund’s Statement of Assets and Liabilities at the Fund’s net equity, as measured by the difference between the forward exchange rates at the reporting date and the forward exchange rates at each contract’s inception date. Net realized gain (loss) on contracts closed during the period, and changes in net unrealized appreciation (depreciation) on outstanding contracts are recognized in the Fund’s Statement of Operations. Values of open currency contracts are indicative of the activity for the year ended September 30, 2010.
Certified Annual Report 25
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Value Fund | September 30, 2010 |
The following table displays the outstanding forward currency contracts at September 30, 2010:
Outstanding Forward Currency Contracts
to Buy or Sell at September 30, 2010
Contract Description | Buy/Sell | Contract Amount | Contract Value Date | Value USD | Unrealized Appreciation | Unrealized Depreciation | ||||||||||||||||||
Japanese Yen | Sell | 18,875,000,000 | 11/24/2010 | 226,208,672 | $ | — | $ | (15,312,460 | ) | |||||||||||||||
Japanese Yen | Sell | 3,585,000,000 | 03/02/2011 | 43,026,155 | — | (444,407 | ) | |||||||||||||||||
Total | $ | $ | (15,756,867 | ) | ||||||||||||||||||||
The unrealized appreciation (depreciation) of the outstanding forward currency contracts recognized in the Fund’s Statement of Assets and Liabilities at September 30, 2010 is disclosed in the following table:
Fair Values of Derivative Financial Instruments
at September 30, 2010
Liability Derivatives | Balance Sheet Location | Fair Value | ||||
Foreign exchange contracts | Liabilities - Unrealized depreciation on forward currency contracts | $ | (15,756,867 | ) |
The realized gains (losses) from forward currency contracts, and the change in unrealized appreciation (depreciation) of outstanding forward currency contracts recognized in the Fund’s Statement of Operations for the year ended September 30, 2010 are disclosed in the following tables:
Amount of Realized Gain (Loss) on Derivative Financial Instruments
Recognized in Income for the Year Ended September 30, 2010
Total | Forward Currency Contracts | |||||||
Foreign exchange contracts | $ | (4,208,059 | ) | $ | (4,208,059 | ) |
Change in Unrealized Appreciation (Depreciation) of Derivative Financial Instruments
Recognized in Income for the Year Ended September 30, 2010
Total | Forward Currency Contracts | |||||||
Foreign exchange contracts | $ | (15,756,867 | ) | $ | (15,756,867 | ) |
OTHER NOTES
Management has evaluated the impact on the Fund of all subsequent events occurring through the date the financial statements were issued. Effective October 1, 2010, the distribution plan applicable to Class R3 shares of the Fund has been amended by action of the Trustees to reduce the compensation payable under the plan to an annual rate of .25% of 1%.
26 Certified Annual Report
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Certified Annual Report 27
FINANCIAL HIGHLIGHTS | ||
Thornburg Value Fund |
PER SHARE PERFORMANCE (for a share outstanding throughout the period)+ | RATIOS TO AVERAGE NET ASSETS | SUPPLEMENTAL DATA | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unless Otherwise Noted, Periods are Fiscal Years Ended Sept. 30, | Net Asset Value Beginning of Period | Net Investment Income (Loss) | Net Realized & Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Dividends from Net Realized Gains | Total Dividends | Net Asset Value End of Period | Net Investment Income (Loss) (%) | Expenses, After Expense Reductions (%) | Expenses, After Expense Reductions and Net of Custody Credits (%) | Expenses, Before Expense Reductions (%) | Total Return (%)(a) | Portfolio Turnover Rate (%) | Net Assets at End of Period (Thousands) | |||||||||||||||||||||||||||||||||||||||||||||
Class A Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010(b) | $ | 29.66 | 0.20 | 0.76 | 0.96 | (0.18 | ) | — | (0.18 | ) | $ | 30.44 | 0.65 | 1.31 | 1.31 | 1.31 | 3.21 | 72.75 | $ | 1,131,594 | ||||||||||||||||||||||||||||||||||||||||
2009(b) | $ | 28.02 | 0.37 | 1.67 | 2.04 | (0.40 | ) | — | (0.40 | ) | $ | 29.66 | 1.58 | 1.34 | 1.34 | 1.34 | 7.65 | 83.00 | $ | 1,204,450 | ||||||||||||||||||||||||||||||||||||||||
2008(b) | $ | 44.17 | 0.18 | (12.26 | ) | (12.08 | ) | (0.14 | ) | (3.93 | ) | (4.07 | ) | $ | 28.02 | 0.52 | 1.27 | 1.27 | 1.27 | (29.52 | ) | 70.65 | $ | 1,088,766 | ||||||||||||||||||||||||||||||||||||
2007(b) | $ | 37.59 | 0.29 | 7.86 | 8.15 | (0.27 | ) | (1.30 | ) | (1.57 | ) | $ | 44.17 | 0.70 | 1.27 | 1.27 | 1.27 | 22.23 | 79.29 | $ | 1,599,976 | |||||||||||||||||||||||||||||||||||||||
2006(b) | $ | 32.79 | 0.35 | 4.76 | 5.11 | (0.31 | ) | — | (0.31 | ) | $ | 37.59 | 1.02 | 1.35 | 1.34 | 1.35 | 15.63 | 51.36 | $ | 1,121,720 | ||||||||||||||||||||||||||||||||||||||||
Class B Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | $ | 28.21 | (0.04 | ) | 0.69 | 0.65 | (0.05 | ) | — | (0.05 | ) | $ | 28.81 | (0.13 | ) | 2.18 | 2.18 | 2.18 | 2.29 | 72.75 | $ | 22,036 | ||||||||||||||||||||||||||||||||||||||
2009 | $ | 26.66 | 0.16 | 1.58 | 1.74 | (0.19 | ) | — | (0.19 | ) | $ | 28.21 | 0.74 | 2.22 | 2.22 | 2.22 | 6.72 | 83.00 | $ | 38,630 | ||||||||||||||||||||||||||||||||||||||||
2008 | $ | 42.36 | (0.09 | ) | (11.68 | ) | (11.77 | ) | — | (c) | (3.93 | ) | (3.93 | ) | $ | 26.66 | (0.28 | ) | 2.05 | 2.05 | 2.05 | (30.05 | ) | 70.65 | $ | 64,287 | ||||||||||||||||||||||||||||||||||
2007 | $ | 36.17 | (0.04 | ) | 7.55 | 7.51 | (0.02 | ) | (1.30 | ) | (1.32 | ) | $ | 42.36 | (0.09 | ) | 2.07 | 2.07 | 2.07 | 21.26 | 79.29 | $ | 113,299 | |||||||||||||||||||||||||||||||||||||
2006 | $ | 31.60 | 0.07 | 4.58 | 4.65 | (0.08 | ) | — | (0.08 | ) | $ | 36.17 | 0.21 | 2.15 | 2.14 | 2.15 | 14.71 | 51.36 | $ | 96,587 | ||||||||||||||||||||||||||||||||||||||||
Class C Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | $ | 28.55 | (0.03 | ) | 0.73 | 0.70 | (0.07 | ) | — | (0.07 | ) | $ | 29.18 | (0.09 | ) | 2.06 | 2.06 | 2.06 | 2.43 | 72.75 | $ | 329,761 | ||||||||||||||||||||||||||||||||||||||
2009 | $ | 26.99 | 0.18 | 1.61 | 1.79 | (0.23 | ) | — | (0.23 | ) | $ | 28.55 | 0.81 | 2.12 | 2.12 | 2.12 | 6.83 | 83.00 | $ | 361,966 | ||||||||||||||||||||||||||||||||||||||||
2008 | $ | 42.82 | (0.08 | ) | (11.81 | ) | (11.89 | ) | (0.01 | ) | (3.93 | ) | (3.94 | ) | $ | 26.99 | (0.23 | ) | 2.02 | 2.01 | 2.02 | (30.03 | ) | 70.65 | $ | 401,880 | ||||||||||||||||||||||||||||||||||
2007 | $ | 36.55 | (0.02 | ) | 7.62 | 7.60 | (0.03 | ) | (1.30 | ) | (1.33 | ) | $ | 42.82 | (0.05 | ) | 2.03 | 2.03 | 2.03 | 21.29 | 79.29 | $ | 621,687 | |||||||||||||||||||||||||||||||||||||
2006 | $ | 31.92 | 0.09 | 4.62 | 4.71 | (0.08 | ) | — | (0.08 | ) | $ | 36.55 | 0.27 | 2.09 | 2.09 | 2.09 | 14.77 | 51.36 | $ | 490,399 | ||||||||||||||||||||||||||||||||||||||||
Class I Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | $ | 30.15 | 0.30 | 0.80 | 1.10 | (0.30 | ) | — | (0.30 | ) | $ | 30.95 | 0.97 | 0.94 | 0.94 | 0.94 | 3.62 | 72.75 | $ | 2,087,380 | ||||||||||||||||||||||||||||||||||||||||
2009 | $ | 28.47 | 0.46 | 1.70 | 2.16 | (0.48 | ) | — | (0.48 | ) | $ | 30.15 | 1.94 | 0.98 | 0.97 | 1.00 | 8.04 | 83.00 | $ | 1,575,522 | ||||||||||||||||||||||||||||||||||||||||
2008 | $ | 44.80 | 0.32 | (12.45 | ) | (12.13 | ) | (0.27 | ) | (3.93 | ) | (4.20 | ) | $ | 28.47 | 0.92 | 0.91 | 0.90 | 0.91 | (29.24 | ) | 70.65 | $ | 1,961,495 | ||||||||||||||||||||||||||||||||||||
2007 | $ | 38.11 | 0.44 | 7.96 | 8.40 | (0.41 | ) | (1.30 | ) | (1.71 | ) | $ | 44.80 | 1.05 | 0.93 | 0.92 | 0.93 | 22.62 | 79.29 | $ | 2,401,473 | |||||||||||||||||||||||||||||||||||||||
2006 | $ | 33.23 | 0.50 | 4.82 | 5.32 | (0.44 | ) | — | (0.44 | ) | $ | 38.11 | 1.41 | 0.98 | 0.97 | 0.98 | 16.10 | 51.36 | $ | 1,074,492 | ||||||||||||||||||||||||||||||||||||||||
Class R3 Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | $ | 29.48 | 0.17 | 0.76 | 0.93 | (0.17 | ) | — | (0.17 | ) | $ | 30.24 | 0.57 | 1.35 | 1.35 | 1.66 | 3.14 | 72.75 | $ | 200,362 | ||||||||||||||||||||||||||||||||||||||||
2009 | $ | 27.86 | 0.36 | 1.66 | 2.02 | (0.40 | ) | — | (0.40 | ) | $ | 29.48 | 1.57 | 1.35 | 1.35 | 1.72 | 7.62 | 83.00 | $ | 162,231 | ||||||||||||||||||||||||||||||||||||||||
2008 | $ | 43.94 | 0.17 | (12.19 | ) | (12.02 | ) | (0.13 | ) | (3.93 | ) | (4.06 | ) | $ | 27.86 | 0.50 | 1.35 | 1.35 | 1.66 | (29.54 | ) | 70.65 | $ | 161,517 | ||||||||||||||||||||||||||||||||||||
2007 | $ | 37.43 | 0.26 | 7.81 | 8.07 | (0.26 | ) | (1.30 | ) | (1.56 | ) | $ | 43.94 | 0.63 | 1.35 | 1.35 | 1.63 | 22.11 | 79.29 | $ | 151,260 | |||||||||||||||||||||||||||||||||||||||
2006 | $ | 32.68 | 0.37 | 4.71 | 5.08 | (0.33 | ) | — | (0.33 | ) | $ | 37.43 | 1.05 | 1.36 | 1.35 | 1.69 | 15.60 | 51.36 | $ | 48,627 | ||||||||||||||||||||||||||||||||||||||||
Class R4 Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | $ | 29.62 | 0.19 | 0.78 | 0.97 | (0.20 | ) | — | (0.20 | ) | $ | 30.39 | 0.63 | 1.25 | 1.25 | 1.49 | 3.25 | 72.75 | $ | 54,461 | ||||||||||||||||||||||||||||||||||||||||
2009 | $ | 27.99 | 0.39 | 1.67 | 2.06 | (0.43 | ) | — | (0.43 | ) | $ | 29.62 | 1.65 | 1.25 | 1.25 | 1.54 | 7.74 | 83.00 | $ | 44,037 | ||||||||||||||||||||||||||||||||||||||||
2008 | $ | 44.14 | 0.19 | (12.23 | ) | (12.04 | ) | (0.18 | ) | (3.93 | ) | (4.11 | ) | $ | 27.99 | 0.58 | 1.24 | 1.24 | 1.48 | (29.47 | ) | 70.65 | $ | 29,462 | ||||||||||||||||||||||||||||||||||||
2007(d) | $ | 41.00 | 0.20 | 3.12 | 3.32 | (0.18 | ) | — | (0.18 | ) | $ | 44.14 | 0.70 | (e) | 1.25 | (e) | 1.25 | (e) | 2.34 | (e) | 8.09 | 79.29 | $ | 7,038 | ||||||||||||||||||||||||||||||||||||
Class R5 Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | $ | 30.13 | 0.28 | 0.79 | 1.07 | (0.28 | ) | — | (0.28 | ) | $ | 30.92 | 0.91 | 0.99 | 0.99 | 1.12 | 3.54 | 72.75 | $ | 228,768 | ||||||||||||||||||||||||||||||||||||||||
2009 | $ | 28.45 | 0.46 | 1.71 | 2.17 | (0.49 | ) | — | (0.49 | ) | $ | 30.13 | 1.93 | 0.98 | 0.98 | 1.18 | 8.05 | 83.00 | $ | 165,663 | ||||||||||||||||||||||||||||||||||||||||
2008 | $ | 44.78 | 0.32 | (12.47 | ) | (12.15 | ) | (0.25 | ) | (3.93 | ) | (4.18 | ) | $ | 28.45 | 0.92 | 0.98 | 0.98 | 1.03 | (29.30 | ) | 70.65 | $ | 135,173 | ||||||||||||||||||||||||||||||||||||
2007 | $ | 38.09 | 0.49 | 7.91 | 8.40 | (0.41 | ) | (1.30 | ) | (1.71 | ) | $ | 44.78 | 1.14 | 0.91 | 0.91 | 0.93 | 22.63 | 79.29 | $ | 106,906 | |||||||||||||||||||||||||||||||||||||||
2006 | $ | 33.22 | 0.24 | 5.07 | 5.31 | (0.44 | ) | — | (0.44 | ) | $ | 38.09 | 0.64 | 1.00 | 0.98 | 3.24 | 16.07 | 51.36 | $ | 10,483 |
(a) | Not annualized for periods less than one year. |
(b) | Sales loads are not reflected in computing total return. |
(c) | Dividends from net investment income per share were less than $(0.01). |
(d) | Effective date of this class of shares was February 1, 2007. |
(e) | Annualized. |
+ | Based on weighted average shares outstanding. |
See notes to financial statements.
28 Certified Annual Report | Certified Annual Report 29 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Thornburg Value Fund
To the Trustees and Shareholders of
Thornburg Value Fund
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Thornburg Value Fund (one of the portfolios constituting Thornburg Investment Trust, hereafter referred to as the “Fund”) at September 30, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2010
30 Certified Annual Report
EXPENSE EXAMPLE | ||
Thornburg International Value Fund | September 30, 2010 (Unaudited) |
As a shareholder of the Fund, you incur two types of costs:
(1) | transaction costs, including |
(a) sales charges (loads) on purchase payments for Class A shares;
(b) a deferred sales charge on redemptions of any part or all of a purchase of $1 million of Class A shares within 12 months of purchase;
(c) a deferred sales charge on redemptions of Class B shares within eight years of purchase;
(d) a deferred sales charge on redemptions of Class C shares within 12 months of purchase;
(e) a 30-day redemption fee on Class A and Class I shares;
(2) | ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. |
This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on a $1,000 investment beginning on April 1, 2010, and held until September 30, 2010.
ACTUAL EXPENSES
For each class of shares, the first line of the table at right provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line for your class of shares under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
For each class of shares, the second line of the table at right provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Beginning Account Value 4/1/10 | Ending Account Value 9/30/10 | Expenses Paid During Period† 4/1/10–9/30/10 | ||||||||||
Class A Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 936.50 | $ | 6.57 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,018.28 | $ | 6.85 | ||||||
Class B Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 932.40 | $ | 10.65 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,014.05 | $ | 11.10 | ||||||
Class C Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 932.90 | $ | 10.08 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,014.64 | $ | 10.51 | ||||||
Class I Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 938.40 | $ | 4.55 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,020.37 | $ | 4.75 | ||||||
Class R3 Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 936.30 | $ | 6.55 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,018.30 | $ | 6.83 | ||||||
Class R4 Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 936.80 | $ | 6.07 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,018.80 | $ | 6.33 | ||||||
Class R5 Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 938.10 | $ | 4.81 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,020.10 | $ | 5.01 |
† | Expenses are equal to the annualized expense ratio for each class (A: 1.35%; B: 2.20%; C: 2.08%; I: 0.94%; R3: 1.35%; R4: 1.25%; R5: 0.99%) multiplied by the average account value over the period, multiplied by 183/365 to reflect the one-half year period. |
* | Hypothetical assumes a rate of return of 5% per year before expenses. |
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Certified Annual Report 31
INDEX COMPARISON | ||
Thornburg International Value Fund | September 30, 2010 (Unaudited) |
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Thornburg Value Fund versus S&P 500 Index (October 2, 1995 to September 30, 2010)
AVERAGE ANNUAL TOTAL RETURNS
For periods ended September 30, 2010 (with sales charge)
1 Yr | 5 Yrs | 10 Yrs | Since Inception | |||||||||||||
A Shares (Incep: 10/2/95) | -1.44 | % | 1.11 | % | 0.85 | % | 8.94 | % | ||||||||
B Shares (Incep: 4/3/00) | -2.71 | % | 0.86 | % | 0.65 | % | 0.68 | % | ||||||||
C Shares (Incep: 10/2/95) | 1.43 | % | 1.28 | % | 0.54 | % | 8.43 | % | ||||||||
I Shares (Incep: 11/2/98) | 3.62 | % | 2.43 | % | 1.72 | % | 5.52 | % | ||||||||
R3 Shares (Incep: 7/1/03) | 3.14 | % | 2.00 | % | — | 4.98 | % | |||||||||
R4 Shares (Incep: 2/1/07) | 3.25 | % | — | — | -4.40 | % | ||||||||||
R5 Shares (Incep: 2/1/05) | 3.54 | % | 2.40 | % | — | 3.67 | % | |||||||||
S&P 500 Index (Since 10/2/95) | 10.16 | % | 0.64 | % | -0.43 | % | 6.49 | % |
The S&P 500 Index, an unmanaged broad measure of the U.S. stock market, does not reflect sales charges or expenses. Investors cannot invest directly in an index.
Performance data reflects past performance, which is no guarantee of future results. The performance data and graph do 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 B shares carry a contingent deferred sales charge (CDSC) that declines from 5.00% to 0% depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Class C shares are subject to a 1% CDSC for the first year only. There is no up-front sales charge for Class I, R3, R4 and R5 shares. Class A and I shares are subject to a 1% 30-day redemption fee.
32 Certified Annual Report
TRUSTEES AND OFFICERS | ||
Thornburg Value Fund | September 30, 2010 (Unaudited) |
Name, Age, | Principal Occupation(s) During Past Five Years | Other Directorships | ||
INTERESTED TRUSTEES (1)(2)(4) | ||||
Garrett Thornburg, 64 Chairman of Trustees, Trustee since 1987(3) | Chairman and controlling shareholder and, until 2008, CEO of Thornburg Investment Management, Inc. (investment advisor); Chairman, CEO, and controlling shareholder of Thornburg Securities Corporation (securities dealer); CEO until 2007 and Chairman until 2009 of TMST, Inc. (f/k/a Thornburg Mortgage, Inc.) (real estate investment trust); President and Sole Director until 2009 of Thornburg Mortgage Advisory Corporation (investment manager to TMST, Inc.). | None | ||
Brian J. McMahon, 54 Trustee since 2001, Member of Governance & Nominating Committee, President since 1997(5)(6) | CEO since 2008, President, Managing Director, Chief Investment Officer, and Portfolio Manager of Thornburg Investment Management, Inc. | None | ||
INDEPENDENT TRUSTEES (1)(2)(4) | ||||
David A. Ater, 65 Trustee since 1994, Member of Audit Committee & Governance & Nominating Committee | Principal in Ater & Associates, Santa Fe, NM (developer, planner and broker of residential and commercial real estate); owner, developer and broker for various real estate projects. | None | ||
David D. Chase, 69 Chairman of Audit Committee, Trustee since 2000 | Chairman, President, CEO, and Managing Member of Vestor Associates, LLC, the general partner of Vestor Partners, LP, Santa Fe, NM (private equity fund); Managing Member of CS Group, LLC, Santa Fe, NM (merchant bank). | None | ||
Eliot R. Cutler, 64 Chairman of Governance & Nominating Committee, Trustee since 2004 | Senior Counsel and, until 2009, Partner of Akin, Gump, Strauss, Hauer & Feld LLP (law firm) in Washington, D.C. and Beijing, China. | None | ||
Susan H. Dubin, 61 Trustee since 2004, Member of Audit Committee | President of Dubin Investments, Ltd., Greenwich, CT (private investment fund); Director and officer of various charitable organizations. | None | ||
Owen D. Van Essen, 56 Trustee since 2004, Member of Governance & Nominating Committee | President of Dirks, Van Essen & Murray, Santa Fe, NM (newspaper mergers and acquisitions). | None | ||
James W. Weyhrauch, 51 Trustee since 1996, Member of Audit Committee | Real estate broker, Santa Fe Properties, Santa Fe, NM; President and Vice Chairman of Nambé Mills, Inc., Santa Fe, NM (manufacturer). | None |
Certified Annual Report 33
TRUSTEES AND OFFICERS, CONTINUED | ||
Thornburg Value Fund | September 30, 2010 (Unaudited) |
Name, Age, Position Held with Fund Year Elected | Principal Occupation(s) During Past Five Years | Other Directorships Held by Trustee | ||||
OFFICERS OF THE FUND (WHO ARE NOT TRUSTEES)(1)(6)(7) | ||||||
George T. Strickland, 47 Vice President since 1996, Treasurer since 2007(6) | Portfolio Manager, Vice President, and Managing Director of Thornburg Investment Management, Inc. | Not applicable | ||||
William V. Fries, 71 Vice President since 1995 | Portfolio Manager, Vice President, and Managing Director of Thornburg Investment Management, Inc. | Not applicable | ||||
Leigh Moiola, 43 Vice President since 2001 | Vice President, Managing Director, and Director of Marketing of Thornburg Investment Management, Inc. | Not applicable | ||||
Alexander Motola, 40 Vice President since 2001 | Portfolio Manager, Vice President, and Managing Director of Thornburg Investment Management, Inc. | Not applicable | ||||
Wendy Trevisani, 39 Vice President since 1999 | Portfolio Manager since 2006, Managing Director, and Associate Portfolio Manager until 2006 of Thornburg Investment Management, Inc. | Not applicable | ||||
Joshua Gonze, 47 Vice President since 1999 | Portfolio Manager since 2007, Managing Director, and Associate Portfolio Manager until 2007 of Thornburg Investment Management, Inc. | Not applicable | ||||
Christopher Ihlefeld, 40 Vice President since 2003 | Portfolio Manager since 2007, Managing Director since 2006, and Associate Portfolio Manager until 2007 of Thornburg Investment Management, Inc. | Not applicable | ||||
Leon Sandersfeld, 44 Vice President since 2003 | Managing Director since 2007 and Fund Accounting Director of Thornburg Investment Management, Inc. | Not applicable | ||||
Sasha Wilcoxon, 36 Vice President since 2003 Secretary since 2007(6) | Managing Director since 2007, Director of Operations, and Vice President of Thornburg Investment Management, Inc. | Not applicable | ||||
Ed Maran, 52 Vice President since 2004 | Portfolio Manager since 2006, Managing Director, and Associate Portfolio Manager until 2006 of Thornburg Investment Management, Inc. | Not applicable | ||||
Vinson Walden, 40 Vice President since 2004 | Portfolio Manager since 2006, Managing Director, and Associate Portfolio Manager until 2006 of Thornburg Investment Management, Inc. | Not applicable | ||||
Thomas Garcia, 39 Vice President since 2006 | Managing Director, Head Equity Trader, and Associate Portfolio Manager of Thornburg Investment Management, Inc. | Not applicable | ||||
Lei Wang, 39 Vice President since 2006 | Portfolio Manager since 2006, Managing Director, and Associate Portfolio Manager until 2006 of Thornburg Investment Management, Inc. | Not applicable | ||||
Connor Browne, 31 Vice President since 2006 | Portfolio Manager since 2006, Managing Director, and Associate Portfolio Manager until 2006 of Thornburg Investment Management, Inc. | Not applicable |
34 Certified Annual Report
TRUSTEES AND OFFICERS, CONTINUED | ||
Thornburg Value Fund | September 30, 2010 (Unaudited) |
Name, Age, Position Held with Fund Year Elected | Principal Occupation(s) During Past Five Years | Other Directorships Held by Trustee | ||
Jason Brady, 36 Vice President since 2007 | Portfolio Manager since 2007, Managing Director since 2007, and Associate Portfolio Manager 2006–2007 of Thornburg Investment Management, Inc.; Portfolio Manager, Fortis Investments 2005–2006. | Not applicable | ||
Lewis Kaufman, 34 Vice President since 2007 | Portfolio Manager since 2007, Managing Director since 2007, and Associate Portfolio Manager until 2009 of Thornburg Investment Management, Inc. | Not applicable | ||
Christopher Ryon, 54 Vice President since 2008 | Portfolio Manager since 2009, Managing Director since 2009, and Associate Portfolio Manager 2008–2009 of Thornburg Investment Management, Inc.; Principal of Vanguard Funds until 2008. | Not applicable | ||
Lon Erickson, 35 Vice President since 2008 | Portfolio Manager since 2010, Managing Director since 2010, and Associate Portfolio Manager 2008–2010 of Thornburg Investment Management, Inc.; Senior Analyst of State Farm Insurance until 2008. | Not applicable | ||
Kathleen Brady, 50 Vice President since 2008 | Senior Tax Accountant since 2007 of Thornburg Investment Management, Inc.; Chief Financial Officer of Vestor Partners, LP (private equity fund) until 2007. | Not applicable | ||
Jack Gardner, 56 Vice President since 2008 | Managing Director since 2007 of Thornburg Investment Management, Inc.; President since 2008 and National Sales Director of Thornburg Securities Corporation. | Not applicable | ||
Laura Hillstrom, 43 Vice President since 2009 | Chief Administrative Officer since 2009, Vice President and Managing Director, and Director of Information Systems until 2009 of Thornburg Investment Management, Inc. | Not applicable | ||
Cliff Remily, 34 Vice President since 2010 | Portfolio Manager and Managing Director since 2010, Associate Portfolio Manager 2008–2010, and Equity Research Analyst 2006–2008 of Thornburg Investment Management, Inc.; Intern-Equity Research Analyst of Brandes Investment Partners until 2006. | Not applicable |
(1) | Each person’s address is 2300 North Ridgetop Road, Santa Fe, New Mexico 87506. |
(2) | The Fund is one of sixteen separate investment “Funds” or “series” of Thornburg Investment Trust (the “Trust”), which comprises the Thornburg mutual fund complex and is organized as a Massachusetts business trust. Thornburg Investment Management, Inc. is the investment advisor to, and manages, the sixteen Funds of the Trust. Each Trustee oversees the sixteen Funds of the Trust. |
(3) | Mr. Thornburg is considered an “interested” Trustee under the Investment Company Act of 1940 because he is a director and controlling shareholder of Thornburg Investment Management, Inc., the investment advisor to the sixteen active Funds of the Trust, and is the sole director and controlling shareholder of Thornburg Securities Corporation, the distributor of shares for the Trust. |
(4) | Each Trustee serves in office until the election and qualification of a successor. |
(5) | Mr. McMahon is considered an “interested” Trustee because he is the chief executive officer and president of Thornburg Investment Management, Inc. |
(6) | The Trust’s president, secretary, and treasurer each serves a one-year term or until the election and qualification of a successor; each other officer serves at the pleasure of the Trustees. |
(7) | Assistant vice presidents, assistant secretaries and assistant treasurers are not shown. |
The Statement of Additional Information for each Fund of the Trust includes additional information about the Trustees and is available, without charge and upon request, by calling 1-800-847-0200.
Certified Annual Report 35
OTHER INFORMATION | ||
Thornburg Value Fund | September 30, 2010 (Unaudited) |
PORTFOLIO PROXY VOTING
Policies and Procedures:
The Trust has delegated to Thornburg Investment Management, Inc. (the “Advisor”) voting decisions respecting proxies for the Fund’s voting securities. The Advisor makes voting decisions in accordance with its Proxy Voting Policy and Procedures. A description of the Policy and Procedures is available (i) without charge, upon request, by calling the Advisor toll-free at 1-800-847-0200, (ii) on the Thornburg web site at www.thornburg.com, and (iii) on the Securities and Exchange Commission’s web site at www.sec.gov.
Information regarding how proxies were voted is available on or before August 31 of each year for the twelve months ending the preceding June 30. This information is available (i) without charge, upon request by calling the Advisor toll-free at 1-800-847-0200, (ii) on the Thornburg web site at www.thornburg.com, and (iii) on the Securities and Exchange Commission’s web site at www.sec.gov.
TAX INFORMATION
For the tax year ended September 30, 2010, the Thornburg Value Fund designates 98.42% (or the maximum allowed) of the dividends paid from tax basis net ordinary income as qualifying for the reduced rate under the Jobs and Growth Tax Relief and Reconciliation Act of 2003.
97.16% (or the maximum allowed) of the ordinary income distributions paid by the Fund for the year ended September 30, 2010 qualified for the corporate dividends received deduction.
The information and distributions reported herein may differ from the information and distributions taxable to the shareholders for the calendar year ending December 31, 2010. Complete information will be computed and reported in conjunction with your 2010 Form 1099-DIV.
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULE
The Fund files with the Securities and Exchange Commission schedules of its portfolio holdings on Form N-Q for the first and third quarters of each fiscal year. The Fund’s Forms N-Q are available on the Commission’s web site at www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund also makes this information available on its web site at www.thornburg. com/download or upon request by calling 1-800-847-0200.
STATEMENT RESPECTING RENEWAL OF INVESTMENT ADVISORY AGREEMENT
Thornburg Investment Management, Inc. (the “Advisor”) provides investment management services to Thornburg Value Fund pursuant to an investment advisory agreement. The Trustees consider the renewal of this agreement annually, and most recently determined to renew the agreement on September 13, 2010.
In anticipation of their recent consideration of the advisory agreement’s renewal, the independent Trustees met in May 2010 to plan the Trustees’ evaluation of the Advisor’s performance and to specify the information the Advisor would present to the Trustees for their review. The Advisor’s chief investment officer subsequently reviewed portions of that information with the Trustees and addressed questions presented by the Trustees at a meeting session scheduled for that purpose, and the independent Trustees thereafter met in independent session to consider the Advisor’s presentation and various specific issues respecting their consideration of the advisory agreement’s renewal. Following these sessions, the Trustees met to consider a renewal of the agreement, and the independent Trustees unanimously voted at that meeting to renew the agreement for an additional term of one year.
The information below summarizes certain factors considered by the Trustees in connection with the determination to renew the advisory agreement. In determining to renew the agreement, the Trustees did not identify any single factor as controlling, and this summary does not describe all of the matters considered by the Trustees in making their determination.
Quality of Services; Fund Investment Performance. The Trustees evaluated the nature, extent and quality of services provided by the Advisor under the advisory agreement, and evaluated the investment performance of the Fund.
36 Certified Annual Report
OTHER INFORMATION, CONTINUED | ||
Thornburg Value Fund | September 30, 2010 (Unaudited) |
In connection with their general supervision of the Advisor, and as an important element of their annual consideration of a renewal of the advisory agreement, the Trustees received and considered reports from the Advisor throughout the year. These reports addressed a wide variety of topics, including particularly the Advisor’s services to the Fund and its selection of investments and pursuit of the Fund’s investment objectives. In addition, the Trustees considered the information specifically provided to them at their request in anticipation of their annual evaluation of the Advisor’s services, including (i) the Advisor’s commentary on the Fund’s performance, in the context of business, market and economic conditions, (ii) the Fund’s absolute investment performance and achievement of stated objectives, (iii) measures of the Fund’s investment performance over different periods of time relative to a category of large blend equity mutual funds selected by an independent mutual fund analyst firm, and relative to two broad-based securities indices, and (iv) comparative measures of portfolio volatility, risk and return. The Trustees considered the effects of recent market and economic events on the Fund and the Advisor’s responses to those events, and evaluated the Advisor’s continued adherence to the Fund’s stated investment policies.
The Trustees also considered their perceptions of portfolio management personnel developed in formal and informal meetings throughout the year, the Advisor’s staffing and other resources, trade execution, the Advisor’s performance of accounting and other services, the Advisor’s observance of compliance and regulatory requirements, the Advisor’s responsiveness to the Trustees, and other factors.
In evaluating quantitative and performance data presented, the Trustees noted (among other aspects of the data) that the Fund’s investment return in the most recent calendar year was higher relative to the category of large blend equity mutual funds and the two broad based securities indices, and further noted in this context that the Fund’s returns had exceeded the returns of the category and the two indices in the majority of the preceding nine calendar years. The quantitative data presented further demonstrated to the Trustees that the Fund’s investment returns fell within the lowest quartile of the fund category for the three-month, year-to-date and one-year periods ended with the second quarter of the current year, but that the Fund’s returns fell above the median of the category for the three-year period and within the top decile of the category for the five-year period. The Trustees further noted the Fund’s higher cumulative investment return (net of expenses) relative to the Fund’s benchmark Standard & Poor’s 500 Index.
The Trustees concluded, based upon these and other considerations, that the nature, extent and quality of the Advisor’s services were sufficient and that the Advisor had satisfactorily pursued the Fund’s stated investment objectives. The Trustees further concluded that the investment performance of the Fund was satisfactory in the context of the Fund’s objectives and policies, and prevailing market conditions.
Fees and Expenses; Profitability of Advisor; Economies of Scale; Ancillary Benefits. The Trustees evaluated the level of the management fee charged by the Advisor to the Fund, and in this connection, reviewed the profitability of the Advisor, economies of scale potentially available to the Fund and whether the Advisor received any ancillary benefits from its relationship with the Fund.
In evaluating the level of the management fee, the Trustees considered the fee charged by the Advisor and the other expenses charged to the Fund in light of the nature and quality of services provided, comparison of the actual Advisor’s fee and Fund expenses to the statement of fees and expenses in the Fund’s prospectuses, and comparisons of the Advisor’s fee and other Fund expenses to median and average fees and expenses charged to a group of equity mutual funds assembled by an independent mutual fund analyst firm. The Trustees observed that the management fee charged to the Fund was somewhat higher than the median and average management fees for the group of mutual funds assembled by the analyst firm, that the overall expense ratio of the Fund was slightly higher than the median and comparable to the average expense ratios for the same group, and that the differences were not significant in view of their degree and the other factors considered. The Trustees considered information about the fees charged by the Advisor to other investment management clients, together with information about fees charged by other advisors to different clients, and analysis of the differences between the requirements of institutional clients and mutual funds and the consequently different investment management services rendered, respectively, to institutional clients and mutual funds. The Trustees confirmed their previous observations that the differences between the fees charged by the Advisor to different types of clients did not appear exceptional, and observed that the fee rates charged by investment advisors to institutional clients had limited relevance to the evaluation of fee rates charged to mutual funds, because of the significant differences between the respective requirements of institutional clients and mutual funds, the differences between the respective services rendered to institutional clients and mutual funds, and the different circumstances in which the respective fees originate.
In reviewing the profitability of the Advisor, the Trustees considered data comparing the profitability of the Advisor to other investment management firms, and considered information from the Advisor respecting the effects of recent economic events on the Advisor and the Advisor’s responses to those events. The information provided did not indicate that the Advisor’s profitability was unusual, and
Certified Annual Report 37
OTHER INFORMATION, CONTINUED | ||
Thornburg Value Fund | September 30, 2010 (Unaudited) |
the Trustees noted the adequacy of the Advisor’s resources and service capabilities. In reviewing the extent to which economies of scale would be realized by the Fund as it grows and whether fee levels reflect economies of scale, the Trustees considered the breakpoint structure for advisory fees chargeable to the Fund, the demonstrated economies of scale enjoyed by the Fund and other Funds of the Trust as they had grown in size, and economies of scale realized by other mutual funds. The information provided demonstrated to the Trustees that the Fund has realized economies of scale and may reasonably be expected to realize economies of scale as the Fund’s assets increase, due to the advisory agreement’s breakpoint fee structure and other factors. In reviewing potential benefits to the Advisor because of its relationship to the Fund, the Trustees considered the Advisor’s receipt of certain research services from broker dealers, and the benefits to both the Fund and the Advisor of the Advisor’s expansion of its staffing, compliance and systems capabilities and other resources to serve a broader variety of investment management clients. No unusual or unfair benefits to the Advisor from its relationship to the Fund were identified by the Trustees.
The Trustees concluded, based upon their consideration of these and other factors, that the management fee charged to the Fund by the Advisor was fair and reasonable in view of the nature, extent and quality of the services provided by the Advisor, the clear disclosure of fees and expenses in the Fund’s prospectuses, the investment performance of the Fund, and comparisons of fees and expenses charged to the Fund to fees and expenses charged to other mutual funds.
38 Certified Annual Report
Trustees’ Statement to Shareholders
Not part of the Certified Annual Report
February 8, 2005, as readopted September 13, 2010
The Trustees are concerned that ongoing commentaries and opinions reported in the media may confuse investors in general as to the supervisory duties of trustees of mutual funds and, in particular, leave Thornburg Investment Trust shareholders uncertain regarding how we discharge our responsibilities in supervising the Funds’ investment advisor and in reviewing the advisor’s contract for renewal. We decided to spell out clearly three principal guidelines that we follow in supervising the Trust’s investment advisor on your behalf.
We begin with the premise that each shareholder selected his or her Fund because its investments are managed by the investment advisor identified in the prospectus and in accordance with the objective and policies described in the prospectus. We realize, as each of you do, that if you believe that your Fund’s stated objective and policies no longer serve your personal investment goals, you can sell your shares and leave the Fund.
Therefore, we believe that our primary supervisory task – our principal obligation to you – is to assess the nature and quality of the advisor’s services, and to confirm that the advisor actively and competently pursues the Fund’s objective, in accordance with the policies set out in the prospectus. To do this, we meet regularly with management to review your Fund’s portfolio and to discuss the advisor’s specific actions and judgments in pursuing the Fund’s objective. We do not substitute our own judgment for the advisor’s decisions in selecting investments; the advisor is paid to exercise its informed judgment on investment decisions, and we seek to confirm, in reviewing the advisor’s performance, that the advisor is doing just that.
Second, while we are conscious of costs and the effect that costs have on shareholders’ returns, we do not seek the lowest fees or expense ratio as our sole or primary objective. We try to make sure that your Fund’s fees and costs are reasonable in relationship to the services rendered and that they are generally in line with those charged by other expert investment advisors, consistent with our belief that the Fund’s investors searched for and expect that expertise and attention and have decided to pay a reasonable price for it. We do not put the management contract “out to bid” as a matter of course, and we would not do so unless we had concluded that the advisor materially had failed to pursue the Fund’s objectives in accordance with its policies, or for other equally important reasons. We believe that any other approach would be inconsistent with your interests and contrary to your expectations when you bought shares of the Fund in the first place.
Finally, because we believe that most Thornburg Fund shareholders have invested with a long-term perspective, we try not to focus too much on the fashions of the moment and on short-term performance. The market will not favor any specific investment objective or set of policies at all times and under all economic circumstances. A fund will experience periods of both high and low returns relative to other funds and other investments. Even if one of our Funds is not favored by the market at a particular time, we believe that the advisor is nonetheless obliged to remain true to the Fund’s objective and policies, and we watch to see that it does so.
This page is not part of the Annual Report. 39
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40 This page is not part of the Annual Report.
Retirement and Education Accounts
Thornburg Investment Management offers retirement and education savings accounts that can help you meet a variety of planning challenges. For account applications or further information on any of the accounts below, please call 1-800-847-0200 or go to www.thornburg.com/ira. Your financial advisor can help you determine which plan is right for you.
Individual Retirement Accounts
Individual Retirement Accounts (IRAs) provide a tax-advantaged means to save money for the future. For a detailed outline of the difference between retirement accounts, see www.thornburg.com/ira. Rollovers are available. Call 1-800-847-0200 for more information.
Traditional IRAs – Contributions to Traditional IRAs are tax deductible for eligible individuals, and withdrawals are taxed as additional ordinary income. You may contribute to an IRA if you receive compensation and are under 70 1/2, even if you are covered by an employer retirement plan. Deductible contributions are subject to certain qualifications. Please consult your tax advisor.
Roth IRAs – Under a Roth IRA, there is no tax deduction for contributions, but there is no income tax on qualified withdrawals. For a more detailed comparison of Traditional and Roth IRAs, please see our web site at www.thornburg.com/ira.
SEP IRAs – Simplified Employee Pension (SEP) IRAs are established by employers. The employer is allowed a tax deduction for contributions made to the SEP Plan and makes contributions to each eligible employee’s SEP IRA on a discretionary basis.
SIMPLE IRAs – Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) is designed to give small business owners a simplified method to establish and contribute to a retirement plan for employees. The employer is allowed a tax deduction for contributions and makes either matching or non-elective contributions to each eligible employee’s SIMPLE IRA. Employees may make salary deferral contributions.
Coverdell Education Savings Account
These savings accounts are designed to provide a way to save money for higher education expenses. In an Education Savings Account, earnings and interest grow tax-free, and qualified withdrawals used to pay for eligible higher-education expenses are tax- and penalty-free.
Funds Available
The following funds are available in the accounts listed above:
• | Thornburg International Value Fund |
• | Thornburg Value Fund |
• | Thornburg Core Growth Fund |
• | Thornburg Investment Income Builder Fund |
• | Thornburg Global Opportunities Fund |
• | Thornburg International Growth Fund |
• | Thornburg Developing World Fund |
• | Thornburg Limited Term U.S. Government Fund |
• | Thornburg Limited Term Income Fund |
• | Thornburg Strategic Income Fund |
This page is not part of the Annual Report. 41
Thornburg Equity Funds
Thornburg’s equity research uses a fundamental and comprehensive analytical approach. Thornburg equity funds focus on a limited number of securities so that each holding can impact performance. The equity team searches for firms believed to have a promising future and seeks to buy shares of those companies at a discount to their intrinsic value.
• | Thornburg Value Fund |
• | Thornburg International Value Fund |
• | Thornburg Core Growth Fund |
• | Thornburg Investment Income Builder Fund |
• | Thornburg Global Opportunities Fund |
• | Thornburg International Growth Fund |
• | Thornburg Developing World Fund |
Thornburg Bond Funds
Thornburg Investment Management applies a disciplined philosophy to fixed-income management. Since the launch of our first fixed-income fund over 25 years ago, we have been conducting fundamental, bottom-up research in an effort to identify bonds which we believe provide the best return for a given level of risk. We are very organic in our approach, avoiding leverage or complex strategies which could backfire in periods of market uncertainty.
• | Thornburg Limited Term Municipal Fund |
• | Thornburg Intermediate Municipal Fund |
• | Thornburg California Limited Term Municipal Fund |
• | Thornburg New Mexico Intermediate Municipal Fund |
• | Thornburg New York Intermediate Municipal Fund |
• | Thornburg Strategic Municipal Income Fund |
• | Thornburg Limited Term U.S. Government Fund |
• | Thornburg Limited Term Income Fund |
• | Thornburg Strategic Income Fund |
Before investing, carefully consider the Fund’s investment goals, risks, charges, and expenses. For a prospectus containing this and other information, contact your financial advisor or visit thornburg. com. Read it carefully before investing.
For additional information, please visit www.thornburg.com
Thornburg Investment Management, Inc. 2300 North Ridgetop Road, Santa Fe, NM 87506
This page is not part of the Annual Report. 43
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This Annual Report is submitted for the general information of shareholders of the Fund. It is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus | By switching from your postal mailbox to your email inbox, you reduce paper clutter, improve record keeping access, and help conserve our natural resources. | |||||
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Thornburg Securities Corporation® 800.847.0200 | You invest in the future, without spending a dime. | |||||
TH077 |
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.
The maximum sales charge for Class A shares is 4.50%. Class A shares are subject to a 1% 30-day redemption fee. The total annual fund operating expense of Class A shares is 1.30%, as disclosed in the most recent Prospectus.
TH2332
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Important Information
The information presented on the following pages was current as of September 30, 2010. The managers’ views, portfolio holdings, and sector and country diversification are provided for the general information of the Fund’s shareholders; they are historical and subject to change. This material should not be deemed a recommendation to buy or sell any of the securities mentioned.
Investments in the Fund carry risks including possible loss of principal. Investing outside the United States involves additional risks, such as currency fluctuations. Additionally, the Fund may invest a portion of the assets in small capitalization companies, which may increase the risk of greater price fluctuations. As with direct bond ownership, funds that invest in bonds are subject to certain risks including interest-rate risk, credit risk, and inflation risk. The principal value of bonds will fluctuate relative to changes in interest rates, decreasing when interest rates rise. 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 deposits or obligations of, or guaranteed or endorsed by, any bank, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any government agency. There is no guarantee that the Fund will meet its investment objectives.
Performance data given at net asset value (NAV) does not take into account the applicable sales charges. If the sales charges had been included, the performance would have been lower.
Class I, R3, R4, and R5 shares may not be available to all investors. Minimum investments for Class I shares may be higher than those for other classes.
Share Class | NASDAQ Symbol | Cusip | ||
Class A | TIBAX | 885-215-558 | ||
Class C | TIBCX | 885-215-541 | ||
Class I | TIBIX | 885-215-467 | ||
Class R3 | TIBRX | 885-215-384 | ||
Class R4 | TIBGX | 885-215-186 | ||
Class R5 | TIBMX | 885-215-236 |
Glossary
Blended Index – The Blended Index is composed of 25% Barclays Capital Aggregate Bond Index and 75% MSCI World Index. The Barclays Capital Aggregate Bond Index is composed of approximately 8,000 publicly traded bonds including U.S. government, mortgage-backed, corporate and Yankee bonds. The index is weighted by the market value of the bonds included in the index. The MSCI World Index is an unmanaged market-weighted index that consists of securities traded in 24 of the world’s most developed countries. Securities are listed on exchanges in the U.S., Europe, Canada, Australia, New Zealand, and the Far East. The index is calculated with net dividends reinvested, in U.S. dollars.
Russell 1000 Index – An index that measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership.
Russell 2000 Index – An index that measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000 Index including approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership.
Standard & Poor’s 500 Stock Index (S&P 500) – An unmanaged index generally representative of the U.S. stock market.
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. The performance of any index is not indicative of the performance of any particular investment.
Effective Duration – A bond’s sensitivity to interest rates, incorporating the embedded option features, such as call provisions. Bonds with longer durations experience greater price volatility than bonds with shorter durations.
Indicated Yield – The yield that a share of stock would return based on the most recent dividend payment. Indicated yield is calculated by dividing the indicated dividend by the current share price. It is usually quoted as a percentage.
Median Market Capitalization – Market capitalization (market cap) is the total value of a company’s stock, calculated by multiplying the number of outstanding common shares by the current share price. The company whose market cap is in the middle of the portfolio is the median market cap. Half the companies in the portfolio have values greater than the median, and half have values that are less.
Price to Earnings Ratio (P/E) – A valuation ratio equaling a company’s market value per share divided by earnings per share.
U.S. Treasury Securities – U.S. Treasury securities, such as bills, notes and bonds, are negotiable debt obligations of the U.S. government. These debt obligations are backed by the “full faith and credit” of the government and issued at various schedules and maturities. Income from Treasury securities is exempt from state and local, but not federal income taxes.
This page is not part of the Annual Report. 3
The Dividend Landscape
To appreciate the investment environment in which Thornburg Investment Income Builder Fund operates, you may wish to review these highlights of the “dividend landscape.”
The S&P 500 Index Payout Ratio — A Historical Perspective
The dividend payout ratio is a fraction that expresses dividend payments as a percentage of per-share earnings. As the economy slowed in the recent downturn, earnings-per-share on average declined, causing the payout ratio to climb, even as dividends paid by the S&P 500 portfolio declined by more than 10 percent in 2010.
S&P 500 Index Payout Ratio
Sources: Standard & Poor’s, beginning in 1999 (uses operating earnings); “Irrational Exuberance” by Robert J. Shiller, through 1998 (uses reported earnings).
Corporate Willingness to Pay Dividends is Key to the Fund’s Investment Process
The Russell 1000 Index includes 1000 public companies that are supposed to be generally representative of corporate America. Between 1980 and 1993, at least 75% of these firms paid some dividend. Between 1994 and 2001, the percentage of Russell 1000 companies paying dividends sank to just over 50%, indicating a preference towards reinvesting retained earnings in growth initiatives. Dividends returned to fashion between 2002 and 2008, but the recent recession stalled dividend momentum.
Percentage of Companies Paying Dividends in Russell 1000 Index
Source: CSFB Quantitative and Equity Derivatives Strategy, Baseline & FactSet.
4 This page is not part of the Annual Report.
Rising Dividend Payments Despite Decreasing Dividend Yields
S&P 500 Index Average Yield vs. Annual Dividends from a
Hypothetical $10,000 Investment (Dividends not Reinvested)
Source: Bloomberg and FactSet.
Over time, the dollar dividend per unit of the S&P 500 Index has increased. Because the price of the index itself has increased even more, the yield on the S&P 500 Index, as a percentage of the current index price, has generally decreased in recent decades. You should note, however, that the yield on the original investment made at a fixed point in time (say, 1970 or 1989) has increased, even without reinvestment of dividends.
Hypothetical chart is for illustration purposes only and is not indicative of an investment in any particular security. Investors may not invest directly in an index.
A Truly Diversified Dividend-Paying Portfolio
Must Look Beyond the Obvious High Yield Stocks!
The Top 100 Dividend Yields
Russell 1000 Index | Russell 2000 Index | |||||||
Financials | 39 | % | 67 | % | ||||
Utilities | 30 | % | 4 | % | ||||
Telecommunication Services | 6 | % | 4 | % | ||||
Consumer Discretionary | 5 | % | 7 | % | ||||
Consumer Staples | 4 | % | 2 | % | ||||
Energy | 4 | % | 6 | % | ||||
Health Care | 4 | % | 0 | % | ||||
Information Technology | 4 | % | 3 | % | ||||
Industrials | 2 | % | 7 | % | ||||
Materials | 2 | % | 0 | % |
Source: FactSet, as of September 30, 2010
In the (large cap) Russell 1000 Index, 69% of the top 100 dividend payers are in the financials and utilities sectors. In the (small cap) Russell 2000 Index, 67% of the top 100 dividend-yielding stocks are financial companies. In order to construct a diversified portfolio of attractive yielding stocks, one must look beyond these sectors. We do!
Dividend yield is a ratio that shows how much a company pays out in dividends each year relative to its share price.
This page is not part of the Annual Report. 5
The Dividend Landscape,
Continued
Global Diversification Can Improve the Portfolio Yield
Since firms outside the U.S. tend to pay higher dividends than U.S. firms, particularly outside the real estate and utility sectors, we maintain the ability to diversify the Thornburg Investment Income Builder Fund into foreign dividend-paying stocks to try to take advantage of these opportunities.
Average Dividend Yields of Markets Around the Globe
Source: Bloomberg and Thornburg Investment Management, as of September 30, 2010; Includes all stocks in a given country with market capitalizations greater than $500mm USD to eliminate micro-cap stocks.
6 This page is not part of the Annual Report.
Portfolio Overview
Thornburg Investment Income Builder Fund
MANAGEMENT TEAM
Left to right:
Jason Brady, CFA, Brian McMahon, and Cliff Remily, CFA
IMPORTANT
PERFORMANCE INFORMATION
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.
The maximum sales charge for Class A shares is 4.50%. Class A shares are subject to a 1% 30-day redemption fee. The total annual fund operating expense of Class A shares is 1.30%, as disclosed in the most recent Prospectus.
We do not expect each sequential quarter’s dividend to increase over that of the prior quarter, since dividend payments outside the United States tend to be seasonal. Rather, the Fund aspires to increase the dividend paid on an annual basis.
QUARTERLY DIVIDEND HISTORY, CLASS A
Q1 | Q2 | Q3 | Q4 | Total | ||||||||||||||||
2003 | 9.2 | ¢ | 11.2 | ¢ | 12.4 | ¢ | 17.5 | ¢ | 50.3 | ¢ | ||||||||||
2004 | 10.2 | ¢ | 12.5 | ¢ | 15.0 | ¢ | 21.8 | ¢ | 59.5 | ¢ | ||||||||||
2005 | 11.0 | ¢ | 13.6 | ¢ | 17.4 | ¢ | 29.0 | ¢ | 71.0 | ¢ | ||||||||||
2006 | 12.5 | ¢ | 16.0 | ¢ | 19.2 | ¢ | 33.0 | ¢ | 80.7 | ¢ | ||||||||||
2007 | 14.2 | ¢ | 18.5 | ¢ | 21.5 | ¢ | 36.8 | ¢ | 91.0 | ¢ | ||||||||||
2008 | 17.9 | ¢ | 21.8 | ¢ | 26.0 | ¢ | 36.8 | ¢ | 102.5 | ¢ | ||||||||||
2009 | 18.0 | ¢ | 24.2 | ¢ | 28.0 | ¢ | 34.5 | ¢ | 104.7 | ¢ | ||||||||||
2010 | 19.8 | ¢ | 25.0 | ¢ | 32.0 | ¢ |
30-day SEC Yield as of September 30, 2010 (A Shares): 4.64%
KEY PORTFOLIO ATTRIBUTES
As of 9/30/10
Equity Statistics | ||||
Portfolio P/E (12-mo. trailing) | 10.4x | |||
Median Market Cap | $8.4 B | |||
Equity & Pref. Equity Holdings | 74 | |||
Fixed Income Statistics | ||||
Weighted Average Coupon | 7.5 | % | ||
Average Maturity | 14.03 yrs | |||
Effective Duration | 4.26 yrs | |||
Bond Holdings | 209 |
PORTFOLIO COMPOSITION
As of 9/30/10
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED 9/30/10
1 Yr | 3 Yrs | 5 Yrs | Since Inception | |||||||||||||
A Shares (Incep: 12/24/02) | ||||||||||||||||
Without sales charge | 12.08 | % | -1.23 | % | 7.34 | % | 11.68 | % | ||||||||
With sales charge | 7.03 | % | -2.74 | % | 6.36 | % | 11.02 | % | ||||||||
Blended Index* (Since 12/24/02) | 7.50 | % | -4.09 | % | 2.85 | % | 7.04 | % | ||||||||
S&P 500 Index (Since 12/24/02) | 10.16 | % | -7.16 | % | 0.64 | % | 5.30 | % | ||||||||
* Blended Index: 25% Barclays Capital Aggregate Bond Index/75% MSCI World Index |
|
This page is not part of the Annual Report. 7
Portfolio Overview,
Continued
The primary investment objective of Thornburg Investment Income Builder Fund is to provide a level of current income which exceeds the average yield on U.S. stocks, and which will generally grow, subject to periodic fluctuations, over the years on a per share basis. This objective remains constant over time. However, the specific investments we have used to try to reach our objective have changed over time. There is no guarantee the Fund will meet its investment objectives.
Business conditions for various industries and operating effectiveness at individual firms change over time. Investor preferences, expressed as both absolute and relative prices, also change over time. In the view of your portfolio management team, “some doors close and others open.” As shown in the tables below, the percentage industry allocations of your Fund evolve to reflect these changing conditions.
TOP TEN INDUSTRIES
As of 9/30/10
Telecommunication Services | 17.5 | % | ||
Energy | 12.8 | % | ||
Diversified Financials | 10.0 | % | ||
Utilities | 8.0 | % | ||
Banks | 7.2 | % | ||
Food, Beverage & Tobacco | 6.4 | % | ||
Real Estate | 5.9 | % | ||
Insurance | 5.3 | % | ||
Semiconductors & Semiconductor Equipment | 3.5 | % | ||
Pharmaceuticals, Biotechnology & Life Sciences | 3.4 | % |
TOP TEN INDUSTRIES
As of 3/31/10
Utilities | 11.8 | % | ||
Telecommunication Services | 11.6 | % | ||
Energy | 11.5 | % | ||
Diversified Financials | 10.3 | % | ||
Banks | 7.9 | % | ||
Food, Beverage & Tobacco | 6.1 | % | ||
Real Estate | 5.9 | % | ||
Insurance | 5.6 | % | ||
Consumer Services | 4.4 | % | ||
Software & Services | 3.3 | % |
TOP TEN INDUSTRIES
As of 6/30/10
Telecommunication Services | 16.0 | % | ||
Energy | 11.1 | % | ||
Diversified Financials | 10.0 | % | ||
Utilities | 9.7 | % | ||
Banks | 7.6 | % | ||
Real Estate | 6.7 | % | ||
Insurance | 5.7 | % | ||
Food, Beverage & Tobacco | 5.2 | % | ||
Semiconductors & Semiconductor Equipment | 3.7 | % | ||
Consumer Services | 3.2 | % |
TOP TEN INDUSTRIES
As of 12/31/09
Energy | 12.5 | % | ||
Telecommunication Services | 12.2 | % | ||
Utilities | 10.1 | % | ||
Diversified Financials | 9.0 | % | ||
Banks | 7.9 | % | ||
Real Estate | 5.8 | % | ||
Insurance | 5.1 | % | ||
Consumer Services | 4.9 | % | ||
Food, Beverage & Tobacco | 4.8 | % | ||
Software & Services | 3.8 | % |
8 This page is not part of the Annual Report.
Thornburg Investment Income Builder Fund
September 30, 2010
Table of Contents | ||||
10 | ||||
14 | ||||
28 | ||||
30 | ||||
32 | ||||
33 | ||||
42 | ||||
44 | ||||
45 | ||||
46 | ||||
47 | ||||
50 |
This report is certified under the Sarbanes-Oxley Act of 2002, which requires that public companies, including mutual funds, affirm that the information provided in their annual and semi-annual shareholder reports fully and fairly represents their financial position.
Certified Annual Report 9
October 18, 2010
Dear Fellow Shareholder:
This letter will highlight the basic results of your Fund’s investment activities for the six- and twelve-month periods ended September 30, 2010.
Thornburg Investment Income Builder Fund paid dividends of $1.11 per Class A share in the twelve months ended September 30, 2010, up nearly 4% from the $1.07 per share paid in the comparable prior year period. The dividends per share were higher for Class I and Class R5 shares, and lower on the Class C, R3, and R4 shares, to account for varying class specific expenses. The net asset value (NAV) per Class A share increased during the period, from $17.38 to $18.31, giving a total return including dividends of 12.08% at NAV.
For the six-month period ended September 30, 2010, Thornburg Investment Income Builder paid dividends of 57¢ per Class A share, up 9% from 52.2¢ in the comparable prior year period. The NAV per Class A share declined from $18.36 to $18.31 during the six-month period. Changes in the seasonality of dividend payments and changes in the portfolio’s stock/bond mix influence the year-to-year comparison.
For the fiscal year ended September 30, 2010, Thornburg Investment Income Builder Fund outperformed the S&P 500 Index by 1.92%, and outperformed the Blended Index of 75% MSCI World Index/25% Barclays Capital Aggregate Bond Index by 4.58%.
For the three- and five-year time periods, and since inception, your Fund has significantly outperformed both indices, as noted on page seven of this booklet for Class A shares. Performance relative to indices for all share classes over various periods is set forth on page 46. Readers of this letter will remember the uncertain environment two years ago around September 30, 2008. This was approximately two weeks following the failure of Lehman Brothers, and near the beginning of “the great liquidation” of financial assets by an assortment of leveraged investors. We are pleased to report an average annual return of approximately 11.5% for Income Builder Class A shares in the subsequent two-year period ended September 30, 2010. This result exceeds those of the S&P 500 Index and the Blended Index by annual margins of approximately 10% and 7%, respectively.
While we recognize that every individual’s financial circumstances are subject to unforeseen change, we believe that shareholders of Thornburg Investment Income Builder Fund should have a multi-year investment horizon and try to avoid being shaken by the news of the moment. Owners of approximately 57 million shares of Thornburg Investment Income Builder Fund sold their shares at an average price of approximately $13.39 per share between October 1, 2008 and March 31, 2009. We have no idea how these investors redeployed the funds redeemed from Income Builder. The fact that the Fund achieved a price of $18.31 per share on September 30, 2010, and paid dividends totaling $2.18
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. The maximum sales charge for Class A shares is 4.50%. Class A shares are subject to a 1% 30-day redemption fee. The total annual fund operating expense of Class A shares is 1.30%, as disclosed in the most recent Prospectus.
10 Certified Annual Report
over the course of the last two fiscal years sets a relatively high bar for the opportunity cost of having sold the Fund shares, thus far.
As has been the case in most prior years since the inception of Thornburg Investment Income Builder, we do not expect to pay any capital gain distribution for 2010.
In assessing the performance of your Fund, it is constructive to consider the performance in U.S. dollars of the sector components of the MSCI World Index over the year ended September 30, 2010, because this comprises 75%, and all of the equity portion, of our global performance benchmark:
1. | Nine sectors (information technology, materials, telecommunications, consumer discretionary, health care, industrials, utilities, energy, and consumer staples) showed positive total returns, with a range of +18.9% (consumer discretionary) to +0.5% (utilities). |
2. | One sector (financials) showed a negative total return, -4.3%. |
Relative to the index weightings, Investment Income Builder had a relatively large portfolio allocation in financials and telecommunication services firms, with weightings of 28.5% and 13.5%, respectively, including bonds.
Your Fund’s average return from its investments in the financials sector was greater than 14% for the fiscal year, well above the negative 4.3% performance of the equities in the financials sector of the MSCI World Index. Our investment choices in the financials sector ended up being the greatest driver of outperformance vis-à-vis the benchmark for the year ended September 30, 2010. Among the best contributing investments to portfolio performance from this sector were Swiss Re Capital 6.85% notes, convertible preferred stocks from Fifth Third Bancorp and Huntington Bancshares, business development company Apollo Investment, Australian property REIT Dexus Property Group, and corporate leveraged loan investor KKR Financial Holdings.
Your portfolio’s telecommunications equity investments delivered below-index average returns, in spite of their sizable dividends. Australian telecom incumbent Telstra, France Telecom, and Spain’s Telefónica each showed negative total returns for the year. Strong positive performances by Vodafone, CenturyLink and Qwest Communications, combined with workmanlike contributions from the portfolio’s telecom bonds, offset these negative performances. The offset was insufficient to catch up with the index returns from this sector. Investment Income Builder continues to have a large weighting in cash-generative telecommunication service providers.
Your portfolio’s underweighting in consumer staples and consumer discretionary stocks was a drag on relative performance, although McDonald’s and Philip Morris were both strong contributors to portfolio performance. A timely switch from BP to global deepwater driller Seadrill supported Income Builder’s above-index performance in the energy sector, and a strong contribution from Dominion Resources buttressed the Fund’s contribution from the relatively sluggish utility sector. Your Fund had relatively few investments in two of the best performing sectors of the MSCI World Index, materials and industrials, due to the fact that firms in these sectors tend to pay low dividends. This under-allocation, which we expect to persist, created a performance headwind that we were able to overcome with our investments in other areas. International airport operator MAp Airports and Australian internet company Seek Ltd. were top Income Builder performers from the industrial sector.
Certified Annual Report 11
Letter to Shareholders, | ||
Continued |
Investment Income Builder had relatively few portfolio assets with negative performance during the year ended September 30th. Among these, Greek lottery operator OPAP suffered from the economic gloom in its home market, and German utilities RWE and E.ON both suffered from expectations of high gas input prices, low power demand, and additional tax burdens.
Within its bond portfolio, Investment Income Builder owned significantly fewer U.S. government and agency bonds than the Barclays Index. This was not harmful, as both the relative and absolute performance of corporate bonds was good during the period under review. Readers of this letter who are longtime shareholders of Income Builder will recall that the interest bearing debt portion of the Fund’s portfolio fell well below 20% during the “yield drought” between 2004 and 2007. We rebuilt the bond portfolio at low prices and attractive yields during the chaotic period from mid-2008 to mid-2009. Investment Income Builder’s portfolio weighting in cash and interest-bearing debt declined from approximately 41% at September 30, 2009, to 31% at September 30, 2010, mostly because we invested a substantial majority of cash flows from portfolio income and new share sales in dividend-paying stocks over the course of the fiscal year. In general, your Fund’s debt investments have performed well.
As of September 30, 2010, the Fund portfolio included more than 200 bonds and hybrid securities, with an average cost of approximately 84% of the maturity value of these bonds. On average, secondary market prices of these bonds increased by around 5% of maturity value during the fiscal year and their aggregate market value on September 30, 2010 was approximately equal to the sum of their maturity values.
In the fiscal year ended September 30, 2010, approximately 66% of Income Builder’s income was derived from stock dividends, with the remaining 34% coming from interest. At September 30, 2010, domestic stocks, including preferred stocks, comprise around 32% of the portfolio, foreign stocks around 37%, and cash and interest-bearing investments 31%.
Since its inception, the dividend increases paid by Investment Income Builder have been powered primarily by dividend increases from the Fund’s equity holdings. These increases slowed significantly over the last two years. We have attempted to “weed” the portfolio of firms suffering significant business setbacks. Some firms that we continued to hold elected to pay down debt or retain more cash to increase flexibility. Other firms that had the ability to pay increased dividends, lacked the willingness to do so.
In general, the sustainability of dividends from your portfolio holdings has exceeded that of most major index portfolios, which typically showed annual declines exceeding 20% during 2009. In the first nine months of 2010, companies in the S&P 500 Index paid dividends totaling $151 billion. This figure is 3% higher than the $147 billion paid during the comparable period of 2009, but more than 18% lower than $185 billion paid in the comparable period of 2008. The general scarcity of growing dividends and the reduced yields now available from bond investments restricts our ability to increase the Fund’s dividend at the rates observed between 2003 and 2008. We will do our best in a challenging environment.
If the global economy recovers, we expect firming interest rates, better business conditions, and reduced anxiety from corporate boards about distributing retained earnings, and the opposite could occur if the economy doesn’t recover.
12 Certified Annual Report
On average, the 60-plus companies in the equity portion of the Income Builder portfolio are expected to grow revenues in 2010 and 2011. We currently expect the weighted average earnings per share of these companies to increase by more than 10% in 2010. For 2011, average earnings of the equities held in the Income Builder portfolio are expected to grow by slightly more than 7%. We expect dividends from the average equity held in the Income Builder portfolio to be slightly positive in 2010 vs. 2009, though there is unusually high variation respecting dividend growth among the individual firms.
Over the last seven years, the annual dividends paid by Thornburg Investment Income Builder from net investment income have increased at an average annual rate of 10.5%, from 55¢ per Class A share for the year ended September 30, 2004, to $1.11 for the fiscal year just ended. Over time, higher income dividends are their own reward, so long as an investment portfolio that powers them remains in place. While the market prices of most Income Builder investments have appreciated modestly over the last year, we believe that the income generators in your portfolio have considerable intrinsic value, especially in an environment where there is a noticeable shortage of visible investment income.
Thank you for being a shareholder of the Thornburg Investment Income Builder Fund. Remember that you can review descriptions of many of the stocks in your portfolio at your leisure by going to our internet site, www.thornburg.com/funds. Best wishes for a wonderful holiday season and New Year.
Sincerely,
![]() | ![]() | ![]() | ||
Brian McMahon | Jason Brady, CFA | Cliff Remily, CFA | ||
Co-Portfolio Manager | Co-Portfolio Manager | Co-Portfolio Manager | ||
CEO & Chief Investment Officer | Managing Director | 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 1995. 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.
Certified Annual Report 13
SCHEDULE OF INVESTMENTS | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
SUMMARY OF INDUSTRY EXPOSURE
As of 9/30/10
Telecommunication Services | 17.5 | % | Retailing | 0.7 | % | |||||
Energy | 12.7 | % | Capital Goods | 0.6 | % | |||||
Diversified Financials | 10.0 | % | Technology Hardware & Equipment | 0.3 | % | |||||
Utilities | 8.0 | % | Health Care Equipment & Services | 0.2 | % | |||||
Banks | 7.2 | % | Consumer Durables & Apparel | 0.2 | % | |||||
Food, Beverage & Tobacco | 6.4 | % | Industrials | 0.2 | % | |||||
Real Estate | 5.9 | % | Automobiles & Components | 0.1 | % | |||||
Insurance | 5.3 | % | Commercial & Professional Services | 0.1 | % | |||||
Semiconductors & Semiconductor Equipment | 3.5 | % | Other Non-Classified Securities: | |||||||
Pharmaceuticals, Biotechnology & Life Sciences | 3.4 | % | Exchange Traded Funds | 0.9 | % | |||||
Software & Services | 3.2 | % | Other Securities | 0.4 | % | |||||
Consumer Services | 3.2 | % | Asset Backed Securities | 0.3 | % | |||||
Transportation | 2.6 | % | U.S. Government Agencies | 0.2 | % | |||||
Materials | 2.2 | % | Municipal Bonds * | 0.0 | % | |||||
Food & Staples Retailing | 1.2 | % | Other Assets & Cash Equivalents | 1.4 | % | |||||
Media | 1.1 | % | ||||||||
Miscellaneous | 0.8 | % |
* | Percentage was less than 0.1%. |
TOP TEN EQUITY HOLDINGS
As of 9/30/10
Total SA | 2.7 | % | Coca Cola Co. | 2.2 | % | |||||
Telefonica SA | 2.5 | % | Philip Morris | 2.1 | % | |||||
Telstra Corp. Ltd. | 2.4 | % | Koninklijke KPN N.V. | 2.0 | % | |||||
Eni S.p.A. | 2.4 | % | Seadrill Ltd. | 2.0 | % | |||||
Enel S.p.A. | 2.4 | % | Vodafone Group plc | 1.9 | % |
SUMMARY OF COUNTRY EXPOSURE
As of 9/30/10
United States | 54.4 | % | Luxembourg | 0.9 | % | |||||
Australia | 7.0 | % | Greece | 0.9 | % | |||||
Italy | 5.3 | % | Brazil | 0.9 | % | |||||
France | 5.2 | % | Singapore | 0.6 | % | |||||
Spain | 3.1 | % | Bermuda | 0.5 | % | |||||
Netherlands | 2.9 | % | Cayman Islands | 0.3 | % | |||||
United Kingdom | 2.5 | % | Germany | 0.3 | % | |||||
Norway | 2.4 | % | Malaysia | 0.3 | % | |||||
Switzerland | 2.3 | % | South Africa | 0.3 | % | |||||
China | 2.0 | % | South Korea | 0.3 | % | |||||
Canada | 1.9 | % | Russia | 0.2 | % | |||||
Taiwan | 1.7 | % | Indonesia | 0.1 | % | |||||
Mexico | 1.2 | % | Trinidad and Tobago | 0.1 | % | |||||
Hong Kong | 1.0 | % | Other Assets & Cash Equivalents | 1.4 | % |
14 Certified Annual Report
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
COMMON STOCK — 64.65% | ||||||||
BANKS — 2.64% | ||||||||
COMMERCIAL BANKS — 2.64% | ||||||||
Banque Cantonale Vaudoise | 55,100 | $ | 28,232,687 | |||||
Intesa Sanpaolo | 12,296,800 | 31,666,471 | ||||||
Liechtensteinische Landesbank AG | 1,066,600 | 71,747,072 | ||||||
St. Galler Kantonalbank | 55,382 | 25,700,089 | ||||||
157,346,319 | ||||||||
CONSUMER SERVICES — 3.02% | ||||||||
HOTELS, RESTAURANTS & LEISURE — 3.02% | ||||||||
Berjaya Sports Toto Berhad | 14,600,000 | 19,674,765 | ||||||
McDonald’s Corp. | 1,461,500 | 108,896,365 | ||||||
OPAP SA | 3,251,254 | 51,414,367 | ||||||
179,985,497 | ||||||||
DIVERSIFIED FINANCIALS — 6.01% | ||||||||
CAPITAL MARKETS — 4.00% | ||||||||
AllianceBernstein Holdings LP | 809,508 | 21,379,106 | ||||||
Apollo Investment Corp. | 8,579,600 | 87,769,308 | ||||||
Ares Capital Corp. | 4,515,393 | 70,665,900 | ||||||
Man Group plc. | 5,247,500 | 18,061,059 | ||||||
Solar Capital Ltd. | 1,901,000 | 40,776,450 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 2.01% | ||||||||
Bolsas y Mercados Espanoles | 885,600 | 23,675,045 | ||||||
Hong Kong Exchanges & Clearing Ltd. | 2,017,300 | 39,727,980 | ||||||
KKR Financial Holdings, LLC | 6,450,000 | 56,631,000 | ||||||
358,685,848 | ||||||||
ENERGY — 8.17% | ||||||||
ENERGY EQUIPMENT & SERVICES — 1.96% | ||||||||
Seadrill Ltd. | 4,037,294 | 116,633,014 | ||||||
OIL, GAS & CONSUMABLE FUELS — 6.21% | ||||||||
Canadian Oil Sands Trust | 2,780,400 | 68,800,645 | ||||||
Eni S.p.A. | 6,599,900 | 142,427,509 | ||||||
Total SA | 3,092,900 | 159,400,885 | ||||||
487,262,053 | ||||||||
FOOD & STAPLES RETAILING — 0.95% | ||||||||
FOOD & STAPLES RETAILING — 0.95% | ||||||||
Sysco Corp. | 1,985,500 | 56,626,460 | ||||||
56,626,460 | ||||||||
FOOD, BEVERAGE & TOBACCO — 5.84% | ||||||||
BEVERAGES — 2.16% | ||||||||
Coca Cola Co. | 2,198,900 | 128,679,628 | ||||||
FOOD PRODUCTS — 0.49% | ||||||||
Marine Harvest | 33,299,000 | 29,017,688 | ||||||
TOBACCO — 3.19% | ||||||||
Lorillard, Inc. | 799,100 | 64,175,721 | ||||||
Philip Morris | 2,255,700 | 126,364,314 | ||||||
348,237,351 | ||||||||
Certified Annual Report 15
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
INSURANCE — 0.61% | ||||||||
INSURANCE — 0.61% | ||||||||
Scor SE | 1,000,000 | $ | 23,897,778 | |||||
Zurich Financial Services AG | 52,400 | 12,280,792 | ||||||
36,178,570 | ||||||||
MATERIALS — 1.30% | ||||||||
METALS & MINING — 1.30% | ||||||||
Impala Platinum Holdings Ltd. | 665,900 | 17,196,227 | ||||||
Southern Copper Corp. | 1,713,300 | 60,171,096 | ||||||
77,367,323 | ||||||||
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES — 3.32% | ||||||||
PHARMACEUTICALS — 3.32% | ||||||||
Eli Lilly & Co. | 2,634,100 | 96,223,673 | ||||||
Pfizer, Inc. | 5,934,600 | 101,897,082 | ||||||
198,120,755 | ||||||||
REAL ESTATE — 5.46% | ||||||||
REAL ESTATE INVESTMENT TRUSTS — 5.32% | ||||||||
Annaly Capital Management, Inc. | 4,167,200 | 73,342,720 | ||||||
Anworth Mtg Asset Corp. | 3,067,800 | 21,873,414 | ||||||
Chimera Investment Corp. | 14,242,600 | 56,258,270 | ||||||
Dexus Property Group | 78,947,249 | 65,242,003 | ||||||
aInvesco Mortgage Capital, Inc. | 1,915,165 | 41,214,351 | ||||||
MFA Financial, Inc. | 7,800,500 | 59,517,815 | ||||||
REAL ESTATE MANAGEMENT & DEVELOPMENT — 0.14% | ||||||||
Hopewell Holdings Ltd. | 2,598,500 | 8,422,933 | ||||||
325,871,506 | ||||||||
RETAILING — 0.51% | ||||||||
MULTILINE RETAIL — 0.51% | ||||||||
David Jones Ltd. | 6,324,700 | 30,443,420 | ||||||
30,443,420 | ||||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT — 3.30% | ||||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT — 3.30% | ||||||||
Intel Corp. | 4,922,200 | 94,653,906 | ||||||
Mediatek, Inc. | 1,621,235 | 22,781,306 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. | 40,000,000 | 79,381,591 | ||||||
196,816,803 | ||||||||
SOFTWARE & SERVICES — 2.81% | ||||||||
INFORMATION TECHNOLOGY SERVICES — 0.94% | ||||||||
Paychex, Inc. | 2,032,700 | 55,878,923 | ||||||
SOFTWARE — 1.87% | ||||||||
Microsoft Corp. | 4,557,000 | 111,600,930 | ||||||
167,479,853 | ||||||||
TELECOMMUNICATION SERVICES — 15.03% | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 11.11% | ||||||||
CenturyLink, Inc. | 750,000 | 29,595,000 | ||||||
France Telecom SA | 4,791,700 | 103,536,741 |
16 Certified Annual Report
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
Koninklijke KPN N.V. | 7,901,900 | $ | 122,211,377 | |||||
Qwest Communications International, Inc. | 11,950,000 | 74,926,500 | ||||||
Singapore Telecommunications Ltd. | 16,052,700 | 38,450,312 | ||||||
Telefonica SA | 5,993,074 | 148,409,140 | ||||||
Telstra Corp. Ltd. | 57,500,000 | 145,610,706 | ||||||
WIRELESS TELECOMMUNICATION SERVICES — 3.92% | ||||||||
China Mobile Ltd. | 11,151,207 | 114,259,324 | ||||||
SK Telecom Co. Ltd. | 24,000 | 3,609,735 | ||||||
Vodafone Group plc | 46,977,100 | 115,933,985 | ||||||
896,542,820 | ||||||||
TRANSPORTATION — 1.39% | ||||||||
TRANSPORTATION INFRASTRUCTURE — 1.39% | ||||||||
Hopewell Highway | 15,722,341 | 12,178,515 | ||||||
MAp Airports | 25,090,909 | 70,814,699 | ||||||
82,993,214 | ||||||||
UTILITIES — 4.29% | ||||||||
ELECTRIC UTILITIES — 2.98% | ||||||||
E.ON AG | 700,000 | 20,640,973 | ||||||
Enel S.p.A. | 26,607,100 | 141,824,057 | ||||||
Entergy Corp. | 200,000 | 15,306,000 | ||||||
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS — 0.26% | ||||||||
Algonquin Power & Utilities Corp. | 2,592,100 | 11,538,360 | ||||||
Algonquin Power & Utilities Corp. | 900,000 | 4,006,220 | ||||||
MULTI-UTILITIES — 1.05% | ||||||||
Dominion Resources, Inc. | 1,435,700 | 62,682,662 | ||||||
255,998,272 | ||||||||
TOTAL COMMON STOCK (Cost $3,692,395,105) | 3,855,956,064 | |||||||
PREFERRED STOCK — 4.36% | ||||||||
BANKS — 2.94% | ||||||||
COMMERCIAL BANKS — 2.94% | ||||||||
Barclays Bank plc Pfd, 7.10% | 200,000 | 4,980,000 | ||||||
Fifth Third Bancorp Pfd, 8.50% | 485,000 | 62,375,850 | ||||||
First Tennessee Bank Pfd, 3.75% | 12,000 | 7,781,250 | ||||||
Huntington Bancshares Pfd, 8.50% | 95,087 | 100,316,785 | ||||||
175,453,885 | ||||||||
DIVERSIFIED FINANCIALS — 0.42% | ||||||||
CAPITAL MARKETS — 0.04% | ||||||||
Morgan Stanley Pfd, 4.00% | 120,000 | 2,403,600 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 0.38% | ||||||||
Bank of America Corp. Pfd, 3.00% | 420,000 | 6,959,400 | ||||||
Citigroup Capital XII Pfd, 8.50% | 600,000 | 15,846,000 | ||||||
25,209,000 | ||||||||
INSURANCE — 0.06% | ||||||||
INSURANCE — 0.06% | ||||||||
Hartford Financial Services Group Pfd, 7.25% | 150,000 | 3,558,000 | ||||||
3,558,000 | ||||||||
Certified Annual Report 17
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
MISCELLANEOUS — 0.16% | ||||||||
U.S. GOVERNMENT AGENCIES — 0.16% | ||||||||
Farm Credit Bank of Texas Pfd, 10.00% | 9,000 | $ | 9,357,187 | |||||
9,357,187 | ||||||||
REAL ESTATE — 0.26% | ||||||||
REAL ESTATE INVESTMENT TRUSTS — 0.26% | ||||||||
Sovereign REIT Pfd, 12.00% | 4,000 | 4,650,000 | ||||||
Alexandria Real Estate Pfd, 7.00% | 463,500 | 10,845,900 | ||||||
15,495,900 | ||||||||
TECHNOLOGY HARDWARE & EQUIPMENT — 0.25% | ||||||||
COMMUNICATIONS EQUIPMENT — 0.25% | ||||||||
Lucent Technologies Capital Trust I Pfd, 7.75% | 18,000 | 14,580,000 | ||||||
14,580,000 | ||||||||
TELECOMMUNICATION SERVICES — 0.27% | ||||||||
WIRELESS TELECOMMUNICATION SERVICES — 0.27% | ||||||||
bCentaur Funding Corp. Pfd, 9.08% | 15,000 | 16,340,625 | ||||||
16,340,625 | ||||||||
TOTAL PREFERRED STOCK (Cost $220,425,510) | 259,994,597 | |||||||
EXCHANGE TRADED FUNDS — 0.94% | ||||||||
iShares High Yield Corporate Bond | 625,000 | 56,056,250 | ||||||
TOTAL EXCHANGE TRADED FUNDS (Cost $46,047,908) | 56,056,250 | |||||||
ASSET BACKED SECURITIES — 0.35% | ||||||||
BANKS — 0.05% | ||||||||
COMMERCIAL BANKS — 0.05% | ||||||||
Wells Fargo Asset Securities Corp., Series 2005-AR2 Class B1, 2.858%, 2/25/2035 | $ | 10,381,183 | 1,468,738 | |||||
Wells Fargo Asset Securities Corp., Series 2005-AR2 Class B1, 3.516%, 3/25/2035 | 9,733,337 | 1,486,825 | ||||||
2,955,563 | ||||||||
DIVERSIFIED FINANCIALS — 0.09% | ||||||||
CAPITAL MARKETS — 0.05% | ||||||||
Bear Stearns ARM Mtg Series 2003-6 Class 2B-1, 2.806%, 8/25/2033 | 631,165 | 215,506 | ||||||
Merrill Lynch Mtg Investors Trust, 2.786%, 8/25/2034 | 6,338,479 | 2,860,651 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 0.04% | ||||||||
Banc of America Funding Corp. Series 2006-I Class SB1, 3.751%, 12/20/2036 | 3,275,375 | 320,703 | ||||||
Banc of America Mtg Securities Series 2005-A Class B1, 3.531%, 2/25/2035 | 5,281,739 | 649,797 | ||||||
Citigroup Mtg Loan Trust, Inc., 4.092%, 3/25/2034 | 1,586,924 | 743,126 | ||||||
Structured Asset Security Corp. Series 2002-27A Class B1, 2.549%, 1/25/2033 | 2,783,714 | 754,602 | ||||||
5,544,385 | ||||||||
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES — 0.06% | ||||||||
PHARMACEUTICALS — 0.06% | ||||||||
bQHP PhaRMA, 10.25%, 3/15/2015 | 3,375,614 | 3,450,788 | ||||||
3,450,788 | ||||||||
18 Certified Annual Report
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
TRANSPORTATION — 0.15% | ||||||||
AIRLINES — 0.15% | ||||||||
bAmerican Airlines Depositor Corp., 8.00%, 10/5/2010 | $ | 8,700,000 | $ | 8,695,476 | ||||
8,695,476 | ||||||||
TOTAL ASSET BACKED SECURITIES (Cost $48,378,840) | 20,646,212 | |||||||
CORPORATE BONDS — 21.90% | ||||||||
AUTOMOBILES & COMPONENTS — 0.15% | ||||||||
AUTOMOBILES — 0.15% | ||||||||
bAmerican Honda Finance, 7.625%, 10/1/2018 | 7,000,000 | 8,863,001 | ||||||
8,863,001 | ||||||||
BANKS — 1.65% | ||||||||
COMMERCIAL BANKS — 1.65% | ||||||||
b,cAlfa Diversified, 2.292%, 3/15/2012 | 2,625,000 | 2,573,287 | ||||||
b,cBanco Industrial e Comercial S.A., 6.25%, 1/20/2013 | 9,000,000 | 9,270,000 | ||||||
Fifth Third Bancorp, 6.25%, 5/1/2013 | 2,750,000 | 3,011,027 | ||||||
b,cGroupe BPCE, 12.50%, 8/29/2049 | 19,011,000 | 21,883,182 | ||||||
b,c,d,e,f Landsbanki Islands HF, 7.431%, 12/31/2049 | 5,000,000 | 6,250 | ||||||
National City Preferred Capital Trust I, 12.00%, 12/29/2049 | 3,250,000 | 3,612,343 | ||||||
PNC Financial Services Group, Inc., 8.25%, 5/29/2049 | 10,000,000 | 10,621,900 | ||||||
bPNC Preferred Funding Trust III, 8.70%, 12/31/2049 | 4,500,000 | 4,730,490 | ||||||
Provident Bank MD, 9.50%, 5/1/2018 | 5,600,000 | 6,113,733 | ||||||
cShinhan Bank, 6.819%, 9/20/2036 | 900,000 | 912,662 | ||||||
Silicon Valley Bank, 6.05%, 6/1/2017 | 26,713,000 | 28,152,350 | ||||||
Webster Capital Trust IV, 7.65%, 6/15/2037 | 1,950,000 | 1,616,772 | ||||||
Wells Fargo Capital XIII Preferred Note, 7.70%, 12/29/2049 | 2,500,000 | 2,593,750 | ||||||
Zions Bancorp, 7.75%, 9/23/2014 | 3,000,000 | 3,178,791 | ||||||
98,276,537 | ||||||||
CAPITAL GOODS — 0.55% | ||||||||
INDUSTRIAL CONGLOMERATES — 0.30% | ||||||||
Otter Tail Corp., 9.00%, 12/15/2016 | 17,000,000 | 18,190,000 | ||||||
TRADING COMPANIES & DISTRIBUTORS — 0.25% | ||||||||
International Lease Finance Corp., 5.125%, 11/1/2010 | 5,000,000 | 5,000,000 | ||||||
bInternational Lease Finance Corp. E-Capital Trust I, 5.90%, 12/21/2065 | 15,000,000 | 9,825,000 | ||||||
33,015,000 | ||||||||
COMMERCIAL & PROFESSIONAL SERVICES — 0.01% | ||||||||
COMMERCIAL SERVICES & SUPPLIES — 0.01% | ||||||||
Allied Waste North America, Inc., 6.375%, 4/15/2011 | 500,000 | 514,450 | ||||||
514,450 | ||||||||
CONSUMER DURABLES & APPAREL — 0.19% | ||||||||
HOUSEHOLD DURABLES — 0.19% | ||||||||
bCorporativo Javer SA, 13.00%, 8/4/2014 | $ | 10,000,000 | 11,400,000 | |||||
11,400,000 | ||||||||
Certified Annual Report 19
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
CONSUMER SERVICES — 0.13% | ||||||||
HOTELS, RESTAURANTS & LEISURE — 0.13% | ||||||||
bCKE Restaurants, Inc., 11.375%, 7/15/2018 | $ | 4,000,000 | $ | 4,100,000 | ||||
Seneca Nation of Indians Capital Improvements Authority, 6.75%, 12/1/2013 | 3,560,000 | 3,468,508 | ||||||
7,568,508 | ||||||||
DIVERSIFIED FINANCIALS — 1.78% | ||||||||
CAPITAL MARKETS — 0.14% | ||||||||
Goldman Sachs Group, Inc., 5.625%, 1/15/2017 | 8,000,000 | 8,471,528 | ||||||
CONSUMER FINANCE — 0.81% | ||||||||
American Express Credit Co., 5.875%, 5/2/2013 | 5,000,000 | 5,502,980 | ||||||
Capital One Capital IV, 6.745%, 2/17/2037 | 6,400,000 | 6,368,000 | ||||||
Capital One Financial Corp., 6.15%, 9/1/2016 | 25,000,000 | 27,408,800 | ||||||
SLM Corp., 4.00%, 7/25/2014 | 2,000,000 | 1,719,960 | ||||||
SLM Corp. LIBOR Floating Rate Note, 0.798%, 1/27/2014 | 5,000,000 | 4,318,940 | ||||||
bTMX Finance LLC/TitleMax Finance Corp., 13.25%, 7/15/2015 | 2,500,000 | 2,728,125 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 0.83% | ||||||||
Citigroup, Inc., 5.00%, 9/15/2014 | 16,250,000 | 16,877,900 | ||||||
cExport-Import Bank of Korea, 8.125%, 1/21/2014 | 2,750,000 | 3,227,812 | ||||||
JPMorgan Chase & Co., 7.90%, 4/29/2049 | 15,000,000 | 16,074,450 | ||||||
cKorea Development Bank, 5.30%, 1/17/2013 | 800,000 | 854,278 | ||||||
MBNA Corp., 6.125%, 3/1/2013 | 2,000,000 | 2,165,410 | ||||||
National Rural Utilities CFC, 10.375%, 11/1/2018 | 5,000,000 | 7,160,075 | ||||||
bSquareTwo Financial Corp., 11.625%, 4/1/2017 | 4,000,000 | 3,560,000 | ||||||
106,438,258 | ||||||||
ENERGY — 4.22% | ||||||||
ENERGY EQUIPMENT & SERVICES — 0.42% | ||||||||
bCalfrac Holdings LP, 7.75%, 2/15/2015 | 8,500,000 | 8,585,000 | ||||||
Nabors Industries, Inc., 9.25%, 1/15/2019 | 10,500,000 | 13,435,737 | ||||||
Seacor Holdings, Inc., 7.375%, 10/1/2019 | 2,000,000 | 2,180,972 | ||||||
Seitel, Inc., 9.75%, 2/15/2014 | 1,000,000 | 877,500 | ||||||
OIL, GAS & CONSUMABLE FUELS — 3.80% | ||||||||
bBumi Capital PTE, Ltd., 12.00%, 11/10/2016 | 3,000,000 | 3,217,500 | ||||||
Cloud Peak Energy Resources, 8.25%, 12/15/2017 | 8,000,000 | 8,450,000 | ||||||
bDCP Midstream LLC, 9.75%, 3/15/2019 | 5,000,000 | 6,653,350 | ||||||
Enbridge Energy Partners LP, 9.875%, 3/1/2019 | 9,750,000 | 13,295,470 | ||||||
bEnogex LLC, 6.875%, 7/15/2014 | 2,000,000 | 2,247,554 | ||||||
bEnogex LLC, 6.25%, 3/15/2020 | 2,500,000 | 2,809,573 | ||||||
Enterprise Products Operating LP, 7.034%, 1/15/2068 | 22,880,000 | 22,765,600 | ||||||
Enterprise Products Operating LP, 9.75%, 1/31/2014 | 4,000,000 | 4,898,632 | ||||||
bGaz Capital SA, 8.146%, 4/11/2018 | 2,000,000 | 2,340,000 | ||||||
b,c,e,fGriffin Coal Mining Ltd., 9.50%, 12/1/2016 | 22,000,000 | 13,007,500 | ||||||
bGS Caltex Corp., 7.25%, 7/2/2013 | 7,000,000 | 7,761,180 | ||||||
Kinder Morgan Energy Partners, 9.00%, 2/1/2019 | 9,750,000 | 12,695,465 | ||||||
b Maritimes & Northeast Pipeline, LLC, 7.50%, 5/31/2014 | 7,203,000 | 7,863,803 | ||||||
Murphy Oil Corp., 6.375%, 5/1/2012 | 5,000,000 | 5,351,990 | ||||||
bNiska Gas Storage, 8.875%, 3/15/2018 | 8,739,000 | 9,350,730 | ||||||
NuStar Logistics, 7.65%, 4/15/2018 | 18,000,000 | 21,851,334 | ||||||
Oneok Partners LP, 5.90%, 4/1/2012 | 3,000,000 | 3,199,884 | ||||||
Oneok Partners LP, 8.625%, 3/1/2019 | 8,000,000 | 10,374,608 | ||||||
b,cPetro Co. Trinidad Tobago Ltd., 9.75%, 8/14/2019 | 4,000,000 | 4,900,000 |
20 Certified Annual Report
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
b,cPetroplus Finance Ltd., 6.75%, 5/1/2014 | $ | 4,000,000 | $ | 3,660,000 | ||||
Plains Exploration & Production Co., 7.625%, 6/1/2018 | 1,000,000 | 1,050,000 | ||||||
b,dRAAM Global Energy Co., 12.50%, 10/1/2015 | 12,000,000 | 12,240,000 | ||||||
Southern Union Co., 7.20%, 11/1/2066 | 26,020,000 | 23,483,050 | ||||||
Teppco Partners LP, 7.00%, 6/1/2067 | 6,500,000 | 6,142,500 | ||||||
b,dWindsor Petroleum Transport Corp., 7.84%, 1/15/2021 | 8,729,056 | 7,856,151 | ||||||
bWoodside Financial Ltd., 8.125%, 3/1/2014 | 8,000,000 | 9,409,304 | ||||||
251,954,387 | ||||||||
FOOD & STAPLES RETAILING — 0.18% | ||||||||
FOOD & STAPLES RETAILING — 0.18% | ||||||||
Rite Aid Corp., 8.625%, 3/1/2015 | 3,000,000 | 2,591,250 | ||||||
Rite Aid Corp., 9.375%, 12/15/2015 | 9,500,000 | 8,193,750 | ||||||
10,785,000 | ||||||||
FOOD, BEVERAGE & TOBACCO — 0.49% | ||||||||
BEVERAGES — 0.05% | ||||||||
Anheuser Busch Cos., Inc., 4.70%, 4/15/2012 | 3,000,000 | 3,166,656 | ||||||
TOBACCO — 0.44% | ||||||||
Altria Group, Inc., 8.50%, 11/10/2013 | 4,000,000 | 4,789,788 | ||||||
Altria Group, Inc., 9.70%, 11/10/2018 | 10,750,000 | 14,551,222 | ||||||
b,cB.A.T. International Finance, plc, 9.50%, 11/15/2018 | 5,000,000 | 6,798,280 | ||||||
29,305,946 | ||||||||
HEALTH CARE EQUIPMENT & SERVICES — 0.21% | ||||||||
HEALTH CARE EQUIPMENT & SUPPLIES — 0.07% | ||||||||
bAlere, Inc., 8.625%, 10/1/2018 | 4,000,000 | 4,060,000 | ||||||
HEALTH CARE TECHNOLOGY — 0.14% | ||||||||
bMerge Healthcare, Inc., 11.75%, 5/1/2015 | 8,000,000 | 8,180,000 | ||||||
12,240,000 | ||||||||
INDUSTRIALS — 0.16% | ||||||||
CAPITAL GOODS — 0.16% | ||||||||
Da-Lite Screen Co., Inc., 12.50%, 4/1/2015 | 9,000,000 | 9,225,000 | ||||||
9,225,000 | ||||||||
INSURANCE — 4.37% | ||||||||
INSURANCE — 4.37% | ||||||||
American General Finance Corp., 4.875%, 7/15/2012 | 1,000,000 | 945,000 | ||||||
Hartford Financial Services Group, 8.125%, 6/15/2038 | 24,650,000 | 24,896,500 | ||||||
bLiberty Mutual Group, Inc., 5.75%, 3/15/2014 | 1,000,000 | 1,051,217 | ||||||
bMetlife Capital Trust X, 9.25%, 4/8/2068 | 24,000,000 | 28,320,000 | ||||||
Metlife, Inc. Series A, 6.817%, 8/15/2018 | 4,000,000 | 4,825,852 | ||||||
bNational Life Insurance of Vermont, 10.50%, 9/15/2039 | 2,000,000 | 2,431,120 | ||||||
Northwind Holdings, LLC Series 2007-1A Class A1, 1.077%, 12/1/2037 | 5,666,018 | 4,312,916 | ||||||
b,cOil Insurance Ltd., 7.558%, 12/29/2049 | 4,000,000 | 3,547,240 | ||||||
bPacific Life Global Funding CPI Floating Rate Note, 3.23%, 2/6/2016 | 2,000,000 | 1,958,840 | ||||||
bPrudential Holdings, LLC, 8.695%, 12/18/2023 | 4,500,000 | 5,703,840 | ||||||
b,cQBE Insurance Group Ltd., 5.647%, 7/1/2023 | 10,613,000 | 9,925,426 | ||||||
SCOR SE, 6.154%, 7/29/2049 | 3,550,000 | 4,162,003 | ||||||
bSwiss Re Capital I, LP, 6.854%, 5/29/2049 | 148,865,000 | 138,614,901 | ||||||
Transatlantic Holdings, Inc., 5.75%, 12/14/2015 | 14,647,000 | 15,376,655 | ||||||
bZFS Finance USA Trust II, 6.45%, 12/15/2065 | 14,198,000 | 13,488,100 |
Certified Annual Report 21
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
bZFS Finance USA Trust V, 6.50%, 5/9/2037 | $ | 1,260,000 | $ | 1,171,800 | ||||
260,731,410 | ||||||||
MATERIALS — 0.94% | ||||||||
CONSTRUCTION MATERIALS — 0.27% | ||||||||
b,cC8 Capital Ltd., 6.64%, 12/31/2049 | 2,000,000 | 1,316,244 | ||||||
CRH America, Inc., 8.125%, 7/15/2018 | 12,000,000 | 14,469,888 | ||||||
CONTAINERS & PACKAGING — 0.03% | ||||||||
bPlastipak Holdings, Inc., 10.625%, 8/15/2019 | 1,750,000 | 1,942,500 | ||||||
METALS & MINING — 0.64% | ||||||||
Allegheny Technologies, Inc., 9.375%, 6/1/2019 | 3,000,000 | 3,625,713 | ||||||
b,cAnglo American Capital, 9.375%, 4/8/2014 | 3,500,000 | 4,309,123 | ||||||
b,cBemax Resources Ltd., 9.375%, 7/15/2014 | 5,000,000 | 4,200,000 | ||||||
Freeport-McMoRan Copper & Gold, 8.25%, 4/1/2015 | 8,000,000 | 8,560,000 | ||||||
Freeport-McMoRan Copper & Gold, 8.375%, 4/1/2017 | 4,965,000 | 5,542,181 | ||||||
Freeport-McMoRan Corp., 6.125%, 3/15/2034 | 4,500,000 | 4,410,464 | ||||||
bGTL Trade Finance, Inc., 7.25%, 10/20/2017 | 7,000,000 | 7,796,250 | ||||||
56,172,363 | ||||||||
MEDIA — 0.64% | ||||||||
MEDIA — 0.64% | ||||||||
Comcast Cable Communications, 8.875%, 5/1/2017 | 5,000,000 | 6,464,310 | ||||||
DIRECTV Holdings LLC, 6.375%, 6/15/2015 | 5,100,000 | 5,278,500 | ||||||
DIRECTV Holdings LLC, 7.625%, 5/15/2016 | 3,000,000 | 3,345,000 | ||||||
Time Warner Cable, Inc., 8.75%, 2/14/2019 | 14,000,000 | 18,488,316 | ||||||
Time Warner Cable, Inc., 8.25%, 2/14/2014 | 4,000,000 | 4,773,804 | ||||||
38,349,930 | ||||||||
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES — 0.05% | ||||||||
BIOTECHNOLOGY — 0.05% | ||||||||
Tiers Inflation Linked Trust Series Wyeth 2004 21 Trust Certificate CPI Floating Rate Note, 2.903%, 2/1/2014 | 3,000,000 | 2,995,050 | ||||||
2,995,050 | ||||||||
RETAILING — 0.19% | ||||||||
INTERNET & CATALOG RETAIL — 0.03% | ||||||||
Ticketmaster, 10.75%, 8/1/2016 | 1,500,000 | 1,642,500 | ||||||
MULTILINE RETAIL — 0.03% | ||||||||
cParkson Retail Group, 7.125%, 5/30/2012 | 2,110,000 | 2,186,595 | ||||||
SPECIALTY RETAIL — 0.13% | ||||||||
bAce Hardware Corp., 9.125%, 6/1/2016 | 3,000,000 | 3,202,500 | ||||||
Best Buy, Inc., 6.75%, 7/15/2013 | 4,000,000 | 4,473,532 | ||||||
�� | ||||||||
11,505,127 | ||||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT — 0.25% | ||||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT — 0.25% | ||||||||
KLA Instruments Corp., 6.90%, 5/1/2018 | 10,000,000 | 11,470,920 | ||||||
National Semiconductor Corp., 6.15%, 6/15/2012 | 2,000,000 | 2,132,368 | ||||||
National Semiconductor Corp., 6.60%, 6/15/2017 | 1,000,000 | 1,165,654 | ||||||
14,768,942 | ||||||||
22 Certified Annual Report
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
SOFTWARE & SERVICES — 0.22% | ||||||||
INTERNET SOFTWARE & SERVICES — 0.18% | ||||||||
bSSI Investments II/SSI Co-Issuer LLC, 11.125%, 6/1/2018 | $ | 3,000,000 | $ | 3,292,500 | ||||
dYahoo! Inc., 6.65%, 8/10/2026 | 7,274,466 | 7,521,798 | ||||||
SOFTWARE — 0.04% | ||||||||
bAspect Software, Inc., 10.625%, 5/15/2017 | 2,000,000 | 2,077,500 | ||||||
12,891,798 | ||||||||
TECHNOLOGY HARDWARE & EQUIPMENT — 0.10% | ||||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS — 0.10% | ||||||||
Corning, Inc., 6.05%, 6/15/2015 | 6,000,000 | 6,042,378 | ||||||
6,042,378 | ||||||||
TELECOMMUNICATION SERVICES — 1.49% | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 1.45% | ||||||||
cDeutsche Telekom International Finance B.V., 8.75%, 6/15/2030 | 26,150,000 | 36,616,616 | ||||||
cGlobal Crossing Ltd., 12.00%, 9/15/2015 | 4,000,000 | 4,520,000 | ||||||
Level 3 Financing, Inc., 9.25%, 11/1/2014 | 10,000,000 | 9,400,000 | ||||||
cTelecom Italia Capital SA, 5.25%, 10/1/2015 | 4,190,000 | 4,521,580 | ||||||
b,cTelemar Norte Leste SA, 5.50%, 10/23/2020 | 9,065,840 | 9,179,163 | ||||||
b,cVimpelcom, 8.25%, 5/23/2016 | 4,500,000 | 4,905,000 | ||||||
Windstream Corp., 8.125%, 8/1/2013 | 10,800,000 | 11,718,000 | ||||||
bZayo Group LLC, 10.25%, 3/15/2017 | 5,500,000 | 5,775,000 | ||||||
WIRELESS TELECOMMUNICATION SERVICES — 0.04% | ||||||||
b,cDigicel SA, 12.00%, 4/1/2014 | 2,000,000 | 2,330,000 | ||||||
88,965,359 | ||||||||
TRANSPORTATION — 0.37% | ||||||||
AIRLINES — 0.24% | ||||||||
b,cAir Canada, 9.25%, 8/1/2015 | 9,000,000 | 9,090,000 | ||||||
American Airlines, Inc., 13.00%, 8/1/2016 | 4,343,977 | 5,136,753 | ||||||
MARINE — 0.13% | ||||||||
Commercial Barge Line Co., 12.50%, 7/15/2017 | 5,000,000 | 5,500,000 | ||||||
United Maritime LLC, 11.75%, 6/15/2015 | 2,500,000 | 2,506,250 | ||||||
22,233,003 | ||||||||
UTILITIES — 3.56% | ||||||||
ELECTRIC UTILITIES — 1.79% | ||||||||
Alabama Power Capital Trust V, 3.633%, 10/1/2042 | 4,000,000 | 4,000,000 | ||||||
Aquila, Inc., 7.95%, 2/1/2011 | 3,000,000 | 3,063,549 | ||||||
Arizona Public Service Co., 5.50%, 9/1/2035 | 4,000,000 | 4,088,480 | ||||||
Arizona Public Service Co., 8.75%, 3/1/2019 | 6,500,000 | 8,539,726 | ||||||
Comed Financing III, 6.35%, 3/15/2033 | 2,961,000 | 2,594,363 | ||||||
b,cEnel Finance International S.A., 6.25%, 9/15/2017 | 38,000,000 | 43,096,712 | ||||||
Entergy Gulf States Louisiana LLC, 6.00%, 5/1/2018 | 8,000,000 | 9,252,672 | ||||||
bGreat River Energy, 5.829%, 7/1/2017 | 1,872,755 | 2,101,288 | ||||||
b,cListrindo Capital BV, 9.25%, 1/29/2015 | 2,750,000 | 3,119,462 | ||||||
bMonongahela Power Co., 7.95%, 12/15/2013 | 2,000,000 | 2,350,202 |
Certified Annual Report 23
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
bTexas-New Mexico Power, 9.50%, 4/1/2019 | $ | 19,000,000 | $ | 24,983,898 | ||||
GAS UTILITIES — 0.19% | ||||||||
Ferrellgas LP, 9.125%, 10/1/2017 | 1,000,000 | 1,083,750 | ||||||
Southwest Gas Corp., 7.625%, 5/15/2012 | 9,465,000 | 10,263,922 | ||||||
MULTI-UTILITIES — 1.58% | ||||||||
Ameren Illinois Co., 9.75%, 11/15/2018 | 5,000,000 | 6,699,430 | ||||||
Amerenenergy Generating, 7.00%, 4/15/2018 | 9,050,000 | 9,093,223 | ||||||
Black Hills Corp., 9.00%, 5/15/2014 | 4,500,000 | 5,331,280 | ||||||
Dominion Resources, Inc., 8.875%, 1/15/2019 | 14,750,000 | 20,063,968 | ||||||
NiSource Finance Corp., 6.15%, 3/1/2013 | 12,237,000 | 13,444,400 | ||||||
NiSource Finance Corp., 6.40%, 3/15/2018 | 20,000,000 | 23,194,940 | ||||||
Sempra Energy, 9.80%, 2/15/2019 | 7,750,000 | 10,804,779 | ||||||
Sempra Energy, 8.90%, 11/15/2013 | 2,000,000 | 2,404,888 | ||||||
Union Electric Co., 6.70%, 2/1/2019 | 2,500,000 | 3,039,443 | ||||||
212,614,375 | ||||||||
TOTAL CORPORATE BONDS (Cost $1,061,256,163) | 1,306,855,822 | |||||||
CONVERTIBLE BONDS — 3.23% | ||||||||
COMMERCIAL & PROFESSIONAL SERVICES — 0.06% | ||||||||
COMMERCIAL SERVICES & SUPPLIES — 0.06% | ||||||||
Covanta Holding Corp., 1.00%, 2/1/2027 | 4,000,000 | 3,865,000 | ||||||
3,865,000 | ||||||||
DIVERSIFIED FINANCIALS — 1.52% | ||||||||
DIVERSIFIED FINANCIAL SERVICES — 1.52% | ||||||||
KKR Financial Holdings LLC, 7.00%, 7/15/2012 | 61,600,000 | 63,063,000 | ||||||
KKR Financial Holdings LLC, 7.50%, 1/15/2017 | 21,750,000 | 27,595,312 | ||||||
90,658,312 | ||||||||
ENERGY — 0.29% | ||||||||
ENERGY EQUIPMENT & SERVICES — 0.14% | ||||||||
Global Industries Ltd., 2.75%, 8/1/2027 | 5,000,000 | 3,518,750 | ||||||
SESI, LLC, 1.50%, 12/15/2026 | 5,000,000 | 4,843,750 | ||||||
OIL, GAS & CONSUMABLE FUELS — 0.15% | ||||||||
Chesapeake Energy Corp., 2.25%, 12/15/2038 | 11,500,000 | 8,840,625 | ||||||
17,203,125 | ||||||||
MEDIA — 0.34% | ||||||||
MEDIA — 0.34% | ||||||||
bCentral European Media, 3.50%, 3/15/2013 | 19,011,000 | 16,301,932 | ||||||
Live Nation Entertainment, Inc., 2.875%, 7/15/2027 | 5,000,000 | 4,275,000 | ||||||
20,576,932 | ||||||||
REAL ESTATE — 0.19% | ||||||||
REAL ESTATE INVESTMENT TRUSTS — 0.19% | ||||||||
bExtra Space Storage LP, 3.625%, 4/1/2027 | 10,000,000 | 9,750,000 | ||||||
Washington REIT, 3.875%, 9/15/2026 | 1,470,000 | 1,508,588 | ||||||
11,258,588 | ||||||||
24 Certified Annual Report
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
SOFTWARE & SERVICES — 0.18% | ||||||||
SOFTWARE — 0.18% | ||||||||
b,cTelvent Git SA, 5.50%, 4/15/2015 | $ | 10,500,000 | $ | 10,552,500 | ||||
10,552,500 | ||||||||
TELECOMMUNICATION SERVICES — 0.65% | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 0.19% | ||||||||
Global Crossing Ltd., 5.00%, 5/15/2011 | 9,250,000 | 9,273,125 | ||||||
Level 3 Communications, Inc., 7.00%, 3/15/2015 | 2,000,000 | 1,782,500 | ||||||
Level 3 Communications, Inc., 6.50%, 10/1/2016 | 500,000 | 511,250 | ||||||
WIRELESS TELECOMMUNICATION SERVICES — 0.46% | ||||||||
NII Holdings, 3.125%, 6/15/2012 | 28,000,000 | 27,160,000 | ||||||
38,726,875 | ||||||||
TOTAL CONVERTIBLE BONDS (Cost $171,426,904) | 192,841,332 | |||||||
MUNICIPAL BONDS — 0.03% | ||||||||
Victor New York, 9.20%, 5/1/2014 | 1,445,000 | 1,514,057 | ||||||
TOTAL MUNICIPAL BONDS (Cost $1,501,223) | 1,514,057 | |||||||
U.S. GOVERNMENT AGENCIES — 0.21% | ||||||||
bAgribank FCB, 9.125%, 7/15/2019 | 6,750,000 | 8,372,254 | ||||||
Federal National Mtg Association REMIC Series 2006-B1 Class AB, 6.00%, 6/25/2016 | 4,245,765 | 4,379,345 | ||||||
TOTAL U.S. GOVERNMENT AGENCIES (Cost $10,984,557) | 12,751,599 | |||||||
FOREIGN BONDS — 2.49% | ||||||||
CONSUMER SERVICES — 0.01% | ||||||||
HOTELS, RESTAURANTS & LEISURE — 0.01% | ||||||||
e,fFU JI Food and Catering (HKD), 0%, 10/18/2010 | 17,500,000 | 679,998 | ||||||
679,998 | ||||||||
DIVERSIFIED FINANCIALS — 0.27% | ||||||||
CAPITAL MARKETS — 0.18% | ||||||||
Morgan Stanley (AUD), 5.08%, 3/1/2013 | 4,000,000 | 3,707,182 | ||||||
Morgan Stanley (BRL), 10.09%, 5/3/2017 | 12,560,000 | 7,096,548 | ||||||
CONSUMER FINANCE — 0.02% | ||||||||
SLM Corp. (AUD), 6.00%, 12/15/2010 | 1,000,000 | 960,224 | ||||||
DIVERSIFIED FINANCIAL SERVICES — 0.07% | ||||||||
dBank of America Corp. (BRL), 10.00%, 11/19/2014 | 6,500,000 | 3,687,943 | ||||||
15,451,897 | ||||||||
FOOD & STAPLES RETAILING — 0.03% | ||||||||
FOOD & STAPLES RETAILING — 0.03% | ||||||||
Wesfarmers Ltd. (AUD), 7.427%, 9/11/2014 | 2,000,000 | 1,980,048 | ||||||
1,980,048 | ||||||||
FOOD, BEVERAGE & TOBACCO — 0.08% | ||||||||
BEVERAGES — 0.08% | ||||||||
Ambev International Finance Co., Ltd. (BRL), 9.50%, 7/24/2017 | 7,669,000 | 4,487,181 | ||||||
4,487,181 | ||||||||
Certified Annual Report 25
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
INSURANCE — 0.23% | ||||||||
INSURANCE — 0.23% | ||||||||
ELM BV (AUD), 7.635%, 12/31/2049 | $ | 10,500,000 | $ | 7,979,573 | ||||
ELM BV (AUD), 6.125%, 12/27/2049 | 8,000,000 | 5,715,092 | ||||||
13,694,665 | ||||||||
MEDIA — 0.10% | ||||||||
MEDIA — 0.10% | ||||||||
bCorus Entertainment (CAD), 7.25%, 2/10/2017 | 2,000,000 | 2,060,881 | ||||||
News America Holdings (AUD), 8.625%, 2/7/2014 | 4,000,000 | 3,962,169 | ||||||
6,023,050 | ||||||||
MISCELLANEOUS — 0.65% | ||||||||
MISCELLANEOUS — 0.65% | ||||||||
New South Wales Treasury Corp. (AUD), 3.75%, 11/20/2020 | 8,500,000 | 9,040,361 | ||||||
Regional Muni of York (CAD), 5.00%, 4/29/2019 | 4,500,000 | 4,799,767 | ||||||
Republic of Brazil (BRL), 12.50%, 1/5/2016 | 15,750,000 | 10,728,059 | ||||||
Republic of Brazil (BRL), 12.50%, 1/5/2022 | 20,000,000 | 14,509,456 | ||||||
39,077,643 | ||||||||
TELECOMMUNICATION SERVICES — 0.08% | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES — 0.08% | ||||||||
Wind Acquisition Finance SA (EUR), 11.75%, 7/15/2017 | 3,000,000 | 4,539,623 | ||||||
4,539,623 | ||||||||
TRANSPORTATION — 0.86% | ||||||||
TRANSPORTATION INFRASTRUCTURE — 0.86% | ||||||||
Southern Cross Air Corp. (AUD), 6.64%, 12/20/2016 | 55,833,500 | 51,537,387 | ||||||
51,537,387 | ||||||||
UTILITIES — 0.18% | ||||||||
MULTI-UTILITIES — 0.18% | ||||||||
Ville De Montreal (CAD), 5.45%, 12/1/2019 | 10,000,000 | 10,854,505 | ||||||
10,854,505 | ||||||||
TOTAL FOREIGN BONDS (Cost $119,392,993) | 148,325,997 | |||||||
OTHER SECURITIES — 0.42% | ||||||||
LOAN PARTICIPATIONS — 0.42% | ||||||||
Crown Castle Operating Co., 1.816%, 3/6/2014 | 2,946,701 | 2,874,271 | ||||||
Mylan Laboratories, Inc., 3.813%, 10/2/2014 | 3,912,363 | 3,900,352 | ||||||
Mylan Laboratories, Inc., 3.563%, 10/2/2014 | 1,775,274 | 1,769,824 | ||||||
Texas Comp Electric Holdings LLC, 4.066%, 10/10/2014 | 4,212,855 | 3,271,366 | ||||||
Texas Comp Electric Holdings LLC, 3.758%, 10/10/2014 | 13,681,818 | 10,583,707 | ||||||
Texas Comp Electric Holdings LLC, 4.033%, 10/31/2014 | 70,707 | 54,696 | ||||||
Texas Comp Electric Holdings LLC, 4.033%, 10/10/2014 | 40,404 | 31,375 | ||||||
Texas Comp Electric Holdings LLC, 3.758%, 5/10/2014 | 661,603 | 513,748 | ||||||
Texas Comp Electric Holdings, LLC, 3.758%, 10/10/2014 | 2,943,723 | 2,285,860 | ||||||
TOTAL OTHER SECURITIES (Cost $25,447,947) | 25,285,199 | |||||||
26 Certified Annual Report
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
Shares/ Principal Amount | Value | |||||||
SHORT TERM INVESTMENTS — 2.03% | ||||||||
Atmos Energy Corp., 0.29%, 10/1/2010 | $ | 30,500,000 | $ | 30,500,000 | ||||
Kinder Morgan Energy, 0.50%, 10/1/2010 | 40,450,000 | 40,450,000 | ||||||
Pepco Holdings, Inc., 0.50%, 10/1/2010 | 50,000,000 | 50,000,000 | ||||||
TOTAL SHORT TERM INVESTMENTS (Cost $120,950,000) | 120,950,000 | |||||||
TOTAL INVESTMENTS — 100.61% (Cost $5,518,207,150) | $ | 6,001,177,129 | ||||||
LIABILITIES NET OF OTHER ASSETS — (0.61)% | (36,540,254 | ) | ||||||
NET ASSETS — 100.00% | $ | 5,964,636,875 | ||||||
Footnote Legend
a | Investment in Affiliates - Holdings of voting securities of each portfolio company which is considered “affiliated” to the Fund under the Investment Company Act of 1940 because the Fund’s holding represented 5% or more of the company’s voting securities during the period, are shown below: |
Issuer | Shares/Principal September 30, 2009 | Gross Additions | Gross Reductions | Shares/Principal September 30, 2010 | Market Value September 30, 2010 | Investment Income | ||||||||||||||||||
Invesco Mortgage Capital, Inc. | 1,223,112 | 772,869 | 80,816 | 1,915,165 | $ | 41,214,351 | $ | 6,852,707 | ||||||||||||||||
Total non-controlled affiliated issuers – 0.69% of net assets |
| $ | 41,214,351 | $ | 6,852,707 | |||||||||||||||||||
b | Securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may only be resold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. As of September 30, 2010, the aggregate value of these securities in the Fund’s portfolio was $616,683,542, representing 10.33% of the Fund’s net assets. |
c | Yankee Bond - Denominated in U.S. dollars and is issued in the U.S. by foreign banks and corporations. |
d | Security currently fair valued by the valuation and pricing committee using procedures approved by the Trustees. |
e | Bond in default. |
f | Non-income producing. |
Portfolio Abbreviations
To simplify the listings of securities, abbreviations are used per the table below:
ARM | Adjustable Rate Mortgage | |
AUD | Denominated in Australian Dollars | |
BRL | Denominated in Brazilian Real | |
CAD | Denominated in Canadian Dollars | |
CPI | Consumer Price Index | |
EUR | Denominated in Euros | |
FCB | Farm Credit Bank | |
HKD | Denominated in Hong Kong Dollars | |
LIBOR | London Interbank Offered Rate | |
MFA | Mortgage Finance Authority | |
Mtg | Mortgage | |
Pfd | Preferred Stock | |
REIT | Real Estate Investment Trust | |
REMIC | Real Estate Mortgage Investment Conduit |
See notes to financial statements.
Certified Annual Report 27
STATEMENT OF ASSETS AND LIABILITIES | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
ASSETS | ||||
Investments at value | ||||
Non-affiliated issuers (cost $5,478,638,104) (Note 2) | $ | 5,959,962,778 | ||
Non-controlled affiliated issuers (cost $39,569,046) (Note 2) | 41,214,351 | |||
Cash | 680,942 | |||
Cash denominated in foreign currency (cost $21,228,072) | 21,783,062 | |||
Receivable for investments sold | 9,225,409 | |||
Receivable for fund shares sold | 47,092,956 | |||
Dividends receivable | 21,748,099 | |||
Dividend and interest reclaim receivable | 2,698,221 | |||
Interest receivable | 31,039,785 | |||
Prepaid expenses and other assets | 32,030 | |||
Total Assets | 6,135,477,633 | |||
LIABILITIES | ||||
Payable for securities purchased | 122,594,986 | |||
Payable for fund shares redeemed | 6,987,017 | |||
Unrealized depreciation on forward currency contracts (Note 7) | 29,328,863 | |||
Payable to investment advisor and other affiliates (Note 3) | 5,612,920 | |||
Accounts payable and accrued expenses | 1,939,680 | |||
Dividends payable | 4,377,292 | |||
Total Liabilities | 170,840,758 | |||
NET ASSETS | $ | 5,964,636,875 | ||
NET ASSETS CONSIST OF: | ||||
Undistributed net investment income | $ | 29,915,619 | ||
Net unrealized appreciation on investments | 454,341,452 | |||
Accumulated net realized gain (loss) | (797,443,422 | ) | ||
Net capital paid in on shares of beneficial interest | 6,277,823,226 | |||
$ | 5,964,636,875 | |||
28 Certified Annual Report
STATEMENT OF ASSETS AND LIABILITIES, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
NET ASSET VALUE: | ||||
Class A Shares: | ||||
Net asset value and redemption price per share ($2,018,202,593 applicable to 110,253,820 shares of beneficial interest outstanding - Note 4) | $ | 18.31 | ||
Maximum sales charge, 4.50% of offering price | 0.86 | |||
Maximum offering price per share | $ | 19.17 | ||
Class C Shares: | ||||
Net asset value and offering price per share * ($2,234,952,713 applicable to 122,065,567 shares of beneficial interest outstanding - Note 4) | $ | 18.31 | ||
Class I Shares: | ||||
Net asset value, offering and redemption price per share ($1,682,616,025 applicable to 91,294,749 shares of beneficial interest outstanding - Note 4) | $ | 18.43 | ||
Class R3 Shares: | ||||
Net asset value, offering and redemption price per share ($23,550,435 applicable to 1,286,674 shares of beneficial interest outstanding - Note 4) | $ | 18.30 | ||
Class R4 Shares: | ||||
Net asset value, offering and redemption price per share ($1,949,591 applicable to 106,315 shares of beneficial interest outstanding - Note 4) | $ | 18.34 | ||
Class R5 Shares: | ||||
Net asset value, offering and redemption price per share ($3,365,518 applicable to 182,667 shares of beneficial interest outstanding - Note 4) | $ | 18.42 | ||
* | Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. |
See notes to financial statements.
Certified Annual Report 29
STATEMENT OF OPERATIONS | ||
Thornburg Investment Income Builder Fund | Year Ended September 30, 2010 |
INVESTMENT INCOME: | ||||
Dividend income | ||||
Non-affiliated issuers (net of foreign taxes withheld of $14,936,255) | $ | 233,962,548 | ||
Non-controlled affiliated issuers | 6,852,707 | |||
Interest income (net of premium amortized of $623,021) | 124,134,299 | |||
Total Income | 364,949,554 | |||
EXPENSES: | ||||
Investment advisory fees (Note 3) | 34,262,770 | |||
Administration fees (Note 3) | ||||
Class A Shares | 2,091,630 | |||
Class C Shares | 2,209,293 | |||
Class I Shares | 622,126 | |||
Class R3 Shares | 22,471 | |||
Class R4 Shares | 1,138 | |||
Class R5 Shares | 859 | |||
Distribution and service fees (Note 3) | ||||
Class A Shares | 4,183,260 | |||
Class C Shares | 17,674,346 | |||
Class R3 Shares | 89,687 | |||
Class R4 Shares | 2,272 | |||
Transfer agent fees | ||||
Class A Shares | 1,629,700 | |||
Class C Shares | 2,009,670 | |||
Class I Shares | 1,298,375 | |||
Class R3 Shares | 34,987 | |||
Class R4 Shares | 3,780 | |||
Class R5 Shares | 4,397 | |||
Registration and filing fees | ||||
Class A Shares | 141,450 | |||
Class C Shares | 109,725 | |||
Class I Shares | 81,671 | |||
Class R3 Shares | 17,753 | |||
Class R4 Shares | 18,584 | |||
Class R5 Shares | 21,867 | |||
Custodian fees (Note 3) | 1,027,580 | |||
Professional fees | 162,773 | |||
Accounting fees | 173,185 | |||
Trustee fees | 108,281 | |||
Other expenses | 521,624 | |||
Total Expenses | 68,525,254 | |||
Less: | ||||
Expenses reimbursed by investment advisor (Note 3) | (2,182,572 | ) | ||
Net Expenses | 66,342,682 | |||
Net Investment Income | $ | 298,606,872 | ||
30 Certified Annual Report
STATEMENT OF OPERATIONS, CONTINUED | ||
Thornburg Investment Income Builder Fund | Year Ended September 30, 2010 |
REALIZED AND UNREALIZED GAIN (LOSS) | ||||
Net realized gain (loss) from: | ||||
Investments | ||||
Non-affiliated issuers | $ | (48,053,970 | ) | |
Non-controlled affiliated issuers | (4,498 | ) | ||
Forward currency contracts (Note 7) | (11,367,590 | ) | ||
Foreign currency transactions | 1,036,959 | |||
(58,389,099 | ) | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | ||||
Non-affiliated issuers | 275,927,753 | |||
Non-controlled affiliated issuers | 14,489,354 | |||
Forward currency contracts (Note 7) | 6,113,032 | |||
Foreign currency translations | 543,438 | |||
297,073,577 | ||||
Net Realized and Unrealized Gain | 238,684,478 | |||
Net Increase in Net Assets Resulting from Operations | $ | 537,291,350 | ||
See notes to financial statements.
Certified Annual Report 31
STATEMENTS OF CHANGES IN NET ASSETS | ||
Thornburg Investment Income Builder Fund |
Year Ended September 30, 2010 | Year Ended September 30, 2009 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM | ||||||||
OPERATIONS: | ||||||||
Net investment income | $ | 298,606,872 | $ | 196,665,498 | ||||
Net realized gain (loss) on investments, forward currency contracts and foreign currency transactions | (58,389,099 | ) | (571,104,514 | ) | ||||
Increase (Decrease) in unrealized appreciation (depreciation) of investments, forward currency contracts and foreign currency translations | 297,073,577 | 646,925,555 | ||||||
Net Increase (Decrease) in Net Assets Resulting from Operations | 537,291,350 | 272,486,539 | ||||||
DIVIDENDS TO SHAREHOLDERS: | ||||||||
From net investment income | ||||||||
Class A Shares | (105,095,569 | ) | (81,529,583 | ) | ||||
Class C Shares | (100,021,633 | ) | (77,646,832 | ) | ||||
Class I Shares | (82,223,032 | ) | (50,077,981 | ) | ||||
Class R3 Shares | (1,088,290 | ) | (760,087 | ) | ||||
Class R4 Shares | (59,426 | ) | (17,372 | ) | ||||
Class R5 Shares | (114,390 | ) | (22,654 | ) | ||||
FUND SHARE TRANSACTIONS (NOTE 4): | ||||||||
Class A Shares | 529,891,266 | (9,678,354 | ) | |||||
Class C Shares | 715,272,973 | 6,320,252 | ||||||
Class I Shares | 707,722,464 | 116,899,650 | ||||||
Class R3 Shares | 7,823,039 | 2,235,374 | ||||||
Class R4 Shares | 1,799,483 | (220,497 | ) | |||||
Class R5 Shares | 2,943,638 | 199,300 | ||||||
Net Increase in Net Assets | 2,214,141,873 | 178,187,755 | ||||||
NET ASSETS: | ||||||||
Beginning of Year | 3,750,495,002 | 3,572,307,247 | ||||||
End of Year | $ | 5,964,636,875 | $ | 3,750,495,002 | ||||
Undistributed net investment income | $ | 29,915,619 | $ | 20,577,079 |
See notes to financial statements.
32 Certified Annual Report
NOTES TO FINANCIAL STATEMENTS | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
NOTE 1 – ORGANIZATION
Thornburg Investment Income Builder Fund, hereinafter referred to as the “Fund,” is a diversified series of Thornburg Investment Trust (the “Trust”). 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 sixteen 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’s primary investment goal is to provide a level of current income which exceeds the average yield on U.S. stocks generally, and which will generally grow, subject to periodic fluctuations, over the years on a per share basis. The Fund’s secondary investment goal is long-term capital appreciation.
The Fund currently offers six classes of shares of beneficial interest: Class A, Class C, Institutional Class (Class I), and Retirement Classes (Class R3, Class R4, and Class R5). 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 shares are sold at net asset value without a sales charge at the time of purchase, (iv) Class R3 shares are sold at net asset value without a sales charge at the time of purchase, but bear both a service fee and distribution fee, (v) Class R4 shares are sold at net asset value without sales charge at the time of purchase, but bear a service fee, (vi) Class R5 shares are sold at net asset value without a sales charge at the time of purchase, and (vii) the respective classes may have different reinvestment privileges and conversion rights. Additionally, the Fund may allocate among its classes certain expenses, to the extent allowable 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.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies of the Trust are as follows:
Valuation of Investments: Portfolio securities listed or traded on a national securities exchange are valued on the valuation date at the last reported sale price on the exchange that is the primary market for the security. Portfolio securities traded on an exchange for which there has been no sale that day and other equity securities traded in the over-the-counter market are valued at the mean between the last reported bid and asked prices. Portfolio securities reported by NASDAQ are valued at the NASDAQ official closing price. Any foreign security traded on exchanges outside the United States is valued at the price of the security on the exchange that is normally the security’s primary market, as of the close of that exchange preceding the time of the Fund’s valuation.
Debt obligations held by the Fund have a primary market over the counter and are valued by an independent pricing service approved by the Trustees of the Trust. The pricing service ordinarily values debt obligations at quoted bid prices. When quotations are not available, debt obligations held by the Fund are valued at evaluated prices determined by the pricing service using methods which include consideration of yields or prices of debt obligations of comparable quality, type of issue, coupon, maturity and rating, and indications as to value from dealers and general market conditions. Short-term obligations having remaining maturities of 60 days or less are valued at amortized cost, which approximates market value.
Quotations in foreign currencies for foreign portfolio investments are converted to U.S. dollar equivalents using the foreign exchange quotation in effect at the time of valuation.
In any case where the market value of an equity security held by the Fund is not readily available, the Trust’s valuation and pricing committee determines a fair value for the security using procedures approved by the Trustees, which may include the use of a price obtained from an independent pricing service. The pricing service ordinarily values equity securities in these instances using multi-factor models to adjust market prices based upon various inputs, including exchange data, depository receipt prices, futures and index data and other data. A security’s market value is deemed not readily available whenever the exchange or market on which the security is primarily traded is closed for the entire scheduled day of trading. Additionally, a security’s market value may be deemed not readily available under other circumstances identified by the Trustees, including when developments occurring after the most recent close of the security’s primary exchange or market, but before the most recent close of trading in Fund shares, create a serious question about the reliability of the security’s market value.
Certified Annual Report 33
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
In any case where a pricing service fails to provide a price for a debt obligation held by the Fund, the valuation and pricing committee determines a fair value for the debt obligation using procedures approved by the Trustees. Additionally, in any case where management believes that a price provided by a pricing service for a debt obligation held by the Fund may be unreliable, the valuation and pricing committee decides whether or not to use the pricing service’s valuation or to determine a fair value for the debt obligation.
In determining fair value for any portfolio security or other investment, the valuation and pricing committee seeks to determine the amount that an owner of the investment might reasonably expect to receive upon a sale of the investment. However, because fair value prices are estimated prices, the valuation and pricing committee’s determination of fair value for an investment may differ from the value that would be realized by the Fund upon a sale of the investment, and that difference could be material to the Fund’s financial statements. The valuation and pricing committee’s determination of fair value for an investment may also differ from the prices obtained by other persons (including other mutual funds) for the investment.
Valuation Measurements: Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three levels listed below.
Level 1: Quoted prices in active markets for identical investments.
Level 2: Other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment rates, credit risk, etc.).
Level 3: Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments).
The following table displays a summary of the inputs used to value the Fund’s net assets as of September 30, 2010. In any instance when valuation inputs from more than one level are used to determine the fair value of a specific investment, the investment is placed in the level of the table based upon the lowest level input that is significant in determining the fair value of the investment:
Fair Value Measurements at September 30, 2010 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets | ||||||||||||||||
Investments in Securities* | ||||||||||||||||
Common Stock | $ | 3,855,956,064 | $ | 3,855,956,064 | $ | — | $ | — | ||||||||
Preferred Stock (a) | 259,994,597 | 231,222,722 | 28,771,875 | — | ||||||||||||
Exchange Traded Funds | 56,056,250 | 56,056,250 | — | — | ||||||||||||
Asset Backed Securities | 20,646,212 | — | 20,646,212 | — | ||||||||||||
Corporate Bonds | 1,306,855,822 | — | 1,279,231,623 | 27,624,199 | ||||||||||||
Convertible Bonds | 192,841,332 | — | 192,841,332 | — | ||||||||||||
Municipal Bonds | 1,514,057 | — | 1,514,057 | — | ||||||||||||
U.S. Government Agencies | 12,751,599 | — | 12,751,599 | — | ||||||||||||
Foreign Bonds | 148,325,997 | — | 144,638,054 | 3,687,943 | ||||||||||||
Other Securities | 25,285,199 | — | 25,285,199 | — | ||||||||||||
Short Term Investments | 120,950,000 | — | 120,950,000 | — | ||||||||||||
Total Investments in Securities | $ | 6,001,177,129 | $ | 4,143,235,036 | $ | 1,826,629,951 | $ | 31,312,142 | ||||||||
Liabilities | ||||||||||||||||
Other Financial Instruments** | ||||||||||||||||
Forward Currency Contracts | $ | (29,328,863 | ) | $ | — | $ | (29,328,863 | ) | $ | — | ||||||
Spot Currency | $ | (86,968 | ) | $ | (86,968 | ) | $ | — | $ | — |
(a) | Industry classifications for Preferred Stock in Level 2 consisted of $7,781,250 in Banks, $4,650,000 in REITS, and $16,340,625 in Telecommunication Services at September 30, 2010. |
* | See Schedule of Investments for a summary of the industry exposure as grouped according to the Global Industry Classification Standard (GICS), which is an industry taxonomy developed by MSCI Barra and Standard & Poor’s (S&P). |
34 Certified Annual Report
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
** | Other Financial Instruments include investments not reflected in the Schedule of Investments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation (depreciation) on the investment. |
A rollforward of fair value measurements using significant unobservable inputs (Level 3) for the year ended September 30, 2010, was as follows:
Beginning Balance 9/30/2009 | Gross Purchases | Gross Sales | Net Realized Gain/(Loss) | Net Unrealized Appreciation/ (Depreciation) | Net Transfers in/(out) of Level 3(b) | Ending Balance 9/30/2010 | ||||||||||||||||||||||
Investments in Securities(a) | $ | — | $ | 16,438,165 | $ | (1,272,694 | ) | $ | 59,137 | $ | 1,364,612 | $ | 14,722,922 | $ | 31,312,142 |
(a) | Level 3 Securities represent 0.52% of Total Net Assets at the year ended September 30, 2010. |
(b) | Transfers to Level 3 were from Level 2, and were due to a change in other significant observable inputs existing at the year ended September 30, 2010. Transfers into or out of Level 3 are based on the beginning market value of the year in which they occurred. |
Other Notes: It is the policy of the Fund to recognize significant transfers between Levels 1 and 2 and to disclose those transfers at the last date of the reporting period. The Fund recognized no significant transfers into and out of Levels 1 and 2 during the year ended September 30, 2010.
Foreign Currency Translation: Portfolio securities 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 securities and income items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the translation date. When the Fund purchases or sells foreign securities, 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 Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities 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 unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.
Deferred 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 securities as reflected in the accompanying financial statements.
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 taxable income, including any net realized gain on investments of the Fund. Therefore, no provision for federal income taxes is required.
Management reviews each tax position believed to be material to the preparation of the Fund’s financial statements, to assess if it is more likely than not that the position would be sustained upon examination, based upon the technical merits of the position. As of September 30, 2010, management has not identified any such position for which a liability must be reflected in the Statement of Assets and Liabilities. The Fund’s tax returns remain subject to examination for three years after filing.
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 securities consistent with the Fund’s investment objectives and not for the purpose of investment leverage or to speculate on interest rate and/or market changes. At the time the Fund makes a commitment to purchase a security 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 pay-
Certified Annual Report 35
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
ment for the portfolio securities to be purchased will be segregated on the Fund’s records on the trade date. Securities purchased on a when-issued or delayed delivery basis do not earn interest until the settlement date.
Dividends: Net investment income of the Fund is declared daily as a dividend on shares for which the Fund has received payment. Dividends are paid quarterly and are reinvested in additional shares of the Fund at net asset value per share at the close of business on the dividend payment date, or at the shareholder’s option, paid in cash. Net realized capital gains, to the extent available, will be distributed at least annually. Distributions to shareholders are based on income tax regulations and therefore, their characteristics may differ for financial statement and tax purposes.
General: Securities transactions are accounted for on a trade date basis. Interest income is accrued as earned and dividend income is recorded on the ex-dividend date. Certain income from foreign securities is recognized as soon as information is available to the Fund. Realized gains and losses from the sale of securities are recorded on an identified cost basis. 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 of each class of shares at the beginning of the day (after adjusting for the current share 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.
Guarantees and Indemnifications: Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business the Trust enters into contracts with service providers that contain general indemnification clauses. 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 generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
NOTE 3 – INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an investment advisory agreement, Thornburg Investment Management, Inc. (the “Advisor”) serves as the investment advisor and performs services to the Fund for which the fees are payable at the end of each month. For the year ended September 30, 2010, these fees were payable at annual rates ranging from .875 of 1% to .675 of 1% per annum of the average daily net assets of the Fund depending on the Fund’s asset size. The Trust also has entered into administrative services agreements with the Advisor, whereby the Advisor will perform certain administrative services for the shareholders of each class of the Fund’s shares, and for which fees will be payable at an annual rate of up to .125 of 1% per annum of the average daily net assets attributable to each class of shares. For the year ended September 30, 2010, the Advisor contractually reimbursed certain class specific expenses, administrative fees, and distribution fees of $2,105,372 for Class C shares, $33,843 for Class R3 shares, $20,037 for Class R4 shares, and $23,320 for Class R5 shares.
The Trust has an underwriting agreement with Thornburg Securities Corporation (the “Distributor,” an affiliate of the Advisor), which acts as the distributor of the Fund’s shares. For the year ended September 30, 2010, the Distributor has advised the Fund that it earned commissions aggregating $1,270,308 from the sale of Class A shares, and collected contingent deferred sales charges aggregating $170,865 from redemptions of Class C shares of the Fund.
Pursuant to a service plan under Rule 12b-1 of the Investment Company Act of 1940, the Fund may reimburse to the Advisor an amount not to exceed .25 of 1% per annum of the average daily net assets attributable to each class of shares of the Fund for payments made by the Advisor to securities dealers and other financial institutions to obtain various shareholder and distribution related services. For the year ended September 30, 2010, there were no 12b-1 service plan fees charged for Class I and Class R5 shares. The Advisor may pay out of its own resources additional expenses for distribution of the Fund’s shares.
The Trust has also adopted distribution plans pursuant to Rule 12b-1, applicable only to the Fund’s Class C and Class R3 shares, under which the Fund compensates the Distributor for services in promoting the sale of Class C and Class R3 shares of the Fund at an annual rate of up to .75 of 1% per annum of the average daily net assets attributable to Class C and Class R3 shares. Total fees incurred by the
36 Certified Annual Report
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
Distributor for each class of shares of the Fund under their respective Service and Distribution Plans for the year ended September 30, 2010, are set forth in the Statement of Operations.
The Trust has an agreement with the custodian bank to indirectly pay a portion of the custodian’s fees through credits earned by the Fund’s cash on deposit with the bank. This deposit agreement is an alternative to overnight investments. Custodial fees have been adjusted to reflect amounts that would have been paid without this agreement, with a corresponding adjustment reflected as fees paid indirectly in the Statement of Operations. For the year ended September 30, 2010, there were no fees paid indirectly.
Certain officers and Trustees of the Trust are also officers and/or directors of the Advisor and Distributor. The compensation of independent Trustees is borne by the Trust.
NOTE 4 – SHARES OF BENEFICIAL INTEREST
At September 30, 2010, there were an unlimited number of shares of beneficial interest authorized. Transactions in shares of beneficial interest were as follows:
Year Ended September 30, 2010 | Year Ended September 30, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class A Shares | ||||||||||||||||
Shares sold | 43,283,964 | $ | 770,088,645 | 23,619,565 | $ | 344,260,373 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 4,439,224 | 79,354,477 | 4,335,112 | 63,114,813 | ||||||||||||
Shares repurchased | (18,042,158 | ) | (319,573,633 | ) | (30,011,243 | ) | (417,076,271 | ) | ||||||||
Redemption fees received* | — | 21,777 | — | 22,731 | ||||||||||||
Net Increase (Decrease) | 29,681,030 | $ | 529,891,266 | (2,056,566 | ) | $ | (9,678,354 | ) | ||||||||
Class C Shares | ||||||||||||||||
Shares sold | 49,564,535 | $ | 883,762,048 | 20,018,794 | $ | 292,989,819 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 3,972,825 | 71,048,461 | 3,950,571 | 57,445,432 | ||||||||||||
Shares repurchased | (13,520,528 | ) | (239,560,490 | ) | (24,910,649 | ) | (344,138,583 | ) | ||||||||
Redemption fees received* | — | 22,954 | — | 23,584 | ||||||||||||
Net Increase (Decrease) | 40,016,832 | $ | 715,272,973 | (941,284 | ) | $ | 6,320,252 | |||||||||
Class I Shares | ||||||||||||||||
Shares sold | 54,684,137 | $ | 981,032,227 | 25,254,006 | $ | 372,821,670 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 3,466,124 | 62,410,241 | 2,665,325 | 39,209,566 | ||||||||||||
Shares repurchased | (18,750,557 | ) | (335,736,228 | ) | (21,210,176 | ) | (295,144,783 | ) | ||||||||
Redemption fees received* | — | 16,224 | — | 13,197 | ||||||||||||
Net Increase (Decrease) | 39,399,704 | $ | 707,722,464 | 6,709,155 | $ | 116,899,650 | ||||||||||
Class R3 Shares | ||||||||||||||||
Shares sold | 746,503 | $ | 13,383,203 | 421,734 | $ | 6,146,795 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 55,329 | 988,963 | 46,884 | 688,297 | ||||||||||||
Shares repurchased | (368,316 | ) | (6,549,359 | ) | (318,696 | ) | (4,599,932 | ) | ||||||||
Redemption fees received* | — | 232 | — | 214 | ||||||||||||
Net Increase (Decrease) | 433,516 | $ | 7,823,039 | 149,922 | $ | 2,235,374 | ||||||||||
Certified Annual Report 37
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
Year Ended September 30, 2010 | Year Ended September 30, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class R4 Shares | ||||||||||||||||
Shares sold | 105,112 | $ | 1,826,925 | 2,542 | $ | 38,228 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 1,635 | 29,296 | 1,173 | 17,252 | ||||||||||||
Shares repurchased | (3,165 | ) | (56,750 | ) | (15,815 | ) | (275,982 | ) | ||||||||
Redemption fees received* | — | 12 | — | 5 | ||||||||||||
Net Increase (Decrease) | 103,582 | $ | 1,799,483 | (12,100 | ) | $ | (220,497 | ) | ||||||||
Class R5 Shares | ||||||||||||||||
Shares sold | 302,943 | $ | 5,496,684 | 40,091 | $ | 600,510 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 6,243 | 111,969 | 1,391 | 20,773 | ||||||||||||
Shares repurchased | (150,901 | ) | (2,665,036 | ) | (30,138 | ) | (421,988 | ) | ||||||||
Redemption fees received* | — | 21 | — | 5 | ||||||||||||
Net Increase (Decrease) | 158,285 | $ | 2,943,638 | 11,344 | $ | 199,300 | ||||||||||
* | The Fund charges a redemption fee of 1% of the Class A and Class I shares redeemed or exchanged within 30 days of purchase. Redemption fees charged to any class are allocated to all classes upon receipt of payment based on relative net asset values of each class or other appropriate allocation methods. |
NOTE 5 – SECURITIES TRANSACTIONS
For the year ended September 30, 2010, the Fund had purchase and sale transactions of investment securities (excluding short-term investments and U.S. Government obligations) of $3,595,840,109 and $1,637,978,518, respectively.
NOTE 6 – INCOME TAXES
At September 30, 2010, information on the tax components of capital is as follows:
Cost of investments for tax purposes | $ | 5,541,327,134 | ||
Gross unrealized appreciation on a tax basis | $ | 700,552,189 | ||
Gross unrealized depreciation on a tax basis | (240,702,194 | ) | ||
Net unrealized appreciation (depreciation) on investments (tax basis) | $ | 459,849,995 | ||
Distributable earnings – ordinary income (tax basis) | $ | 41,310,220 |
At September 30, 2010, the Fund had deferred tax basis currency and capital losses occurring subsequent to October 31, 2009 of $288,211 and $32,070,845 respectively. For tax purposes, such losses will be reflected in the year ended September 30, 2011.
38 Certified Annual Report
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
At September 30, 2010, the Fund had tax basis capital losses 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 carryfor-wards expire as follows:
2016 | $ | 4,262,779 | ||
2017 | 280,451,429 | |||
2018 | 493,662,779 | |||
$ | 778,376,987 | |||
In order to account for permanent book/tax differences, the Fund increased undistributed net investment income by $2,061,030 and increased accumulated net realized investment loss by $2,061,030. This reclassification has no impact on the net asset value of the Fund. Reclassifications result primarily from foreign currency transactions, investments in PFICs (Passive Foreign Investment Companies) and partnerships, and recharacterization of income received.
The tax character of distributions paid during the year ended September 30, 2010, and September 30, 2009, was as follows:
2010 | 2009 | |||||||
Distributions from: | ||||||||
Ordinary income | $ | 288,602,340 | $ | 210,054,509 | ||||
Capital gains | — | — | ||||||
Total | $ | 288,602,340 | $ | 210,054,509 | ||||
NOTE 7 – DERIVATIVE FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FOREIGN INVESTMENT RISK
The Fund may use a variety of derivative financial instruments to hedge or adjust the risks affecting its investment portfolio or to enhance investment returns. Provisions of FASB Accounting Standards Codification ASC 815-10-50, (“ASC 815”) require certain disclosures. This requirement amends and expands disclosures related to derivative instruments to provide users of financial statements with an enhanced understanding of the use of derivative instruments by the Fund and how these derivatives affect the financial position, financial performance and cash flows of the Fund. The Fund does not designate any derivative instruments as hedging instruments under ASC 815. During the year ended September 30, 2010, the Fund’s principal exposure to derivative financial instruments of the type addressed by ASC 815 was investment in foreign exchange contracts. A foreign exchange contract is an agreement between two parties to exchange different currencies at a specified rate of exchange at an agreed upon future date. Foreign exchange contracts involve risks to the Fund, including the risk that a contract counterparty will not meet its obligations to the Fund, the risk that a change in a contract’s value may not correlate perfectly with the currency the contract was intended to track, and the risk that the Fund’s advisor is unable to correctly implement its strategy in using a contract. In any such instance, the Fund may not achieve the intended benefit of entering into a contract, and may experience a loss.
The Fund entered into forward currency contracts during the year ended September 30, 2010 in the normal course of pursuing its investment objectives, in anticipation of purchasing foreign investments or with the intent of reducing the risk to the value of the Fund’s foreign investments from adverse changes in the relationship between the U.S. dollar and foreign currencies. In each case these contracts have been initiated in conjunction with foreign investment transactions.
These contracts are accounted for by the Fund under ASC 815. Unrealized gains and unrealized losses on outstanding contracts are reported in the Fund’s Statement of Assets and Liabilities at the Fund’s net equity, as measured by the difference between the forward exchange rates at the reporting date and the forward exchange rates at each contract’s inception date. Net realized gain (loss) on contracts closed during the period, and changes in net unrealized appreciation (depreciation) on outstanding contracts are recognized in the Fund’s Statement of Operations. Values of open currency contracts are indicative of the activity for the year ended September 30, 2010.
Certified Annual Report 39
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
The following table displays the outstanding forward currency contracts at September 30, 2010:
Outstanding Forward Currency Contracts
to Buy or Sell at September 30, 2010
Contract Description | Buy/Sell | Contract Amount | Contract V alue Date | Value USD | Unrealized Appreciation | Unrealized Depreciation | ||||||||||||||||||
Euro | Sell | 9,100,000 | 03/01/2011 | $ | 12,390,272 | $ | — | $ | (883,413 | ) | ||||||||||||||
Euro | Sell | 253,400,000 | 10/06/2010 | 345,442,561 | — | (3,441,251 | ) | |||||||||||||||||
Euro | Sell | 62,000,000 | 10/06/2010 | 84,520,279 | — | (7,834,339 | ) | |||||||||||||||||
Euro | Sell | 1,328,700 | 10/06/2010 | 1,811,324 | — | (105,898 | ) | |||||||||||||||||
Euro | Sell | 66,359,900 | 10/06/2010 | 90,463,827 | — | (5,921,978 | ) | |||||||||||||||||
Euro | Sell | 43,100,000 | 10/06/2010 | 58,755,226 | — | (852,531 | ) | |||||||||||||||||
Great Britain Pound | Sell | 16,000,000 | 10/06/2010 | 25,134,029 | — | (2,033,869 | ) | |||||||||||||||||
Great Britain Pound | Sell | 2,985,600 | 10/06/2010 | 4,690,010 | — | (219,343 | ) | |||||||||||||||||
Great Britain Pound | Sell | 7,100,000 | 10/06/2010 | 11,153,225 | — | (261,754 | ) | |||||||||||||||||
Great Britain Pound | Sell | 19,200,000 | 10/06/2010 | 30,160,835 | — | (1,067,075 | ) | |||||||||||||||||
Great Britain Pound | Sell | 6,946,500 | 10/06/2010 | 10,912,096 | — | (358,348 | ) | |||||||||||||||||
Swiss Franc | Sell | 15,400,000 | 10/06/2010 | 15,672,196 | — | (1,234,741 | ) | |||||||||||||||||
Swiss Franc | Sell | 72,600,000 | 10/06/2010 | 73,883,208 | — | (5,114,323 | ) | |||||||||||||||||
Total | $ | — | $ | (29,328,863 | ) | |||||||||||||||||||
The unrealized appreciation (depreciation) of the outstanding forward currency contracts recognized in the Fund’s Statement of Assets and Liabilities at September 30, 2010 is disclosed in the following table:
Fair Values of Derivative Financial Instruments
at September 30, 2010
Liability Derivatives | Balance Sheet Location | Fair Value | ||||
Foreign exchange contracts | Liabilities - Unrealized depreciation on forward currency contracts | $ | (29,328,863 | ) |
The realized gains (losses) from forward currency contracts, and the change in unrealized appreciation (depreciation) of outstanding forward currency contracts recognized in the Fund’s Statement of Operations for the year ended September 30, 2010 are disclosed in the following tables:
Amount of Realized Gain (Loss) on Derivative Financial Instruments
Recognized in Income for the Year Ended September 30, 2010
Total | Forward Currency Contracts | |||||||
Foreign exchange contracts | $ | (11,367,590 | ) | $ | (11,367,590 | ) |
Change in Unrealized Appreciation (Depreciation) of Derivative Financial Instruments
Recognized in Income for the Year Ended September 30, 2010
Total | Forward Currency Contracts | |||||||
Foreign exchange contracts | $ | 6,113,032 | $ | 6,113,032 |
OTHER NOTES
Management has evaluated the impact on the Fund of all subsequent events occurring through the date the financial statements were issued. Effective October 1, 2010, the distribution plan applicable to Class R3 shares of the Fund has been amended by action of the Trustees to reduce the compensation payable under the plan to an annual rate of .25% of 1%.
40 Certified Annual Report
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Certified Annual Report 41
Thornburg Investment Income Builder Fund
PER SHARE PERFORMANCE (for a share outstanding throughout the period)+ | RATIOS TO AVERAGE NET ASSETS | SUPPLEMENTAL DATA | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unless Otherwise Noted, Periods are Fiscal Years Ended Sept. 30, | Net Asset Value Beginning of Period | Net Investment Income (Loss) | Net Realized & Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Dividends from Net Realized Gains | Total Dividends | Net Asset Value End of Period | Net Investment Income (Loss) (%) | Expenses, After Expense Reductions (%) | Expenses, After Expense Reductions and Net of Custody Credits (%) | Expenses, Before Expense Reductions (%) | Total Return (%)(a) | Portfolio Turnover Rate (%) | Net Assets at End of Period (Thousands) | |||||||||||||||||||||||||||||||||||||||||||||
Class A Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010(b) | $ | 17.38 | 1.14 | 0.90 | 2.04 | (1.11 | ) | — | (1.11 | ) | $ | 18.31 | 6.47 | 1.25 | 1.25 | 1.25 | 12.08 | 35.50 | $ | 2,018,202 | ||||||||||||||||||||||||||||||||||||||||
2009(b) | $ | 16.86 | 1.01 | 0.58 | 1.59 | (1.07 | ) | — | (1.07 | ) | $ | 17.38 | 7.03 | 1.30 | 1.30 | 1.30 | 10.89 | 63.05 | $ | 1,400,454 | ||||||||||||||||||||||||||||||||||||||||
2008(b) | $ | 23.35 | 1.04 | (6.04 | ) | (5.00 | ) | (1.02 | ) | (0.47 | ) | (1.49 | ) | $ | 16.86 | 5.01 | 1.25 | 1.25 | 1.25 | (22.48 | ) | 46.07 | $ | 1,393,268 | ||||||||||||||||||||||||||||||||||||
2007(b) | $ | 19.58 | 0.93 | 4.23 | 5.16 | (0.88 | ) | (0.51 | ) | (1.39 | ) | $ | 23.35 | 4.39 | 1.30 | 1.30 | 1.30 | 27.40 | 62.60 | $ | 1,697,061 | |||||||||||||||||||||||||||||||||||||||
2006(b) | $ | 17.93 | 0.78 | 1.98 | 2.76 | (0.77 | ) | (0.34 | ) | (1.11 | ) | $ | 19.58 | 4.22 | 1.38 | 1.38 | 1.38 | 16.05 | 55.29 | $ | 903,347 | |||||||||||||||||||||||||||||||||||||||
Class C Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | $ | 17.39 | 1.03 | 0.89 | 1.92 | (1.00 | ) | — | (1.00 | ) | $ | 18.31 | 5.86 | 1.90 | 1.90 | 2.02 | 11.32 | 35.50 | $ | 2,234,953 | ||||||||||||||||||||||||||||||||||||||||
2009 | $ | 16.87 | 0.92 | 0.59 | 1.51 | (0.99 | ) | — | (0.99 | ) | $ | 17.39 | 6.44 | 1.90 | 1.90 | 2.08 | 10.27 | 63.05 | $ | 1,426,613 | ||||||||||||||||||||||||||||||||||||||||
2008 | $ | 23.37 | 0.90 | (6.04 | ) | (5.14 | ) | (0.89 | ) | (0.47 | ) | (1.36 | ) | $ | 16.87 | 4.36 | 1.90 | 1.90 | 2.03 | (23.02 | ) | 46.07 | $ | 1,399,947 | ||||||||||||||||||||||||||||||||||||
2007 | $ | 19.60 | 0.81 | 4.22 | 5.03 | (0.75 | ) | (0.51 | ) | (1.26 | ) | $ | 23.37 | 3.79 | 1.90 | 1.89 | 2.06 | 26.64 | 62.60 | $ | 1,535,532 | |||||||||||||||||||||||||||||||||||||||
2006 | $ | 17.95 | 0.70 | 1.97 | 2.67 | (0.68 | ) | (0.34 | ) | (1.02 | ) | $ | 19.60 | 3.73 | 1.90 | 1.90 | 2.15 | 15.45 | 55.29 | $ | 636,947 | |||||||||||||||||||||||||||||||||||||||
Class I Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | $ | 17.50 | 1.22 | 0.89 | 2.11 | (1.18 | ) | — | (1.18 | ) | $ | 18.43 | 6.87 | 0.93 | 0.93 | 0.93 | 12.39 | 35.50 | $ | 1,682,616 | ||||||||||||||||||||||||||||||||||||||||
2009 | $ | 16.97 | 1.07 | 0.59 | 1.66 | (1.13 | ) | — | (1.13 | ) | $ | 17.50 | 7.39 | 0.97 | 0.97 | 0.97 | 11.29 | 63.05 | $ | 908,126 | ||||||||||||||||||||||||||||||||||||||||
2008 | $ | 23.50 | 1.10 | (6.06 | ) | (4.96 | ) | (1.10 | ) | (0.47 | ) | (1.57 | ) | $ | 16.97 | 5.34 | 0.89 | 0.89 | 0.89 | (22.20 | ) | 46.07 | $ | 766,772 | ||||||||||||||||||||||||||||||||||||
2007 | $ | 19.71 | 1.02 | 4.24 | 5.26 | (0.96 | ) | (0.51 | ) | (1.47 | ) | $ | 23.50 | 4.74 | 0.95 | 0.94 | 0.95 | 27.80 | 62.60 | $ | 644,294 | |||||||||||||||||||||||||||||||||||||||
2006 | $ | 18.03 | 0.88 | 1.98 | 2.86 | (0.84 | ) | (0.34 | ) | (1.18 | ) | $ | 19.71 | 4.68 | 0.99 | 0.98 | 1.02 | 16.53 | 55.29 | $ | 308,859 | |||||||||||||||||||||||||||||||||||||||
Class R3 Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | $ | 17.38 | 1.11 | 0.88 | 1.99 | (1.07 | ) | — | (1.07 | ) | $ | 18.30 | 6.27 | 1.50 | 1.50 | 1.69 | 11.75 | 35.50 | $ | 23,550 | ||||||||||||||||||||||||||||||||||||||||
2009 | $ | 16.85 | 1.00 | 0.58 | 1.58 | (1.05 | ) | — | (1.05 | ) | $ | 17.38 | 6.93 | 1.50 | 1.50 | 1.87 | 10.74 | 63.05 | $ | 14,828 | ||||||||||||||||||||||||||||||||||||||||
2008 | $ | 23.34 | 1.00 | (6.05 | ) | (5.05 | ) | (0.97 | ) | (0.47 | ) | (1.44 | ) | $ | 16.85 | 4.89 | 1.49 | 1.49 | 1.77 | (22.69 | ) | 46.07 | $ | 11,848 | ||||||||||||||||||||||||||||||||||||
2007 | $ | 19.58 | 0.86 | 4.24 | 5.10 | (0.83 | ) | (0.51 | ) | (1.34 | ) | $ | 23.34 | 4.00 | 1.50 | 1.50 | 2.16 | 27.10 | 62.60 | $ | 7,544 | |||||||||||||||||||||||||||||||||||||||
2006 | $ | 17.93 | 0.82 | 1.92 | 2.74 | (0.75 | ) | (0.34 | ) | (1.09 | ) | $ | 19.58 | 4.36 | 1.50 | 1.50 | 6.05 | 15.91 | 55.29 | $ | 1,301 | |||||||||||||||||||||||||||||||||||||||
Class R4 Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | $ | 17.47 | 1.22 | 0.74 | 1.96 | (1.09 | ) | — | (1.09 | ) | $ | 18.34 | 6.89 | 1.40 | 1.40 | 3.60 | 11.52 | 35.50 | $ | 1,950 | ||||||||||||||||||||||||||||||||||||||||
2009 | $ | 16.94 | 1.01 | 0.59 | 1.60 | (1.07 | ) | — | (1.07 | ) | $ | 17.47 | 7.02 | 1.40 | 1.40 | 9.54 | (c) | 10.83 | 63.05 | $ | 48 | |||||||||||||||||||||||||||||||||||||||
2008(d) | $ | 21.22 | 0.66 | (4.39 | ) | (3.73 | ) | (0.55 | ) | — | (0.55 | ) | $ | 16.94 | 5.28 | (e) | 1.40 | (e) | 1.40 | (e) | 16.97 | (c)(e) | (17.79 | ) | 46.07 | $ | 251 | |||||||||||||||||||||||||||||||||
Class R5 Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | $ | 17.50 | 1.36 | 0.74 | 2.10 | (1.18 | ) | — | (1.18 | ) | $ | 18.42 | 7.67 | 0.99 | 0.99 | 2.35 | 12.31 | 35.50 | $ | 3,366 | ||||||||||||||||||||||||||||||||||||||||
2009 | $ | 16.98 | 1.04 | 0.61 | 1.65 | (1.13 | ) | — | (1.13 | ) | $ | 17.50 | 7.14 | 0.99 | 0.99 | 9.20 | (c) | 11.19 | 63.05 | $ | 427 | |||||||||||||||||||||||||||||||||||||||
2008 | $ | 23.51 | 1.11 | (6.09 | ) | (4.98 | ) | (1.08 | ) | (0.47 | ) | (1.55 | ) | $ | 16.98 | 5.48 | 0.99 | 0.99 | 11.77 | (c) | (22.27 | ) | 46.07 | $ | 221 | |||||||||||||||||||||||||||||||||||
2007(f) | $ | 20.74 | 0.46 | 2.87 | 3.33 | (0.56 | ) | — | (0.56 | ) | $ | 23.51 | 3.17 | (e) | 0.99 | (e) | 0.98 | (e) | 278.77 | (c)(e) | 16.19 | 62.60 | $ | 72 |
(a) | Not annualized for periods less than one year. |
(b) | Sales loads are not reflected in computing total return. |
(c) | Due to the size of net assets and fixed expenses, ratios may appear disproportionate. |
(d) | Effective date of this class of shares was February 1, 2008. |
(e) | Annualized. |
(f) | Effective date of this class of shares was February 1, 2007. |
+ | Based on weighted average shares outstanding. |
See notes to financial statements.
42 Certified Annual Report | Certified Annual Report 43 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | ||
Thornburg Investment Income Builder Fund | September 30, 2010 |
To the Trustees and Shareholders of
Thornburg Investment Income Builder Fund
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Thornburg Investment Income Builder Fund (one of the portfolios constituting Thornburg Investment Trust, hereafter referred to as the “Fund”) at September 30, 2010, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2010
44 Certified Annual Report .
EXPENSE EXAMPLE | ||
Thornburg Investment Income Builder Fund | September 30, 2010 (Unaudited) |
As a shareholder of the Fund, you incur two types of costs:
(1) | transaction costs, including |
(a) sales charges (loads) on purchase payments for Class A shares;
(b) a deferred sales charge on redemptions of any part or all of a purchase of $1 million of Class A shares within 12 months of purchase;
(c) a deferred sales charge on redemptions of Class C shares within 12 months of purchase;
(d) a 30-day redemption fee on Class A and Class I shares;
(2) | ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. |
This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on a $1,000 investment beginning on April 1, 2010, and held until September 30, 2010.
ACTUAL EXPENSES
For each class of shares, the first line of the table at right provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line for your class of shares under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
For each class of shares, the second line of the table at right provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Beginning Account Value 4/1/10 | Ending Account Value 9/30/10 | Expenses Paid During Period† 4/1/10–9/30/10 | ||||||||||
Class A Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 1,030.30 | $ | 6.42 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,018.74 | $ | 6.38 | ||||||
Class C Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 1,027.00 | $ | 9.62 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,015.58 | $ | 9.57 | ||||||
Class I Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 1,032.00 | $ | 4.82 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,020.32 | $ | 4.79 | ||||||
Class R3 Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 1,028.50 | $ | 7.62 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,017.55 | $ | 7.58 | �� | |||||
Class R4 Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 1,029.60 | $ | 7.12 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,018.05 | $ | 7.08 | ||||||
Class R5 Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 1,031.70 | $ | 5.04 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,020.11 | $ | 5.01 |
† | Expenses are equal to the annualized expense ratio for each class (A: 1.26%; C: 1.89%; I: 0.95%; R3: 1.50%; R4: 1.40%; R5: 0.99%) multiplied by the average account value over the period, multiplied by 183/365 to reflect the one-half year period. |
* | Hypothetical assumes a rate of return of 5% per year before expenses. |
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Certified Annual Report 45
INDEX COMPARISON | ||
Thornburg Investment Income Builder Fund | September 30, 2010 (Unaudited) |
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Thornburg Investment Income Builder Fund versus S&P 500 Index and Blended Index
(December 24, 2002 to September 30, 2010)
AVERAGE ANNUAL TOTAL RETURNS
For periods ended September 30, 2010 (with sales charge)
1 Yr | 5 Yrs | Since Inception | ||||||||||
A Shares (Incep: 12/24/02) | 7.03 | % | 6.36 | % | 11.02 | % | ||||||
C Shares (Incep: 12/24/02) | 10.32 | % | 6.68 | % | 11.08 | % | ||||||
I Shares (Incep: 11/3/03) | 12.39 | % | 7.70 | % | 10.12 | % | ||||||
R3 Shares (Incep: 2/1/05) | 11.75 | % | 7.11 | % | 7.65 | % | ||||||
R4 Shares (Incep: 2/1/08) | 11.52 | % | — | 0.61 | % | |||||||
R5 Shares (Incep: 2/1/07) | 12.31 | % | — | 3.35 | % | |||||||
Blended Index (Since 12/24/02) | 7.50 | % | 2.85 | % | 7.04 | % | ||||||
S&P 500 Index (Since 12/24/02) | 10.16 | % | 0.64 | % | 5.30 | % |
Performance data reflects past performance, which is no guarantee of future results. The performance data and graph do 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 up-front sales charge for Class I, R3, R4 and R5 shares. Class A and I shares are subject to a 1% 30-day redemption fee.
The Blended Index is composed of 25% Barclays Capital Aggregate Bond Index and 75% MSCI World Index. The Barclays Capital Aggregate Bond Index is composed of approximately 8,000 publicly traded bonds including U.S. government, mortgage-backed, corporate and Yankee bonds. The index is weighted by the market value of the bonds included in the index. The MSCI World Index is an unmanaged market-weighted index that consists of securities traded in 24 of the world’s most developed countries. Securities are listed on exchanges in the U.S., Europe, Canada, Australia, New Zealand, and the Far East. The index is calculated with net dividends reinvested, in U.S. dollars. The S&P 500 Index, an unmanaged broad measure of the U.S. stock market, does not reflect sales charges or expenses. Investors cannot invest directly in an index.
46 Certified Annual Report
TRUSTEES AND OFFICERS | ||
Thornburg Investment Income Builder Fund | September 30, 2010 (Unaudited) |
Name, Age, | Principal Occupation(s) During Past Five Years | Other Directorships Held by Trustee | ||||
INTERESTED TRUSTEES (1)(2)(4) | ||||||
Garrett Thornburg, 64 Chairman of Trustees, Trustee since 1987(3) | Chairman and controlling shareholder and, until 2008, CEO of Thornburg Investment Management, Inc. (investment advisor); Chairman, CEO, and controlling shareholder of Thornburg Securities Corporation (securities dealer); CEO until 2007 and Chairman until 2009 of TMST, Inc. (f/k/a Thornburg Mortgage, Inc.) (real estate investment trust); President and Sole Director until 2009 of Thornburg Mortgage Advisory Corporation (investment manager to TMST, Inc.). | None | ||||
Brian J. McMahon, 54 Trustee since 2001, Member of Governance & Nominating Committee, President since 1997(5)(6) | CEO since 2008, President, Managing Director, Chief Investment Officer, and Portfolio Manager of Thornburg Investment Management, Inc. | None | ||||
INDEPENDENT TRUSTEES (1)(2)(4) | ||||||
David A. Ater, 65 Trustee since 1994, Member of Audit Committee & Governance & Nominating Committee | Principal in Ater & Associates, Santa Fe, NM (developer, planner and broker of residential and commercial real estate); owner, developer and broker for various real estate projects. | None | ||||
David D. Chase, 69 Chairman of Audit Committee, Trustee since 2000 | Chairman, President, CEO, and Managing Member of Vestor Associates, LLC, the general partner of Vestor Partners, LP, Santa Fe, NM (private equity fund); Managing Member of CS Group, LLC, Santa Fe, NM (merchant bank). | None | ||||
Eliot R. Cutler, 64 Chairman of Governance & Nominating Committee, Trustee since 2004 | Senior Counsel and, until 2009, Partner of Akin, Gump, Strauss, Hauer & Feld LLP (law firm) in Washington, D.C. and Beijing, China. | None | ||||
Susan H. Dubin, 61 Trustee since 2004, Member of Audit Committee | President of Dubin Investments, Ltd., Greenwich, CT (private investment fund); Director and officer of various charitable organizations. | None | ||||
Owen D. Van Essen, 56 Trustee since 2004, Member of Governance & Nominating Committee | President of Dirks, Van Essen & Murray, Santa Fe, NM (newspaper mergers and acquisitions). | None | ||||
James W. Weyhrauch, 51 Trustee since 1996, Member of Audit Committee | Real estate broker, Santa Fe Properties, Santa Fe, NM; President and Vice Chairman of Nambé Mills, Inc., Santa Fe, NM (manufacturer). | None |
Certified Annual Report 47
TRUSTEES AND OFFICERS, CONTINUED | ||
Thornburg Investment Income BuilderFund | September 30, 2010 (Unaudited) |
Name, Age, | Principal Occupation(s) During Past Five Years | Other Directorships Held by Trustee | ||||
OFFICERS OF THE FUND (WHO ARE NOT TRUSTEES)(1)(6)(7) | ||||||
George T. Strickland, 47 Vice President since 1996, Treasurer since 2007(6) | Portfolio Manager, Vice President, and Managing Director of Thornburg Investment Management, Inc. | Not applicable | ||||
William V. Fries, 71 Vice President since 1995 | Portfolio Manager, Vice President, and Managing Director of Thornburg Investment Management, Inc. | Not applicable | ||||
Leigh Moiola, 43 Vice President since 2001 | Vice President, Managing Director, and Director of Marketing of Thornburg Investment Management, Inc. | Not applicable | ||||
Alexander Motola, 40 Vice President since 2001 | Portfolio Manager, Vice President, and Managing Director of Thornburg Investment Management, Inc. | Not applicable | ||||
Wendy Trevisani, 39 Vice President since 1999 | Portfolio Manager since 2006, Managing Director, and Associate Portfolio Manager until 2006 of Thornburg Investment Management, Inc. | Not applicable | ||||
Joshua Gonze, 47 Vice President since 1999 | Portfolio Manager since 2007, Managing Director, and Associate Portfolio Manager until 2007 of Thornburg Investment Management, Inc. | Not applicable | ||||
Christopher Ihlefeld, 40 Vice President since 2003 | Portfolio Manager since 2007, Managing Director since 2006, and Associate Portfolio Manager until 2007 of Thornburg Investment Management, Inc. | Not applicable | ||||
Leon Sandersfeld, 44 Vice President since 2003 | Managing Director since 2007 and Fund Accounting Director of Thornburg Investment Management, Inc. | Not applicable | ||||
Sasha Wilcoxon, 36 Vice President since 2003 Secretary since 2007(6) | Managing Director since 2007, Director of Operations, and Vice President of Thornburg Investment Management, Inc. | Not applicable | ||||
Ed Maran, 52 Vice President since 2004 | Portfolio Manager since 2006, Managing Director, and Associate Portfolio Manager until 2006 of Thornburg Investment Management, Inc. | Not applicable | ||||
Vinson Walden, 40 Vice President since 2004 | Portfolio Manager since 2006, Managing Director, and Associate Portfolio Manager until 2006 of Thornburg Investment Management, Inc. | Not applicable | ||||
Thomas Garcia, 39 Vice President since 2006 | Managing Director, Head Equity Trader, and Associate Portfolio Manager of Thornburg Investment Management, Inc. | Not applicable | ||||
Lei Wang, 39 Vice President since 2006 | Portfolio Manager since 2006, Managing Director, and Associate Portfolio Manager until 2006 of Thornburg Investment Management, Inc. | Not applicable | ||||
Connor Browne, 31 Vice President since 2006 | Portfolio Manager since 2006, Managing Director, and Associate Portfolio Manager until 2006 of Thornburg Investment Management, Inc. | Not applicable |
48 Certified Annual Report
TRUSTEES AND OFFICERS, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 (Unaudited) |
Name, Age, | Principal Occupation(s) During Past Five Years | Other Directorships Held by Trustee | ||
Jason Brady, 36 Vice President since 2007 | Portfolio Manager since 2007, Managing Director since 2007, and Associate Portfolio Manager 2006–2007 of Thornburg Investment Management, Inc.; Portfolio Manager, Fortis Investments 2005–2006. | Not applicable | ||
Lewis Kaufman, 34 Vice President since 2007 | Portfolio Manager since 2007, Managing Director since 2007, and Associate Portfolio Manager until 2009 of Thornburg Investment Management, Inc. | Not applicable | ||
Christopher Ryon, 54 Vice President since 2008 | Portfolio Manager since 2009, Managing Director since 2009, and Associate Portfolio Manager 2008–2009 of Thornburg Investment Management, Inc.; Principal of Vanguard Funds until 2008. | Not applicable | ||
Lon Erickson, 35 Vice President since 2008 | Portfolio Manager since 2010, Managing Director since 2010, and Associate Portfolio Manager 2008–2010 of Thornburg Investment Management, Inc.; Senior Analyst of State Farm Insurance until 2008. | Not applicable | ||
Kathleen Brady, 50 Vice President since 2008 | Senior Tax Accountant since 2007 of Thornburg Investment Management, Inc.; Chief Financial Officer of Vestor Partners, LP (private equity fund) until 2007. | Not applicable | ||
Jack Gardner, 56 Vice President since 2008 | Managing Director since 2007 of Thornburg Investment Management, Inc.; President since 2008 and National Sales Director of Thornburg Securities Corporation. | Not applicable | ||
Laura Hillstrom, 43 Vice President since 2009 | Chief Administrative Officer since 2009, Vice President and Managing Director, and Director of Information Systems until 2009 of Thornburg Investment Management, Inc. | Not applicable | ||
Cliff Remily, 34 Vice President since 2010 | Portfolio Manager and Managing Director since 2010, Associate Portfolio Manager 2008–2010, and Equity Research Analyst 2006–2008 of Thornburg Investment Management, Inc.; Intern-Equity Research Analyst of Brandes Investment Partners until 2006. | Not applicable |
(1) | Each person’s address is 2300 North Ridgetop Road, Santa Fe, New Mexico 87506. |
(2) | The Fund is one of sixteen separate investment “Funds” or “series” of Thornburg Investment Trust (the “Trust”), which comprises the Thornburg mutual fund complex and is organized as a Massachusetts business trust. Thornburg Investment Management, Inc. is the investment advisor to, and manages, the sixteen Funds of the Trust. Each Trustee oversees the sixteen Funds of the Trust. |
(3) | Mr. Thornburg is considered an “interested” Trustee under the Investment Company Act of 1940 because he is a director and controlling shareholder of Thornburg Investment Management, Inc., the investment advisor to the sixteen active Funds of the Trust, and is the sole director and controlling shareholder of Thornburg Securities Corporation, the distributor of shares for the Trust. |
(4) | Each Trustee serves in office until the election and qualification of a successor. |
(5) | Mr. McMahon is considered an “interested” Trustee because he is the chief executive officer and president of Thornburg Investment Management, Inc. |
(6) | The Trust’s president, secretary, and treasurer each serves a one-year term or until the election and qualification of a successor; each other officer serves at the pleasure of the Trustees. |
(7) | Assistant vice presidents, assistant secretaries and assistant treasurers are not shown. |
The Statement of Additional Information for each Fund of the Trust includes additional information about the Trustees and is available, without charge and upon request, by calling 1-800-847-0200.
Certified Annual Report 49
OTHER INFORMATION | ||
Thornburg Investment Income Builder Fund | September 30, 2010 (Unaudited) |
PORTFOLIO PROXY VOTING
Policies and Procedures:
The Trust has delegated to Thornburg Investment Management, Inc. (the “Advisor”) voting decisions respecting proxies for the Fund’s voting securities. The Advisor makes voting decisions in accordance with its Proxy Voting Policy and Procedures. A description of the Policy and Procedures is available (i) without charge, upon request, by calling the Advisor toll-free at 1-800-847-0200, (ii) on the Thornburg web site at www.thornburg.com, and (iii) on the Securities and Exchange Commission’s web site at www.sec.gov.
Information regarding how proxies were voted is available on or before August 31 of each year for the twelve months ending the preceding June 30. This information is available (i) without charge, upon request by calling the Advisor toll-free at 1-800-847-0200, (ii) on the Thornburg web site at www.thornburg.com, and (iii) on the Securities and Exchange Commission’s web site at www.sec.gov.
TAX INFORMATION
For the tax year ended September 30, 2010, the Thornburg Investment Income Builder Fund designates 56.91% (or the maximum allowed) of the dividends paid from tax basis net ordinary income as qualifying for the reduced rate under the Jobs and Growth Tax Relief and Reconciliation Act of 2003.
18.74% (or the maximum allowed) of the ordinary income distributions paid by the Fund for the fiscal year ended September 30, 2010 qualified for the corporate dividends received deduction.
The information and distributions reported herein may differ from the information and distributions taxable to the shareholders for the calendar year ending December 31, 2010. Complete information will be computed and reported in conjunction with your 2010 Form 1099-DIV.
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULE
The Fund files with the Securities and Exchange Commission schedules of its portfolio holdings on Form N-Q for the first and third quarters of each fiscal year. The Fund’s Forms N-Q are available on the Commission’s web site at www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund also makes this information available on its web site at www.thornburg. com/download or upon request by calling 1-800-847-0200.
STATEMENT RESPECTING RENEWAL OF INVESTMENT ADVISORY AGREEMENT
Thornburg Investment Management, Inc. (the “Advisor”) provides investment management services to Thornburg Investment Income Builder Fund pursuant to an investment advisory agreement. The Trustees consider the renewal of this agreement annually, and most recently determined to renew the agreement on September 13, 2010.
In anticipation of their recent consideration of the advisory agreement’s renewal, the independent Trustees met in May 2010 to plan the Trustees’ evaluation of the Advisor’s performance and to specify the information the Advisor would present to the Trustees for their review. The Advisor’s chief investment officer subsequently reviewed portions of the specified information with the Trustees and addressed questions presented by the Trustees at a meeting session scheduled for the purpose, and the independent Trustees thereafter met in independent session to consider the Advisor’s presentation and various specific issues respecting their consideration of the advisory agreement’s renewal. Following these sessions, the Trustees met to consider a renewal of the agreement, and the independent Trustees unanimously voted at that meeting to renew the agreement for an additional term of one year.
The information below summarizes certain factors considered by the Trustees in connection with the determination to renew the advisory agreement. In determining to renew the agreement, the Trustees did not identify any single factor as controlling, and this summary does not describe all of the matters considered by the Trustees in making their determination.
Quality of Services; Fund Investment Performance. The Trustees evaluated the nature, extent and quality of services provided by the Advisor under the advisory agreement, and evaluated the investment performance of the Fund.
50 Certified Annual Report
OTHER INFORMATION, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 (Unaudited) |
In connection with their general supervision of the Advisor, and as an important element of their annual consideration of a renewal of the advisory agreement, the Trustees received and considered reports from the Advisor throughout the year. These reports addressed a wide variety of topics, including particularly the Advisor’s services to the Fund and its selection of investments and pursuit of the Fund’s investment objectives. In addition, the Trustees considered the information specifically provided to them at their request in anticipation of their annual evaluation of the Advisor’s services, including (i) the Advisor’s commentary on the Fund’s performance, in the context of business, market and economic conditions, (ii) the Fund’s absolute investment performance and achievement of stated objectives, including dividend growth data, (iii) measures of the Fund’s investment performance over different periods of time relative to a “world allocation” category of mutual funds having income and capital appreciation objectives, selected by an independent mutual fund analyst firm, relative to the Standard & Poor’s 500 Index, and relative to a blended performance benchmark comprised of two broad-based securities indices, and (iv) comparative measures of portfolio volatility, risk and return. The Trustees considered the effects of recent market and economic events on the Fund and the Advisor’s responses to those events, and evaluated the Advisor’s continued adherence to the Fund’s stated investment policies.
The Trustees also considered their perceptions of portfolio management personnel developed in formal and informal meetings throughout the year, the Advisor’s staffing and other resources, trade execution, the Advisor’s performance of accounting and other services, the Advisor’s observance of compliance and regulatory requirements, the Advisor’s responsiveness to the Trustees, and other factors.
In evaluating quantitative and performance data presented, the Trustees noted (among other aspects of the data) that the Fund’s investment return for calendar year 2009 significantly exceeded the returns for the Fund’s blended benchmark, the S&P 500 and the world allocation mutual fund category, that the Fund’s returns exceeded the returns of the blended benchmark and the fund category in five of the six preceding calendar years, and exceeded the returns of the S&P 500 in each of the six preceding calendar years. The quantitative information presented also demonstrated to the Trustees that the Fund’s returns fell at or near the median of the fund category for the three-month and three-year periods ended with the second quarter of the current year, fell within or near the top quartile of the category for the year-to-date and five year periods, and fell within the top decile of the category for the one-year period. The Trustees considered the increasing levels of the Fund’s quarterly dividend payments since the Fund’s inception together with the annual increase in the Fund’s dividend in each year, and further considered the Fund’s higher historical cumulative return (net of expenses) relative to the Fund’s blended benchmark since the Fund’s inception.
The Trustees concluded, based upon these and other considerations, that the nature, extent and quality of the Advisor’s services were sufficient and that the Advisor had satisfactorily pursued the Fund’s stated investment objectives. The Trustees further concluded that the investment performance of the Fund was satisfactory in the context of the Fund’s objectives and policies, and prevailing market conditions.
Fees and Expenses; Profitability of Advisor; Economies of Scale; Ancillary Benefits to Advisor. The Trustees evaluated the level of the management fee charged by the Advisor to the Fund, and in this connection, reviewed the profitability of the Advisor, economies of scale potentially available to the Fund and whether the Advisor had received any ancillary benefits from its relationship with the Fund.
In evaluating the level of the management fee, the Trustees considered the fee charged by the Advisor and the other expenses charged to the Fund in light of the nature and quality of services provided, comparison of the actual Advisor’s fee and Fund expenses to the statement of fees and expenses in the Fund’s prospectuses, and comparisons of the Advisor’s fee and other Fund expenses to median and average fees and expenses charged to a group of equity income mutual funds assembled by an independent mutual fund analyst firm. The Trustees observed that the overall expense ratio of the Fund was somewhat higher than the median and average expense ratios for the group of equity income mutual funds selected by the fund analyst firm, that the management fee was somewhat higher than the median and average fee rates for the same group of equity income mutual funds, and that the differences were not significant in view of their degree and the other factors considered. The Trustees considered information about the fees charged by the Advisor to other investment management clients, together with information about fees charged by other advisors to different clients, and analysis of the differences between the requirements of institutional clients and mutual funds and the consequently different investment management services rendered, respectively, to institutional clients and mutual funds. The Trustees confirmed their previous observations that the differences between the fees charged by the Advisor to different types of clients did not appear exceptional, and observed that the fee rates charged by investment advisors to institutional clients had limited relevance to the evaluation of fee rates charged to mutual funds, because of the significant differences between the respective requirements of institutional clients and mutual funds, the differences between the respective services rendered to institutional clients and mutual funds, and the different circumstances in which the respective fees originate.
Certified Annual Report 51
OTHER INFORMATION, CONTINUED | ||
Thornburg Investment Income Builder Fund | September 30, 2010 (Unaudited) |
In reviewing the profitability of the Advisor, the Trustees considered data comparing the profitability of the Advisor to other investment management firms, and considered information from the Advisor respecting the effects of recent economic events on the Advisor and the Advisor’s responses to those events. The information provided did not indicate that the Advisor’s profitability was unusual, and the Trustees noted the adequacy of the Advisor’s resources and service capabilities. In reviewing the extent to which economies of scale would be realized by the Fund as it grows and whether fee levels reflect economies of scale, the Trustees considered the breakpoint structure for advisory fees chargeable to the Fund, the demonstrated economies of scale enjoyed by the Fund and other Funds of the Trust as they had grown in size, and economies of scale realized by other mutual funds. The information provided demonstrated to the Trustees that the Fund has realized economies of scale and may reasonably be expected to realize economies of scale as the Fund grows in size, due to the breakpoint fee structure of the advisory agreement and other factors. In reviewing potential benefits to the Advisor because of its relationship to the Fund, the Trustees considered the Advisor’s receipt of certain research services from broker dealers, and the benefits to both the Fund and the Advisor of the Advisor’s expansion of its staffing, compliance and systems capabilities and other resources to serve a broader variety of investment management clients. No unusual or unfair benefits to the Advisor from its relationship to the Fund were identified by the Trustees.
The Trustees concluded, based upon their consideration of these and other factors, that the management fee charged to the Fund by the Advisor was fair and reasonable in view of the nature, extent and quality of the services provided by the Advisor, the clear disclosure of fees and expenses in the Fund’s prospectuses, the investment performance of the Fund, and comparisons of fees and expenses charged to the Fund to fees and expenses charged to other mutual funds.
52 Certified Annual Report
Trustees’ Statement to Shareholders
Not part of the Certified Annual Report
February 8, 2005, as readopted September 13, 2010
The Trustees are concerned that ongoing commentaries and opinions reported in the media may confuse investors in general as to the supervisory duties of trustees of mutual funds and, in particular, leave Thornburg Investment Trust shareholders uncertain regarding how we discharge our responsibilities in supervising the Funds’ investment advisor and in reviewing the advisor’s contract for renewal. We decided to spell out clearly three principal guidelines that we follow in supervising the Trust’s investment advisor on your behalf.
We begin with the premise that each shareholder selected his or her Fund because its investments are managed by the investment advisor identified in the prospectus and in accordance with the objective and policies described in the prospectus. We realize, as each of you do, that if you believe that your Fund’s stated objective and policies no longer serve your personal investment goals, you can sell your shares and leave the Fund.
Therefore, we believe that our primary supervisory task – our principal obligation to you – is to assess the nature and quality of the advisor’s services, and to confirm that the advisor actively and competently pursues the Fund’s objective, in accordance with the policies set out in the prospectus. To do this, we meet regularly with management to review your Fund’s portfolio and to discuss the advisor’s specific actions and judgments in pursuing the Fund’s objective. We do not substitute our own judgment for the advisor’s decisions in selecting investments; the advisor is paid to exercise its informed judgment on investment decisions, and we seek to confirm, in reviewing the advisor’s performance, that the advisor is doing just that.
Second, while we are conscious of costs and the effect that costs have on shareholders’ returns, we do not seek the lowest fees or expense ratio as our sole or primary objective. We try to make sure that your Fund’s fees and costs are reasonable in relationship to the services rendered and that they are generally in line with those charged by other expert investment advisors, consistent with our belief that the Fund’s investors searched for and expect that expertise and attention and have decided to pay a reasonable price for it. We do not put the management contract “out to bid” as a matter of course, and we would not do so unless we had concluded that the advisor materially had failed to pursue the Fund’s objectives in accordance with its policies, or for other equally important reasons. We believe that any other approach would be inconsistent with your interests and contrary to your expectations when you bought shares of the Fund in the first place.
Finally, because we believe that most Thornburg Fund shareholders have invested with a long-term perspective, we try not to focus too much on the fashions of the moment and on short-term performance. The market will not favor any specific investment objective or set of policies at all times and under all economic circumstances. A fund will experience periods of both high and low returns relative to other funds and other investments. Even if one of our Funds is not favored by the market at a particular time, we believe that the advisor is nonetheless obliged to remain true to the Fund’s objective and policies, and we watch to see that it does so.
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Retirement and Education Accounts
Thornburg Investment Management offers retirement and education savings accounts that can help you meet a variety of planning challenges. For account applications or further information on any of the accounts below, please call 1-800-847-0200 or go to www.thornburg.com/ira. Your financial advisor can help you determine which plan is right for you.
Individual Retirement Accounts
Individual Retirement Accounts (IRAs) provide a tax-advantaged means to save money for the future. For a detailed outline of the difference between retirement accounts, see www.thornburg.com/ira. Rollovers are available. Call 1-800-847-0200 for more information.
Traditional IRAs – Contributions to Traditional IRAs are tax deductible for eligible individuals, and withdrawals are taxed as additional ordinary income. You may contribute to an IRA if you receive compensation and are under 70 1/2, even if you are covered by an employer retirement plan. Deductible contributions are subject to certain qualifications. Please consult your tax advisor.
Roth IRAs – Under a Roth IRA, there is no tax deduction for contributions, but there is no income tax on qualified withdrawals. For a more detailed comparison of Traditional and Roth IRAs, please see our web site at www.thornburg.com/ira.
SEP IRAs – Simplified Employee Pension (SEP) IRAs are established by employers. The employer is allowed a tax deduction for contributions made to the SEP Plan and makes contributions to each eligible employee’s SEP IRA on a discretionary basis.
SIMPLE IRAs – Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) is designed to give small business owners a simplified method to establish and contribute to a retirement plan for employees. The employer is allowed a tax deduction for contributions and makes either matching or non-elective contributions to each eligible employee’s SIMPLE IRA. Employees may make salary deferral contributions.
Coverdell Education Savings Account
These savings accounts are designed to provide a way to save money for higher education expenses. In an Education Savings Account, earnings and interest grow tax-free, and qualified withdrawals used to pay for eligible higher-education expenses are tax- and penalty-free.
Funds Available
The following funds are available in the accounts listed above:
• | Thornburg International Value Fund |
• | Thornburg Value Fund |
• | Thornburg Core Growth Fund |
• | Thornburg Investment Income Builder Fund |
• | Thornburg Global Opportunities Fund |
• | Thornburg International Growth Fund |
• | Thornburg Developing World Fund |
• | Thornburg Limited Term U.S. Government Fund |
• | Thornburg Limited Term Income Fund |
• | Thornburg Strategic Income Fund |
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[
Thornburg Equity Funds
Thornburg’s equity research uses a fundamental and comprehensive analytical approach. Thornburg equity funds focus on a limited number of securities so that each holding can impact performance. The equity team searches for firms believed to have a promising future and seeks to buy shares of those companies at a discount to their intrinsic value.
• | Thornburg Value Fund |
• | Thornburg International Value Fund |
• | Thornburg Core Growth Fund |
• | Thornburg Investment Income Builder Fund |
• | Thornburg Global Opportunities Fund |
• | Thornburg International Growth Fund |
• | Thornburg Developing World Fund |
Thornburg Bond Funds
Thornburg Investment Management applies a disciplined philosophy to fixed-income management. Since the launch of our first fixed-income fund over 25 years ago, we have been conducting fundamental, bottom-up research in an effort to identify bonds which we believe provide the best return for a given level of risk. We are very organic in our approach, avoiding leverage or complex strategies which could backfire in periods of market uncertainty.
• | Thornburg Limited Term Municipal Fund |
• | Thornburg Intermediate Municipal Fund |
• | Thornburg California Limited Term Municipal Fund |
• | Thornburg New Mexico Intermediate Municipal Fund |
• | Thornburg New York Intermediate Municipal Fund |
• | Thornburg Strategic Municipal Income Fund |
• | Thornburg Limited Term U.S. Government Fund |
• | Thornburg Limited Term Income Fund |
• | Thornburg Strategic Income Fund |
Before investing, carefully consider the Fund’s investment goals, risks, charges, and expenses. For a prospectus containing this and other information, contact your financial advisor or visit thornburg. com. Read it carefully before investing.
For additional information, please visit www.thornburg.com
Thornburg Investment Management, Inc. 2300 North Ridgetop Road, Santa Fe, NM 87506
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This Annual Report is submitted for the general information of shareholders of the Fund. It is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. | By switching from your postal mailbox to your email inbox, you reduce paper clutter, improve record keeping access, and help conserve our natural resources. | |||||
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Thornburg Investment Management®
800.847.0200 | ||||||
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Thornburg Securities Corporation® 800.847.0200 | You invest in the future, without spending a dime. | |||||
TH857 |
Your Thornburg Strategic Municipal Income Fund is a portfolio of over 132 municipal obligations from 33 states and territories. The Class A shares of your Fund produced a total return of 8.20% at NAV over the fiscal year ended September 30, 2010, compared to 5.73% for the BofA Merrill Lynch Municipal Master Index. The Fund’s overweight to out-of-favor sectors, such as the revenue and insured sectors, along with an overweight to securities priced at a discount to par and those with lower credit quality accounted for most of the performance differential. We plan to continue to search for out-of-favor opportunities in the municipal market, using our fundamental, bottom-up approach to portfolio management.
Important Information
The information presented on the following pages is current as of September 30, 2010. The managers’ views, portfolio holdings, and sector diversification are provided for the general information of the Fund’s shareholders; they are historical and subject to change. This material should not be deemed a recommendation to buy or sell any of the securities mentioned.
Investments in the Fund carry risks, including possible loss of principal. Bond funds have the same interest rate, inflation, and credit risks that are associated with the underlying bonds. The principal value of bonds will fluctuate relative to changes in interest rates, decreasing when interest rates rise. This effect is more pronounced for longer-term bonds. Unlike bonds, bond funds have ongoing fees and expenses. Investments in lower-rated and unrated bonds may be more sensitive to default, downgrades, and market volatility; these investments may also be less liquid than higher-rated bonds. Investments in derivatives are subject to the risks associated with the securities or other assets underlying the pool of securities, including illiquidity and difficulty in valuation. 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 deposits of or guaranteed by a bank or any other entity. There is no guarantee that the Fund will meet its investment objectives.
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.
Performance data given at net asset value (NAV) does not take into account applicable sales charges. If the sales charges had been included, the performance would have been lower. Minimum investments for Class I shares are higher than those for other classes. Class I shares may not be available to all investors.
Share Class | NASDAQ Symbol | Cusip | ||
Class A | TSSAX | 885-216-101 | ||
Class C | TSSCX | 885-216-200 | ||
Class I | TSSIX | 885-216-309 |
Glossary
BofA Merrill Lynch Municipal Master Index – This index tracks the performance of the investment-grade U.S. tax-exempt bond market. Qualifying bonds must have at least one year remaining term to maturity, a fixed coupon schedule, and an investment grade rating (based on average of Moody’s, S&P, and Fitch).
BofA Merrill Lynch 3-15 Year U.S. Municipal Securities Index – A model portfolio of municipal obligations throughout the U.S., with an average maturity ranging from three to fifteen years.
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.
Alternative Minimum Tax (AMT) – A federal tax aimed at ensuring that high-income individuals, estates, trusts, and corporations pay a minimal level income tax. For individuals, the AMT is calculated by adding tax preference items to regular taxable income.
Annualized Distribution Yield – The distribution yield is calculated by taking the sum of the month’s total distribution factors and dividing this sum by a 30-day period and annualizing to a 360-day year. The value is then divided by the ending maximum offering price per share to arrive at the annualized distribution yield. The yield is calculated on a periodic basis and is subject to change.
Basis Point (BPS) – A unit equal to 1/100th of 1%. 1% = 100 basis points (bps)
Bond Credit Ratings – A bond credit rating assesses the financial ability of a debt issuer to make timely payments of principal and interest. Ratings of AAA (the highest), AA, A, and BBB are investment grade quality. Ratings of BB, B, CCC, CC, C, and D (the lowest) are considered below investment grade, speculative grade, or junk bonds. Unless otherwise noted, the ratings listed are from Municipal Market Data and are a combination of ratings from Standard and Poor’s, Moody’s Investors Service, and Fitch Ratings.
Effective Duration – A bond’s sensitivity to interest rates, incorporating the embedded option features, such as call provisions. Bonds with longer durations experience greater price volatility than bonds with shorter durations.
Fed Funds Rate – The interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight.
General Obligation (GO) Bonds – A municipal bond secured by the pledge of the issuer’s full faith, credit, and taxing power rather than the revenue from a given project.
Insured Bond – A bond with interest and principal payments insured by a third party. Insured bonds are usually found as a feature of municipal bonds; they are purchased, underwritten and repackaged by a financial guarantee company who then sells the issue to investors.
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Important Information, Continued
Revenue Bond – A bond on which the debt service is payable solely from the revenue generated from the operation of the project being financed or a category of facilities, or from other non-tax sources.
Pre-Refunded Bond – A type of municipal bond that has been escrowed or collateralized either by direct obligations guaranteed by the U.S. government, or by other types of securities. The escrow account is structured so that these refunded bonds are to be called at the first possible call date. Such bonds, if escrowed with securities guaranteed by the U.S. government, have little if any credit risk.
SEC Yield – SEC Yield is computed in accordance with SEC standards measuring the net investment income per share over a specified 30-day period expressed as a percentage of the maximum offering price of the Fund’s shares at the end of the period.
Treasury Inflation Protected Securities (TIPS) – Either a U.S. Treasury note or bond that offers protection from the effects of inflation. Using the Consumer Price Index as a guide, the value of the principal is adjusted to reflect the effects of inflation. A fixed interest rate is paid semi-annually on the adjusted amount. At maturity, if inflation has increased the value of the principal, the investor receives the higher value. If deflation has decreased the value, the investor receives the original face amount of the security.
4 This page is not part of the Annual Report.
Thornburg Strategic Municipal Income Fund
September 30, 2010
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This report is certified under the Sarbanes-Oxley Act of 2002, which requires that public companies, including mutual funds, affirm that the information provided in their annual and semiannual shareholder reports fully and fairly represents their financial position.
Certified Annual Report 5
George Strickland Co-Portfolio Manager
Josh Gonze Co-Portfolio Manager
Christopher Ryon, CFA Co-Portfolio Manager | October 11, 2010
Dear Fellow Shareholder:
We are pleased to present the annual report for the Thornburg Strategic Municipal Income Fund. The net asset value (NAV) of the Class A shares increased by 36 cents to $14.22 per share during the fiscal year ended September 30, 2010. If you were with us for the entire period, you received dividends of 61.4 cents per share. If you reinvested your dividends, you received 62.7 cents per share. Dividends per share were lower for Class C shares and higher for Class I shares to account for varying class-specific expenses.
Your Thornburg Strategic Municipal Income Fund is a portfolio of over 132 municipal obligations from 33 states and territories. The Class A shares of your Fund produced a total return of 8.20% at NAV over the fiscal year ended September 30, 2010, compared to 5.73% for the BofA Merrill Lynch Municipal Master Index. The Fund’s overweight to out-of-favor sectors, such as the revenue and insured sectors, along with an overweight to securities priced at a discount to par and those with lower credit quality accounted for most of the performance differential. We plan to continue to search for out-of-favor opportunities in the municipal market, using our fundamental, bottom-up approach to portfolio management.
The Economy and the Federal Reserve
On September 20, 2010, the National Bureau of Economic Research (NBER) announced that the recession ended in June 2009. The 9.6% of the American work force currently unemployed may beg to differ with this evaluation. The duration of the recession was 18 months, making it the longest recession since World War II.
The economic picture has been largely unchanged during the fiscal year. The economy is suffering from a high degree of slack in the utilization of its productive resources. Banks are not lending even though the Federal Reserve (Fed) has pumped considerable amounts of money into the economy. Inflation and inflation expectations are quite muted. Gross Domestic Product (GDP), a measure of a country’s overall economic output, recorded a 1.6% increase in the quarter ended June 30, 2010, much higher than the negative 6.8% decrease posted in the quarter ended December 31, 2009, but lower than the long-term average growth rate experienced since 1973 of 2.7%. Capacity utilization, a measure of an economy’s usage of its productive resources, is running around 74.7%, well off the series low of 68.3% recorded in June of 2009 but below its long-term average of 81%. The Fed, seeking to bolster aggregate demand for goods and services, has pumped a tremendous amount of money into the economy. M2, a broad measure of money and money substitutes, has grown 15.9% since the beginning of 2008. But the velocity of M2, a measure of the rate at which money in circulation is used in transactions, is falling. Whether lending institutions are not lending or small and midsize businesses are not borrowing, the result is the same. Commercial and industrial loans and leases (loans to corporations, commercial enterprises, or joint ventures) have decreased 15.2% since January of 2008. Small and midsized busi- |
6 Certified Annual Report
nesses, normally the engines of economic growth, are being starved of needed capital. Now let’s look at one measure of inflation, the Consumer Price Index (CPI). The year-over-year change in headline CPI has been running between 1.1% and 1.2% for the last three months. Core CPI (headline CPI less the food and energy components) has been running at 0.9% for the last four months. The market’s expectations of future inflation as measured by the inflation expectations used in the pricing of Treasury Inflation Protected Securities (TIPS) with five years to maturity has been running around the 1.4% rate. So inflation, the bane of fixed income investors, has been low and the market expects it to remain low.
The Federal Open Market Committee (FOMC) maintained a very accommodative stance toward monetary policy by keeping the Fed Funds rate effectively at 0% throughout the fiscal year. In addition to keeping the Fed Funds rate low, central banks around the world engaged in a policy known as “quantitative easing,” buying back bonds and other assets to boost demand and fight off deflation. The Fed bought $1.7 trillion in bonds to accomplish this goal. As these assets mature, the market is wondering what the Fed will do with the proceeds – buy more bonds (and what type of bonds?) or return the money to the Treasury. In their September 21, 2010 release the FOMC stated, “The Committee also will maintain their existing policy of reinvesting principal payments for their securities holdings.” So the Fed’s accommodative monetary policy will remain unchanged “for an extended period.”
As we look forward over the next 6–12 months, we believe the Fed will keep short-term interest rates low and the market will keep the slope of the yield curve (difference between long-term and short-term interest rates) steep. Of course if we see signs of an increase in economic activity, we will reevaluate this position. The next move by the Fed, in terms of short-term interest rates, would seem to be an increase, easy to say when short-term interest rates have reached the lower limit of zero.
The Municipal Market
| CHART 1: CHANGES IN AAA GENERAL OBLIGATION BOND YIELDS 10/1/2009 – 9/30/2010
| |
The municipal market has performed very well over the fiscal year. The reasons for this performance are as follows: assets have continued to flow out of municipal money market funds and into municipal bond funds (primarily short-term municipal bond funds), investors’ appetite for risk assets has been whetted after their performance in 2009, and finally, anticipation of increased taxes has added to the allure of municipal bonds. Yields on the benchmark AAA general obligation bond have decreased during the fiscal year, but not uniformly for all maturities. Chart I illustrates these changes for maturities from 1 to 30 years. |
Yields decreased anywhere from 0.12% (12 basis points) to 0.40% (40 basis points) depending on maturity. Notice that, in general, shorter maturities decreased in yield more than longer term maturities. This situation was caused by the in-flow of assets into short-term municipal bond funds from municipal money market funds.
Not only have the general level of interest rates decreased over the past 12 months, but market participants have become less fearful when it comes to pricing credit risk. To illustrate this point, we will introduce the concept of “implied default rates.” The implied default rate is derived from current market prices for bonds of various credit categories (assuming different recovery
Certified Annual Report. 7
Letter to Shareholders, | ||
Continued |
rates) compared to a “default free” bond’s price. The implied default rate of all investment grade bonds with ten years of maturity for the BofA Merrill Lynch 3–15 Year U.S. Municipal Securities Index on September 30, 2009, as we calculated it, was 10.7% assuming a recovery rate of 60%. On August 31, 2010, the same implied default rate was 8.1%, a marked decrease from the beginning of the year. These implied default rates are well in excess of the historic default rates for investment grade municipal bonds, as calculated by Standard and Poor’s, of 0.09%.
As investors, we have been inundated with news reports concerning the impending disaster awaiting the municipal bond market due to the poor financial condition of state and local governments. We would like to borrow a concept from Mark Twain: “The reports of my death have been greatly exaggerated.” The reported demise of state and local government finances are, in our opinion, overblown. We are not being a “Pollyanna;” there is a great deal of fiscal stress in the market and investors can find cases that illustrate fiscal mismanagement, like the State of Illinois. But the municipal market is not monolithic; it is made up of more than just state and local government general obligation bonds. The BofA Merrill Lynch Municipal Master Index is made up of 39% revenue bonds, 10% pre-refunded bonds, with the remainder being either general obligation bonds or insured bonds. The Rockefeller Institute of Government reported on August 30, 2010, “State tax revenues are slowly rebounding.” State revenue growth posted a second quarter of positive growth (off of a very low base), compared to the same quarter a year ago of 2.2%. This increase was led mostly by increases in sales tax revenues (approx. 6%), although personal income taxes were also positive (approx. 1.6%). Budget gaps for fiscal year 2011 total $121 billion, or 19% of budgets in 46 states. Most of these gaps were filled with spending reductions, revenue increases, and increased aid from the federal government. Underfunded pension liabilities have been in the headlines. The Pew Center on the States reported in February 2010, “In aggregate, states’ systems were 84 percent funded – a relatively positive outcome, because most experts advise at least an 80 percent funding level.” There are some states that are worse off than others. Two states had less than 60 percent of the necessary assets on hand to meet their long-term pension obligations: Illinois and Kansas. Illinois was in the worst shape of any state, with a funding level of 54 percent and an unfunded liability of more than $54 billion. On the brighter side, Florida, New York, Washington, and Wisconsin have fully funded pension systems.
A Word about Municipal Bond Market Risk
The combination of a very accommodative Fed (Federal Funds rate near zero) and the continued disintermediation of assets out of municipal money market funds into municipal bond funds (mostly short-term municipal bond funds) has increased the interest rate risk in the municipal bond market. On December 31, 2008, municipal money market funds totaled almost $495 billion (50% of the combined municipal bond and money market fund total). By December 31, 2009, municipal money market funds totaled almost $401 billion (41% of the combined total). Today approximately $350 billion of investor’s assets remain in municipal money market funds or almost 36% of the combined municipal money market and bond fund assets. The reason for this exodus is quite simple: investors do not like to earn close to 0% on their invested funds no matter how “safe” they are. Although we do not anticipate much change in interest rates for the next 6–12 months, the next move in all likelihood will be to the upside. This means that investors should be ready for some capital losses in the future. The trade-off between the extra income earned in a
8 Certified Annual Report
bond fund and the expected capital loss can be mitigated by establishing an appropriate holding period for the investment. We believe that investors in the Strategic Municipal Income Fund should plan to own the Fund for at least three years in order to decrease the chance that fluctuations in net asset value might overwhelm the income component of their total return.
Thank you for investing in the Thornburg Strategic Municipal Income Fund.
Sincerely,
![]() | ![]() | ![]() | ||
George Strickland Co-Portfolio Manager Managing Director | Josh Gonze Co-Portfolio Manager Managing Director | Christopher Ryon, CFA Co-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 1995. 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.
Certified Annual Report. 9
SCHEDULE OF INVESTMENTS | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 |
We have used ratings from Standard & Poor’s (S&P). Where S&P ratings are not available, we have used Moody’s Investors Service. Where neither rating is available, we have used ratings from Fitch Ratings. The category of investments identified as “AAA” in this graph includes investments which are pre-refunded or escrowed to maturity. Such investments are backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities to satisfy the timely payment of principal and interest and, therefore, are normally deemed to be equivalent to AAA-rated securities.
Issuer-Description | Credit Rating† S&P/ Moody’s | Principal Amount | Value | |||||||||
ARIZONA — 1.38% | ||||||||||||
Maricopa County PCR, 6.00% due 5/1/2029 put 5/1/2014 (Arizona Public Service Co.) | BBB-/Baa2 | $ | 500,000 | $ | 540,435 | |||||||
Salt Verde Financial Corp. Gas Revenue, 5.25% due 12/1/2028 | A/A3 | 235,000 | 234,708 | |||||||||
University Medical Center Corp., 6.25% due 7/1/2029 | BBB+/Baa1 | 100,000 | 109,283 | |||||||||
aUniversity Medical Center Corp., 6.50% due 7/1/2039 | BBB+/Baa1 | 275,000 | 299,654 | |||||||||
CALIFORNIA — 19.80% | ||||||||||||
California Financial Authority Revenue, 8.50% due 11/1/2039 (Harbor Regulation Control) | NR/Baa1 | 1,000,000 | 1,082,030 | |||||||||
California HFA, 0% due 8/1/2029 (Insured: AMBAC/FHA/VA) | A/A3 | 1,605,000 | 557,737 | |||||||||
California State Public Works Board, 6.25% due 4/1/2034 | BBB+/A2 | 100,000 | 108,356 | |||||||||
California Statewide Communities Development Authority, 6.125% due 7/1/2046 (Aspire Public Schools) | NR/NR | 1,000,000 | 1,018,340 | |||||||||
Calipatria Unified School District, 0% due 8/1/2025 (Capital Appreciation—Election 1995; Insured: ACA) | NR/NR | 2,425,000 | 857,650 | |||||||||
Carson Redevelopment Agency Tax Allocation, 7.00% due 10/1/2036 (Project Area 1) | A-/NR | 500,000 | 571,395 | |||||||||
Chico Redevelopment Agency, 5.00% due 4/1/2030 (Chico Amended & Merged Redevelopment; Insured: AMBAC) | A+/NR | 1,000,000 | 998,760 | |||||||||
Daly County Housing Development Finance Agency, 5.25% due 12/15/2023 (Franciscan | ||||||||||||
Mobile Park) | A-/NR | 650,000 | 651,105 | |||||||||
Irvine Ranch Water District GO, 0.25% due 10/1/2041 put 10/1/2010 (Community Facilities District; LOC: Bank of America) (daily demand notes) | A+/Aa3 | 1,800,000 | 1,800,000 | |||||||||
Lee Lake Water District, 5.875% due 9/1/2027 | NR/NR | 500,000 | 474,565 | |||||||||
Los Angeles COP, 5.70% due 2/1/2018 | NR/Baa2 | 750,000 | 750,667 | |||||||||
Los Angeles Department of Water & Power, 0.25% due 7/1/2034 put 10/1/2010 (SPA: Bank of America N.A.) (daily demand notes) | AA-/Aa3 | 2,600,000 | 2,600,000 | |||||||||
M-S-R Energy Authority, 6.50% due 11/1/2039 | A/NR | 1,000,000 | 1,158,770 | |||||||||
Merced Redevelopment Agency Tax Allocation, 6.50% due 9/1/2039 (Merced Gateways Redevelopment) | A-/NR | 300,000 | 316,152 | |||||||||
Oak Park Unified School District GO, 0% due 8/1/2030 (Insured: AGM) | AAA/Aa3 | 500,000 | 163,350 | |||||||||
Pittsburg Redevelopment Agency Tax Allocation, 0% due 8/1/2027 (Los Medanos Community Development; Insured: AMBAC) | A+/NR | 720,000 | 252,569 | |||||||||
Redwood City Redevelopment Agency Tax Allocation, 0% due 7/15/2021 (Redevelopment Project Area 2; Insured: AMBAC) | A-/NR | 1,285,000 | 727,785 | |||||||||
Riverside County Asset Leasing Corp., 0% due 6/1/2021 (Riverside County Hospital; Insured: Natl-Re) | A/A1 | 435,000 | 248,194 | |||||||||
San Diego Unified School District, 0% due 7/1/2035 (Election 2008) | AA/Aa1 | 1,700,000 | 409,904 | |||||||||
San Francisco City & County Redevelopment Financing Authority Tax Allocation, 0% due 8/1/2023 (Redevelopment Project; Insured: Natl-Re) | A/A1 | 825,000 | 407,715 |
10 Certified Annual Report
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 |
��
Issuer-Description | Credit Rating† S&P/ Moody’s | Principal Amount | Value | |||||||
San Francisco City & County Redevelopment Financing Authority Tax Allocation, 6.50% due 8/1/2039 (Mission Bay North Redevelopment) | A-/NR | $ | 250,000 | $ | 275,000 | |||||
San Jose Redevelopment Agency Tax, 5.50% due 8/1/2035 (Merged Area Redevelopment) | A/A1 | 1,000,000 | 1,032,910 | |||||||
Sonoma County Community Redevelopment Agency Tax Allocation, 6.50% due 8/1/2034 (The Springs Redevelopment; Insured: AGM) | AAA/NR | 100,000 | 106,110 | |||||||
Union Elementary School District, 0% due 9/1/2027 (Capital Appreciation—Election 1999; Insured: Natl-Re) | AA+/NR | 905,000 | 369,204 | |||||||
COLORADO — 7.43% | ||||||||||
Colorado Educational & Cultural Facilities Authority, 5.25% due 8/15/2019 (Peak to Peak Charter School; Insured: Syncora) | A/NR | 1,600,000 | 1,685,392 | |||||||
Denver Convention Center, 5.125% due 12/1/2026 (Insured: Syncora) | BBB-/Baa3 | 1,000,000 | 974,720 | |||||||
Denver Convention Center, 5.00% due 12/1/2030 (Insured: Syncora) | BBB-/Baa3 | 250,000 | 232,558 | |||||||
Denver Convention Center, 5.00% due 12/1/2035 (Insured: Syncora) | BBB-/Baa3 | 350,000 | 316,141 | |||||||
Eagle Bend Metropolitan District GO, 5.00% due 12/1/2020 (Insured: Radian) | A-/NR | 1,100,000 | 1,132,208 | |||||||
Eagle River Fire District, 6.625% due 12/1/2024 | NR/NR | 225,000 | 238,558 | |||||||
Eagle River Fire District, 6.875% due 12/1/2030 | NR/NR | 400,000 | 413,820 | |||||||
Pinery West Metropolitan District No. 2, 4.50% due 12/1/2032 | NR/NR | 500,000 | 391,720 | |||||||
Public Authority for Colorado Energy, 5.75% due 11/15/2018 (Natural Gas Purchase Revenue; Guaranty: BofA Merrill Lynch & Co.) | A/A2 | 625,000 | 673,625 | |||||||
Public Authority for Colorado Energy, 6.50% due 11/15/2038 (Natural Gas Purchase Revenue; Guaranty: BofA Merrill Lynch & Co.) | A/A2 | 250,000 | 299,410 | |||||||
CONNECTICUT — 1.18% | ||||||||||
Connecticut Health & Educational Facilities Authority, 6.00% due 7/1/2039 (Ethel Walker School) | BBB-/NR | 1,000,000 | 1,012,100 | |||||||
DISTRICT OF COLUMBIA — 0.72% | ||||||||||
Metropolitan Washington Airports Authority, 0% due 10/1/2027 (Dulles Toll Road; Insured: AGM) | AAA/Aa3 | 1,500,000 | 619,410 | |||||||
FLORIDA — 1.92% | ||||||||||
Capital Trust Agency MFR, 5.875% due 6/1/2038 (American Opportunity Housing) | NR/B3 | 380,000 | 153,064 | |||||||
Hollywood Community Redevelopment Agency, 5.625% due 3/1/2024 | NR/A3 | 340,000 | 349,813 | |||||||
Santa Rosa Bay Bridge Authority, 0% due 7/1/2013 (Insured: Radian) | NR/NR | 100,000 | 50,897 | |||||||
Sarasota County Public Hospital Board, 3.269% due 10/1/2021 (Miles-Sarasota Memorial Hospital; Insured: Natl-Re) | A/A1 | 1,000,000 | 913,720 | |||||||
St. Johns County IDA, 5.625% due 8/1/2034 (Presbyterian Retirement) | NR/NR | 180,000 | 176,855 | |||||||
GEORGIA — 1.74% | ||||||||||
Atlanta Water & Waste Water, 6.25% due 11/1/2034 | A/A1 | 500,000 | 571,460 | |||||||
Main Street Natural Gas, Inc. (Georgia Gas), 5.00% due 3/15/2018 | A+/Aa3 | 515,000 | 544,381 | |||||||
Main Street Natural Gas, Inc. (Georgia Gas), 5.50% due 9/15/2023 | A/A2 | 350,000 | 371,689 | |||||||
GUAM — 2.49% | ||||||||||
Guam Government, 5.75% due 12/1/2034 (Section 30) | BBB-/NR | 500,000 | 525,395 | |||||||
Guam Government Department of Education COP, 6.875% due 12/1/2040 (John F. Kennedy High School) | B/NR | 1,000,000 | 1,021,280 | |||||||
Guam Government GO, 7.00% due 11/15/2039 | B+/NR | 520,000 | 579,160 |
Certified Annual Report 11
SCHEDULE OF INVESTMENTS,, CONTINUED | ||
Thornburg International Value Fund | September 30, 2010 |
Issuer-Description | Credit Rating† S&P/ Moody’s | Principal Amount | Value | |||||||||
HAWAII — 0.35% | ||||||||||||
Hawaii State Department of Budget & Finance, 5.45% due 11/1/2023 (Hawaiian Electric Co.; Insured: Natl-Re) (AMT) | NR/Baa1 | $ | 300,000 | $ | 300,249 | |||||||
IDAHO — 0.21% | ||||||||||||
Madison County Hospital Revenue COP, 5.25% due 9/1/2037 | BBB-/NR | 200,000 | 180,326 | |||||||||
ILLINOIS — 6.13% | ||||||||||||
Broadview Tax Increment Revenue, 5.25% due 7/1/2012 | NR/NR | 515,000 | 515,170 | |||||||||
Chicago Tax Increment, 4.70% due 11/15/2013 (Near South Redevelopment; Insured: AMBAC) | NR/NR | 800,000 | 801,768 | |||||||||
Cook County GO, 5.25% due 11/15/2033 | AA/Aa2 | 1,000,000 | 1,081,540 | |||||||||
Illinois Educational Facilities Authority, 5.625% due 10/1/2022 (Augustana College) | NR/Baa1 | 625,000 | 642,544 | |||||||||
Illinois Finance Authority, 5.75% due 11/15/2037 (OSF Healthcare System) | A/A3 | 330,000 | 339,877 | |||||||||
a Illinois Finance Authority, 6.00% due 5/15/2039 (OSF Healthcare System) | A/A3 | 1,000,000 | 1,061,470 | |||||||||
Sangamon County School District COP, 5.875% due 8/15/2018 (Hay Edwards; Insured: ACA) | NR/NR | 300,000 | 301,215 | |||||||||
Southwestern Illinois Development Authority, 5.50% due 8/15/2020 (Southwestern Illinois Health Facilities) | BBB/Baa2 | 500,000 | 502,720 | |||||||||
INDIANA — 0.11% | ||||||||||||
Indiana Bond Bank, 5.25% due 10/15/2020 (Gas Revenue Program) | NR/Aa3 | 90,000 | 97,492 | |||||||||
KANSAS — 0.84% | ||||||||||||
Wichita Multi-Family Housing, 5.85% due 12/1/2025 (Brentwood Apartments) | B/NR | 895,000 | 714,183 | |||||||||
KENTUCKY — 2.45% | ||||||||||||
Kentucky EDA, 0% due 10/1/2021 (Norton Healthcare, Inc.; Insured: Natl-Re) | A/Baa1 | 365,000 | 209,229 | |||||||||
Kentucky EDA, 0% due 10/1/2022 (Norton Healthcare, Inc.; Insured: Natl-Re) | A/Baa1 | 2,490,000 | 1,338,823 | |||||||||
Owen County Waterworks Systems, 6.25% due 6/1/2039 (American Water Co.) | BBB+/Baa2 | 500,000 | 550,140 | |||||||||
LOUISIANA — 2.57% | ||||||||||||
Louisiana Public Facilities Authority, 5.00% due 7/1/2032 (Black & Gold Facilities; Insured: CIFG) | BBB-/Baa3 | 120,000 | 115,075 | |||||||||
Louisiana Public Facilities Authority, 5.375% due 5/15/2043 (Ochsner Clinic Foundation) | NR/Baa1 | 500,000 | 497,600 | |||||||||
Orleans Parish School Board GO, 0% due 2/1/2015 (Insured: FGIC) | NR/NR | 645,000 | 496,147 | |||||||||
West Feliciana Parish PCR, 6.60% due 9/1/2028 (Entergy Gulf States) | BBB/Baa2 | 1,085,000 | 1,086,487 | |||||||||
MASSACHUSETTS — 3.47% | ||||||||||||
Massachusetts Development Finance Agency, 5.75% due 12/1/2042 put 5/1/2019 (Dominion Energy Brayton) | A-/Baa2 | 200,000 | 221,840 | |||||||||
Massachusetts Educational Financing Authority, 6.00% due 1/1/2028 | AA/NR | 500,000 | 542,805 | |||||||||
Massachusetts Health & Educational Facilities Authority, 0.22% due 8/15/2034 put 10/1/2010 (Tufts University; SPA: Bank of America N.A.) (daily demand notes) | AA-/Aa2 | 800,000 | 800,000 | |||||||||
Massachusetts Health & Educational Facilities Authority, 0.31% due 12/1/2037 put 10/1/2010 | ||||||||||||
(Museum of Fine Arts; SPA: Bank of America N.A.) (daily demand notes) | AA/Aa2 | 1,400,000 | 1,400,000 | |||||||||
MICHIGAN — 9.75% | ||||||||||||
Detroit School District, 5.25% due 5/1/2027 (Insured: AGM) | AAA/Aa2 | 1,000,000 | 1,094,330 | |||||||||
Detroit Sewage Disposal Revenue, 5.25% due 7/1/2020 (Insured: Natl-Re) | A/Aa3 | 1,000,000 | 1,074,490 | |||||||||
Dickinson County Healthcare Systems, 5.80% due 11/1/2024 (Insured: ACA) | NR/NR | 230,000 | 230,778 | |||||||||
Kalamazoo Hospital Finance Authority, 5.00% due 5/15/2036 (Bronson Methodist Hospital) | NR/A2 | 1,000,000 | 987,140 |
12 Certified Annual Report
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 |
Issuer-Description | Credit Rating† S&P/ Moody’s | Principal Amount | Value | |||||||||
Michigan Public Educational Facilities Authority, 8.75% due 9/1/2039 (Bradford Academy) | BBB-/NR | $ | 500,000 | $ | 574,265 | |||||||
Michigan Public School Academy, 8.00% due 8/1/2035 (Will Carleton Charter School) | NR/NR | 1,100,000 | 1,072,082 | |||||||||
Michigan State Hospital Finance Authority, 5.00% due 7/15/2025 (Oakwood Obligated Group) | A/A2 | 650,000 | 658,879 | |||||||||
Michigan State Hospital Finance Authority, 5.75% due 4/1/2032 (Oakwood Obligated Group) | A/A2 | 150,000 | 151,632 | |||||||||
Michigan State Hospital Finance Authority Revenue, 5.75% due 11/15/2039 | A/A1 | 1,000,000 | 1,040,230 | |||||||||
Michigan State Strategic Fund, 5.00% due 8/1/2013 (NSF International) | A-/NR | 300,000 | 317,526 | |||||||||
Michigan State Strategic Fund, 5.25% due 6/1/2018 (Clark Retirement Community) | BBB-/NR | 895,000 | 891,026 | |||||||||
Michigan Strategic Fund, 7.00% due 5/1/2021 (The Detroit Edison Company; Insured: Natl-Re/ AMBAC) | NR/NR | 200,000 | 248,034 | |||||||||
MINNESOTA — 1.00% | ||||||||||||
Dakota County Community Development Agency, 5.00% due 11/1/2022 (Commons on Marice) | NR/NR | 400,000 | 368,852 | |||||||||
St. Paul Housing & Redevelopment Authority, 5.25% due 5/15/2023 (Healthpartners Obligated Group) | BBB+/A3 | 100,000 | 102,967 | |||||||||
Washington County Housing Redevelopment Authority, 5.625% due 6/1/2037 (Birchwood & Woodbury) | NR/NR | 415,000 | 387,349 | |||||||||
MISSOURI — 0.40% | ||||||||||||
Kansas City Tax Increment Financing Commission, 5.00% due 3/1/2012 (Maincor Project) | NR/NR | 340,000 | 343,512 | |||||||||
NEVADA — 0.61% | ||||||||||||
Mesquite Redevelopment Agency Tax Increment Revenue, 7.375% due 6/1/2024 | A-/NR | 500,000 | 525,000 | |||||||||
NEW MEXICO — 0.85% | ||||||||||||
Santa Fe County Charter School Foundation, 6.625% due 1/15/2036 (ATC Foundation) | NR/NR | 485,000 | 466,395 | |||||||||
Santa Fe Educational Facilities, 5.50% due 3/1/2024 (St. Johns College) | NR/NR | 265,000 | 262,019 | |||||||||
NEW YORK — 3.74% | ||||||||||||
New York City GO, 0.31% due 8/1/2028 put 10/1/2010 (SPA: Dexia) (daily demand notes) | AA/Aa2 | 3,200,000 | 3,200,000 | |||||||||
OHIO — 2.81% | ||||||||||||
Cleveland Cuyahoga County Port Authority, 6.25% due 5/15/2016 (LOC: FifthThird Bank) | NR/NR | 490,000 | 501,775 | |||||||||
Ohio State Water Development Authority PCR, 5.875% due 6/1/2033 put 6/1/2016 (FirstEnergy) | BBB-/Baa1 | 500,000 | 559,005 | |||||||||
bOhio State Water Development Authority PCR, 3.375% due 7/1/2033 put 7/1/2015 (FirstEnergy) | BBB-/Baa2 | 1,350,000 | 1,346,719 | |||||||||
OREGON — 1.17% | ||||||||||||
Western Generation Agency, 5.00% due 1/1/2016 (Wauna Cogeneration; Insured: ACA) | NR/NR | 1,000,000 | 1,003,450 | |||||||||
PENNSYLVANIA — 7.25% | ||||||||||||
Allegheny County Industrial Development Authority, 6.75% due 8/15/2035 (Propel Charter School) | BB+/NR | 1,000,000 | 1,018,650 | |||||||||
Allegheny County Redevelopment Authority, 5.10% due 7/1/2014 (Pittsburgh Mills) | NR/NR | 185,000 | 186,833 | |||||||||
aPennsylvania Economic Development Financing Authority, 3.00% due 12/1/2037 put 9/1/2015 (PPL Energy Supply) | BBB/Baa2 | 1,500,000 | 1,512,990 | |||||||||
Pennsylvania EDA, 5.00% due 12/1/2014 (Colver Project; Insured: AMBAC) (AMT) | BBB-/Ba1 | 450,000 | 452,826 | |||||||||
bPennsylvania Housing Finance Agency, 4.75% due 10/1/2025 (AMT) | AA+/Aa2 | 2,000,000 | 1,995,740 | |||||||||
Philadelphia IDA, 6.00% due 8/1/2035 (Mast Charter School) | BBB+/NR | 1,000,000 | 1,033,670 |
Certified Annual Report 13
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 |
Issuer-Description | Credit Rating† | Principal Amount | Value | |||||||
RHODE ISLAND — 0.90% | ||||||||||
Pawtucket Housing Authority Capital Funds Housing Revenue, 5.50% due 9/1/2022 | AA/NR | $ | 315,000 | $ | 366,266 | |||||
Pawtucket Housing Authority Capital Funds Housing Revenue, 5.50% due 9/1/2024 | AA/NR | 350,000 | 402,532 | |||||||
SOUTH DAKOTA — 0.91% | ||||||||||
South Dakota Health & Educational Facilities Authority, 5.50% due 11/1/2040 (Sanford Health) | AA-/A1 | 750,000 | 782,085 | |||||||
TENNESSEE — 0.73% | ||||||||||
Tennessee Energy Acquisition Corp., 5.00% due 2/1/2015 | A/Baa1 | 100,000 | 106,687 | |||||||
Tennessee Energy Acquisition Corp., 5.25% due 9/1/2024 | BB+/Ba3 | 500,000 | 519,540 | |||||||
TEXAS — 11.34% | ||||||||||
Austin Convention Enterprises, Inc., 5.25% due 1/1/2024 (Austin Convention Center; Insured: Syncora) | BB+/Ba1 | 720,000 | 669,802 | |||||||
Austin Convention Enterprises, Inc., 5.00% due 1/1/2034 (Austin Convention Center; Insured: Syncora) | BB+/Ba1 | 615,000 | 520,677 | |||||||
Bexar County Housing Finance Corp. MFR, 5.70% due 1/1/2021 (American Opportunity Housing; Insured: Natl-Re) | NR/Baa1 | 100,000 | 95,217 | |||||||
Bexar County Housing Finance Corp. MFR, 5.80% due 1/1/2031 (American Opportunity Housing; Insured: Natl-Re) | NR/Baa1 | 550,000 | 498,322 | |||||||
Clifton Higher Education Finance Corp., 9.00% due 2/15/2038 | BBB-/NR | 1,000,000 | 1,183,770 | |||||||
Gulf Coast Waste Disposal Authority, 6.10% due 8/1/2024 (International Paper Co.) (AMT) | BBB/Baa3 | 100,000 | 101,496 | |||||||
Kimble County Hospital District, 6.25% due 8/15/2033 | NR/NR | 500,000 | 528,895 | |||||||
La Vernia Higher Education Finance Corp., 6.25% due 8/15/2039 (Kipp Inc.) | BBB/NR | 1,000,000 | 1,045,610 | |||||||
Sam Rayburn Municipal Power Agency, 6.00% due 10/1/2021 | NR/Baa2 | 100,000 | 103,326 | |||||||
San Antonio Energy Acquisition Public Facilities Corp., 5.50% due 8/1/2021 | A/A2 | 40,000 | 43,312 | |||||||
State of Texas, 2.00% due 8/31/2011 (Tax & Revenue Anticipation Notes) | SP-1+/MIG1 | 1,500,000 | 1,522,395 | |||||||
Texas City Industrial Development Corp., 7.375% due 10/1/2020 (Arco Pipe Line Company; Guaranty: Atlantic Richfield) | A/A2 | 1,000,000 | 1,155,290 | |||||||
Texas Public Finance Authority Charter School Finance Corp., 4.15% due 8/15/2016 (Idea Public School; Insured: ACA) | BBB/NR | 100,000 | 99,276 | |||||||
Texas Public Finance Authority Charter School Finance Corp., 5.00% due 8/15/2023 (Idea Public School; Insured: ACA) | BBB/NR | 155,000 | 153,109 | |||||||
Texas Public Finance Authority Charter School Finance Corp., 5.00% due 8/15/2030 (Idea Public School; Insured: ACA) | BBB/NR | 1,000,000 | 942,260 | |||||||
Texas Public Finance Authority Charter School Finance Corp., 6.20% due 2/15/2040 (Cosmos Foundation Inc.) | BBB/NR | 1,000,000 | 1,035,850 | |||||||
U.S. VIRGIN ISLANDS — 0.84% | ||||||||||
Virgin Islands Public Finance Authority, 6.75% due 10/1/2037 | BBB/Baa3 | 500,000 | 564,280 | |||||||
Virgin Islands Water & Power Authority, 5.50% due 7/1/2017 | NR/Baa3 | 150,000 | 150,286 | |||||||
UTAH — 1.23% | A/NR | 1,000,000 | 1,048,880 | |||||||
aHerriman Utah Special Assessment, 4.75% due 11/1/2022 (Towne Center Assessment Area) | ||||||||||
VIRGINIA — 2.56% | ||||||||||
Mecklenburg County Industrial Development Authority, 6.50% due 10/15/2017 (Virginia Electric and Power Company) | NR/Baa1 | 1,000,000 | 1,014,800 | |||||||
Norton IDA, 6.00% due 12/1/2014 (Norton Community Hospital; Insured: ACA) | NR/NR | 635,000 | 650,323 | |||||||
Virginia Small Business Financing Authority, 9.00% due 7/1/2039 (Hampton RDS Proton) | NR/NR | 500,000 | 527,430 |
14 Certified Annual Report
SCHEDULE OF INVESTMENTS, CONTINUED | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 |
Issuer-Description | Credit Rating† S&P/ Moody’s | Principal Amount | Value | |||||||||
WASHINGTON — 1.20% | ||||||||||||
Washington HFA, 5.70% due 7/1/2038 (Overlake Hospital Medical Center) | BBB+/A3 | $ | 1,000,000 | $ | 1,026,230 | |||||||
TOTAL INVESTMENTS — 100.08% (Cost $80,667,572) | $ | 85,632,534 | ||||||||||
LIABILITIES NET OF OTHER ASSETS — (0.08)% | (71,806 | ) | ||||||||||
NET ASSETS — 100.00% | $ | 85,560,728 | ||||||||||
Footnote Legend
† | Credit ratings are unaudited. Rating changes may have occurred subsequent to the reporting period end. |
a | Segregated as collateral for a when-issued security. |
b | When-issued security. |
Portfolio Abbreviations
To simplify the listings of securities, abbreviations are used per the table below:
ACA | Insured by American Capital Access | |
AGM | Insured by Assured Guaranty Municipal Corp. | |
AMBAC | Insured by American Municipal Bond Assurance Corp. | |
AMT | Alternative Minimum Tax | |
CIFG | CIFG Assurance North America Inc. | |
COP | Certificates of Participation | |
EDA | Economic Development Authority | |
FGIC | Insured by Financial Guaranty Insurance Co. | |
FHA | Insured by Federal Housing Administration | |
GO | General Obligation | |
HFA | Health Facilities Authority | |
IDA | Industrial Development Authority | |
LOC | Letter of Credit | |
MFR | Multi-Family Revenue | |
Natl-Re | Insured by National Public Finance Guarantee Corp. | |
PCR | Pollution Control Revenue Bond | |
Radian | Insured by Radian Asset Assurance | |
SPA | Stand-by Purchase Agreement | |
Syncora | Insured by Syncora Guarantee Inc. | |
VA | Veterans Affairs |
See notes to financial statements.
Certified Annual Report 15
STATEMENT OF ASSETS AND LIABILITIES | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 |
ASSETS | ||||
Investments at value (cost $80,667,572) (Note 2) | $ | 85,632,534 | ||
Cash | 1,624,213 | |||
Receivable for investments sold | 45,000 | |||
Receivable for fund shares sold | 811,255 | |||
Interest receivable | 978,327 | |||
Prepaid expenses and other assets | 19,439 | |||
Total Assets | 89,110,768 | |||
LIABILITIES | ||||
Payable for securities purchased | 3,350,000 | |||
Payable for fund shares redeemed | 42,083 | |||
Payable to investment advisor and other affiliates (Note 3) | 58,129 | |||
Accounts payable and accrued expenses | 42,359 | |||
Dividends payable | 57,469 | |||
Total Liabilities | 3,550,040 | |||
NET ASSETS | $ | 85,560,728 | ||
NET ASSETS CONSIST OF: | ||||
Distribution in excess of net investment income | $ | (3,026 | ) | |
Net unrealized appreciation on investments | 4,964,962 | |||
Accumulated net realized gain (loss) | 142,051 | |||
Net capital paid in on shares of beneficial interest | 80,456,741 | |||
$ | 85,560,728 | |||
NET ASSET VALUE: | ||||
Class A Shares: | ||||
Net asset value and redemption price per share ($28,165,647 applicable to 1,980,946 shares of beneficial interest outstanding - Note 4) | $ | 14.22 | ||
Maximum sales charge, 2.00% of offering price | 0.29 | |||
Maximum offering price per share | $ | 14.51 | ||
Class C Shares: | ||||
Net asset value and offering price per share * ($15,260,752 applicable to 1,072,188 shares of beneficial interest outstanding - Note 4) | $ | 14.23 | ||
Class I Shares: | ||||
Net asset value, offering and redemption price per share ($42,134,329 applicable to 2,961,204 shares of beneficial interest outstanding - Note 4) | $ | 14.23 | ||
* | Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. |
See notes to financial statements.
16 Certified Annual Report
STATEMENT OF OPERATIONS | ||
Thornburg Strategic Municipal Income Fund | Year Ended September 30, 2010 |
INVESTMENT INCOME: | ||||
Interest income (net of premium amortized of $40,368) | $ | 2,860,064 | ||
EXPENSES: | ||||
Investment advisory fees (Note 3) | 380,139 | |||
Administration fees (Note 3) | ||||
Class A Shares | 22,145 | |||
Class C Shares | 9,872 | |||
Class I Shares | 12,536 | |||
Distribution and service fees (Note 3) | ||||
Class A Shares | 44,290 | |||
Class C Shares | 78,978 | |||
Transfer agent fees | ||||
Class A Shares | 10,510 | |||
Class C Shares | 4,911 | |||
Class I Shares | 6,509 | |||
Registration and filing fees | ||||
Class A Shares | 18,623 | |||
Class C Shares | 17,554 | |||
Class I Shares | 18,192 | |||
Custodian fees (Note 3) | 43,493 | |||
Professional fees | 50,083 | |||
Accounting fees | 1,956 | |||
Trustee fees | 1,067 | |||
Other expenses | 8,691 | |||
Total Expenses | 729,549 | |||
Less: | ||||
Expenses reimbursed by investment advisor (Note 3) | (105,580 | ) | ||
Distribution fees waived (Note 3) | (31,591 | ) | ||
Fees paid indirectly (Note 3) | (639 | ) | ||
Net Expenses | 591,739 | |||
Net Investment Income | 2,268,325 | |||
REALIZED AND UNREALIZED GAIN (LOSS) | ||||
Net realized gain (loss) on investments | 377,353 | |||
Net change in unrealized appreciation (depreciation) of investments | 2,052,352 | |||
Net Realized and Unrealized Gain | 2,429,705 | |||
Net Increase in Net Assets Resulting from Operations | $ | 4,698,030 | ||
See notes to financial statements.
Certified Annual Report 17
STATEMENTS OF CHANGES IN NET ASSETS
Thornburg Strategic Municipal Income Fund
Year Ended September 30, 2010 | Period Ended* September 30, 2009 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM | ||||||||
OPERATIONS: | ||||||||
Net investment income | $ | 2,268,325 | $ | 397,331 | ||||
Net realized gain (loss) on investments | 377,353 | 80,474 | ||||||
Increase (Decrease) in unrealized appreciation (depreciation) of investments | 2,052,352 | 2,912,610 | ||||||
Net Increase (Decrease) in Net Assets Resulting from Operations | 4,698,030 | 3,390,415 | ||||||
DIVIDENDS TO SHAREHOLDERS: | ||||||||
From net investment income | ||||||||
Class A Shares | (779,270 | ) | (113,802 | ) | ||||
Class C Shares | (319,620 | ) | (29,017 | ) | ||||
Class I Shares | (1,169,435 | ) | (257,538 | ) | ||||
From realized gains | ||||||||
Class A Shares | (110,997 | ) | — | |||||
Class C Shares | (40,025 | ) | — | |||||
Class I Shares | (164,754 | ) | — | |||||
FUND SHARE TRANSACTIONS (NOTE 4): | ||||||||
Class A Shares | 15,636,797 | 10,808,011 | ||||||
Class C Shares | 11,167,420 | 3,417,545 | ||||||
Class I Shares | 22,636,138 | 16,790,830 | ||||||
Net Increase in Net Assets | 51,554,284 | 34,006,444 | ||||||
NET ASSETS: | ||||||||
Beginning of Period | 34,006,444 | — | ||||||
End of Period | $ | 85,560,728 | $ | 34,006,444 | ||||
See notes to financial statements.
* | For the period from commencement of operations on April 1, 2009 through September 30, 2009. |
18 Certified Annual Report.
NOTES TO FINANCIAL STATEMENTS | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 |
NOTE 1 – ORGANIZATION
Thornburg Strategic Municipal Income Fund (the “Fund”) is a diversified series of Thornburg Investment Trust (the “Trust”). The Trust is 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 sixteen 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’s primary investment objective is to seek a high level of current income exempt from federal individual income tax.
The Fund currently offers three classes of shares of beneficial interest: Class A, Class C, and Institutional Class (Class I). 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 shares are sold at net asset value without a sales charge at the time of purchase, and (iv) the respective classes may have different reinvestment privileges and conversion rights. Additionally, the Fund may allocate among its classes certain expenses, to the extent allowable 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.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies of the Trust are as follows:
Valuation of Investments: Debt obligations have a primary market over the counter and are valued by an independent pricing service approved by the Trustees of the Trust. The pricing service ordinarily values debt obligations at quoted bid prices. When quotations are not available, debt obligations are valued at evaluated prices determined by the pricing service using methods which include consideration of yields or prices of debt obligations of comparable quality, type of issue, coupon, maturity and rating, and indications as to value from dealers and general market conditions. Short-term obligations having remaining maturities of 60 days or less are valued at amortized cost, which approximates market value.
In any case where a pricing service fails to provide a price for a debt obligation held by the Fund, the valuation and pricing committee determines a fair value for the obligation using procedures approved by the Trustees. Additionally, in any case where management believes that a price provided by a pricing service for a debt obligation may be unreliable, the valuation and pricing committee decides whether or not to use the pricing service’s valuation or to determine a fair value for the obligation.
In determining fair value for any portfolio security or other investment, the valuation and pricing committee seeks to determine the amount that an owner of the investment might reasonably expect to receive upon a sale of the investment. However, because fair value prices are estimated prices, the valuation and pricing committee’s determination of fair value for an investment may differ from the value that would be realized by the Fund upon a sale of the investment, and that difference could be material to the Fund’s financial statements. The valuation and pricing committee’s determination of fair value for an investment may also differ from the prices obtained by other persons (including other mutual funds) for the investment.
Valuation Measurements: Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three levels listed below.
Level 1: Quoted prices in active markets for identical investments.
Level 2: Other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment rates, credit risk, etc.).
Level 3: Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments).
The following table displays a summary of the inputs used to value the Fund’s net assets as of September 30, 2010. In any instance when valuation inputs from more than one level are used to determine the fair value of a specific investment, the investment is placed in the level of the table based upon the lowest level input that is significant in determining the fair value of the investment:
Certified Annual Report. 19
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 |
Fair Value Measurements at September 30, 2010 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets | ||||||||||||||||
Investments in Securities | ||||||||||||||||
Municipal Bonds | $ | 85,632,534 | $ | — | $ | 85,632,534 | $ | — | ||||||||
Total Investments in Securities | $ | 85,632,534 | $ | — | $ | 85,632,534 | $ | — |
Other Notes: It is the policy of the Fund to recognize significant transfers between Levels 1 and 2 and to disclose those transfers at the last date of the reporting period. The Fund recognized no significant transfers into and out of Levels 1 and 2 during the year ended September 30, 2010.
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 taxable (if any) and tax exempt income of the Fund. Therefore, no provision for federal income tax is required.
Management reviews each tax position believed to be material to the preparation of the Fund’s financial statements, to assess if it is more likely than not that the position would be sustained upon examination, based upon the technical merits of the position. As of September 30, 2010, management has not identified any such position for which a liability must be reflected in the Statement of Assets and Liabilities. The Fund’s tax returns remain subject to examination for three years after filing.
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 securities consistent with the Fund’s investment objectives and not for the purpose of investment leverage or to speculate on interest rate and/or market changes. At the time the Fund makes a commitment to purchase a security 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 securities to be purchased will be segregated on the Fund’s records on the trade date. Securities purchased on a when-issued or delayed delivery basis do not earn interest until the settlement date.
Dividends: Net investment income of the Fund is declared daily as a dividend on shares for which the Fund has received payment. Dividends are paid monthly and are reinvested in additional shares of the Fund at net asset value per share at the close of business on the dividend payment date, or at the shareholder’s option, paid in cash. Net realized capital gains, to the extent available, will be distributed at least annually.
General: Securities transactions are accounted for on a trade date basis. Interest income is accrued as earned. Premiums and discounts on securities purchased are amortized to call dates or maturity dates of the respective securities. Realized gains and losses from the sale of securities are recorded on an identified cost basis. 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.
Guarantees and Indemnifications: Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business the Trust enters into contracts with service providers that contain general indemnification clauses. 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 generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
20 Certified Annual Report
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 |
NOTE 3 – INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an investment advisory agreement, Thornburg Investment Management, Inc. (the “Advisor”) serves as the investment advisor and performs services to the Fund for which the fees are payable at the end of each month. For the year ended September 30, 2010, these fees were payable at annual rates ranging from .75 of 1% to .50 of 1% per annum of the average daily net assets of the Fund depending on the Fund’s asset size. The Trust also has entered into administrative services agreements with the Advisor, whereby the Advisor will perform certain administrative services for the shareholders of each class of the Fund’s shares, and for which fees will be payable at an annual rate of up to .125 of 1% per annum of the average daily net assets attributable to each class of shares. For the year ended September 30, 2010, the Advisor contractually reimbursed certain class specific expenses and administrative fees of $43,618 for Class A shares, $32,648 for Class C shares, and $29,314 for Class I shares.
The Trust has an underwriting agreement with Thornburg Securities Corporation (the “Distributor,” an affiliate of the Advisor), which acts as the distributor of the Fund’s shares. For the year ended September 30, 2010, the Distributor has advised the Fund that it earned net commissions aggregating $1,107 from the sale of Class A shares, and collected contingent deferred sales charges aggregating $949 from redemptions of Class C shares of the Fund.
Pursuant to a service plan under Rule 12b-1 of the Investment Company Act of 1940, the Fund may reimburse to the Advisor an amount not to exceed .25 of 1% per annum of the average daily net assets attributable to each class of shares of the Fund for payments made by the Advisor to securities dealers and other financial institutions to obtain various shareholder and distribution related services. For the year ended September 30, 2010, there were no 12b-1 service plan fees charged for Class I shares. The Advisor may pay out of its own resources additional expenses for distribution of the Fund’s shares.
The Trust has also adopted distribution plans pursuant to Rule 12b-1, applicable only to the Fund’s Class C shares, under which the Fund compensates the Distributor for services in promoting the sale of Class C shares of the Fund at an annual rate of up to .75 of 1% per annum of the average daily net assets attributable to Class C shares. Total fees incurred by the Distributor for each class of shares of the Fund under their respective Service and Distribution Plans for the year ended September 30, 2010, are set forth in the Statement of Operations. Distribution fees in the amount of $31,591 were waived for Class C shares.
The Trust has an agreement with the custodian bank to indirectly pay a portion of the custodian’s fees through credits earned by the Fund’s cash on deposit with the bank. This deposit agreement is an alternative to overnight investments. Custodial fees have been adjusted to reflect amounts that would have been paid without this agreement, with a corresponding adjustment reflected as fees paid indirectly in the Statement of Operations. For the year ended September 30, 2010, fees paid indirectly were $639.
Certain officers and Trustees of the Trust are also officers and/or directors of the Advisor and Distributor. The compensation of independent Trustees is borne by the Trust.
NOTE 4 – SHARES OF BENEFICIAL INTEREST
At September 30, 2010, there were an unlimited number of shares of beneficial interest authorized. Transactions in shares of beneficial interest were as follows:
Year Ended September 30, 2010 | Period Ended* September 30, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class A Shares | ||||||||||||||||
Shares sold | 1,292,244 | $ | 17,833,733 | 850,895 | $ | 10,837,932 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 53,595 | 735,252 | 7,045 | 92,971 | ||||||||||||
Shares repurchased | (213,606 | ) | (2,932,188 | ) | (9,227 | ) | (122,892 | ) | ||||||||
Net Increase (Decrease) | 1,132,233 | $ | 15,636,797 | 848,713 | $ | 10,808,011 | ||||||||||
Certified Annual Report 21
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 |
Year Ended September 30, 2010 | Period Ended* September 30, 2009 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class C Shares | ||||||||||||||||
Shares sold | 893,854 | $ | 12,358,292 | 264,135 | $ | 3,399,093 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 16,955 | 233,302 | 1,396 | 18,452 | ||||||||||||
Shares repurchased | (104,152 | ) | (1,424,174 | ) | — | — | ||||||||||
Net Increase (Decrease) | 806,657 | $ | 11,167,420 | 265,531 | $ | 3,417,545 | ||||||||||
Class I Shares | ||||||||||||||||
Shares sold | 1,714,923 | $ | 23,915,174 | 1,383,622 | $ | 17,417,043 | ||||||||||
Shares issued to shareholders in reinvestment of dividends | 73,042 | 1,003,621 | 13,885 | 181,497 | ||||||||||||
Shares repurchased | (165,161 | ) | (2,282,657 | ) | (59,107 | ) | (807,710 | ) | ||||||||
Net Increase (Decrease) | 1,622,804 | $ | 22,636,138 | 1,338,400 | $ | 16,790,830 | ||||||||||
* | The Fund commenced operations on April 1, 2009. |
NOTE 5 – SECURITIES TRANSACTIONS
For the year ended September 30, 2010, the Fund had purchase and sale transactions of investment securities (excluding short-term investments) of $48,153,515 and $7,817,293, respectively.
NOTE 6 – INCOME TAXES
At September 30, 2010, information on the tax components of capital is as follows:
Cost of investments for tax purposes | $ | 80,667,572 | ||
Gross unrealized appreciation on a tax basis | $ | 5,067,775 | ||
Gross unrealized depreciation on a tax basis | (102,813 | ) | ||
Net unrealized appreciation (depreciation) on investments (tax basis) | $ | 4,964,962 | ||
Distributable earnings – ordinary income (tax basis) | $ | 137,318 | ||
Distributable capital gains (tax basis) | $ | 4,733 |
At September 30, 2010, the Fund did not have any undistributed tax-exempt net income.
22 Certified Annual Report
NOTES TO FINANCIAL STATEMENTS, CONTINUED | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 |
The tax character of distributions paid during the year ended September 30, 2010, and period ended September 30, 2009, was as follows:
2010 | 2009 | |||||||
Distributions from: | ||||||||
Tax exempt income | $ | 2,190,183 | $ | 377,011 | ||||
Ordinary income | 393,918 | 23,346 | ||||||
Capital gains | — | — | ||||||
Total | $ | 2,584,101 | $ | 400,357 | ||||
OTHER NOTES
Management has evaluated the impact on the Fund of all subsequent events occurring through the date the financial statements were issued. Effective October 1, 2010, the distribution plan applicable to Class C shares of the Fund has been amended by action of the Trustees to reduce the compensation payable under the plan to an annual rate of .35 of 1%.
Certified Annual Report 23
FINANCIAL HIGHLIGHTS | ||
Thornburg Strategic Municipal Income Fund |
PER SHARE PERFORMANCE (for a share outstanding throughout the period)+ | RATIOS TO AVERAGE NET ASSETS | SUPPLEMENTAL DATA | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unless Otherwise Noted, Periods are Fiscal Years Ended Sept. 30, | Net Asset Value Beginning of Period | Net Investment Income (Loss) | Net Realized & Unrealized Gain (Loss) on Investments | Total from Investment Operations | Dividends from Net Investment Income | Dividends from Net Realized Gains | Total Dividends | Net Asset Value End of Period | Net Investment Income (Loss) (%) | Expenses, After Expense Reductions (%) | Expenses, After Expense Reductions and Net of Custody Credits (%) | Expenses, Before Expense Reductions (%) | Total Return (%)(a) | Portfolio Turnover Rate (%) | Net Assets at End of Period (Thousands) | |||||||||||||||||||||||||||||||||||||||||||||
Class A Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010(b) | $ | 13.86 | 0.60 | 0.48 | 1.08 | (0.61 | ) | (0.11 | ) | (0.72 | ) | $ | 14.22 | 4.40 | 1.25 | 1.25 | 1.50 | 8.20 | 16.26 | $ | 28,166 | |||||||||||||||||||||||||||||||||||||||
2009(b)(c) | $ | 11.94 | 0.29 | 1.91 | 2.20 | (0.28 | ) | — | (0.28 | ) | $ | 13.86 | 4.71 | (d) | 1.25 | (d) | 1.25 | (d) | 2.92 | (d) | 18.65 | 14.37 | $ | 11,761 | ||||||||||||||||||||||||||||||||||||
Class C Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | $ | 13.87 | 0.55 | 0.49 | 1.04 | (0.57 | ) | (0.11 | ) | (0.68 | ) | $ | 14.23 | 4.05 | 1.55 | 1.55 | 2.36 | 7.88 | 16.26 | $ | 15,261 | |||||||||||||||||||||||||||||||||||||||
2009(c) | $ | 11.94 | 0.27 | 1.93 | 2.20 | (0.27 | ) | — | (0.27 | ) | $ | 13.87 | 4.40 | (d) | 1.55 | (d) | 1.55 | (d) | 6.40 | (d)(e) | 18.58 | 14.37 | $ | 3,684 | ||||||||||||||||||||||||||||||||||||
Class I Shares |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | $ | 13.87 | 0.64 | 0.48 | 1.12 | (0.65 | ) | (0.11 | ) | (0.76 | ) | $ | 14.23 | 4.66 | 0.99 | 0.99 | 1.11 | 8.48 | 16.26 | $ | 42,134 | |||||||||||||||||||||||||||||||||||||||
2009(c) | $ | 11.94 | 0.31 | 1.92 | 2.23 | (0.30 | ) | — | (0.30 | ) | $ | 13.87 | 4.90 | (d) | 0.99 | (d) | 0.99 | (d) | 2.12 | (d) | 18.87 | 14.37 | $ | 18,561 |
(a) | Not annualized for periods less than one year. |
(b) | Sales loads are not reflected in computing total return. |
(c) | Fund commenced operations on April 1, 2009. |
(d) | Annualized. |
(e) | Due to the size of net assets and fixed expenses, ratios may appear disproportionate. |
+ | Based on weighted average shares outstanding. |
See notes to financial statements.
24 Certified Annual Report
Certified Annual Report 25 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Thornburg Strategic Municipal Income Fund
To the Trustees and Shareholders of
Thornburg Strategic Municipal Income Fund
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Thornburg Strategic Municipal Income Fund (one of the portfolios constituting Thornburg Investment Trust, hereafter referred to as the “Fund”) at September 30, 2010, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
November 17, 2010
26 Certified Annual Report
EXPENSE EXAMPLE | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 (Unaudited) |
As a shareholder of the Fund, you incur two types of costs:
(1) | transaction costs, including |
(a) sales charges (loads) on purchase payments, for Class A shares;
(b) a deferred sales charge on redemptions of any part or all of a purchase of $1 million of Class A shares within 12 months of purchase;
(c) a deferred sales charge on redemptions of Class C shares within 12 months of purchase;
(2) | ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. |
This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on a $1,000 investment beginning on April 1, 2010, and held until September 30, 2010.
ACTUAL EXPENSES
For each class of shares, the first line of the table at right provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line for your class of shares under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
For each class of shares, the second line of the table at right provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Beginning Account Value 4/1/10 | Ending Account Value 9/30/10 | Expenses Paid During Period† 4/1/10–9/30/10 | ||||||||||
Class A Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 1,068.70 | $ | 6.48 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,018.80 | $ | 6.33 | ||||||
Class C Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 1,066.30 | $ | 8.00 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,017.33 | $ | 7.81 | ||||||
Class I Shares | ||||||||||||
Actual | $ | 1,000.00 | $ | 1,070.10 | $ | 5.14 | ||||||
Hypothetical* | $ | 1,000.00 | $ | 1,020.10 | $ | 5.01 |
† | Expenses are equal to the annualized expense ratio for each class (A: 1.25%; C: 1.54%; I: 0.99%) multiplied by the average account value over the period, multiplied by 183/ 365 to reflect the one-half year period. |
* | Hypothetical assumes a rate of return of 5% per year before expenses. |
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Certified Annual Report 27
INDEX COMPARISON | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 (Unaudited) |
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Thornburg Strategic Municipal Income Fund versus BofA Merrill Lynch Municipal Master Index
and Consumer Price Index (April 1, 2009 to September 30, 2010)
AVERAGE ANNUAL TOTAL RETURNS
For the periods ended September 30, 2010 (with sales charge)
1 Yr | 5 Yrs | 10 Yrs | Since Inception | |||||||||||||
A Shares (Incep: 4/1/09) | 6.06 | % | — | — | 16.58 | % | ||||||||||
C Shares (Incep: 4/1/09) | 7.28 | % | — | — | 17.85 | % | ||||||||||
I Shares (Incep: 4/1/09) | 8.48 | % | — | — | 18.49 | % |
The Consumer Price Index (CPI) measures prices of a fixed basket of goods bought by a typical consumer, including food, transportation, shelter, utilities, clothing, medical care, entertainment and other items. The CPI, published by the Bureau of Labor Statistics in the Department of Labor, is based at 100 in 1982 and is released monthly. It is widely used as a cost-of-living benchmark to adjust Social Security payments and other payment schedules, union contracts and tax brackets. The CPI is also known as the cost-of-living index.
The BofA Merrill Lynch Municipal Master Index tracks the performance of the investment-grade U.S. tax-exempt bond market. Qualifying bonds must have at least one year remaining term to maturity, a fixed coupon schedule, and an investment grade rating (based on average of Moody’s, S&P, and Fitch).
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.
Performance data reflect past performance, which is no guarantee of future results. The performance data and graph do 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 2.00%. Class C shares assume deduction of a 0.60% contingent deferred sales charge (CDSC) for the first year only. There is no sales charge for Class I shares.
28 Certified Annual Report
TRUSTEES AND OFFICERS | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 (Unaudited) |
Name, Age, Position Held with Fund Year Elected | Principal Occupation(s) During Past Five Years | Other Directorships Held by Trustee | ||
INTERESTED TRUSTEES(1)(2)(4) | ||||
Garrett Thornburg, 64 Chairman of Trustees, Trustee since 1987(3) | Chairman and controlling shareholder and, until 2008, CEO of Thornburg Investment Management, Inc. (investment advisor); Chairman, CEO, and controlling shareholder of Thornburg Securities Corporation (securities dealer); CEO until 2007 and Chairman until 2009 of TMST, Inc. (f/k/a Thornburg Mortgage, Inc.) (real estate investment trust); President and Sole Director until 2009 of Thornburg Mortgage Advisory Corporation (investment manager to TMST, Inc.). | None | ||
Brian J. McMahon, 54 Trustee since 2001, Member of Governance & Nominating Committee, President since 1997(5)(6) | CEO since 2008, President, Managing Director, Chief Investment Officer, and Portfolio Manager of Thornburg Investment Management, Inc. | None | ||
INDEPENDENT TRUSTEES(1)(2)(4) | ||||
David A. Ater, 65 Trustee since 1994, Member of Audit Committee & Governance & Nominating Committee | Principal in Ater & Associates, Santa Fe, NM (developer, planner and broker of residential and commercial real estate); owner, developer and broker for various real estate projects. | None | ||
David D. Chase, 69 Chairman of Audit Committee, Trustee since 2000 | Chairman, President, CEO, and Managing Member of Vestor Associates, LLC, the general partner of Vestor Partners, LP, Santa Fe, NM (private equity fund); Managing Member of CS Group, LLC, Santa Fe, NM (merchant bank). | None | ||
Eliot R. Cutler, 64 Chairman of Governance & Nominating Committee, Trustee since 2004 | Senior Counsel and, until 2009, Partner of Akin, Gump, Strauss, Hauer & Feld LLP (law firm) in Washington, D.C. and Beijing, China. | None | ||
Susan H. Dubin, 61 Trustee since 2004, Member of Audit Committee | President of Dubin Investments, Ltd., Greenwich, CT (private investment fund); Director and officer of various charitable organizations. | None | ||
Owen D. Van Essen, 56 Trustee since 2004, Member of Governance & Nominating Committee | President of Dirks, Van Essen & Murray, Santa Fe, NM (newspaper mergers and acquisitions). | None | ||
James W. Weyhrauch, 51 Trustee since 1996, Member of Audit Committee | Real estate broker, Santa Fe Properties, Santa Fe, NM; President and Vice Chairman of Nambé Mills, Inc., Santa Fe, NM (manufacturer). | None |
Certified Annual Report 29
TRUSTEES AND OFFICERS, CONTINUED | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 (Unaudited) |
Name, Age, Position Held with Fund Year Elected | Principal Occupation(s) During Past Five Years | Other Directorships | ||
OFFICERS OF THE FUND (WHO ARE NOT TRUSTEES)(1)(6)(7) | ||||
George T. Strickland, 47 Vice President since 1996, Treasurer since 2007(6) | Portfolio Manager, Vice President, and Managing Director of Thornburg Investment Management, Inc. | Not applicable | ||
William V. Fries, 71 Vice President since 1995 | Portfolio Manager, Vice President, and Managing Director of Thornburg Investment Management, Inc. | Not applicable | ||
Leigh Moiola, 43 Vice President since 2001 | Vice President, Managing Director, and Director of Marketing of Thornburg Investment Management, Inc. | Not applicable | ||
Alexander Motola, 40 Vice President since 2001 | Portfolio Manager, Vice President, and Managing Director of Thornburg Investment Management, Inc. | Not applicable | ||
Wendy Trevisani, 39 Vice President since 1999 | Portfolio Manager since 2006, Managing Director, and Associate Portfolio Manager until 2006 of Thornburg Investment Management, Inc. | Not applicable | ||
Joshua Gonze, 47 Vice President since 1999 | Portfolio Manager since 2007, Managing Director, and Associate Portfolio Manager until 2007 of Thornburg Investment Management, Inc. | Not applicable | ||
Christopher Ihlefeld, 40 Vice President since 2003 | Portfolio Manager since 2007, Managing Director since 2006, and Associate Portfolio Manager until 2007 of Thornburg Investment Management, Inc. | Not applicable | ||
Leon Sandersfeld, 44 Vice President since 2003 | Managing Director since 2007 and Fund Accounting Director of Thornburg Investment Management, Inc. | Not applicable | ||
Sasha Wilcoxon, 36 Vice President since 2003 Secretary since 2007(6) | Managing Director since 2007, Director of Operations, and Vice President of Thornburg Investment Management, Inc. | Not applicable | ||
Ed Maran, 52 Vice President since 2004 | Portfolio Manager since 2006, Managing Director, and Associate Portfolio Manager until 2006 of Thornburg Investment Management, Inc. | Not applicable | ||
Vinson Walden, 40 Vice President since 2004 | Portfolio Manager since 2006, Managing Director, and Associate Portfolio Manager until 2006 of Thornburg Investment Management, Inc. | Not applicable | ||
Thomas Garcia, 39 Vice President since 2006 | Managing Director, Head Equity Trader, and Associate Portfolio Manager of Thornburg Investment Management, Inc. | Not applicable | ||
Lei Wang, 39 Vice President since 2006 | Portfolio Manager since 2006, Managing Director, and Associate Portfolio Manager until 2006 of Thornburg Investment Management, Inc. | Not applicable | ||
Connor Browne, 31 Vice President since 2006 | Portfolio Manager since 2006, Managing Director, and Associate Portfolio Manager until 2006 of Thornburg Investment Management, Inc. | Not applicable |
30 Certified Annual Report
TRUSTEES AND OFFICERS, CONTINUED | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 (Unaudited) |
Name, Age, Position Held with Fund Year Elected | Principal Occupation(s) During Past Five Years | Other Directorships | ||
Jason Brady, 36 Vice President since 2007 | Portfolio Manager since 2007, Managing Director since 2007, and Associate Portfolio Manager 2006–2007 of Thornburg Investment Management, Inc.; Portfolio Manager, Fortis Investments 2005–2006. | Not applicable | ||
Lewis Kaufman, 34 Vice President since 2007 | Portfolio Manager since 2007, Managing Director since 2007, and Associate Portfolio Manager until 2009 of Thornburg Investment Management, Inc. | Not applicable | ||
Christopher Ryon, 54 Vice President since 2008 | Portfolio Manager since 2009, Managing Director since 2009, and Associate Portfolio Manager 2008–2009 of Thornburg Investment Management, Inc.; Principal of Vanguard Funds until 2008. | Not applicable | ||
Lon Erickson, 35 Vice President since 2008 | Portfolio Manager since 2010, Managing Director since 2010, and Associate Portfolio Manager 2008–2010 of Thornburg Investment Management, Inc.; Senior Analyst of State Farm Insurance until 2008. | Not applicable | ||
Kathleen Brady, 50 Vice President since 2008 | Senior Tax Accountant since 2007 of Thornburg Investment Management, Inc.; Chief Financial Officer of Vestor Partners, LP (private equity fund) until 2007. | Not applicable | ||
Jack Gardner, 56 Vice President since 2008 | Managing Director since 2007 of Thornburg Investment Management, Inc.; President since 2008 and National Sales Director of Thornburg Securities Corporation. | Not applicable | ||
Laura Hillstrom, 43 Vice President since 2009 | Chief Administrative Officer since 2009, Vice President and Managing Director, and Director of Information Systems until 2009 of Thornburg Investment Management, Inc. | Not applicable | ||
Cliff Remily, 34 Vice President since 2010 | Portfolio Manager and Managing Director since 2010, Associate Portfolio Manager 2008–2010, and Equity Research Analyst 2006–2008 of Thornburg Investment Management, Inc.; Intern-Equity Research Analyst of Brandes Investment Partners until 2006. | Not applicable |
(1) | Each person’s address is 2300 North Ridgetop Road, Santa Fe, New Mexico 87506. |
(2) | The Fund is one of sixteen separate investment “Funds” or “series” of Thornburg Investment Trust (the “Trust”), which comprises the Thornburg mutual fund complex and is organized as a Massachusetts business trust. Thornburg Investment Management, Inc. is the investment advisor to, and manages, the sixteen Funds of the Trust. Each Trustee oversees the sixteen Funds of the Trust. |
(3) | Mr. Thornburg is considered an “interested” Trustee under the Investment Company Act of 1940 because he is a director and controlling shareholder of Thornburg Investment Management, Inc., the investment advisor to the sixteen active Funds of the Trust, and is the sole director and controlling shareholder of Thornburg Securities Corporation, the distributor of shares for the Trust. |
(4) | Each Trustee serves in office until the election and qualification of a successor. |
(5) | Mr. McMahon is considered an “interested” Trustee because he is the chief executive officer and president of Thornburg Investment Management, Inc. |
(6) | The Trust’s president, secretary, and treasurer each serves a one-year term or until the election and qualification of a successor; each other officer serves at the pleasure of the Trustees. |
(7) | Assistant vice presidents, assistant secretaries and assistant treasurers are not shown. |
The Statement of Additional Information for each Fund of the Trust includes additional information about the Trustees and is available, without charge and upon request, by calling 1-800-847-0200.
Certified Annual Report 31
OTHER INFORMATION | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 (Unaudited) |
PORTFOLIO PROXY VOTING
Policies and Procedures:
The Trust has delegated to Thornburg Investment Management, Inc. (the “Advisor”) voting decisions respecting proxies for the Fund’s voting securities. The Advisor makes voting decisions in accordance with its Proxy Voting Policy and Procedures. A description of the Policy and Procedures is available (i) without charge, upon request, by calling the Advisor toll-free at 1-800-847-0200, (ii) on the Thornburg website at www.thornburg.com, and (iii) on the Securities and Exchange Commission’s website at www.sec.gov.
Information regarding how proxies were voted is available on or before August 31 of each year for the twelve months ending the preceding June 30. This information is available (i) without charge, upon request by calling the Advisor toll-free at 1-800-847-0200, (ii) on the Thornburg website at www.thornburg.com, and (iii) on the Securities and Exchange Commission’s website at www.sec.gov.
TAX INFORMATION
For the tax year ended September 30, 2010 dividends paid by the Fund of $2,190,183 (or the maximum allowed) are tax exempt dividends for federal income tax purposes.
The information and distributions reported herein may differ from the information and distributions taxable to the shareholders for the calendar year ending December 31, 2010. Complete information will be computed and reported in conjunction with your 2010 Form 1099.
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULE
The Fund files with the Securities and Exchange Commission schedules of its portfolio holdings on Form N-Q for the first and third quarters of each fiscal year. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund also makes this information available on its website at www.thornburg.com/ download or upon request by calling 1-800-847-0200.
STATEMENT RESPECTING APPROVAL AND RENEWAL OF INVESTMENT ADVISORY AGREEMENT
Thornburg Investment Management, Inc. (the “Advisor”) provides investment management services to Thornburg Strategic Municipal Income Fund pursuant to an investment advisory agreement. The Trustees consider the renewal of this agreement annually, and most recently determined to renew the agreement on September 13, 2010.
In anticipation of their recent consideration of the advisory agreement’s renewal, the independent Trustees met in May 2010 to plan the Trustees’ evaluation of the Advisor’s performance and to specify the information the Advisor would present to the Trustees for their review. The Advisor’s chief investment officer subsequently reviewed portions of the information with the Trustees at a meeting session scheduled for that purpose, and the independent Trustees thereafter met in independent session to consider the Advisor’s presentation and various specific issues respecting their consideration of the advisory agreement’s renewal. Following these sessions, the Trustees met to consider a renewal of the agreement, and the independent Trustees voted unanimously at that meeting to renew the agreement for an additional term of one year.
The information below summarizes certain factors considered by the Trustees in connection with the determination to renew the advisory agreement. In determining to renew the agreement, the Trustees did not identify any single factor as controlling, and this summary does not describe all of the matters considered by the Trustees in making their determination.
Quality of Services; Fund Investment Performance. The Trustees evaluated the nature, extent and quality of services provided by the Advisor under the advisory agreement, and evaluated the investment performance of the Fund.
In connection with their general supervision of the Advisor, and as an important element of their annual consideration of a renewal of the advisory agreement, the Trustees received and considered reports from the Advisor throughout the period since the Fund’s commencement of investment operations in April of 2009. These reports addressed a wide variety of topics, including particularly the Advisor’s services to the Fund and its selection of investments and pursuit of the Fund’s investment objectives. In addition, the Trustees
32 Certified Annual Report
OTHER INFORMATION, CONTINUED | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 (Unaudited) |
considered information specifically provided to them at their request in anticipation of their annual evaluation of the Advisor’s services, including (i) the Advisor’s commentary on the Fund’s performance, in the context of business, market and economic conditions, (ii) the Fund’s absolute investment performance and achievement of stated objectives, and (iii) the Fund’s investment performance since inception relative to two categories of municipal debt mutual funds selected by independent mutual fund analyst firms, and relative to a broad-based securities index.
The Trustees also considered their perceptions of portfolio management personnel developed in formal and informal meetings throughout the year, the Advisor’s staffing and other resources, trade execution, the Advisor’s performance of accounting and other services, the Advisor’s observance of compliance and regulatory requirements, the Advisor’s responsiveness to the Trustees, and other factors.
In evaluating quantitative and performance data presented, the Trustees noted (among other aspects of the data) the Fund’s positive investment returns since inception and performance in accordance with expectations. The quantitative data presented further demonstrated to the Trustees that the Fund’s investment returns exceeded the average return for each of the fund categories in the year-to-date and one-year periods ended with the second quarter of the current year, and that the Fund’s investment performance fell within the top decile of performance for both categories for the same periods.
The Trustees concluded, based upon these and other considerations, that the nature, extent and quality of the Advisor’s services were sufficient and that the Advisor had satisfactorily pursued the Fund’s stated investment objectives. The Trustees further concluded that the investment performance of the Fund was satisfactory in the context of the Fund’s objectives and policies, and prevailing market conditions.
Fees and Expenses; Profitability of Advisor; Economies of Scale; Ancillary Benefits to Advisor. The Trustees evaluated the level of the management fee charged by the Advisor to the Fund, and in this connection, reviewed the profitability of the Advisor, economies of scale potentially available to the Fund and whether the Advisor received any ancillary benefits from its relationship with the Fund.
In evaluating the level of the management fee, the Trustees considered the fee charged by the Advisor and the other expenses charged to the Fund in light of the nature and quality of services provided, comparison of the actual Advisor’s fee and Fund expenses to the statement of fees and expenses in the Fund’s prospectuses, and comparisons of the Advisor’s fee and other Fund expenses to median and average fees and expenses charged to a group of municipal debt mutual funds assembled by an independent mutual fund analyst firm. The Trustees observed that the overall expense ratio of the Fund was higher than the median and average expense ratios for the group of mutual funds assembled by the mutual fund analyst firm, that the management fee was higher than the median and average fee rates for the same group of funds, but that the differences were not significant in view of the other factors considered. The Trustees considered information about the fees charged by the Advisor to other investment management clients, together with information about fees charged by other advisors to different clients, and analysis of the differences between the requirements of institutional clients and mutual funds and the consequently different investment management services provided, respectively, to institutional clients and to mutual funds. The Trustees confirmed their previous observations that the differences between the fees charged by the Advisor to different types of clients did not appear exceptional, and observed that the fee rates charged by investment advisors to institutional clients had limited relevance to the evaluation of fee rates charged to mutual funds, because of the significant differences between the respective requirements of institutional clients and mutual funds, the differences between the respective services rendered to institutional clients and mutual funds, and the different circumstances in which the respective fees originate.
In reviewing the profitability of the Advisor, the Trustees considered data comparing the profitability of the Advisor to other investment management firms. The Trustees considered information from the Advisor respecting the effects of recent economic events on the Advisor and the Advisor’s responses to those events. The information provided did not indicate that the Advisor’s profitability was unusual, and the Trustees noted the adequacy of the Advisor’s resources and service capabilities. In reviewing the extent to which economies of scale would be realized by the Fund as it grows and whether fee levels reflect economies of scale, the Trustees considered the breakpoint structure for advisory fees chargeable to the Fund, the demonstrated economies of scale enjoyed by other Funds of the Trust as they had grown in size, and economies of scale realized by other mutual funds. The information provided demonstrated to the Trustees that the Fund may reasonably be expected to realize economies of scale as the Fund increases in size due to the breakpoint fee structure of the advisory agreement and other factors. In reviewing potential benefits to the Advisor because of its relationship to the Fund, the Trustees considered the Advisor’s receipt of research services from broker dealers, and the benefits to both the Fund and the Advisor of the Advisor’s expansion of its staffing, compliance and systems capabilities and other resources to serve a broader variety of investment management clients. No unusual or unfair benefits to the Advisor from its relationship to the Fund were identified by the Trustees.
Certified Annual Report 33
OTHER INFORMATION, CONTINUED | ||
Thornburg Strategic Municipal Income Fund | September 30, 2010 (Unaudited) |
The Trustees concluded, based upon their consideration of these factors, that the management fee charged to the Fund by the Advisor was fair and reasonable in view of the nature and quality of the services provided by the Advisor, the clear disclosure of fees and expenses in the Fund’s prospectuses, the investment performance of the Fund, and comparisons of fees and costs charged to the Fund to fees and expenses charged to other mutual funds.
34 Certified Annual Report
Trustees’ Statement to Shareholders
Not part of the Certified Annual Report
February 8, 2005, as readopted September 13, 2010
The Trustees are concerned that ongoing commentaries and opinions reported in the media may confuse investors in general as to the supervisory duties of trustees of mutual funds and, in particular, leave Thornburg Investment Trust shareholders uncertain regarding how we discharge our responsibilities in supervising the Funds’ investment advisor and in reviewing the advisor’s contract for renewal. We decided to spell out clearly three principal guidelines that we follow in supervising the Trust’s investment advisor on your behalf.
We begin with the premise that each shareholder selected his or her Fund because its investments are managed by the investment advisor identified in the prospectus and in accordance with the objective and policies described in the prospectus. We realize, as each of you do, that if you believe that your Fund’s stated objective and policies no longer serve your personal investment goals, you can sell your shares and leave the Fund.
Therefore, we believe that our primary supervisory task – our principal obligation to you – is to assess the nature and quality of the advisor’s services, and to confirm that the advisor actively and competently pursues the Fund’s objective, in accordance with the policies set out in the prospectus. To do this, we meet regularly with management to review your Fund’s portfolio and to discuss the advisor’s specific actions and judgments in pursuing the Fund’s objective. We do not substitute our own judgment for the advisor’s decisions in selecting investments; the advisor is paid to exercise its informed judgment on investment decisions, and we seek to confirm, in reviewing the advisor’s performance, that the advisor is doing just that.
Second, while we are conscious of costs and the effect that costs have on shareholders’ returns, we do not seek the lowest fees or expense ratio as our sole or primary objective. We try to make sure that your Fund’s fees and costs are reasonable in relationship to the services rendered and that they are generally in line with those charged by other expert investment advisors, consistent with our belief that the Fund’s investors searched for and expect that expertise and attention and have decided to pay a reasonable price for it. We do not put the management contract “out to bid” as a matter of course, and we would not do so unless we had concluded that the advisor materially had failed to pursue the Fund’s objectives in accordance with its policies, or for other equally important reasons. We believe that any other approach would be inconsistent with your interests and contrary to your expectations when you bought shares of the Fund in the first place.
Finally, because we believe that most Thornburg Fund shareholders have invested with a long-term perspective, we try not to focus too much on the fashions of the moment and on short-term performance. The market will not favor any specific investment objective or set of policies at all times and under all economic circumstances. A fund will experience periods of both high and low returns relative to other funds and other investments. Even if one of our Funds is not favored by the market at a particular time, we believe that the advisor is nonetheless obliged to remain true to the Fund’s objective and policies, and we watch to see that it does so.
This page is not part of the Annual Report. 35
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36 This page is not part of the Annual Report.
Retirement and Education Accounts
Thornburg Investment Management offers retirement and education savings accounts that can help you meet a variety of planning challenges. For account applications or further information on any of the accounts below, please call 1-800-847-0200 or go to www.thornburg.com/ira. Your financial advisor can help you determine which plan is right for you.
Individual Retirement Accounts
Individual Retirement Accounts (IRAs) provide a tax-advantaged means to save money for the future. For a detailed outline of the difference between retirement accounts, see www.thornburg.com/ira. Rollovers are available. Call 1-800-847-0200 for more information.
Traditional IRAs – Contributions to Traditional IRAs are tax deductible for eligible individuals, and withdrawals are taxed as additional ordinary income. You may contribute to an IRA if you receive compensation and are under 70 1/2, even if you are covered by an employer retirement plan. Deductible contributions are subject to certain qualifications. Please consult your tax advisor.
Roth IRAs – Under a Roth IRA, there is no tax deduction for contributions, but there is no income tax on qualified withdrawals. For a more detailed comparison of Traditional and Roth IRAs, please see our web site at www.thornburg.com/ira.
SEP IRAs – Simplified Employee Pension (SEP) IRAs are established by employers. The employer is allowed a tax deduction for contributions made to the SEP Plan and makes contributions to each eligible employee’s SEP IRA on a discretionary basis.
SIMPLE IRAs – Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) is designed to give small business owners a simplified method to establish and contribute to a retirement plan for employees. The employer is allowed a tax deduction for contributions and makes either matching or non-elective contributions to each eligible employee’s SIMPLE IRA. Employees may make salary deferral contributions.
Coverdell Education Savings Account
These savings accounts are designed to provide a way to save money for higher education expenses. In an Education Savings Account, earnings and interest grow tax-free, and qualified withdrawals used to pay for eligible higher-education expenses are tax- and penalty-free.
Funds Available
The following funds are available in the accounts listed above:
• | Thornburg International Value Fund |
• | Thornburg Value Fund |
• | Thornburg Core Growth Fund |
• | Thornburg Investment Income Builder Fund |
• | Thornburg Global Opportunities Fund |
• | Thornburg International Growth Fund |
• | Thornburg Developing World Fund |
• | Thornburg Limited Term U.S. Government Fund |
• | Thornburg Limited Term Income Fund |
• | Thornburg Strategic Income Fund |
This page is not part of the Annual Report. 37
Thornburg Equity Funds
Thornburg’s equity research uses a fundamental and comprehensive analytical approach. Thornburg equity funds focus on a limited number of securities so that each holding can impact performance. The equity team searches for firms believed to have a promising future and seeks to buy shares of those companies at a discount to their intrinsic value.
• | Thornburg Value Fund |
• | Thornburg International Value Fund |
• | Thornburg Core Growth Fund |
• | Thornburg Investment Income Builder Fund |
• | Thornburg Global Opportunities Fund |
• | Thornburg International Growth Fund |
• | Thornburg Developing World Fund |
Thornburg Bond Funds
Thornburg Investment Management applies a disciplined philosophy to fixed-income management. Since the launch of our first fixed-income fund over 25 years ago, we have been conducting fundamental, bottom-up research in an effort to identify bonds which we believe provide the best return for a given level of risk. We are very organic in our approach, avoiding leverage or complex strategies which could backfire in periods of market uncertainty.
• | Thornburg Limited Term Municipal Fund |
• | Thornburg Intermediate Municipal Fund |
• | Thornburg California Limited Term Municipal Fund |
• | Thornburg New Mexico Intermediate Municipal Fund |
• | Thornburg New York Intermediate Municipal Fund |
• | Thornburg Strategic Municipal Income Fund |
• | Thornburg Limited Term U.S. Government Fund |
• | Thornburg Limited Term Income Fund |
• | Thornburg Strategic Income Fund |
Before investing, carefully consider the Fund’s investment goals, risks, charges, and expenses. For a prospectus containing this and other information, contact your financial advisor or visit thornburg.com. Read it carefully before investing.
For additional information, please visit www.thornburg.com
Thornburg Investment Management, Inc. 2300 North Ridgetop Road, Santa Fe, NM 87506
This page is not part of the Annual Report. 39
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TH1978 |
Item 2. Code of Ethics
Thornburg Investment Trust (the “Trust”) has adopted a code of ethics described in Item 2 of Form N-CSR. A copy of the code of ethics is filed as an exhibit to this Form N-CSR. Effective December 6, 2009, the Trust amended its code of ethics to include language that prohibits certain contributions or solicitations for contributions by any officer or Trustee of the Trust who is an employee, officer or director of the Trust’s investment advisor or distributor to a political campaign in which an independent Trustee of the Trust is a candidate.
Item 3. Audit Committee Financial Expert
The Trustees of Thornburg Investment Trust have determined that two members of the Trust’s audit committee, David A. Ater and David D. Chase, are each audit committee financial experts as defined in Item 3 of Form N-CSR. Mr. Ater and Mr. Chase are each independent for purposes of Item 3 of Form N-CSR. The Trustees’ determinations in this regard were based upon their current understandings of the definition of “audit committee financial expert” and current interpretations of the definition. The Trustees call attention to the lack of clarity in the definition, and that shareholders and prospective investors may wish to evaluate independently this definition and the qualifications of the Trust’s audit committee. The definition of “audit committee financial expert,” together with comments on the definition, is set forth on the Securities and Exchange Commission’s website (www.sec.gov).
Item 4. Principal Accountant Fees and Services
Audit Fees
The aggregate fees billed to Thornburg Investment Trust in each of the last two fiscal years ended September 30, 2009 and September 30, 2010 for the audit of the Trust’s financial statements and for services that are normally provided by PricewaterhouseCoopers LLP, registered independent public accounting firm (“PWC”) in connection with statutory and regulatory filings or requirements for those fiscal years are set out below.
Year Ended September 30, 2009 | Year Ended September 30, 2010 | |||||||
Thornburg Investment Trust | $ | 353,000 | $ | 561,750 |
Audit-Related Fees
The fees billed to Thornburg Investment Trust by PWC in each of the last two fiscal years for assurance and related services that are reasonably related to the audit or review of the Trust’s financial statements (and that are not reflected in “Audit Fees,” above) are set out below.
Year Ended September 30, 2009 | Year Ended September 30, 2010 | |||||||
Thornburg Investment Trust | $ | 18,500 | $ | -0- |
The audit-related fees billed to the Trust in the year ended September 30, 2009 related to preparation for and attendance at audit committee meetings as well as travel and out of pocket expenses.
Tax Fees
The fees billed to Thornburg Investment Trust by PWC in each of the last two fiscal years ended September 30, 2009 and September 30, 2010 for professional services rendered by PWC for tax compliance, tax advice or tax planning are set out below.
Year Ended September 30, 2009 | Year Ended September 30, 2010 | |||||||
Thornburg Investment Trust | $ | 168,730 | $ | 165,290 |
All Other Fees
The fees billed to Thornburg Investment Trust by PWC in each of the last two fiscal years ended September 30, 2009 and September 30, 2010 for all other services rendered by PWC to the Trust are set out below.
Year Ended September 30, 2009 | Year Ended September 30, 2010 | |||||||
Thornburg Investment Trust | $ | -0- | $ | -0- |
PWC performs no services for the investment advisor, the Funds’ principal underwriter or any other person controlling, controlled by, or under common control with the investment advisor which provides ongoing services to the Funds.
Audit Committee Pre-Approval Policies and Procedures
As of September 30, 2010, the Trust’s Audit Committee has not adopted pre-approval policies and procedures.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Schedule of Investments
Filed as part of the reports to shareholders filed under item 1of this Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
The authority to consider candidates recommended by the shareholders in accordance with the Trust’s Procedures for Shareholder Communications is committed to the Governance and Nominating Committee.
Item 11. Controls and Procedures
(a) The principal executive officer and the principal financial officer have concluded that Thornburg Investment Trust’s disclosure controls and procedures provide reasonable assurance that material information relating to Thornburg Investment Trust is made known to them by the appropriate persons, based on their evaluation of these controls and procedures as of a date within 90 days prior to the filing date of this report.
(b) There was no change in Thornburg Investment Trust’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter of the period covered by this report (that is, the registrant’s fourth fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
(a)(1) Code of Business Conduct and Ethics.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 70.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not Applicable.
(b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 70.30a-2(b)) attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Thornburg Investment Trust, in respect of the following Thornburg Funds: Value Fund, Investment Income Builder Fund, and Strategic Municipal Income Fund.
By: | /s/ Brian J. McMahon | |
Brian J. McMahon | ||
President and principal executive officer | ||
Date: January 21, 2011 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Brian J. McMahon | |
Brian J. McMahon | ||
President and principal executive officer | ||
Date: January 21, 2011 | ||
By: | /s/ George T. Strickland | |
George T. Strickland | ||
Treasurer and principal financial officer | ||
Date: January 21, 2011 |