3rd Quarter 2018

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For the third quarter of 2018, Thornburg Core Growth Fund had a total return of 5.43% for the fund (class I shares), while the benchmark Russell 3000 Growth Index rose 8.88%. This brings the fund’s year-to-date advance to 19.20% versus the index’s 16.99% gain. On a relative basis, fund performance was challenged by company-specific events that caused several stocks to see outsized declines during the quarter. While performance in the third quarter did not meet our expectations, our focus on delivering idiosyncratic stock returns produced successful results on a year-to-date basis. Outperformance for this period was broad-based, with positive results from eight of 11 sectors.

U.S. equities, as measured by the S&P 500 Index, rose 7.71% during the third quarter. This was the strongest quarter since 2013. Tariff and inflation fears were overshadowed by a strong economy and near-record corporate profits. Low unemployment, high investor confidence, and reduced taxes were among a number of factors that drove the market higher.

During the quarter, the Federal Reserve reaffirmed its intention to steadily increase short-term rates in an effort to wean the economy and markets off easy money. Increasing rates too quickly could result in weak returns ahead, however, not raising rates could result in above-target inflation rates.

Performance Discussion

In the third quarter, nine of the 11 sectors comprising the Russell 3000 Growth Index delivered positive returns. Sector returns varied from negative 4.90% (energy) to 13.55% (information technology). For the fund, the information technology, health care, and consumer discretionary sectors were the strongest contributors to return.

Top contributors to performance for the quarter included Dexcom, Inc.; Amazon .com, Inc.; Worldpay, Inc.; Visa, Inc.; and TJX Companies, Inc. Dexcom makes a glucose-monitoring system for diabetes patients that we believe is the best on the market and will remain so for the foreseeable future. Performance was challenged in 2017 due to concerns around competition; however, the stock bounced back earlier this year and continued throughout this period as it became clear that Dexcom was the market leader from a technological standpoint.

Amazon continued to deliver very strong fundamental results as its well-publicized businesses grew at a high rate.

Worldpay reported an earnings update that saw organic revenue growth accelerate above market expectations. Furthermore, management for the first time quantified for investors the considerable revenue synergy opportunity arising from the merger of Worldpay and Vantiv.

Visa is a leading global payments and technology company that helps to enable global commerce. During the year Visa has delivered strong financial results, and over the long run the company should be poised to continue to benefit from the secular trend of a shift of payments transactions from cash toward digital forms.

TJX Companies is a discount retailer of apparel and home fashions in the U.S. and abroad. Investors had relatively modest expectations for the companies. Sales and earnings exceeded expectations and the stock subsequently rallied.

Primary detractors from performance this quarter were Las Vegas Sands Corp.; Nevro Corp.; Facebook, Inc.; Bayer AG; and Criteo SA.

Shares of Las Vegas Sands were down during the quarter following a mixed earnings report. Growth was positive, but below expectations. Investors were already concerned about trade tensions with China and a potential slowing in gross gaming revenue growth for the Macau region, so the mixed report for Sands and other casino operators was enough to cause an overall rerate.

Nevro is a medical device corporation that focuses on a spinal stimulation system for the treatment of chronic pain. Nevro shares declined following disappointing earnings results and then again following a key executive departure. However, guidance for 2018 remained on track.

Facebook’s stock price has been surprisingly volatile during 2018, and was among the main detractors in the first quarter, top-five contributors in the second quarter, and again a headwind to fund performance in the third quarter. Shares declined after the company’s second- quarter results, when management guided to lower earnings growth in the coming years as the firm invests more in quality control and its global data center network.

Bayer’s stock price dropped significantly following a jury verdict against its Monsanto subsidiary. Monsanto produces Roundup, which a jury deemed to be carcinogenic. Several scientific studies had been conducted previously, none of which had proven Roundup to be a carcinogen. We exited the position during the quarter to pursue other opportunities.

Criteo is a French online advertising services company. The stock declined during the period as the company failed to mitigate the revenue declines caused by Apple’s changes to ad tracking on its mobile Safari web browser. Given a negative growth outlook over the near term, we sold our shares.

Most macroeconomic indicators around the world positively surprised in 2017 and the first half 2018, with the U.S. economy continuing to stand out over the past few months. U.S. non-farm payrolls reached an all-time high of almost 150 million in September. The U.S. economy’s resilience and prospects for rising inflation, combined with uncertainties around Europe and the future of globalization may have caused the U.S. dollar and bond yields to rise in tandem.

In spite of the trade tensions, global consumer and business spending is growing, and we expect people around the world will continue to buy goods and services and trade with one another. The dispersion in regional equity returns has created opportunities abroad for investors with longer time horizons.

The U.S. Federal Reserve has maintained the pace of target rate hikes, moving the upper bound of its Federal funds rate from 0.75% to 2.25% over the last seven quarters. Most major central banks around the world continue to pursue very easy monetary conditions, which artificially suppress interest rates and support prices of financial assets.

Our process and approach to investing remains consistent with a focus on high-quality companies with wide economic moats and low macro dependence. The stocks we own have the potential to grow rapidly because of secular or stock-specific factors that we think can help them sustainably compound business value over long time horizons. This results in a collective portfolio of stocks that we believe can navigate even choppier seas and may provide our investors with a return profile that is attractive on a risk-adjusted basis over a full market cycle.

We thank you for investing alongside us in Thornburg Core Growth Fund.

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, see the mutual funds performance page or call 877-215-1330. The maximum sales charge for the Fund’s A shares is 4.50%.

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Unless otherwise noted, the source of all data, charts, tables and graphs is Thornburg Investment Management, Inc., as of 6/30/18.

Investments carry risks, including possible loss of principal. Additional risks may be associated with investments outside the United States, especially in emerging markets, including currency fluctuations, illiquidity, volatility, and political and economic risks. Investments in small- and mid-capitalization companies may increase the risk of greater price fluctuations. Investments in the Fund are not FDIC insured, nor are they bank deposits or guaranteed by a bank or any other entity.

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