3rd Quarter 2017

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Thornburg Investment Income Builder paid an ordinary quarterly dividend of $0.279 per I share in the quarter ended September 30, 2017, a 31% increase from $0.212 for the comparable quarter of 2016. The fund paid $0.915 per I share in the 12 months ended September 30, 2017, up 5.4% from the trailing 12-month dividend from one year earlier. The dividend per share was lower for A and C shares to account for varying class-specific expenses.

The fund's net asset value for I shares increased by $0.60 per share ($21.05 to $21.65) during the quarter. For the trailing 12 months ended September 30, 2017, the fund's net asset value increased by $1.68 per share ($19.97 to $21.65). Both the dividend and portfolio value appreciation contributed to the positive September quarter and trailing one-year returns, as has been the case over the history of the fund.

Investment Income Builder's I share return of 4.19% for the September quarter exceeded its blended benchmark (75% MSCI World Index and 25% Bloomberg Barclays U.S. Aggregate Bond Index) return by 0.35%. The fund's 13.30% total return for the 12 months ended September 30, 2017, trailed the blended benchmark by 0.10%. Performance comparisons of Investment Income Builder to this benchmark over various periods are shown on thornburg.com. Reviewing these, you will see the performance of the fund compares well over longer periods, though disappointing results in late 2014 and 2015 weigh on comparisons over the trailing three- and five-year periods. We are optimistic about the return potential of the Investment Income Builder portfolio.

The quarter ended September 30, 2017, was the 59th full calendar quarter since the inception of Thornburg Investment Income Builder in December 2002. In 45 of these quarters, the fund delivered a positive total return. The fund has delivered positive total returns in 12 of its 14 calendar years of existence. As of September 30, 2017, Thornburg Investment Income Builder has delivered tax-efficient average annual total returns in excess of 10% since its inception (I shares).

Dividend increases from your fund's equity portfolio drove the year-over-year increase in the dividend paid by Thornburg Investment Income Builder, particularly a special dividend paid this quarter by China Mobile, the fund's largest single investment. The following table shows the year-over-year percentage changes in trailing 12-month dividends paid by the 10-largest equity positions in the fund:

In assessing the third-quarter 2017 performance of Thornburg Investment Income Builder, it is constructive to consider the performance in U.S. dollars of the sector components of the MSCI World Index over the three-month period. The MSCI World Index comprises 75%, and the entire equity portion, of the fund's global performance benchmark:

  1. Ten of 11 index sectors showed positive total returns for the third-quarter of 2017, with sector results ranging from approximately negative 0.50% (consumer staples) to almost 9% (energy). Stocks of firms in the materials, financials, industrials, and information technology sectors joined energy sector stocks in outperforming the index. Stocks of firms in the telecommunications, utilities, real estate, consumer discretionary, and health care sectors joined consumer staples stocks in generally underperforming the index for the September quarter.
  2. Relative to the MSCI World Index, Thornburg Investment Income Builder's portfolio was significantly overweight the higher dividend-paying telecommunications, financial, and energy sectors, as it has been for most of its history.
  3. Investment Income Builder Fund investments in firms in the following sectors comprised the largest average sector weightings in the fund portfolio during the third quarter:
    • Financials sector (25% average weight in the fund's equity portfolio; down nearly 150 basis points during the quarter)
    • Telecommunications sector (19% average weight in the fund's equity portfolio; basically unchanged over the quarter)
    • Energy sector (11% average weight in the fund's equity portfolio; increasing just over 100 basis points during the quarter)
    • Industrials sector (7% average weight in the fund's equity portfolio; down slightly during the quarter)
    • Health care sector (7% average weight in the fund's equity portfolio; unchanged during the quarter)
    • Consumer staples sector (7% average weight in the fund's equity portfolio; basically unchanged during the quarter)
    • Consumer discretionary sector (6% average weight in the fund's equity portfolio; down nearly 150 basis points during the quarter)
    • Information technology (5% average weight in the fund's equity portfolio; increasing slightly during the quarter)
  4. The fund's quarterly performance relative to the MSCI World Index in the third quarter was hindered by its large weighting in the telecommunications sector, currency hedges, and low weighting in firms in the information technology and industrials sectors. The fund's underweight in the materials sector also dampened the benefit of strong stock selection in the sector. The value of the U.S. dollar broadly declined vis-á-vis most foreign currencies. The fund's performance relative to the index was helped by comparative outperformance from its holdings in the financials, energy, utilities, and materials sectors.
  5. In Investment Income Builder portfolio, 33 equity investments contributed positive returns of at least 0.05% (five basis points) to overall portfolio performance during the third quarter. Six of the fund's equity investments detracted 0.05% or more for the quarter.

Investment Income Builder's bond holdings delivered modest positive returns during the quarter. Corporate bond prices were mixed during the quarter, as we detail later in this note.

Your fund's average return from its investments in the financials sector were strongly positive in the third quarter of 2017. Exchange operator CME Group, JP Morgan Chase & Co, mortgage REIT MFA Financial, and various European financial firms (including NN Group, BNP Paribas, and ING Groep) were among the strongest performers in the portfolio. We have adjusted your fund's exposure to these names in recent months, reducing investments in firms that we anticipate will be negatively impacted by higher and more volatile interest rates, while adding to others that would be expected to benefit in such an environment.

Your fund's significant holdings in the telecommunications sector delivered an overall positive performance in the third quarter. However, the quarterly returns did not keep pace with the MSCI World Index. Telenor and Dutch incumbent KPN were significant positive contributors to performance, while CenturyLink delivered a negative return, which weighed on the quarterly result. Institutional investors have been net sellers of telecommunications sector equities in recent quarters to redeploy proceeds into more cyclical investments. Importantly, long-time portfolio holding China Mobile paid a special dividend in September from its excess cash balances. This payment alone boosted your fund's quarterly dividend by almost $0.04 per share.

Following negative returns in the first half of 2017, your fund's investments in the energy sector rebounded in the September quarter. The Brent crude oil price increased approximately 20%, from $47.92 to $57.54 during the quarter, following declines in the first half of 2017. Royal Dutch Shell, Italy's ENI, Suncor Energy, refiner Valero Energy, pipeline operator ONEOK, Russia's LUKOIL, and French multinational Total each delivered significant positive returns in the third quarter. Considering a longer time period for hydrocarbon prices, the average Brent oil price fell from approximately $115/barrel in June 2014 to a January 2016 low of $28/barrel, before recovering to $56.82/barrel at December 31, 2016. Importantly, global demand for oil and natural gas continues to grow in 2017.

Investment Income Builder's investments in the industrials sector were also positive in the September quarter. European toll-road operators Vinci and Atlantia each delivered significant positive total returns. In general, the stock prices of these firms are more volatile than their business results. We try to take advantage of this volatility.

Investment Income Builder's investments in the consumer discretionary sector were overall positive in the September quarter, led by Home Depot, French media conglomerate Vivendi, and U.S. retailer Target Corporation, which partially recovered from earlier underperformance.

Investment Income Builder's third-quarter 2017 returns from its holdings in the health care sector were modestly positive, led by Novartis and Pfizer.

Investment Income Builder investments in the consumer staples sector detracted from portfolio performance in the third quarter. Korea Tobacco & Ginseng and Nestle were the largest detractors in the quarter, and the fund's other consumer staples sector investments did not deliver significant enough positive performance to offset these.

Among other portfolio holdings, notable contributors included Taiwan Semiconductor, chemicals firm LyondellBasell, nickel producer Norilsk Nickel, and European electric utilities Électricité de France and ENEL. Detractors included Qualcomm, Lamar Advertising, and U.S. financial conglomerate Colony NorthStar.

A weaker U.S. dollar elevated the value of our non-U.S. assets during the September quarter; however, we hedged a majority of the currency exposure of our asset positions denominated in the Australian dollar, the British pound, the euro, the Chinese yuan, and the Swiss franc. These hedges restrained portfolio performance during the September quarter. We are more focused on risk control than on reaping possible currency gains from exposure to assets denominated in these currencies. We do not hedge the currency risk of our dividend income exposure to these currencies, so the weaker dollar was modestly positive to your fund's dividend income for the quarter.

Within its bond portfolio, Investment Income Builder owned significantly fewer U.S. government and agency bonds than the Bloomberg Barclays U.S. Aggregate Bond Index. We modestly increased the portfolio's allocation to bonds early in 2016, when corporate bond prices were under pressure. But we pruned positions in several lower quality credits during the September quarter, taking advantage of favorable liquidity conditions in the high yield bond market. You can expect us to increase the portfolio's allocation to bonds if rising yields lead to significantly lower bond prices. We are unlikely to reduce the allocation to bonds significantly from the current modest level. Readers of this commentary who are long-time shareholders of Investment Income Builder will recall that the interest-bearing debt portion of the fund's portfolio has varied over time, ranging from less than 9% in 2015 to 45% at June 30, 2009 (see Chart 1). As of September 30, 2017, the fund portfolio included approximately 100 bonds and hybrid securities.

During the third quarter of 2017, investors debated the future direction of the economies of China, Europe, various emerging markets, and the U.S. They considered potential policy actions by the U.S. Federal Reserve, Congress, the Trump administration, and policy actions following significant elections in France and Germany. Many political and macroeconomic issues remain open. Importantly, overall global consumer spending is growing. Most macroeconomic indicators around the world have positively surprised in the first three quarters of 2017, with the U.S. a relative laggard.

Owing to strong recent results, earnings expectations for the MSCI All Country World Index portfolio for 2017 have improved in most world markets in recent months, along with global economic growth expectations. These trends continue to support a rotation of investor preferences from more defensive debt and equity assets to more economically sensitive assets. It now appears that political gridlock will persist in Washington, D.C., though the U.S. Federal Reserve has stepped up the pace of Federal funds target rate hikes. Most major central banks around the world continue to pursue very easy monetary conditions, so offshore demand for U.S.-dollar bonds remains strong. Yields on various maturities of U.S. government bonds rose slightly in the September quarter:

  • Ten-year U.S. government bond yields moved approximately 0.03% higher. Since bond prices move in opposite direction to yields, prices of longer maturity U.S. government bonds modestly declined during the quarter.
  • Investment-grade corporate bond yields also moved slightly higher, indicated by the 0.01% rise in the FINRA-Bloomberg Active Investment- Grade U.S. Corporate Bond Index, from 3.54% at June 30 to 3.55% at September 30.
  • High yield ("junk") corporate bond yields dropped, as indicated by the 0.21% decline in the FINRA- Bloomberg High-Yield U.S. Corporate Bond Index, from 5.64% at June 30 to 5.39% at September 30. During 2016, these yields dropped by 2.65% as spreads to government bond yields compressed, leading to significant price gains on high-yield bonds over the last seven quarters. The bankruptcy of specialty retailer Toys "R" Us caught bond investors by surprise in September, and highlights the headwinds faced by "brick and mortar" retailers.

While low interest rates seen in recent years around the world are good news for borrowers, they have negative consequences for conservative savers. Interest income as a percentage of the aggregate adjusted gross income of U.S. households fell from 2.2% in 2009 to 0.7% in 2015, according to Statistics of Income published by the Internal Revenue Service.

Investors must consider other options. Yields on taxable and tax exempt money funds average below one/half of one percent. Banks in the U.S. have aggressively reduced yields on all deposits. A very large pool of investor dollars is looking for better returns elsewhere, but in sensible investments. We are optimistic the types of income-producing investments owned by Thornburg Investment Income Builder Fund should remain attractive to investors, as these investments' intrinsic values for income production are recognized. A high percentage of investor funds belong to people over the age of 55, for whom income is an increasingly necessary and desirable attribute.

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%.

30-day SEC Yield as of 9/30/17 - Class A shares: 2.90%; Class I shares: 3.30%.

Important Information
Before investing, carefully consider the Fund’s investment goals, risks, charges, and expenses. For a prospectus or summary prospectus containing this and other information, contact your financial advisor or visit our literature center. Read them carefully before investing.

Unless otherwise noted, the source of all data, charts, tables and graphs is Thornburg Investment Management, Inc., as of 9/30/17.

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.

The views expressed are subject to change and do not necessarily reflect the views of Thornburg Investment Management, Inc. This information should not be relied upon as a recommendation or investment advice and is not intended to predict the performance of any investment or market.

Any securities, sectors, or countries mentioned are for illustration purposes only. Holdings are subject to change. Under no circumstances does the information contained within represent a recommendation to buy or sell any security.

Dividends are not guaranteed.

The performance of any index is not indicative of the performance of any particular investment. Unless otherwise noted, index returns reflect the reinvestment of income dividends and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. Investors may not make direct investments into any index.

There is no guarantee that the Fund will meet its investment objectives.

Please see our glossary for a definition of terms.

Thornburg mutual funds are distributed by Thornburg Securities Corporation.

Thornburg Investment Management, Inc. mutual funds are sold through investment professionals including investment advisors, brokerage firms, bank trust departments, trust companies and certain other financial intermediaries. Thornburg Securities Corporation (TSC) does not act as broker of record for investors.