1st Quarter 2019

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Thornburg Investment Income Builder Fund paid an ordinary quarterly dividend of $0.071 per I USD Distributing (unhedged) share in the quarter ending 31 March 2019. This compares to a dividend of $0.05 for the comparable quarter of 2018. The Fund paid $0.365 per I USD Distributing (unhedged) share in the 12-month period ending 31 March 2019.

The Fund’s net asset value increased by $0.65 per share ($10.01 to $10.66) during the March quarter. For the trailing 12 months ending 31 March 2019, the Fund’s net asset value increased by $0.05 per share ($10.61 to $10.66).

Investment Income Builder Fund’s I share (USD Distributing, unhedged) return of 7.00% for the March quarter, trailed its blended benchmark, which returned 10.07% for the quarter. The Fund’s 3.79% total return for the year ending 31 March 2019, lagged the blended benchmark by 0.54% for the 12-month period.

The quarter ending 31 March 2019, was the 27th full calendar quarter since the inception of the Fund in June 2012. In 19 of these quarters, the Fund delivered a positive total return. The Fund has delivered positive total returns in four of its six full calendar years of existence. As at 31 March 2019, Thornburg Investment Income Builder Fund has delivered tax-efficient average annual total returns of 7.30% since its inception (I USD Accumulating, unhedged shares).

Dividend increases from a majority of your Fund’s portfolio holdings did not quite offset the headwinds of (1) a stronger currency that reduced the U.S. dollar value of dividends paid in foreign currencies, and (2) year-over-year reductions in “special” dividends paid by two of the Fund’s larger holdings, China Mobile and CME Group. We cannot predict how currency fluctuations will impact your Fund’s 2019 dividend, but we do expect annual dividend growth this year for most of your Fund’s investments.

In assessing the first-quarter 2019 performance of Thornburg Investment Income Builder Fund, 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% (which is the entire equity portion) of the Fund’s global performance benchmark.

  1. All 11 index sectors showed positive total returns during the first quarter, with sector results ranging from approximately 8% (health care) to over 19% (information technology). Stocks of firms in the real estate, energy and industrials sectors joined information technology stocks in generally outperforming the strong returns to the index for the March quarter. Stocks of firms in the utilities, consumer staples, communications services, financials and materials sectors joined health care sector stocks in underperforming the index. In general, stocks of firms in sectors that are most sensitive to fluctuations in economic activity performed better, while stocks of firms in sectors less sensitive to changes in economic growth lagged, having previously held up better in both the December quarter and calendar 2018.
  2. Relative to the index, the Fund was significantly overweight the higher- dividend-paying telecommunications, financial and energy sectors, as it has been for most of its history.
  3. Income Builder Fund investments in firms in the following sectors comprised the largest average sector weightings in the portfolio during the first quarter:
    • Financial sector (22% average weighting in the portfolio; minus 1% weighting over the quarter)
    • Communications services sector (14% weighting in the portfolio; unchanged over the quarter)
    • Energy sector (10% weighting in the portfolio; minus 1% weighting over the quarter)
    • Information technology sector (9% weighting in the portfolio; unchanged weighting over the quarter)
    • Health care sector (11% weighting in the portfolio; plus 1% weighting over the quarter)
    • Industrials sector (8% weighting in the portfolio, plus 3% over the quarter)
    • Consumer staples sector (6% weighting in the portfolio; minus 2% weighting over the quarter)
    • Utilities sector (7% weighting in the portfolio; unchanged over the quarter)
  4. The Fund’s quarterly performance relative to the MSCI World Index in the first quarter of 2019 was helped by comparative outperformance from its holdings in the health care and consumer discretionary sectors. The Fund’s quarterly performance relative to the MSCI World Index during the quarter was hindered by underperformance from its holdings in the communications services, utilities, information technology, financials and consumer staples sectors.
  5. In the Income Builder portfolio, 48 equity investments contributed positive returns of at least 0.05% (five basis points) to the portfolio during the first quarter. Four of the Fund’s equity investments contributed returns of negative 0.05% or worse in the quarter.

Your Fund’s average return from its investments in the financial sector, though positive in the first quarter of 2019, underperformed the equities in the finance sector of the MSCI World Index. CME Group was one of the weakest performers in the portfolio. Axa Equitable Holdings, Apollo Investment Corporation, Ares Capital Corporation, and MFA Financial were strong performers in the quarter. Most of your Fund’s other holdings in the financial sector were positive for the quarter but delivered index-lagging performance. Heavy selling of most large banks and insurance companies around the world in late 2018 cut the share prices of many of these more than 20% during the December quarter. We expect additional share price rebounds ahead, following partial recoveries of most share prices in the March quarter. In general, earnings and portfolio credit quality for these firms are holding up better than earlier feared.

Your Fund’s significant holdings in the communications services sector delivered positive performance in the first quarter of the year, but lagged performance of the equities in this sector of the MSCI World Index. England’s BT Group and multi-national network operator Vodafone each delivered negative March quarter returns. U.S. network operator AT&T, which made a negative contribution to portfolio performance in the fourth quarter of 2018, bounced back strongly in the January- through-March period to make a strong contribution to portfolio performance. China Mobile, Deutsche Telekom, France-headquartered Orange and Netherland’s KPN each delivered positive performance in the quarter, but each significantly lagged index performance as investors rotated into more cyclical investments as the quarter progressed. Importantly for Thornburg Investment Income Builder Fund, each of our telecommunications holdings mentioned in this paragraph (other than BT Group) increased its dividend in 2018. We expect modest dividend increases from this group in 2019.

The entire energy sector was influenced down by the 35% drop in the Brent oil price to $53.80 during the December quarter, but made a significant recovery as Brent oil rallied 25% in the first quarter of 2019. Royal Dutch Shell, Total, ENI, pipeline operator ONEOK and U.S. refiner Valero each delivered significant positive returns in the quarter. For perspective on the $67.58 31 March 2019, price, the average Brent oil price fell from approximately $115 per barrel in June 2014 to a January 2016 low of $28 a barrel, before recovering to approximately $65 a barrel at the end of 2017. We expect volatile oil prices to persist. Demand fundamentals appear positive for the sector, following another 1.5 million barrels per day global consumption increase in 2018 that shows signs of repeating this year. Our investments in this sector are focused on resilient dividend payors with strong balance sheets.

Fund investments in the technology sector delivered positive returns in the March quarter, following significant price dips in the December quarter. Trade tensions, patent disputes, and evolving consumer preferences created uncertainty around the near-term outlook for device sales and optimizing the geographic spread of manufacturing networks. Strong positive contribution from Broadcom and Samsung in the March quarter were held back by less positive contributions from Taiwan Semiconductor and Qualcomm, however, all Fund investments in this sector contributed positive returns for the quarter. We expect most of these firms to benefit from the ongoing proliferation of “connected” digital devices and associated data flows since these firms hold important positions in the value chain for producing the devices as well as data transmission and storage capability. Over the last year, Broadcom, Taiwan Semiconductor and Qualcomm have increased dividends by more than 50%, 8% and 14%, respectively.

Investment Income Builder’s first-quarter returns from its holdings in the health care sector significantly outperformed the return of this sector within the index during the March quarter. Merck, Novartis and Roche Holding each made positive contributions to portfolio performance as results from key clinical trials of new drugs continue to be overall favorable. Pfizer was a negative contributor to portfolio performance for the quarter.

Income Builder’s investments in the industrials sector delivered strong positive returns in the March quarter, again reversing prior quarter weakness. European toll road operators Atlantia and Vinci and Hong Kong–based conglomerate Hopewell Holdings each made significant contributions to portfolio performance. This quarter Hopewell Holdings is expected to close on a buyout transaction from its largest shareholder at a premium to its earlier depressed share price.

Among other portfolio holdings, notable contributors to March quarter portfolio performance included U.S. communications infrastructure owner Crown Castle International, outdoor advertiser Lamar Advertising, Washington REIT, casino operator Las Vegas Sands, Home Depot, mine operator Norilsk Nickel and Italy-based multi-national electric utility Enel SpA. How’s that for a diverse set of dividend payors? Detractors from portfolio performance included Électricité de France and Walgreens Boots Alliance. Walgreen’s share price has been much more volatile than its business result in recent quarters, as speculation about a changing competitive landscape and regulatory intervention in the pharmaceutical value chain periodically overwhelms the positives of a more than 9% 2018 dividend increase and a share count that is down more than 13% over the last three-and-a-half years.

A stronger U.S. dollar decreased the value of our non-U.S. assets during 2018. This trend continued to a lesser extent in 2019, as the U.S. Dollar Index increased in value by just more than 1%. 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 added modestly to the relative performance of Thornburg Investment Income Builder Fund during the first quarter of the year, 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. However, we believe increasing U.S. government fiscal deficits could create conditions that would lead us to reduce hedges if these deficits persist.

Today, investors debate the future direction of the economies of China, Europe, various emerging markets, and the U.S. They consider potential policy actions by the U.S. Federal Reserve, Congress, the Trump administration and foreign government regulatory and policy actions. Concerns about tariffs and trade policy changes continue to impact share price movements of global producers of tradeable goods, which are volatile day-to-day. We expect the volatility to continue until new trade policies are established.

We believe people around the world will continue to buy goods and services and trade with each other. Importantly, overall global consumer spending grew in 2018 and appears poised to grow in 2019, along with global population and industrial production. Following the largest annual price declines since 2008 for U.S. and many other equity markets in the December 2018 quarter, prices bounced back by double-digit percentages in most global equity markets in the March quarter. Despite uncertainty around macroeconomic policies and expectations for slowing economic growth in 2019 and beyond, employment and wage growth trends remain positive, consumer debt is under control and many governments have room to implement expansionary fiscal policies.

Most firms held in Thornburg Investment Income Builder’s portfolio delivered positive year-over-year earnings in 2018, even as the U.S. Federal Reserve hiked the Federal funds target rate to 2.50%, roughly in line with year-over-year average consumer price inflation measures last year. 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.

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 4% in 2007 to less than 2% in 2016, 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 the 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, visit the Prices & Performance page.

Important Information

Source of data: Factset, BBH, Confluence, Bloomberg—unless otherwise stated.

Date of data: 31 March 2019—unless otherwise stated

Investments carry risks, including possible loss of principal. Additional risks may be associated with investments 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 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 Fund is a sub-fund of Thornburg Global Investment plc, an open-ended umbrella type investment company with segregated liability between sub-funds, authorised by the Central Bank of Ireland (CBI) on 25 November 2011 as an investment company pursuant to the UCITS Regulations. Authorisation of the Company by the CBI is not an endorsement or guarantee of the Company by the CBI nor is the CBI responsible for the contents of the Prospectus or KIID.

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To determine a fund's Morningstar Rating™, funds and other managed products with at least a three-year history are ranked in their categories by their Morningstar Risk-Adjusted Return scores. The top 10% receive 5 stars; the next 22.5%, 4 stars; the middle 35%, 3 stars; the next 22.5%, 2 stars; and the bottom 10% receive 1 star. The Risk-Adjusted Return accounts for variation in a managed product's monthly excess performance (excluding sales charges), placing more emphasis on downward variations and rewarding consistent performance. Other share classes may have different performance characteristics. © 2019 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

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