1st Quarter 2018

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Thornburg Investment Income Builder paid an ordinary quarterly dividend of $0.196 per I share in the quarter ending March 31, 2018. This is 5.4% higher than the dividend of $0.186 for the comparable quarter of 2017. The fund paid $1.01 per I share in the 12-month period ending March 31, 2018, up 21.7% from $0.83 in the prior comparable 12-month period. The trailing 12-months' dividends represent a 4.7% yield on the quarter-end net asset value for the I share class. The dividend per share was lower for A and C shares, to account for varying class-specific expenses.

The fund's net asset value declined by $0.74 per share ($22.10 to $21.36) during the March quarter. For the trailing 12 months ending March 31, 2018, the fund's net asset value increased by $0.70 per share ($20.66 to $21.36).

Investment Income Builder's I share returns of negative 2.40% for the March quarter trailed its blended benchmark (75% MSCI World Index and 25% Bloomberg Barclays U.S. Aggregate Bond Index) return by 1.08 percentage points for the quarter. Currency hedges utilized to protect the U.S. dollar value of the fund's non-U.S. assets detracted roughly 0.65 percentage points from relative performance in the first quarter, as the value of the U.S. dollar declined against many foreign currencies. Performance comparisons of Investment Income Builder to its blended benchmark over various periods are shown on the fund performance page.

Over the longer term, earnings growth should drive equity prices and dividend payments. We are optimistic about the return potential of the Investment Income Builder portfolio. We currently expect 2018 earnings per share growth of our equity portfolio companies to average close to 10% on a position-weighted average basis.

The quarter ending March 31, 2018, was the 61st 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 13 of its 15 calendar years of existence. As of March 31, 2018, Thornburg Investment Income Builder has delivered tax-efficient average annual total returns of 9.8% since its inception.

In assessing the first-quarter 2018 performance of Thornburg Investment Income Builder, it is constructive to consider the U.S. dollar performance of the sector components of the MSCI World Index over the three-month period (the MSCI World Index comprises 75%, which is the entire equity portion, of the fund's global performance benchmark):

  1. Nine of 11 index sectors showed negative total returns in the first three months of 2018, with sector results ranging from approximately negative 5.85% (telecommunications) to 3.40% (information technology). Stocks of firms in the consumer discretionary and health care sectors joined technology sector stocks in outperforming the index in the quarter. Stocks of firms in the industrials, consumer staples, real estate, utilities, financials, materials, and energy sectors joined telecommunications stocks in underperforming the index for the March quarter.
  2. Relative to the MSCI World Index, Thornburg Investment Income Builder's portfolio was significantly overweight the higher dividend-paying telecommunications and financial 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 first quarter:
    • Financial sector (28% average weighting in the fund's equity portfolio, up two percentage points over the quarter)
    • Telecommunications sector (16% weighting in the fund's equity portfolio; down two percentage point over the quarter)
    • Energy sector (13% weighting in the fund's equity portfolio; unchanged over the quarter)
    • Information technology sector (7% weighting in the fund's equity portfolio, unchanged over the quarter)
    • Health care sector (8% weighting in the fund's equity portfolio; up two percentage point over the quarter)
    • Consumer staples sector (6% weighting in the fund's equity portfolio; down one percentage point over the quarter)
    • Industrials sector (6% weighting in the fund's equity portfolio, unchanged over the quarter)
    • Consumer discretionary sector (5% weighting in the fund's equity portfolio; unchanged over the quarter)
  4. The fund's quarterly performance relative to the index in the first quarter was hindered by its large weighting in the telecommunications sector, currency hedges, and low weighting in firms in the technology and consumer discretionary sectors. The value of the U.S. dollar broadly declined vis-á-vis most foreign currencies. The fund's first-quarter performance relative to the index was helped by comparative outperformance from its holdings in the financials, energy, and utilities sectors.
  5. In the Investment Income Builder portfolio, 17 equity investments contributed positive returns of at least .05% (five basis points) to the portfolio during the first three months of the year, while 26 of the fund's equity investments contributed negative returns of negative 0.05% or worse in the period.

Investment Income Builder's bond holdings delivered modest negative returns during the quarter. Corporate and U.S. government bond prices were slightly down during the quarter. The Bloomberg Barclays U.S. Aggregate Bond Index and FINRA-Bloomberg Active High Yield U.S. Corporate Bond Index also had moderately negative returns during the quarter.

Your fund's average return from its investments in the financial sector exceeded the performance of the equities in the finance sector of the MSCI World Index in the first quarter of 2018. JPMorgan Chase, Singapore's DBS Group, CME Group, Deutsche Boerse, Itau Unibanco, Ares Capital, and Dutch insurer NN Group were among the strongest performers in the portfolio. European banks ING Group, UBS Groep, and HSBC Holdings were weak performers in the quarter.

Your fund's significant holdings in the telecommunications sector delivered disappointing share price performances in the January-through-March period, despite delivering improved overall trajectories of service revenue and operating profits in recent quarters. U.S. network operator AT&T joined England's BT Group, China Mobile, Netherlands operator KPN, and multi-national operator Vodafone in detracting from portfolio performance in the first quarter of 2018. Institutional investors were net sellers of telecommunications sector equities in 2017, and again in the first quarter of 2018, in order to redeploy proceeds into more cyclical investments.

Among Investment Income Builder's investments in the energy sector, Lukoil, U.S. pipeline operator ONEOK, Italy's ENI, and French multi-national Total each delivered positive first-quarter returns. Royal Dutch Shell and Canada's Suncor were negative contributors for the quarter, following positive 2017 contributions to portfolio performance. The average Brent oil price rose approximately 50% from mid-June 2017 through March 31, 2018, though virtually all of this appreciation occurred in the last half of 2017. Supply and demand fundamentals appear to be positive for the sector in 2018, as ongoing global consumption increases have been matched with disciplined industry output.

Investment Income Builder's investments in the technology sector delivered mixed performances in the March quarter. Digital communications device designer Qualcomm, which received a takeover bid of $79/share from Broadcom last year, was a negative contributor to fund performance after its share price dipped to $55.41 into quarter end, following communication of U.S. government opposition to the proposed combination for national security reasons. We believe the acquisition proposal was constructive in establishing a valuation benchmark from an arm's-length acquirer, and in shaking up the Qualcomm board of directors. Taiwan Semiconductor and Advanced Semiconductor each continued to benefit from supplying semiconductors to a growing number of connected devices. The Investment Income Builder portfolio was not directly exposed to the recent headline making "data privacy" controversies surrounding some of the largest technology sector firms.

Investment Income Builder's investments in the industrials sector were modestly negative in the March quarter, in line with overall sector results. European tollroad operators Vinci and Atlantia each delivered negative returns despite a surprisingly strong European economy that continues to provide a tailwind to road traffic, operating profits, and dividend growth (13.7% and 19.6% year-over-year dividend increases from these firms, respectively.)

Investment Income Builder's first-quarter 2018 returns from its holdings in the health care sector lagged the modestly negative return of this sector within the MSCI index during the quarter. Merck, Novartis, and Roche Holding each detracted as political rhetoric against drug prices continued; however, results from key clinical trials of new drugs appeared to improve.

Investment Income Builder investments in the consumer staples sector lagged the overall negative returns of this sector within the MSCI index. Korea Tobacco & Ginseng, Walgreen's, and Nestle each detracted from portfolio performance. We sold shares of drugstore operator CVS early in the quarter after considering further information regarding a proposed merger with Aetna that would appear to constrain intermediate-term dividend growth. For this reason, CVS was a positive contributor to quarterly portfolio performance, as we exited before the shares declined later in the quarter.

Among other portfolio holdings, notable contributors to March quarter portfolio performance included Électricité de France, casino operator Las Vegas Sands, and Asian infrastructure investor Hopewell Holdings. Negative contributors included building supply retailer Home Depot, Lamar Advertising, British American Tobacco, and U.S. real estate investment trusts Washington REIT and Colony NorthStar. We have reduced portfolio positions in both these REITs.

A weaker U.S. dollar increased the value of our non-U.S. assets during 2018. 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. As was the case in calendar 2017, these hedges detracted from the relative performance of Thornburg Investment Income Builder during the first quarter, since benchmark indices are not hedged. We are more focused on risk control than on reaping possible currency gains from exposure to assets denominated in these currencies.

Yields on various maturities of U.S. dollar-denominated bonds rose during the March quarter:

  • Ten-year U.S. government bond yields moved approximately 0.34 basis points higher, to 2.77%. Since bond prices move in the opposite direction to yields, prices of longer- maturity U.S. government bonds modestly declined during the quarter.
  • Investment-grade corporate bond yields, as indicated by the FINRA- Bloomberg Active Investment-Grade U.S Corporate Bond Index, rose approximately 0.48 basis points to 4.05%.
  • High-yield ("junk") corporate bond yields also rose to a March 31 level of 5.97% for the FINRA-Bloomberg Active High Yield U.S. Corporate Bond Index, vs 5.82% at December 31, 2017.

Within its bond portfolio, Investment Income Builder owned significantly fewer U.S. government and agency bonds than the Bloomberg Barclay's U.S. Aggregate Bond Index, which delivered a negative 1.46% March quarter return. You can expect us to increase the portfolio's allocation to bonds if rising yields lead to significantly lower bond prices. Readers of this commentary who are longtime 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.

Interest Bearing Investments as a Percentage of Total Portfolio

As of March 31, the fund portfolio included more than 80 bonds and hybrid securities.

Today, investors are debating the future direction of the economies of China, Europe, various emerging markets, and the U.S. They are considering potential policy actions by the U.S. Federal Reserve, Congress, the Trump administration, and foreign government regulatory and policy actions, including trade policies. Many political and macroeconomic issues remain open. Importantly, overall global consumer spending is growing, along with global industrial production. Most macroeconomic indicators around the world positively surprised in 2017 and the first quarter of 2018, with the U.S. a relative laggard.

Owing to strong recent results, earnings expectations for the MSCI All Country World Index for 2018 have improved in recent months, as have global economic growth expectations. Most firms held in Thornburg Investment Income Builder's portfolio are also expected to deliver positive year-over-year earnings in 2018. These positive trends continue to support a rotation of investor preferences from more defensive debt and equity assets to more economically sensitive assets, though with increasing debate around valuation and the expected duration of the global economic growth cycle. Following passage of significant changes to U.S. corporate and personal income tax laws, it appears that political gridlock will prevail in Washington, DC, in 2018. The U.S. Federal Reserve has stepped up the pace of Federal funds target rate hikes, moving the target from 0.75% to 1.75% over the last five quarters. Most major central banks around the world continue to pursue very easy monetary conditions, which artificially suppress interest rates.

While low interest rates 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 less than 0.7% in 2015, according to Statistics of Income published by the Internal Revenue Service.

Investors must consider other options. Banks in the U.S. offer below-inflation yields on most deposits. A very large pool of investor dollars is looking for better returns elsewhere, but in sensible investments. We are optimistic that the types of income-producing investments owned by Thornburg Investment Income Builder Fund will experience sustainable popularity among investors as their 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 3/31/18 – A Shares: 2.95%; I Shares: 3.35%.

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 thornburg.com. Read them carefully before investing.

Unless otherwise noted, the source of all data, charts, tables and graphs is Thornburg Investment Management, Inc., as of 3/31/18.

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.

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.

The information given should not be considered tax advice. Please consult your tax advisor for personal tax questions and concerns.

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.

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