1st Quarter 2018

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For the first quarter of 2018, Thornburg International Growth Fund returned 1.98% (I shares), exceeding its benchmark, the MSCI All Country World ex-U.S. (ACWI) Growth Index, which returned negative 0.87%. On March 31, 2018, the net asset value per class I share was $24.72.

Global markets rallied sharply to start the first month of the year as investors cheered both positive global economic growth data as well as the considerable and unprecedented level of late cycle fiscal stimulus that recently enacted U.S. tax reform was expected to unleash. However, that excitement quickly gave way to mounting concerns around elevating trade tensions and increasingly hawkish central bank policies. This rattled markets and we experienced a sharp rise in volatility for the first time in well over a year. Rather than de-escalating quickly, we saw proposed tariff plans between the U.S. and China increase in a tit-for-tat manner. Although global growth remains generally above trend, a full-blown trade war between the world's super powers would create a "stagflationary" environment that will both dampen growth and boost inflation, negatively impacting the ability of central banks to effectively set policy. With volatility returning and trade concerns mounting, equity indices, both in the U.S. and internationally, ended up posting negative returns this quarter.

Performance Discussion

During the quarter, only three of the benchmark's 11 sectors delivered positive returns in local currency terms. Those three sectors were information technology, utilities, and financials. Although the portfolio saw a benefit from being overweight information technology during the quarter, our best performing sectors were consumer discretionary, industrials and consumer staples as we achieved strong relative performance from positive underlying stock selection effects. The worst-performing sectors this quarter were energy, real estate, telecommunication services, and materials in that order. The portfolio had limited-to-no exposure to many of these sectors, contributing modestly to outperformance in the quarter.

From a geographic perspective, the portfolio delivered positive results relative to the benchmark out of every region except for emerging Asia. Within that particular region, our underweight positioning in Taiwan and Korea detracted slightly from performance as those geographies are generally technology heavy and, as a result, performed well relative to other geographies in the quarter. We realized particularly good performance out of the eurozone, EMEA (emerging Europe, the Middle East, and Africa), and Japan. Although our allocation effects to each of these geographies were relatively neutral, we benefited from favorable stock selection. As a reminder, the portfolio's regional exposure is not a top down call or a function of specific targets that we set, but rather an organic output of our rigorous, fundamentally driven bottom-up process that seeks to invest in high-quality businesses, wherever they may be internationally.

A weaker U.S. dollar in the first quarter enhanced the returns of non-U.S. equities in both the benchmark and our portfolio; however, on a relative basis, our portfolio benefited modestly less than the benchmark due to our regional positioning and underlying currency mix.

Leading contributors to performance for the quarter included Japanese cosmetics company KOSÉ Corp., Italian online luxury fashion retailer YOOX Net-A-Porter Group, German footwear and apparel company adidas AG, Russian internet company Yandex NV, and French employee benefits and solutions administrator Edenred.

KOSÉ continues to benefit from multiple growth drivers, including rising demand for its premium skincare products from Chinese consumers, increasing market share in its domestic market and the rapid growth of its Tarte brand, which according to some surveys, is one of the most popular cosmetics brands in the U.S. with millennials.

Yandex's stock rallied as the company exhibited robust core search growth trends led by share gains in Russia and taxi results that suggest a path to profitability over the medium term as competitive intensity falls post the merging of operations with Uber.

YOOX rose as it received an all-cash acquisition offer from Swiss luxury goods company Richemont at a roughly 26% premium to the prior closing price.

Adidas re-rated upwards, closing some of the valuation gap to Nike, as it announced a €3 billion share repurchase program alongside an upwardly revised margin target, implying an attractive earnings growth algorithm over the medium term.

Edenred posted strong earnings, exceeding its own mid-term guidance targets. Furthermore, improving economic fundamentals in one of its key markets, Brazil, offers potential for further upside to earnings power.

Principal detractors from performance this quarter were German pharmaceuticals, agriculture and consumer health company Bayer AG, U.K.-based tobacco products company British American Tobacco plc, Macau casino operator MGM China Holdings Ltd., Swedish online casino software developer NetEnt AB, and Irish ingredients and flavors manufacturer Kerry Group plc.

Bayer experienced share weakness due to slowing industry-wide growth in agriculture and consumer health, which has also impacted peers. Although the timeline for the completion of the acquisition of Monsanto has been extended, recent news suggests that the company may be finally nearing U.S. anti-trust approval.

British American Tobacco's shares have fallen alongside broader consumer staples stocks, but also investor sentiment has weakened due to a variety of company- specific factors, such as a mixed earnings report and outlook as well as increased risk that the FDA may further regulate parts of the cigarette portfolio.

MGM opened its brand new MGM Cotai casino this quarter, and while we expect the property to gain meaningful market share as it matures, the market is becoming increasingly concerned that the pace of ramp up may be more gradual than previously expected.

NetEnt has seen organic growth slow in the face of maturing end markets and unfavorable regulatory changes. Furthermore, the company is undergoing a management transition as the board recently fired the chief executive for underperformance.

Kerry's earnings expectations have come down as adverse currency movements, namely a stronger euro, are pressuring margins. Although these currency headwinds dampen near-term earnings growth, the underlying fundamentals of the business and long-term outlook remain encouraging as Kerry continues to outgrow the industry.

Portfolio Activity

We had a relatively modest level of turnover in the portfolio as we initiated five new positions while also completely selling three positions during the quarter. Of the three sales this quarter, one stock achieved our price target while the other two stocks saw their growth prospects weaken, thus we proactively moved to redeploy the capital toward better opportunities.

One of the portfolio additions this quarter that ranked well within and made it through our high-quality growth investing process was U.K.-based global pharmaceutical company AstraZeneca plc. Quantitatively, the company scores well on various quality factors, such as return on equity, margins, leverage and earnings quality. Additionally, the company ranks well ahead of peers in terms of its composite ESG (environmental, social, and governance) score. As we performed our bottom-up fundamental research on the stock, we found a lot to like qualitatively as well. We see a business with attractive growth prospects and an improving fundamental and free cash flow profile as the business benefits from the growth of recently approved drugs and a healthy pipeline of potential blockbuster drugs. In particular, we are excited about a growing oncology portfolio and believe that over time it can represent nearly 40% of Astra's revenues. The growth of the oncology franchise should drive expanding margins, and we believe that markets are underestimating the longer-term earnings power of the business. Although not a primary part of our thesis, we see positive optionality from M&A (mergers & acquisitions) as Astra's portfolio of long-duration assets would be an interesting target to a larger pharmaceutical company looking to add accretive earnings or replenish a pipeline.

Outlook

We remain optimistic that global growth can continue to be broad based and above trend, but we do see a moderation in momentum. Although there are few, if any, overall winners in a trade conflict, we do expect the companies we own in this portfolio to prove relatively more insulated in such an event, thanks to their robust business models and sustainable competitive advantages within the secular growth themes we favor.

As we always have, we do not attempt to time markets or geopolitical events. Rather, we take a long-term, disciplined approach to investing. Through our fundamentally driven process, we seek to capture the most compelling high-quality growth stocks internationally, while effectively managing risk, to deliver our shareholders superior risk-adjusted returns through the market cycle.

The effectiveness of our process and philosophy was recently recognized in Thomson Reuters Lipper Fund Award for best International Multi-Cap Growth Fund (I Shares) for the 10-year period ended 11/30/17, among 245 funds. We are pleased to have received this prestigious award as it recognizes the hard work of everyone here at Thornburg and the leading risk-adjusted returns we have delivered for our shareholders over the past decade. We look forward to the next 10 years as we strive to continue delivering strong long-term performance.

We thank you for your confidence, trust, and investing alongside us in the Thornburg International 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%.

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 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.

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