UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-03752
AMG FUNDS III
(Exact name of registrant as specified in charter)
One Stamford Plaza, 263 Tresser Boulevard, Suite 949,
Stamford, Connecticut 06901
(Address of principal executive offices) (Zip code)
AMG Funds LLC
One Stamford Plaza, 263 Tresser Boulevard, Suite 949,
Stamford, Connecticut 06901
(Name and address of agent for service)
Registrant’s telephone number, including area code: (203) 299-3500
Date of fiscal year end: DECEMBER 31
Date of reporting period: JANUARY 1, 2020 – DECEMBER 31, 2020
(Annual Shareholder Report)
| Item 1. | Reports to Shareholders |
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ANNUAL REPORT |
| AMG Funds | ||||||||
| December 31, 2020 | ||||||||
| AMG Managers Loomis Sayles Bond Fund
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Class N: MGFIX |
Class I: MGBIX |
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| AMG Managers Special Equity Fund | ||||||||
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Class N: MGSEX |
Class I: MSEIX
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amgfunds.com
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123120 | AR078 |
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AMG Funds Annual Report — December 31, 2020 |
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PAGE
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| LETTER TO SHAREHOLDERS | 2 | |||||
| ABOUT YOUR FUND’S EXPENSES | 3 | |||||
| PORTFOLIO MANAGER’S COMMENTS, FUND SNAPSHOTS AND SCHEDULES OF PORTFOLIO INVESTMENTS | ||||||
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| 15 | ||||||
| FINANCIAL STATEMENTS |
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| 28 | ||||||
| Balance sheets, net asset value (NAV) per share computations and cumulative distributable earnings (loss) |
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| 30 | ||||||
| Detail of sources of income, expenses, and realized and unrealized gains (losses) during the fiscal year |
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| 31 | ||||||
| Detail of changes in assets for the past two fiscal years |
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| 32 | ||||||
| Historical net asset values per share, distributions, total returns, income and expense ratios, turnover ratios and net assets |
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| 36 | ||||||
| Accounting and distribution policies, details of agreements and transactions with Fund management and affiliates, and descriptions of certain investment risks |
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| 43 | ||||||
| 44 | ||||||
| 45 | ||||||
Nothing contained herein is to be considered an offer, sale or solicitation of an offer to buy shares of any series of the AMG Funds Family of Funds. Such offering is made only by prospectus, which includes details as to offering price and other material information.
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Letter to Shareholders |
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| As a shareholder of a Fund, you may incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on $1,000 invested at the beginning of the period and held for the entire period as indicated below.
ACTUAL EXPENSES
The first line of the following table provides information about the actual account values and |
actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the following table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s
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actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. |
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| THE YEAR IN REVIEW
AMG Managers Loomis Sayles Bond Fund’s Class N (the “Fund”) shares returned 7.34% for the year ended December 31, 2020, underperforming the Bloomberg Barclays U.S. Government/Credit Bond Index, which returned 8.93%.
The underperformance can be partially attributed to our shorter-than-benchmark duration as yields fell throughout the year. The underweight allocation to U.S. Treasuries dampened performance during the year. U.S. Treasuries were a safe haven during the first half of the year once COVID-19 struck the U.S. and economic lockdowns followed. Investors flocked to safety as the U.S. Federal Reserve (the “Fed”) began implementing a stimulus package and quantitative easing (“QE”). We still see U.S. Treasuries as somewhat overvalued as the Fed continues with QE into 2021. We remain underweight in U.S. Treasuries and look for richer returns in other market segments. The treasury impact was the largest detractor during the year.
Our exposure to securitized markets, specifically asset-backed securities, detracted from performance for the year. Similarly, our allocation to equity detracted from performance. AT&T was the largest detractor from performance in this sector.
On an absolute and excess basis, high yield credit positively contributed to performance. Security selection was the major driver in this sector. The sector benefited from the change in investor risk sentiment as positive vaccine news and economic recovery seemed within reach.
Despite the sharp downturn in March, investment grade credit generated positive return for the Fund and was the top performing segment for the year. Throughout the period, basic industry, consumer cyclical, and insurance names moderately increased excess return. Investors began to return to high quality corporates during the second half of the year rather than flocking to U.S. Treasuries as before in search of higher yields. We will continue to be selective and opportunistic as we add credit to the portfolio during 2021. |
LOOKING FORWARD
Looking ahead to the upcoming year, there are a number of structural economic factors in place that pose risks to our market outlook, including the ongoing impact of the pandemic, further delay in reaching a fiscal package, and any resurgence of trade tensions between the U.S. and China. That said, we are optimistic that economic conditions could continue to show improvement over the next year. This view is reflected in current market prices and appears to be shared by the consensus.
While the recent rise in coronavirus cases has led to renewed containment measures across the U.S., the arrival of a vaccine has been priced into markets along with expectations for a fiscal package to arrive in the first quarter of the year. These measures help give us some confidence that the economic recovery could continue to show steady, if uneven, progress. Gross Domestic Product (GDP) growth rebounded from the steep declines earlier this year, and we expect this trend to continue into next year.
We anticipate limited changes in monetary policy, with the Fed likely maintaining its zero interest rate policy until at least 2023. The Fed has also indicated that full employment and longer-term inflation averages are additional factors in considering any future rate hikes. This accommodative stance should continue to boost investor confidence and demand for yield in a low global rate environment. In addition, we believe the overall health of the consumer, a strong housing market, and expected inventory rebuilding provide support to our outlook.
The markets have been progressing through the credit cycle,1 and we believe there are increasing signs of a shift toward recovery with corporate profits rebounding, easing monetary policy, balance sheet improvement, and potential for large-scale vaccine distribution.
We have been maintaining a balance of liquidity, diversification, and risk exposure in the Fund. Within our credit allocation, we continue to focus on areas where we still see value based on our fundamental research. We are specifically focused on some of the |
sectors that were hardest hit by the pandemic, including the transportation, recreation, and hospitality industries. These areas of the economy include credits that have been cheap for their rating, have been able to access the capital markets for liquidity, and are likely in a good position to benefit from the recovery.
Despite the higher valuations, we believe there are still selective opportunities in both the investment grade and high yield corporate sectors. Spreads have compressed but can potentially tighten further on improving fundamentals. We are selectively adding corporate credit, particularly in areas of the market that have lagged the recovery.
Our emerging market allocation largely represents U.S. dollar-pay exposure to high quality securities with strong balance sheets and currently attractive real yields. We are holding modest foreign currency but continue to evaluate opportunities in markets outside the U.S. as we look for clarity on the outlook for global growth.
Market conditions in the past year have highlighted the notion that investors tend to overreact. The speed and severity of the recession and subsequent sharp rebound were unexpected, but also presented some favorable investment opportunities. These developments have served to reinforce our investment philosophy that markets are highly inefficient in the short term. We believe we were able to capitalize on these developments in 2020 and that the Fund is well positioned to benefit from the expected economic growth and recovery in the new year.
1A credit cycle is a cyclical pattern that follows credit availability and corporate health.
This commentary reflects the viewpoints of the portfolio manager, Loomis, Sayles & Company, L.P. as of December 31, 2020, and is not intended as a forecast or guarantee of future results. |
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AMG Managers Loomis Sayles Bond Fund Portfolio Manager’s Comments (continued) |
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AMG Managers Loomis Sayles Bond Fund | ||
| Portfolio Manager’s Comments (continued) |
| 11 The Bloomberg Barclays U.S. Government/Credit Bond Index is an index of investment grade government and corporate bonds with a maturity date of more than one year. Unlike the Fund, the Bloomberg Barclays U.S. Government/Credit Bond Index is unmanaged, is not available for investment and does not incur expenses.
Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance |
L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank PLC (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes
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any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
Not FDIC insured, nor bank guaranteed. May lose value. |
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| AMG Managers Loomis Sayles Bond Fund Fund Snapshots (unaudited) December 31, 2010 |
Credit quality ratings shown above reflect the highest rating assigned by either Standard & Poor’s (“S&P”), Moody’s Investors Service, Inc. (“Moody’s”) or Fitch. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by any of the rating agencies. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change.
Because a fund’s strategy may result in multiple investments in particular sectors of the economy, its performance may depend on the performance of those sectors and may fluctuate more widely than investments diversified across more sectors. For additional information on these and other risk considerations, please see the Fund’s prospectus.
Any sectors, industries, or securities discussed should not be perceived as investment recommendations. Mention of a specific security should not be considered a recommendation to buy or solicitation to sell that security. Specific securities mentioned in this report may have been sold from the Fund’s portfolio of investments by the time you receive this report.
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| AMG Managers Loomis Sayles Bond Fund |
| Schedule of Portfolio Investments |
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December 31, 2020 |
The accompanying notes are an integral part of these financial statements.
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AMG Managers Loomis Sayles Bond Fund Schedule of Portfolio Investments (continued)
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The accompanying notes are an integral part of these financial statements.
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AMG Managers Loomis Sayles Bond Fund Schedule of Portfolio Investments (continued) |
The accompanying notes are an integral part of these financial statements.
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AMG Managers Loomis Sayles Bond Fund Schedule of Portfolio Investments (continued) |
The accompanying notes are an integral part of these financial statements.
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AMG Managers Loomis Sayles Bond Fund Schedule of Portfolio Investments (continued) |
The accompanying notes are an integral part of these financial statements.
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AMG Managers Loomis Sayles Bond Fund Schedule of Portfolio Investments (continued) |
The following table summarizes the inputs used to value the Fund’s investments by the fair value hierarchy levels as of December 31, 2020:
| Level 1 | Level 21 | Level 3 | Total | |||||||||||||
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Investments in Securities
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| Corporate Bonds and Notes† |
— | $749,975,793 | — | $749,975,793 | ||||||||||||
| Asset-Backed Securities |
— | 4,346,893 | $5,105,499 | 9,452,392 | ||||||||||||
| Mortgage-Backed Securities |
— | 511,091 | — | 511,091 | ||||||||||||
| Municipal Bonds |
— | 13,068,560 | — | 13,068,560 | ||||||||||||
| U.S. Government and Agency Obligations† |
— | 147,851,166 | — | 147,851,166 | ||||||||||||
| Foreign Government Obligations |
— | 45,496,245 | — | 45,496,245 | ||||||||||||
| Common Stocks†† |
$25,436,628 | — | — | 25,436,628 | ||||||||||||
| Preferred Stocks†† |
13,284,375 | — | — | 13,284,375 | ||||||||||||
| Short-Term Investments |
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| Joint Repurchase Agreements |
— | 14,414,099 | — | 14,414,099 | ||||||||||||
| U.S. Government Obligations |
— | 69,985,111 | — | 69,985,111 | ||||||||||||
| Other Investment Companies |
17,808,178 | — | — | 17,808,178 | ||||||||||||
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| Total Investments in Securities |
$56,529,181 | $1,045,648,958 | $5,105,499 | $1,107,283,638 | ||||||||||||
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| † | All corporate bonds and notes and U.S. government and agency obligations held in the Fund are Level 2 securities. For a detailed breakout of corporate bonds and notes and U.S. government and agency obligations by major industry or agency classification, please refer to the Fund’s Schedule of Portfolio Investments. |
| †† | All common stocks and preferred stocks held in the Fund are Level 1 securities. For a detailed breakout of common stocks and preferred stocks by major industry classification, please refer to the Fund’s Schedule of Portfolio Investments. |
| 1 | An external pricing service is used to reflect any impact on security value due to market movements between the time the Fund valued such foreign securities and the earlier closing of foreign markets. |
The following table below is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value at December 31, 2020:
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Asset-Backed Securities | ||||
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Balance as of December 31, 2019 |
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— |
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| Accrued discounts (premiums) |
$5,901 | |||
| Realized gain (loss) |
— | |||
| Change in unrealized appreciation/depreciation |
(3,251,602 | ) | ||
| Purchases |
— | |||
| Sales |
— | |||
| Transfers in to Level 3 |
8,351,200 | |||
| Transfers out of Level 3 |
— | |||
| Balance as of December 31, 2020 |
$5,105,499 | |||
| Net change in unrealized appreciation/depreciation on investments still held at December 31, 2020 |
$(3,251,602) | |||
An asset-back security valued at $8,351,200 was transferred from Level 2 to Level 3 during the period ended December 31, 2020. At December 31, 2019, this security was valued on the basis of evaluated bids furnished to the Fund by an independent pricing service in accordance with the Fund’s security valuation policy. At September 30, 2020, this security was valued using a combination of evaluated bids furnished to the Fund by an independent pricing service and broker-dealer bid prices, which are based on inputs unobservable to the Fund.
The accompanying notes are an integral part of these financial statements.
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AMG Managers Loomis Sayles Bond Fund Schedule of Portfolio Investments (continued) |
The following table summarizes the quantitative inputs and assumptions used for investments categorized in Level 3 of the fair value hierarchy as of December 31, 2020. The table below is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the Fund’s fair value measurements:
Quantitative Information about Level 3 Fair Value Measurements
| Fair Value as of | Valuation | Unobservable | Impact to Valuation from | |||||||||
| December 31, 2020 |
Technique(s) |
Inputs(s) |
Range |
Median |
an Increase in Input(a) | |||||||
| Asset-Backed Securities | $5,105,499 | Market Approach | Broker Quote (75% of Value) | N/A | N/A | Increase | ||||||
| (a) | Represents the directional change in the fair value of the Level 3 investments that could have resulted from an increase in the corresponding input as of period end. A decrease to the unobservable input would have had the opposite effect. Significant changes in these inputs may have resulted in a significantly higher or lower fair value measurement at period end. |
The country allocation in the Schedule of Portfolio Investments at December 31, 2020, was as follows:
The accompanying notes are an integral part of these financial statements.
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AMG Managers Special Equity Fund Portfolio Manager’s Comments (unaudited) |
| For the fiscal year ended December 31, 2020, AMG Managers Special Equity Fund’s (the “Fund”) Class N shares returned 38.74%, compared to the 34.63% return for the Russell 2000® Growth Index.
FEDERATED MDT LLC
For the full year, the Russell 2000® Growth Index, the benchmark for the MDTA sleeve of the Fund, returned 34.63%. While the MDTA sleeve had strong returns, its return of 29.05% trailed the benchmark substantially.
It is an understatement to say that the coronavirus pandemic, the subsequent selloff in markets followed by a sharp and speedy recovery, and the political environment made 2020 a year unlike most, and one where the market did not trade according to the historical norms on which MDTA bases its models. Most notably, in the second half of the year, stocks with high valuations, low earnings, low ROE, and high beta led the market recovery. Long term, our research shows that companies with weaker financial characteristics such as these do not outperform, so we avoid most of the companies with these characteristics and we were not in the sweet spot of the market during the sharp recovery. As a systematic manager, there are years like this when our models do not do well. We stay focused on what we do, because over the long run the market returns to its usual patterns and we can offset losses.
Notwithstanding the market environment, MDTA continued to follow its disciplined investment process in 2020. The MDTA sleeve did benefit from the stronger risk controls that have been added to the strategy over the last decade to make it more resilient to changes in the market environment. The sleeve is now much better diversified: It is roughly sector-neutral, it is less concentrated, and it holds companies with varied fundamental and technical characteristics. Because of our tighter risk constraints, the underperformance in 2020 was less severe than it was in 2009—another year in which we underperformed a strong bull market—and leaves us with less to offset.
Stocks within the health care and consumer discretionary sectors detracted the most from relative performance during the year, while performance of stocks in the financial sector contributed positively. Individual stocks that had the largest contribution to performance were PROG Holdings, Inc., Wingstop, Inc., and Five9, Inc., while the largest detractors were Crocs, Inc., Atkore International Group, Inc., and Quidel Corporation. While the sleeve’s sector positioning was roughly |
neutral to the benchmark, a modest underweight to the consumer discretionary sector detracted from relative performance while modest underweights to the industrials and materials sectors made a positive contribution.
In years like this, it is important to note that MDTA’s model-based process has three important aspects that are very different from most qualitative processes. First, it is virtually impossible for us to be whip-sawed by chasing the latest “thing” or factor that happened to work last year. By using a robust investment model based on years of research, our process does not allow an emotional response that might cause one poor year to be followed by a second or even a third. Second, our process, though slow moving, is in fact dynamic. Our stock selections, driven by our factors, adjust over time if the key drivers of market returns have shifted. Third, our research approach is continuous, with each update taking into account the latest data from the market and the latest thinking in academic circles. The outcome of this continuous research is typically a new model implementation every six months, which allows the investment model to adjust well to changing environments.
LORD, ABBETT & CO., LLC
PERFORMANCE SUMMARY
For the fiscal year ended December 31, 2020, Lord Abbett’s sleeve of the Fund returned 72.75%, significantly outperforming its benchmark, the Russell 2000® Growth Index, which returned 34.63% over the same period.
MARKET REVIEW
The trailing twelve-month period was characterized by several market-moving events. After trade tensions continued to ebb and flow in the final months of 2019, U.S. President Donald Trump signed a “phase one” trade deal with China on January 15, 2020, and markets priced in a likelihood of two more interest rate cuts in 2020. The tide turned abruptly in February and March 2020, as the outbreak of the COVID-19 pandemic and the expected economic damage resulting from a sudden slowdown in corporate spending, individual spending, consumer confidence, and thus recessionary and deflationary pressures, triggered a severe selloff. As the pandemic fueled fears of slowing global growth, oil prices fell precipitously, with the primary U.S. oil contract closing in negative territory for the first time in history, although it has since rebounded. During the month of March, the S&P 500® Index experienced |
its fastest transition to a bear market since 1987 and the longest U.S. economic expansion in history ended at 128 months. The U.S. Federal Reserve (Fed) responded to the COVID-19 outbreak with a breadth of policy measures which lifted investors’ confidence in the markets. The Fed launched a $700 billion quantitative easing program, decreased reserve requirements to zero for thousands of banks, and cut the federal funds rate to the current target range of 0–0.25%. Next, the Fed announced additional stimulus programs, including open-ended asset purchases, purchases of corporate debt, and a commitment to a new small business lending program. Additionally, the central bank announced $2.3 trillion of credit support by expanding the Primary Market Corporate Credit Facility (PMCCF), the Secondary Market Corporate Credit Facility (SMCCF), and the Term Asset-Backed Securities Loan Facility (TALF). Most notably, the expanded measures included the purchase of select fallen angels.
Risk assets began to stage a recovery in April and May on the back of progress with respect to COVID-19 treatments and vaccines, commentary from several corporations that indicated stabilization, and massive monetary and fiscal policy globally. Positive market sentiment continued into the third quarter of 2020 as well. In addition to the factors listed above, tailwinds for the continued rally in risk assets included a rebound in earnings revisions and further progress in COVID-19 treatments, as evidenced by multiple drugs reaching Phase III trials. In September, however, market sentiment soured amid political volatility related to the U.S. Supreme Court vacancy, heightened COVID-19 concerns in Europe as global deaths topped one million, heightened uncertainty leading up to the U.S. election, and worries about stalled fiscal stimulus talks in Washington. Despite volatility in the fall, the markets rallied in the month of November with the Dow Jones Industrial Average having its best month since 1987. The rally was largely attributed to the conclusion of the U.S. election and positive vaccine news. Specifically, Former U.S. Vice President Biden defeated President Trump in the presidential election, while the Republicans narrowed the Democratic majority in the House. Soon after, Pfizer/BioNTech, Moderna, and AstraZeneca each announced a COVID-19 vaccine with greater than 90% efficacy rate. In December, as expected, the Food and Drug Administration (FDA) granted emergency use authorization for the Pfizer/BioNTech and Moderna vaccines. Monetary and fiscal policy remained largely supportive, as the Fed maintained interest rates near zero in its December meeting and
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AMG Managers Special Equity Fund Portfolio Manager’s Comments (continued) |
| noted that it would continue its monthly pace of at least $120 billion of asset purchases until “substantial further progress has been made toward the Committee’s maximum employment and price stability goals.” Additionally, Congress passed a fifth COVID-19 relief package, worth roughly $900 billion, with approximately $325 billion in small business relief.
PORTFOLIO REVIEW
Security selection within the health care and information technology sectors were the two largest contributors to the Sleeve’s relative performance over the trailing twelve months. Within the health care sector, Natera, Inc., a medical diagnostics company focused on genetic testing services, was a major contributor. Natera executed well during the period and expanded its reach, as the company’s Signatera molecular residual disease test proved to be effective at detecting tumors. The Sleeve’s allocation to Immunomedics, Inc., a developer and manufacturer of biopharmaceutical products, also contributed to relative performance as Gilead Sciences, Inc. announced it would acquire the company for a large premium.
Within the information technology sector, the Sleeve’s holding of Appian Corp., a provider of business process management solutions , contributed to relative performance as the company reported robust revenues and gross margins. Appian benefited from cost reductions related to COVID-19 and has continued to aggressively reinvest capital back into the business.
Within the consumer discretionary sector, shares of Overstock.com, Inc., a provider of electronic payment and transaction processing solutions, detracted from relative performance. Despite reporting strong third quarter results, Overstock.com’s positive results were offset by investors’ concerns of continued rising COVID-19 cases, uncertainty around U.S. fiscal stimulus, and, to a lesser extent, shipping constraints due to the upcoming holiday season. The Sleeve’s position in Caesars Entertainment, Inc., which manages casinos and resorts, also detracted from relative performance as the COVID-19 pandemic’s negative impact on economic and business activity caused uncertainty around the pending merger of Caesars and Eldorado Resorts.
The Sleeve’s underweight position in Sunrun, Inc., a designer and developer of residential solar energy systems, detracted from relative performance as the company benefited from continued execution and optimism that Democratic political wins would foretell favorable regulatory and tax policies. |
RANGER INVESTMENT MANAGEMENT, L.P.
For the fiscal year ended December 31, 2020, Ranger’s sleeve of the Fund returned 34.50%, performing in line with its benchmark, the Russell 2000® Growth Index, which returned 34.63% over the same period.
MARKET REVIEW
We entered 2020 poised to sign a détente trade agreement with China on January 15. The markets were anticipating an acceleration in economic activity, and a rotation into cyclical industries was in full motion. Literally the day following the signing of the trade agreement we began to hear news of the novel coronavirus, or COVID-19, shutting down a city in China called Wuhan. At first, concern and questions centered on supply chain disruptions of goods coming from China and to what degree these product flows from the manufacturing center of the world would interrupt global commerce. The quietude of a year seemingly poised to benefit from reduced trade tensions and an improving economy was upended. Early market gains reversed, and we entered the most volatile trading environment since 2008–2009. The magnitude of daily selloffs was eerily reminiscent of the markets during that prior financial crisis.
As days morphed into weeks, we learned more about viruses and epidemiology, particularly as it became clear that we weren’t dealing with the isolated spread of a virus in a large Chinese city that was unfamiliar to most of us. The virus was in Asia, Europe, the United States, and, in fact, was everywhere. Unfortunately, the initial magnitude of the health crisis was not well understood and the response by governments was neither uniform nor coordinated. The playbook from the Spanish influenza a century ago needed dusting off.
The necessary response to contain the virus spread was the complete seizure of economic activity globally. To say that the degree and magnitude of this health and economic crisis was unprecedented in our lifetimes is clearly a minimization of what occurred. There was no trivializing how the markets responded to the uncertainty of the tragic health crisis and devastating economic data that unfolded during the first and second quarters. Rapid spread of the virus and death rates at highly concerning levels, record levels of unemployment, and massive GDP contractions led to the largest and quickest quarterly market decline ever during the March quarter.
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While there was little global coordination in reaction to the health crisis, the ensuing economic crisis was impressively and proactively handled by global central banks providing monetary stimulus in conjunction with governmental fiscal stimulus packages. These large proactive measures helped ameliorate the economic devastation by providing important liquidity to individuals and companies to bridge the uncertainty.
What followed these measures was a surprisingly strong recovery by the markets. With a seemingly endless backstop by the Fed, the extreme amount of liquidity unleashed a dramatic rebound by equities. At first, this market recovery was led by the largest public corporations and those well positioned to uniquely benefit from the dramatically changed environment. As the year progressed and economies gradually reopened, the most dire predictions proved wrong and many companies adapted more quickly to the new reality of life with COVID-19.
The ensuing rally in the second and third quarters was impressive; however, we ended 2020 with the small cap market just completing its highest single quarterly return ever! While fears persisted due to spikes of COVID-19 cases over the course of the summer and fall, investor optimism improved as economic progress continued to be much better than feared. The ongoing lack of financial guidance and the resulting low level of street expectations created a backdrop for better-than-expected financial results and continued positive sales and earnings revisions. Offsetting these positives is a small cap market trading at its highest valuation level ever and leadership concentrated in low quality companies.
PORTFOLIO COMMMENTARY
The Ranger Sleeve’s increase of 34.50% was in line with the Russell 2000® Growth Index gain of 34.63% this past year. The sleeve benefited from allocations across sectors, but this was offset by stock selection within sectors.
The sleeve’s overweight to the information technology sector, as well as its lack of exposure to the real estate sector, contributed positively to relative performance during the period. An underweight to the industrials sector also helped relative performance. A modest allocation to cash as well as a small overweight to the energy sector |
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AMG Managers Special Equity Fund Portfolio Manager’s Comments (continued) |
| partially offset those gains. Stock selection was strongest within the consumer discretionary and industrials sectors, though this was more than offset by results within the information technology, consumer staples, and health care sectors. The top contributing stocks during the year were Chegg, Inc., Magnite, Inc., and Repligen Corporation, while the largest detractors were WNS Holdings, Ltd., Inter Parfums, Inc., and Select Energy Services, Inc.
LOOKING FORWARD
While the economic landscape was dramatically altered by the global pandemic, the actions of policy makers, politicians, and central bankers have engendered a durable recovery after a deep contraction created by the virus-driven shutdowns. Additionally, the market was buoyed by many companies’ impressive adaptation to the environment.
The economic outlook appears much better today, as ongoing fiscal and monetary support coupled with the rollout of vaccines should further improve companies’ financial results much faster than expected. The election results potentially add a level of uncertainty as investors grapple with major changes in economic and tax policy. Meanwhile, any pretense of fiscal discipline has been abandoned, and the U.S. seems to be tacitly embracing many of the tenets of modern monetary theory. The long-term repercussions of this embrace are unknowable.
While business activity remains impaired by the deepening path of the virus, and the unemployment rate remains at levels associated with severe recessionary conditions, investors are more keenly focused on the slope of economic recovery as 2021 progresses and the virus is contained by the vaccines. Given the above, companies continue to take an understandably cautious approach to forecasting, which interestingly has thus far served more as a catalyst than hindrance to stock performance. After investors initially gravitated toward large and mega cap stocks, the fourth quarter leadership rotated into smaller capitalization companies that should be more levered to the expected economic recovery and were more attractively valued.
However, small cap valuations are now at peak levels, and leadership by non-earning, low return companies is cause for caution, particularly in certain industries. While easy monetary policy provided significant liquidity, there were two more speculative trends in 2020 that bear watching. The |
dramatic increase in retail trading volume and issuance of new IPOs likely had an influence on outsized moves in certain industries and individual stocks.
While we wouldn’t go so far as to say there is broad-based speculation, there are definitely individual companies where there is unbridled mania that is dissociated from a fundamental underpinning of support. As we always do, we come back to Ranger’s foundational investment philosophy and investment process. We firmly believe that our selectivity of quality companies in a rapidly changing economic environment positions the portfolio to differentiate itself as we progress through 2021. The mere fact that high return companies so meaningfully underperformed low quality, non-earning companies should ultimately serve as a tailwind to both relative and absolute performance. After a period of relative quiet in the market and the portfolio, Ranger suspects that the prospect of higher taxes and regulation and relative underperformance by high return companies could lead to increased merger and acquisition activity as we enter 2021.
SMITH ASSET MANAGEMENT GROUP, L.P.
For the fiscal year ended December 31, 2020, the Smith Group sleeve of the Fund returned 17.43%. During the same period, the Russell 2000® Growth Index posted a return of 34.63%.
A key aspect of the Smith Group investment process is that all portfolios embed an earnings growth premium—the difference between expected and realized earnings growth—that ultimately is reflected in stock prices. Over the past year, Fund holdings fell short of their expected growth rates from one year prior due to the economic shutdown brought on by the pandemic as Fund holdings delivered 6.7% earnings growth versus an expectation of 7.2%. Benchmark holdings fell -9.1% short of expectations for the same period.
The strategy seeks out stocks with key fundamental characteristics that are consistent with companies exceeding growth expectations. Those characteristics are grouped into models that help us in screening and ranking stocks. In contrast to the historic strong price discrimination pattern of the Smith Group models, returns to Smith Group’s models were generally negative for the period as poor returns to value and quality factors overwhelmed positive returns to growth factors.
|
Model returns were more favorable in October and December but were significantly inverted in November, in large part attributable to market reversals in response to the positive COVID vaccine news.
In terms of specific drivers of performance, stock selection was negative across a number of sectors, but most notably within the information technology, industrials, and real estate sectors. Stock selection within the consumer discretionary and materials sectors modestly offset some of that negative performance. An overweight to the health care sector and an underweight to the real estate sector contributed positively to relative performance. At the stock level, the largest contributors to performance were RH, Personalis, Inc., and Concept Therapeutics Inc., while the largest detractors were Newmark Group, Inc., and Cardtronics PLC.
Looking forward, there is no lack of very smart investors wringing their hands about market valuations these days. However, valuation has historically been a poor market timing tool. Alan Greenspan’s “irrational exuberance” speech was on December 5, 1996, but the return for the S&P 500 in 1997 was 33%. In total, the S&P 500 returned 115% after the Greenspan speech. Warren Buffett described the market as expensive and noted in his 1997 annual letter “we get relatively little in prospective earnings when we commit fresh money.” The market continued to surge for another two years.
We, too, fret about high valuations, but we also acknowledge that a risk-free rate at 0% creates all kinds of problems for traditional valuation metrics. It’s a challenge to argue the market is cheap on any basis, except relative to interest rates. But fortunes of companies this year have been widely disparate. Yes, there have been some phenomenal stock stories this year. But more than a fifth of the constituents in the S&P 500 are still more than 20% below their pre-pandemic high, and of those the median price-per-peak earnings is only 11 times. Some of those companies will take years to achieve their previous peak earnings. Some will snap back in a timely fashion. Some will not survive. But many of those that do survive will someday look reasonably priced at current levels. Our tendency is to lump index constituents into the same basket. But indexes are made of individual companies. Today some are early in a growth cycle and some are closer to peak earnings momentum. |
17
|
AMG Managers Special Equity Fund Portfolio Manager’s Comments (continued) |
| A reasonable base case would be for earnings to continue to improve, but with valuations already high, we would not expect much appreciation in overall stock prices. Last year, however, put an exclamation point on the difficulty in predicting market moving events and how dramatically those events can impact the direction of the market. This early in the economic cycle there is a wide range of outcomes, especially when dealing with a medical condition that has wide ranging impacts and no historic precedent that can be modelled. The virus could mutate into a form that is not protected by current vaccines, with significant economic | implications. On the other hand, herd immunity could give consumers and companies the confidence to spend some of the cash hoard they have been accumulating.
There is no doubt there is considerable suffering in the world. Small businesses are closing and there are still many workers in stress from the employment picture. But from an economic standpoint those are idle resources that can be put to productive use with little cost to the overall economy. Inflation could raise its head sooner than the Fed expects, forcing their hand and causing a “taper tantrum” when the Fed takes the punchbowl away. We believe we are in
|
the early stages of an economic expansion and the risks are elevated. But that is generally the case early in an economic expansion, and those that are willing to ride through the volatility are ultimately rewarded.
This commentary reflects the viewpoints of the portfolio managers, Federated MDTA LLC., Lord, Abbett & Co. LLC, Ranger Investment Management, L.P., and Smith Asset Management Group, L.P., is not intended as a forecast or guarantee of future results, and is subject to change without notice. |
18
|
AMG Managers Special Equity Fund Portfolio Manager’s Comments (continued) |
19
| AMG Managers Special Equity Fund Fund Snapshots (unaudited) December 31, 2020 |
Because a fund’s strategy may result in multiple investments in particular sectors of the economy, its performance may depend on the performance of those sectors and may fluctuate more widely than investments diversified across more sectors. For additional information on these and other risk considerations, please see the Fund’s prospectus.
Any sectors, industries, or securities discussed should not be perceived as investment recommendations. Mention of a specific security should not be considered a recommendation to buy or solicitation to sell that security. Specific securities mentioned in this report may have been sold from the Fund’s portfolio of investments by the time you receive this report.
20
| AMG Managers Special Equity Fund Schedule of Portfolio Investments December 31, 2020 |
The accompanying notes are an integral part of these financial statements.
21
|
AMG Managers Special Equity Fund Schedule of Portfolio Investments (continued) |
The accompanying notes are an integral part of these financial statements.
22
|
AMG Managers Special Equity Fund Schedule of Portfolio Investments (continued) |
The accompanying notes are an integral part of these financial statements.
23
|
AMG Managers Special Equity Fund Schedule of Portfolio Investments (continued) |
The accompanying notes are an integral part of these financial statements.
24
|
AMG Managers Special Equity Fund Schedule of Portfolio Investments (continued) |
The accompanying notes are an integral part of these financial statements.
25
|
AMG Managers Special Equity Fund Schedule of Portfolio Investments (continued) |
The following table summarizes the inputs used to value the Fund’s investments by the fair value hierarchy levels as of December 31, 2020:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
|
Investments in Securities
|
||||||||||||||||
| Common Stocks |
||||||||||||||||
| Health Care |
$81,176,536 | — | $ | 68,811 | $81,245,347 | |||||||||||
| Information Technology |
70,123,619 | — | — | 70,123,619 | ||||||||||||
| Consumer Discretionary |
35,405,083 | — | — | 35,405,083 | ||||||||||||
| Industrials |
29,099,279 | — | — | 29,099,279 | ||||||||||||
| Financials |
10,631,060 | — | — | 10,631,060 | ||||||||||||
| Consumer Staples |
7,238,290 | — | — | 7,238,290 | ||||||||||||
| Materials |
4,741,538 | — | — | 4,741,538 | ||||||||||||
| Real Estate |
2,849,196 | — | — | 2,849,196 | ||||||||||||
| Communication Services |
2,600,224 | — | — | 2,600,224 | ||||||||||||
| Energy |
900,605 | — | — | 900,605 | ||||||||||||
| Utilities |
233,193 | — | — | 233,193 | ||||||||||||
| Short-Term Investments |
||||||||||||||||
| Joint Repurchase Agreements |
— | $ | 10,373,828 | — | 10,373,828 | |||||||||||
| Other Investment Companies |
4,915,340 | — | — | 4,915,340 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments in Securities |
$ | 249,913,963 | $ | 10,373,828 | $ | 68,811 | $ | 260,356,602 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The following table below is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value at December 31, 2020:
| Common Stocks |
||||
| Balance as of December 31, 2019 |
— | |||
| Accrued discounts (premiums) |
— | |||
| Realized gain (loss) |
— | |||
| Change in unrealized appreciation/depreciation |
$(7,749 | ) | ||
| Purchases |
— | |||
| Sales |
— | |||
| Transfers in to Level 3 |
76,560 | |||
| Transfers out of Level 3 |
— | |||
| Balance as of December 31, 2020 |
$68,811 | |||
|
|
||||
| Net change in unrealized appreciation/depreciation on investments still held at December 31, 2020 |
$(7,749 | ) | ||
A common stock valued at $76,560 was transferred from Level 2 to Level 3 during the period ended December 31, 2020. For the period January 1, 2020 to December 30, 2020, this security was valued using the last quoted sale price on the primary exchange in accordance with the Fund’s security valuation policy. On December 31, 2020, this security was delisted and valued based on unobservable inputs.
The accompanying notes are an integral part of these financial statements.
26
|
AMG Managers Special Equity Fund Schedule of Portfolio Investments (continued) |
The following table summarizes the quantitative inputs and assumptions used for investments categorized in Level 3 of the fair value hierarchy as of December 31, 2020. The table below is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the Fund’s fair value measurements:
| Quantitative Information about Level 3 Fair Value Measurements | ||||||||||||
| Fair Value as of December 31, 2020
|
Valuation Technique(s)
|
Unobservable Inputs(s)
|
Range
|
Median
|
Impact to Valuation from an Increase in Input(a)
| |||||||
| Common Stock |
$68,811 | Market Approach-Last Trade Price | Discount Rate | 10% | N/A | Decrease | ||||||
| (a) | Represents the directional change in the fair value of the Level 3 investments that could have resulted from an increase in the corresponding input as of period end. A decrease to the unobservable input would have had the opposite effect. Significant changes in these inputs may have resulted in a significantly higher or lower fair value measurement at period end. |
The accompanying notes are an integral part of these financial statements.
27
|
Statement of Assets and Liabilities December 31, 2020 |
| AMG Managers Loomis Sayles Bond Fund |
AMG Managers Special Equity Fund | |||||||
| Assets: |
||||||||
| Investments at value1 (including securities on loan valued at $71,118,320, and $33,497,548, respectively) |
$1,107,283,638 | $260,356,602 | ||||||
| Cash |
1,050 | — | ||||||
| Receivable for investments sold |
21,472 | 550,479 | ||||||
| Dividend and interest receivables |
9,602,281 | 36,320 | ||||||
| Securities lending income receivable |
5,149 | 11,492 | ||||||
| Receivable for Fund shares sold |
472,299 | 45,852 | ||||||
| Receivable from affiliate |
— | 9,474 | ||||||
| Prepaid expenses and other assets |
27,024 | 11,522 | ||||||
| Total assets |
1,117,412,913 | 261,021,741 | ||||||
| Liabilities: |
||||||||
| Payable upon return of securities loaned |
14,414,099 | 10,373,828 | ||||||
| Payable for investments purchased |
117,195 | 729,265 | ||||||
| Payable for Fund shares repurchased |
339,806 | 199,771 | ||||||
| Accrued expenses: |
||||||||
| Investment advisory and management fees |
255,987 | 185,473 | ||||||
| Administrative fees |
139,811 | 30,912 | ||||||
| Shareholder service fees |
135,834 | 42,331 | ||||||
| Other |
188,502 | 73,628 | ||||||
| Total liabilities |
15,591,234 | 11,635,208 | ||||||
| Net Assets |
$1,101,821,679 | $249,386,533 | ||||||
| 1 Investments at cost |
$989,514,306 | $178,754,485 | ||||||
The accompanying notes are an integral part of these financial statements.
28
|
Statement of Assets and Liabilities (continued) |
| AMG Managers Loomis Sayles Bond Fund |
AMG Managers Special Equity Fund | |||||||
| Net Assets Represent: |
||||||||
| Paid-in capital |
$987,891,087 | $164,911,883 | ||||||
| Total distributable earnings |
113,930,592 | 84,474,650 | ||||||
| Net Assets |
$ | 1,101,821,679 | $249,386,533 | |||||
| Class N: |
||||||||
| Net Assets |
$555,123,557 | $204,793,974 | ||||||
| Shares outstanding |
19,738,027 | 1,387,696 | ||||||
| Net asset value, offering and redemption price per share |
$28.12 | $147.58 | ||||||
| Class I: |
||||||||
| Net Assets |
$546,698,122 | $44,592,559 | ||||||
| Shares outstanding |
19,435,847 | 288,048 | ||||||
| Net asset value, offering and redemption price per share |
$28.13 | $154.81 | ||||||
The accompanying notes are an integral part of these financial statements.
29
|
For the fiscal year ended December 31, 2020 |
| AMG Managers Loomis Sayles Bond Fund |
AMG Managers Special Equity Fund |
|||||||
| Investment Income: |
||||||||
| Dividend income |
$1,833,271 | $847,129 | ||||||
| Interest income |
43,863,207 | — | ||||||
| Securities lending income |
124,587 | 86,761 | ||||||
| Foreign withholding tax |
(1,763 | ) | (970 | ) | ||||
| Total investment income |
45,819,302 | 932,920 | ||||||
| Expenses: |
||||||||
| Investment advisory and management fees |
2,961,644 | 1,791,619 | ||||||
| Administrative fees |
1,708,641 | 298,603 | ||||||
| Shareholder servicing fees - Class N |
1,426,326 | 412,143 | ||||||
| Shareholder servicing fees - Class I |
246,221 | — | ||||||
| Reports to shareholders |
124,311 | 20,687 | ||||||
| Professional fees |
113,557 | 40,975 | ||||||
| Trustee fees and expenses |
103,080 | 17,561 | ||||||
| Custodian fees |
100,234 | 96,191 | ||||||
| Registration fees |
75,571 | 36,216 | ||||||
| Transfer agent fees |
64,514 | 23,547 | ||||||
| Miscellaneous |
40,253 | 7,741 | ||||||
| Total expenses before offsets |
6,964,352 | 2,745,283 | ||||||
| Expense reimbursements |
(51,532 | ) | (120,416 | ) | ||||
| Expense reductions |
— | (3,874 | ) | |||||
| Net expenses |
6,912,820 | 2,620,993 | ||||||
| Net investment income (loss) |
38,906,482 | (1,688,073 | ) | |||||
| Net Realized and Unrealized Gain: |
||||||||
| Net realized gain (loss) on investments |
(1,676,881 | ) | 17,151,747 | |||||
| Net realized gain on foreign currency transactions |
113,864 | — | ||||||
| Net change in unrealized appreciation/depreciation on investments |
36,441,987 | 54,091,097 | ||||||
| Net change in unrealized appreciation/depreciation on foreign currency translations |
4,583 | — | ||||||
| Net realized and unrealized gain |
34,883,553 | 71,242,844 | ||||||
| Net increase in net assets resulting from operations |
$73,790,035 | $69,554,771 | ||||||
The accompanying notes are an integral part of these financial statements.
30
|
Statements of Changes in Net Assets For the fiscal years ended December 31, |
| AMG Managers Loomis Sayles Bond Fund |
AMG Managers Special Equity Fund |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Increase in Net Assets Resulting From Operations: |
||||||||||||||||
| Net investment income (loss) |
$38,906,482 | $49,128,595 | $(1,688,073 | ) | $(1,554,626 | ) | ||||||||||
| Net realized gain (loss) on investments |
(1,563,017 | ) | 11,340,481 | 17,151,747 | 12,387,467 | |||||||||||
| Net change in unrealized appreciation/depreciation on investments |
36,446,570 | 88,163,713 | 54,091,097 | 37,417,823 | ||||||||||||
| Net increase in net assets resulting from operations |
73,790,035 | 148,632,789 | 69,554,771 | 48,250,664 | ||||||||||||
| Distributions to Shareholders: |
||||||||||||||||
| Class N |
(19,831,473 | ) | (28,980,193 | ) | (8,646,696 | ) | (40,634,625 | ) | ||||||||
| Class I |
(20,896,667 | ) | (27,807,755 | ) | (1,785,052 | ) | (8,707,900 | ) | ||||||||
| Total distributions to shareholders |
(40,728,140 | ) | (56,787,948 | ) | (10,431,748 | ) | (49,342,525 | ) | ||||||||
| Capital Share Transactions:1 |
||||||||||||||||
| Net increase (decrease) from capital share transactions |
(154,973,478 | ) | (678,399,950 | ) | (19,630,632 | ) | 8,988,862 | |||||||||
| Total increase (decrease) in net assets |
(121,911,583 | ) | (586,555,109 | ) | 39,492,391 | 7,897,001 | ||||||||||
| Net Assets: |
||||||||||||||||
| Beginning of year |
1,223,733,262 | 1,810,288,371 | 209,894,142 | 201,997,141 | ||||||||||||
| End of year |
$1,101,821,679 | $1,223,733,262 | $249,386,533 | $209,894,142 | ||||||||||||
| 1 | See Note 1(g) of the Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
31
| AMG Managers Loomis Sayles Bond Fund For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | ||||||||||||||||||||
| Class N |
2020 | 2019 | 2018 | 20171 | 20162 | |||||||||||||||
| Net Asset Value, Beginning of Year |
$27.14 | $25.49 | $26.97 | $26.24 | $26.19 | |||||||||||||||
| Income (loss) from Investment Operations: |
||||||||||||||||||||
| Net investment income3,4 |
0.90 | 0.94 | 0.84 | 0.91 | 0.95 | |||||||||||||||
| Net realized and unrealized gain (loss) on investments |
1.03 | 1.85 | (1.33 | ) | 0.85 | 0.40 | ||||||||||||||
| Total income (loss) from investment operations |
1.93 | 2.79 | (0.49 | ) | 1.76 | 1.35 | ||||||||||||||
| Less Distributions to Shareholders from: |
||||||||||||||||||||
| Net investment income |
(0.88 | ) | (0.98 | ) | (0.80 | ) | (0.87 | ) | (0.96 | ) | ||||||||||
| Net realized gain on investments |
(0.07 | ) | (0.16 | ) | (0.19 | ) | (0.16 | ) | (0.34 | ) | ||||||||||
| Total distributions to shareholders |
(0.95 | ) | (1.14 | ) | (0.99 | ) | (1.03 | ) | (1.30 | ) | ||||||||||
| Net Asset Value, End of Year |
$28.12 | $27.14 | $25.49 | $26.97 | $26.24 | |||||||||||||||
| Total Return4 |
7.34 | %5 | 11.10 | %5 | (1.82 | )%5 | 6.77 | %5 | 5.19 | % | ||||||||||
| Ratio of net expenses to average net assets |
0.71 | % | 0.72 | %6 | 0.98 | % | 0.99 | % | 1.00 | % | ||||||||||
| Ratio of gross expenses to average net assets7 |
0.72 | % | 0.73 | %6 | 0.98 | %8 | 0.99 | %8 | 1.02 | % | ||||||||||
| Ratio of net investment income to average net assets4 |
3.31 | % | 3.53 | % | 3.19 | % | 3.38 | % | 3.52 | % | ||||||||||
| Portfolio turnover |
25 | % | 20 | % | 9 | % | 4 | % | 27 | % | ||||||||||
| Net assets end of year (000’s) omitted |
$555,124 | $618,381 | $715,468 | $971,359 | $1,234,229 | |||||||||||||||
32
| AMG Managers Loomis Sayles Bond Fund Financial Highlights For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | ||||||||||||||||||||
| Class I |
2020 | 2019 | 2018 | 2017 | 20162 | |||||||||||||||
| Net Asset Value, Beginning of Year |
$27.14 | $25.49 | $26.97 | $26.24 | $26.19 | |||||||||||||||
| Income (loss) from Investment Operations: |
||||||||||||||||||||
| Net investment income3,4 |
0.95 | 0.99 | 0.86 | 0.94 | 0.97 | |||||||||||||||
| Net realized and unrealized gain (loss) on investments |
1.05 | 1.85 | (1.32 | ) | 0.85 | 0.40 | ||||||||||||||
| Total income (loss) from investment operations |
2.00 | 2.84 | (0.46 | ) | 1.79 | 1.37 | ||||||||||||||
| Less Distributions to Shareholders from: |
||||||||||||||||||||
| Net investment income |
(0.94 | ) | (1.03 | ) | (0.83 | ) | (0.90 | ) | (0.98 | ) | ||||||||||
| Net realized gain on investments |
(0.07 | ) | (0.16 | ) | (0.19 | ) | (0.16 | ) | (0.34 | ) | ||||||||||
| Total distributions to shareholders |
(1.01 | ) | (1.19 | ) | (1.02 | ) | (1.06 | ) | (1.32 | ) | ||||||||||
| Net Asset Value, End of Year |
$28.13 | $27.14 | $25.49 | $26.97 | $26.24 | |||||||||||||||
| Total Return4,5 |
7.57 | % | 11.32 | % | (1.72 | )% | 6.87 | % | 5.29 | % | ||||||||||
| Ratio of net expenses to average net assets |
0.50 | % | 0.52 | %6 | 0.88 | % | 0.89 | % | 0.90 | % | ||||||||||
| Ratio of gross expenses to average net assets7 |
0.51 | % | 0.53 | %6 | 0.88 | %8 | 0.89 | %8 | 0.93 | % | ||||||||||
| Ratio of net investment income to average net assets4 |
3.52 | % | 3.73 | % | 3.29 | % | 3.48 | % | 3.61 | % | ||||||||||
| Portfolio turnover |
25 | % | 20 | % | 9 | % | 4 | % | 27 | % | ||||||||||
| Net assets end of year (000’s) omitted |
$546,698 | $605,353 | $1,094,820 | $1,027,477 | $771,782 | |||||||||||||||
| 1 | Effective February 27, 2017, Class S shares were renamed Class N shares. |
| 2 | Effective October 1, 2016, the Service Class and Institutional Class were renamed Class S and Class I, respectively. |
| 3 | Per share numbers have been calculated using average shares. |
| 4 | Total returns and net investment income would have been lower had certain expenses not been offset. |
| 5 | The total return is calculated using the published Net Asset Value as of fiscal year end. |
| 6 | Includes 0.01% of extraordinary expense related to legal expense in support of an investment held in the portfolio. |
| 7 | Excludes the impact of expense reimbursement or fee waivers and expense reductions such as brokerage credits, but includes expense repayments and non-reimbursable expenses, if any, such as interest, taxes, and extraordinary expenses. (See Note 1(c) and 2 in the Notes to Financial Statements.) |
| 8 | Ratio includes recapture of reimbursed fees from prior years amounting to 0.04% and 0.07% for the fiscal year ended December 31, 2018 and December 31, 2017, respectively |
33
| AMG Managers Special Equity Fund Financial Highlights For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | ||||||||||||||||||||
| Class N | 2020 | 2019 | 2018 | 20171 | 20162 | |||||||||||||||
| Net Asset Value, Beginning of Year |
$111.15 | $114.95 | $119.45 | $99.33 | $87.84 | |||||||||||||||
| Income (loss) from Investment Operations: |
||||||||||||||||||||
| Net investment loss3,4 |
(1.03 | ) | (1.03 | ) | (0.91 | ) | (0.79 | )5 | (0.43 | )6 | ||||||||||
| Net realized and unrealized gain (loss) on investments |
43.88 | 30.19 | (3.59 | ) | 20.91 | 11.92 | ||||||||||||||
| Total income (loss) from investment operations |
42.85 | 29.16 | (4.50 | ) | 20.12 | 11.49 | ||||||||||||||
| Less Distributions to Shareholders from: |
||||||||||||||||||||
| Net realized gain on investments |
(6.42 | ) | (32.96 | ) | — | — | — | |||||||||||||
| Net Asset Value, End of Year |
$147.58 | $111.15 | $114.95 | $119.45 | $99.33 | |||||||||||||||
| Total Return4 |
38.74 | %7 | 25.69 | %7 | (3.76 | )%7 | 20.25 | %7 | 13.08 | % | ||||||||||
| Ratio of net expenses to average net assets8 |
1.36 | % | 1.36 | % | 1.36 | % | 1.36 | % | 1.36 | % | ||||||||||
| Ratio of gross expenses to average net assets9 |
1.42 | % | 1.42 | % | 1.38 | % | 1.41 | % | 1.50 | % | ||||||||||
| Ratio of net investment loss to average net assets4 |
(0.89 | )% | (0.76 | )% | (0.69 | )% | (0.73 | )% | (0.49 | )% | ||||||||||
| Portfolio turnover |
100 | % | 96 | % | 113 | % | 81 | % | 120 | % | ||||||||||
| Net assets end of year (000’s) omitted |
$204,794 | $171,801 | $170,744 | $173,607 | $180,008 | |||||||||||||||
34
| AMG Managers Special Equity Fund Financial Highlights For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | ||||||||||||||||||||
| Class I | 2020 | 2019 | 2018 | 2017 | 20162 | |||||||||||||||
| Net Asset Value, Beginning of Year |
$ | 116.08 | $ | 118.57 | $ | 122.90 | $ | 101.95 | $ | 89.92 | ||||||||||
| Income (loss) from Investment Operations: |
||||||||||||||||||||
| Net investment loss3,4 |
(0.77 | ) | (0.72 | ) | (0.60 | ) | (0.54 | )5 | (0.22 | )6 | ||||||||||
| Net realized and unrealized gain (loss) on investments |
45.92 | 31.19 | (3.73 | ) | 21.49 | 12.25 | ||||||||||||||
| Total income (loss) from investment operations |
45.15 | 30.47 | (4.33 | ) | 20.95 | 12.03 | ||||||||||||||
| Less Distributions to Shareholders from: |
||||||||||||||||||||
| Net realized gain on investments |
(6.42 | ) | (32.96 | ) | — | — | — | |||||||||||||
| Net Asset Value, End of Year |
$ | 154.81 | $ | 116.08 | $ | 118.57 | $ | 122.90 | $ | 101.95 | ||||||||||
| Total Return4 |
39.08 | %7 | 26.02 | %7 | (3.52 | )%7 | 20.55 | %7 | 13.38 | % | ||||||||||
| Ratio of net expenses to average net assets8 |
1.11 | % | 1.11 | % | 1.11 | % | 1.11 | % | 1.11 | % | ||||||||||
| Ratio of gross expenses to average net assets9 |
1.17 | % | 1.17 | % | 1.13 | % | 1.16 | % | 1.25 | % | ||||||||||
| Ratio of net investment loss to average net assets4 |
(0.64 | )% | (0.51 | )% | (0.44 | )% | (0.48 | )% | (0.24 | )% | ||||||||||
| Portfolio turnover |
100 | % | 96 | % | 113 | % | 81 | % | 120 | % | ||||||||||
| Net assets end of year (000’s) omitted |
$ | 44,593 | $ | 38,093 | $ | 31,253 | $ | 26,865 | $ | 19,647 | ||||||||||
|
|
||||||||||||||||||||
| 1 | Effective February 27, 2017, Class S shares were renamed Class N shares. |
| 2 | Effective October 1, 2016, the Service Class and Institutional Class were renamed Class S and Class I, respectively. |
| 3 | Per share numbers have been calculated using average shares. |
| 4 | Total returns and net investment loss would have been lower had certain expenses not been offset. |
| 5 | Includes non-recurring dividends. Without these dividends, net investment loss per share would have been $(0.84) and $(0.59) for Class N and Class I respectively. |
| 6 | Includes non-recurring dividends. Without these dividends, net investment loss per share would have been $(0.49) and $(0.28) for Class N and Class I respectively. |
| 7 | The total return is calculated using the published Net Asset Value as of fiscal year end. |
| 8 | Includes reduction from broker recapture amounting to less than 0.01% for the fiscal years ended 2020, 2019, 2018, 2017 and 2016, respectively. |
| 9 | Excludes the impact of expense reimbursement or fee waivers and expense reductions such as brokerage credits, but includes expense repayments and non-reimbursable expenses, if any, such as interest, taxes, and extraordinary expenses. (See Note 1(c) and 2 in the Notes to Financial Statements.) |
35
|
December 31, 2020 |
36
|
Notes to Financial Statements (continued) |
The tax character of distributions paid during the fiscal years ended December 31, 2020 and December 31, 2019 were as follows:
| Bond | Special Equity | |||||||||||||||
| Distributions paid from: |
2020 | 2019 | 2020 | 2019 | ||||||||||||
| Ordinary income * |
$38,079,582 | $36,811,003 | — | $7,505,091 | ||||||||||||
| Long-term capital gains |
2,648,558 | 19,976,945 | $10,431,748 | 41,837,434 | ||||||||||||
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|||||||||
| $40,728,140 | $56,787,948 | $10,431,748 | $49,342,525 | |||||||||||||
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* For tax purposes, short-term capital gain distributions, if any, are considered ordinary income distributions.
37
|
Notes to Financial Statements (continued) |
As of December 31, 2020, the components of distributable earnings (excluding unrealized appreciation/depreciation) on a tax basis consisted of:
| Bond | Special Equity | |||||||
| Undistributed ordinary income |
$200,763 | $1,195,707 | ||||||
|
Undistributed long-term capital gains |
— | 4,127,875 | ||||||
|
Late-year loss deferral |
3,865,403 | — | ||||||
At December 31, 2020, the cost of investments and the aggregate gross unrealized appreciation and depreciation for federal income tax purposes were as follows:
| Fund | Cost | Appreciation | Depreciation | Net Appreciation | ||||||||||||
| Bond |
$ | 989,695,412 | $ | 154,130,741 | $ | (36,535,509 | ) | $117,595,232 | ||||||||
| Special Equity |
181,205,534 | 84,630,267 | (5,479,199 | ) | 79,151,068 | |||||||||||
g. CAPITAL STOCK
The Trust’s Declaration of Trust authorizes for each Fund the issuance of an unlimited number of shares of beneficial interest, without par value. Each Fund records sales and repurchases of its capital stock on the trade date.
For the fiscal years ended December 31, 2020 and December 31, 2019, the capital stock transactions by class for the Funds were as follows:
| Bond |
Special Equity |
|||||||||||||||||||||||||||||||
| December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||
| Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||
| Class N:
|
||||||||||||||||||||||||||||||||
| Proceeds from sale of shares |
2,974,694 | $80,948,805 | 3,416,998 | $90,763,873 | 32,466 | $3,813,396 | 65,788 | $8,856,577 | ||||||||||||||||||||||||
| Reinvestment of distributions |
712,467 | 19,290,277 | 1,051,262 | 28,038,056 | 58,454 | 8,351,282 | 354,078 | 38,909,669 | ||||||||||||||||||||||||
| Cost of shares repurchased |
(6,734,473) | (180,090,308) | (9,751,128) | (261,380,964) | (248,844) | (27,811,616) | (359,581) | (46,144,528) | ||||||||||||||||||||||||
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|
|||||||||||||||||
| Net increase (decrease) |
(3,047,312) | $(79,851,226) | (5,282,868) | $(142,579,035) | (157,924) | $(15,646,938) | 60,285 | $1,621,718 | ||||||||||||||||||||||||
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| Class I:
|
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| Proceeds from sale of shares |
5,277,165 | $142,427,000 | 8,666,428 | $231,939,268 | 53,503 | $6,681,747 | 53,673 | $7,476,323 | ||||||||||||||||||||||||
| Reinvestment of distributions |
741,223 | 20,066,494 | 1,007,830 | 26,817,303 | 11,788 | 1,766,664 | 75,043 | 8,611,172 | ||||||||||||||||||||||||
| Cost of shares repurchased |
(8,884,854) | (237,615,746) | (30,324,739) | (794,577,486) | (105,414) | (12,432,105) | (64,117) | (8,720,351) | ||||||||||||||||||||||||
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|
|||||||||||||||||
| Net increase (decrease) |
(2,866,466) | $(75,122,252 | ) | (20,650,481) | $(535,820,915 | ) | (40,123) | $(3,983,694 | ) | 64,599 | $7,367,144 | |||||||||||||||||||||
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38
|
Notes to Financial Statements (continued) |
39
|
Notes to Financial Statements (continued) |
40
|
Notes to Financial Statements (continued) |
8. MASTER NETTING AGREEMENTS
The Funds may enter into master netting agreements with their counterparties for the securities lending program and Repurchase Agreements, which provide the right, in the event of default (including bankruptcy or insolvency) for the non-defaulting party to liquidate the collateral and calculate net exposure to the defaulting party or request additional collateral. For financial reporting purposes, the Funds do not offset financial assets and financial liabilities that are subject to master netting agreements in the Statement of Assets and Liabilities. For securities lending transactions, see Note 4.
41
|
Notes to Financial Statements (continued) |
The following table is a summary of the Funds’ open Repurchase Agreements that are subject to a master netting agreement as of December 31, 2020:
| Gross Amount Not Offset in the Statement of Assets and Liabilities |
|||||||||||||||||||||||||
| Fund
|
Gross Amounts of Assets Presented in the Statement of Assets and Liabilities
|
Offset Amount
|
Net Asset Balance
|
Collateral Received
|
Net Amount
| ||||||||||||||||||||
| Bond |
|||||||||||||||||||||||||
| Cantor Fitzgerald Securities, Inc. |
$2,499,126 | — | $2,499,126 | $2,499,126 | — | ||||||||||||||||||||
| Citadel Securities LLC |
2,448,727 | — | 2,448,727 | 2,448,727 | — | ||||||||||||||||||||
| Deutsche Bank Securities, Inc. |
1,358,684 | — | 1,358,684 | 1,358,684 | — | ||||||||||||||||||||
| JVB Financial Group LLC |
1,087,231 | — | 1,087,231 | 1,087,231 | — | ||||||||||||||||||||
| Mirae Asset Securities USA, Inc. |
1,116,513 | — | 1,116,513 | 1,116,513 | — | ||||||||||||||||||||
| RBC Dominion Securities, Inc. |
3,423,361 | — | 3,423,361 | 3,423,361 | — | ||||||||||||||||||||
| State of Wisconsin Investment |
|||||||||||||||||||||||||
| Board |
2,480,457 | — | 2,480,457 | 2,480,457 | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
| Total |
$14,414,099 | — | $14,414,099 | $14,414,099 | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
| Special Equity |
|||||||||||||||||||||||||
| Cantor Fitzgerald Securities, Inc. |
$2,172,473 | — | $2,172,473 | $2,172,473 | — | ||||||||||||||||||||
| Citadel Securities LLC |
2,441,274 | — | 2,441,274 | 2,441,274 | — | ||||||||||||||||||||
| Citigroup Global Markets, Inc. |
2,224,306 | — | 2,224,306 | 2,224,306 | — | ||||||||||||||||||||
| JVB Financial Group LLC |
1,071,983 | — | 1,071,983 | 1,071,983 | — | ||||||||||||||||||||
| RBC Dominion Securities, Inc. |
2,463,792 | — | 2,463,792 | 2,463,792 | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
| Total |
$10,373,828 | — | $10,373,828 | $10,373,828 | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
9. SUBSEQUENT EVENTS
The Funds have determined that no material events or transactions occurred through the issuance date of the Funds’ financial statements which require an additional disclosure in or adjustment of the Funds’ financial statements.
42
|
|
TO THE BOARD OF TRUSTEES OF AMG FUNDS III AND SHAREHOLDERS OF AMG MANAGERS LOOMIS SAYLES BOND FUND AND AMG MANAGERS SPECIAL EQUITY FUND
Opinions on the Financial Statements
We have audited the accompanying statements of assets and liabilities, including the schedules of portfolio investments, of AMG Managers Loomis Sayles Bond Fund and AMG Managers Special Equity Fund (two of the funds constituting AMG Funds III, referred to hereafter as the “Funds”) as of December 31, 2020, the related statements of operations for the year ended December 31, 2020, the statements of changes in net assets for each of the two years in the period ended December 31, 2020, including the related notes, and the financial highlights for each of the five years in the ended period December 31, 2020 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Funds as of December 31, 2020, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period December 31, 2020, and each of the financial highlights for each of the five years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinions
These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 23, 2021
We have served as the auditor of one or more investment companies in AMG Funds Family since 1993.
43
|
|
TAX INFORMATION
44
|
Trustees and Officers |
| The Trustees and Officers of the Trust, their business addresses, principal occupations for the past five years and ages are listed below. The Trustees provide broad supervision over the affairs of the Trust and the Funds. The Trustees are experienced executives who meet periodically throughout the year to oversee the Funds’ activities, review contractual arrangements with companies that provide services to the Funds, and
|
review the Funds’ performance. Unless otherwise noted, the address of each Trustee or Officer is the address of the Trust: One Stamford Plaza, 263 Tresser Blvd, Suite 949, Stamford, Connecticut 06901.
There is no stated term of office for Trustees. Trustees serve until their resignation, retirement or removal in |
|
accordance with the Trust’s organizational documents and policies adopted by the Board from time to time. The Chairman of the Trustees, President, Treasurer and Secretary of the Trust are elected by the Trustees annually. Other officers hold office at the pleasure of the Trustees. |
Independent Trustees
The following Trustees are not “interested persons” of the Trust within the meaning of the 1940 Act:
|
Number of Funds Overseen in Fund Complex |
Name, Age, Principal Occupation(s) During Past 5 Years and Other Directorships Held by Trustee | |
| • Trustee since 2012 • Oversees 49 Funds in Fund Complex
|
Bruce B. Bingham, 72 Partner, Hamilton Partners (real estate development firm) (1987-2020); Director of The Yacktman Funds (2 portfolios) (2000-2012). | |
| • Trustee since 2013 • Oversees 52 Funds in Fund Complex |
Kurt A. Keilhacker, 57 Managing Partner, TechFund Capital (1997-Present); Managing Partner, TechFund Europe (2000-Present); Managing Partner, Elementum Ventures (2013-Present); Director, MetricStory, Inc. (2017-Present); Trustee, Wheaton College (2018-Present); Trustee, Gordon College (2001-2016); Trustee, Board Member, 6wind SA, (2002-2019).
| |
| • Trustee since 2000 • Oversees 49 Funds in Fund Complex |
Steven J. Paggioli, 70 Independent Consultant (2002-Present); Trustee, Professionally Managed Portfolios (28 portfolios); Advisory Board Member, Sustainable Growth Advisors, LP; Independent Director, Muzinich BDC, Inc. (business development company) (2019-Present); Director, The Wadsworth Group; Independent Director, Chase Investment Counsel(2008–2019); Executive Vice President, Secretary and Director, Investment Company Administration, LLC and First Fund Distributors, INC. (1990-2001).
| |
| • Trustee since 2013 • Oversees 49 Funds in Fund Complex |
Richard F. Powers III, 75 Adjunct Professor, U.S. Naval War College (2016-Present); Adjunct Professor, Boston College (2011-2015); Director, Ameriprise Financial Inc. (2005-2009); President and CEO of Van Kampen Investments Inc. (1998-2003); President, Morgan Stanley Client Group (2000-2002); Executive Vice President and Chief Marketing Officer of the Morgan Stanley Individual Investor Group (1984-1998).
| |
| • Independent Chairman • Trustee since 2000 • Oversees 52 Funds in Fund Complex |
Eric Rakowski, 62 Professor of Law, University of California at Berkeley School of Law (1990-Present); Tax Attorney at Davis Polk & Wardwell and clerked for Judge Harry T. Edwards of the U.S. Court of Appeals for the District of Columbia Circuit and for Justice William J. Brennan Jr. of the U.S. Supreme Court; Director of Harding, Loevner Funds, Inc. (9 portfolios); Trustee of Third Avenue Trust (3 portfolios) (2002-2019); Trustee of Third Avenue Variable Trust (1 portfolio) (2002-2019).
| |
| • Trustee since 2013 • Oversees 52 Funds in Fund Complex |
Victoria L. Sassine, 55 Adjunct Professor, Babson College (2007–Present); Director, Board of Directors, PRG Group (2017-Present); CEO, Founder, Scale Smarter Partners, LLC (2018-Present); Adviser, EVOFEM Biosciences (2019-Present); Teaching Fellow, Goldman Sachs 10,000 Small Business Initiative (2010-Present); Chairperson of the Board of Directors of Business Management Associates (2018 to 2019).
| |
| • Trustee since 1987 • Oversees 49 Funds in Fund Complex |
Thomas R. Schneeweis, 73 Professor Emeritus, University of Massachusetts (2013-Present); President, TRS Associates (1982-Present); Board Member, Chartered Alternative Investment Association (“CAIA”) (2002-Present); Director, CAIA Foundation (2010-2019); Director, Institute for Global Asset and Risk Management (Education) (2010-Present); Co-Owner, Quantitative Investment Technologies (2014-Present); Co-Owner, Yes Wealth Management (2018-Present); Director of Research, Yes Wealth Management (2018-Present); Partner, S Capital Wealth Advisors (2015-2018); Partner, S Capital Management, LLC (2007-2015); President, Alternative Investment Analytics, LLC, (formerly Schneeweis Partners, LLC) (2001-2013); Finance Professor, University of Massachusetts (1977-2013).
| |
45
|
AMG Funds | ||
| Trustees and Officers (continued) |
Interested Trustees
Each Trustee in the following table is an “interested person” of the Trust within the meaning of the 1940 Act. Ms. Carsman is an interested person of the Trust within the meaning of the 1940 Act by virtue of her position with, and interest in securities of, AMG.
|
Number of Funds Overseen in Fund Complex |
Name, Age, Principal Occupation(s) During Past 5 Years and Other Directorships Held by Trustee | |
|
• Trustee since 2011 • Oversees 52 Funds in Fund Complex |
Christine C. Carsman, 68 Senior Policy Advisor, Affiliated Managers Group, Inc. (2019-Present); Chair of the Board of Directors, AMG Funds plc (2015-2018); Director, AMG Funds plc (2010-2018); Executive Vice President, Deputy General Counsel and Chief Regulatory Counsel, Affiliated Managers Group, Inc. (2017-2018); Senior Vice President and Deputy General Counsel, Affiliated Managers Group, Inc. (2011-2016); Senior Vice President and Chief Regulatory Counsel, Affiliated Managers Group, Inc. (2007-2011); Vice President and Chief Regulatory Counsel, Affiliated Managers Group, Inc. (2004-2007); Senior Counsel, Vice President and Director of Operational Risk Management and Compliance, Wellington Management Company, LLP (1995-2004); Director of Harding, Loevner Funds, Inc. (9 portfolios) (2017-Present); Secretary and Chief Legal Officer, AMG Funds, AMG Funds I, AMG Funds II and AMG Funds III (2004-2011). | |
|
Officers | ||
| Position(s) Held with Fund and Length of Time Served |
Name, Age, Principal Occupation(s) During Past 5 Years | |
|
• President since 2018 • Principal Executive Officer since 2018 • Chief Executive Officer since 2018 • Chief Operating Officer since 2007 |
Keitha L. Kinne, 62 Chief Operating Officer, AMG Funds LLC (2007-Present); Chief Investment Officer, AMG Funds LLC (2008-Present); President and Principal, AMG Distributors, Inc. (2018-Present); Chief Operating Officer, AMG Distributors, Inc. (2007-Present); President, Chief Executive Officer and Principal Executive Officer, AMG Funds, AMG Funds I, AMG Funds II, AMG Funds III and AMG Funds IV (2018-Present); Chief Operating Officer, AMG Funds, AMG Funds I, AMG Funds II, and AMG Funds III (2007-Present); Chief Operating Officer, AMG Funds IV (2016-Present); Chief Operating Officer and Chief Investment Officer, Aston Asset Management, LLC (2016); President and Principal Executive Officer, AMG Funds, AMG Funds I, AMG Funds II and AMG Funds III (2012-2014); Managing Partner, AMG Funds LLC (2007-2014); President and Principal, AMG Distributors, Inc. (2012-2014); Managing Director, Legg Mason & Co., LLC (2006-2007); Managing Director, Citigroup Asset Management (2004-2006). | |
|
• Secretary since 2015 • Chief Legal Officer since 2015 |
Mark J. Duggan, 55 Senior Vice President and Senior Counsel, AMG Funds LLC (2015-Present); Secretary and Chief Legal Officer, AMG Funds, AMG Funds I, AMG Funds II, AMG Funds III and AMG Funds IV (2015-Present); Attorney, K&L Gates, LLP (2009-2015). | |
|
• Chief Financial Officer since 2017 • Treasurer since 2017 • Principal Financial Officer since 2017 • Principal Accounting Officer since 2017 |
Thomas G. Disbrow, 54 Vice President, Mutual Fund Treasurer & CFO, AMG Funds, AMG Funds LLC (2017-Present); Chief Financial Officer, Principal Financial Officer, Treasurer and Principal Accounting Officer, AMG Funds, AMG Funds I, AMG Funds II, AMG Funds III and AMG Funds IV (2017-Present); Managing Director - Global Head of Traditional Funds Product Control, UBS Asset Management (Americas), Inc. (2015-2017); Managing Director - Head of North American Funds Treasury, UBS Asset Management (Americas), Inc. (2011-2015). | |
|
• Deputy Treasurer since 2017 |
John A. Starace, 50 Director, Mutual Fund Accounting, AMG Funds LLC (2017-Present); Vice President, Deputy Treasurer of Mutual Funds Services, AMG Funds LLC (2014-2017); Deputy Treasurer, AMG Funds, AMG Funds I, AMG Funds II, AMG Funds III and AMG Funds IV (2017-Present); Vice President, Citi Hedge Fund Services (2010-2014); Audit Senior Manager (2005-2010) and Audit Manager (2001-2005), Deloitte & Touche LLP. | |
|
• Chief Compliance Officer since 2019 |
Patrick J. Spellman, 46 Vice President, Chief Compliance Officer, AMG Funds LLC (2017-Present); Chief Compliance Officer and Sarbanes-Oxley Code of Ethics Compliance Officer, AMG Funds, AMG Funds I, AMG Funds II, AMG Funds III and AMG Funds IV (2019-Present); Chief Compliance Officer, AMG Distributors, Inc., (2010-Present); Senior Vice President, Chief Compliance Officer, AMG Funds LLC (2011-2017); Anti-Money Laundering Compliance Officer, AMG Funds, AMG Funds I, AMG Funds II, and AMG Funds III (2014-2019); Anti-Money Laundering Officer, AMG Funds IV, (2016-2019); Compliance Manager, Legal and Compliance, Affiliated Managers Group, Inc. (2005-2011). | |
|
• Assistant Secretary since 2016 |
Maureen A. Meredith, 35 Vice President, Counsel, AMG Funds LLC (2019-Present); Director, Counsel, AMG Funds LLC (2017-2018); Vice President, Counsel, AMG Funds LLC (2015-2017); Assistant Secretary, AMG Funds, AMG Funds I, AMG Funds II, AMG Funds III and AMG Funds IV (2016-Present); Associate, Ropes & Gray LLP (2011-2015); Law Fellow, Massachusetts Appleseed Center for Law and Justice (2010-2011). | |
|
• Anti-Money Laundering Compliance Officer since 2019 |
Hector D. Roman, 43 Director, Legal and Compliance, AMG Funds LLC (2020-Present); Manager, Legal and Compliance, AMG Funds LLC (2017-2019); Director of Compliance, Morgan Stanley Investment Management (2015-2017); Senior Advisory, PricewaterhouseCoopers LLP (2014-2015); Risk Manager, Barclays Investment Bank (2008-2014); Anti-Money Laundering Compliance Officer, AMG Funds, AMG Funds I, AMG Funds II, AMG Funds III and AMG Funds IV (2019-Present). | |
46
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| INVESTMENT MANAGER AND ADMINISTRATOR AMG Funds LLC One Stamford Plaza 263 Tresser Blvd, Suite 949 Stamford, CT 06901 800.548.4539
DISTRIBUTOR
AMG Distributors, Inc. One Stamford Plaza 263 Tresser Blvd, Suite 949 Stamford, CT 06901 800.548.4539
CUSTODIAN
The Bank of New York Mellon 111 Sanders Creek Parkway East Syracuse, NY 13057 |
LEGAL COUNSEL Ropes & Gray LLP Prudential Tower, 800 Boylston Street Boston, MA 02199-3600
TRANSFER AGENT BNY Mellon Investment Servicing (US) Inc. Attn: AMG Funds 4400 Computer Drive Westborough, MA 01581 800.548.4539 |
This report is prepared for the Funds’ shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by an effective prospectus. To receive a free copy of the prospectus or Statement of Additional Information, which includes additional information about Fund Trustees, please contact us by calling 800.548.4539. Distributed by AMG Distributors, Inc., member FINRA/SIPC.
Current net asset values per share for each Fund are available on the Funds’ website at amgfunds.com. A description of the policies and procedures each Fund uses to vote its proxies is available: (i) without charge, upon request, by calling 800.548.4539, or (ii) on the Securities and Exchange Commission’s (SEC) website at sec.gov. For information regarding each Fund’s proxy voting record for the 12-month period ended June 30, call 800.548.4539 or visit the SEC website at sec.gov.
The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to their reports on Form N-PORT. The Funds’ portfolio holdings on Form N-PORT are available on the SEC’s website at sec.gov and the Funds’ website at amgfunds.com. To review a complete list of the Funds’ portfolio holdings, or to view the most recent semi-annual report or annual report, please visit amgfunds.com
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amgfunds.com
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AFFILIATE SUBADVISED FUNDS
BALANCED FUNDS
AMG GW&K Global Allocation GW&K Investment Management, LLC
AMG FQ Global Risk-Balanced First Quadrant, L.P.
EQUITY FUNDS
AMG FQ Tax-Managed U.S. Equity AMG FQ Long-Short Equity First Quadrant, L.P.
AMG Frontier Small Cap Growth Frontier Capital Management Co., LLC
AMG GW&K Small Cap Core AMG GW&K Small Cap Value AMG GW&K Small/Mid Cap AMG GW&K Mid Cap AMG GW&K Emerging Markets Equity AMG GW&K Emerging Wealth Equity AMG GW&K International Small Cap GW&K Investment Management, LLC
AMG Renaissance Large Cap Growth The Renaissance Group LLC
AMG River Road Dividend All Cap Value AMG River Road Focused Absolute Value AMG River Road Long-Short AMG River Road Small-Mid Cap Value AMG River Road Small Cap Value River Road Asset Management, LLC |
AMG TimesSquare Emerging Markets Small Cap AMG TimesSquare Global Small Cap AMG TimesSquare International Small Cap AMG TimesSquare Mid Cap Growth AMG TimesSquare Small Cap Growth TimesSquare Capital Management, LLC
AMG Yacktman AMG Yacktman Focused
AMG Yacktman Focused Fund - Security Selection Only AMG Yacktman Special Opportunities Yacktman Asset Management LP
FIXED INCOME FUNDS
AMG GW&K Core Bond ESG
AMG GW&K Enhanced Core Bond ESG AMG GW&K High Income AMG GW&K Municipal Bond AMG GW&K Municipal Enhanced Yield GW&K Investment Management, LLC
OPEN-ARCHITECTURE FUNDS
EQUITY FUNDS
AMG Managers Brandywine AMG Managers Brandywine Blue Friess Associates, LLC
AMG Managers CenterSquare Real Estate CenterSquare Investment Management LLC |
AMG Managers Emerging Opportunities WEDGE Capital Management L.L.P. Next Century Growth Investors LLC RBC Global Asset Management (U.S.) Inc.
AMG Managers Fairpointe Mid Cap Fairpointe Capital LLC
AMG Managers LMCG Small Cap Growth LMCG Investments, LLC
AMG Managers Montag & Caldwell Growth Montag & Caldwell, LLC
AMG Managers Pictet International Pictet Asset Management Limited
AMG Managers Silvercrest Small Cap Silvercrest Asset Management Group LLC
AMG Managers Special Equity Ranger Investment Management, L.P. Lord, Abbett & Co. LLC Smith Asset Management Group, L.P. Federated MDTA LLC
FIXED INCOME FUNDS
AMG Managers DoubleLine Core Plus Bond DoubleLine Capital LP
AMG Managers Loomis Sayles Bond Loomis, Sayles & Company, L.P. |
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amgfunds.com
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123120 AR078 |
 |
Annual Report |
| AMG Funds | ||
| December 31, 2020 | ||
 | ||
| AMG GW&K Enhanced Core Bond ESG Fund | ||
| Class N: MFDAX | Class I: MFDSX | Class Z: MFDYX | ||
| AMG GW&K High Income Fund | ||
| (formerly AMG Managers Global Income Opportunity Fund) | ||
| Class N: MGGBX | ||
| AMG GW&K Municipal Bond Fund | ||
| Class N: GWMTX | Class I: GWMIX | ||
| AMG GW&K Municipal Enhanced Yield Fund | ||
| Class N: GWMNX | Class I: GWMEX | Class Z: GWMZX | ||
| AMG GW&K Global Allocation Fund | ||
| (formerly AMG Chicago Equity Partners Balanced Fund) | ||
| Class N: MBEAX | Class I: MBESX | Class Z: MBEYX | ||
| AMG GW&K Small Cap Core Fund | ||
| Class N: GWETX | Class I: GWEIX | Class Z: GWEZX | ||
| AMG GW&K Small/Mid Cap Fund | ||
| Class N: GWGVX | Class I: GWGIX | Class Z: GWGZX | ||
| AMG GW&K Small Cap Value Fund | ||
| (formerly AMG Managers Skyline Special Equities Fund) | ||
| Class N: SKSEX | Class I: SKSIX | Class Z: SKSZX |
| amgfunds.com | | 123120 | AR019 |
| AMG Funds | |
| Annual Report — December 31, 2020 |
| TABLE OF CONTENTS | PAGE | ||
| LETTER TO SHAREHOLDERS | 2 | ||
| ABOUT YOUR FUND’S EXPENSES | 3 | ||
| PORTFOLIO MANAGER’S COMMENTS, FUND SNAPSHOTS AND SCHEDULES OF PORTFOLIO INVESTMENTS | |||
| AMG GW&K Enhanced Core Bond ESG Fund | 5 | ||
| AMG GW&K High Income Fund | |||
| (formerly AMG Managers Global Income Opportunity Fund) | 14 | ||
| AMG GW&K Municipal Bond Fund | 21 | ||
| AMG GW&K Municipal Enhanced Yield Fund | 29 | ||
| AMG GW&K Global Allocation Fund | |||
| (formerly AMG Chicago Equity Partners Balanced Fund) | 36 | ||
| AMG GW&K Small Cap Core Fund | 46 | ||
| AMG GW&K Small/Mid Cap Fund | 52 | ||
| AMG GW&K Small Cap Value Fund | |||
| (formerly AMG Managers Skyline Special Equities Fund) | 58 | ||
| FINANCIAL STATEMENTS | |||
| Statement of Assets and Liabilities | 63 | ||
| Balance sheets, net asset value (NAV) per share computations and cumulative distributable earnings (loss) | |||
| Statement of Operations | 67 | ||
| Detail of sources of income, expenses, and realized and unrealized gains (losses) during the fiscal year | |||
| Statements of Changes in Net Assets | 69 | ||
| Detail of changes in assets for the past two fiscal years | |||
| Financial Highlights | 72 | ||
| Historical net asset values per share, distributions, total returns, income and expense ratios, turnover ratios and net assets | |||
| Notes to Financial Statements | 93 | ||
| Accounting and distribution policies, details of agreements and transactions with Fund management and affiliates, and descriptions of certain investment risks | |||
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 105 | ||
| OTHER INFORMATION | 106 | ||
| TRUSTEES AND OFFICERS | 107 | ||
| APPROVAL OF SUBADVISORY AGREEMENTS | 109 |
| Nothing contained herein is to be considered an offer, sale or solicitation of an offer to buy shares of any series of the AMG Funds Family of Funds. Such offering is made only by prospectus, which includes details as to offering price and other material information. |
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Letter to Shareholders |
Dear Shareholder:
The fiscal year ending December 31, 2020, was a volatile period for financial markets that featured a dramatic selloff and extraordinary rebound amid the unprecedented global effort to stop the COVID-19 pandemic. Early in the year, equities achieved new record highs against the backdrop of a healthy economy and strong investor sentiment. However, a broad-based selloff occurred amid a global flight to quality as investors assessed the scope of the unfolding COVID-19 pandemic, a deteriorating economy, and skyrocketing unemployment. An oil price war initiated between Saudi Arabia and Russia only made matters worse. From its peak in mid-February 2020, the S&P 500® Index declined (33.79)% over the span of a few weeks, halting the eleven-year equity bull market. In response to the crisis, global central banks and governments were quick to flood the market with massive fiscal and monetary stimulus which helped to stabilize the market and led to an impressive recovery in risk assets, albeit a very uneven one. So despite the volatility, the S&P 500® Index still achieved an 18.40% return for 2020 while effective COVID-19 vaccines and further government stimulus bolstered investor optimism for a brighter future in 2021.
During the year there was very wide dispersion in performance across sectors, with information technology and consumer discretionary sectors leading the market with returns of 43.88% and 33.30%, respectively. On the other hand, companies in the energy sector fell (33.69)%, and financials and real estate also produced slightly negative returns. Growth stocks significantly outperformed value stocks for the period with returns of 38.49% and 2.80% for the Russell 1000® Growth and Russell 1000® Value Indexes, respectively. Small cap stocks endured a wild ride in 2020 as the Russell 2000® Index experienced both its best quarter (fourth quarter 2020) and worst quarter (first quarter 2020) on record. For the year as a whole, small cap returns were relatively in line with the broader market as the Russell 2000® Index gained 19.96% in 2020. Outside the U.S., emerging markets outperformed developed markets with an 18.31% return for the MSCI Emerging Markets Index compared to a 7.82% return for the MSCI EAFE Index.
Interest rates fell dramatically and led to strong returns for bond investors as the U.S. Federal Reserve (the Fed) slashed short-term rates in response to the slowing economy. The 10-year Treasury yield ended the year near a historic low yield of 0.93%. The Bloomberg Barclays U.S. Aggregate Bond Index, a broad measure of U.S. bond market performance, returned 7.51% over the period. Investment grade corporate bonds rebounded from the selloff early in the year and returned 9.89% in 2020. Riskier high yield bonds lagged the investment grade market with a 7.11% return as measured by the return of the Bloomberg Barclays U.S. Corporate High Yield Bond Index.
AMG Funds appreciates the privilege of providing investment tools to you and your clients. Our foremost goal is to provide investment solutions that help our shareholders successfully reach their long-term investment goals. AMG Funds provides access to a distinctive array of actively managed return-oriented investment strategies. We thank you for your continued confidence and investment in AMG Funds. You can rest assured that under all market conditions our team is focused on delivering excellent investment management services for your benefit.
Respectfully,
Keitha Kinne
President
AMG Funds
| Average Annual Total Returns | Periods ended December 31, 2020* | |||||||
| Stocks: | 1 Year | 3 Years | 5 Years | |||||
| Large Cap | (S&P 500® Index) | 18.40% | 14.18% | 15.22% | ||||
| Small Cap | (Russell 2000® Index) | 19.96% | 10.25% | 13.26% | ||||
| International | (MSCI All Country World Index ex USA) | 10.65% | 4.88% | 8.93% | ||||
| Bonds: | ||||||||
| Investment Grade | (Bloomberg Barclays U.S. Aggregate Bond Index) | 7.51% | 5.34% | 4.44% | ||||
| High Yield | (Bloomberg Barclays U.S. Corporate High Yield Bond Index) | 7.11% | 6.24% | 8.59% | ||||
| Tax-exempt | (Bloomberg Barclays Municipal Bond Index) | 5.21% | 4.64% | 3.91% | ||||
| Treasury Bills | (ICE BofAML U.S. 6-Month Treasury Bill Index) | 1.05% | 1.84% | 1.43% | ||||
*Source: FactSet. Past performance is no guarantee of future results.
2
| About Your Fund’s Expenses |
As a shareholder of a Fund, you may incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on $1,000 invested at the beginning of the period and held for the entire period as indicated below.
ACTUAL EXPENSES
The first line of the following table provides information about the actual account values and
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actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the following table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s
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actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
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| Six Months Ended December 31, 2020 |
Expense Ratio for the Period |
Beginning Account Value 07/01/20 |
Ending Account Value 12/31/20 |
Expenses Paid During the Period* |
| AMG GW&K Enhanced Core Bond ESG Fund | ||||
| Based on Actual Fund Return | ||||
| Class N | 0.73% | $1,000 | $1,038 | $3.74 |
| Class I | 0.55% | $1,000 | $1,039 | $2.82 |
| Class Z | 0.48% | $1,000 | $1,039 | $2.46 |
| Based on Hypothetical 5% Annual Return | ||||
| Class N | 0.73% | $1,000 | $1,021 | $3.71 |
| Class I | 0.55% | $1,000 | $1,022 | $2.80 |
| Class Z | 0.48% | $1,000 | $1,023 | $2.44 |
| AMG GW&K High Income Fund | ||||
| Based on Actual Fund Return | ||||
| Class N | 0.88% | $1,000 | $1,076 | $4.59 |
| Based on Hypothetical 5% Annual Return | ||||
| Class N | 0.88% | $1,000 | $1,021 | $4.47 |
| Six Months Ended December 31, 2020 |
Expense Ratio for the Period |
Beginning Account Value 07/01/20 |
Ending Account Value 12/31/20 |
Expenses Paid During the Period* |
| AMG GW&K Municipal Bond Fund | ||||
| Based on Actual Fund Return | ||||
| Class N | 0.71% | $1,000 | $1,023 | $3.61 |
| Class I | 0.39% | $1,000 | $1,025 | $1.99 |
| Based on Hypothetical 5% Annual Return | ||||
| Class N | 0.71% | $1,000 | $1,022 | $3.61 |
| Class I | 0.39% | $1,000 | $1,023 | $1.98 |
| AMG GW&K Municipal Enhanced Yield Fund | ||||
| Based on Actual Fund Return | ||||
| Class N | 0.99% | $1,000 | $1,060 | $5.13 |
| Class I | 0.64% | $1,000 | $1,061 | $3.32 |
| Class Z | 0.59% | $1,000 | $1,062 | $3.06 |
| Based on Hypothetical 5% Annual Return | ||||
| Class N | 0.99% | $1,000 | $1,020 | $5.03 |
| Class I | 0.64% | $1,000 | $1,022 | $3.25 |
| Class Z | 0.59% | $1,000 | $1,022 | $3.00 |
3
| About Your Fund’s Expenses (continued) |
| Six Months Ended December 31, 2020 |
Expense Ratio for the Period |
Beginning Account Value 07/01/20 |
Ending Account Value 12/31/20 |
Expenses Paid During the Period* |
| AMG GW&K Global Allocation Fund | ||||
| Based on Actual Fund Return | ||||
| Class N | 1.07% | $1,000 | $1,219 | $5.97 |
| Class I | 0.92% | $1,000 | $1,219 | $5.13 |
| Class Z | 0.82% | $1,000 | $1,221 | $4.58 |
| Based on Hypothetical 5% Annual Return | ||||
| Class N | 1.07% | $1,000 | $1,020 | $5.43 |
| Class I | 0.92% | $1,000 | $1,021 | $4.67 |
| Class Z | 0.82% | $1,000 | $1,021 | $4.17 |
| AMG GW&K Small Cap Core Fund | ||||
| Based on Actual Fund Return | ||||
| Class N | 1.30% | $1,000 | $1,310 | $7.55 |
| Class I | 0.95% | $1,000 | $1,313 | $5.52 |
| Class Z | 0.90% | $1,000 | $1,313 | $5.23 |
| Based on Hypothetical 5% Annual Return | ||||
| Class N | 1.30% | $1,000 | $1,019 | $6.60 |
| Class I | 0.95% | $1,000 | $1,020 | $4.82 |
| Class Z | 0.90% | $1,000 | $1,021 | $4.57 |
| AMG GW&K Small/Mid Cap Fund | ||||
| Based on Actual Fund Return | ||||
| Class N | 1.11% | $1,000 | $1,303 | $6.43 |
| Class I | 0.93% | $1,000 | $1,305 | $5.39 |
| Class Z | 0.84% | $1,000 | $1,305 | $4.87 |
| Based on Hypothetical 5% Annual Return | ||||
| Class N | 1.11% | $1,000 | $1,020 | $5.63 |
| Class I | 0.93% | $1,000 | $1,020 | $4.72 |
| Class Z | 0.84% | $1,000 | $1,021 | $4.27 |
| Six Months Ended December 31, 2020 |
Expense Ratio for the Period |
Beginning Account Value 07/01/20 |
Ending Account Value 12/31/20 |
Expenses Paid During the Period* |
| AMG GW&K Small Cap Value Fund | ||||
| Based on Actual Fund Return | ||||
| Class N | 1.17% | $1,000 | $1,345 | $6.90 |
| Class I | 0.99% | $1,000 | $1,346 | $5.84 |
| Class Z | 0.92% | $1,000 | $1,346 | $5.43 |
| Based on Hypothetical 5% Annual Return | ||||
| Class N | 1.17% | $1,000 | $1,019 | $5.94 |
| Class I | 0.99% | $1,000 | $1,020 | $5.03 |
| Class Z | 0.92% | $1,000 | $1,021 | $4.67 |
| * | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184), then divided by 366. |
4
| AMG GW&K Enhanced Core Bond ESG Fund | |
| Portfolio Manager’s Comments (unaudited) |
THE YEAR IN REVIEW
AMG GW&K Enhanced Core Bond ESG Fund’s (the “Fund”) Class N shares returned 9.41% for the year ended December 31, 2020, compared to the return of 7.51% for the Bloomberg Barclays U.S. Aggregate Bond Index (the Index).
At the start of 2020, fixed income markets experienced an extraordinarily volatile quarter as COVID-19 evolved into a global pandemic and investors aggressively shed risk assets amid a massive, system-wide deleveraging. Measures enacted to slow the spread of the virus effectively shut down entire segments of the world economy, and the implications for growth, liquidity, and inflation were profound. Expectations for second quarter growth pointed to declines of as much as a third of Gross Domestic Product (GDP), companies began hoarding cash by drawing down lines of credit, and break-evens fell to their lowest level in two decades. Adding to the tumult was the start of a crude price war between Russia and Saudi Arabia, which exacerbated the selloff inspired by an already dire outlook for demand and helped oil post its worst quarter on record. Sentiment was similarly dismal, as investors struggled to handicap the ultimate duration and severity of the slowdown. They pulled record amounts of cash from investment grade mutual funds and caused dislocations in even the safest corners of the fixed income market, desperate to raise cash by selling anything they could. Fiscal and monetary authorities took significant steps to mitigate the fallout from the virus, but given the unprecedented nature of the threat it posed, the long-term efficacy of these efforts remained an open question.
In the second quarter, fixed income markets enjoyed a second straight quarter of gains benefiting from ongoing support from the U.S. Federal Reserve (the Fed) and renewed investor optimism amid the country’s gradual reopening. Data suggested the bottom was likely in, as green shoots across the economy drove the recovery narrative. The consumer proved remarkably resilient, with a V-shaped rebound unfolding in the retail, housing, and auto sectors. Business activity also bounced, as manufacturing sentiment and new orders pointed to a steady pace of progress in returning to pre-pandemic levels. Adding to the turnaround’s momentum were expectations of additional fiscal stimulus, which would not only provide an obvious boost to the economy but also, more importantly, narrow the range of potential adverse outcomes.
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Despite the unprecedented size and scope of the Fed’s intervention, alarming news of rising case counts, renewed lockdowns across the country, and uncertain progress on the development of treatments and vaccines tempered the rally in the closing weeks. The potential for a significant second wave in the fall loomed as well, and posed a serious threat to investor optimism. On the one hand, the Fed’s relatively downbeat economic outlook ensures that it is likely to provide necessary support for the indefinite future. On the other hand, it paints a challenging picture for the nation’s recovery. The key question fixed income markets faced was which of these two forces would prevail in the coming quarters.
Fixed income markets were remarkably subdued in the third quarter, trading in an extremely narrow range despite major economic advances and significant developments epidemiologically and politically. For much of the period, this calm was striking for its apparent insensitivity to the steady progress of the U.S. recovery. The consumer continued to display astonishing resilience, the housing sector soared, and the labor market made major strides in its path back to normalcy. Encouraging results in the hunt for a COVID-19 vaccine and improved outcomes for those infected also seemed to have little impact. Toward the end of the quarter, this muted trading was all the more notable, considering the looming uncertainty investors faced heading into year end. Signs had already begun to emerge that the virus’s second wave was forming; negotiators were far apart in their efforts to agree on a second round of stimulus; and there was increasing concern that a protracted vote count could result in a weeks-long delay in determining the outcome of the election. Yet the bond market exited the quarter essentially where it started. Of course, the cause of this apparent tranquility is no mystery: The Fed remains absolutely dominant across all corners of the fixed income market. And as its influence continues to overwhelm fundamentals and distort pricing mechanisms, it has become increasingly challenging and all the more important for investors to be discerning in their yield curve positioning and sector allocation.
The fourth quarter represented a major inflection point for fixed income markets, as the most dominant trading narratives of 2020 were either resolved or significantly advanced. The closely contested U.S. election was decided, another round of fiscal
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stimulus was passed, and, most importantly, several COVID-19 vaccines were approved for worldwide distribution. But while some of 2020’s most salient overhangs have been removed, the year ahead promises challenges of its own. On the political front, the incoming administration certainly has its work cut out for itself at advancing meaningful legislation, with implications ranging from additional stimulus to changes in the regulatory landscape. The speed at which vaccines are distributed is likewise a point of uncertainty, to say nothing of how effective it will ultimately be at slowing the spread of the virus. Meanwhile, the economy continues its slow climb out of the recent downturn, as businesses and consumers adapt to a post-COVID-19 world. Importantly for the fixed income markets, the possibility of adverse outcomes is likely to be mitigated by the Fed. The central bank continues to exert massive influence over capital markets, and policymakers remain clear in their intentions to ensure their smooth functioning.
FUND REVIEW
The Fund outperformed during its fiscal year, helped by its overweight to spread product. Investment grade corporates scored eight months of positive returns in 2020, with March’s (7.09)% plunge followed up with robust gains. Additionally, high yield corporates battled back from an extremely tough first quarter, which included a (11.46)% drop in March, to end the year with solid gains. The sector’s trough came on March 23 when it was down almost (20)% for the year. However, like its investment grade counterpart, it roared back to make up for the losses and then some. The Fund’s above-benchmark allocation to investment grade corporate bonds and the Fund’s out-of-benchmark allocation to high yield corporates contributed to returns. Security selection was another key positive, with solid selection in the investment grade corporate space. Good selection was most notable in the banking and communications segments, while that for capital goods and basic industry lagged. Selection within mortgage backed securities (MBS) was also a plus, as the Fund’s lack of Ginnie Mae exposure, preference for specified pools, and tactical trades to capture the Fed’s technical demand all worked well. On the other hand, selection within the taxable municipal bond sector subtracted from performance. The yield curve effect was net modestly positive. The Fund gained from its underweight to the long end of the yield curve,
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5
| AMG GW&K Enhanced Core Bond ESG Fund | |
| Portfolio Manager’s Comments (continued) |
| which experienced the smallest decrease in rates. However, the Fund’s moderately shorter duration detracted from returns, as rates plunged during the year.
OUTLOOK
We believe corporate credit remains the most compelling segment of the fixed income market as both a beneficiary of the ongoing recovery and a defense against rising interest rates. Yields available in the Treasury market sit close to historic lows at the
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same time as the sector’s sensitivity to interest rates is near historic highs, providing a particularly asymmetrical risk profile. Credit, meanwhile, is poised to benefit not only from an improving fundamental picture, but also a notable drop-off in issuance next year that is likely to fuel a constructive supply/demand imbalance in a world where positive yields are increasingly scarce. We are consequently overweight credit, focusing on sectors most exposed to the recovery and the credits within them that we believe are best positioned to thrive in a post-COVID-19 world. We also have | out-of-benchmark exposure to fixed-to-floating hybrid securities, which continue to offer attractive total return prospects while being backed by conservatively managed balance sheets. We have maintained our securitized exposure close to neutral, given still-heightened prepayment uncertainty, while within the space we prefer higher-coupon, seasoned pools with more attractive convexity profiles.
This commentary reflects the viewpoints of the portfolio manager, GW&K, and is not intended as a forecast or guarantee of future results.
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6
| AMG GW&K Enhanced Core Bond ESG Fund | |
| Portfolio Manager’s Comments (continued) |
CUMULATIVE TOTAL RETURN PERFORMANCE
AMG GW&K Enhanced Core Bond ESG Fund’s cumulative total return is based on the daily change in net asset value (NAV), and assumes that all dividends and distributions were reinvested. The graph compares a hypothetical $10,000 investment made in the AMG GW&K Enhanced Core Bond ESG Fund’s Class N shares on December 31, 2010, to a $10,000 investment made in the Bloomberg Barclays U.S. Aggregate Bond Index for the same time period. The graph and table do not reflect the deduction of taxes that a shareholder would pay on a Fund distribution or redemption of shares. The listed returns for the Fund are net of expenses and the returns for the index exclude expenses. Total returns would have been lower had certain expenses not been reduced.
The table below shows the average annual total returns for the AMG GW&K Enhanced Core Bond ESG Fund and the Bloomberg Barclays U.S. Aggregate Bond Index for the same time periods ended December 31, 2020.
| Average Annual Total Returns1 | One Year |
Five Years |
Ten Years |
Since Inception |
Inception Date |
| AMG GW&K Enhanced Core Bond ESG Fund2, 3, 4, 5, 6, 7, 8, 9 | |||||
| Class N | 9.41% | 4.95% | 4.08% | 5.48% | 01/02/97 |
| Class I | 9.57% | 5.14% | — | 3.53% | 11/30/12 |
| Class Z | 9.65% | 5.20% | 4.33% | 5.85% | 01/02/97 |
| Bloomberg Barclays U.S. Aggregate Bond Index10 | 7.51% | 4.44% | 3.84% | 5.24% | 01/02/97† |
The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Investors should carefully consider the Fund’s investment objectives, risks, charges and expenses before investing. For performance information through the most recent month end, current net asset values per share for the Fund and other information, please call 800.548.4539 or visit our website at amgfunds.com for a free prospectus. Read it carefully before investing or sending money.
Distributed by AMG Distributors, Inc., member FINRA/SIPC.
| † | Date reflects the inception date of the Fund, not the index. |
| 1 | Total return equals income yield plus share price change and assumes reinvestment of all dividends and capital gain distributions. Returns are net of fees and may reflect offsets of Fund expenses as described in the prospectus. No adjustment has been made for taxes payable by shareholders on their reinvested dividends and |
| capital gain distributions. Returns for periods greater than one year are annualized. The listed returns on the Fund are net of expenses and based on the published NAV as of December 31, 2020. All returns are in U.S. dollars ($). | ||
| 2 | From time to time, the Fund’s advisor has waived its fees and/or absorbed Fund expenses, which has resulted in higher returns. | |
| 3 | The Fund is subject to the risks associated with investments in debt securities, such as default risk and fluctuations in the perception of the debtor’s ability to pay its creditors. Changing interest rates may adversely affect the value of an investment. An increase in interest rates typically causes the value of bonds and other fixed income securities to fall. | |
| 4 | To the extent that the Fund invests in asset-backed or mortgage-backed securities, its exposure to prepayment and extension risks may be greater than investments in other fixed income securities. | |
| 5 | High-yield bonds (also known as “junk bonds”) may be subject to greater levels of interest rate, credit, and liquidity risk than investments in higher rated securities. These securities are considered predominantly speculative with respect to the issuer’s continuing ability to make principal and interest payments. The issuers of the Fund’s holdings may be involved in bankruptcy proceedings, reorganizations, or financial restructurings, and are not as strong financially as higher-rated issuers. | |
| 6 | Investments in international securities are subject to certain risks of overseas investing including currency fluctuations and changes in political and economic conditions, which could result in significant market fluctuations. These risks are magnified in emerging markets. | |
| 7 | Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies. | |
| 8 | Obligations of certain government agencies are not backed by the full faith and credit of the U.S. government. If one of these agencies defaulted on a loan, there is no guarantee that the U.S. government would provide financial support. Additionally, debt securities of the U.S. government may be affected by changing interest rates and subject to prepayment risk. |
7
| AMG GW&K Enhanced Core Bond ESG Fund | |
| Portfolio Manager’s Comments (continued) |
| 9 Applying the Fund’s ESG investment criteria may result in the selection or exclusion of securities of certain issuers for reasons other than performance, and the Fund may underperform funds that do not utilize an ESG investment strategy. The application of this strategy may affect the Fund’s exposure to certain companies, sectors, regions, countries or types of investments, which could negatively impact the Fund’s performance depending on whether such investments are in or out of favor. Applying ESG criteria to investment decisions is qualitative and subjective by nature, and there is no guarantee that the criteria utilized by the Subadviser or any judgment exercised by the Subadviser will reflect the beliefs or values of any particular investor. | 10 The Bloomberg Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds. Unlike the Fund, the Bloomberg Barclays U.S. Aggregate Bond Index is unmanaged, is not available for investment and does not incur expenses.
Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or
|
Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
Not FDIC insured, nor bank guaranteed. May lose value.
|
8
| AMG GW&K Enhanced Core Bond ESG Fund | |
| Fund Snapshots (unaudited) | |
| December 31, 2020 |
PORTFOLIO BREAKDOWN
| Category | % of Net Assets | |
| Corporate Bonds and Notes | 54.1 | |
| U.S. Government and Agency Obligations | 34.6 | |
| Municipal Bonds | 8.1 | |
| Foreign Government Obligations | 0.6 | |
| Short-Term Investments | 4.3 | |
| Other Assets Less Liabilities | (1.7 | ) |
| Rating | % of Market Value1 | |
| U.S. Government and Agency Obligations | 35.5 | |
| Aaa/AAA | 2.6 | |
| Aa/AA | 7.8 | |
| A | 8.5 | |
| Baa/BBB | 28.2 | |
| Ba/BB | 16.6 | |
| B | 0.8 | |
| 1 Includes market value of long-term fixed-income securities only. | ||
TOP TEN HOLDINGS
| Security Name | % of Net Assets | ||
| U.S. Treasury Bonds, 4.500%, 02/15/36 | 3.5 | ||
| FNMA, 4.000%, 10/01/43 | 3.2 | ||
| FNMA, 4.500%, 04/01/41 | 2.5 | ||
| FNMA, 2.000%, 08/01/50 | 2.2 | ||
| FHLMC Multifamily Structured Pass Through Certificates, Series K071, Class A2, 3.286%, 11/25/27 | 2.2 | ||
| California State General Obligation, School Improvements, 7.550%, 04/01/39 | 1.8 | ||
| FHLMC, 5.000%, 10/01/36 | 1.6 | ||
| FNMA, 2.500%, 02/01/35 | 1.6 | ||
| The Goldman Sachs Group, Inc., Series S, 4.400%, 02/10/25 | 1.5 | ||
| FNMA, 3.500%, 01/01/47 | 1.5 | ||
| Top Ten as a Group | 21.6 | ||
Credit quality ratings shown above reflect the highest rating assigned by either Standard & Poor’s (“S&P”), Moody’s Investors Service, Inc. (“Moody’s”) or Fitch. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by any of the rating agencies. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change.
Because a fund’s strategy may result in multiple investments in particular sectors of the economy, its performance may depend on the performance of those sectors and may fluctuate more widely than investments diversified across more sectors. For additional information on these and other risk considerations, please see the Fund’s prospectus.
Any sectors, industries, or securities discussed should not be perceived as investment recommendations. Mention of a specific security should not be considered a recommendation to buy or solicitation to sell that security. Specific securities mentioned in this report may have been sold from the Fund’s portfolio of investments by the time you receive this report.
9
| AMG GW&K Enhanced Core Bond ESG Fund | |
| Schedule of Portfolio Investments | |
| December 31, 2020 |
| Principal Amount |
Value | |
| Corporate Bonds and Notes - 54.1% | ||
| Financials - 14.1% | ||
| Aircastle, Ltd. (Bermuda) | ||
| 5.000%, 04/01/23 | $475,000 | $506,628 |
| Ally Financial, Inc. | ||
| 8.000%, 11/01/31 | 392,000 | 576,553 |
| Bank of America Corp. | ||
| Series MM, (4.300% to 01/28/25 then 3 month LIBOR + 2.664%), 4.300%, 01/28/251,2,3 | 531,000 | 548,157 |
| The Bank of New York Mellon Corp. | ||
| MTN, 2.450%, 08/17/26 | 485,000 | 528,263 |
| Boston Properties, LP | ||
| 3.400%, 06/21/29 | 489,000 | 546,642 |
| The Charles Schwab Corp. | ||
| Series G, (5.375% to 01/06/25 then | ||
| U.S. Treasury Yield Curve CMT 5 year + 4.971%), 5.375%, 01/06/251,2,3 | 707,000 | 789,189 |
| CIT Group, Inc. | ||
| 6.125%, 03/09/28 | 451,000 | 550,698 |
| Crown Castle International Corp. | ||
| 4.300%, 02/15/29 | 406,000 | 482,522 |
| The Goldman Sachs Group, Inc. | ||
| Series S, (4.400% to 02/10/25 then | ||
| U.S. Treasury Yield Curve CMT 5 year + 2.850%), 4.400%, 02/10/251,2,3,4 | 818,000 | 838,450 |
| Host Hotels & Resorts LP | ||
| Series I, 3.500%, 09/15/30 | 515,000 | 543,669 |
| Iron Mountain, Inc. | ||
| 4.500%, 02/15/315 | 230,000 | 241,213 |
| JPMorgan Chase & Co. | ||
| 2.950%, 10/01/26 | 119,000 | 132,091 |
| (4.000% to 01/04/25 then SOFRRATE + 2.475%), 4.000%, 01/04/251,2,3 | 415,000 | 422,003 |
| Starwood Property Trust, Inc. | ||
| 5.500%, 11/01/235 | 270,000 | 282,487 |
| Truist Financial Corp. | ||
| Series N, (4.800% to 09/01/24 then | ||
| U.S. Treasury Yield Curve CMT 5 year + 3.003%), 4.800%, 09/01/241,2,3 | 259,000 | 273,792 |
| Visa, Inc. | ||
| 4.300%, 12/14/45 | 377,000 | 518,109 |
| Total Financials | 7,780,466 | |
| Industrials - 38.3% | ||
| AECOM | ||
| 5.125%, 03/15/27 | 205,000 | 228,860 |
| 5.875%, 10/15/24 | 294,000 | 328,627 |
| Aramark Services, Inc. | ||
| 4.750%, 06/01/26 | 264,000 | 272,171 |
| ArcelorMittal, S.A. (Luxembourg) | ||
| 4.550%, 03/11/26 | 489,000 | 549,670 |
| Principal Amount |
Value | |
| Berry Global, Inc. | ||
| 5.625%, 07/15/275 | $242,000 | $260,679 |
| BorgWarner, Inc. | ||
| 2.650%, 07/01/274 | 490,000 | 527,353 |
| Campbell Soup Co. | ||
| 2.375%, 04/24/30 | 525,000 | 555,469 |
| CenturyLink, Inc. | ||
| 5.625%, 04/01/25 | 246,000 | 265,834 |
| Charter Communications Operating LLC/Charter | ||
| Communications Operating Capital | ||
| 4.908%, 07/23/25 | 470,000 | 546,203 |
| Cheniere Corpus Christi Holdings LLC | ||
| 5.875%, 03/31/25 | 232,000 | 270,227 |
| Comcast Corp. | ||
| 4.150%, 10/15/28 | 651,000 | 784,175 |
| CommonSpirit Health | ||
| 3.347%, 10/01/29 | 458,000 | 503,829 |
| Crown Americas LLC / Crown | ||
| Americas Capital Corp. IV | ||
| 4.500%, 01/15/234 | 238,000 | 251,716 |
| Crown Americas LLC / Crown | ||
| Americas Capital Corp. V | ||
| 4.250%, 09/30/26 | 266,000 | 293,671 |
| CVS Health Corp. | ||
| 5.125%, 07/20/45 | 402,000 | 542,066 |
| Dana, Inc. | ||
| 5.375%, 11/15/27 | 15,000 | 15,928 |
| 5.625%, 06/15/28 | 487,000 | 525,164 |
| Dell, Inc. | ||
| 7.100%, 04/15/284 | 408,000 | 537,536 |
| Elanco Animal Health, Inc. | ||
| 5.900%, 08/28/286 | 463,000 | 547,787 |
| Fidelity National Information Services, Inc. | ||
| Series 10Y, 4.250%, 05/15/28 | 428,000 | 510,077 |
| The Ford Foundation | ||
| Series 2020, 2.415%, 06/01/50 | 488,000 | 499,863 |
| The George Washington University | ||
| Series 2018, 4.126%, 09/15/48 | 435,000 | 552,333 |
| HCA, Inc. | ||
| 5.375%, 02/01/25 | 476,000 | 535,983 |
| Howmet Aerospace, Inc. | ||
| 6.875%, 05/01/254 | 470,000 | 550,487 |
| Johnson Controls International plc/Tyco Fire & Security Finance SCA (Ireland) | ||
| 1.750%, 09/15/30 | 548,000 | 559,847 |
| Lennar Corp. | ||
| 4.750%, 05/30/25 | 232,000 | 265,495 |
| Lowe’s Cos., Inc. | ||
| 4.000%, 04/15/25 | 457,000 | 519,756 |
| MGM Resorts International | ||
| 5.750%, 06/15/25 | 243,000 | 269,129 |
The accompanying notes are an integral part of these financial statements.
10
| AMG GW&K Enhanced Core Bond ESG Fund | |
Schedule of Portfolio Investments (continued) |
| Principal Amount |
Value | ||
| Industrials - 38.3% (continued) | |||
| Microsoft Corp. | |||
| 2.525%, 06/01/50 | $372,000 | $393,104 | |
| Murphy Oil USA, Inc. | |||
| 5.625%, 05/01/27 | 247,000 | 262,082 | |
| Newell Brands, Inc. | |||
| 4.700%, 04/01/266 | 463,000 | 510,657 | |
| Parker-Hannifin Corp. | |||
| 3.250%, 06/14/29 | 467,000 | 530,541 | |
| Penn National Gaming, Inc. | |||
| 5.625%, 01/15/27 | 125,000 | 130,638 | |
| PulteGroup, Inc. | |||
| 5.000%, 01/15/274 | 290,000 | 342,744 | |
| 5.500%, 03/01/26 | 165,000 | 196,645 | |
| Raytheon Technologies Corp. | |||
| 3.950%, 08/16/25 | 460,000 | 527,798 | |
| RELX Capital, Inc. | |||
| 3.000%, 05/22/30 | 80,000 | 88,941 | |
| 4.000%, 03/18/29 | 390,000 | 463,452 | |
| Service Corp. International | |||
| 3.375%, 08/15/30 | 520,000 | 541,884 | |
| Sprint Corp. | |||
| 7.125%, 06/15/24 | 438,000 | 513,012 | |
| Starbucks Corp. | |||
| 2.550%, 11/15/30 | 508,000 | 549,870 | |
| Steel Dynamics, Inc. | |||
| 2.400%, 06/15/25 | 495,000 | 526,667 | |
| Sysco Corp. | |||
| 2.400%, 02/15/30 | 497,000 | 518,195 | |
| Toll Brothers Finance Corp. | |||
| 4.375%, 04/15/23 | 251,000 | 267,001 | |
| United Rentals North America Inc. | |||
| 3.875%, 02/15/31 | 517,000 | 543,328 | |
| Verizon Communications, Inc. | |||
| 3.875%, 02/08/29 | 447,000 | 526,887 | |
| VF Corp. | |||
| 2.800%, 04/23/27 | 496,000 | 542,993 | |
| Wyndham Destinations, Inc. | |||
| 5.650%, 04/01/246 | 516,000 | 559,161 | |
| Xylem, Inc. | |||
| 2.250%, 01/30/31 | 477,000 | 503,033 | |
| Total Industrials | 21,108,568 | ||
| Utilities - 1.7% | |||
| Dominion Energy, Inc. | |||
| Series B, (4.650% to 12/15/24 then U.S. Treasury Yield Curve CMT 5 year + 2.993%), 4.650%, 12/15/241,2,3 | 515,000 | 544,374 |
| Principal Amount |
Value | ||
| National Rural Utilities Cooperative Finance Corp. | |||
| 1.350%, 03/15/31 | $408,000 | $403,194 | |
| Total Utilities | 947,568 | ||
| Total Corporate Bonds and Notes | |||
| (Cost $28,030,829) | 29,836,602 | ||
| Municipal Bonds - 8.1% | |||
| California State General Obligation, School Improvements | |||
| 7.550%, 04/01/39 | 570,000 | 1,002,020 | |
| County of Miami-Dade FL Aviation Revenue, Series C | |||
| 4.280%, 10/01/41 | 700,000 | 771,533 | |
| JobsOhio Beverage System Series B, 4.532%, 01/01/35 | 5,000 | 6,414 | |
| JobsOhio Beverage System, Series B 3.985%, 01/01/29 | 325,000 | 374,095 | |
| Los Angeles Unified School District, School Improvements | |||
| 5.750%, 07/01/34 | 550,000 | 776,655 | |
| Massachusetts School Building Authority Series B, 1.753%, 08/15/30 | 518,000 | 525,351 | |
| Metropolitan Transportation Authority | |||
| 6.687%, 11/15/40 | 75,000 | 98,278 | |
| Metropolitan Transportation Authority, Transit Improvement | |||
| 6.668%, 11/15/39 | 290,000 | 379,717 | |
| University of California, University &
College Improvements Series BD, 3.349%, 07/01/29 |
440,000 | 507,764 | |
| Total Municipal Bonds | |||
| (Cost $4,127,526) | 4,441,827 | ||
| U.S. Government and Agency Obligations - 34.6% | |||
| Fannie Mae - 21.1% | |||
| FNMA | |||
| 2.000%, 08/01/50 to 09/01/50 | 1,281,754 | 1,332,835 | |
| 2.500%, 11/01/34 to 05/01/50 | 1,293,251 | 1,368,421 | |
| 3.500%, 11/01/33 to 11/01/48 | 3,064,710 | 3,326,957 | |
| 4.000%, 12/01/33 to 03/01/50 | 3,137,534 | 3,432,099 | |
| 4.500%, 01/01/40 to 07/01/49 | 1,734,190 | 1,942,283 | |
| 5.000%, 11/01/43 | 200,072 | 232,325 | |
| Total Fannie Mae | 11,634,920 | ||
| Freddie Mac - 10.0% | |||
| FHLMC | |||
| 1.500%, 11/01/50 | 516,262 | 521,940 | |
| 2.000%, 08/01/50 | 196,982 | 204,757 | |
| 2.500%, 11/01/34 to 08/01/50 | 785,462 | 832,730 | |
| 5.000%, 10/01/36 | 767,075 | 891,839 | |
| FHLMC Gold Pool | |||
| 3.500%, 02/01/30 to 04/01/46 | 1,339,120 | 1,457,724 |
The accompanying notes are an integral part of these financial statements.
11
| AMG GW&K Enhanced Core Bond ESG Fund | |
Schedule of Portfolio Investments (continued) |
| Principal Amount |
Value | ||
| Freddie Mac - 10.0% (continued) | |||
| FHLMC Multifamily Structured Pass
Through Certificates Series K050, Class A2 |
|||
| 3.334%, 08/25/253 | $46,000 | $51,565 | |
| Series K071, Class A2 | |||
| 3.286%, 11/25/27 | 1,035,000 | 1,198,038 | |
| Series K076, Class A2 | |||
| 3.900%, 04/25/28 | 291,000 | 349,179 | |
| Total Freddie Mac | 5,507,772 | ||
| U.S. Treasury Obligations - 3.5% | |||
| U.S. Treasury Bonds | |||
| 4.500%, 02/15/36 | 1,319,000 | 1,936,199 | |
| Total U.S. Treasury Obligations | 1,936,199 | ||
| Total U.S. Government and Agency Obligations | |||
| (Cost $18,402,686) | 19,078,891 | ||
| Foreign Government Obligation - 0.6% | |||
| The Korea Development Bank (South Korea) | |||
| 0.500%, 10/27/23 | |||
| (Cost $345,180) | 346,000 | 347,297 | |
| Total Foreign Government Obligation | |||
| (Cost $345,180) | 347,297 | ||
| Short-Term Investments - 4.3% | |||
| Joint Repurchase Agreements - 4.3%7 | |||
| Citigroup Global Markets, Inc., dated 12/31/20, due 01/04/21, 0.070% total to be received $1,000,008 (collateralized by various U.S. Government Agency Obligations and U.S. Treasuries, 0.000% - 4.000%, 09/15/21 - 01/01/51, totaling $1,020,000) | 1,000,000 | 1,000,000 |
| Principal Amount |
Value | ||
| Morgan, Stanley & Co. LLC, dated 12/31/20, due 01/04/21, 0.070% total to be received $379,189 (collateralized by various U.S. Government Agency Obligations and U.S. Treasuries, 0.000% - 9.000%, 02/04/21 - 12/20/50, totaling $386,770) | $379,186 | $379,186 | |
| RBC Dominion Securities, Inc., dated 12/31/20, due 01/04/21, 0.080% total to be received $1,000,009 (collateralized by various U.S. Government Agency Obligations and U.S. Treasuries, 0.000% - 6.000%, 01/05/21 - 12/20/50, totaling $1,020,000) | 1,000,000 | 1,000,000 | |
| Total Joint Repurchase Agreements | 2,379,186 | ||
| Total Short-Term Investments | |||
| (Cost $2,379,186) | 2,379,186 | ||
| Total Investments - 101.7% | |||
| (Cost $53,285,407) | 56,083,803 | ||
| Other Assets, less Liabilities - (1.7)% | (938,221) | ||
| Net Assets - 100.0% | $55,145,582 |
| 1 | Fixed to variable rate investment. The rate shown reflects the fixed rate in effect at December 31, 2020. Rate will reset at a future date. |
| 2 | Perpetuity Bond. The date shown represents the next call date. |
| 3 | Variable rate security. The rate shown is based on the latest available information as of December 31, 2020. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above. |
| 4 | Some of these securities, amounting to $2,928,951 or 5.3% of net assets, were out on loan to various borrowers and are collateralized by cash and various U.S. Treasury Obligations. See Note 4 of Notes to Financial Statements. |
| 5 | Security exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2020, the value of these securities amounted to $784,379 or 1.4% of net assets. |
| 6 | Step Bond: A debt instrument with either deferred interest payments or an interest rate that resets at specific times during its term. |
| 7 | Cash collateral received for securities lending activity was invested in these joint repurchase agreements. |
| CMT | Constant Maturity Treasury |
| FHLMC | Freddie Mac |
| FNMA | Fannie Mae |
| LIBOR | London Interbank Offered Rate |
| MTN | Medium-Term Note |
| SOFRRATE | Secured Overnight Financing Rate |
The accompanying notes are an integral part of these financial statements.
12
| AMG GW&K Enhanced Core Bond ESG Fund | |
Schedule of Portfolio Investments (continued) |
The following table summarizes the inputs used to value the Fund’s investments by the fair value hierarchy levels as of December 31, 2020:
| Level 1 | Level 2 | Level 3 | Total | |||||
| Investments in Securities | ||||||||
| Corporate Bonds and Notes† | — | $29,836,602 | — | $29,836,602 | ||||
| Municipal Bonds† | — | 4,441,827 | — | 4,441,827 | ||||
| U.S. Government and Agency Obligations† | — | 19,078,891 | — | 19,078,891 | ||||
| Foreign Government Obligation | — | 347,297 | — | 347,297 | ||||
| Short-Term Investments | ||||||||
| Joint Repurchase Agreements | — | 2,379,186 | — | 2,379,186 | ||||
| Total Investments in Securities | — | $56,083,803 | — | $56,083,803 |
| † | All corporate bonds and notes, municipal bonds, and U.S. government and agency obligations held in the Fund are Level 2 securities. For a detailed breakout of corporate bonds and notes, municipal bonds, and U.S. government and agency obligations by major industry or agency classification, please refer to the Fund’s Schedule of Portfolio Investments. |
For the fiscal year ended December 31, 2020, there were no transfers in or out of Level 3.
The accompanying notes are an integral part of these financial statements.
13
| AMG GW&K High Income Fund | |
| Portfolio Manager’s Comments (unaudited) |
THE YEAR IN REVIEW
AMG GW&K High Income Fund (the “Fund”) Class N shares returned 12.16% during the year ended December 31, 2020, compared to the 6.79% return for the Bloomberg Barclays U.S. High Yield 1–5 Year Ba Index. The Fund’s legacy benchmark, the Bloomberg Barclays Global Aggregate Bond Index, returned 9.20% during the period.
Effective December 4, 2020, the Fund’s subadviser changed from Loomis, Sayles & Company, L.P. (“Loomis Sayles”) to GW&K Investment Management, LLC (“GW&K”). Also effective December 4, 2020, the Fund changed its name from AMG Manager Global Income Opportunity Fund and changed its investment objective, benchmark, principal investment strategies, and principal risks.
PERFORMANCE
Despite a negative return in the first quarter, the Fund generated strong performance for the full year and outperformed both the legacy benchmark (Bloomberg Barclays Global Aggregate Bond Index) and its new benchmark (Bloomberg Barclays U.S. High Yield 1–5 Year Ba Index). In the first quarter, the Fund underperformed primarily due to spread sector allocation and currency positioning, while duration and yield curve positioning was positive. The Fund subsequently outperformed in the |
following three quarters due to spread sector allocation with notable contributions from an overweight in the investment grade bond sector. The Fund’s currency and yield curve positioning were also modest contributors to relative performance during the period.
HIGH INCOME INVESTMENT STRATEGY
GW&K believes that by actively managing a diversified portfolio of non-investment grade corporate bonds, we can generate higher total return over the long term while assuming manageable levels of risk. We look to invest in companies that we believe offer the best risk-adjusted value.
The Fund seeks to achieve a high level of current income while minimizing price volatility. It seeks to minimize interest rate risk by investing in bonds with maturities less than five years and seeks to minimize credit risk by targeting bonds with an average rating of BB.
OUTLOOK
Yields across the curve have struggled to break decisively out of their recent range, even as investors gained increasing confidence that a durable recovery is underway. Among the reasons for this apparent reticence is a lack of conviction that the U.S. Federal Reserve (Fed) will be able to reach and sustain a long-term inflation target of 2%. |
Furthermore, even in the event that they do, investors are skeptical that the still-fragile recovery could sustain meaningfully higher rates. As a result, we believe there is a fairly even balance of upside and downside risks to rates and we have kept our duration close to its benchmark. With respect to curve positioning, we favor an underweight to the long end, where breakevens are especially unappealing, in favor of the more balanced risk/return profile of intermediate maturities.
We believe corporate credit remains the most compelling segment of the fixed income market as both a beneficiary of the ongoing recovery and a defense against rising interest rates. Yields available in the Treasury market sit close to historic lows at the same time as the sector’s sensitivity to interest rates is near historic highs, providing a particularly asymmetrical risk profile. Credit, meanwhile, is poised to benefit not only from an improving fundamental picture, but also a notable drop-off in issuance next year that is likely to fuel a constructive supply/demand imbalance in a world where positive yields are increasingly scarce.
This commentary reflects the results from GW&K and Loomis Sayles during the period and the viewpoints of the current portfolio manager, GW&K, and is not intended as a forecast or guarantee of future result. |
|||||
14
| AMG GW&K High Income Fund | |
Portfolio Manager’s Comments (continued) |
CUMULATIVE TOTAL RETURN PERFORMANCE
AMG GW&K High Income Fund’s cumulative total return is based on the daily change in net asset value (NAV), and assumes that all dividends and distributions were reinvested. The graph compares a hypothetical $10,000 investment made in the AMG GW&K High Income Fund’s Class N shares on December 31, 2010, to a $10,000 investment made in the Bloomberg Barclays U.S. High Yield 1-5 Year Ba Index and Bloomberg Barclays Global Aggregate Bond Index for the same time period. The graph and table do not reflect the deduction of taxes that a shareholder would pay on a Fund distribution or redemption of shares. The listed returns for the Fund are net of expenses and the returns for the index exclude expenses. Total returns would have been lower had certain expenses not been reduced.
The table below shows the average annual total returns for the AMG GW&K High Income Fund and the Bloomberg Barclays U.S. High Yield 1-5 Year Ba Index and Bloomberg Barclays Global Aggregate Bond Index for the same time periods ended December 31, 2020.
| Average Annual Total Returns1 | One Year | Five Years |
Ten Years |
| AMG GW&K High Income Fund2, 3, 4, 5 | |||
| Class N | 12.16% | 6.04% | 3.74% |
| Bloomberg Barclays U.S. High Yield 1-5 Year Ba Index6 | 6.79% | 6.31% | 5.81% |
| Bloomberg Barclays Global Aggregate Bond Index7 | 9.20% | 4.79% | 2.83% |
The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Investors should carefully consider the Fund’s investment objectives, risks, charges and expenses before investing. For performance information through the most recent month end, current net asset values per share for the Fund and other information, please call 800.548.4539 or visit our website at amgfunds.com for a free prospectus. Read it carefully before investing or sending money.
Distributed by AMG Distributors, Inc., member FINRA/SIPC.
| 1 | Total return equals income yield plus share price change and assumes reinvestment of all dividends and capital gain distributions. Returns are net of fees and may reflect offsets of Fund expenses as described in the prospectus. No adjustment has been made for taxes payable by shareholders on their reinvested dividends and capital gain distributions. Returns for periods greater than one year are annualized. The listed returns on the Fund are net of expenses and based on the published NAV as of December 31, 2020. All returns are in U.S. dollars($). |
| 2 | From time to time the Fund’s advisor has waived it’s fees and/or absorbed Fund expenses, which has resulted in higher returns. |
| 3 | The Fund is subject to the risks associated with investments in debt securities, such as default risk and fluctuations in the perception of the debtor’s ability to pay its creditors. Changing interest rates may adversely affect the value of an investment. An increase in interest rates typically causes the value of bonds and other fixed income securities to fall. |
| 4 | Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies. |
| 5 | High-yield bonds (also known as “junk bonds”) may be subject to greater levels of interest rate, credit, and liquidity risk than investments in higher rated securities. These securities are considered predominantly speculative with respect to the issuer’s continuing ability to make principal and interest payments. The issuers of the Fund’s holdings may be involved in bankruptcy proceedings, reorganizations, or financial restructurings, and are not as strong financially as higher-rated issuers. |
| 6 | On December 4, 2020, the primary benchmark changed from the Bloomberg Barclays Global Aggregate Bond Index to the Bloomberg Barclays U.S. High Yield Ba 1-5 Year Index. The Bloomberg Barclays U.S. High Yield Ba 1-5 Year Index, a subset of the Bloomberg Barclays High Yield Index, is an unmanaged index comprised of fixed rate, publicly issued, non-investment grade debt registered with the Securities and Exchange Commission (SEC) where the middle rating of Moody’s, S&P and Fitch is BB and maturities range from 1 to 5 years. Unlike the Fund, the Bloomberg Barclays U.S. High Yield Ba 1-5 Year Index is unmanaged, is not available for investment and does not incur expenses. |
| 7 | The Bloomberg Barclays Global Aggregate Bond Index, the Fund’s prior benchmark provides a broad-based measure of the global investment-grade fixed income markets. The three major components of this index are the U.S. Aggregate, the Pan-European Aggregate, and the Asian-Pacific Aggregate Indices. The Index also includes Eurodollar and Euro-Yen corporate bonds, Canadian government, agency and corporate securities, and USD investment grade 144A securities. Unlike the Fund, the Bloomberg Barclays Global Aggregate Bond Index is unmanaged, is not available for investment and does not incur expenses. |
Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”).
15
| AMG GW&K High Income Fund | |
Portfolio Manager’s Comments (continued) |
| BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or | endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or | responsibility for injury or damages arising in connection therewith.
Not FDIC insured, nor bank guaranteed. May lose value
|
|||||
16
| AMG GW&K High Income Fund | |
| Fund Snapshots (unaudited) | |
| December 31, 2020 |
PORTFOLIO BREAKDOWN
| Category | % of Net Assets |
| Corporate Bonds and Notes | 96.8 |
| Other Assets Less Liabilities | 3.2 |
| Rating | % of Market Value1 |
| Baa/BBB | 24.7 |
| Ba/BB | 60.1 |
| B | 15.2 |
| 1 | Includes market value of long-term fixed-income securities only. |
TOP TEN HOLDINGS
| Security Name | % of Net Assets | |
| QEP Resources, Inc., 5.625%, 03/01/26 | 2.7 | |
| Apache Corp., 4.625%, 11/15/25 | 2.6 | |
| Kohl’s Corp., 9.500%, 05/15/25 | 2.5 | |
| Ford Motor Co., 4.346%, 12/08/26 | 2.5 | |
| Allegheny Technologies, Inc., 7.875%, 08/15/23 | 2.5 | |
| Methanex Corp., 4.250%, 12/01/24 (Canada) | 2.5 | |
| Howmet Aerospace, Inc., 6.875%, 05/01/25 | 2.5 | |
| Aramark Services, Inc., 4.750%, 06/01/26 | 2.5 | |
| Delta Air Lines, Inc., 7.375%, 01/15/26 | 2.5 | |
| Service Properties Trust, 7.500%, 09/15/25 | 2.5 | |
| Top Ten as a Group | 25.3 |
Credit quality ratings shown above reflect the highest rating assigned by either Standard & Poor’s (“S&P”), Moody’s Investors Service, Inc. (“Moody’s”) or Fitch. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by any of the rating agencies. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change.
Because a fund’s strategy may result in multiple investments in particular sectors of the economy, its performance may depend on the performance of those sectors and may fluctuate more widely than investments diversified across more sectors. For additional information on these and other risk considerations, please see the Fund’s prospectus.
Any sectors, industries, or securities discussed should not be perceived as investment recommendations. Mention of a specific security should not be considered a recommendation to buy or solicitation to sell that security. Specific securities mentioned in this report may have been sold from the Fund’s portfolio of investments by the time you receive this report.
17
| AMG GW&K High Income Fund | |
| Schedule of Portfolio Investments | |
| December 31, 2020 |
| Principal Amount |
Value | ||
| Corporate Bonds and Notes - 96.8% | |||
| Financials - 20.2% | |||
| Aircastle, Ltd. (Bermuda) | |||
| 5.000%, 04/01/23 | $237,000 | $252,619 | |
| CIT Group, Inc. | |||
| 5.000%, 08/01/23 | 160,000 | 174,800 | |
| Citigroup, Inc. | |||
| Series V | |||
| (4.700% to 01/30/25 then SOFRRATE + 3.234%), 4.700%, 01/30/251,2,3 | 246,000 | 252,787 | |
| The Goldman Sachs Group, Inc. | |||
| Series S | |||
| (4.400% to 02/10/25 then U.S. Treasury Yield Curve CMT 5 year + 2.850%), 4.400%, 02/10/251,2,3 | 250,000 | 255,625 | |
| JPMorgan Chase & Co. | |||
| Series HH | |||
| (4.600% to 02/01/25 then SOFRRATE + 3.125%), 4.600%, 02/01/251,2,3 | 245,000 | 252,963 | |
| Service Properties Trust | |||
| 7.500%, 09/15/25 | 223,000 | 256,967 | |
| SLM Corp. | |||
| 4.200%, 10/29/25 | 241,000 | 254,556 | |
| Starwood Property Trust, Inc. | |||
| 4.750%, 03/15/25 | 246,000 | 252,150 | |
| Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. | |||
| 5.500%, 03/01/254 | 120,000 | 125,250 | |
| Total Financials | 2,077,717 | ||
| Industrials - 76.6% | |||
| AECOM | |||
| 5.875%, 10/15/24 | 227,000 | 253,169 | |
| Allegheny Technologies, Inc. | |||
| 7.875%, 08/15/235 | 236,000 | 258,264 | |
| American Axle & Manufacturing, Inc. | |||
| 6.250%, 04/01/25 | 243,000 | 251,505 | |
| Apache Corp. | |||
| 4.625%, 11/15/25 | 251,000 | 265,312 | |
| Aramark Services, Inc. | |||
| 4.750%, 06/01/26 | 250,000 | 257,362 | |
| Ball Corp. | |||
| 5.250%, 07/01/25 | 215,000 | 245,364 | |
| CDW LLC / CDW Finance Corp. | |||
| 5.500%, 12/01/24 | 228,000 | 254,902 | |
| CenturyLink, Inc. | |||
| 5.625%, 04/01/25 | 65,000 | 70,119 | |
| Crown Americas LLC / Crown Americas Capital Corp. IV |
|||
| 4.500%, 01/15/23 | 234,000 | 246,900 |
| Principal Amount |
Value | ||
| CSC Holdings LLC | |||
| 5.250%, 06/01/24 | $234,000 | $253,282 | |
| DCP Midstream Operating LP | |||
| 5.375%, 07/15/25 | 137,000 | 150,538 | |
| Delta Air Lines, Inc. | |||
| 7.375%, 01/15/26 | 225,000 | 257,018 | |
| Donnelley Financial Solutions, Inc. | |||
| 8.250%, 10/15/24 | 184,000 | 195,040 | |
| Ford Motor Co. | |||
| 4.346%, 12/08/26 | 243,000 | 258,795 | |
| Freeport-McMoRan, Inc. | |||
| 3.875%, 03/15/23 | 119,000 | 124,153 | |
| Graphic Packaging International LLC | |||
| 4.875%, 11/15/22 | 93,000 | 97,418 | |
| HCA, Inc. | |||
| 5.375%, 02/01/25 | 223,000 | 250,770 | |
| Howmet Aerospace, Inc. | |||
| 6.875%, 05/01/25 | 220,000 | 257,400 | |
| Kohl’s Corp. | |||
| 9.500%, 05/15/25 | 200,000 | 259,421 | |
| Methanex Corp. (Canada) | |||
| 4.250%, 12/01/24 | 245,000 | 257,936 | |
| MGM Resorts International | |||
| 6.000%, 03/15/23 | 234,000 | 251,257 | |
| Netflix, Inc. | |||
| 5.875%, 02/15/25 | 220,000 | 253,103 | |
| Newell Brands, Inc. | |||
| 4.875%, 06/01/25 | 231,000 | 254,169 | |
| Newfield Exploration Co. | |||
| 5.625%, 07/01/24 | 235,000 | 251,717 | |
| NuStar Logistics LP | |||
| 4.750%, 02/01/22 | 123,000 | 124,845 | |
| Occidental Petroleum Corp. | |||
| 3.450%, 07/15/24 | 173,000 | 165,215 | |
| Penske Automotive Group, Inc. | |||
| 3.500%, 09/01/25 | 243,000 | 246,949 | |
| QEP Resources, Inc. | |||
| 5.625%, 03/01/26 | 250,000 | 274,137 | |
| QVC, Inc. | |||
| 4.450%, 02/15/25 | 236,000 | 252,001 | |
| Sprint Corp. | |||
| 7.125%, 06/15/24 | 211,000 | 246,870 | |
| Tenet Healthcare Corp. | |||
| 4.875%, 01/01/264 | 120,000 | 125,533 | |
| Teva Pharmaceutical Finance Netherlands III BV (Netherlands) |
|||
| 2.200%, 07/21/21 | 249,000 | 248,378 | |
| United Airlines Holdings, Inc. | |||
| 5.000%, 02/01/24 | 254,000 | 252,095 |
The accompanying notes are an integral part of these financial statements.
18
| AMG GW&K High Income Fund | |
Schedule of Portfolio Investments (continued) |
| Principal Amount |
Value | ||
| Industrials - 76.6% (continued) | |||
| VeriSign, Inc. | |||
| 5.250%, 04/01/25 | $86,000 | $97,718 | |
| WPX Energy, Inc. | |||
| 5.250%, 09/15/24 | 117,000 | 127,445 | |
| Wyndham Destinations, Inc. | |||
| 5.650%, 04/01/245 | 236,000 | 254,880 | |
| Total Industrials | 7,890,980 | ||
| Total Corporate Bonds and Notes | |||
| (Cost $9,978,707) | 9,968,697 |
| 1 | Fixed to variable rate investment. The rate shown reflects the fixed rate in effect at December 31, 2020. Rate will reset at a future date. |
| 2 | Perpetuity Bond. The date shown represents the next call date. |
| 3 | Variable rate security. The rate shown is based on the latest available information as of December 31, 2020. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above. |
| 4 | Security exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2020, the value of these securities amounted to $250,783 or 2.4% of net assets. |
| Value | |
| Total Investments - 96.8% | |
| (Cost $9,978,707) | $9,968,697 |
| Other Assets, less Liabilities - 3.2% | 333,161 |
| Net Assets - 100.0% | $10,301,858 |
| 5 | Step Bond: A debt instrument with either deferred interest payments or an interest rate that resets at specific times during its term. |
| CMT | Constant Maturity Treasury |
| SOFRRATE | Secured Overnight Financing Rate |
The accompanying notes are an integral part of these financial statements.
19
AMG GW&K High Income Fund Schedule of Portfolio Investments (continued) |
The following table summarizes the inputs used to value the Fund’s investments by the fair value hierarchy levels as of December 31, 2020:
| Level 1 | Level 2 | Level 3 | Total | ||||||||||
| Investments in Securities | |||||||||||||
| Corporate Bonds and Notes† | — | $ | 9,968,697 | — | $ | 9,968,697 | |||||||
| Total Investments in Securities | — | $ | 9,968,697 | — | $ | 9,968,697 | |||||||
| † | All corporate bonds and notes held in the Fund are level 2 securities. For a detailed breakout of corporate bonds and notes by major industry classification, please refer to the Fund’s Schedule of Portfolio Investments. |
For the fiscal year ended December 31, 2020, there were no transfers in or out of Level 3.
For the fiscal year ended December 31, 2020, the effect of derivative instruments on the Statement of Operations for the Fund and the amount of realized gain/loss and unrealized appreciation/depreciation on derivatives recognized in income was as follows:
| Realized Gain/(Loss) | Change in Unrealized Appreciation/Depreciation | |||
| Derivatives not accounted for as hedging instruments | Statement of Operations Location |
Realized Gain/(Loss) |
Statement of Operations Location |
Change in Unrealized Appreciation/ Depreciation |
| Foreign currency exchange contracts | Net realized gain on forward contracts | $134,979 | Net change in unrealized appreciation/ depreciation on forward contracts | $10,553 |
| Interest rate contracts | Net realized gain on futures contracts | 34,964 | Net change in unrealized appreciation/ depreciation on futures contracts | 4,541 |
| Totals | $169,943 | $15,094 | ||
The accompanying notes are an integral part of these financial statements.
20
AMG GW&K Municipal Bond Fund Portfolio Manager’s Comments (unaudited) |
THE YEAR IN REVIEW
For the year ended December 31, 2020, AMG GW&K Municipal Bond Fund (the “Fund”) Class N shares returned 4.31%, underperforming its benchmark, the Bloomberg Barclays 10-Year Municipal Bond Index (the “Index”), which returned 5.62%.
The municipal bond market withstood historic volatility in the first quarter as COVID-19 exploded across the globe and wreaked havoc on financial markets. After falling to all-time lows amid a global flight to safety, tax-exempt yields went on a wild ride, spiking more than 200 basis points over a ten-day stretch in March only to abruptly reverse course and recapture nearly three-fourths of that sharp selloff. The generic 10-year AAA yield finished March up 40 basis points for the month, but still down 13 basis points from the beginning of the year. Credit spreads, which had been on a years-long run of tightening leading up to the crisis, widened sharply amid the turmoil, led by high yield and low investment grade securities, but also extending to certain sectors and credits viewed as particularly vulnerable to a prolonged economic shutdown. As the quarter came to a close, municipal bonds had regained some much needed stability thanks to unprecedented government intervention, but with the primary market still in limbo, price discovery remained opaque, trading depth shallow, and volatility elevated.
The municipal bond market posted impressive returns in the second quarter, completing a remarkable turnaround from the most tumultuous selloff in its history. Tax-exempt yields fell sharply across the curve, dropping back near all-time lows and narrowing a gap against Treasuries that had recently ballooned to all-time highs. The path toward normalcy passed many markers along the way. Short-term financing costs, which had spiked in March, dropped to record lows by June. Mutual funds not only stemmed the tide of massive net redemptions, but also began seeing a surge of inflows. The new issue market, which was effectively closed in March and most of April, eventually kicked into high gear, providing much needed price discovery and reflecting a growing confidence that the worst may have passed. The healing was broad based but not quite universal. Credit quality took on new importance as investors became more skeptical of certain issuers and sectors perceived as vulnerable to the pandemic fallout. Also states are beginning to fear that additional federal aid may become a casualty of election-year politics, an outcome that could spell trouble in some corners of the municipal bond space. |
The municipal bond market posted solid returns in the third quarter, extending a post-crisis rebound on the back of a robust technical environment. Over the first six weeks of the period, tax-exempt yields rallied to all-time lows across the entire curve. The major catalyst was a flood of money pouring into the market, driven by a combination of seasonally high reinvestment demand and attractive valuations versus taxable alternatives. Industry mutual funds took in $26 billion of net new cash, the highest quarterly inflows on record. Supply, on the other hand, was relatively modest. Headline volumes were actually well above average, but those numbers were inflated by a record jump in taxable issuance. Tax-exempt supply remained at more manageable levels. In addition, dealer inventories dropped to all-time lows, setting the stage for a supply/demand dynamic that favored sellers. Lower rated credits continued to outperform, benefiting from a better-than-expected outlook for state finances and a still heavy appetite for incremental yield. Over the second half of August and into September, investors turned more cautious amid a building forward calendar and uncertainty over federal relief aid, pushing rates up off their lows, but still down for the quarter.
Municipal bonds posted solid gains in the fourth quarter, driven by strong technical tailwinds. Coming into October, municipal bonds were out-yielding Treasuries on an absolute basis across most of the curve, a dynamic that reflected heavy issuance in the third quarter and lingering concerns over the financial shape of state and local governments. But it had already become clear that tax revenues across the country were recovering much faster than feared, meaning credit fundamentals were improving even before factoring in any federal relief. And after October, when municipalities floated a record volume of deals to get ahead of any federal election chaos, issuance fell off a cliff, leaving a market that was starving for yield chasing a fast-dwindling supply of bonds. As we approached year end, heavy seasonal reinvestment demand and accelerating fund flows only added to the imbalance, as did the urgency of knowing that the supply drought would likely extend well into February. And so municipal yields continued to grind lower.
While all this was going on, Treasury yields were moving higher, as a number of positive developments reduced the need for safe-haven assets. The November U.S. election proved decisive, removing the chance that a contested result could destabilize markets. Federal stimulus talks proceeded in starts and stops, ultimately culminating |
with a deal in late December. And perhaps most importantly, multiple highly effective COVID-19 vaccines were approved for emergency use, providing confidence that the end of the crisis was finally in sight. All these factors put upward pressure on rates, though any runaway selloff in Treasuries was kept in check by a still-vigilant U.S Federal Reserve (the “Fed”) and a worrisome surge in coronavirus cases, which led to another series of widespread lockdowns. With municipal bonds and Treasuries heading in opposite directions, relative value ratios plunged, and by the end of the year had moved back to pre-virus levels. In fact, the 10-year municipal bond/Treasury ratio began the quarter at 127% and ended it at 78%.
The Fund underperformed the Bloomberg Barclays 10-Year Municipal Bond Index for the year. A shift in yield curve positioning in the fourth quarter modestly helped performance late in the year, but the Fund’s overall shorter duration detracted from performance for the year as rates declined. The Fund’s higher quality positioning benefited relative performance for the year.
As we enter 2021, it is important to revisit the lessons of last year. As we saw in March and April, the municipal bond market tends to be one-directional. With no effective way to short municipal bonds, price discovery is at the mercy of long-only investors, and when demand dries up, air pockets of volatility can emerge. But underneath the trading dynamics, which were ultimately cured by aggressive Fed liquidity, municipal credits once again demonstrated their resilience in the face of adversity and their importance as a hedge against riskier asset types. State tax receipts, expected to collapse amid the shutdown, held up remarkably well, buoyed by federal stimulus and the rebound in financial markets. Revenue sectors like toll roads, health care, and higher education rebounded quickly after early setbacks. Water systems and electric utilities were barely affected, showing how airtight essential service industries can be. Even areas most plagued by the crisis, like airports, showed only modest pressure, as large cash cushions and flexible airline agreement contracts provide a crucial bridge to recovery. So, while yields are once again back near absolute lows, municipal bonds remain a stable, sleep-at-night component of a successful asset allocation strategy.
This commentary reflects the viewpoints of GW&K Investment Management, LLC and is not intended as a forecast or guarantee of future results. |
21
AMG GW&K Municipal Bond Fund Portfolio Manager’s Comments (continued) |
CUMULATIVE TOTAL RETURN PERFORMANCE
AMG GW&K Municipal Bond Fund’s cumulative total return is based on the daily change in net asset value (NAV), and assumes that all dividends and distributions were reinvested. The graph compares a hypothetical $10,000 investment made in the AMG GW&K Municipal Bond Fund’s Class N shares on December 31, 2010, to a $10,000 investment made in the Bloomberg Barclays 10-Year Municipal Bond Index for the same time period. The graph and table do not reflect the deduction of taxes that a shareholder would pay on a Fund distribution or redemption of shares. The listed returns for the Fund are net of expenses and the returns for the index exclude expenses. Total returns would have been lower had certain expenses not been reduced.
The table below shows the average annual total returns for the AMG GW&K Municipal Bond Fund and the Bloomberg Barclays 10-Year Municipal Bond Index for the same time periods ended December 31, 2020.
| Average Annual Total Returns1 | One Year | Five Years |
Ten Years | |||
| AMG GW&K Municipal Bond Fund2, 3, 4, 5, 6, 7 | ||||||
| Class N | 4.31% | 3.09% | 4.05% | |||
| Class I | 4.70% | 3.43% | 4.48% | |||
| Bloomberg Barclays 10-Year Municipal Bond Index8 | 5.62% | 4.05% | 4.80% |
The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Investors should carefully consider the Fund’s investment objectives, risks, charges and expenses before investing. For performance information through the most recent month end, current net asset values per share for the Fund and other information, please call 800.548.4539 or visit our website at amgfunds.com for a free prospectus. Read it carefully before investing or sending money.
Distributed by AMG Distributors, Inc., member FINRA/SIPC.
| 1 | Total return equals income yield plus share price change and assumes reinvestment of all dividends and capital gain distributions. Returns are net of fees and may reflect offsets of Fund expenses as described in the prospectus. No adjustment has been made for taxes payable by shareholders on their reinvested dividends and capital gain distributions. Returns for periods greater than one year are annualized. The listed returns on the Fund are net of expenses and based on the published NAV as of December 31, 2020. All returns are in U.S. dollars ($). |
| 2 | From time to time, the Fund’s advisor has waived its fees and/or absorbed Fund expenses, which has resulted in higher returns. |
| 3 | The Fund is subject to the risks associated with investments in debt securities, such as default risk and |
| fluctuations in the perception of the debtor’s ability to pay its creditors. Changing interest rates may adversely affect the value of an investment. An increase in interest rates typically causes the value of bonds and other fixed income securities to fall. |
| 4 | Factors unique to the municipal bond market may negatively affect the value of municipal bonds. |
| 5 | Investment income may be subject to certain state and local taxes, and depending on your tax status, the federal alternative minimum tax. Capital gains are not exempt from federal income tax. |
| 6 | Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies. |
| 7 | Companies that are in similar businesses may be similarly affected by particular economic or market events; to the extent the Fund has substantial holdings within a particular sector, the risks associated with that sector increase. |
| 8 | The Bloomberg Barclays 10-Year Municipal Bond Index is the 10 Year (8-12) component of the Municipal Bond index. It is a rules-based, market-value-weighted index engineered for the tax-exempt bond market. The Index tracks general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds rated Baa3/BBB- or higher by at least two of the ratings agencies: Moody’s, S&P, Fitch. Unlike the Fund, the Bloomberg Barclays 10-Year Municipal Bond Index is unmanaged, is not available for investment and does not incur expenses. |
Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
Not FDIC insured, nor bank guaranteed. May lose value.
22
AMG GW&K Municipal Bond Fund Fund Snapshots (unaudited) December 31, 2020 |
PORTFOLIO BREAKDOWN
| Category | %
of |
| Transportation | 26.9 |
| General Obligation | 21.0 |
| Utilities | 20.0 |
| Water | 7.5 |
| Medical | 7.4 |
| Education | 5.8 |
| Power | 2.8 |
| Tobacco Settlement | 0.8 |
| Industrial Development | 0.5 |
| Short-Term Investments | 7.3 |
| Rating | % of Market Value1 |
| Aaa/AAA | 24.7 |
| Aa/AA | 48.1 |
| A | 24.1 |
| Baa/BBB | 3.1 |
| 1 Includes market value of long-term fixed-income securities only. |
TOP TEN HOLDINGS
| Security Name | % of Net Assets | |
| State of Texas, 4.000%, 08/26/21 | 4.4 | |
| State of Maryland, Series B, 5.000%, 08/01/25 | 2.3 | |
| New York State Dormitory Authority, Series B, 5.000%, 03/31/21 | 2.0 | |
| Wisconsin State Revenue, Department of Transportation, Series 2, 5.000%, 07/01/29 | 2.0 | |
| North Carolina State Limited Obligation, Series B, 5.000%, 05/01/28 | 1.5 | |
| Iowa Finance Authority, State Revolving Fund Green Bond, 5.000%, 08/01/30 | 1.5 | |
| Metropolitan Transportation Authority, Transit Revenue, Green Bond, Series B, 5.000%, 11/15/27 |
1.3 | |
| State of California, General Obligation, 5.000%, 11/01/30 | 1.2 | |
| State of Maryland, Department of Transportation, 5.000%, 09/01/29 | 1.2 | |
| State of Maryland, Department of Transportation, 5.000%, 10/01/28 | 1.2 | |
| Top Ten as a Group | 18.6 |
Credit quality ratings shown above reflect the highest rating assigned by either Standard & Poor’s (“S&P”), Moody’s Investors Service, Inc. (“Moody’s”) or Fitch. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by any of the rating agencies. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change.
Because a fund’s strategy may result in multiple investments in particular sectors of the economy, its performance may depend on the performance of those sectors and may fluctuate more widely than investments diversified across more sectors. For additional information on these and other risk considerations, please see the Fund’s prospectus.
Any sectors, industries, or securities discussed should not be perceived as investment recommendations. Mention of a specific security should not be considered a recommendation to buy or solicitation to sell that security. Specific securities mentioned in this report may have been sold from the Fund’s portfolio of investments by the time you receive this report.
23
AMG GW&K Municipal Bond Fund Schedule of Portfolio Investments December 31, 2020 |
| Principal Amount |
Value | |
| Municipal Bonds - 92.7% | ||
| Alabama - 0.8% | ||
Alabama Public School and College Authority, Series A 5.000%, 11/01/34 |
$7,500,000 | $10,280,925 |
| Arizona - 2.2% | ||
Arizona Department of Transportation State Highway Fund Revenue 5.000%, 07/01/28 |
5,040,000 | 6,274,548 |
Arizona Water Infrastructure Finance Authority, Water Quality Revenue, Series A 5.000%, 10/01/26 |
10,000,000 | 11,714,500 |
Salt River Project Agricultural Improvement & Power District 5.000%, 01/01/27 1 |
3,000,000 | 3,702,210 |
| 5.000%, 01/01/28 1 | 2,625,000 | 3,326,400 |
| 5.000%, 01/01/29 1 | 2,500,000 | 3,249,975 |
| Total Arizona | 28,267,633 | |
| California - 11.0% | ||
California Municipal Finance Authority, Community Medical Centers, Series A |
||
| 5.000%, 02/01/27 | 950,000 | 1,173,421 |
| 5.000%, 02/01/30 | 1,630,000 | 1,964,280 |
| 5.000%, 02/01/31 | 900,000 | 1,081,026 |
| 5.000%, 02/01/32 | 1,855,000 | 2,220,175 |
California State Public Works Board 5.000%, 02/01/31 1 |
3,500,000 | 4,541,775 |
| California State Public Works Board, Series A | ||
| 5.000%, 02/01/30 1 | 3,500,000 | 4,462,150 |
| 5.000%, 02/01/32 1 | 3,500,000 | 4,611,425 |
City of Los Angeles Department of Airports, Series C |
10,515,000 | 14,080,111 |
Los Angeles County Metropolitan Transportation Authority, Series R |
||
| 5.000%, 06/01/29 | 6,940,000 | 9,450,337 |
| 5.000%, 06/01/31 | 6,000,000 | 8,284,500 |
| 5.000%, 06/01/32 | 10,035,000 | 13,754,172 |
Los Angeles Unified School District, Series A 5.000%, 07/01/28 |
5,000,000 | 6,625,550 |
| San Diego County Water Authority, Series A | ||
| 5.000%, 05/01/28 1 | 1,770,000 | 2,328,028 |
| 5.000%, 05/01/29 1 | 2,455,000 | 3,309,659 |
| 5.000%, 05/01/30 1 | 1,800,000 | 2,479,338 |
| 5.000%, 05/01/31 1 | 1,300,000 | 1,831,960 |
| San Francisco City & County Airport Commission, | ||
| San Francisco International Airport, Series A | ||
| 5.000%, 05/01/34 | 5,000,000 | 6,358,700 |
| 5.000%, 05/01/35 | 5,800,000 | 7,361,302 |
| State of California | ||
| 5.000%, 08/01/29 | 7,235,000 | 8,993,539 |
| 5.000%, 09/01/29 | 5,075,000 | 6,323,704 |
| 5.000%, 11/01/30 | 11,575,000 | 16,166,108 |
| 5.000%, 04/01/32 | 5,000,000 | 7,166,550 |
| Principal Amount |
Value | |
| State of California, Series C | ||
| 5.000%, 09/01/26 | $7,715,000 | $9,385,375 |
| Total California | 143,953,185 | |
| Colorado - 1.3% | ||
| Colorado Health Facilities Authority, Series A | ||
| 5.000%, 01/01/27 | 2,500,000 | 3,137,875 |
| 5.000%, 01/01/28 | 2,535,000 | 3,261,176 |
| 5.000%, 01/01/29 | 4,125,000 | 5,425,406 |
| 5.000%, 08/01/33 | 4,250,000 | 5,424,955 |
| Total Colorado | 17,249,412 | |
| Connecticut - 2.8% | ||
State of Connecticut Special Tax Revenue 5.000%, 05/01/28 |
3,000,000 | 3,905,730 |
State of Connecticut Special Tax Revenue, Transportation Infrastructure 5.000%, 01/01/30 |
10,180,000 | 12,966,673 |
State of Connecticut Special Tax Revenue, Series B |
7,500,000 | 9,543,150 |
| State of Connecticut, Series A | ||
| 5.000%, 01/15/31 | 7,650,000 | 10,225,220 |
| Total Connecticut | 36,640,773 | |
| District of Columbia - 2.8% | ||
| District of Columbia, Series A | ||
| 5.000%, 06/01/30 | 6,020,000 | 7,446,800 |
| District of Columbia, Series B | ||
| 5.000%, 10/01/28 | 7,100,000 | 9,493,055 |
| 5.000%, 06/01/31 | 10,080,000 | 13,159,238 |
Washington Convention & Sports Authority, Series A 5.000%, 10/01/27 |
5,475,000 | 6,600,277 |
| Total District of Columbia | 36,699,370 | |
| Florida - 3.8% | ||
Escambia County Health Facilities Authority 5.000%, 08/15/37 |
6,000,000 | 7,447,260 |
Florida’s Turnpike Enterprise, Department of Transportation, Series C |
||
| 5.000%, 07/01/28 | 7,075,000 | 8,773,354 |
Lee Memorial Health System, Series A 5.000%, 04/01/34 |
5,645,000 | 7,266,300 |
Orange County Health Facilities Authority, Series A 5.000%, 10/01/31 |
4,525,000 | 5,500,138 |
Orange County Health Facilities Authority, Series G |
||
| 5.000%, 10/01/26 | 3,000,000 | 3,741,300 |
State of Florida, Capital Outlay, Series B 5.000%, 06/01/27 |
9,045,000 | 10,479,537 |
The accompanying notes are an integral part of these financial statements.
24
AMG GW&K Municipal Bond Fund Schedule of Portfolio Investments (continued) |
| Principal Amount |
Value | ||||||
| Florida - 3.8% (continued) | |||||||
State of Florida, Department of Transportation, Fuel Sales Tax Revenue, Series B 5.000%, 07/01/26 |
$5,780,000 | $5,915,194 | |||||
| Total Florida | 49,123,083 | ||||||
| Georgia - 1.9% | |||||||
Atlanta Water & Wastewater Revenue |
5,100,000 | 6,139,584 | |||||
Georgia State University & College Improvements, Series A 5.000%, 07/01/27 |
4,600,000 | 4,929,912 | |||||
Private Colleges & Universities Authority, Series B |
10,360,000 | 14,298,043 | |||||
| Total Georgia | 25,367,539 | ||||||
| Illinois - 7.0% | |||||||
Chicago O’Hare International Airport, Series A 5.000%, 01/01/35 |
5,010,000 | 6,442,509 | |||||
Chicago O’Hare International Airport, Series B 5.000%, 01/01/28 |
10,670,000 | 12,462,560 | |||||
Chicago O’Hare International Airport, Senior Lien, Series A 5.000%, 01/01/36 |
10,000,000 | 12,286,900 | |||||
| 5.000%, 01/01/38 | 5,500,000 | 6,720,175 | |||||
Illinois Finance Authority 5.000%, 01/01/29 |
2,310,000 | 3,090,780 | |||||
| 5.000%, 07/01/29 | 8,755,000 | 11,850,418 | |||||
Illinois State Finance Authority Revenue, Clean Water Initiative Revenue |
11,000,000 | 13,565,420 | |||||
Illinois State Toll Highway Authority, Series A |
9,735,000 | 11,673,628 | |||||
Illinois State Toll Highway Authority, Senior Revenue Bonds, Series A |
10,110,000 | 13,231,665 | |||||
| Total Illinois | 91,324,055 | ||||||
| Indiana - 1.1% | |||||||
Indiana Finance Authority, Series C |
4,800,000 | 6,433,872 | |||||
Indiana Transportation Finance Authority, Series C |
6,070,000 | 7,597,030 | |||||
| Total Indiana | 14,030,902 | ||||||
| Iowa - 1.5% | |||||||
Iowa Finance Authority, State Revolving Fund Green Bond |
15,025,000 | 19,202,251 | |||||
| Principal Amount |
Value | ||||||
| Kentucky - 0.5% | |||||||
Louisville/Jefferson County Metropolitan Government, Norton Healthcare Inc., Series A |
$5,505,000 | $6,720,449 | |||||
| Maryland - 5.9% | |||||||
Maryland State Transportation Authority |
6,350,000 | 8,630,285 | |||||
State of Maryland, Department of Transportation |
12,365,000 | 15,472,324 | |||||
| 5.000%, 09/01/29 | 12,205,000 | 15,685,622 | |||||
State of Maryland, Series B 5.000%, 08/01/25 |
24,125,000 | 29,417,060 | |||||
State of Maryland, State & Local Facilities Loan of 2019, 1st Series |
6,000,000 | 8,064,720 | |||||
| Total Maryland | 77,270,011 | ||||||
| Massachusetts - 2.7% | |||||||
Commonwealth of Massachusetts |
6,010,000 | 8,182,134 | |||||
Commonwealth of Massachusetts, Series A 5.000%, 07/01/25 |
7,700,000 | 9,339,715 | |||||
Massachusetts Bay Transportation Authority 5.000%, 07/01/22 |
10,020,000 | 10,744,045 | |||||
Massachusetts Water Resources Authority, Series C 5.000%, 08/01/31 |
6,080,000 | 7,580,848 | |||||
| Total Massachusetts | 35,846,742 | ||||||
| Michigan - 3.0% | |||||||
Lansing Board of Water & Light, Series A |
5,000,000 | 5,131,700 | |||||
Michigan Finance Authority, Henry Ford Health System 5.000%, 11/15/29 |
11,450,000 | 14,116,362 | |||||
Michigan State Building Authority Revenue, Series I |
5,700,000 | 6,950,466 | |||||
State of Michigan |
10,000,000 | 12,656,000 | |||||
| Total Michigan | 38,854,528 | ||||||
| Minnesota - 0.8% | |||||||
City of Minneapolis MN, Fairview Health Services, Series A 5.000%, 11/15/35 |
3,165,000 | 3,990,084 | |||||
Minneapolis-St Paul Metropolitan Airports Commission, Series A |
5,000,000 | 5,913,600 | |||||
| Total Minnesota | 9,903,684 | ||||||
The accompanying notes are an integral part of these financial statements.
25
AMG GW&K Municipal Bond Fund Schedule of Portfolio Investments (continued) |
| Principal | ||||||
| Amount | Value | |||||
| Mississippi - 0.8% | ||||||
| State of Mississippi, Series A | ||||||
| 5.000%, 10/01/28 | $10,000,000 | $10,361,100 | ||||
| Missouri - 1.6% | ||||||
| University of Missouri, Series A | ||||||
| 5.000%, 11/01/26 | 5,520,000 | 6,507,362 | ||||
| University of Missouri, Series B | ||||||
| 5.000%, 11/01/30 | 10,010,000 | 13,934,621 | ||||
| Total Missouri | 20,441,983 | |||||
| Nebraska - 0.5% | ||||||
| University of Nebraska Facilities Corp. | ||||||
| 5.000%, 07/15/25 | 5,010,000 | 6,080,837 | ||||
| New Jersey - 1.9% | ||||||
| New Jersey State Turnpike Authority Revenue, Series B | ||||||
| 5.000%, 01/01/28 | 4,010,000 | 5,174,464 | ||||
| State of New Jersey | ||||||
| 5.000%, 06/01/25 | 4,335,000 | 5,161,511 | ||||
| 5.000%, 06/01/29 | 11,500,000 | 14,905,265 | ||||
| Total New Jersey | 25,241,240 | |||||
| New Mexico - 0.2% | ||||||
| New Mexico Finance Authority | ||||||
| 5.000%, 06/01/22 | 2,845,000 | 3,039,911 | ||||
| New York - 10.2% | ||||||
| City of New York | ||||||
| 5.000%, 08/01/34 | 3,250,000 | 4,347,167 | ||||
| City of New York, Series C | ||||||
| 5.000%, 08/01/33 | 1,500,000 | 2,018,130 | ||||
| Long Island Power Authority | ||||||
| 5.000%, 09/01/35 | 5,015,000 | 6,444,626 | ||||
| Metropolitan Transportation Authority, | ||||||
| Transit Revenue, Green Bond, | ||||||
| Series B | ||||||
| 5.000%, 11/15/27 | 14,225,000 | 16,877,678 | ||||
| Metropolitan Transportation Authority, | ||||||
| Transit Revenue, Series F | ||||||
| 5.000%, 11/15/24 | 4,950,000 | 5,237,595 | ||||
| 5.000%, 11/15/27 | 5,000,000 | 5,287,650 | ||||
| 5.000%, 11/15/28 | 4,750,000 | 5,378,662 | ||||
| New York City Transitional Finance Authority Building Aid Revenue, | ||||||
| Series S-3, Sub-Series S-3A | ||||||
| 5.000%, 07/15/31 | 5,080,000 | 6,533,236 | ||||
| New York City Transitional Finance Authority, Future Tax Secured Revenue, Series C | ||||||
| 5.000%, 11/01/26 | 9,585,000 | 11,433,275 | ||||
| New York State Dormitory Authority, Series A | ||||||
| 5.000%, 12/15/25 | 8,645,000 | 9,445,268 | ||||
| 5.000%, 12/15/27 | 5,640,000 | 6,155,158 | ||||
| 5.000%, 03/15/31 | 7,670,000 | 9,938,096 | ||||
| Principal | ||||||
| Amount | Value | |||||
| New York State Dormitory Authority, Series D | ||||||
| 5.000%, 02/15/27 | $5,355,000 | $5,636,191 | ||||
| New York State Dormitory Authority, Series E | ||||||
| 5.000%, 03/15/32 | 8,410,000 | 10,136,489 | ||||
| New York Transportation Development Corp. | ||||||
| 5.000%, 12/01/30 | 1,000,000 | 1,313,600 | ||||
| 5.000%, 12/01/31 | 1,100,000 | 1,436,193 | ||||
| 5.000%, 12/01/32 | 1,400,000 | 1,815,534 | ||||
| 5.000%, 12/01/33 | 1,000,000 | 1,292,120 | ||||
| Port Authority of New York & New Jersey | ||||||
| 5.000%, 07/15/31 | 10,000,000 | 13,306,300 | ||||
| 5.000%, 07/15/32 | 6,545,000 | 8,650,003 | ||||
| Total New York | 132,682,971 | |||||
| North Carolina - 1.5% | ||||||
| North Carolina State Limited Obligation, Series B | ||||||
| 5.000%, 05/01/28 | 15,300,000 | 19,585,989 | ||||
| Ohio - 2.6% | ||||||
| Ohio State General Obligation, Series A | ||||||
| 5.000%, 09/01/26 | 7,090,000 | 8,947,155 | ||||
| Ohio State General Obligation, Series T | ||||||
| 5.000%, 05/01/30 | 5,000,000 | 6,365,050 | ||||
| Ohio Water Development Authority, | ||||||
| Water Pollution Control Loan Fund, | ||||||
| Series 2015A | ||||||
| 5.000%, 06/01/25 | 5,000,000 | 6,047,900 | ||||
| State of Ohio, Series A | ||||||
| 5.000%, 08/01/21 | 12,545,000 | 12,898,016 | ||||
| Total Ohio | 34,258,121 | |||||
| Oregon - 1.7% | ||||||
| Oregon State Lottery, Series C | ||||||
| 5.000%, 04/01/27 | 10,000,000 | 11,910,800 | ||||
| Oregon State Lottery, Series D | ||||||
| 5.000%, 04/01/28 | 9,225,000 | 10,953,488 | ||||
| Total Oregon | 22,864,288 | |||||
| Pennsylvania - 2.0% | ||||||
| Allegheny County Hospital Development | ||||||
| Authority, | ||||||
| University Pittsburgh Medical Center | ||||||
| 5.000%, 07/15/31 | 5,520,000 | 7,241,909 | ||||
| Commonwealth Financing Authority, | ||||||
| Pennsylvania Tobacco | ||||||
| 5.000%, 06/01/32 | 7,890,000 | 9,960,809 | ||||
| Lancaster County Hospital Authority, | ||||||
| University of Pennsylvania Health Revenue | ||||||
| 5.000%, 08/15/26 | 6,970,000 | 8,761,569 | ||||
| Total Pennsylvania | 25,964,287 | |||||
| Texas - 9.3% | ||||||
| Central Texas Turnpike System Transportation Commission, Series C | ||||||
| 5.000%, 08/15/31 | 11,175,000 | 12,788,558 | ||||
The accompanying notes are an integral part of these financial statements.
26
AMG GW&K Municipal Bond Fund Schedule of Portfolio Investments (continued) |
| Principal | |||||||
| Amount | Value | ||||||
| Texas - 9.3% (continued) | |||||||
| Central Texas Turnpike System, Series A | |||||||
| 5.000%, 08/15/39 | $8,000,000 | $10,484,080 | |||||
| City of Corpus Christi TX Utility System Revenue, | |||||||
| Junior Lien | |||||||
| 5.000%, 07/15/29 | 3,125,000 | 4,074,969 | |||||
| City of San Antonio TX Electric & Gas | |||||||
| Systems Revenue | |||||||
| 5.000%, 02/01/26 | 9,350,000 | 11,567,165 | |||||
| Dallas Area Rapid Transit, Senior Lien | |||||||
| 5.250%, 12/01/28 | 8,865,000 | 12,000,019 | |||||
| Dallas Fort Worth International Airport, Series A | |||||||
| 5.000%, 11/01/29 | 3,535,000 | 4,720,321 | |||||
| 5.000%, 11/01/30 | 2,000,000 | 2,721,140 | |||||
| 5.000%, 11/01/31 | 3,245,000 | 4,384,839 | |||||
| Lower Colorado River Authority, | |||||||
| LCRA Transmission Services Corporation | |||||||
| 5.000%, 05/15/29 | 3,815,000 | 4,370,769 | |||||
| North Texas Municipal Water District | |||||||
| Water System Revenue, | |||||||
| Refunding and Improvement | |||||||
| 5.000%, 09/01/29 | 7,350,000 | 9,163,098 | |||||
| North Texas Tollway Authority Revenue, Special Projects System, 1st Tier, | |||||||
| Series A | |||||||
| 5.000%, 01/01/25 | 6,460,000 | 7,323,379 | |||||
| North Texas Tollway Authority, 2nd Tier, Series B | |||||||
| 5.000%, 01/01/31 | 2,000,000 | 2,381,460 | |||||
| 5.000%, 01/01/32 | 3,010,000 | 3,678,973 | |||||
| North Texas Tollway Authority, Series A | |||||||
| 5.000%, 01/01/26 | 7,795,000 | 8,824,330 | |||||
| Texas Private Activity Bond Surface | |||||||
| Transportation Corp. | |||||||
| 4.000%, 12/31/37 | 5,000,000 | 5,853,350 | |||||
| 4.000%, 12/31/38 | 3,735,000 | 4,360,351 | |||||
| Texas Transportation Commission Fund, Series A | |||||||
| 5.000%, 04/01/27 | 12,550,000 | 13,304,631 | |||||
| Total Texas | 122,001,432 | ||||||
| Utah - 2.0% | |||||||
| Salt Lake City Corp. Airport Revenue, Series A | |||||||
| 5.000%, 07/01/29 | 3,450,000 | 4,332,234 | |||||
| 5.000%, 07/01/30 | 6,585,000 | 8,225,653 | |||||
| State of Utah, Series B | |||||||
| 5.000%, 07/01/22 | 7,500,000 | 8,041,950 | |||||
| Utah Transit Authority, Series A | |||||||
| 5.000%, 06/15/27 | 5,020,000 | 6,007,233 | |||||
| Total Utah | 26,607,070 | ||||||
| Virginia - 1.8% | |||||||
| Virginia College Building Authority, Series A | |||||||
| 5.000%, 09/01/21 | 10,000,000 | 10,319,700 | |||||
| Principal | |||||||
| Amount | Value | ||||||
| Virginia Public Building Authority, Series B | |||||||
| 5.000%, 08/01/25 | $10,430,000 | $12,691,328 | |||||
| Total Virginia | 23,011,028 | ||||||
| Washington - 4.2% | |||||||
| Energy Northwest Electric Revenue, | |||||||
| Bonneville Power | |||||||
| 5.000%, 07/01/25 | 10,305,000 | 12,468,638 | |||||
| Energy Northwest Nuclear Revenue, | |||||||
| Project 3, Series A | |||||||
| 5.000%, 07/01/25 | 7,965,000 | 9,637,331 | |||||
| State of Washington School Improvements, Series C | |||||||
| 5.000%, 02/01/28 | 7,370,000 | 9,055,003 | |||||
| State of Washington, Series R-2015C | |||||||
| 5.000%, 07/01/28 | 10,265,000 | 12,145,137 | |||||
| University of Washington, | |||||||
| University & College Improvements | |||||||
| Revenue, Series C | |||||||
| 5.000%, 07/01/27 | 7,270,000 | 7,941,385 | |||||
| Washington Health Care Facilities Authority, Series A | |||||||
| 5.000%, 08/01/38 | 3,005,000 | 3,783,445 | |||||
| Total Washington | 55,030,939 | ||||||
| West Virginia - 0.4% | |||||||
| West Virginia Hospital Finance Authority, | |||||||
| Cabell Huntington Hospital Obligation | |||||||
| 5.000%, 01/01/35 | 3,745,000 | 4,590,584 | |||||
| Wisconsin - 2.9% | |||||||
| State of Wisconsin | |||||||
| 5.000%, 05/01/29 1 | 3,500,000 | 4,702,215 | |||||
| 5.000%, 05/01/30 1 | 2,390,000 | 3,284,601 | |||||
| 5.000%, 05/01/31 1 | 2,700,000 | 3,707,100 | |||||
| Wisconsin State Revenue, Department of | |||||||
| Transportation, Series 2 | |||||||
| 5.000%, 07/01/29 | 20,405,000 | 26,077,182 | |||||
| Total Wisconsin | 37,771,098 | ||||||
| Total Municipal Bonds | |||||||
| (Cost $1,133,132,282) | 1,210,267,420 | ||||||
| Short-Term Investments - 7.3% | |||||||
| Municipal Bonds - 7.3% | |||||||
| California - 0.9% | |||||||
| City of Los Angeles | |||||||
| 4.000%, 06/24/21 | 6,070,000 | 6,182,052 | |||||
| County of Los Angeles, Series A | |||||||
| 4.000%, 06/30/21 | 5,020,000 | 5,115,681 | |||||
| Total California | 11,297,733 | ||||||
| New York - 2.0% | |||||||
| New York State Dormitory Authority, Series B | |||||||
| 5.000%, 03/31/21 | 26,000,000 | 26,306,540 | |||||
The accompanying notes are an integral part of these financial statements.
27
AMG GW&K Municipal Bond Fund Schedule of Portfolio Investments (continued) |
| Principal | ||||||||
| Amount | Value | Value | ||||||
| Texas - 4.4% | Total Investments - 100.0% | |||||||
| State of Texas | (Cost $1,228,525,480) | $1,305,706,754 | ||||||
| 4.000%, 08/26/21 | $56,425,000 | $57,835,061 | Other Assets, less Liabilities - 0.0% | 113,424 | ||||
| Total Municipal Bonds | Net Assets - 100.0% | $1,305,820,178 | ||||||
| (Cost $95,393,198) | 95,439,334 | |||||||
| Total Short-Term Investments | ||||||||
| (Cost $95,393,198) | 95,439,334 | |||||||
| 1 | All or part of a security is delayed delivery transaction. The market value for delayed delivery securities at December 31, 2020, amounted to $45,536,836, or 3.5% of net assets. |
The following table summarizes the inputs used to value the Fund’s investments by the fair value hierarchy levels as of December 31, 2020:
| Level 1 | Level 2 | Level 3 | Total | ||||||||
| Investments in Securities | |||||||||||
| Municipal Bonds† | — | $1,210,267,420 | — | $1,210,267,420 | |||||||
| Short-Term Investments | |||||||||||
| Municipal Bonds† | — | 95,439,334 | — | 95,439,334 | |||||||
| Total Investments in Securities | — | $1,305,706,754 | — | $1,305,706,754 |
| † | All municipal bonds held in the Fund are Level 2 securities. For a detailed breakout of municipal bonds by major classification, please refer to the Fund’s Schedule of Portfolio Investments. |
For the fiscal year ended December 31, 2020, there were no transfers in or out of Level 3.
The accompanying notes are an integral part of these financial statements.
28
| AMG GW&K Municipal Enhanced Yield Fund Portfolio Manager’s Comments (unaudited) |
THE YEAR IN REVIEW For the year ended December 31, 2020, AMG GW&K Municipal Enhanced Yield Fund’s (the “Fund”) Class N shares returned 5.95%, compared to the Bloomberg Barclays U.S. Municipal Bond BAA Index (the Index), which returned 4.55%. The municipal bond market withstood historic volatility in the first quarter as COVID-19 exploded across the globe and wreaked havoc on financial markets. After falling to all-time lows amid a global flight to safety, tax-exempt yields went on a wild ride, spiking more than 200 basis points over a ten-day stretch in March only to abruptly reverse course and recapture nearly three-fourths of that sharp selloff. The generic 10-year AAA yield finished March up 40 basis points for the month, but still down 13 basis points from the beginning of the year. Credit spreads, which had been on a years-long run of tightening leading up to the crisis, widened sharply amid the turmoil, led by high yield and low investment grade securities, but also extending to certain sectors and credits viewed as particularly vulnerable to a prolonged economic shutdown. As the quarter came to a close, municipal bonds had regained some much needed stability thanks to unprecedented government intervention, but with the primary market still in limbo, price discovery remained opaque, trading depth shallow, and volatility elevated. The municipal bond market posted impressive returns in the second quarter, completing a remarkable turnaround from the most tumultuous selloff in its history. Tax-exempt yields fell sharply across the curve, dropping back near all-time lows and narrowing a gap against Treasuries that had recently ballooned to all-time highs. The path toward normalcy passed many markers along the way. Short-term financing costs, which had spiked in March, dropped to record lows by June. Mutual funds not only stemmed the tide of massive net redemptions, but also began seeing a surge of inflows. The new issue market, which was effectively closed in March and most of April, eventually kicked into high gear, providing much needed price discovery and reflecting a growing confidence that the worst may have passed. The healing was broad based but not quite universal. Credit quality took on new importance as investors became more skeptical of certain issuers and sectors perceived as vulnerable to the pandemic fallout. And states are beginning to fear that additional federal aid may become a casualty of election-year politics, an outcome that could spell trouble in some corners of the municipal bond space. |
The municipal bond market posted solid returns in the third quarter, extending a post-crisis rebound on the back of a robust technical environment. Over the first six weeks of the period, tax-exempt yields rallied to all-time lows across the entire curve. The major catalyst was a flood of money pouring into the market, driven by a combination of seasonally high reinvestment demand and attractive valuations versus taxable alternatives. Industry mutual funds took in $26 billion of net new cash, the highest quarterly inflows on record. Supply, on the other hand, was relatively modest. Headline volumes were actually well above average, but those numbers were inflated by a record jump in taxable issuance. Tax-exempt supply remained at more manageable levels. In addition, dealer inventories dropped to all-time lows, setting the stage for a supply/demand dynamic that favored sellers. Lower rated credits continued to outperform, benefiting from a better-than-expected outlook for state finances and a still heavy appetite for incremental yield. Over the second half of August and into September, investors turned more cautious amid a building forward calendar and uncertainty over federal relief aid, pushing rates up off their lows, but still down for the quarter. Municipal bonds posted solid gains in the fourth quarter, driven by strong technical tailwinds. Coming into October, municipal bonds were out-yielding Treasuries on an absolute basis across most of the curve, a dynamic that reflected heavy issuance in the third quarter and lingering concerns over the financial shape of state and local governments. But it had already become clear that tax revenues across the country were recovering much faster than feared, meaning credit fundamentals were improving even before factoring in any federal relief. And after October, when municipalities floated a record volume of deals to get ahead of any federal election chaos, issuance fell off a cliff, leaving a market that was starving for yield chasing a fast-dwindling supply of bonds. As we approached year end, heavy seasonal reinvestment demand and accelerating fund flows only added to the imbalance, as did the urgency of knowing that the supply drought would likely extend well into February. And so municipal yields continued to grind lower. While all this was going on, Treasury yields were moving higher, as a number of positive developments reduced the need for safe-haven assets. The November U.S. election proved decisive, removing the chance that a contested result could destabilize markets. Federal stimulus talks proceeded in starts and stops, ultimately culminating with a deal in late December. And perhaps most |
importantly, multiple highly effective COVID-19 vaccines were approved for emergency use, providing confidence that the end of the crisis was finally in sight. All these factors put upward pressure on rates, though any runaway selloff in Treasuries was kept in check by a still-vigilant U.S. Federal Reserve (the “Fed”) and a worrisome surge in coronavirus cases, which led to another series of widespread lockdowns. With municipal bonds and Treasuries heading in opposite directions, relative value ratios plunged, and by the end of the year had moved back to pre-virus levels. In fact, the 10-year municipal bond/Treasury ratio began the quarter at 127% and ended it at 78%. The Fund outperformed the Bloomberg Barclays U.S. Municipal Bond BAA Index for the year. The primary drivers of outperformance for the year included the Fund’s longer duration positioning, positive security selection, as well as a higher quality bias relative to the Bloomberg Barclays U.S. Municipal Bond BAA Index. The Fund has over 50% of its holdings in credits rated A or higher versus the BBB rated bonds in the Index. As we enter 2021, it is important to revisit the lessons of last year. As we saw in March and April, the municipal bond market tends to be one-directional. With no effective way to short municipal bonds, price discovery is at the mercy of long-only investors, and when demand dries up, air pockets of volatility can emerge. But underneath the trading dynamics, which were ultimately cured by aggressive Fed liquidity, municipal credits once again demonstrated their resilience in the face of adversity and their importance as a hedge against riskier asset types. State tax receipts, expected to collapse amid the shutdown, held up remarkably well, buoyed by federal stimulus and the rebound in financial markets. Revenue sectors like toll roads, health care, and higher education rebounded quickly after early setbacks. Water systems and electric utilities were barely affected, showing how airtight essential service industries can be. Even areas most plagued by the crisis, like airports, showed only modest pressure, as large cash cushions and flexible airline agreement contracts provide a crucial bridge to recovery. So, while yields are once again back near absolute lows, municipal bonds remain a stable, sleep-at-night component of a successful asset allocation strategy. The views expressed represent the opinions of GW&K Investment Management, LLC, are not intended as a forecast or guarantee of future results, and are subject to change without notice. |
29
| AMG GW&K Municipal Enhanced Yield Fund |
| Portfolio Manager’s Comments (continued) |
CUMULATIVE TOTAL RETURN PERFORMANCE
AMG GW&K Municipal Enhanced Yield Fund’s cumulative total return is based on the daily change in net asset value (NAV), and assumes that all dividends and distributions were reinvested. The graph compares a hypothetical $10,000 investment made in the AMG GW&K Municipal Enhanced Yield Fund’s Class N shares on December 31, 2010, to a $10,000 investment made in the Bloomberg Barclays U.S. Municipal Bond BAA Index for the same time period. The graph and table do not reflect the deduction of taxes that a shareholder would pay on a Fund distribution or redemption of shares. The listed returns for the Fund are net of expenses and the returns for the index exclude expenses. Total returns would have been lower had certain expenses not been reduced.
The table below shows the average annual total returns for the AMG GW&K Municipal Enhanced Yield Fund and the Bloomberg Barclays U.S. Municipal Bond BAA Index for the same time periods ended December 31, 2020.
| Average Annual Total Returns1 | One Year |
Five Years |
Ten Years |
Since Inception |
Inception Date | |||||||
| AMG GW&K Municipal Enhanced Yield Fund2, 3, 4, 5, 6, 7, 8, 9, 10 | ||||||||||||
| Class N | 5.95 | % | 5.08% | 6.28% | 6.67 | % | 07/27/09 | |||||
| Class I | 6.31 | % | 5.50% | 6.73% | 5.11 | % | 12/30/05 | |||||
| Class Z | 6.37 | % | — | — | 6.66 | % | 02/24/17 | |||||
Bloomberg Barclays U.S. Municipal Bond BAA Index11 |
4.55 | % | 5.04% | 5.69% | 6.02 | % | 07/27/09† | |||||
| The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. |
Investors should carefully consider the Fund’s investment objectives, risks, charges and expenses before investing. For performance information through the most recent month end, current net asset values per share for the Fund and other information, please call 800.548.4539 or visit our website at amgfunds.com for a free prospectus. Read it carefully before investing or sending money.
Distributed by AMG Distributors, Inc., member FINRA/SIPC.
| † | Date reflects the inception date of the Fund, not the index. |
| 1 | Total return equals income yield plus share price change and assumes reinvestment of all dividends and capital gain distributions. Returns are net of fees and may reflect offsets of Fund expenses as described in the prospectus. No adjustment has been made for taxes payable by shareholders on their reinvested dividends and |
| capital gain distributions. Returns for periods greater than one year are annualized. The listed returns on the Fund are net of expenses and based on the published NAV as of December 31, 2020. All returns are in U.S. dollars ($). | |
| 2 | From time to time, the Fund’s advisor has waived its fees and/or absorbed Fund expenses, which has resulted in higher returns. |
| 3 | The Fund is subject to the risks associated with investments in debt securities, such as default risk and fluctuations in the perception of the debtor’s ability to pay its creditors. Changing interest rates may adversely affect the value of an investment. An increase in interest rates typically causes the value of bonds and other fixed income securities to fall. |
| 4 | Companies that are in similar businesses may be similarly affected by particular economic or market events; to the extent the Fund has substantial holdings within a particular sector, the risks associated with that sector increase. |
| 5 | The Fund may invest in derivatives such as options and futures; the complexity and rapidly changing structure of derivatives markets may increase the possibility of market losses. |
| 6 | High-yield bonds (also known as “junk bonds”) may be subject to greater levels of interest rate, credit, and liquidity risk than investments in higher rated securities. These securities are considered predominantly speculative with respect to the issuer’s continuing ability to make principal and interest payments. The issuers of the Fund’s holdings may be involved in bankruptcy proceedings, reorganizations, or financial restructurings, and are not as strong financially as higher-rated issuers. |
| 7 | The use of leverage in a Fund’s strategy, such as futures and forward commitment transactions, can magnify relatively small market movements into relatively larger losses for the Fund. |
| 8 | Factors unique to the municipal bond market may negatively affect the value of municipal bonds. |
| 9 | Investment income may be subject to certain state and local taxes, and depending on your tax status, the federal alternative minimum tax. Capital gains are not exempt from federal income tax. |
| 10 | Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies. |
| 11 | The Bloomberg Barclays U.S. Municipal Bond BAA Index is a subset of the Bloomberg Barclays U.S. Municipal Bond Index with an index rating of Baa1, Baa2, or Baa3. The Bloomberg Barclays U.S. Municipal Bond Index is a rules-based,
|
30
| AMG GW&K Municipal Enhanced Yield Fund |
| Portfolio Manager’s Comments (continued) |
market-value-weighted index engineered for the long-term, tax-exempt bond market. Unlike the Fund, the Bloomberg Barclays U.S. Municipal Bond BAA Index is unmanaged, is not available for investment and does not incur expenses.
Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). |
BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes | any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
Not FDIC insured, nor bank guaranteed. May lose value. |
31
| AMG GW&K Municipal Enhanced Yield Fund Fund Snapshots (unaudited) |
| PORTFOLIO BREAKDOWN | |
| % of | |
| Category | Net Assets |
| Transportation | 30.8 |
| Medical | 29.4 |
| Utilities | 14.8 |
| General Obligation | 10.9 |
| Tobacco Settlement | 4.7 |
| Education | 3.7 |
| Housing | 2.7 |
| Industrial Development | 1.3 |
| Other Assets | 1.7 |
| Rating | % of Market Value1 |
| Aa/AA | 14.8 |
| A | 40.7 |
| Baa/BBB | 43.8 |
| Ba/BB | 0.7 |
| 1 | Includes market value of long-term fixed-income securities only. |
| TOP TEN HOLDINGS |
| % of | ||
| Security Name | Net Assets | |
| Texas Private Activity Bond Surface Transportation Corp., 5.000%, 06/30/58 | 3.3 | |
| West Virginia Hospital Finance Authority, Cabell Huntington Hospital Obligation, 5.000%, 01/01/43 | 2.9 | |
| Colorado Health Facilities Authority, Series A, 5.000%, 08/01/44 | 2.7 | |
| Central Plains Energy Project Project #3, Series A, 5.000%, 09/01/42 | 2.5 | |
| Chicago O’Hare International Airport, Senior Lien, Series A, 5.000%, 01/01/48 | 2.5 | |
| Central Texas Regional Mobility Authority, Series B, 5.000%, 01/01/45 | 2.4 | |
| New York Transportation Development Corp., Laguardia Airport Terminal B, 5.000%, 07/01/46 | 2.3 | |
| City of Minneapolis MN, Fairview Health Services, Series A, Revenue, 5.000%, 11/15/49 | 2.2 | |
| Public Authority for Colorado Energy Natural Gas Purchase Revenue, Series 2008, Revenue, 6.500%, 11/15/38 | 2.1 | |
| New Orleans Aviation Board, General Airport North Terminal, Series B, Revenue, 5.000%, 01/01/48 | 2.1 | |
| Top Ten as a Group | 25.0 |
Credit quality ratings shown above reflect the highest rating assigned by either Standard & Poor’s (“S&P”), Moody’s Investors Service, Inc. (“Moody’s”) or Fitch. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by any of the rating agencies. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change.
Because a fund’s strategy may result in multiple investments in particular sectors of the economy, its performance may depend on the performance of those sectors and may fluctuate more widely than investments diversified across more sectors. For additional information on these and other risk considerations, please see the Fund’s prospectus.
Any sectors, industries, or securities discussed should not be perceived as investment recommendations. Mention of a specific security should not be considered a recommendation to buy or solicitation to sell that security. Specific securities mentioned in this report may have been sold from the Fund’s portfolio of investments by the time you receive this report.
32
| AMG GW&K Municipal Enhanced Yield Fund Schedule of Portfolio Investments |
| Principal | ||
| Amount | Value | |
| Municipal Bonds - 98.3% | ||
| Arizona - 0.7% | ||
| Arizona Industrial Development Authority | ||
| 4.000%, 02/01/50 | $2,000,000 | $2,341,760 |
| California - 5.9% | ||
| California Health Facilities Financing Authority | ||
| 4.000%, 04/01/49 | 1,000,000 | 1,146,030 |
| California Municipal Finance Authority, | ||
| Community Medical Centers, Series A | ||
| 5.000%, 02/01/42 | 2,375,000 | 2,778,607 |
| California Municipal Finance Authority, Series I | ||
| 5.000%, 05/15/43 | 3,000,000 | 3,506,520 |
| 5.000%, 05/15/48 | 4,600,000 | 5,344,694 |
| State of California | ||
| 5.000%, 03/01/36 | 5,000,000 | 6,694,550 |
| Total California | 19,470,401 | |
| Colorado - 4.8% | ||
| Colorado Health Facilities Authority, Series A | ||
| 5.000%, 08/01/44 | 7,215,000 | 8,846,888 |
| Public Authority for Colorado Energy Natural Gas | ||
| Purchase Revenue, Series 2008 | ||
| 6.500%, 11/15/38 | 4,355,000 | 6,927,673 |
| Total Colorado | 15,774,561 | |
| Connecticut - 4.5% | ||
| State of Connecticut Special Tax Revenue | ||
| 4.000%, 05/01/39 | 1,000,000 | 1,180,650 |
| 5.000%, 05/01/40 | 1,000,000 | 1,302,630 |
| State of Connecticut Special Tax Revenue, | ||
| Transportation Infrastructure | ||
| 5.000%, 01/01/38 | 5,165,000 | 6,405,272 |
| State of Connecticut, Series E | ||
| 5.000%, 09/15/35 | 2,435,000 | 3,091,013 |
| 5.000%, 09/15/37 | 2,200,000 | 2,777,060 |
| Total Connecticut | 14,756,625 | |
| Florida - 7.0% | ||
| City of Tampa, Series H | ||
| 4.000%, 07/01/45 | 2,775,000 | 3,203,987 |
| 5.000%, 07/01/50 | 2,250,000 | 2,803,230 |
| Escambia County Health Facilities Authority | ||
| 4.000%, 08/15/50 | 5,050,000 | 5,573,837 |
| Hillsborough County Industrial Development | ||
| Authority | ||
| 4.000%, 08/01/50 | 5,000,000 | 5,723,200 |
| Miami Beach Health Facilities Authority Mt. Sinai | ||
| Medical Center | ||
| 5.000%, 11/15/39 | 5,220,000 | 5,794,409 |
| Total Florida | 23,098,663 |
| Principal | ||
| Amount | Value | |
| Illinois - 9.4% | ||
| Chicago O’Hare International Airport, Senior Lien, Series A | ||
| 5.000%, 01/01/48 | $6,750,000 | $8,068,748 |
| Chicago O’Hare International Airport, Series A | ||
| 4.000%, 01/01/37 | 2,000,000 | 2,355,100 |
| Metropolitan Pier & Exposition Authority | ||
| 5.000%, 06/15/50 | 5,000,000 | 5,791,200 |
| Metropolitan Pier and Exposition Authority | ||
| Revenue, McCormick Place Expansion | ||
| Project, Series B | ||
| 5.000%, 06/15/52 | 6,055,000 | 6,229,505 |
| State of Illinois | ||
| 5.500%, 05/01/39 | 4,000,000 | 4,843,800 |
| 5.750%, 05/01/45 | 3,000,000 | 3,646,650 |
| Total Illinois | 30,935,003 | |
| Louisiana - 3.8% | ||
| Louisiana Public Facilities Authority | ||
| 4.000%, 05/15/49 | 5,000,000 | 5,751,450 |
| New Orleans Aviation Board, General Airport | ||
| North Terminal, Series B | ||
| 5.000%, 01/01/48 | 5,845,000 | 6,777,102 |
| Total Louisiana | 12,528,552 | |
| Maine - 1.2% | ||
| Maine Health & Higher Educational Facilities | ||
| Authority, Series A | ||
| 4.000%, 07/01/45 | 1,500,000 | 1,747,260 |
| 4.000%, 07/01/50 | 2,000,000 | 2,311,420 |
| Total Maine | 4,058,680 | |
| Massachusetts - 0.8% | ||
| Commonwealth of Massachusetts | ||
| 5.000%, 07/01/45 | 2,000,000 | 2,625,840 |
| Minnesota - 3.7% | ||
| City of Minneapolis MN, Fairview Health Services, Series A | ||
| 5.000%, 11/15/49 | 5,910,000 | 7,206,654 |
| Duluth Economic Development Authority, | ||
| Essentia Health Obligated Group | ||
| 5.000%, 02/15/48 | 4,050,000 | 4,813,060 |
| Total Minnesota | 12,019,714 | |
| Nebraska - 2.5% | ||
| Central Plains Energy Project | ||
| Project #3, Series A | ||
| 5.000%, 09/01/42 | 5,560,000 | 8,151,182 |
| New Jersey - 9.1% | ||
| New Jersey Economic Development Authority | ||
| 5.000%, 11/01/44 | 3,000,000 | 3,597,510 |
| New Jersey Economic Development Authority, Series DDD | ||
| 5.000%, 06/15/42 | 5,365,000 | 6,237,564 |
The accompanying notes are an integral part of these financial statements.
33
| AMG GW&K Municipal Enhanced Yield Fund Schedule of Portfolio Investments (continued) |
| Principal | ||
| Amount | Value | |
| New Jersey - 9.1% (continued) | ||
| New Jersey Transportation Trust Fund Authority | ||
| 4.000%, 06/15/45 | $2,000,000 | $2,238,500 |
| 4.000%, 06/15/50 | 2,000,000 | 2,220,800 |
| 5.000%, 06/15/45 | 1,000,000 | 1,218,410 |
| 5.000%, 06/15/50 | 2,000,000 | 2,417,700 |
| New Jersey Transportation Trust Fund Authority, Series BB | ||
| 5.000%, 06/15/44 | 2,000,000 | 2,370,980 |
| Tobacco Settlement Financing Corp. | ||
| Series A | ||
| 5.000%, 06/01/46 | 2,500,000 | 3,002,375 |
| 5.250%, 06/01/46 | 3,285,000 | 4,004,481 |
| Tobacco Settlement Financing Corp. | ||
| Series B | ||
| 5.000%, 06/01/46 | 2,050,000 | 2,394,461 |
| Total New Jersey | 29,702,781 | |
| New York - 17.6% | ||
| City of New York, Series A | ||
| 5.000%, 08/01/45 | 4,405,000 | 5,536,028 |
| City of New York, Series D | ||
| 5.000%, 03/01/43 | 5,235,000 | 6,707,710 |
| Metropolitan Transportation Authority, Series B | ||
| 5.000%, 11/15/29 | 1,115,000 | 1,380,560 |
| Metropolitan Transportation Authority, Series C | ||
| 4.750%, 11/15/45 | 3,025,000 | 3,553,710 |
| 5.000%, 11/15/50 | 2,185,000 | 2,608,147 |
| 5.250%, 11/15/55 | 3,020,000 | 3,686,695 |
| Monroe County Industrial Development Corp., | ||
| Series A | ||
| 4.000%, 07/01/50 | 5,000,000 | 5,914,900 |
| New York State Dormitory Authority, Series A | ||
| 5.000%, 03/15/45 | 4,960,000 | 6,129,320 |
| New York State Thruway Authority, Series B | ||
| 4.000%, 01/01/45 | 5,000,000 | 5,850,400 |
| New York Transportation Development Corp. | ||
| 4.000%, 12/01/39 | 1,700,000 | 2,015,299 |
| 4.000%, 12/01/40 | 2,000,000 | 2,365,880 |
| New York Transportation Development Corp., | ||
| Laguardia Airport Terminal B | ||
| 5.000%, 07/01/46 | 6,820,000 | 7,464,558 |
| Triborough Bridge & Tunnel Authority, Series A | ||
| 5.000%, 11/15/49 | 3,500,000 | 4,524,975 |
| Total New York | 57,738,182 | |
| Oklahoma - 4.3% | ||
| Norman Regional Hospital Authority | ||
| 5.000%, 09/01/45 | 4,335,000 | 5,195,021 |
| Oklahoma Development Finance Authority, | ||
| Health Ou Medicine Project, Series B | ||
| 5.250%, 08/15/48 | 2,975,000 | 3,534,359 |
| 5.500%, 08/15/52 | 4,500,000 | 5,402,340 |
| Total Oklahoma | 14,131,720 |
| Principal | ||
| Amount | Value | |
| Pennsylvania - 1.3% | ||
| Geisinger Authority, Series G | ||
| 4.000%, 04/01/50 | $3,510,000 | $4,089,712 |
| Rhode Island - 1.8% | ||
| Tobacco Settlement Financing Corp. | ||
| Series A | ||
| 5.000%, 06/01/35 | 2,000,000 | 2,267,140 |
| 5.000%, 06/01/40 | 3,285,000 | 3,613,993 |
| Total Rhode Island | 5,881,133 | |
| South Carolina - 1.3% | ||
| South Carolina Jobs-Economic Development Authority, Series I | ||
| 5.000%, 12/01/46 | 3,325,000 | 4,235,452 |
| Texas - 12.4% | ||
| Central Texas Regional Mobility Authority | ||
| 5.000%, 01/01/46 | 3,750,000 | 4,325,138 |
| Central Texas Regional Mobility Authority, | ||
| Series B | ||
| 5.000%, 01/01/45 | 6,405,000 | 8,044,616 |
| Central Texas Turnpike System, Series C | ||
| 5.000%, 08/15/42 | 2,065,000 | 2,325,582 |
| Texas Private Activity Bond Surface | ||
| Transportation Corp. | ||
| 5.000%, 06/30/58 | 9,180,000 | 11,017,928 |
| Texas Private Activity Bond Surface | ||
| Transportation Corp., Senior Lien-Blueridge Transport | ||
| 5.000%, 12/31/40 | 3,955,000 | 4,423,509 |
| 5.000%, 12/31/45 | 3,880,000 | 4,302,687 |
| Texas Private Activity Bond Surface | ||
| Transportation Corp., Series A | ||
| 4.000%, 12/31/39 | 5,500,000 | 6,407,995 |
| Total Texas | 40,847,455 | |
| Virginia - 2.0% | ||
| Virginia Small Business Financing Authority, Transform 66 P3 Project | ||
| 5.000%, 12/31/49 | 2,500,000 | 2,917,675 |
| 5.000%, 12/31/52 | 3,170,000 | 3,693,367 |
| Total Virginia | 6,611,042 | |
| Washington - 1.3% | ||
| Washington Health Care Facilities Authority | ||
| 4.000%, 09/01/45 | 1,000,000 | 1,160,250 |
| 5.000%, 09/01/45 | 2,465,000 | 3,135,455 |
| Total Washington | 4,295,705 | |
| West Virginia - 2.9% | ||
| West Virginia Hospital Finance Authority, Cabell Huntington Hospital Obligation | ||
| 5.000%, 01/01/43 | 8,000,000 | 9,601,760 |
| Total Municipal Bonds | ||
| (Cost $298,407,906) | 322,895,923 |
The accompanying notes are an integral part of these financial statements.
34
|
AMG GW&K Municipal Enhanced Yield Fund Schedule of Portfolio Investments (continued) |
| Value | ||||
| Total Investments - 98.3% | ||||
| (Cost $298,407,906) | $322,895,923 | |||
| Other Assets, less Liabilities - 1.7% | 5,687,831 | |||
| Net Assets - 100.0% | $328,583,754 | |||
The following table summarizes the inputs used to value the Fund’s investments by the fair value hierarchy levels as of December 31, 2020:
| Level 1 | Level 2 | Level 3 | Total | ||||||||||
| Investments in Securities | |||||||||||||
| Municipal Bonds† | — | $ | 322,895,923 | — | $ | 322,895,923 | |||||||
| Total Investments in Securities | — | $ | 322,895,923 | — | $ | 322,895,923 | |||||||
| † | All municipal bonds held in the Fund are Level 2 securities. For a detailed breakout of municipal bonds by major classification, please refer to the Fund’s Schedule of Portfolio Investments. |
For the fiscal year ended December 31, 2020, there were no transfers in or out of Level 3.
| The accompanying notes are an integral part of these financial statements. |
35
| AMG GW&K Global Allocation Fund Portfolio Manager’s Comments (unaudited) |
THE YEAR IN REVIEW For the year ended December 31, 2020, AMG GW&K Global Allocation Fund (the “Fund”) Class N shares returned 18.92%, compared to the 14.46% return for its blended benchmark which consists of 60% the MSCI All Country World (ACWI) Index and 40% the Bloomberg Barclays Global Aggregate Bond Index. The Fund’s prior benchmark, which consists of 60% the Russell 1000® Index and 40% the Bloomberg Barclays U.S. Aggregate Bond Index, returned 17.19% during the period. Effective April 17, 2020, the Fund’s subadviser changed from Chicago Equity Partners, LLC to GW&K Investment Management, LLC (GW&K). Also effective April 17, 2020, the Fund changed its name from AMG Chicago Equity Partners Balanced Fund and changed its investment objective, benchmark, principal investment strategies, and principal risks. For the year-to-date period through April 17, 2020, prior to the transition, the Fund underperformed its benchmark primarily due to its underweight to fixed income for most of the quarter combined with the underperformance of both the equity and fixed income segments during the very volatile month of March. Following the transition to GW&K, as subadvisor to the Fund, and the transition to a Global Allocation investment mandate, the Fund outperformed its benchmark through the remainder of the year, leading to outperformance for the full year. Since the Fund’s transition in April, the asset allocation framework for the Fund favored equities over fixed income. At the end of December, the equity/fixed income asset allocation stood at 70%/30%. This had a positive impact on the Fund’s relative performance compared to the blended 60% MSCI ACWI/40% Barclays Global Aggregate Bond Index benchmark. The allocation reflects GW&K’s judgment that equities are likely to continue to outperform bonds in coming quarters, extending the trend seen in 2020. The tilt toward equities is based on both quantitative and qualitative judgments. First, relative asset class valuations continue to favor equities, with almost all developed nations’ government bonds offering negative yields in inflation-adjusted terms. Second, GW&K continues to believe that the severe global recession triggered by the coronavirus pandemic ended in May and that the most likely scenario for the global economy is continued recovery for the next several years. Third, we expect most governments to emphasize pro-growth policies |
which should be favorable for both corporate earnings and risk assets. The late-December passage of a $900 billion U.S. fiscal support package and prospects for further fiscal support under the new Democratic administration illustrated the pro-growth policy tilt. Fourth-quarter news of highly effective vaccines and the commencement of mass immunization programs in most major nations also support a constructive view of growth prospects for 2021 and beyond. A key valuation metric for global equities is the long-term earnings yield of the MSCI ACWI. That stood at 4.0% at the end of September, and is based on the inverse of the corresponding Shiller PE ratio1 of 24.8 times. By way of comparison, the long-term earnings yield of MSCI ACWI has averaged 5.1% since 2005, corresponding to an average Shiller PE ratio of 19.2 times. Those figures suggest that equities are somewhat expensive relative to their own history. For asset allocation purposes, however, a relevant comparison of the long-term earnings yield is to the real yield of U.S. Treasuries. At the end of December, the yield on 10-Year U.S. Treasury Inflation-Protected Securities (TIPS) stood at -1.1%. The gap between the long-term earnings yield of 4.0% for global equities and -1.1% for TIPS securities suggests the potential for global equities to outperform bonds by about 5.1% per annum over the next five to ten years. In short, we believe investors continue to have strong incentives to favor equities over fixed income, notwithstanding the potential for greater volatility in equities. Key risks would be if the broad-based economic recovery that is evident in global economic data gives way to renewed economic weakness or if government policies were to turn significantly more restrictive. Those risks will be monitored carefully, but we currently view such risks to be low enough to justify a significant tilt toward equities. EQUITY Following a sharp first quarter decline, global equities ended 2020 on a solid note. Vaccine approvals inspired hope that the pandemic will soon be brought under control, while a U.S. bipartisan agreement on a fifth virus relief package and a U.K.-EU Brexit trade deal provided further market support. There was a noted risk-on, pro-cyclical shift in investor sentiment as the year progressed. The U.S. Dollar Index was down 6.7% and several commodities staged a strong rally. While the Fund’s equity sleeve underperformed in the first quarter due to a preference for value over growth, the equity component performed strongly |
through the remainder of the year due to strong stock selection across a wide range of sectors and markets. Information technology (IT) was a notable contributor, thanks to ongoing strength in Taiwan Semiconductor Manufacturing Co, Ltd. ADR, which delivered exceptionally strong earnings, and digital payment company Adyen, N.V. Infineon Technologies AG, an auto and industrial power semiconductor developer, was also a top IT contributor. U.S. animal health diagnostics company IDEXX Laboratories, Inc. topped the Fund’s health care outperformance. Goosehead Insurance, Inc. Class A in the U.S. and HDFC Bank, Limited ADR in India were notable contributors in financials. Conversely, real estate detracted, as the Fund’s only position, American Tower Corp, lagged during the fourth quarter risk-on rally. Lack of exposure to materials as metal prices rallied also weighed modestly on results. On a geographic level, the U.S. was the Fund’s top country due to exceptional stock selection, with outsized gains in the above holdings, as well as PayPal Holdings, Inc. and SiteOne Landscaping Supply, Inc. India also performed well, led by online travel platform MakeMyTrip, Ltd. Meanwhile China, a sizable overweight at 18.6% versus 5.8% for the Index, detracted from results due to higher exposure and a pullback in Alibaba, the country’s leading ecommerce company. The expression, or some would say the curse, “may you live in interesting times” certainly applied to 2020. The COVID-19 pandemic surely wreaked havoc with economies around the world, but thanks to an aggressive monetary response, several rounds of fiscal stimulus, and heroic work on vaccine development, stock markets have generally looked through the pandemic in anticipation of a return to growth in 2021 and beyond. While the recent surge in COVID-19 cases has surely slowed progress this winter, especially in the U.S. and Europe, it has not been enough to diminish the optimism. FIXED INCOME The year closed at an important inflection point for fixed income markets, which saw the resolution of several major overhangs: the closely contested election was decided, an additional round of fiscal stimulus was passed, and several COVID-19 vaccines were approved. These developments substantially advanced the recovery narrative and provided additional clarity for the year ahead. Following a flat third quarter, treasuries weakened as the year |
36
| AMG GW&K Global Allocation Fund |
| Portfolio Manager’s Comments (continued) |
closed, with the yield curve extending its post-pandemic steepening. The front end was anchored by U.S Federal Reserve (the “Fed”) policy, while recovery optimism weighed on intermediate and long rates. Corporates capped an extraordinary year by closing the period at record-low yields, buoyed by improving credit fundamentals, a constructive outlook for profitability, and steady flows into the asset class. Mortgages outperformed due to slower prepayment speeds and the Fed’s continued buying of 40% of gross supply. Prior to the Fund’s transition in April, the fixed income sleeve underperformed the Bloomberg Barclays U.S. Aggregate Bond Index due to its overweight allocation to corporate bonds as the market moved towards the safety of U.S. Treasuries. Following the transition, the fixed income sleeve underperformed the Bloomberg Barclays Global Aggregate Index primarily due to currency effect since the dollar weakened and all of the Fund’s holdings are dollar-denominated compared to the |
Index which has a substantial non-dollar allocation. Removing the currency effect, the Fund benefited from both favorable top-down sector allocation as well as strong security selection. Our significant overweight exposure to spread product contributed due to modest spread tightening and superior carry. Our security selection within corporates was a positive factor as well. We added value within the investment grade space, as well as through our out-of-benchmark allocation to high yield and preferred securities. Our selection within the mortgage space was also a modest positive. Yield curve positioning was a slight drag on performance due to our being shorter than the benchmark amid a decline in global rates. The fixed income sleeve is positioned to benefit from the ongoing global economic recovery. With respect to yield curve positioning, this means we remain underweight the long end, which we expect to show further weakness as the reflation trade plays out. Instead, we favor intermediate maturities, which are |
less sensitive to interest rates and offer attractive total returns through a combination of their carry and roll. From a sector allocation perspective, we favor credit on the recovery narrative, as well as what we expect to be compelling supply/demand technicals, as issuance declines relative to last year at the same time as negative yields elsewhere drive capital to the space. Regionally, 32% of our holdings’ revenue is derived from outside the U.S. to improve portfolio diversification and expand the universe of investment opportunities. 1 Shiller PE ratio is a price to earnings valuation measure that uses cyclically adjusted real earnings per share in the equation This commentary reflects the viewpoints of the portfolio manager, GW&K as of December 31, 2020, is not intended as a forecast or guarantee of future results, and is subject to change without notice. |
37
| AMG GW&K Global Allocation Fund | |
Portfolio Manager’s Comments (continued) |
CUMULATIVE TOTAL RETURN PERFORMANCE
AMG GW&K Global Allocation Fund’s cumulative total return is based on the daily change in net asset value (NAV), and assumes that all dividends and distributions were reinvested. The graph compares a hypothetical $10,000 investment made in the AMG GW&K Global Allocation Fund’s Class N shares on December 31, 2010, to a $10,000 investment made in the 60% MSCI ACWI/40% Bloomberg Barclays Global Aggregate Bond Index and 60% Russell 1000® Index/40% Bloomberg Barclays U.S. Aggregate Bond Index for the same time period. The graph and table do not reflect the deduction of taxes that a shareholder would pay on a Fund distribution or redemption of shares. The listed returns for the Fund are net of expenses and the returns for the index exclude expenses. Total returns would have been lower had certain expenses not been reduced.
The table below shows the average annual total returns for the AMG GW&K Global Allocation Fund and the 60% MSCI ACWI/40% Bloomberg Barclays Global Aggregate Bond Index and 60% Russell 1000® Index/40% Bloomberg Barclays U.S. Aggregate Bond Index for the same time periods ended December 31, 2020.
| Average Annual Total Returns1 | One Year |
Five Years |
Ten Years |
Since Inception |
Inception Date |
| AMG GW&K Global Allocation Fund1, 2, 3, 4, 5, 6, 7, 8 | |||||
| Class N | 18.92% | 10.30% | 9.62% | 8.36% | 01/02/97 |
| Class I | 19.08% | 10.47% | — | 10.02% | 11/30/12 |
| Class Z | 19.28% | 10.57% | 9.90% | 8.73% | 01/02/97 |
| 60% MSCI ACWI/40% Bloomberg Barclays Global Aggregate Bond Index 9 | 14.46% | 9.56% | 6.86% | — | 01/02/97† |
| 60% Russell 1000® Index/40% Bloomberg Barclays U.S. Aggregate Bond Index10 | 17.19% | 11.56% | 10.30% | 8.22% | 01/02/97† |
The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Investors should carefully consider the Fund’s investment objectives, risks, charges and expenses before investing. For performance information through the most recent month end, current net asset values per share for the Fund and other information, please call 800.548.4539 or visit our website at amgfunds.com for a free prospectus. Read it carefully before investing or sending money.
Distributed by AMG Distributors, Inc., member FINRA/SIPC.
| † | Date reflects inception date of the Fund, not the index. |
| 1 | Total return equals income yield plus share price change and assumes reinvestment of all dividends and capital gain distributions. Returns are net of fees and may reflect offsets of Fund expenses as described in the prospectus. No adjustment has been made for taxes payable by shareholders on their reinvested dividends and capital gain distributions. Returns for periods greater than one year are annualized. The listed returns on the Fund are net of expenses and based on the published NAV as of December 31, 2020. All returns are in U.S. dollars ($). |
| 2 | From time to time, the Fund’s advisor has waived its fees and/or absorbed Fund expenses, which has resulted in higher returns. |
| 3 | To the extent that the Fund invests in asset-backed or mortgage-backed securities, its exposure to prepayment and extension risks may be greater than investments in other fixed income securities. |
| 4 | The Fund is subject to the risks associated with investments in debt securities, such as default risk and fluctuations in the perception of the debtor’s ability to pay its creditors. Changing interest rates may adversely affect the value of an investment. An increase in interest rates typically causes the value of bonds and other fixed income securities to fall. |
| 5 | Investments in international securities are subject to certain risks of overseas investing including currency fluctuations and changes in political and economic conditions, which could result in significant market fluctuations. These risks are magnified in emerging markets. |
| 6 | Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies. |
| 7 | The Fund invests in value stocks, which may perform differently from the market as a whole and may be undervalued by the market for a long period of time. |
| 8 | The Fund’s investments may not be allocated in the best performing asset classes. |
| 9 | On April 17, 2020 the benchmark changed from 60% Russell 1000® Index & 40% Bloomberg Barclays U.S. Aggregate Bond Index. The benchmark is composed of 60% MSCI ACWI and 40% Bloomberg Barclays Global Aggregate Bond Index. The MSCI All Country World Index (ACWI) is a free-float adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. Please go to msci.com for most current list of countries represented by the Index. The Bloomberg Barclays Global Aggregate Bond Index provides a broad-based measure of the global investment-grade fixed income markets. The three major components of this index are the U.S. Aggregate, the Pan-European Aggregate, and the Asian-Pacific Aggregate Indices. The Index also |
38
| AMG GW&K Global Allocation Fund | |
Portfolio Manager’s Comments (continued) |
includes Eurodollar and Euro-Yen corporate bonds, Canadian government, agency and corporate securities, and USD investment grade 144A securities. Unlike the Fund, the indices are unmanaged, is not available for investment and does not incur expenses.
10 The Russell 1000® Index measures the performance of approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000® represents approximately 92% of the U.S. market. The Bloomberg Barclays U.S. Aggregate Bond Index represents securities that are Securities and Exchange Commission-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. |
Unlike the Fund, the indices are unmanaged, is not available for investment and does not incur expenses.
Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent
|
allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
All MSCI data is provided “as is”. The products described here in are not sponsored or endorsed and have not been reviewed or passed on by MSCI. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with the MSCI data or the products described herein. Copying or redistributing the MSCI data is strictly prohibited.
Not FDIC insured, nor bank guaranteed. May lose value.
|
|||||
39
| AMG GW&K Global Allocation Fund | |
Fund Snapshots (unaudited) | |
December 31, 2020 |
PORTFOLIO BREAKDOWN
| Sector | % of Net Assets |
| Information Technology | 19.5 |
| Industrials | 19.0 |
| Consumer Discretionary | 17.8 |
| Financials | 12.1 |
| U.S. Government and Agency Obligations | 8.2 |
| Health Care | 7.5 |
| Communication Services | 3.6 |
| Utilities | 2.4 |
| Foreign Government Obligations | 2.2 |
| Real Estate | 1.7 |
| Consumer Staples | 1.5 |
| Municipal Bonds | 1.4 |
| Supranational Banks | 0.5 |
| Short-Term Investments | 1.7 |
| Other Assets Less Liabilities | 0.9 |
| Rating | % of Market Value1 |
| U.S. Government and Agency Obligations | 30.7 |
| Aaa/AAA | 2.5 |
| Aa/AA | 10.6 |
| A | 7.9 |
| Baa/BBB | 29.1 |
| Ba/BB | 17.7 |
| B | 1.5 |
| 1 | Includes market value of long-term fixed-income securities only. |
TOP TEN HOLDINGS
| Security Name | % of Net Assets | |
| Taiwan Semiconductor Manufacturing Co., Ltd. ADR (Taiwan) | 2.8 | |
| Infineon Technologies AG (Germany) | 2.6 | |
| HDFC Bank, Ltd., ADR (India) | 2.6 | |
| Moncler SpA (Italy) | 2.6 | |
| Adyen, N.V. (Netherlands) | 2.6 | |
| MakeMyTrip, Ltd. (India) | 2.4 | |
| PayPal Holdings, Inc. | 2.2 | |
| Mastercard, Inc., Class A | 2.1 | |
| LVMH Moet Hennessy Louis Vuitton SE (France) | 2.1 | |
| Sands China, Ltd. (Macau) | 2.1 | |
| Top Ten as a Group | 24.1 |
Credit quality ratings shown above reflect the highest rating assigned by either Standard & Poor’s (“S&P”), Moody’s Investors Service, Inc. (“Moody’s”) or Fitch. These rating agencies are independent, nationally recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by any of the rating agencies. Unrated investments do not necessarily indicate low credit quality. Credit quality ratings are subject to change.
Because a fund’s strategy may result in multiple investments in particular sectors of the economy, its performance may depend on the performance of those sectors and may fluctuate more widely than investments diversified across more sectors. For additional information on these and other risk considerations, please see the Fund’s prospectus.
Any sectors, industries, or securities discussed should not be perceived as investment recommendations. Mention of a specific security should not be considered a recommendation to buy or solicitation to sell that security. Specific securities mentioned in this report may have been sold from the Fund’s portfolio of investments by the time you receive this report.
40
| AMG GW&K Global Allocation Fund | |
| Schedule of Portfolio Investments | |
| December 31, 2020 |
| Shares | Value | |||
| Common Sto+cks - 70.7% | ||||
| Communication Services - 3.6% | ||||
| Alphabet, Inc., Class A* | 1,570 | $2,751,645 | ||
| Tencent Holdings, Ltd. (China) | 38,500 | 2,770,221 | ||
| Total Communication Services | 5,521,866 | |||
| Consumer Discretionary - 17.8% | ||||
| Alibaba Group Holding, Ltd. (China)* | 81,500 | 2,370,389 | ||
| Amazon.com, Inc.* | 861 | 2,804,217 | ||
| Huazhu Group, Ltd., ADR (China)1 | 58,580 | 2,637,857 | ||
| LVMH Moet Hennessy Louis Vuitton SE (France) | 5,151 | 3,224,533 | ||
| MakeMyTrip, Ltd. (India)*,1 | 126,581 | 3,737,937 | ||
| Moncler SpA (Italy)* | 64,350 | 3,956,278 | ||
| Sands China, Ltd. (Macau) | 716,400 | 3,128,805 | ||
| TAL Education Group, ADR (China)* | 37,660 | 2,693,067 | ||
| Yum China Holdings, Inc. (China) | 46,400 | 2,660,201 | ||
| Total Consumer Discretionary | 27,213,284 | |||
| Consumer Staples - 1.5% | ||||
| Kusuri no Aoki Holdings Co., Ltd. (Japan)1 | 26,400 | 2,296,012 | ||
| Financials - 8.1% | ||||
| AIA Group, Ltd. (Hong Kong) | 255,800 | 3,117,210 | ||
| CME Group, Inc. | 11,680 | 2,126,344 | ||
| Goosehead Insurance, Inc., Class A1 | 24,895 | 3,105,900 | ||
| HDFC Bank, Ltd., ADR (India)* | 54,940 | 3,969,965 | ||
| Total Financials | 12,319,419 | |||
| Health Care - 7.5% | ||||
| IDEXX Laboratories, Inc.* | 6,010 | 3,004,219 | ||
| STERIS PLC | 14,550 | 2,757,807 | ||
| UnitedHealth Group, Inc. | 8,790 | 3,082,477 | ||
| Zoetis, Inc. | 16,180 | 2,677,790 | ||
| Total Health Care | 11,522,293 | |||
| Industrials - 9.2% | ||||
| Casella Waste Systems, Inc., Class A* | 44,910 | 2,782,174 | ||
| HEICO Corp., Class A* | 25,860 | 3,027,172 | ||
| MISUMI Group, Inc. (Japan) | 85,900 | 2,819,868 | ||
| Roper Technologies, Inc. | 6,180 | 2,664,136 | ||
| Verisk Analytics, Inc. | 13,720 | 2,848,135 | ||
| Total Industrials | 14,141,485 | |||
| Information Technology - 19.5% | ||||
| Adyen, N.V. (Netherlands)*,2 | 1,695 | 3,938,403 | ||
| ANSYS, Inc.* | 7,900 | 2,874,020 | ||
| Black Knight, Inc.* | 29,500 | 2,606,325 | ||
| Halma PLC (United Kingdom) | 80,150 | 2,684,245 | ||
| Infineon Technologies AG (Germany) | 104,590 | 3,994,148 |
| Shares | Value | |||
| Mastercard, Inc., Class A | 9,110 | $3,251,724 | ||
| PayPal Holdings, Inc.* | 14,660 | 3,433,372 | ||
| ServiceNow, Inc.* | 5,217 | 2,871,593 | ||
| Taiwan Semiconductor Manufacturing Co., Ltd. | ||||
| ADR (Taiwan) | 38,730 | 4,223,119 | ||
| Total Information Technology | 29,876,949 | |||
| Real Estate - 1.7% | ||||
| American Tower Corp., REIT | 11,470 | 2,574,556 | ||
| Utilities - 1.8% | ||||
| NextEra Energy, Inc. | 35,780 | 2,760,427 | ||
| Total Common Stocks | ||||
| (Cost $73,036,367) | 108,226,291 | |||
| Principal Amount |
||||
| Corporate Bonds and Notes - 14.9% | ||||
| Financials - 4.0% | ||||
| Aircastle, Ltd. (Bermuda) | ||||
| 5.250%, 08/11/25 | $196,000 | 216,083 | ||
| Ally Financial, Inc. | ||||
| 8.000%, 11/01/31 | 138,000 | 202,970 | ||
| Bank of America Corp. | ||||
| Series MM, (4.300% to 01/28/25 then 3 month LIBOR + 2.664%), 4.300%, 01/28/253,4,5 | 165,000 | 170,331 | ||
| Boston Properties, LP | ||||
| 3.400%, 06/21/29 | 225,000 | 251,522 | ||
| CIT Group, Inc. | ||||
| 6.125%, 03/09/28 | 183,000 | 223,454 | ||
| Citigroup, Inc. | ||||
| Series V, (4.700% to 01/30/25 then SOFRRATE + 3.234%), 4.700%, 01/30/253,4,5 | 290,000 | 298,545 | ||
| Fifth Third Bancorp | ||||
| Series H, (5.100% to 06/30/23 then 3 month LIBOR + 3.033%), 5.100%, 06/30/233,4,5 | 323,000 | 328,540 | ||
| The Goldman Sachs Group, Inc. | ||||
| Series S, (4.400% to 02/10/25 then U.S. Treasury Yield Curve CMT 5 year + 2.850%), 4.400%, 02/10/251,3,4,5 | 596,000 | 610,900 | ||
| Host Hotels & Resorts LP | ||||
| Series I, 3.500%, 09/15/30 | 198,000 | 209,022 | ||
| Iron Mountain, Inc. | ||||
| 4.500%, 02/15/312 | 206,000 | 216,043 | ||
| JPMorgan Chase & Co. | ||||
| Series HH, (4.600% to 02/01/25 then SOFRRATE + 3.125%), 4.600%, 02/01/253,4,5 | 326,000 | 337,003 | ||
| M&T Bank Corp. | ||||
| Series G, (5.000% to 08/01/24 then U.S. Treasury Yield Curve CMT 5 year + 3.174%), 5.000%, 08/01/243,4,5 | 536,000 | 566,820 | ||
| Morgan Stanley, GMTN | ||||
| 4.431%, 01/23/30 | 211,000 | 256,840 |
The accompanying notes are an integral part of these financial statements.
41
| AMG GW&K Global Allocation Fund | |
Schedule of Portfolio Investments (continued) |
| Principal Amount |
Value | |||
| Financials - 4.0% (continued) | ||||
| Northern Trust Corp. | ||||
| Series D, (4.600% to 10/01/26 then 3 month LIBOR + 3.202%), 4.600%, 10/01/263,4,5 | $270,000 | $288,900 | ||
| The PNC Financial Services Group, Inc. | ||||
| Series R, (4.850% to 06/01/23 then 3 month LIBOR + 3.040%), 4.850%, 06/01/233,4,5 | 311,000 | 324,791 | ||
| Sprint Capital Corp. | ||||
| 6.875%, 11/15/28 | 158,000 | 208,616 | ||
| State Street Corp. | ||||
| Series H, (5.625% to 12/15/23 then 3 month LIBOR + 2.539%), 5.625%, 12/15/231,3,4,5 | 304,000 | 321,419 | ||
| Truist Financial Corp. | ||||
| Series N, (4.800% to 09/01/24 then U.S. Treasury Yield Curve CMT 5 year + 3.003%), 4.800%, 09/01/243,4,5 | 559,000 | 590,926 | ||
| US Bancorp | ||||
| Series J, (5.300% to 04/15/27 then 3 month LIBOR + 2.914%), 5.300%, 04/15/273,4,5 | 281,000 | 316,757 | ||
| Visa, Inc. | ||||
| 4.150%, 12/14/35 | 198,000 | 257,946 | ||
| Total Financials | 6,197,428 | |||
| Industrials - 9.8% | ||||
| AECOM | ||||
| 5.125%, 03/15/27 | 178,000 | 198,717 | ||
| Anheuser-Busch InBev Worldwide, Inc. | ||||
| 4.375%, 04/15/38 | 215,000 | 266,544 | ||
| Antofagasta PLC (United Kingdom) | ||||
| 2.375%, 10/14/301,2 | 200,000 | 201,000 | ||
| Aramark Services, Inc. | ||||
| 4.750%, 06/01/26 | 197,000 | 203,097 | ||
| ArcelorMittal, S.A. (Luxembourg) | ||||
| 4.550%, 03/11/26 | 183,000 | 205,705 | ||
| AT&T, Inc. | ||||
| 4.250%, 03/01/27 | 221,000 | 258,648 | ||
| Ball Corp. | ||||
| 4.875%, 03/15/26 | 178,000 | 201,348 | ||
| Berry Global, Inc. | ||||
| 1.500%, 01/15/272,6 | 166,000 | 207,306 | ||
| 5.625%, 07/15/272 | 185,000 | 199,280 | ||
| BorgWarner, Inc. | ||||
| 2.650%, 07/01/271 | 251,000 | 270,134 | ||
| CDW LLC/CDW Finance Corp. | ||||
| 4.250%, 04/01/28 | 195,000 | 206,202 | ||
| Centene Corp. | ||||
| 3.375%, 02/15/30 | 194,000 | 204,409 | ||
| CenturyLink, Inc. | ||||
| 5.625%, 04/01/25 | 189,000 | 204,238 | ||
| Cheniere Corpus Christi Holdings LLC | ||||
| 5.875%, 03/31/25 | 222,000 | 258,579 |
| Principal Amount |
Value | |||
| Cisco Systems, Inc. | ||||
| 5.500%, 01/15/40 | $177,000 | $265,267 | ||
| CommonSpirit Health | ||||
| 3.347%, 10/01/29 | 180,000 | 198,011 | ||
| Crown Americas LLC / Crown | ||||
| Americas Capital Corp. V | ||||
| 4.250%, 09/30/26 | 183,000 | 202,037 | ||
| CSC Holdings LLC | ||||
| 5.250%, 06/01/24 | 191,000 | 207,097 | ||
| CVS Health Corp. | ||||
| 5.125%, 07/20/45 | 203,000 | 273,730 | ||
| Dell, Inc. | ||||
| 7.100%, 04/15/281 | 171,000 | 225,291 | ||
| Delta Air Lines, Inc. | ||||
| 3.800%, 04/19/23 | 216,000 | 221,902 | ||
| Diamondback Energy, Inc. | ||||
| 3.500%, 12/01/29 | 390,000 | 417,268 | ||
| Elanco Animal Health, Inc. | ||||
| 5.900%, 08/28/287 | 177,000 | 209,413 | ||
| Energy Transfer Operating LP | ||||
| 5.250%, 04/15/29 | 237,000 | 276,896 | ||
| Ford Motor Co. | ||||
| 8.500%, 04/21/23 | 172,000 | 193,862 | ||
| Freeport-McMoRan, Inc. | ||||
| 4.550%, 11/14/24 | 194,000 | 212,309 | ||
| General Electric Co. | ||||
| Series D, (5.000% to 01/21/21 then 3 month LIBOR + 3.330%), 5.000%, 03/15/213,4,5 | 435,000 | 405,202 | ||
| General Motors Co. | ||||
| 6.125%, 10/01/25 | 226,000 | 274,359 | ||
| The George Washington University | ||||
| Series 2018, 4.126%, 09/15/48 | 149,000 | 189,190 | ||
| Griffon Corp. | ||||
| 5.750%, 03/01/28 | 190,000 | 201,162 | ||
| HB Fuller Co. | ||||
| 4.250%, 10/15/28 | 198,000 | 203,321 | ||
| HCA, Inc. | ||||
| 3.500%, 09/01/30 | 201,000 | 213,746 | ||
| Howmet Aerospace, Inc. | ||||
| 5.125%, 10/01/24 | 246,000 | 271,112 | ||
| Kaiser Foundation Hospitals | ||||
| 3.150%, 05/01/27 | 72,000 | 81,427 | ||
| Kraft Heinz Foods Co. | ||||
| 4.625%, 01/30/29 | 175,000 | 200,375 | ||
| Lamar Media Corp. | ||||
| 3.750%, 02/15/28 | 224,000 | 230,625 | ||
| Las Vegas Sands Corp. | ||||
| 3.200%, 08/08/24 | 196,000 | 207,736 | ||
| Lennar Corp. | ||||
| 4.750%, 05/30/25 | 180,000 | 205,987 |
The accompanying notes are an integral part of these financial statements.
42
| AMG GW&K Global Allocation Fund | |
Schedule of Portfolio Investments (continued) |
| Principal Amount |
Value | |||
| Industrials - 9.8% (continued) | ||||
| Meritor, Inc. | ||||
| 6.250%, 06/01/252 | $190,000 | $205,675 | ||
| MGM Resorts International | ||||
| 5.750%, 06/15/25 | 180,000 | 199,354 | ||
| Microsoft Corp. | ||||
| 2.525%, 06/01/50 | 240,000 | 253,615 | ||
| Murphy Oil USA, Inc. | ||||
| 5.625%, 05/01/27 | 186,000 | 197,357 | ||
| Nestle Holdings, Inc. | ||||
| 1.000%, 09/15/272 | 275,000 | 275,864 | ||
| Netflix, Inc. | ||||
| 3.000%, 06/15/252,6 | 155,000 | 203,217 | ||
| 4.375%, 11/15/26 | 189,000 | 209,908 | ||
| Newell Brands, Inc. | ||||
| 4.700%, 04/01/267 | 185,000 | 204,042 | ||
| Northrop Grumman Corp. | ||||
| 3.200%, 02/01/27 | 227,000 | 255,771 | ||
| Nuance Communications, Inc. | ||||
| 5.625%, 12/15/26 | 189,000 | 200,339 | ||
| Penske Automotive Group, Inc. | ||||
| 3.500%, 09/01/25 | 191,000 | 194,342 | ||
| Pernod Ricard International Finance LLC | ||||
| 1.250%, 04/01/282 | 400,000 | 396,831 | ||
| PulteGroup, Inc. | ||||
| 5.500%, 03/01/26 | 185,000 | 220,481 | ||
| Quebecor Media, Inc. (Canada) | ||||
| 5.750%, 01/15/23 | 177,000 | 191,602 | ||
| Service Corp. International | ||||
| 4.625%, 12/15/27 | 193,000 | 205,907 | ||
| Silgan Holdings, Inc. | ||||
| 4.125%, 02/01/28 | 201,000 | 209,291 | ||
| Smith & Nephew PLC (United Kingdom) | ||||
| 2.032%, 10/14/30 | 400,000 | 407,839 | ||
| Southwest Airlines Co. | ||||
| 5.250%, 05/04/25 | 233,000 | 270,060 | ||
| Toll Brothers Finance Corp. | ||||
| 4.375%, 04/15/23 | 191,000 | 203,176 | ||
| TreeHouse Foods, Inc. | ||||
| 4.000%, 09/01/28 | 203,000 | 210,359 | ||
| United Rentals North America Inc. | ||||
| 3.875%, 02/15/31 | 205,000 | 215,440 | ||
| Valvoline, Inc. | ||||
| 4.375%, 08/15/25 | 203,000 | 209,754 | ||
| VeriSign, Inc. | ||||
| 5.250%, 04/01/25 | 183,000 | 208,277 | ||
| Verizon Communications, Inc. | ||||
| 3.875%, 02/08/29 | 218,000 | 256,961 | ||
| Walmart, Inc. | ||||
| 4.050%, 06/29/48 | 196,000 | 266,461 |
| Principal Amount |
Value | |||
| Wyndham Destinations, Inc. | ||||
| 5.650%, 04/01/247 | $195,000 | $211,311 | ||
| Wynn Macau, Ltd. (Cayman Islands) | ||||
| 5.500%, 01/15/262 | 200,000 | 208,250 | ||
| Total Industrials | 14,964,016 | |||
| Supranational Banks - 0.5% | ||||
| Inter-American Development Bank | ||||
| 0.625%, 07/15/25 | 773,000 | 779,637 | ||
| Utilities - 0.6% | ||||
| Dominion Energy, Inc. | ||||
| Series B, (4.650% to 12/15/24 then U.S. Treasury Yield Curve CMT 5 year + 2.993%), 4.650%, 12/15/243,4,5 | 587,000 | 620,481 | ||
| Northern States Power Co. | ||||
| 2.900%, 03/01/50 | 239,000 | 270,574 | ||
| Total Utilities | 891,055 | |||
| Total Corporate Bonds and Notes | ||||
| (Cost $21,532,522) | 22,832,136 | |||
| Municipal Bonds - 1.4% | ||||
| California State General Obligation, School Improvements | ||||
| 7.550%, 04/01/39 | 235,000 | 413,114 | ||
| JobsOhio Beverage System | ||||
| Series B, 4.532%, 01/01/35 | 315,000 | 404,104 | ||
| Los Angeles Unified School District, School Improvements | ||||
| 5.750%, 07/01/34 | 300,000 | 423,630 | ||
| Metropolitan Transportation Authority | ||||
| 6.687%, 11/15/40 | 320,000 | 419,318 | ||
| New Jersey Transportation Trust Fund Authority | ||||
| 5.754%, 12/15/28 | 335,000 | 398,613 | ||
| Total Municipal Bonds | ||||
| (Cost $1,947,295) | 2,058,779 | |||
| U.S. Government and Agency Obligations - 8.2% | ||||
| Fannie Mae - 4.5% | ||||
| FNMA | ||||
| 2.500%, 01/01/35 to 02/01/35 | 805,473 | 850,402 | ||
| 3.500%, 02/01/35 to 01/01/48 | 821,832 | 879,624 | ||
| 4.000%, 12/01/21 to 09/01/49 | 1,641,657 | 1,801,172 | ||
| 4.500%, 05/01/47 to 09/01/49 | 2,081,074 | 2,305,617 | ||
| 5.000%, 09/01/33 to 10/01/49 | 853,436 | 985,389 | ||
| 5.500%, 02/01/37 | 8,455 | 9,930 | ||
| Total Fannie Mae | 6,832,134 | |||
| Freddie Mac - 1.7% | ||||
| FHLMC Gold Pool | ||||
| 3.500%, 05/01/44 to 01/01/46 | 1,291,259 | 1,408,178 | ||
| 4.000%, 02/01/44 | 198,440 | 219,506 | ||
| 5.000%, 07/01/38 | 78,321 | 91,132 |
The accompanying notes are an integral part of these financial statements.
43
| AMG GW&K Global Allocation Fund | |
Schedule of Portfolio Investments (continued) |
| Principal Amount |
Value | |||
| Freddie Mac - 1.7% (continued) | ||||
| FHLMC Multifamily Structured Pass Through Certificates | ||||
| Series K073, 3.350%, 01/01/28 | $821,000 | $953,431 | ||
| Total Freddie Mac | 2,672,247 | |||
| U.S. Treasury Obligations - 2.0% | ||||
| U.S. Treasury Bonds | ||||
| 3.500%, 02/15/39 | 785,000 | 1,066,220 | ||
| 4.500%, 02/15/36 | 729,000 | 1,070,121 | ||
| U.S. Treasury Notes | ||||
| 1.500%, 02/15/30 | 835,000 | 883,502 | ||
| Total U.S. Treasury Obligations | 3,019,843 | |||
| Total U.S. Government and Agency Obligations | ||||
| (Cost $12,500,509) | 12,524,224 | |||
| Foreign Government Obligations - 2.2% | ||||
| Abu Dhabi Government International Bond (United Arab Emirates) | ||||
| 2.500%, 04/16/252 | 350,000 | 374,532 | ||
| China Government International Bond (China) | ||||
| 1.200%, 10/21/301,2 | 800,000 | 800,225 | ||
| Finland Government International Bond (Finland) | ||||
| 0.875%, 05/20/302 | 400,000 | 394,109 | ||
| Japan Finance Organization for Municipalities (Japan) | ||||
| 1.000%, 05/21/25 | 732,000 | 742,525 | ||
| Kingdom of Belgium Government International Bond (Belgium) | ||||
| 1.000%, 05/28/302 | 200,000 | 198,411 | ||
| The Korea Development Bank (South Korea) | ||||
| 0.500%, 10/27/23 | 269,000 | 270,009 | ||
| Philippine Government International Bond (Philippines) | ||||
| 1.648%, 06/10/31 | 200,000 | 203,000 |
| Principal Amount |
Value | |||
| Province of Ontario Canada (Canada) | ||||
| 1.050%, 05/21/27 | $205,000 | $207,622 | ||
| Province of Quebec Canada (Canada) | ||||
| 1.350%, 05/28/301 | 205,000 | 207,988 | ||
| Total Foreign Government Obligations | ||||
| (Cost $3,371,374) | 3,398,421 | |||
| Short-Term Investments - 1.7% | ||||
| Joint Repurchase Agreements - 1.7%8 | ||||
| Citigroup Global Markets, Inc., dated 12/31/20, due 01/04/21, 0.070% total to be received $1,000,008 (collateralized by various U.S. Government Agency Obligations and U.S. Treasuries, 0.000% - 4.000%, 09/15/21 - 01/01/51, totaling $1,020,000) | 1,000,000 | 1,000,000 | ||
| Daiwa Capital Markets America, dated 12/31/20, due 01/04/21, 0.070% total to be received $576,549 (collateralized by various U.S. Government Agency Obligations and U.S. Treasuries, 0.000% - 6.500%, 01/26/21 - 01/01/51, totaling $588,076) | 576,545 | 576,545 | ||
| RBC Dominion Securities, Inc., dated 12/31/20, due 01/04/21, 0.080% total to be received $1,000,009 (collateralized by various U.S. Government Agency Obligations and U.S. Treasuries, 0.000% - 6.000%, 01/05/21 - 12/20/50, totaling $1,020,000) | 1,000,000 | 1,000,000 | ||
| Total Joint Repurchase Agreements | 2,576,545 | |||
| Total Short-Term Investments | ||||
| (Cost $2,576,545) | 2,576,545 | |||
| Total Investments - 99.1% | ||||
| (Cost $114,964,612) | 151,616,396 | |||
| Other Assets, less Liabilities - 0.9% | 1,399,839 | |||
| Net Assets - 100.0% | $153,016,235 |
| * | Non-income producing security. |
| 1 | Some of these securities, amounting to $8,270,264 or 5.4% of net assets, were out on loan to various borrowers and are collateralized by cash and various U.S. Treasury Obligations. See Note 4 of Notes to Financial Statements. |
| 2 | Security exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2020, the value of these securities amounted to $7,819,146 or 5.1% of net assets. |
| 3 | Fixed to variable rate investment. The rate shown reflects the fixed rate in effect at December 31, 2020. Rate will reset at a future date. |
| 4 | Perpetuity Bond. The date shown represents the next call date. |
| 5 | Variable rate security. The rate shown is based on the latest available information as of December 31, 2020. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above. |
| 6 | Principal amount stated in EURO dollars. |
| 7 | Step Bond: A debt instrument with either deferred interest payments or an interest rate that resets at specific times during its term. |
| 8 | Cash collateral received for securities lending activity was invested in these joint repurchase agreements. |
| ADR | American Depositary Receipt |
| CMT | Constant Maturity Treasury |
| FHLMC | Freddie Mac |
| FNMA | Fannie Mae |
| GMTN | Global Medium-Term Notes |
| LIBOR | London Interbank Offered Rate |
| REIT | Real Estate Investment Trust |
| SOFRRATE | Secured Overnight Financing Rate |
The accompanying notes are an integral part of these financial statements.
44
AMG GW&K Global Allocation Fund Schedule of Portfolio Investments (continued) |
The following table summarizes the inputs used to value the Fund’s investments by the fair value hierarchy levels as of December 31, 2020:
| Level 1 | Level 21 | Level 3 | Total | ||||||||||
| Investments in Securities | |||||||||||||
| Common Stocks | |||||||||||||
| Information Technology | $19,260,153 | $10,616,796 | — | $29,876,949 | |||||||||
| Consumer Discretionary | 11,873,078 | 15,340,206 | — | 27,213,284 | |||||||||
| Industrials | 11,321,617 | 2,819,868 | — | 14,141,485 | |||||||||
| Financials | 9,202,209 | 3,117,210 | — | 12,319,419 | |||||||||
| Health Care | 11,522,293 | — | — | 11,522,293 | |||||||||
| Communication Services | 2,751,645 | 2,770,221 | — | 5,521,866 | |||||||||
| Utilities | 2,760,427 | — | — | 2,760,427 | |||||||||
| Real Estate | 2,574,556 | — | — | 2,574,556 | |||||||||
| Consumer Staples | — | 2,296,012 | — | 2,296,012 | |||||||||
| Corporate Bonds and Notes† | — | 22,832,136 | — | 22,832,136 | |||||||||
| Municipal Bonds† | — | 2,058,779 | — | 2,058,779 | |||||||||
| U.S. Government and Agency Obligations† | — | 12,524,224 | — | 12,524,224 | |||||||||
| Foreign Government Obligations | — | 3,398,421 | — | 3,398,421 | |||||||||
| Short-Term Investments | |||||||||||||
| Joint Repurchase Agreements | — | 2,576,545 | — | 2,576,545 | |||||||||
| Total Investments in Securities | $71,265,978 | $80,350,418 | — | $151,616,396 |
| † | All corporate bonds and notes, municipal bonds, and U.S. government and agency obligations held in the Fund are Level 2 securities. For a detailed breakout of corporate bonds and notes, municipal bonds, and U.S. government and agency obligations by major industry or agency classification, please refer to the Fund’s Schedule of Portfolio Investments. |
| 1 | An external pricing service is used to reflect any impact on security value due to market movements between the time the Fund valued such foreign securities and the earlier closing of foreign markets. |
For the fiscal year ended December 31, 2020, there were no transfers in or out of Level 3.
The country allocation in the Schedule of Portfolio Investments at December 31, 2020, was as follows:
| Country | % of Long-Term Investments | |
| Belgium | 0.1 | |
| Bermuda | 0.1 | |
| Canada | 0.4 | |
| Cayman Islands | 0.1 | |
| China | 9.4 | |
| Finland | 0.3 | |
| France | 2.2 | |
| Germany | 2.7 | |
| Hong Kong | 2.1 | |
| India | 5.2 | |
| Italy | 2.7 | |
| Japan | 3.9 | |
| Country | % of Long-Term Investments | |
| Luxembourg | 0.1 | |
| Macau | 2.1 | |
| Netherlands | 2.6 | |
| Philippines | 0.1 | |
| South Korea | 0.2 | |
| Taiwan | 2.8 | |
| United Arab Emirates | 0.3 | |
| United Kingdom | 2.2 | |
| United States | 60.4 | |
| 100.0 | ||
The accompanying notes are an integral part of these financial statements.
45
AMG GW&K Small Cap Core Fund | |
| Portfolio Manager’s Comments (unaudited) |
THE YEAR IN REVIEW
For the year ended December 31, 2020, AMG GW&K Small Cap Core Fund’s (the “Fund”) Class N shares returned 17.73%, compared to the Russell 2000® Index, which returned 19.96%.
We are all familiar with the proverb “a watched pot never boils.” But what happens if we take that pot, cover it, and turn the heat up to high? As heat and pressure build inside the pot, the lid might start to rattle and shift. Eventually, steam and other contents start to force their way out around the edges of the lid as it clatters more erratically. Finally, depending on the contents inside the pot, we might end up with quite a mess if the heat is not turned down or the lid is not removed to let the pressure escape. As U.S. small cap investors, it feels a bit as if we are living through this kitchen experiment right now. The U.S. Federal Reserve (the “Fed”) and other global central banks are attempting to keep economies moving and markets lubricated during a terrible global pandemic. Rock bottom interest rates, expanding central bank balance sheets, and other conditions have supplied the heat to keep markets functioning and the economy from stalling.
Through the end of 2020, these policy actions, along with fiscal stimulus throughout 2020, seemed to have imperfectly accomplished these objectives. Enough heat had been applied to the pot. With the addition of very positive vaccine news and the push to add further fiscal stimulus into 2021, suddenly more heat was added to the experiment and the lid on the pot began to rattle. The Russell 2000® Index produced a sharp fourth quarter burst of 31.4%, its best quarter ever, and finished the year up 19.96%. While the magnitude of the move is impressive, the type of stocks that have outperformed is more interesting. The additional heat applied in the fourth quarter created ideal conditions for speculation.
There is much in the way of evidence for this speculative environment. In periods when investors crave risk, the Wall Street machine always rises to the occasion. Innovation in both technology and finance will race to help fulfill this desire for greater risk. Three areas that combined to help fan this speculative flame included: 1) low barrier trading platforms, 2) special purpose acquisition corporations (“SPACs”), and 3) narrowly targeted thematic investments. There is obviously nothing inherently wrong with any of these three investment products, but each has the capacity to enable and embolden irrational exuberance under the right conditions. The Robinhood trading platform, while allowing easy and free trading for investing |
newcomers, is alleged to encourage continuous and repeated engagement in trading and approve customers for option activity far in excess of their qualifications and resources. SPACs have perhaps in the past been unfairly stigmatized as a pathway to public markets given the lower scrutiny levels they receive and the characters often attracted to less due diligence. This year the market for SPACs set records, and several have been moonshots, some of which ended up back on earth. Nikola is a noteworthy example, perhaps propelled in part by the greater democratization of trading with platforms like Robinhood. The example of Nikola leads to the final category of speculation: narrowly focused thematic investing. There is nothing as exciting as chasing a glowing theme, be it electrification, alternative energy, genomics, bitcoin, or more broadly, “innovation.” These themes all have tremendous merit and long-term opportunity for companies and investors. However, they will take time to commercialize with many flops and misses along the way. Just as in the internet dawn of the late 1990s, successful investment companies have come along to help investors participate with narrowly targeted vehicles. Many have produced amazing returns in 2020. The money arriving late to the party will likely meaningfully underperform the market as these trends are sorted out in the real world. We see evidence in these three areas of the lid on our pot bouncing from heat and pressure.
For the year, style performance was very much tilted toward Growth. The Russell 2000® Growth finished up 34.3% compared to only 4.6% return in the Russell 2000® Value Index. Value oriented sectors showed very little of the excitement driving the overall market. Energy finished down -37.0%, real estate -5.4%, utilities -4.9%, and financials -3.7%. Meanwhile, secular growth areas like health care (+46.1%) and information technology (+38.4%) led small caps during the year. Health care technology (+123.2%), life sciences tools/services (+114.7%), biotechnology (+51.9%), and software (+57.3%) were some of the strongest industries that drove this return. However, this trend softened somewhat in the last several months of the year. Consumer discretionary (+32.7%) was another winner on the year, recovering dramatically from a disastrous first quarter when it declined -44.3%. 2020 was a year where growth was the new safety trade and also performed quite well in the recovery.
Looking at factor analysis for the year, non-earners were up 44.6% and accounted for 81.4% of the performance of the Russell 2000® Index, while accounting for only 28.4% of all benchmark stocks. |
Of the remaining stocks with earnings, those that reside in the bottom 60% of valuation levels actually produced a negative average contribution to return for the year. Negative equity stocks finished up 32.8% and the lowest return of equity (“ROE”) quintile was up 48.6% on the year. Combined, these groups were nearly 79% of the benchmark performance. High beta (+36.7%) outperformed while low earnings variation (+0.2%) lagged meaningfully. Finally, Index stocks without a five-year earnings track record returned 46.7%. To sum up, investors were mostly interested in companies without earnings in this speculative year. Small cap stocks with earnings and modest valuations, as well as those in the middle of the ROE barbell, did not participate in the rally.
Examining relative performance requires looking at cash allocation, factor and sector analysis to get the full picture of how the Fund returned 17.73% but still underperformed the benchmark. Our cash exposure averaged just 2.1% during the year, but this still amounted to a meaningful performance drag. Switching to factor allocation, the Fund was decidedly out of balance with the investor preferences described above during the year. Our exposure to stocks with characteristics such as higher than average cap, lower beta, positive earnings, higher than average returns, and less volatile earnings histories relative to the Index cost us approximately 310 basis points of performance when averaged together. Taking our factor allocation out, stock selection was broadly very positive.
Shifting to sector attribution, we saw positive contribution from financials, information technology, and real estate during the year. Financials helped performance due to strong stock selection in the banking industry (Glacier Bancorp, Pacific Premier Bancorp, Seacoast Banking Corporation of Florida), a lack of exposure to mortgage real estate investment trusts (REITs), and good performance from capital markets names (Houlihan Lokey, Stifel Financial, Cohen & Steers). Information technology contributed to performance by besting the Index in software due to both allocation and selection (HubSpot, Paylocity, Rapid7, Cerence) as well as in semiconductors (Macom Technology Solutions, Entegris). In real estate, the Fund benefited from an underweight position and strong performance from QTS Realty Trust, Inc. (QTS).
On the flip side, we lost ground in industrials, health care, consumer staples, and energy. The industrials sector presents a good representation of our trouble spots, with problems in selection stemming from both owned stocks and lack of exposure to hot segments. The electrical equipment industry within |
46
AMG GW&K Small Cap Core Fund Portfolio Manager’s Comments (continued) |
| the sector was up 173.9% on the year, generating 123 basis points of return for the benchmark based on alternative energy plays that exhibited stupendous performance. We owned nothing in the industry. Meanwhile, we also sold AAR Corp (AIR) after a pandemic induced collapse in the airline industry they serve, which hurt relative performance. While the funds were reinvested elsewhere, the mark on the sector cannot be reversed. ICF International (ICFI) and Heartland Express (HTLD) also underperformed. We underperformed in health care, mostly as a result to our underexposure to biotechnology. In consumer staples, our largest position Performance Food Group (PFGC) was hurt by the pandemic shutdown of food away from home venues and dropped 7.5%. In addition, we did not have exposure to the beverage industry, which jumped 90.0%. Finally, the energy sector also hurt relative performance, primarily due to the ill-timed sale of Matador Resources (MTDR) near the bottom of the energy sector’s rollercoaster performance. | Looking forward into 2021 and beyond, we see both strong fundamentals as well as risks to watch. Similar to the covered pot on the stove, it remains to be seen how the experiment will end. We believe the strong end to the year represents the excellent forward prospects investors see for the economy as we emerge from the pandemic in 2021. Consumer net worth is hitting records, inventories are too low, and spending in many parts of the economy (outside of masks and heat lamps) is poised to accelerate. The fundamental strength is naturally augmented by forthcoming fiscal stimulus. The strong fundamentals and wall of liquidity have also encouraged some investors to increase speculative behavior in several areas of the market where long-term opportunity is high but near-term earnings support is non-existent. Will the Fed lift the cover off the pot or lower the heat as the economy accelerates to limit the negative impact of speculative bubbles forming? We acknowledge there are holes we are digging as a country that impact our longer-term growth | prospects, as debt climbs and political will appears to be faltering. Finally, markets appear to be assuming best outcomes for vaccine uptake and performance. However, we are very grateful that markets are looking forward to better times. Capital markets would be on the floor convulsing if they were looking backward at 2020. Thankfully, we leave the past year behind. Given the good forward economic and earnings prospects we see, low inflation and interest rates, and current valuations, we believe the U.S. small cap asset class has attractive capital appreciation potential over our 3–5 year time horizon. This commentary reflects the viewpoints of the portfolio manager, GW&K Investment Management, LLC, and is not intended as a forecast or guarantee of future results. |
47
AMG GW&K Small Cap Core Fund Portfolio Manager’s Comments (continued) |
CUMULATIVE TOTAL RETURN PERFORMANCE
AMG GW&K Small Cap Core Fund’s cumulative total return is based on the daily change in net asset value (NAV), and assumes that all dividends and distributions were reinvested. The graph compares a hypothetical $10,000 investment made in the AMG GW&K Small Cap Core Fund’s Class N shares on December 31, 2010, to a $10,000 investment made in the Russell 2000® Index for the same time period. The graph and table do not reflect the deduction of taxes that a shareholder would pay on a Fund distribution or redemption of shares. The listed returns for the Fund are net of expenses and the returns for the index exclude expenses. Total returns would have been lower had certain expenses not been reduced.
The table below shows the average annual total returns for the AMG GW&K Small Cap Core Fund and the Russell 2000® Index for the same time periods ended December 31, 2020.
| Average Annual Total Returns1 | One Year |
Five Years |
Ten Years |
Since Inception |
Inception Date |
| AMG GW&K Small Cap Core Fund2, 3, 4, 5, 6 | |||||
| Class N | 17.73% | 13.31% | 11.75% | 8.74% | 12/10/96 |
| Class I | 18.16% | 13.72% | 12.20% | 14.45% | 07/27/09 |
| Class Z | 18.21% | — | — | 11.80% | 02/24/17 |
| Russell 2000® Index7 | 19.96% | 13.26% | 11.20% | 8.75% | 12/10/96† |
The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Investors should carefully consider the Fund’s investment objectives, risks, charges and expenses before investing. For performance information through the most recent month end, current net asset values per share for the Fund and other information, please call 800.548.4539 or visit our website at amgfunds.com for a free prospectus. Read it carefully before investing or sending money.
Distributed by AMG Distributors, Inc., member FINRA/SIPC.
| † | Date reflects the inception date of the Fund, not the index. |
| 1 | Total return equals income yield plus share price change and assumes reinvestment of all dividends and capital gain distributions. Returns are net of fees and may reflect offsets of Fund expenses as described in the prospectus. No adjustment has been made for taxes payable by shareholders on their reinvested dividends and |
| capital gain distributions. Returns for periods greater than one year are annualized. The listed returns on the Fund are net of expenses and based on the published NAV as of December 31, 2020. All returns are in U.S. dollars ($). |
| 2 | From time to time, the Fund’s advisor has waived its fees and/or absorbed Fund expenses, which has resulted in higher returns. |
| 3 | Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies. |
| 4 | The Fund invests in growth stocks, which may be more sensitive to market movements because their prices tend to reflect future investor expectations rather than just current profits. Growth stocks may underperform value stocks given periods. |
| 5 | The Fund is subject to risks associated with investments in small-capitalization companies, such as erratic earnings patterns, competitive conditions, limited earnings history, and a reliance on one or a limited number of products. |
| 6 | The Fund invests in value stocks, which may perform differently from the market as a whole and may be undervalued by the market for a long period of time. |
| 7 | The Russell 2000® Index is composed of the 2,000 smallest stocks in the Russell 3000® Index and is widely regarded in the industry as the premier measure of small-cap stock performance. Unlike the Fund, the Russell 2000® Index is unmanaged, is not available for investment and does not incur expenses. |
The Russell Indices are trademarks of the London Stock Exchange Group companies.
Not FDIC insured, nor bank guaranteed. May lose value.
48
| AMG GW&K Small Cap Core Fund Fund Snapshots (unaudited) December 31, 2020 |
PORTFOLIO BREAKDOWN
| % of | |
| Sector | Net Assets |
| Health Care | 22.0 |
| Information Technology | 15.6 |
| Consumer Discretionary | 15.5 |
| Financials | 14.3 |
| Industrials | 14.1 |
| Real Estate | 5.4 |
| Materials | 5.3 |
| Consumer Staples | 3.2 |
| Utilities | 2.3 |
| Energy | 0.8 |
| Short-Term Investments | 0.1 |
| Other Assets Less Liabilities | 1.4 |
TOP TEN HOLDINGS
| % of | ||
| Security Name | Net Assets | |
| Lithia Motors, Inc., Class A | 2.2 | |
| Texas Roadhouse, Inc. | 2.0 | |
| Avient Corp. | 1.8 | |
| Endava PLC, ADR (United Kingdom) | 1.8 | |
| MACOM Technology Solutions Holdings, Inc. | 1.7 | |
| Ritchie Bros. Auctioneers, Inc. (Canada) | 1.7 | |
| Performance Food Group Co. | 1.7 | |
| Grand Canyon Education, Inc. | 1.7 | |
| Stifel Financial Corp. | 1.7 | |
| Globus Medical, Inc., Class A | 1.7 | |
| Top Ten as a Group | 18.0 | |
Because a fund’s strategy may result in multiple investments in particular sectors of the economy, its performance may depend on the performance of those sectors and may fluctuate more widely than investments diversified across more sectors. For additional information on these and other risk considerations, please see the Fund’s prospectus.
Any sectors, industries, or securities discussed should not be perceived as investment recommendations. Mention of a specific security should not be considered a recommendation to buy or solicitation to sell that security. Specific securities mentioned in this report may have been sold from the Fund’s portfolio of investments by the time you receive this report.
49
| AMG GW&K Small Cap Core Fund | |
| Schedule of Portfolio Investments | |
| December 31, 2020 |
| Shares | Value | ||||||
| Common Stocks - 98.5% | |||||||
| Consumer Discretionary - 15.5% | |||||||
| Boot Barn Holdings, Inc.*,1 | 114,808 | $4,978,075 | |||||
| Churchill Downs, Inc. | 31,794 | 6,193,153 | |||||
| Chuy’s Holdings, Inc.* | 108,170 | 2,865,423 | |||||
| Five Below, Inc.* | 40,650 | 7,112,937 | |||||
| Grand Canyon Education, Inc.* | 109,419 | 10,188,003 | |||||
| Helen of Troy, Ltd.* | 24,827 | 5,516,311 | |||||
| Lithia Motors, Inc., Class A1 | 44,748 | 13,096,397 | |||||
| Ollie’s Bargain Outlet Holdings, Inc.*,1 | 69,380 | 5,673,203 | |||||
| Oxford Industries, Inc. | 66,832 | 4,378,164 | |||||
| Patrick Industries, Inc.1 | 130,375 | 8,911,131 | |||||
| Skyline Champion Corp.* | 282,443 | 8,738,787 | |||||
| Texas Roadhouse, Inc.* | 152,747 | 11,938,706 | |||||
| Wolverine World Wide, Inc. | 138,945 | 4,342,031 | |||||
| Total Consumer Discretionary | 93,932,321 | ||||||
| Consumer Staples - 3.2% | |||||||
| Central Garden & Pet Co.* | 41,644 | 1,607,875 | |||||
| Central Garden & Pet Co., Class A* | 202,677 | 7,363,255 | |||||
| Performance Food Group Co.* | 214,867 | 10,229,818 | |||||
| Total Consumer Staples | 19,200,948 | ||||||
| Energy - 0.8% | |||||||
| WPX Energy, Inc.* | 610,500 | 4,975,575 | |||||
| Financials - 14.3% | |||||||
| Ameris Bancorp | 220,439 | 8,392,113 | |||||
| AMERISAFE, Inc. | 97,230 | 5,583,919 | |||||
| Cathay General Bancorp | 215,790 | 6,946,280 | |||||
| Cohen & Steers, Inc. | 106,584 | 7,919,191 | |||||
| Glacier Bancorp, Inc. | 192,591 | 8,861,112 | |||||
| Horace Mann Educators Corp. | 187,381 | 7,877,497 | |||||
| Houlihan Lokey, Inc. | 105,882 | 7,118,447 | |||||
| Meridian Bancorp, Inc. | 213,583 | 3,184,523 | |||||
| OceanFirst Financial Corp.* | 205,718 | 3,832,526 | |||||
| Pacific Premier Bancorp, Inc.* | 244,018 | 7,645,084 | |||||
| Seacoast Banking Corp. of Florida* | 303,581 | 8,940,460 | |||||
| Stifel Financial Corp. | 201,826 | 10,184,140 | |||||
| Total Financials | 86,485,292 | ||||||
| Health Care - 22.0% | |||||||
| AtriCure, Inc.* | 151,199 | 8,417,248 | |||||
| Castle Biosciences, Inc.* | 49,015 | 3,291,357 | |||||
| Covetrus, Inc.* | 308,694 | 8,871,866 | |||||
| CryoLife, Inc.* | 247,317 | 5,839,154 | |||||
| CryoPort, Inc.*,1 | 114,763 | 5,035,801 | |||||
| Shares | Value | ||||||
| Emergent BioSolutions, Inc.* | 96,827 | $8,675,699 | |||||
| Globus Medical, Inc., Class A* | 156,149 | 10,184,038 | |||||
| Haemonetics Corp.* | 50,145 | 5,954,719 | |||||
| Halozyme Therapeutics, Inc.*,1 | 136,400 | 5,825,644 | |||||
| HealthEquity, Inc.* | 112,315 | 7,829,479 | |||||
| ICU Medical, Inc.* | 19,521 | 4,187,059 | |||||
| Integra LifeSciences Holdings Corp.* | 109,446 | 7,105,234 | |||||
| LHC Group, Inc.* | 33,685 | 7,185,684 | |||||
| Medpace Holdings, Inc.* | 54,197 | 7,544,222 | |||||
| Phreesia, Inc.* | 157,052 | 8,521,642 | |||||
| Progyny, Inc.* | 155,375 | 6,586,346 | |||||
| Supernus Pharmaceuticals, Inc.* | 205,276 | 5,164,744 | |||||
| Syneos Health, Inc.* | 148,428 | 10,112,400 | |||||
| Veracyte, Inc.*,1 | 141,807 | 6,940,035 | |||||
| Total Health Care | 133,272,371 | ||||||
| Industrials - 14.1% | |||||||
| Alamo Group, Inc. | 53,675 | 7,404,466 | |||||
| Allegiant Travel Co. | 36,280 | 6,865,627 | |||||
| Heartland Express, Inc. | 262,262 | 4,746,942 | |||||
| Helios Technologies, Inc. | 143,425 | 7,643,118 | |||||
| ICF International, Inc. | 83,978 | 6,242,085 | |||||
| Primoris Services Corp.* | 259,353 | 7,160,736 | |||||
| RBC Bearings, Inc.* | 50,215 | 8,990,494 | |||||
| Ritchie Bros. Auctioneers, Inc. (Canada) | 149,150 | 10,373,383 | |||||
| The Shyft Group, Inc. | 99,222 | 2,815,920 | |||||
| SiteOne Landscape Supply, Inc.*,1 | 32,109 | 5,093,451 | |||||
| UFP Industries, Inc. | 164,198 | 9,121,199 | |||||
| US Ecology, Inc. | 114,721 | 4,167,814 | |||||
| WillScot Mobile Mini Holdings Corp.* | 190,470 | 4,413,190 | |||||
| Total Industrials | 85,038,425 | ||||||
| Information Technology - 15.6% | |||||||
| Brooks Automation, Inc. | 81,119 | 5,503,924 | |||||
| CACI International, Inc., Class A* | 21,395 | 5,334,415 | |||||
| Cerence, Inc.*,1 | 51,256 | 5,150,203 | |||||
| The Descartes Systems Group, Inc. (Canada)* | 69,334 | 4,054,652 | |||||
| Endava PLC, ADR (United Kingdom)* | 144,104 | 11,059,982 | |||||
| MACOM Technology Solutions Holdings, Inc.* | 191,298 | 10,529,042 | |||||
| Novanta, Inc.* | 62,480 | 7,386,386 | |||||
| Paylocity Holding Corp.* | 48,677 | 10,023,081 | |||||
| Proofpoint, Inc.* | 41,269 | 5,629,504 | |||||
| Rapid7, Inc.*,1 | 109,776 | 9,897,404 | |||||
| Rogers Corp.* | 19,660 | 3,053,001 | |||||
| Silicon Laboratories, Inc.* | 75,331 | 9,592,650 | |||||
| The accompanying notes are an integral part of these financial statements. |
50
| AMG GW&K Small Cap Core Fund | |
| Schedule of Portfolio Investments (continued) |
| Shares | Value | ||||||
| Information Technology - 15.6% | |||||||
| (continued) | |||||||
| Viavi Solutions, Inc.* | 496,100 | $7,429,098 | |||||
| Total Information Technology | 94,643,342 | ||||||
| Materials - 5.3% | |||||||
| Avient Corp. | 275,245 | 11,086,869 | |||||
| Balchem Corp. | 60,886 | 7,015,285 | |||||
| Compass Minerals International, Inc.1 | 67,036 | 4,137,462 | |||||
| Minerals Technologies, Inc. | 94,993 | 5,900,965 | |||||
| Silgan Holdings, Inc. | 98,462 | 3,650,971 | |||||
| Total Materials | 31,791,552 | ||||||
| Real Estate - 5.4% | |||||||
| Agree Realty Corp., REIT 1 | 72,777 | 4,845,493 | |||||
| National Health Investors, Inc., REIT | 89,355 | 6,180,685 | |||||
| QTS Realty Trust, Inc., Class A, REIT 1 | 123,362 | 7,633,641 | |||||
| Ryman Hospitality Properties, Inc., REIT | 59,887 | 4,057,943 | |||||
| STAG Industrial, Inc., REIT | 315,813 | 9,891,263 | |||||
| Total Real Estate | 32,609,025 | ||||||
| Utilities - 2.3% | |||||||
| IDACORP, Inc. | 67,471 | 6,479,240 | |||||
| * | Non-income producing security. |
| 1 | Some of these securities, amounting to $58,647,390 or 9.7% of net assets, were out on loan to various borrowers and are collateralized by cash and various U.S. Treasury Obligations. See Note 4 of Notes to Financial Statements. |
| 2 | Cash collateral received for securities lending activity was invested in these joint repurchase agreements. |
| Shares | Value | ||||||
| NorthWestern Corp. | 126,604 | $7,382,279 | |||||
| Total Utilities | 13,861,519 | ||||||
| Total Common Stocks | |||||||
| (Cost $425,780,546) | 595,810,370 | ||||||
| Principal | |||||||
| Amount | |||||||
| Short-Term Investments - 0.1% | |||||||
| Joint Repurchase Agreements - 0.1%2 | |||||||
| Citigroup Global Markets, Inc., dated 12/31/20, due 01/04/21, 0.070% total to be received$674,286 (collateralized by various U.S. Government Agency Obligations and U.S. Treasuries, 0.000% - 4.000%, 09/15/21 -01/01/51, totaling $687,767) | $674,281 | 674,281 | |||||
| Total Short-Term Investments | |||||||
| (Cost $674,281) | 674,281 | ||||||
| Total Investments - 98.6% | |||||||
| (Cost $426,454,827) | 596,484,651 | ||||||
| Other Assets, less Liabilities - 1.4% | 8,403,853 | ||||||
| Net Assets - 100.0% | $604,888,504 | ||||||
ADR American Depositary Receipt
REIT Real Estate Investment Trust
The following table summarizes the inputs used to value the Fund’s investments by the fair value hierarchy levels as of December 31, 2020:
| Level 1 | Level 2 | Level 3 | Total | |||||
| Investments in Securities | ||||||||
| Common Stocks† | $595,810,370 | — | — | $595,810,370 | ||||
| Short-Term Investments | ||||||||
| Joint Repurchase Agreements | — | $674,281 | — | 674,281 | ||||
| Total Investments in Securities | $595,810,370 | $674,281 | — | $596,484,651 |
| † | All common stocks held in the Fund are Level 1 securities. For a detailed breakout of common stocks by major industry classification, please refer to the Fund’s Schedule of Portfolio Investments. |
For the fiscal year ended December 31, 2020, there were no transfers in or out of Level 3.
| The accompanying notes are an integral part of these financial statements. |
51
| AMG GW&K Small/Mid Cap Fund | |
| Portfolio Manager’s Comments (unaudited) |
REVIEW
For the year ended December 31, 2020, AMG GW&K Small/Mid Cap Fund’s (the “Fund”) Class I shares returned 23.31%, compared to the Russell 2500® Index, which returned 19.99%.
We are all familiar with the proverb “a watched pot never boils.” But what happens if we take that pot, cover it, and turn the heat up to high? As heat and pressure build inside the pot, the lid might start to rattle and shift. Eventually, steam and other contents start to force their way out around the edges of the lid as it clatters more erratically. Finally, depending on the contents inside the pot, we might end up with quite a mess if the heat is not turned down or the lid is not removed to let the pressure escape. As U.S. small/mid cap investors, it feels a bit as if we are living through this kitchen experiment right now. The U.S. Federal Reserve (the “Fed”) and other global central banks, are attempting to keep economies moving and markets lubricated during a terrible global pandemic. Rock bottom interest rates, expanding central bank balance sheets, and other conditions have supplied the heat to keep markets functioning and the economy from stalling.
Through the end of 2020, these policy actions, along with fiscal stimulus throughout 2020, seemed to have imperfectly accomplished these objectives. Enough heat had been applied to the pot. With the addition of very positive vaccine news in the fourth quarter and the push to add further fiscal stimulus into 2021, suddenly more heat was added to the experiment and the lid on the pot began to rattle. The Russell 2500® Index produced a sharp fourth quarter burst of 27.4%, its best quarter ever, and finished the year up 20.0%. While the magnitude of the move is impressive, the type of stocks that have outperformed is more interesting.
There is much in the way of evidence for this speculative environment. In periods when investors crave risk, the Wall Street machine always rises to the occasion. Innovation in both technology and finance will race to help fulfill this desire for greater risk. Three areas that combined to help fan this speculative flame included: 1) low barrier trading platforms, 2) special purpose acquisition corporations (SPACs), and 3) narrowly targeted thematic investments. There is obviously nothing inherently wrong with any of these three investment products, but each has the capacity to enable and embolden irrational exuberance under the right conditions. The Robinhood trading platform, while allowing easy and free trading for investing newcomers, is alleged to encourage continuous and |
repeated engagement in trading and approve customers for option activity far in excess of their qualifications and resources. SPACs have perhaps in the past been unfairly stigmatized as a pathway to public markets given the lower scrutiny levels they receive and the characters often attracted to less due diligence. This year the market for SPACs set records, and several have been moonshots, some of which ended up back on earth. Nikola is a noteworthy example, perhaps propelled in part by the greater democratization of trading with platforms like Robinhood. The example of Nikola leads to the final category of speculation: narrowly focused thematic investing. There is nothing as exciting as chasing a glowing theme, be it electrification, alternative energy, genomics, bitcoin, or more broadly, “innovation.” These themes all have tremendous merit and long-term opportunity for companies and investors. However, they will take time to commercialize with many flops and misses along the way. Just as in the internet dawn of the late 1990s, successful investment companies have come along to help investors participate with narrowly targeted vehicles. Many have produced amazing returns in 2020. The money arriving late to the party will likely meaningfully underperform the market as these trends are sorted out in the real world. We see evidence in these three areas of the lid on our pot bouncing from heat and pressure.
For the year, style performance was very much tilted toward Growth. The Russell 2500® Growth finished up 40.1% compared to only 4.8% return in the Russell 2500® Value Index. Value oriented sectors showed very little of the excitement driving the overall market. Energy finished down (-39.0%), real estate (-8.7%), utilities (-4.9%), and financials (-2.1%). Meanwhile, secular growth areas like health care and information technology were up 49.2% and 52.1%, respectively, which led small and mid caps during the year. Health care technology was up 135.8%, life sciences tools/services (+58.0%), biotechnology (+52.0%), as well as software (+72.8%) and semiconductors (+74.1%) in technology were some of the strongest industries that drove this return. However, this trend softened somewhat in the last several months of the year as Value areas of the market found their footing. Consumer discretionary (+26.5%) was another winner on the year, recovering dramatically from a disastrous first quarter when it declined (-40.9%). As we discussed in past communications, 2020 was a year where growth was the new safety trade and also performed quite well in the recovery.
Looking at factor analysis for the year, non-earners were up 49.2% and accounted for 72.0% of the Russell 2500 Index performance. Of the benchmark |
stocks with earnings (77.2% of the Index), those that reside in the bottom 60% of valuation levels actually produced a negative average contribution to return for the year. Negative equity stocks finished up 38.4% and the lowest Return on Equity (“ROE”) quintile was up 45.3% on the year. Combined, these groups were nearly 75% of the benchmark performance. High beta (+31.9%) outperformed low beta (+10.7%) dramatically. Finally, Index stocks without a five-year earnings track record returned 59.8%. To sum up, investors were mostly interested in companies without earnings in this speculative year. Small/mid cap stocks with earnings and modest valuations, as well as those in the middle of the ROE barbell, did not participate in the rally.
Examining relative performance requires looking at cash allocation, factor and sector analysis to get the full picture of how the Fund returned 23% and outperformed in an environment which would seem to have been challenging. Our cash exposure averaged just 1.9% during the year, but this still amounted to a meaningful drag. Switching to factor allocation, the Fund was decidedly out of balance with the investor preferences described above during the year. Our exposure to stocks with characteristics such as higher than average cap, lower beta, positive earnings, higher than average returns, and less volatile earnings histories relative to the Index cost us approximately 290 basis points of performance when averaged together. Combining these negative allocation factors would mean that stock selection in the Fund was sharply positive during the year, far beyond our actual outperformance.
Shifting to sector attribution, we saw positive contribution from financials, real estate, information technology, consumer staples, industrials, and materials during the year. Financials outperformed due to strong stock selection in the capital markets industry (MarketAxess Holdings, Artisan Partners), selection and allocation in insurance (Kinsale Capital Group, underweight), and a lack of exposure to poorly performing mortgage REITs. In real estate, the Fund benefited from an underweight position, good performance from CoreSite Realty Corp. (COR), and not owning some of the large detractors in the benchmark. Information technology outperformed the Index in electronic equipment with Zebra Technologies Corp, Class A (ZBRA) and Cognex Corp. (CGNX). Cerence, Inc. (CRNC), Hubspot (HUBS), and EPAM systems (EPAM) also contributed. Consumer staples added to performance on the strength of BJ |
52
| AMG GW&K Small/Mid Cap Fund | |
| Portfolio Manager’s Comments (continued) |
Wholesale Club, Inc. (BJ +63.9%). The industrials sector got a boost from our holdings of Richie Brothers Auctioneers, Inc. (RBA), Gibraltar Industries, Inc. (ROCK), and Exponent, Inc. (EXPO). And finally, good stock selection in materials with Quaker Chemical Corp. (KWR) and RPM International, Inc. (RPM) helped relative returns.
On the flip side, we lost ground in health care and consumer discretionary. In health care, stock selection and an underweight allocation to biotechnology hurt relative performance (Neurocrine Biosciences -10.8%). The consumer discretionary sector was hurt by the sale of BJ Restaurants (BJRI) near the bottom of the market in March. While the funds were reinvested elsewhere, the impact remains. Cavco Industries, Inc. (CVCO), Polaris, Inc. (PII), and Carter’s, Inc. (CRI) were other laggards that held back performance in this sector for 2020. |
Looking forward into 2021 and beyond, we see both strong fundamentals as well as risks to watch. Similar to the covered pot on the stove, it remains to be seen how the experiment will end. We believe the just completed very strong fourth quarter represents the excellent forward prospects investors see for the economy as we emerge from the pandemic in 2021. Consumer net worth is hitting records, inventories are too low, and spending in many parts of the economy (outside of masks and heat lamps) is poised to accelerate. The fundamental strength is naturally augmented by forthcoming fiscal stimulus. The strong fundamentals and wall of liquidity have also encouraged some investors to increase speculative behavior in several areas of the market where long-term opportunity is high but near-term earnings support is non-existent. Will the Fed lift the cover off the pot or lower the heat as the economy accelerates to limit the negative impact of speculative bubbles forming? We acknowledge there | are holes we are digging as a country that impact our longer-term growth prospects, as debt climbs and political will appears to be faltering. Finally, markets appear to be assuming best outcomes for vaccine uptake and performance. However, we are very grateful that markets are looking forward to better times. Capital markets would be on the floor convulsing if they were looking backward at 2020. Thankfully, we leave the past year behind. Given the good forward economic and earnings prospects we see, low inflation and interest rates, and current valuations, we believe the U.S. small/mid cap asset class has attractive capital appreciation potential over our 3–5 year time horizon.
The commentary reflects the viewpoints of the portfolio manager, GW&K Investment Management, LLC, and is not intended as a forecast or guarantee of future results. |
53
| AMG GW&K Small/Mid Cap Fund |
| Portfolio Manager’s Comments (continued) |
CUMULATIVE TOTAL RETURN PERFORMANCE
AMG GW&K Small/Mid Cap Fund’s cumulative total return is based on the daily change in net asset value (NAV), and assumes that all dividends and distributions were reinvested. The graph compares a hypothetical $10,000 investment made in the AMG GW&K Small/Mid Cap Fund’s Class I shares on June 30, 2015, to a $10,000 investment made in the Russell 2500® Index for the same time period. The graph and table do not reflect the deduction of taxes that a shareholder would pay on a Fund distribution or redemption of shares. The listed returns for the Fund are net of expenses and the returns for the index exclude expenses. Total returns would have been lower had certain expenses not been reduced.
The table below shows the average annual total returns for the AMG GW&K Small/Mid Cap Fund and the Russell 2500® Index for the same time periods ended December 31, 2020.
| Average Annual Total Returns1 | One Year |
Five Years |
Since Inception |
Inception Date |
||||||||
| AMG GW&K Small/Mid Cap Fund2, 3, 4, 5, 6, 7 | ||||||||||||
| Class N | 23.10 | % | — | 13.19 | % | 02/24/17 | ||||||
| Class I | 23.31 | % | 13.41% | 9.85 | % | 06/30/15 | ||||||
| Class Z | 23.37 | % | — | 13.45 | % | 02/24/17 | ||||||
| Russell 2500® Index8 | 19.99 | % | 13.64% | 10.76 | % | 06/30/15 | † |
The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. |
| Investors should carefully consider the Fund’s investment objectives, risks, charges and expenses before investing. For performance information through the most recent month end, current net asset values per share for the Fund and other information, please call 800.548.4539 or visit our website at amgfunds.com for a free prospectus. Read it carefully before investing or sending money. |
Distributed by AMG Distributors, Inc., member FINRA/SIPC.
| † | Date reflects the inception date of the Fund, not the index |
| 1 | Total return equals income yield plus share price change and assumes reinvestment of all dividends and capital gain distributions. Returns are net of fees and may reflect offsets of Fund expenses as described in the prospectus. No adjustment has been made for taxes payable by shareholders on their reinvested dividends and |
| capital gain distributions. Returns for periods greater than one year are annualized. The listed returns on the Fund are net of expenses and based on the published NAV as of December 31, 2020. All returns are in U.S. dollars ($). | |
| 2 | From time to time, the Fund’s advisor has waived its fees and/or absorbed Fund expenses, which has resulted in higher returns. |
| 3 | The Fund is subject to risks associated with investments in small-capitalization companies, such as erratic earnings patterns, competitive conditions, limited earnings history, and a reliance on one or a limited number of products. |
| 4 | The Fund is subject to risks associated with investments in mid-capitalization companies such as greater price volatility, lower trading volume, and less liquidity than the stocks of larger, more established companies. |
| 5 | The Fund invests in growth stocks, which may be more sensitive to market movements because their prices tend to reflect future investor expectations rather than just current profits. Growth stocks may underperform value stocks during given periods. |
| 6 | The Fund invests in value stocks, which may perform differently from the market as a whole and may be undervalued by the market for a long period of time. |
| 7 | Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies. |
| 8 | The Russell 2500® Index is composed of the 2,500 smallest stocks in the Russell 3000® Index and is widely regarded in the industry as the premier measure of small/mid cap stock performance. Unlike the Fund, the Russell 2500® Index is unmanaged, is not available for investment and does not incur expenses. |
| The Russell Indices are trademarks of the London Stock Exchange Group companies. | |
| Not FDIC insured, nor bank guaranteed. May lose value. | |
54
| AMG GW&K Small/Mid Cap Fund |
| Fund Snapshots (unaudited) |
| December 31, 2020 |
| PORTFOLIO BREAKDOWN | |||
| Sector | % of Net Assets |
||
| Information Technology | 18.7 | ||
| Industrials | 15.8 | ||
| Health Care | 15.8 | ||
| Consumer Discretionary | 13.4 | ||
| Financials | 13.1 | ||
| Real Estate | 7.3 | ||
| Materials | 6.8 | ||
| Consumer Staples | 3.3 | ||
| Utilities | 2.5 | ||
| Energy | 1.4 | ||
| Other Assets Less Liabilities | 1.9 | ||
| TOP TEN HOLDINGS | |||
| Security Name | % of Net Assets |
||
| HubSpot, Inc. | 2.4 | ||
| Zebra Technologies Corp., Class A | 2.3 | ||
| Lithia Motors, Inc., Class A | 2.0 | ||
| Exponent, Inc. | 1.9 | ||
| Catalent, Inc. | 1.9 | ||
| Cerence, Inc. | 1.9 | ||
| Gibraltar Industries, Inc. | 1.8 | ||
| RPM International, Inc. | 1.8 | ||
| Ingersoll Rand, Inc. | 1.8 | ||
| Acadia Healthcare Co., Inc. | 1.7 | ||
| Top Ten as a Group | 19.5 | ||
Because a fund’s strategy may result in multiple investments in particular sectors of the economy, its performance may depend on the performance of those sectors and may fluctuate more widely than investments diversified across more sectors. For additional information on these and other risk considerations, please see the Fund’s prospectus.
Any sectors, industries, or securities discussed should not be perceived as investment recommendations. Mention of a specific security should not be considered a recommendation to buy or solicitation to sell that security. Specific securities mentioned in this report may have been sold from the Fund’s portfolio of investments by the time you receive this report.
55
AMG GW&K Small/Mid Cap Fund |
| Schedule of Portfolio Investments |
| December 31, 2020 |
| Shares | Value | |||||
| Common Stocks - 98.1% | ||||||
| Consumer Discretionary - 13.4% | ||||||
| Bright Horizons Family Solutions, Inc.* | 16,030 | $2,773,030 | ||||
| Burlington Stores, Inc.* | 14,688 | 3,841,646 | ||||
| Carter’s, Inc.* | 23,580 | 2,218,171 | ||||
| Cavco Industries, Inc.* | 16,232 | 2,847,904 | ||||
| Dorman Products, Inc.* | 34,955 | 3,034,793 | ||||
| Five Below, Inc.* | 19,194 | 3,358,566 | ||||
| Grand Canyon Education, Inc.* | 18,804 | 1,750,841 | ||||
| Lithia Motors, Inc., Class A1 | 18,348 | 5,369,909 | ||||
| Polaris, Inc.* | 28,097 | 2,677,082 | ||||
| Pool Corp.* | 7,222 | 2,690,195 | ||||
| Texas Roadhouse, Inc.* | 47,006 | 3,673,989 | ||||
| Vail Resorts, Inc.1 | 7,550 | 2,106,148 | ||||
| Total Consumer Discretionary | 36,342,274 | |||||
| Consumer Staples - 3.3% | ||||||
| BJ’s Wholesale Club Holdings, Inc.* | 102,102 | 3,806,362 | ||||
| Lancaster Colony Corp. | 18,038 | 3,314,122 | ||||
| Performance Food Group Co.* | 39,583 | 1,884,547 | ||||
| Total Consumer Staples | 9,005,031 | |||||
| Energy - 1.4% | ||||||
| Dril-Quip, Inc.* | 23,341 | 691,360 | ||||
| Parsley Energy, Inc., Class A* | 227,930 | 3,236,606 | ||||
| Total Energy | 3,927,966 | |||||
| Financials - 13.1% | ||||||
| Artisan Partners Asset Management, Inc., Class A | 31,511 | 1,586,264 | ||||
| Atlantic Union Bankshares Corp. | 55,379 | 1,824,184 | ||||
| Glacier Bancorp, Inc. | 46,794 | 2,152,992 | ||||
| Kemper Corp.* | 33,608 | 2,582,103 | ||||
| Kinsale Capital Group, Inc.* | 13,273 | 2,656,325 | ||||
| MarketAxess Holdings, Inc. | 5,633 | 3,213,964 | ||||
| Pinnacle Financial Partners, Inc. | 58,154 | 3,745,117 | ||||
| Piper Sandler Cos | 27,804 | 2,805,424 | ||||
| Signature Bank | 27,182 | 3,677,453 | ||||
| TCF Financial Corp. | 83,234 | 3,081,323 | ||||
| Voya Financial, Inc.1 | 63,775 | 3,750,608 | ||||
| Western Alliance Bancorp. | 74,177 | 4,446,911 | ||||
| Total Financials | 35,522,668 | |||||
| Health Care - 15.8% | ||||||
| Acadia Healthcare Co., Inc.* | 94,123 | 4,730,622 | ||||
| Bio-Rad Laboratories, Inc., Class A* | 8,004 | 4,665,852 | ||||
| Catalent, Inc.* | 48,565 | 5,054,159 | ||||
| Chemed Corp. | 4,835 | 2,575,169 |
| Shares | Value | |||||
| Globus Medical, Inc., Class A* | 42,935 | $2,800,221 | ||||
| Horizon Therapeutics PLC* | 46,885 | 3,429,638 | ||||
| Integer Holdings Corp.* | 27,275 | 2,214,457 | ||||
| Jazz Pharmaceuticals PLC (Ireland)* | 19,673 | 3,247,029 | ||||
| Molina Healthcare, Inc.* | 14,238 | 3,028,138 | ||||
| Neurocrine Biosciences, Inc.* | 32,400 | 3,105,540 | ||||
| STERIS PLC | 18,797 | 3,562,783 | ||||
| Syneos Health, Inc.* | 62,667 | 4,269,503 | ||||
| Total Health Care | 42,683,111 | |||||
| Industrials - 15.8% | ||||||
| Exponent, Inc. | 58,293 | 5,248,119 | ||||
| Federal Signal Corp. | 85,445 | 2,834,211 | ||||
| Gibraltar Industries, Inc.* | 69,066 | 4,968,608 | ||||
| Graco, Inc. | 45,191 | 3,269,569 | ||||
| Hexcel Corp.1 | 52,538 | 2,547,568 | ||||
| Ingersoll Rand, Inc.* | 104,839 | 4,776,465 | ||||
| Nordson Corp. | 20,883 | 4,196,439 | ||||
| RBC Bearings, Inc.* | 24,140 | 4,322,025 | ||||
| Ritchie Bros. Auctioneers, Inc. (Canada) | 65,964 | 4,587,796 | ||||
| Schneider National, Inc., Class B | 77,682 | 1,608,017 | ||||
| The Toro Co. | 46,143 | 4,376,202 | ||||
| Total Industrials | 42,735,019 | |||||
| Information Technology - 18.7% | ||||||
| Booz Allen Hamilton Holding Corp. | 48,391 | 4,218,727 | ||||
| Cerence, Inc.*,1 | 50,228 | 5,046,909 | ||||
| Cognex Corp. | 44,019 | 3,534,065 | ||||
| Entegris, Inc. | 46,750 | 4,492,675 | ||||
| Envestnet, Inc.* | 26,620 | 2,190,560 | ||||
| EPAM Systems, Inc.* | 11,313 | 4,054,014 | ||||
| Gartner, Inc.* | 22,636 | 3,626,061 | ||||
| HubSpot, Inc.* | 16,525 | 6,551,171 | ||||
| Power Integrations, Inc. | 28,646 | 2,344,962 | ||||
| Rapid7, Inc.*,1 | 51,345 | 4,629,265 | ||||
| Silicon Laboratories, Inc.* | 28,941 | 3,685,347 | ||||
| Zebra Technologies Corp., Class A* | 16,143 | 6,204,239 | ||||
| Total Information Technology | 50,577,995 | |||||
| Materials - 6.8% | ||||||
| AptarGroup, Inc. | 25,804 | 3,532,310 | ||||
| Eagle Materials, Inc. | 30,006 | 3,041,108 | ||||
| Element Solutions, Inc. | 160,906 | 2,852,864 | ||||
| Quaker Chemical Corp.*,1 | 16,862 | 4,272,662 | ||||
| RPM International, Inc. | 52,808 | 4,793,910 | ||||
| Total Materials | 18,492,854 |
The accompanying notes are an integral part of these financial statements.
56
| AMG GW&K Small/Mid Cap Fund |
| Schedule of Portfolio Investments (continued) |
| Shares | Value | |||||
| Real Estate - 7.3% | ||||||
| American Campus Communities, Inc., REIT | 55,616 | $2,378,696 | ||||
| CoreSite Realty Corp., REIT | 18,976 | 2,377,313 | ||||
| Easterly Government Properties, Inc., REIT | 149,156 | 3,378,384 | ||||
| Hudson Pacific Properties, Inc., REIT | 97,178 | 2,334,216 | ||||
| Physicians Realty Trust, REIT | 159,271 | 2,835,024 | ||||
| Summit Hotel Properties, Inc., REIT * | 223,731 | 2,015,816 | ||||
| Sun Communities, Inc., REIT | 28,423 | 4,318,875 | ||||
| Total Real Estate | 19,638,324 | |||||
| Utilities - 2.5% | ||||||
| IDACORP, Inc. | 33,635 | 3,229,969 | ||||
| * | Non-income producing security. |
| 1 | Some of these securities, amounting to $16,713,653 or 6.2% of net assets, were out on loan to various borrowers and are collateralized by various U.S. Treasury Obligations. See Note 4 of Notes to Financial Statements. |
| Shares | Value | ||||||
| OGE Energy Corp. | 32,864 | $1,047,047 | |||||
| Portland General Electric Co. | 56,355 | 2,410,303 | |||||
| Total Utilities | 6,687,319 | ||||||
| Total Common Stocks | |||||||
| (Cost $193,513,818) | 265,612,561 | ||||||
| Total Investments - 98.1% | |||||||
| (Cost $193,513,818) | 265,612,561 | ||||||
| Other Assets, less Liabilities - 1.9% | 5,156,733 | ||||||
| Net Assets - 100.0% | $270,769,294 |
REIT Real Estate Investment Trust
The following table summarizes the inputs used to value the Fund’s investments by the fair value hierarchy levels as of December 31, 2020:
| Level 1 | Level 2 | Level 3 | Total | ||||||||
| Investments in Securities | |||||||||||
| Common Stocks† | $265,612,561 | — | — | $265,612,561 | |||||||
| Total Investments in Securities | $265,612,561 | — | — | $265,612,561 |
| † | All common stocks held in the Fund are Level 1 securities. For a detailed breakout of common stocks by major industry classification, please refer to the Fund’s Schedule of Portfolio Investments. |
For the fiscal year ended December 31, 2020, there were no transfers in or out of Level 3.
The accompanying notes are an integral part of these financial statements.
57
| AMG GW&K Small Cap Value Fund |
| Portfolio Manager’s Comments (unaudited) |
For the fiscal year ended December 31, 2020, AMG Managers GW&K Small Cap Value Fund’s (the “Fund”) Class N shares returned 3.29%, compared to a 4.63% return for the Russell 2000 Value® Index. Effective December 4, 2020, the Fund’s subadviser changed from Skyline Asset Management, L.P. (“Skyline”) to GW&K Investment Management, LLC (“GW&K”). Also effective December 4, 2020, the Fund changed its name to AMG GW&K Small Cap Value Fund, from AMG Managers Skyline Special Equities Fund and changed its investment objective, principal investment strategies, and principal risks INVESTMENT STRATEGY GW&K believes quality small cap companies trading at low valuation levels offer attractive opportunities for stock price appreciation over time. Given the tendency of money managers to focus on short-term fundamentals and stock price performance, we believe that a company’s underlying value is often overlooked and not recognized by the market. Through our fundamental research process and proprietary screening, we seek to identify well-managed, undervalued companies with improving fundamental and financial characteristics. It is our objective to provide shareholders with a fully diversified portfolio of small cap value stocks that participate in rising markets and protects returns when markets decline. We seek to outperform the Russell 2000® Value Index and our small cap value competitors over a full market cycle. PERFORMANCE After a steep decline in the first quarter due to market volatility associated with the COVID-19 pandemic, the Fund rebounded with positive |
performance in the following three quarters and ended the fiscal year with a small positive return. However, the Fund modestly underperformed its benchmark during the period. The Fund’s negative relative performance was primarily driven by stock selection, while sector allocation was a positive. An overweight and strong stock selection in the industrials sector was the top contributor to relative performance. The Fund had notable contributions from TPI Composites Inc. (+138%) and BMC Stock Holdings Inc. (+66%) in the industrials sector. The Fund also benefited from an underweight and strong stock selection in financials. Lack of exposure to the energy sector was also beneficial. On the other side of the ledger, an overweight in information technology helped performance, but was more than offset by weak stock selection in the sector. The Fund’s 5% return within information technology lagged the 27% return for the benchmark and was the top detractor from relative performance. Notable detractors in the sector included Benchmark Electronics (-20%) and Knowles Corp. (-15%). In similar fashion, the Fund’s overweight to the materials sector was beneficial, but the Fund’s -5% return lagged the 20% return for the benchmark. An underweight and weak stock selection in consumer discretionary as well as weak stock selection in the health care sector were other notable detractors. OUTLOOK Looking forward into 2021 and beyond, we see both strong fundamentals as well as risks to watch. We believe the just completed very strong fourth quarter represents the excellent forward prospects investors see for the economy as we emerge from the pandemic in 2021. Consumer net worth is hitting records, inventories are too low, and spending in |
many parts of the economy (outside of masks and heat lamps) are poised to accelerate. The fundamental strength is naturally augmented by forthcoming fiscal stimulus. The strong fundamentals and wall of liquidity have also encouraged some investors to increase speculative behavior in several areas of the market where long-term opportunity is high but near-term earnings support is nonexistent. Will the U.S. Federal Reserve (the Fed) effectively manage monetary policy as the economy accelerates to limit the negative impact of speculative bubbles forming? We acknowledge there are holes we are digging as a country that impact our longer-term growth prospects, as debt climbs and political will appears to be faltering. Finally, markets appear to be assuming best outcomes for vaccine uptake and performance. However, we are very grateful that markets are looking forward to better times. Capital markets would be on the floor convulsing if they were looking backward at 2020. Thankfully, we leave the past year behind. Given the good forward economic and earnings prospects we see, low inflation and interest rates, and current valuations, we believe the U.S. small cap asset class has attractive capital appreciation potential over our 3–5 year time horizon.
This commentary reflects results from Skyline and GW&K, and the viewpoints represent those of the current portfolio manager, GW&K, are not intended as a forecast or guarantee of future results, and are subject to change without notice. |
58
| AMG GW&K Small Cap Value Fund Portfolio Manager’s Comments (continued) |
CUMULATIVE TOTAL RETURN PERFORMANCE
AMG GW&K Small Cap Value Fund’s cumulative total return is based on the daily change in net asset value (NAV), and assumes that all dividends and distributions were reinvested. The graph compares a hypothetical $10,000 investment made in the AMG GW&K Small Cap Value Fund’s Class N shares on December 31, 2010, to a $10,000 investment made in the Russell 2000® Value Index and Russell 2000® Index for the same time period. The graph and table do not reflect the deduction of taxes that a shareholder would pay on a Fund distribution or redemption of shares. The listed returns for the Fund are net of expenses and the returns for the index exclude expenses. Total returns would have been lower had certain expenses not been reduced.
The table below shows the average annual total returns for the AMG GW&K Small Cap Value Fund and the Russell 2000® Value Index and Russell 2000® Index for the same time periods ended December 31, 2020.
| Average Annual Total Returns1 | One Year |
Five Years |
Ten Years |
Since Inception |
Inception Date |
|||
| AMG GW&K Small Cap Value Fund2, 3, 4, 5, 6, 7 | ||||||||
| Class N | 3.29% | 7.19% | 9.38% | 11.23% | 04/23/87 | |||
| Class I | 3.50% | — | — | 4.06% | 02/24/17 | |||
| Class Z | 3.57% | — | — | 4.13% | 02/24/17 | |||
| Russell 2000® Value Index8 | 4.63% | 9.65% | 8.66% | — | — | |||
| Russell 2000® Index9 | 19.96% | 13.26% | 11.20% | 9.30% | 04/23/87 | † | ||
The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Investors should carefully consider the Fund’s investment objectives, risks, charges and expenses before investing. For performance information through the most recent month end, current net asset values per share for the Fund and other information, please call 800.548.4539 or visit our website at amgfunds.com for a free prospectus. Read it carefully before investing or sending money.
Distributed by AMG Distributors, Inc., member FINRA/SIPC.
| † | Date reflects the inception date of the Fund, not the index. |
| 1 | Total return equals income yield plus share price change and assumes reinvestment of all dividends and capital gain distributions. Returns are net of fees and may reflect offsets of Fund expenses as described in the prospectus. No adjustment has been made for taxes payable by shareholders on their reinvested dividends and |
capital gain distributions. Returns for periods greater than one year are annualized. The listed returns on the Fund are net of expenses and based on the published NAV as of December 31, 2020. All returns are in U.S. dollars ($).
| 2 | From time to time, the Fund’s advisor has waived its fees and/or absorbed Fund expenses, which has resulted in higher returns. |
| 3 | The Fund is subject to risks associated with investments in small-capitalization companies, such as erratic earnings patterns, competitive conditions, limited earnings history and a reliance on one or a limited number of products. |
| 4 | The Fund is subject to special risk considerations similar to those associated with the direct ownership of real estate. Real estate valuations may be subject to factors such as changing general and local economic, financial, competitive, and environmental conditions. |
| 5 | Companies that are in similar businesses may be similarly affected by particular economic or market events; to the extent the Fund has substantial holdings within a particular sector, the risks associated with that sector increase. |
| 6 | Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies. |
| 7 | The Fund invests in value stocks, which may perform differently from the market as a whole and may be undervalued by the market for a long period of time. |
| 8 | The Russell 2000® Value Index is an unmanaged, market-value weighted, value-oriented index comprised of small stocks that have relatively low price-to-book ratios and lower forecasted growth values. Unlike the Fund, the Russell 2000® Value Index is unmanaged, is not available for investment and does not incur expenses. |
| 9 | The Russell 2000® Index is composed of the 2000 smallest stocks in the Russell 3000® Index and is widely regarded in the industry as the premier measure of small-cap stock performance. Unlike the Fund, the Russell 2000® Index is unmanaged, is not available for investment and does not incur expenses. |
The Russell Indices are trademarks of the London Stock Exchange Group companies.
Not FDIC insured, nor bank guaranteed. May lose value.
59
| AMG GW&K Small Cap Value Fund Fund Snapshots (unaudited) December 31, 2020 |
| PORTFOLIO BREAKDOWN |
| Sector | % of Net Assets | |
| Financials | 29.6 | |
| Industrials | 17.9 | |
| Consumer Discretionary | 13.2 | |
| Real Estate | 9.4 | |
| Health Care | 6.3 | |
| Information Technology | 5.9 | |
| Materials | 5.1 | |
| Utilities | 4.0 | |
| Consumer Staples | 2.7 | |
| Energy | 2.4 | |
| Communication Services | 2.0 | |
| Other Assets Less Liabilities | 1.5 | |
TOP TEN HOLDINGS
| Security Name | % of Net Assets | |
| Walker & Dunlop, Inc. | 2.4 | |
| Group 1 Automotive, Inc. | 2.3 | |
| Gibraltar Industries, Inc. | 2.1 | |
| Ameris Bancorp | 2.1 | |
| Piper Sandler Cos | 2.0 | |
| Gray Television, Inc. | 2.0 | |
| Schnitzer Steel Industries, Inc., Class A | 2.0 | |
| Columbus McKinnon Corp. | 1.9 | |
| Four Corners Property Trust, Inc. | 1.9 | |
| Tenet Healthcare Corp. | 1.9 | |
| Top Ten as a Group | 20.6 |
Because a fund’s strategy may result in multiple investments in particular sectors of the economy, its performance may depend on the performance of those sectors and may fluctuate more widely than investments diversified across more sectors. For additional information on these and other risk considerations, please see the Fund’s prospectus.
Any sectors, industries, or securities discussed should not be perceived as investment recommendations. Mention of a specific security should not be considered a recommendation to buy or solicitation to sell that security. Specific securities mentioned in this report may have been sold from the Fund’s portfolio of investments by the time you receive this report.
60
| AMG GW&K Small Cap Value Fund Schedule of Portfolio Investments December 31, 2020 |
| Shares | Value | ||||||
| Common Stocks - 98.5% | |||||||
| Communication Services - 2.0% | |||||||
| Gray Television, Inc.* | 371,527 | $6,646,618 | |||||
| Consumer Discretionary - 13.2% | |||||||
| Boot Barn Holdings, Inc.* | 98,865 | 4,286,786 | |||||
| Callaway Golf Co. | 222,960 | 5,353,269 | |||||
| Deckers Outdoor Corp.* | 14,996 | 4,300,553 | |||||
| Denny’s Corp.* | 361,881 | 5,312,413 | |||||
| Group 1 Automotive, Inc. | 58,364 | 7,653,855 | |||||
| Johnson Outdoors, Inc., Class A | 45,478 | 5,122,187 | |||||
| MDC Holdings, Inc. | 57,493 | 2,794,160 | |||||
| Patrick Industries, Inc. | 65,139 | 4,452,251 | |||||
| Stoneridge, Inc.* | 177,273 | 5,358,963 | |||||
| Total Consumer Discretionary | 44,634,437 | ||||||
| Consumer Staples - 2.7% | |||||||
| BJ’s Wholesale Club Holdings, Inc.* | 76,858 | 2,865,266 | |||||
| Central Garden & Pet Co.* | 166,285 | 6,420,264 | |||||
| Total Consumer Staples | 9,285,530 | ||||||
| Energy - 2.4% | |||||||
| Matador Resources Co.* | 187,222 | 2,257,897 | |||||
| ProPetro Holding Corp.* | 312,165 | 2,306,900 | |||||
| Renewable Energy Group, Inc.* | 24,117 | 1,707,966 | |||||
| Solaris Oilfield Infrastructure, Inc., Class A | 228,829 | 1,862,668 | |||||
| Total Energy | 8,135,431 | ||||||
| Financials - 29.6% | |||||||
| Ameris Bancorp | 183,803 | 6,997,380 | |||||
| Atlantic Union Bankshares Corp. | 190,853 | 6,286,698 | |||||
| Cathay General Bancorp | 122,505 | 3,943,436 | |||||
| City Holding Co. | 54,368 | 3,781,294 | |||||
| Community Bank System, Inc. | 88,627 | 5,522,348 | |||||
| Enterprise Financial Services Corp. | 105,354 | 3,682,122 | |||||
| Federal Agricultural Mortgage Corp., Class C | 50,061 | 3,717,029 | |||||
| First Financial Bancorp | 198,923 | 3,487,120 | |||||
| First Interstate BancSystem, Inc., Class A | 106,778 | 4,353,339 | |||||
| Flagstar Bancorp, Inc. | 120,322 | 4,904,325 | |||||
| International Bancshares Corp. | 122,236 | 4,576,516 | |||||
| James River Group Holdings, Ltd. (Bermuda) | 80,085 | 3,936,178 | |||||
| OceanFirst Financial Corp.* | 297,427 | 5,541,065 | |||||
| Pacific Premier Bancorp, Inc.* | 201,596 | 6,316,003 | |||||
| Piper Sandler Cos | 66,588 | 6,718,729 | |||||
| Selective Insurance Group, Inc. | 95,639 | 6,405,900 | |||||
| Stifel Financial Corp. | 112,839 | 5,693,856 | |||||
| Valley National Bancorp | 281,187 | 2,741,573 | |||||
| Shares | Value | ||||||
| Walker & Dunlop, Inc. | 87,525 | $8,054,051 | |||||
| WesBanco, Inc. | 100,884 | 3,022,485 | |||||
| Total Financials | 99,681,447 | ||||||
| Health Care - 6.3% | |||||||
| Covetrus, Inc.* | 121,838 | 3,501,624 | |||||
| Emergent BioSolutions, Inc.* | 52,091 | 4,667,353 | |||||
| Integer Holdings Corp.* | 50,073 | 4,065,427 | |||||
| Supernus Pharmaceuticals, Inc.* | 109,236 | 2,748,378 | |||||
| Tenet Healthcare Corp.* | 161,629 | 6,453,846 | |||||
| Total Health Care | 21,436,628 | ||||||
| Industrials - 17.9% | |||||||
| Allegiant Travel Co. | 20,163 | 3,815,646 | |||||
| American Woodmark Corp.* | 45,637 | 4,283,032 | |||||
| CBIZ, Inc.* | 145,198 | 3,863,719 | |||||
| Columbus McKinnon Corp. | 171,924 | 6,608,758 | |||||
| Comfort Systems USA, Inc. | 60,047 | 3,162,075 | |||||
| Douglas Dynamics, Inc. | 133,680 | 5,717,494 | |||||
| Federal Signal Corp. | 183,052 | 6,071,835 | |||||
| Gibraltar Industries, Inc.* | 98,930 | 7,117,024 | |||||
| ICF International, Inc. | 65,934 | 4,900,874 | |||||
| Lydall, Inc.* | 128,577 | 3,861,167 | |||||
| Primoris Services Corp.* | 134,896 | 3,724,479 | |||||
| SkyWest, Inc. | 93,683 | 3,776,362 | |||||
| UFP Industries, Inc. | 60,512 | 3,361,442 | |||||
| Total Industrials | 60,263,907 | ||||||
| Information Technology - 5.9% | |||||||
| American Software, Inc., Class A | 155,748 | 2,674,193 | |||||
| CACI International, Inc., Class A* | 23,715 | 5,912,861 | |||||
| Power Integrations, Inc. | 59,635 | 4,881,721 | |||||
| Silicon Laboratories, Inc.* | 26,564 | 3,382,660 | |||||
| Viavi Solutions, Inc.* | 205,619 | 3,079,145 | |||||
| Total Information Technology | 19,930,580 | ||||||
| Materials - 5.1% | |||||||
| Minerals Technologies, Inc. | 63,038 | 3,915,921 | |||||
| Orion Engineered Carbons, S.A. (Luxembourg) | 206,379 | 3,537,336 | |||||
| Schnitzer Steel Industries, Inc., Class A | 208,111 | 6,640,822 | |||||
| Worthington Industries, Inc. | 58,869 | 3,022,334 | |||||
| Total Materials | 17,116,413 | ||||||
| Real Estate - 9.4% | |||||||
| Agree Realty Corp., REIT | 72,173 | 4,805,278 | |||||
| Four Corners Property Trust, Inc., REIT | 221,910 | 6,606,261 | |||||
| Getty Realty Corp., REIT * | 182,319 | 5,021,065 | |||||
| Independence Realty Trust, Inc., REIT | 475,073 | 6,380,231 | |||||
| The accompanying notes are an integral part of these financial statements. |
61
| AMG GW&K Small Cap Value Fund Schedule of Portfolio Investments (continued) |
| Shares | Value | ||||||
| Real Estate - 9.4% (continued) | |||||||
| Lexington Realty Trust, REIT | 253,215 | $2,689,143 | |||||
| Summit Hotel Properties, Inc., REIT * | 326,672 | 2,943,315 | |||||
| Xenia Hotels & Resorts, Inc., REIT * | 214,404 | 3,258,941 | |||||
| Total Real Estate | 31,704,234 | ||||||
| Utilities - 4.0% | |||||||
| IDACORP, Inc. | 54,667 | 5,249,672 | |||||
| NorthWestern Corp. | 77,462 | 4,516,809 | |||||
* Non-income producing security.
| Shares | Value | ||||||
| Southwest Gas Holdings, Inc. | 59,543 | $3,617,237 | |||||
| Total Utilities | 13,383,718 | ||||||
| Total Common Stocks | |||||||
| (Cost $317,466,452) | 332,218,943 | ||||||
| Total Investments - 98.5% | |||||||
| (Cost $317,466,452) | 332,218,943 | ||||||
| Other Assets, less Liabilities - 1.5% | 4,920,159 | ||||||
| Net Assets - 100.0% | $337,139,102 | ||||||
REIT Real Estate Investment Trust
The following table summarizes the inputs used to value the Fund’s investments by the fair value hierarchy levels as of December 31, 2020:
| Level 1 | Level 2 | Level 3 | Total | ||||||||||
| Investments in Securities | |||||||||||||
| Common Stocks† | $ | 332,218,943 | — | — | $ | 332,218,943 | |||||||
| Total Investments in Securities | $ | 332,218,943 | — | — | $ | 332,218,943 | |||||||
| † | All common stocks held in the Fund are Level 1 securities. For a detailed breakout of common stocks by major industry classification, please refer to the Fund’s Schedule of Portfolio Investments. |
For the fiscal year ended December 31, 2020, there were no transfers in or out of Level 3.
| The accompanying notes are an integral part of these financial statements. |
62
| Statement of Assets and Liabilities | |
| December 31, 2020 |
| AMG GW&K Enhanced Core Bond ESG Fund |
AMG GW&K High Income Fund |
AMG GW&K Municipal Bond Fund |
AMG GW&K Municipal Enhanced Yield Fund | ||||||||||
| Assets: | |||||||||||||
| Investments at value1 (including securities on loan valued at $2,928,951, $0, $0, and $0, respectively) | $56,083,803 | $9,968,697 | $1,305,706,754 | $322,895,923 | |||||||||
| Cash | 1,195,980 | 188,062 | 26,919,653 | 2,561,917 | |||||||||
| Receivable for investments sold | — | 218,287 | — | — | |||||||||
| Dividend and interest receivables | 410,161 | 145,696 | 16,405,207 | 3,210,811 | |||||||||
| Securities lending income receivable | 1,552 | — | — | — | |||||||||
| Receivable for Fund shares sold | 61,551 | 76,007 | 2,006,953 | 140,945 | |||||||||
| Receivable from affiliate | 14,555 | 10,197 | 69,866 | 25,047 | |||||||||
| Prepaid expenses and other assets | 14,374 | 6,902 | 29,507 | 25,829 | |||||||||
| Total assets | 57,781,976 | 10,613,848 | 1,351,137,940 | 328,860,472 | |||||||||
| Liabilities: | |||||||||||||
| Payable upon return of securities loaned | 2,379,186 | — | — | — | |||||||||
| Payable for investments purchased | — | 258,504 | — | — | |||||||||
| Payable for delayed delivery investments purchased | — | — | 44,435,060 | — | |||||||||
| Payable for Fund shares repurchased | 178,892 | 1,068 | 289,754 | 31,617 | |||||||||
| Accrued expenses: | |||||||||||||
| Investment advisory and management fees | 13,820 | 3,523 | 228,285 | 124,788 | |||||||||
| Administrative fees | 6,910 | 1,303 | 165,655 | 41,596 | |||||||||
| Distribution fees | 3,327 | — | 3,878 | 1,040 | |||||||||
| Shareholder service fees | 1,264 | 1,959 | 56,891 | 14,276 | |||||||||
| Other | 52,995 | 45,633 | 138,239 | 63,401 | |||||||||
| Total liabilities | 2,636,394 | 311,990 | 45,317,762 | 276,718 | |||||||||
| Net Assets | $55,145,582 | $10,301,858 | $1,305,820,178 | $328,583,754 | |||||||||
| 1 Investments at cost | $53,285,407 | $9,978,707 | $1,228,525,480 | $298,407,906 | |||||||||
The accompanying notes are an integral part of these financial statements.
63
Statement of Assets and Liabilities (continued) |
| AMG GW&K Enhanced Core Bond ESG Fund |
AMG GW&K High Income Fund |
AMG GW&K Municipal Bond Fund |
AMG GW&K Municipal Enhanced Yield Fund | ||||||||||
| Net Assets Represent: | |||||||||||||
| Paid-in capital | $55,768,164 | $10,365,725 | $1,227,763,665 | $303,179,087 | |||||||||
| Total distributable earnings (loss) | (622,582 | ) | (63,867 | ) | 78,056,513 | 25,404,667 | |||||||
| Net Assets | $55,145,582 | $10,301,858 | $1,305,820,178 | $328,583,754 | |||||||||
| Class N: | |||||||||||||
| Net Assets | $15,793,769 | $10,301,858 | $18,152,784 | $5,015,428 | |||||||||
| Shares outstanding | 1,449,610 | 463,381 | 1,458,020 | 469,258 | |||||||||
| Net asset value, offering and redemption price per share | $10.90 | $22.23 | $12.45 | $10.69 | |||||||||
| Class I: | |||||||||||||
| Net Assets | $27,800,094 | — | $1,287,667,394 | $323,438,655 | |||||||||
| Shares outstanding | 2,542,231 | — | 102,845,111 | 31,101,646 | |||||||||
| Net asset value, offering and redemption price per share | $10.94 | — | $12.52 | $10.40 | |||||||||
| Class Z: | |||||||||||||
| Net Assets | $11,551,719 | — | — | $129,671 | |||||||||
| Shares outstanding | 1,056,820 | — | — | 12,471 | |||||||||
| Net asset value, offering and redemption price per share | $10.93 | — | — | $10.40 | |||||||||
The accompanying notes are an integral part of these financial statements.
64
Statement of Assets and Liabilities (continued) |
| AMG GW&K Global Allocation Fund |
AMG GW&K Small Cap Core Fund |
AMG GW&K Small/Mid Cap Fund |
AMG GW&K Small Cap Value Fund | ||||||||||
| Assets: | |||||||||||||
| Investments at value1 (including securities on loan valued at $8,270,264, $58,647,390, $16,713,653, and $0, respectively) | $151,616,396 | $596,484,651 | $265,612,561 | $332,218,943 | |||||||||
| Cash | 3,924,815 | 3,899,343 | 5,907,959 | 4,076,738 | |||||||||
| Foreign currency2 | 996,953 | — | — | — | |||||||||
| Receivable for investments sold | — | 4,640,017 | 614,662 | 1,914,548 | |||||||||
| Dividend and interest receivables | 384,957 | 448,690 | 94,066 | 448,650 | |||||||||
| Securities lending income receivable | 1,871 | 5,552 | 1,002 | — | |||||||||
| Receivable for Fund shares sold | 42,426 | 858,606 | 329,544 | 92,291 | |||||||||
| Receivable from affiliate | 9,364 | — | 7,836 | — | |||||||||
| Prepaid expenses and other assets | 23,476 | 17,272 | 12,185 | 13,111 | |||||||||
| Total assets | 157,000,258 | 606,354,131 | 272,579,815 | 338,764,281 | |||||||||
| Liabilities: | |||||||||||||
| Payable upon return of securities loaned | 2,576,545 | 674,281 | — | — | |||||||||
| Payable for investments purchased | 1,199,941 | — | 1,537,011 | — | |||||||||
| Payable for Fund shares repurchased | 4,924 | 257,183 | 52,811 | 1,182,982 | |||||||||
| Accrued expenses: | |||||||||||||
| Investment advisory and management fees | 76,357 | 362,903 | 138,590 | 250,543 | |||||||||
| Administrative fees | 19,089 | 75,289 | 33,530 | 44,893 | |||||||||
| Distribution fees | 10,730 | 1,796 | 46 | — | |||||||||
| Shareholder service fees | 12,351 | 20,645 | 8,802 | 59,412 | |||||||||
| Other | 84,086 | 73,530 | 39,731 | 87,349 | |||||||||
| Total liabilities | 3,984,023 | 1,465,627 | 1,810,521 | 1,625,179 | |||||||||
| Net Assets | $153,016,235 | $604,888,504 | $270,769,294 | $337,139,102 | |||||||||
| 1 Investments at cost | $114,964,612 | $426,454,827 | $193,513,818 | $317,466,452 | |||||||||
| 2 Foreign currency at cost | $983,352 | — | — | — | |||||||||
The accompanying notes are an integral part of these financial statements.
65
Statement of Assets and Liabilities (continued) |
| AMG GW&K Global Allocation Fund |
AMG GW&K Small Cap Core Fund |
AMG GW&K Small/Mid Cap Fund |
AMG GW&K Small Cap Value Fund | ||||||||||
| Net Assets Represent: | |||||||||||||
| Paid-in capital | $117,669,185 | $423,787,511 | $196,369,358 | $318,179,443 | |||||||||
| Total distributable earnings | 35,347,050 | 181,100,993 | 74,399,936 | 18,959,659 | |||||||||
| Net Assets | $153,016,235 | $604,888,504 | $270,769,294 | $337,139,102 | |||||||||
| Class N: | |||||||||||||
| Net Assets | $51,414,521 | $8,667,249 | $223,853 | $243,654,912 | |||||||||
| Shares outstanding | 2,636,969 | 289,157 | 13,958 | 9,120,604 | |||||||||
| Net asset value, offering and redemption price per share | $19.50 | $29.97 | $16.04 | $26.71 | |||||||||
| Class I: | |||||||||||||
| Net Assets | $97,868,989 | $470,373,466 | $165,840,431 | $83,003,254 | |||||||||
| Shares outstanding | 4,965,221 | 15,368,627 | 10,327,396 | 3,098,650 | |||||||||
| Net asset value, offering and redemption price per share | $19.71 | $30.61 | $16.06 | $26.79 | |||||||||
| Class Z: | |||||||||||||
| Net Assets | $3,732,725 | $125,847,789 | $104,705,010 | $10,480,936 | |||||||||
| Shares outstanding | 189,408 | 4,111,282 | 6,513,820 | 392,205 | |||||||||
| Net asset value, offering and redemption price per share | $19.71 | $30.61 | $16.07 | $26.72 | |||||||||
The accompanying notes are an integral part of these financial statements.
66
| Statement of Operations | |
For the fiscal year ended December 31, 2020 |
| AMG GW&K Enhanced Core Bond ESG Fund |
AMG GW&K High Income Fund |
AMG GW&K Municipal Bond Fund |
AMG GW&K Municipal Enhanced Yield Fund | ||||||||||
| Investment Income: | |||||||||||||
| Dividend income | $2,337 | $787 | $67,066 | $41,742 | |||||||||
| Interest income | 1,063,182 | 293,490 | 22,668,922 | 9,518,279 | |||||||||
| Securities lending income | 8,317 | 321 | — | — | |||||||||
| Foreign withholding tax | — | (1,452 | ) | — | — | ||||||||
| Total investment income | 1,073,836 | 293,146 | 22,735,988 | 9,560,021 | |||||||||
| Expenses: | |||||||||||||
| Investment advisory and management fees | 124,241 | 49,607 | 2,407,999 | 1,363,263 | |||||||||
| Administrative fees | 62,120 | 13,871 | 1,740,374 | 454,421 | |||||||||
| Distribution fees - Class N | 36,581 | — | 47,565 | 20,322 | |||||||||
| Shareholder servicing fees - Class N | — | 1,958 | 23,087 | 12,192 | |||||||||
| Shareholder servicing fees - Class I | 11,118 | — | 570,612 | 147,349 | |||||||||
| Professional fees | 50,966 | 44,829 | 105,564 | 55,667 | |||||||||
| Registration fees | 50,035 | 19,699 | 87,308 | 61,044 | |||||||||
| Custodian fees | 18,993 | 21,194 | 85,963 | 35,512 | |||||||||
| Reports to shareholders | 16,937 | 3,135 | 43,769 | 12,148 | |||||||||
| Transfer agent fees | 3,982 | 1,051 | 41,105 | 10,887 | |||||||||
| Trustee fees and expenses | 3,793 | 840 | 107,114 | 27,880 | |||||||||
| Miscellaneous | 3,514 | 1,165 | 31,155 | 9,878 | |||||||||
| Total expenses before offsets | 382,280 | 157,349 | 5,291,615 | 2,210,563 | |||||||||
| Expense reimbursements | (135,792 | ) | (75,430 | ) | (704,935 | ) | (242,883 | ) | |||||
| Net expenses | 246,488 | 81,919 | 4,586,680 | 1,967,680 | |||||||||
| Net investment income | 827,348 | 211,227 | 18,149,308 | 7,592,341 | |||||||||
| Net Realized and Unrealized Gain: | |||||||||||||
| Net realized gain on investments | 851,301 | 838,877 | 4,459,854 | 3,972,374 | |||||||||
| Net realized gain on forwards contracts | — | 134,979 | — | — | |||||||||
| Net realized gain on futures contracts | — | 34,964 | — | — | |||||||||
| Net realized loss on foreign currency transactions | — | (13,582 | ) | — | — | ||||||||
| Net change in unrealized appreciation/depreciation on investments | 1,758,021 | (182,406 | ) | 30,387,730 | 8,743,902 | ||||||||
| Net change in unrealized appreciation/depreciation on forwards contracts | — | 10,553 | — | — | |||||||||
| Net change in unrealized appreciation/depreciation on futures contracts | — | 4,541 | — | — | |||||||||
| Net change in unrealized appreciation/depreciation on foreign currency translations | — | (2,382 | ) | — | — | ||||||||
| Net realized and unrealized gain | 2,609,322 | 825,544 | 34,847,584 | 12,716,276 | |||||||||
| Net increase in net assets resulting from operations | $3,436,670 | $1,036,771 | $52,996,892 | $20,308,617 | |||||||||
The accompanying notes are an integral part of these financial statements.
67
Statement of Operations (continued) |
| AMG GW&K Global Allocation Fund |
AMG GW&K Small Cap Core Fund |
AMG GW&K Small/Mid Cap Fund |
AMG GW&K Small Cap Value Fund | ||||||||||
| Investment Income: | |||||||||||||
| Dividend income | $1,471,878 | $5,284,158 | $2,114,205 | $5,027,463 | |||||||||
| Interest income | 1,388,846 | 270 | — | 195 | |||||||||
| Securities lending income | 20,161 | 91,998 | 16,067 | 34,569 | |||||||||
| Foreign withholding tax | (36,702 | ) | (23,275 | ) | (7,884 | ) | (13,365 | ) | |||||
| Total investment income | 2,844,183 | 5,353,151 | 2,122,388 | 5,048,862 | |||||||||
| Expenses: | |||||||||||||
| Investment advisory and management fees | 1,020,236 | 3,249,852 | 1,322,175 | 2,541,225 | |||||||||
| Administrative fees | 255,059 | 696,397 | 309,120 | 523,827 | |||||||||
| Distribution fees - Class N | 127,668 | 19,971 | 430 | — | |||||||||
| Shareholder servicing fees - Class N | — | 11,983 | 27 | 621,004 | |||||||||
| Shareholder servicing fees - Class I | 113,974 | 177,432 | 102,418 | 62,275 | |||||||||
| Custodian fees | 84,528 | 45,279 | 28,405 | 38,143 | |||||||||
| Registration fees | 59,064 | 59,775 | 34,419 | 60,310 | |||||||||
| Professional fees | 53,664 | 57,915 | 44,934 | 51,517 | |||||||||
| Reports to shareholders | 52,591 | 22,089 | 10,482 | 58,582 | |||||||||
| Trustee fees and expenses | 46,866 | 41,256 | 18,573 | 28,957 | |||||||||
| Transfer agent fees | 18,732 | 20,435 | 7,272 | 32,762 | |||||||||
| Miscellaneous | 13,135 | 14,584 | 7,488 | 16,975 | |||||||||
| Total expenses before offsets | 1,845,517 | 4,416,968 | 1,885,743 | 4,035,577 | |||||||||
| Expense reimbursements | (203,900 | ) | (29,131 | ) | (48,533 | ) | (144,468 | ) | |||||
| Expense reductions | (4,875 | ) | (36,922 | ) | (10,121 | ) | — | ||||||
| Net expenses | 1,636,742 | 4,350,915 | 1,827,089 | 3,891,109 | |||||||||
| Net investment income | 1,207,441 | 1,002,236 | 295,299 | 1,157,753 | |||||||||
| Net Realized and Unrealized Gain (Loss): | |||||||||||||
| Net realized gain (loss) on investments | (948,464 | ) | 29,838,323 | 4,655,713 | 106,326,548 | ||||||||
| Net realized loss on foreign currency transactions | (22,604 | ) | — | — | — | ||||||||
| Net change in unrealized appreciation/depreciation on investments | 15,219,388 | 72,950,806 | 45,255,119 | (122,030,123 | ) | ||||||||
| Net change in unrealized appreciation/depreciation on foreign currency translations | 13,723 | — | — | — | |||||||||
| Net realized and unrealized gain (loss) | 14,262,043 | 102,789,129 | 49,910,832 | (15,703,575 | ) | ||||||||
| Net increase (decrease) in net assets resulting from operations | $15,469,484 | $103,791,365 | $50,206,131 | $ (14,545,822 | ) | ||||||||
The accompanying notes are an integral part of these financial statements.
68
| Statements of Changes in Net Assets | |
| For the fiscal years ended December 31, |
| AMG GW&K Enhanced Core Bond ESG Fund |
AMG GW&K High Income Fund |
AMG GW&K Municipal Bond Fund |
||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||
| Increase in Net Assets Resulting From Operations: | ||||||||||||||||
| Net investment income | $827,348 | $912,976 | $211,227 | $261,207 | $18,149,308 | $18,764,133 | ||||||||||
| Net realized gain (loss) on investments | 851,301 | 404,962 | 995,238 | (352,820 | ) | 4,459,854 | 5,823,265 | |||||||||
| Net change in unrealized appreciation/depreciation on investments | 1,758,021 | 2,227,923 | (169,694 | ) | 809,506 | 30,387,730 | 47,803,351 | |||||||||
| Net increase in net assets resulting from operations | 3,436,670 | 3,545,861 | 1,036,771 | 717,893 | 52,996,892 | 72,390,749 | ||||||||||
| Distributions to Shareholders: | ||||||||||||||||
| Class N | (270,732 | ) | (379,255 | ) | (825,025 | ) | (29,806 | ) | (291,376 | ) | (308,006 | ) | ||||
| Class I | (319,421 | ) | (192,619 | ) | — | — | (21,463,147 | ) | (18,444,080 | ) | ||||||
| Class C1 | — | (16,702 | ) | — | — | — | — | |||||||||
| Class Z | (225,439 | ) | (338,179 | ) | — | — | — | — | ||||||||
| Total distributions to shareholders | (815,592 | ) | (926,755 | ) | (825,025 | ) | (29,806 | ) | (21,754,523 | ) | (18,752,086 | ) | ||||
| Capital Share Transactions:2 | ||||||||||||||||
| Net increase (decrease) from capital share transactions | 19,163,432 | (5,633,199 | ) | 452,271 | (1,415,728 | ) | 241,352,504 | 21,588,783 | ||||||||
| Total increase (decrease) in net assets | 21,784,510 | (3,014,093 | ) | 664,017 | (727,641 | ) | 272,594,873 | 75,227,446 | ||||||||
| Net Assets: | ||||||||||||||||
| Beginning of year | 33,361,072 | 36,375,165 | 9,637,841 | 10,365,482 | 1,033,225,305 | 957,997,859 | ||||||||||
| End of year | $55,145,582 | $33,361,072 | $10,301,858 | $9,637,841 | $1,305,820,178 | $1,033,225,305 | ||||||||||
| 1 | Effective May 31, 2019, Class C shares were converted into Class N shares. |
| 2 | See Note 1(g) of the Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
69
Statements of Changes in Net Assets (continued) | |
| For the fiscal years ended December 31, |
| AMG GW&K Municipal Enhanced Yield Fund |
AMG GW&K Global Allocation Fund |
AMG GW&K Small Cap Core Fund |
||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||
| Increase in Net Assets Resulting From Operations: | ||||||||||||||||
| Net investment income | $7,592,341 | $7,164,664 | $1,207,441 | $4,245,714 | $1,002,236 | $851,757 | ||||||||||
| Net realized gain (loss) on investments | 3,972,374 | 2,874,832 | (971,068 | ) | 13,203,990 | 29,838,323 | 22,218,128 | |||||||||
| Net change in unrealized appreciation/depreciation on investments | 8,743,902 | 15,319,807 | 15,233,111 | 23,461,975 | 72,950,806 | 92,751,979 | ||||||||||
| Net increase in net assets resulting from operations | 20,308,617 | 25,359,303 | 15,469,484 | 40,911,679 | 103,791,365 | 115,821,864 | ||||||||||
| Distributions to Shareholders: | ||||||||||||||||
| From net investment income and/or realized gain on investments: | ||||||||||||||||
| Class N | (230,199 | ) | (199,815 | ) | (1,802,668 | ) | (4,102,350 | ) | (206,153 | ) | (519,512 | ) | ||||
| Class I | (11,227,601 | ) | (8,694,071 | ) | (4,171,934 | ) | (10,291,326 | ) | (11,703,788 | ) | (17,342,704 | ) | ||||
| Class Z | (4,636 | ) | (4,178 | ) | (215,224 | ) | (493,265 | ) | (3,120,957 | ) | (5,682,701 | ) | ||||
| From paid-in capital: | ||||||||||||||||
| Class N | — | — | (11,312 | ) | — | — | — | |||||||||
| Class I | — | — | (26,180 | ) | — | — | — | |||||||||
| Class Z | — | — | (1,351 | ) | — | — | — | |||||||||
| Total distributions to shareholders | (11,462,436 | ) | (8,898,064 | ) | (6,228,669 | ) | (14,886,941 | ) | (15,030,898 | ) | (23,544,917 | ) | ||||
| Capital Share Transactions:1 | ||||||||||||||||
| Net increase (decrease) from capital share transactions | 40,667,096 | 51,350,874 | (107,931,884 | ) | (24,570,919 | ) | 64,165,490 | (49,229,890 | ) | |||||||
| Total increase (decrease) in net assets | 49,513,277 | 67,812,113 | (98,691,069 | ) | 1,453,819 | 152,925,957 | 43,047,057 | |||||||||
| Net Assets: | ||||||||||||||||
| Beginning of year | 279,070,477 | 211,258,364 | 251,707,304 | 250,253,485 | 451,962,547 | 408,915,490 | ||||||||||
| End of year | $328,583,754 | $279,070,477 | $153,016,235 | $251,707,304 | $604,888,504 | $451,962,547 | ||||||||||
| 1 | See Note 1(g) of the Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
70
Statements of Changes in Net Assets (continued) | |
| For the fiscal years ended December 31, |
| AMG GW&K Small/Mid Cap Fund |
AMG GW&K Small Cap Value Fund |
||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||
| Increase (Decrease) in Net Assets Resulting From Operations: | |||||||||||
| Net investment income | $295,299 | $362,287 | $1,157,753 | $1,391,142 | |||||||
| Net realized gain (loss) on investments | 4,655,713 | (1,633,170 | ) | 106,326,548 | 74,784,563 | ||||||
| Net change in unrealized appreciation/depreciation on investments | 45,255,119 | 42,609,178 | (122,030,123 | ) | 94,756,214 | ||||||
| Net increase (decrease) in net assets resulting from operations | 50,206,131 | 41,338,295 | (14,545,822 | ) | 170,931,919 | ||||||
| Distributions to Shareholders: | |||||||||||
| Class N | — | (280 | ) | (78,448,514 | ) | (24,262,547 | ) | ||||
| Class I | (194,295 | ) | (248,675 | ) | (32,924,631 | ) | (8,703,483 | ) | |||
| Class Z | (187,001 | ) | (316,750 | ) | (3,178,095 | ) | (789,359 | ) | |||
| Total distributions to shareholders | (381,296 | ) | (565,705 | ) | (114,551,240 | ) | (33,755,389 | ) | |||
| Capital Share Transactions:1 | |||||||||||
| Net increase (decrease) from capital share transactions | 22,104,665 | 38,228,007 | (27,451,765 | ) | (392,753,505 | ) | |||||
| Total increase (decrease) in net assets | 71,929,500 | 79,000,597 | (156,548,827 | ) | (255,576,975 | ) | |||||
| Net Assets: | |||||||||||
| Beginning of year | 198,839,794 | 119,839,197 | 493,687,929 | 749,264,904 | |||||||
| End of year | $270,769,294 | $198,839,794 | $337,139,102 | $493,687,929 | |||||||
| 1 | See Note 1(g) of the Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
71
| AMG GW&K Enhanced Core Bond ESG Fund | |
| Financial Highlights | |
| For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | |||||||||||||||
| Class N | 2020 | 2019 | 2018 | 2017 | 20161 | ||||||||||
| Net Asset Value, Beginning of Year | $10.15 | $9.43 | $9.81 | $9.67 | $9.58 | ||||||||||
| Income (loss) from Investment Operations: | |||||||||||||||
| Net investment income2,3 | 0.20 | 0.24 | 0.23 | 0.21 | 0.22 | ||||||||||
| Net realized and unrealized gain (loss) on investments | 0.75 | 0.73 | (0.38 | ) | 0.15 | 0.09 | |||||||||
| Total income (loss) from investment operations | 0.95 | 0.97 | (0.15 | ) | 0.36 | 0.31 | |||||||||
| Less Distributions to Shareholders from: | |||||||||||||||
| Net investment income | (0.20 | ) | (0.25 | ) | (0.23 | ) | (0.22 | ) | (0.22 | ) | |||||
| Net Asset Value, End of Year | $10.90 | $10.15 | $9.43 | $9.81 | $9.67 | ||||||||||
| Total Return3 | 9.41 | %4 | 10.35 | %4 | (1.48 | )%4 | 3.76 | %4 | 3.26 | % | |||||
| Ratio of net expenses to average net assets | 0.73 | % | 0.73 | % | 0.73 | % | 0.75 | % | 0.84 | % | |||||
| Ratio of gross expenses to average net assets5 | 1.06 | % | 1.16 | % | 0.99 | % | 1.04 | % | 1.05 | % | |||||
| Ratio of net investment income to average net assets3 | 1.86 | % | 2.43 | % | 2.45 | % | 2.19 | % | 2.27 | % | |||||
| Portfolio turnover | 101 | % | 71 | % | 26 | % | 39 | % | 88 | % | |||||
| Net assets end of year (000’s) omitted | $15,794 | $14,779 | $12,884 | $16,027 | $16,115 | ||||||||||
72
| AMG GW&K Enhanced Core Bond ESG Fund |
| Financial Highlights |
| For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | |||||||||||||||
| Class I | 2020 | 2019 | 2018 | 20176 | 20161 | ||||||||||
| Net Asset Value, Beginning of Year | $10.19 | $9.47 | $9.85 | $9.70 | $9.62 | ||||||||||
| Income (loss) from Investment Operations: | |||||||||||||||
| Net investment income2,3 | 0.22 | 0.26 | 0.25 | 0.23 | 0.24 | ||||||||||
| Net realized and unrealized gain (loss) on investments | 0.75 | 0.73 | (0.38 | ) | 0.16 | 0.08 | |||||||||
| Total income (loss) from investment operations | 0.97 | 0.99 | (0.13 | ) | 0.39 | 0.32 | |||||||||
| Less Distributions to Shareholders from: | |||||||||||||||
| Net investment income | (0.22 | ) | (0.27 | ) | (0.25 | ) | (0.24 | ) | (0.24 | ) | |||||
| Net Asset Value, End of Year | $10.94 | $10.19 | $9.47 | $9.85 | $9.70 | ||||||||||
| Total Return3,4 | 9.57 | % | 10.51 | % | (1.27 | )% | 4.03 | % | 3.31 | % | |||||
| Ratio of net expenses to average net assets | 0.55 | % | 0.55 | % | 0.54 | % | 0.61 | % | 0.69 | % | |||||
| Ratio of gross expenses to average net assets5 | 0.88 | % | 0.98 | % | 0.80 | % | 0.90 | % | 0.90 | % | |||||
| Ratio of net investment income to average net assets3 | 2.04 | % | 2.62 | % | 2.64 | % | 2.32 | % | 2.39 | % | |||||
| Portfolio turnover | 101 | % | 71 | % | 26 | % | 39 | % | 88 | % | |||||
| Net assets end of year (000’s) omitted | $27,800 | $8,502 | $5,967 | $6,864 | $37,952 | ||||||||||
73
| AMG GW&K Enhanced Core Bond ESG Fund |
| Financial Highlights |
| For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | |||||||||||||||
| Class Z | 2020 | 2019 | 2018 | 20176 | 20161 | ||||||||||
| Net Asset Value, Beginning of Year | $10.18 | $9.46 | $9.84 | $9.70 | $9.61 | ||||||||||
| Income (loss) from Investment Operations: | |||||||||||||||
| Net investment income2,3 | 0.22 | 0.27 | 0.26 | 0.24 | 0.25 | ||||||||||
| Net realized and unrealized gain (loss) on investments | 0.75 | 0.72 | (0.38 | ) | 0.15 | 0.09 | |||||||||
| Total income (loss) from investment operations | 0.97 | 0.99 | (0.12 | ) | 0.39 | 0.34 | |||||||||
| Less Distributions to Shareholders from: | |||||||||||||||
| Net investment income | (0.22 | ) | (0.27 | ) | (0.26 | ) | (0.25 | ) | (0.25 | ) | |||||
| Net Asset Value, End of Year | $10.93 | $10.18 | $9.46 | $9.84 | $9.70 | ||||||||||
| Total Return3,4 | 9.65 | % | 10.59 | % | (1.23 | )% | 4.01 | % | 3.52 | % | |||||
| Ratio of net expenses to average net assets | 0.48 | % | 0.48 | % | 0.48 | % | 0.50 | % | 0.59 | % | |||||
| Ratio of gross expenses to average net assets5 | 0.81 | % | 0.91 | % | 0.74 | % | 0.79 | % | 0.80 | % | |||||
| Ratio of net investment income to average net assets3 | 2.11 | % | 2.72 | % | 2.70 | % | 2.43 | % | 2.51 | % | |||||
| Portfolio turnover | 101 | % | 71 | % | 26 | % | 39 | % | 88 | % | |||||
| Net assets end of year (000’s) omitted | $11,552 | $10,080 | $15,254 | $21,271 | $51,357 | ||||||||||
| 1 | Effective October 1, 2016, the Investor Class, Service Class and Institutional Class were renamed Class N, Class S and Class I, respectively. |
| 2 | Per share numbers have been calculated using average shares. |
| 3 | Total returns and net investment income would have been lower had certain expenses not been offset. |
| 4 | The total return is calculated using the published Net Asset Value as of fiscal year end. |
| 5 | Excludes the impact of expense reimbursement or fee waivers and expense reductions such as brokerage credits, but includes expense repayments and non-reimbursable expenses, if any, such as interest, taxes, and extraordinary expenses. (See Note 1(c) and 2 in the Notes to Financial Statements.) |
| 6 | Effective February 27, 2017, Class I shares were renamed Class Z and Class S shares were renamed Class I. |
74
| AMG GW&K High Income Fund |
| Financial Highlights |
| For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | |||||||||||||||
| Class N | 2020 | 2019 | 2018 | 20171 | 20162 | ||||||||||
| Net Asset Value, Beginning of Year | $21.52 | $20.04 | $21.06 | $19.05 | $18.18 | ||||||||||
| Income (loss) from Investment Operations: | |||||||||||||||
| Net investment income3,4 | 0.51 | 0.57 | 0.69 | 0.75 | 0.72 | ||||||||||
| Net realized and unrealized gain (loss) on investments | 2.09 | 0.98 | (1.57 | ) | 1.26 | 0.15 | |||||||||
| Total income (loss) from investment operations | 2.60 | 1.55 | (0.88 | ) | 2.01 | 0.87 | |||||||||
| Less Distributions to Shareholders from: | |||||||||||||||
| Net investment income | (0.48 | ) | (0.07 | ) | (0.14 | ) | — | — | |||||||
| Net realized gain on investments | (1.41 | ) | — | — | — | — | |||||||||
| Total distributions to shareholders | (1.89 | ) | (0.07 | ) | (0.14 | ) | — | — | |||||||
| Net Asset Value, End of Year | $22.23 | $21.52 | $20.04 | $21.06 | $19.05 | ||||||||||
| Total Return4,5 | 12.16 | % | 7.67 | % | (4.18 | )% | 10.55 | % | 4.79 | % | |||||
| Ratio of net expenses to average net assets | 0.89 | % | 0.89 | % | 0.89 | % | 0.89 | % | 0.89 | % | |||||
| Ratio of gross expenses to average net assets6 | 1.70 | % | 1.87 | % | 1.52 | % | 1.39 | % | 1.46 | % | |||||
| Ratio of net investment income to average net assets4 | 2.28 | % | 2.70 | % | 3.34 | % | 3.71 | % | 3.75 | % | |||||
| Portfolio turnover | 157 | % | 52 | % | 60 | % | 55 | % | 34 | % | |||||
| Net assets end of year (000’s) omitted | $10,302 | $9,638 | $10,365 | $14,074 | $15,434 | ||||||||||
| 1 | Effective February 27, 2017, Class S was renamed Class N. |
| 2 | Effective October 1, 2016, the shares were reclassified and redesignated as Class S shares. |
| 3 | Per share numbers have been calculated using average shares. |
| 4 | Total returns and net investment income would have been lower had certain expenses not been offset. |
| 5 | The total return is calculated using the published Net Asset Value as of fiscal year end. |
| 6 | Excludes the impact of expense reimbursement or fee waivers and expense reductions such as brokerage credits, but includes expense repayments and non-reimbursable expenses, if any, such as interest, taxes, and extraordinary expenses. (See Note 1(c) and 2 in the Notes to Financial Statements.) |
75
| AMG GW&K Municipal Bond Fund |
| Financial Highlights |
| For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | |||||||||||||||
| Class N | 2020 | 2019 | 2018 | 2017 | 20161 | ||||||||||
| Net Asset Value, Beginning of Year | $12.12 | $11.48 | $11.60 | $11.25 | $11.70 | ||||||||||
| Income (loss) from Investment Operations: | |||||||||||||||
| Net investment income2,3 | 0.15 | 0.19 | 0.17 | 0.15 | 0.13 | ||||||||||
| Net realized and unrealized gain (loss) on investments | 0.33 | 0.64 | (0.11 | ) | 0.36 | (0.25 | ) | ||||||||
| Total income (loss) from investment operations | 0.48 | 0.83 | 0.06 | 0.51 | (0.12 | ) | |||||||||
| Less Distributions to Shareholders from: | |||||||||||||||
| Net investment income | (0.15 | ) | (0.19 | ) | (0.18 | ) | (0.15 | ) | (0.12 | ) | |||||
| Net realized gain on investments | — | — | (0.00 | )4 | (0.01 | ) | (0.21 | ) | |||||||
| Total distributions to shareholders | (0.15 | ) | (0.19 | ) | (0.18 | ) | (0.16 | ) | (0.33 | ) | |||||
| Net Asset Value, End of Year | $12.45 | $12.12 | $11.48 | $11.60 | $11.25 | ||||||||||
| Total Return3,5 | 4.31 | % | 7.29 | % | 0.54 | % | 4.58 | % | (1.05 | )% | |||||
| Ratio of net expenses to average net assets | 0.71 | % | 0.71 | % | 0.71 | % | 0.71 | % | 0.71 | % | |||||
| Ratio of gross expenses to average net assets6 | 0.77 | % | 0.78 | % | 0.77 | % | 0.78 | % | 0.95 | % | |||||
| Ratio of net investment income to average net assets3 | 1.25 | % | 1.59 | % | 1.53 | % | 1.31 | % | 1.08 | % | |||||
| Portfolio turnover | 17 | % | 18 | % | 35 | % | 27 | % | 66 | % | |||||
| Net assets end of year (000’s) omitted | $18,153 | $18,711 | $17,445 | $29,513 | $31,406 | ||||||||||
76
| AMG GW&K Municipal Bond Fund |
| Financial Highlights |
| For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | |||||||||||||||
| Class I | 2020 | 2019 | 2018 | 20177 | 20161 | ||||||||||
| Net Asset Value, Beginning of Year | $12.18 | $11.54 | $11.66 | $11.31 | $11.77 | ||||||||||
| Income (loss) from Investment Operations: | |||||||||||||||
| Net investment income2,3 | 0.19 | 0.23 | 0.21 | 0.19 | 0.17 | ||||||||||
| Net realized and unrealized gain (loss) on investments | 0.34 | 0.64 | (0.12 | ) | 0.36 | (0.25 | ) | ||||||||
| Total income (loss) from investment operations | 0.53 | 0.87 | 0.09 | 0.55 | (0.08 | ) | |||||||||
| Less Distributions to Shareholders from: | |||||||||||||||
| Net investment income | (0.19 | ) | (0.23 | ) | (0.21 | ) | (0.19 | ) | (0.17 | ) | |||||
| Net realized gain on investments | — | — | (0.00 | )4 | (0.01 | ) | (0.21 | ) | |||||||
| Total distributions to shareholders | (0.19 | ) | (0.23 | ) | (0.21 | ) | (0.20 | ) | (0.38 | ) | |||||
| Net Asset Value, End of Year | $12.52 | $12.18 | $11.54 | $11.66 | $11.31 | ||||||||||
| Total Return3,5 | 4.70 | % | 7.58 | % | 0.87 | % | 4.90 | % | (0.70 | )% | |||||
| Ratio of net expenses to average net assets | 0.39 | % | 0.39 | % | 0.39 | % | 0.37 | % | 0.34 | % | |||||
| Ratio of gross expenses to average net assets6 | 0.45 | % | 0.46 | % | 0.45 | % | 0.45 | % | 0.58 | % | |||||
| Ratio of net investment income to average net assets3 | 1.57 | % | 1.91 | % | 1.85 | % | 1.64 | % | 1.45 | % | |||||
| Portfolio turnover | 17 | % | 18 | % | 35 | % | 27 | % | 66 | % | |||||
| Net assets end of year (000’s) omitted | $1,287,667 | $1,014,514 | $940,553 | $1,045,399 | $728,365 | ||||||||||
| 1 | Effective October 1, 2016, the Investor Class, Service Class and Institutional Class were renamed Class N, Class S and Class I, respectively. |
| 2 | Per share numbers have been calculated using average shares. |
| 3 | Total returns and net investment income would have been lower had certain expenses not been offset. |
| 4 | Less than $(0.005) per share. |
| 5 | The total return is calculated using the published Net Asset Value as of fiscal year end. |
| 6 | Excludes the impact of expense reimbursement or fee waivers and expense reductions such as brokerage credits, but includes expense repayments and non-reimbursable expenses, if any, such as interest, taxes, and extraordinary expenses. (See Note 1(c) and 2 in the Notes to Financial Statements.) |
| 7 | Effective June 23, 2017, Class S shares were converted to Class I shares. |
77
| AMG GW&K Municipal Enhanced Yield Fund |
| Financial Highlights |
| For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | |||||||||||||||
| Class N | 2020 | 2019 | 2018 | 2017 | 20161 | ||||||||||
| Net Asset Value, Beginning of Year | $10.42 | $9.69 | $10.02 | $9.40 | $10.08 | ||||||||||
| Income (loss) from Investment Operations: | |||||||||||||||
| Net investment income2,3 | 0.23 | 0.26 | 0.27 | 0.26 | 0.25 | ||||||||||
| Net realized and unrealized gain (loss) on investments | 0.37 | 0.78 | (0.33 | ) | 0.62 | (0.23 | ) | ||||||||
| Total income (loss) from investment operations | 0.60 | 1.04 | (0.06 | ) | 0.88 | 0.02 | |||||||||
| Less Distributions to Shareholders from: | |||||||||||||||
| Net investment income | (0.21 | ) | (0.25 | ) | (0.15 | ) | (0.26 | ) | (0.25 | ) | |||||
| Net realized gain on investments | (0.12 | ) | (0.06 | ) | — | — | (0.45 | ) | |||||||
| Paid in capital | — | — | (0.12 | ) | — | — | |||||||||
| Total distributions to shareholders | (0.33 | ) | (0.31 | ) | (0.27 | ) | (0.26 | ) | (0.70 | ) | |||||
| Net Asset Value, End of Year | $10.69 | $10.42 | $9.69 | $10.02 | $9.40 | ||||||||||
| Total Return3,4 | 5.95 | % | 10.92 | % | (0.55 | )% | 9.51 | % | 0.10 | % | |||||
| Ratio of net expenses to average net assets | 0.99 | % | 0.99 | % | 0.99 | % | 1.01 | % | 1.14 | % | |||||
| Ratio of gross expenses to average net assets5 | 1.07 | % | 1.08 | % | 1.08 | % | 1.11 | % | 1.30 | % | |||||
| Ratio of net investment income to average net assets3 | 2.17 | % | 2.56 | % | 2.79 | % | 2.67 | % | 2.38 | % | |||||
| Portfolio turnover | 81 | % | 40 | % | 89 | % | 67 | % | 172 | % | |||||
| Net assets end of year (000’s) omitted | $5,015 | $5,722 | $7,283 | $8,828 | $4,184 | ||||||||||
78
| AMG GW&K Municipal Enhanced Yield Fund |
| Financial Highlights |
| For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | |||||||||||||||
| Class I | 2020 | 2019 | 2018 | 20176 | 20161 | ||||||||||
| Net Asset Value, Beginning of Year | $10.15 | $9.45 | $10.01 | $9.40 | $10.07 | ||||||||||
| Income (loss) from Investment Operations: | |||||||||||||||
| Net investment income2,3 | 0.25 | 0.29 | 0.31 | 0.30 | 0.30 | ||||||||||
| Net realized and unrealized gain (loss) on investments | 0.37 | 0.76 | (0.32 | ) | 0.61 | (0.22 | ) | ||||||||
| Total income (loss) from investment operations | 0.62 | 1.05 | (0.01 | ) | 0.91 | 0.08 | |||||||||
| Less Distributions to Shareholders from: | |||||||||||||||
| Net investment income | (0.25 | ) | (0.29 | ) | (0.31 | ) | (0.30 | ) | (0.30 | ) | |||||
| Net realized gain on investments | (0.12 | ) | (0.06 | ) | — | — | (0.45 | ) | |||||||
| Paid in capital | — | — | (0.24 | ) | — | — | |||||||||
| Total distributions to shareholders | (0.37 | ) | (0.35 | ) | (0.55 | ) | (0.30 | ) | (0.75 | ) | |||||
| Net Asset Value, End of Year | $10.40 | $10.15 | $9.45 | $10.01 | $9.40 | ||||||||||
| Total Return3,4 | 6.31 | % | 11.28 | % | (0.07 | )% | 9.79 | % | 0.70 | % | |||||
| Ratio of net expenses to average net assets | 0.64 | % | 0.64 | % | 0.64 | % | 0.64 | % | 0.64 | % | |||||
| Ratio of gross expenses to average net assets5 | 0.72 | % | 0.73 | % | 0.73 | % | 0.74 | % | 0.80 | % | |||||
| Ratio of net investment income to average net assets3 | 2.52 | % | 2.91 | % | 3.14 | % | 3.05 | % | 2.89 | % | |||||
| Portfolio turnover | 81 | % | 40 | % | 89 | % | 67 | % | 172 | % | |||||
| Net assets end of year (000’s) omitted | $323,439 | $273,228 | $203,867 | $226,638 | $195,193 | ||||||||||
79
| AMG GW&K Municipal Enhanced Yield Fund |
| Financial Highlights |
| For a share outstanding throughout each fiscal period |
| For the fiscal years ended December 31, | For the fiscal period ended December 31, | |||||||||||
| Class Z | 2020 | 2019 | 2018 | 20177 | ||||||||
| Net Asset Value, Beginning of Period | $10.15 | $9.44 | $10.01 | $9.49 | ||||||||
| Income (loss) from Investment Operations: | ||||||||||||
| Net investment income2,3 | 0.26 | 0.30 | 0.31 | 0.25 | ||||||||
| Net realized and unrealized gain (loss) on investments | 0.37 | 0.76 | (0.32 | ) | 0.52 | |||||||
| Total income (loss) from investment operations | 0.63 | 1.06 | (0.01 | ) | 0.77 | |||||||
| Less Distributions to Shareholders from: | ||||||||||||
| Net investment income | (0.26 | ) | (0.29 | ) | (0.32 | ) | (0.25 | ) | ||||
| Net realized gain on investments | (0.12 | ) | (0.06 | ) | — | — | ||||||
| Paid in capital | — | — | (0.24 | ) | — | |||||||
| Total distributions to shareholders | (0.38 | ) | (0.35 | ) | (0.56 | ) | (0.25 | ) | ||||
| Net Asset Value, End of Period | $10.40 | $10.15 | $9.44 | $10.01 | ||||||||
| Total Return3,4 | 6.37 | % | 11.45 | % | (0.09 | )% | 8.23 | %8 | ||||
| Ratio of net expenses to average net assets | 0.59 | % | 0.59 | % | 0.59 | % | 0.59 | %9 | ||||
| Ratio of gross expenses to average net assets5 | 0.67 | % | 0.68 | % | 0.68 | % | 0.69 | %9 | ||||
| Ratio of net investment income to average net assets3 | 2.57 | % | 2.96 | % | 3.19 | % | 3.07 | %9 | ||||
| Portfolio turnover | 81 | % | 40 | % | 89 | % | 67 | % | ||||
| Net assets end of period (000’s) omitted | $130 | $120 | $108 | $108 | ||||||||
| 1 | Effective October 1, 2016, the Investor Class, Service Class and Institutional Class were renamed Class N, Class S and Class I, respectively. |
| 2 | Per share numbers have been calculated using average shares. |
| 3 | Total returns and net investment income would have been lower had certain expenses not been offset. |
| 4 | The total return is calculated using the published Net Asset Value as of fiscal year end. |
| 5 | Excludes the impact of expense reimbursement or fee waivers and expense reductions such as brokerage credits, but includes expense repayments and non-reimbursable expenses, if any, such as interest, taxes, and extraordinary expenses. (See Note 1(c) and 2 in the Notes to Financial Statements.) |
| 6 | Effective June 23, 2017, Class S shares were converted to Class I shares. |
| 7 | Commencement of operations was February 27, 2017. |
| 8 | Not annualized. |
| 9 | Annualized. |
80
| AMG GW&K Global Allocation Fund |
| Financial Highlights |
| For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | |||||||||||||||
| Class N | 2020 | 2019 | 2018 | 2017 | 20161 | ||||||||||
| Net Asset Value, Beginning of Year | $17.04 | $15.45 | $17.03 | $15.45 | $14.92 | ||||||||||
| Income (loss) from Investment Operations: | |||||||||||||||
| Net investment income2,3 | 0.10 | 0.25 | 0.18 | 0.10 | 0.14 | 4 | |||||||||
| Net realized and unrealized gain (loss) on investments | 2.93 | 2.35 | (0.67 | ) | 2.30 | 0.54 | |||||||||
| Total income (loss) from investment operations | 3.03 | 2.60 | (0.49 | ) | 2.40 | 0.68 | |||||||||
| Less Distributions to Shareholders from: | |||||||||||||||
| Net investment income | (0.09 | ) | (0.27 | ) | (0.16 | ) | (0.11 | ) | (0.14 | ) | |||||
| Net realized gain on investments | (0.48 | ) | (0.74 | ) | (0.93 | ) | (0.71 | ) | (0.01 | ) | |||||
| Paid in capital | (0.00 | )5 | — | — | — | — | |||||||||
| Total distributions to shareholders | (0.57 | ) | (1.01 | ) | (1.09 | ) | (0.82 | ) | (0.15 | ) | |||||
| Net Asset Value, End of Year | $19.50 | $17.04 | $15.45 | $17.03 | $15.45 | ||||||||||
| Total Return3,6 | 18.92 | % | 16.96 | % | (2.89 | )% | 15.54 | % | 4.59 | % | |||||
| Ratio of net expenses to average net assets7 | 1.07 | % | 1.08 | % | 1.08 | % | 1.09 | % | 1.08 | % | |||||
| Ratio of gross expenses to average net assets8 | 1.19 | % | 1.16 | % | 1.15 | % | 1.14 | % | 1.25 | % | |||||
| Ratio of net investment income to average net assets3 | 0.60 | % | 1.51 | % | 1.02 | % | 0.63 | % | 0.94 | % | |||||
| Portfolio turnover | 156 | % | 123 | % | 80 | % | 75 | % | 119 | % | |||||
| Net assets end of year (000’s) omitted | $51,415 | $69,774 | $75,271 | $74,315 | $92,502 | ||||||||||
81
| AMG GW&K Global Allocation Fund |
| Financial Highlights |
| For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | |||||||||||||||
| Class I | 2020 | 2019 | 2018 | 2017 | 20161 | ||||||||||
| Net Asset Value, Beginning of Year | $17.22 | $15.60 | $17.19 | $15.59 | $15.05 | ||||||||||
| Income (loss) from Investment Operations: | |||||||||||||||
| Net investment income2,3 | 0.13 | 0.28 | 0.21 | 0.13 | 0.17 | 4 | |||||||||
| Net realized and unrealized gain (loss) on investments | 2.95 | 2.38 | (0.68 | ) | 2.31 | 0.54 | |||||||||
| Total income (loss) from investment operations | 3.08 | 2.66 | (0.47 | ) | 2.44 | 0.71 | |||||||||
| Less Distributions to Shareholders from: | |||||||||||||||
| Net investment income | (0.11 | ) | (0.30 | ) | (0.19 | ) | (0.13 | ) | (0.16 | ) | |||||
| Net realized gain on investments | (0.48 | ) | (0.74 | ) | (0.93 | ) | (0.71 | ) | (0.01 | ) | |||||
| Paid in capital | (0.00 | )5 | — | — | — | — | |||||||||
| Total distributions to shareholders | (0.59 | ) | (1.04 | ) | (1.12 | ) | (0.84 | ) | (0.17 | ) | |||||
| Net Asset Value, End of Year | $19.71 | $17.22 | $15.60 | $17.19 | $15.59 | ||||||||||
| Total Return3,6 | 19.08 | % | 17.17 | % | (2.77 | )% | 15.71 | % | 4.79 | % | |||||
| Ratio of net expenses to average net assets7 | 0.92 | % | 0.93 | % | 0.92 | % | 0.94 | % | 0.93 | % | |||||
| Ratio of gross expenses to average net assets8 | 1.04 | % | 1.01 | % | 0.99 | % | 0.99 | % | 1.10 | % | |||||
| Ratio of net investment income to average net assets3 | 0.75 | % | 1.66 | % | 1.18 | % | 0.78 | % | 1.09 | % | |||||
| Portfolio turnover | 156 | % | 123 | % | 80 | % | 75 | % | 119 | % | |||||
| Net assets end of year (000’s) omitted | $97,869 | $173,575 | $166,554 | $114,913 | $75,890 | ||||||||||
82
| AMG GW&K Global Allocation Fund | |
| Financial Highlights | |
For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | ||||||||||||||||
| Class Z | 2020 | 2019 | 2018 | 2017 | 20161 | |||||||||||
| Net Asset Value, Beginning of Year | $17.21 | $15.60 | $17.19 | $15.58 | $15.05 | |||||||||||
| Income (loss) from Investment Operations: | ||||||||||||||||
| Net investment income2,3 | 0.14 | 0.30 | 0.22 | 0.15 | 0.18 | 4 | ||||||||||
| Net realized and unrealized gain (loss) on investments | 2.97 | 2.37 | (0.67 | ) | 2.32 | 0.54 | ||||||||||
| Total income (loss) from investment operations | 3.11 | 2.67 | (0.45 | ) | 2.47 | 0.72 | ||||||||||
| Less Distributions to Shareholders from: | ||||||||||||||||
| Net investment income | (0.13 | ) | (0.32 | ) | (0.21 | ) | (0.15 | ) | (0.18 | ) | ||||||
| Net realized gain on investments | (0.48 | ) | (0.74 | ) | (0.93 | ) | (0.71 | ) | (0.01 | ) | ||||||
| Paid in capital | (0.00 | )5 | — | — | — | — | ||||||||||
| Total distributions to shareholders | (0.61 | ) | (1.06 | ) | (1.14 | ) | (0.86 | ) | (0.19 | ) | ||||||
| Net Asset Value, End of Year | $19.71 | $17.21 | $15.60 | $17.19 | $15.58 | |||||||||||
| Total Return3,6 | 19.28 | % | 17.21 | % | (2.68 | )% | 15.90 | % | 4.82 | % | ||||||
| Ratio of net expenses to average net assets7 | 0.82 | % | 0.83 | % | 0.83 | % | 0.84 | % | 0.83 | % | ||||||
| Ratio of gross expenses to average net assets8 | 0.94 | % | 0.91 | % | 0.90 | % | 0.89 | % | 1.00 | % | ||||||
| Ratio of net investment income to average net assets3 | 0.85 | % | 1.76 | % | 1.27 | % | 0.88 | % | 1.20 | % | ||||||
| Portfolio turnover | 156 | % | 123 | % | 80 | % | 75 | % | 119 | % | ||||||
| Net assets end of year (000’s) omitted | $3,733 | $8,358 | $8,429 | $7,060 | $5,796 | |||||||||||
| 1 | Effective October 1, 2016, the Investor Class, Service Class and Institutional Class were renamed Class N, Class I and Class Z, respectively. |
| 2 | Per share numbers have been calculated using average shares. |
| 3 | Total returns and net investment income would have been lower had certain expenses not been offset. |
| 4 | Includes non-recurring dividends. Without these dividends, net investment income per share would have been $0.12, $0.15, and $0.16 for Class N, Class I, and Class Z shares, respectively. |
| 5 | Less than $0.005 per share. |
| 6 | The total return is calculated using the published Net Asset Value as of fiscal year end. |
| 7 | Includes reduction from broker recapture amounting to less than 0.01% for the fiscal year ended December 31, 2020, 0.01% for the fiscal years ended December 31, 2019 and 2018, less than 0.01%, 0.01% and 0.01% for the fiscal years ended 2017, 2016 and 2015, respectively. |
| 8 | Excludes the impact of expense reimbursement or fee waivers and expense reductions such as brokerage credits, but includes expense repayments and non-reimbursable expenses, if any, such as interest, taxes, and extraordinary expenses. (See Note 1(c) and 2 in the Notes to Financial Statements.) |
83
| AMG GW&K Small Cap Core Fund | |
| Financial Highlights | |
For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | ||||||||||||||||
| Class N | 2020 | 2019 | 2018 | 2017 | 20161 | |||||||||||
| Net Asset Value, Beginning of Year | $26.09 | $21.03 | $28.04 | $24.57 | $21.80 | |||||||||||
| Income (loss) from Investment Operations: | ||||||||||||||||
| Net investment income (loss)2,3 | (0.03 | ) | (0.04 | ) | (0.04 | ) | (0.06 | )4 | 0.00 | 5,6 | ||||||
| Net realized and unrealized gain (loss) on investments | 4.64 | 6.47 | (3.95 | ) | 5.06 | 3.81 | ||||||||||
| Total income (loss) from investment operations | 4.61 | 6.43 | (3.99 | ) | 5.00 | 3.81 | ||||||||||
| Less Distributions to Shareholders from: | ||||||||||||||||
| Net realized gain on investments | (0.73 | ) | (1.37 | ) | (3.02 | ) | (1.53 | ) | (1.04 | ) | ||||||
| Net Asset Value, End of Year | $29.97 | $26.09 | $21.03 | $28.04 | $24.57 | |||||||||||
| Total Return3,7 | 17.73 | % | 30.66 | % | (14.08 | )% | 20.32 | % | 17.44 | % | ||||||
| Ratio of net expenses to average net assets8 | 1.29 | % | 1.29 | % | 1.28 | % | 1.32 | % | 1.33 | % | ||||||
| Ratio of gross expenses to average net assets9 | 1.30 | % | 1.31 | % | 1.28 | % | 1.33 | % | 1.42 | % | ||||||
| Ratio of net investment income (loss) to average net assets3 | (0.14 | )% | (0.15 | )% | (0.13 | )% | (0.21 | )% | 0.01 | % | ||||||
| Portfolio turnover | 37 | % | 20 | % | 25 | % | 23 | % | 19 | % | ||||||
| Net assets end of year (000’s) omitted | $8,667 | $10,239 | $12,655 | $24,989 | $35,760 | |||||||||||
84
| AMG GW&K Small Cap Core Fund | |
| Financial Highlights | |
For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | ||||||||||||||||
| Class I | 2020 | 2019 | 2018 | 201710 | 20161 | |||||||||||
| Net Asset Value, Beginning of Year | $26.57 | $21.37 | $28.42 | $24.84 | $22.04 | |||||||||||
| Income (loss) from Investment Operations: | ||||||||||||||||
| Net investment income2,3 | 0.05 | 0.05 | 0.06 | 0.07 | 4 | 0.10 | 5 | |||||||||
| Net realized and unrealized gain (loss) on investments | 4.76 | 6.58 | (4.03 | ) | 5.10 | 3.86 | ||||||||||
| Total income (loss) from investment operations | 4.81 | 6.63 | (3.97 | ) | 5.17 | 3.96 | ||||||||||
| Less Distributions to Shareholders from: | ||||||||||||||||
| Net investment income | (0.04 | ) | (0.06 | ) | (0.06 | ) | (0.06 | ) | (0.10 | ) | ||||||
| Net realized gain on investments | (0.73 | ) | (1.37 | ) | (3.02 | ) | (1.53 | ) | (1.06 | ) | ||||||
| Total distributions to shareholders | (0.77 | ) | (1.43 | ) | (3.08 | ) | (1.59 | ) | (1.16 | ) | ||||||
| Net Asset Value, End of Year | $30.61 | $26.57 | $21.37 | $28.42 | $24.84 | |||||||||||
| Total Return3,7 | 18.16 | % | 31.13 | % | (13.83 | )% | 20.79 | % | 17.90 | % | ||||||
| Ratio of net expenses to average net assets8 | 0.94 | % | 0.94 | % | 0.95 | % | 0.95 | % | 0.94 | % | ||||||
| Ratio of gross expenses to average net assets9 | 0.95 | % | 0.96 | % | 0.95 | % | 0.96 | % | 1.03 | % | ||||||
| Ratio of net investment income to average net assets3 | 0.21 | % | 0.20 | % | 0.20 | % | 0.24 | % | 0.43 | % | ||||||
| Portfolio turnover | 37 | % | 20 | % | 25 | % | 23 | % | 19 | % | ||||||
| Net assets end of year (000’s) omitted | $470,373 | $331,703 | $311,252 | $403,309 | $367,972 | |||||||||||
85
| AMG GW&K Small Cap Core Fund | |
| Financial Highlights | |
For a share outstanding throughout each fiscal period |
| For the fiscal years ended December 31, | For the fiscal period ended December 31, |
| |||||||||||
| Class Z | 2020 | 2019 | 2018 | 201711 | |||||||||
| Net Asset Value, Beginning of Period | $26.57 | $21.37 | $28.42 | $26.13 | |||||||||
| Income (loss) from Investment Operations: | |||||||||||||
| Net investment income2,3 | 0.07 | 0.06 | 0.07 | 0.14 | 4 | ||||||||
| Net realized and unrealized gain (loss) on investments | 4.75 | 6.59 | (4.03 | ) | 3.75 | ||||||||
| Total income (loss) from investment operations | 4.82 | 6.65 | (3.96 | ) | 3.89 | ||||||||
| Less Distributions to Shareholders from: | |||||||||||||
| Net investment income | (0.05 | ) | (0.08 | ) | (0.07 | ) | (0.07 | ) | |||||
| Net realized gain on investments | (0.73 | ) | (1.37 | ) | (3.02 | ) | (1.53 | ) | |||||
| Total distributions to shareholders | (0.78 | ) | (1.45 | ) | (3.09 | ) | (1.60 | ) | |||||
| Net Asset Value, End of Period | $30.61 | $26.57 | $21.37 | $28.42 | |||||||||
| Total Return3,7 | 18.21 | % | 31.13 | % | (13.73 | )% | 14.87 | %12 | |||||
| Ratio of net expenses to average net assets8 | 0.89 | % | 0.89 | % | 0.90 | % | 0.90 | %13 | |||||
| Ratio of gross expenses to average net assets9 | 0.90 | % | 0.91 | % | 0.90 | % | 0.91 | %13 | |||||
| Ratio of net investment income to average net assets3 | 0.26 | % | 0.25 | % | 0.25 | % | 0.56 | %13 | |||||
| Portfolio turnover | 37 | % | 20 | % | 25 | % | 23 | % | |||||
| Net assets end of period (000’s) omitted | $125,848 | $110,020 | $85,009 | $108,047 | |||||||||
| 1 | Effective October 1, 2016, the Investor Class, Service Class and Institutional Class were renamed Class N, Class S and Class I, respectively. |
| 2 | Per share numbers have been calculated using average shares. |
| 3 | Total returns and net investment income (loss) would have been lower had certain expenses not been offset. |
| 4 | Includes non-recurring dividends. Without these dividends, net investment income per share would have been $(0.12), $0.01, and $0.09 for Class N, Class I and Class Z shares, respectively. |
| 5 | Includes non-recurring dividends. Without these dividends, net investment income per share would have been $(0.06) and $0.04 for class N and Class I, respectively. |
| 6 | Less than $0.005 per share. |
| 7 | The total return is calculated using the published Net Asset Value as of fiscal year end. |
| 8 | Includes reduction from broker recapture amounting to 0.01% for the fiscal year ended 2020, 2019, less than 0.01% for the fiscal year ended 2018 and period ended December 31, 2017. |
| 9 | Excludes the impact of expense reimbursement or fee waivers and expense reductions such as brokerage credits, but includes expense repayments and non-reimbursable expenses, if any, such as interest, taxes, and extraordinary expenses. (See Note 1(c) and 2 in the Notes to Financial Statements.) |
| 10 | Effective June 23, 2017, Class S shares were converted to Class I shares. |
| 11 | Commencement of operations was on February 27, 2017. |
| 12 | Not annualized. |
| 13 | Annualized. |
86
| AMG GW&K Small/Mid Cap Fund | |
| Financial Highlights | |
For a share outstanding throughout each fiscal period |
| For the fiscal years ended December 31, | For the fiscal period ended December 31, |
| |||||||||||
| Class N | 2020 | 2019 | 2018 | 20171 | |||||||||
| Net Asset Value, Beginning of Period | $13.03 | $9.99 | $11.15 | $10.35 | |||||||||
| Income (loss) from Investment Operations: | |||||||||||||
| Net investment income (loss)2,3 | (0.01 | ) | 0.00 | 4 | (0.01 | ) | 0.01 | 5 | |||||
| Net realized and unrealized gain (loss) on investments | 3.02 | 3.07 | (0.91 | ) | 0.94 | ||||||||
| Total income (loss) from investment operations | 3.01 | 3.07 | (0.92 | ) | 0.95 | ||||||||
| Less Distributions to Shareholders from: | |||||||||||||
| Net investment income | — | (0.01 | ) | — | — | ||||||||
| Net realized gain on investments | — | (0.02 | ) | (0.24 | ) | (0.15 | ) | ||||||
| Total distributions to shareholders | — | (0.03 | ) | (0.24 | ) | (0.15 | ) | ||||||
| Net Asset Value, End of Period | $16.04 | $13.03 | $9.99 | $11.15 | |||||||||
| Total Return3,6 | 23.10 | % | 30.64 | % | (8.25 | )% | 9.17 | %7 | |||||
| Ratio of net expenses to average net assets8 | 1.10 | % | 1.09 | % | 1.09 | % | 1.10 | %9 | |||||
| Ratio of gross expenses to average net assets10 | 1.13 | % | 1.14 | % | 1.16 | % | 1.71 | %9 | |||||
| Ratio of net investment income (loss) to average net assets3 | (0.07 | )% | 0.02 | % | (0.09 | )% | 0.12 | %9 | |||||
| Portfolio turnover | 29 | % | 18 | % | 53 | % | 38 | % | |||||
| Net assets end of period (000’s) omitted | $224 | $172 | $89 | $11 | |||||||||
87
| AMG GW&K Small/Mid Cap Fund | |
| Financial Highlights | |
| For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | ||||||||||||||||
| Class I | 2020 | 2019 | 2018 | 2017 | 201611 | |||||||||||
| Net Asset Value, Beginning of Year | $13.04 | $9.99 | $11.15 | $9.80 | $8.95 | |||||||||||
| Income (loss) from Investment Operations: | ||||||||||||||||
| Net investment income (loss)2,3 | 0.01 | 0.02 | 0.01 | 0.035 | (0.03 | ) | ||||||||||
| Net realized and unrealized gain (loss) on investments | 3.03 | 3.07 | (0.92 | ) | 1.48 | 0.89 | ||||||||||
| Total income (loss) from investment operations | 3.04 | 3.09 | (0.91 | ) | 1.51 | 0.86 | ||||||||||
| Less Distributions to Shareholders from: | ||||||||||||||||
| Net investment income | (0.02 | ) | (0.02 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | ||||||
| Net realized gain on investments | — | (0.02 | ) | (0.24 | ) | (0.15 | ) | — | ||||||||
| Total distributions to shareholders | (0.02 | ) | (0.04 | ) | (0.25 | ) | (0.16 | ) | (0.01 | ) | ||||||
| Net Asset Value, End of Year | $16.06 | $13.04 | $9.99 | $11.15 | $9.80 | |||||||||||
| Total Return3,6 | 23.31 | % | 30.86 | % | (8.15 | )% | 15.44 | % | 9.55 | % | ||||||
| Ratio of net expenses to average net assets8 | 0.92 | % | 0.94 | % | 0.94 | % | 0.94 | % | 0.95 | % | ||||||
| Ratio of gross expenses to average net assets10 | 0.95 | % | 0.99 | % | 1.01 | % | 1.62 | % | 4.60 | % | ||||||
| Ratio of net investment income (loss) to average net assets3 | 0.11 | % | 0.17 | % | 0.06 | % | 0.26 | % | (0.38 | )% | ||||||
| Portfolio turnover | 29 | % | 18 | % | 53 | % | 38 | % | 48 | % | ||||||
| Net assets end of year (000’s) omitted | $165,840 | $102,784 | $54,376 | $24,266 | $2 | |||||||||||
88
| AMG GW&K Small/Mid Cap Fund | |
| Financial Highlights | |
| For a share outstanding throughout each fiscal period |
| For the fiscal years ended December 31, | For the fiscal period ended December 31, |
||||||||||||
| Class Z | 2020 | 2019 | 2018 | 20171 | |||||||||
| Net Asset Value, Beginning of Period | $13.05 | $10.00 | $11.15 | $10.35 | |||||||||
| Income (loss) from Investment Operations: | |||||||||||||
| Net investment income2,3 | 0.02 | 0.03 | 0.02 | 0.03 | 5 | ||||||||
| Net realized and unrealized gain (loss) on investments | 3.03 | 3.07 | (0.91 | ) | 0.94 | ||||||||
| Total income (loss) from investment operations | 3.05 | 3.10 | (0.89 | ) | 0.97 | ||||||||
| Less Distributions to Shareholders from: | |||||||||||||
| Net investment income | (0.03 | ) | (0.03 | ) | (0.02 | ) | (0.02 | ) | |||||
| Net realized gain on investments | — | (0.02 | ) | (0.24 | ) | (0.15 | ) | ||||||
| Total distributions to shareholders | (0.03 | ) | (0.05 | ) | (0.26 | ) | (0.17 | ) | |||||
| Net Asset Value, End of Period | $16.07 | $13.05 | $10.00 | $11.15 | |||||||||
| Total Return3,6 | 23.37 | % | 30.94 | % | (7.98 | )% | 9.34 | %7 | |||||
| Ratio of net expenses to average net assets8 | 0.83 | % | 0.84 | % | 0.84 | % | 0.85 | %9 | |||||
| Ratio of gross expenses to average net assets10 | 0.86 | % | 0.89 | % | 0.91 | % | 1.46 | %9 | |||||
| Ratio of net investment income to average net assets3 | 0.19 | % | 0.27 | % | 0.16 | % | 0.37 | %9 | |||||
| Portfolio turnover | 29 | % | 18 | % | 53 | % | 38 | % | |||||
| Net assets end of period (000’s) omitted | $104,705 | $95,884 | $65,375 | $6,980 | |||||||||
| 1 | Commencement of operations was on February 27, 2017. |
| 2 | Per share numbers have been calculated using average shares. |
| 3 | Total returns and net investment income (loss) would have been lower had certain expenses not been offset. |
| 4 | Less than $0.005 per share. |
| 5 | Includes non-recurring dividends. Without these dividends, net investment income per share would have been $(0.01), $0.00, and $0.01 for Class N, Class I and Class Z, respectively. |
| 6 | The total return is calculated using the published Net Asset Value as of fiscal year end. |
| 7 | Not annualized. |
| 8 | Includes reduction from broker recapture amounting to 0.01% for the fiscal year ended 2020, 2019, 2018, and less than 0.01% for the fiscal year ended 2017. |
| 9 | Annualized. |
| 10 | Excludes the impact of expense reimbursement or fee waivers and expense reductions such as brokerage credits, but includes expense repayments and non-reimbursable expenses, if any, such as interest, taxes, and extraordinary expenses. (See Note 1(c) and 2 in the Notes to Financial Statements.) |
| 11 | Effective October 1, 2016, Institutional Class was renamed Class I. |
89
| AMG GW&K Small Cap Value Fund | |
| Financial Highlights | |
| For a share outstanding throughout each fiscal year |
| For the fiscal years ended December 31, | ||||||||||||||||
| Class N | 2020 | 2019 | 2018 | 20171 | 20162 | |||||||||||
| Net Asset Value, Beginning of Year | $37.16 | $30.93 | $43.98 | $43.30 | $35.71 | |||||||||||
| Income (loss) from Investment Operations: | ||||||||||||||||
| Net investment income (loss)3,4 | 0.08 | 0.07 | (0.01 | ) | (0.08 | ) | (0.01 | ) | ||||||||
| Net realized and unrealized gain (loss) on investments | 1.00 | 8.79 | (8.40 | ) | 3.73 | 7.61 | ||||||||||
| Total income (loss) from investment operations | 1.08 | 8.86 | (8.41 | ) | 3.65 | 7.60 | ||||||||||
| Less Distributions to Shareholders from: | ||||||||||||||||
| Net investment income | (0.08 | ) | (0.09 | ) | — | — | — | |||||||||
| Net realized gain on investments | (11.45 | ) | (2.54 | ) | (4.64 | ) | (2.97 | ) | (0.01 | ) | ||||||
| Total distributions to shareholders | (11.53 | ) | (2.63 | ) | (4.64 | ) | (2.97 | ) | (0.01 | ) | ||||||
| Net Asset Value, End of Year | $26.71 | $37.16 | $30.93 | $43.98 | $43.30 | |||||||||||
| Total Return4,5 | 3.29 | % | 28.64 | % | (19.00 | )% | 8.39 | % | 21.31 | % | ||||||
| Ratio of net expenses to average net assets | 1.17 | % | 1.17 | % | 1.17 | % | 1.25 | % | 1.32 | % | ||||||
| Ratio of gross expenses to average net assets6 | 1.21 | % | 1.20 | % | 1.18 | % | 1.27 | % | 1.42 | % | ||||||
| Ratio of net investment income (loss) to average net assets4 | 0.28 | % | 0.19 | % | (0.03 | )% | (0.18 | ) % | (0.03 | )% | ||||||
| Portfolio turnover | 115 | % | 20 | % | 24 | % | 33 | % | 34 | % | ||||||
| Net assets end of year (000’s) omitted | $243,655 | $359,550 | $425,540 | $923,139 | $1,502,587 | |||||||||||
90
| AMG GW&K Small Cap Value Fund | |
| Financial Highlights | |
| For a share outstanding throughout each fiscal period |
| For the fiscal years ended December 31, | For the fiscal period ended December 31, |
||||||||||||
| Class I | 2020 | 2019 | 2018 | 20177 | |||||||||
| Net Asset Value, Beginning of Period | $37.23 | $31.05 | $44.06 | $43.64 | |||||||||
| Income (loss) from Investment Operations: | |||||||||||||
| Net investment income3,4 | 0.14 | 0.13 | 0.06 | 0.02 | |||||||||
| Net realized and unrealized gain (loss) on investments | 1.02 | 8.83 | (8.43 | ) | 3.37 | ||||||||
| Total income (loss) from investment operations | 1.16 | 8.96 | (8.37 | ) | 3.39 | ||||||||
| Less Distributions to Shareholders from: | |||||||||||||
| Net investment income | (0.15 | ) | (0.24 | ) | — | — | |||||||
| Net realized gain on investments | (11.45 | ) | (2.54 | ) | (4.64 | ) | (2.97 | ) | |||||
| Total distributions to shareholders | (11.60 | ) | (2.78 | ) | (4.64 | ) | (2.97 | ) | |||||
| Net Asset Value, End of Period | $26.79 | $37.23 | $31.05 | $44.06 | |||||||||
| Total Return4,5 | 3.50 | % | 28.86 | % | (18.88 | )% | 7.73 | %8 | |||||
| Ratio of net expenses to average net assets | 0.99 | % | 1.01 | % | 1.01 | % | 1.13 | %9 | |||||
| Ratio of gross expenses to average net assets6 | 1.03 | % | 1.04 | % | 1.02 | % | 1.15 | %9 | |||||
| Ratio of net investment income to average net assets4 | 0.46 | % | 0.35 | % | 0.13 | % | 0.06 | %9 | |||||
| Portfolio turnover | 115 | % | 20 | % | 24 | % | 33 | % | |||||
| Net assets end of period (000’s) omitted | $83,003 | $122,323 | $306,757 | $362,723 | |||||||||
91
| AMG GW&K Small Cap Value Fund | |
| Financial Highlights | |
| For a share outstanding throughout each fiscal period |
| For the fiscal years ended December 31, | For the fiscal period ended December 31, |
||||||||||||
| Class Z | 2020 | 2019 | 2018 | 20177 | |||||||||
| Net Asset Value, Beginning of Period | $37.16 | $31.10 | $44.08 | $43.64 | |||||||||
| Income (loss) from Investment Operations: | |||||||||||||
| Net investment income3,4 | 0.16 | 0.16 | 0.10 | 0.08 | |||||||||
| Net realized and unrealized gain (loss) on investments | 1.02 | 8.84 | (8.44 | ) | 3.33 | ||||||||
| Total income (loss) from investment operations | 1.18 | 9.00 | (8.34 | ) | 3.41 | ||||||||
| Less Distributions to Shareholders from: | |||||||||||||
| Net investment income | (0.17 | ) | (0.40 | ) | — | — | |||||||
| Net realized gain on investments | (11.45 | ) | (2.54 | ) | (4.64 | ) | (2.97 | ) | |||||
| Total distributions to shareholders | (11.62 | ) | (2.94 | ) | (4.64 | ) | (2.97 | ) | |||||
| Net Asset Value, End of Period | $26.72 | $37.16 | $31.10 | $44.08 | |||||||||
| Total Return4,5 | 3.57 | % | 28.94 | % | (18.80 | )% | 7.78 | %8 | |||||
| Ratio of net expenses to average net assets | 0.92 | % | 0.92 | % | 0.92 | % | 0.98 | %9 | |||||
| Ratio of gross expenses to average net assets6 | 0.96 | % | 0.95 | % | 0.93 | % | 1.00 | %9 | |||||
| Ratio of net investment income to average net assets4 | 0.53 | % | 0.44 | % | 0.22 | % | 0.21 | %9 | |||||
| Portfolio turnover | 115 | % | 20 | % | 24 | % | 33 | % | |||||
| Net assets end of period (000’s) omitted | $10,481 | $11,815 | $16,969 | $9,929 | |||||||||
| 1 | Effective February 27, 2017, Class S was renamed Class N. |
| 2 | Effective October 1, 2016, the Fund’s shares were reclassified and redesignated to Class S. |
| 3 | Per share numbers have been calculated using average shares. |
| 4 | Total returns and net investment income (loss) would have been lower had certain expenses not been offset. |
| 5 | The total return is calculated using the published Net Asset Value as of fiscal year end. |
| 6 | Excludes the impact of expense reimbursement or fee waivers and expense reductions such as brokerage credits, but includes expense repayments and non-reimbursable expenses, if any, such as interest, taxes, and extraordinary expenses. (See Note 1(c) and 2 in the Notes to Financial Statements.) |
| 7 | Commencement of operations was on February 27, 2017. |
| 8 | Not annualized. |
| 9 | Annualized. |
92
Notes to Financial Statements December 31, 2020 |
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AMG Funds, AMG Funds II and AMG Funds III (the “Trusts”) are open-end management investment companies, organized as Massachusetts business trusts, and registered under the Investment Company Act of 1940, as amended (the “1940 Act”). Currently, the Trusts consist of a number of different funds, each having distinct investment management objectives, strategies, risks, and policies. Included in this report are AMG Funds: AMG GW&K Municipal Bond Fund (“Municipal Bond”), AMG GW&K Municipal Enhanced Yield Fund (“Municipal Enhanced”), AMG GW&K Small Cap Core Fund (“Small Cap Core”), AMG GW&K Small/Mid Cap Fund (“Small/Mid Cap”), AMG GW&K Small Cap Value (“Small Cap Value”) (formerly AMG Managers Skyline Special Equities Fund), AMG Funds II: AMG GW&K Global Allocation Fund (“Global Allocation”) (formerly AMG Chicago Equity Partners Balanced Fund), and AMG GW&K Enhanced Core Bond ESG Fund (“Enhanced Core Bond ESG”) and AMG Funds III: AMG GW&K High Income Fund (“High Income”) (formerly AMG Managers Global Income Opportunity Fund), each a “Fund” and collectively, the “Funds”.
Each Fund offers different classes of shares. All Funds offer Class N shares; all Funds except for High Income offer Class I shares; and all Funds except for High Income and Muni Bond offer Class Z shares. Effective May 31, 2019, Enhanced Core Bond ESG Class C shares were converted to Class N shares. Each class represents an interest in the same assets of the respective Fund. Although all share classes generally have identical voting rights, each share class votes separately when required by law. Different share classes may have different net asset values per share to the extent the share classes pay different distribution amounts and/or the expenses of such share classes differ. Each share class has its own expense structure. Please refer to a current prospectus for additional information on each share class.
Effective April 17, 2020, the Board replaced Chicago Equity Partners, LLC as subadviser to Global Allocation with GW&K Investment Management, LLC, (“GW&K”) on an interim basis. Subsequently, effective June 19, 2020, shareholders of Global Allocation approved GW&K as the permanent subadviser to Global Allocation. On December 3, 2020, the Board approved GW&K as the subadviser to High Income and Small Cap Value on an interim basis to replace Loomis, Sayles & Company, L.P. and Skyline Asset Management, L.P., respectively. GW&K became the interim subadviser on December 4, 2020, which is subject to shareholder approval. In conjunction with the respective change in investment strategy for Global Allocation, Small Cap Value and High Income, the Funds sold substantially all open positions around the date of the subadviser change, including open futures contracts and forward foreign exchange contracts for High Income.
On October 8, 2020, the Board proposed a merger between GW&K Mid Cap Fund and AMG GW&K Small/Mid Cap Fund, which is subject to shareholder approval.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the Funds and thus Fund performance.
Certain instruments held by a Fund may pay an interest rate based on the London Interbank Offered Rate (“LIBOR”), which is the offered rate for short-term loans between certain major international banks. LIBOR is expected to be phased out by the end of 2021. While the effect of the phase out cannot yet be determined, it may result in, among other things, increased volatility or illiquidity in markets for instruments based on LIBOR and changes in the value of some LIBOR-based investments or the effectiveness of new hedges placed against existing LIBOR-based investments. These effects could occur prior to the end of 2021. There
also remains uncertainty and risk regarding the willingness and ability of issuers to include enhanced provisions in new and existing contracts or instruments. All of the aforementioned may adversely affect a Fund’s performance or net asset value.
The Funds’ financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), including accounting and reporting guidance pursuant to Accounting Standards Codification Topic 946 applicable to investment companies. U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements:
a. VALUATION OF INVESTMENTS
Equity securities traded on a national securities exchange or reported on the NASDAQ national market system (“NMS”) are valued at the last quoted sales price on the primary exchange or, if applicable, the NASDAQ official closing price or the official closing price of the relevant exchange or, lacking any sales, at the last quoted bid price or the mean between the last quoted bid and ask prices (the “mean price”). Equity securities traded in the over-the-counter market (other than NMS securities) are valued at the mean price. Foreign equity securities (securities principally traded in markets other than U.S. markets) are valued at the official closing price on the primary exchange or, for markets that either do not offer an official closing price or where the official closing price may not be representative of the overall market, the last quoted sale price.
Fixed income securities purchased with a remaining maturity exceeding 60 days are valued at the evaluated mean price provided by an authorized pricing service or, if an evaluated price is not available, by reference to other securities which are considered comparable in credit rating, interest rate, due date and other features (generally referred to as “matrix pricing”) or other similar pricing methodologies. Investments in certain mortgage-backed and stripped mortgage-backed securities, preferred stocks, convertible securities, derivatives and other debt securities not traded on an organized securities market are valued on the basis of valuations provided by dealers or by a pricing service which uses information with respect to transactions in such securities and various relationships between such securities and yield to maturity in determining value.
Fixed income securities purchased with a remaining maturity of 60 days or less are valued at amortized cost, provided that the amortized cost value is approximately the same as the fair value of the security valued without the use of amortized cost. Investments in other open-end registered investment companies are valued at their end of day net asset value per share.
Futures contracts for which market quotations are readily available are valued at the settlement price as of the close of the futures exchange.
The Funds’ portfolio investments are generally valued based on independent market quotations or prices or, if none, “evaluative” or other market based valuations provided by third party pricing services approved by the Board of Trustees of the Trust (the “Board”). Under certain circumstances, the value of certain Fund portfolio investments may be based on an evaluation of fair value, pursuant to procedures established by and under the general supervision of the Board. The Valuation Committee, which is comprised of the Independent Trustees
93
Notes to Financial Statements (continued) |
of the Board, and the Pricing Committee, which is comprised of representatives from AMG Funds LLC (the “Investment Manager”) are the committees appointed by the Board to make fair value determinations. Each Fund may use the fair value of a portfolio investment to calculate its net asset value (“NAV”) in the event that the market quotation, price or market based valuation for the portfolio investment is not readily available or otherwise not determinable pursuant to the Board’s valuation procedures, if the Investment Manager or the Pricing Committee believes the quotation, price or market based valuation to be unreliable, or in certain other circumstances. When determining the fair value of an investment, the Pricing Committee and, if required under the Trusts’ securities valuation procedures, the Valuation Committee, seeks to determine the price that the Fund might reasonably expect to receive from current sale of that portfolio investment in an arms-length transaction. Fair value determinations shall be based upon consideration of all available facts and information, including, but not limited to (i) attributes specific to the investment; (ii) fundamental and analytical data relating to the investment; and (iii) the value of other comparable securities or relevant financial instruments, including derivative securities, traded on other markets or among dealers.
The values assigned to fair value portfolio investments are based on available information and do not necessarily represent amounts that might ultimately be realized in the future, since such amounts depend on future developments inherent in long-term investments. Because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material. The Board will be presented with a quarterly report showing as of the most recent quarter end, all outstanding securities fair valued by the Funds, including a comparison with the prior quarter end and the percentage of the Funds that the security represents at each quarter end.
With respect to foreign equity securities and certain foreign fixed income securities, the Board has adopted a policy that securities held in the Funds that can be fair valued by the applicable fair value pricing service are fair valued on each business day provided that each individual price exceeds a pre-established confidence level.
U.S. GAAP defines fair value as the price that a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP also establishes a framework for measuring fair value, and a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Funds. Unobservable inputs reflect the Funds’ own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation.
The three-tier hierarchy of inputs is summarized below:
Level 1 – inputs are quoted prices in active markets for identical investments (e.g., equity securities, open-end investment companies)
Level 2 – other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield
curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs) (e.g., debt securities, government securities, foreign currency exchange contracts, swaps, foreign securities utilizing international fair value pricing, fair valued securities with observable inputs)
Level 3 – inputs are significant unobservable inputs (including the Fund’s own assumptions used to determine the fair value of investments) (e.g., fair valued securities with unobservable inputs)
Changes in inputs or methodologies used for valuing investments may result in a transfer in or out of levels within the fair value hierarchy. The inputs or methodologies used for valuing investments may not necessarily be an indication of the risk associated with investing in those investments.
b. SECURITY TRANSACTIONS
Security transactions are accounted for as of trade date. Realized gains and losses on securities sold are determined on the basis of identified cost.
c. INVESTMENT INCOME AND EXPENSES
Dividend income is recorded on the ex-dividend date. Dividends from foreign securities are recorded on the ex-dividend date, and if after the fact, as soon as the Funds become aware of the ex-dividend date. Interest income, which includes amortization of premium and accretion of discount on debt securities, is accrued as earned. Dividend and interest income on foreign securities is recorded gross of any withholding tax. Non-cash dividends included in dividend income, if any, are reported at the fair market value of the securities received. Upon notification from issuers, distributions received from a real estate investment trust (REIT) may be redesignated as a reduction of cost of investments and/or realized gain. Other income and expenses are recorded on an accrual basis. Expenses that cannot be directly attributed to a Fund are apportioned among the funds in the Trusts and other trusts or funds within the AMG Funds Family of Funds (collectively the “AMG Funds Family”) based upon their relative average net assets or number of shareholders. Investment income, realized and unrealized capital gains and losses, the common expenses of each Fund, and certain fund level expense reductions, if any, are allocated on a pro-rata basis to each class based on the relative net assets of each class to the total net assets of each Fund.
Global Allocation, Small Cap Core and Small/Mid Cap had certain portfolio trades directed to various brokers under a brokerage recapture program. Credits received from the brokerage recapture program are earned and paid on a monthly basis, and are recorded as expense offsets, which serve to reduce the Fund’s overall expense ratio. For the fiscal year ended December 31, 2020, the impact on the expenses and expense ratios were as follows: Global Allocation $4,875 or less than 0.01%, Small Cap Core $36,922 or 0.01%, and Small/Mid Cap $10,121 or 0.01%.
d. DIVIDENDS AND DISTRIBUTIONS
Fund distributions resulting from either net investment income or realized net capital gains, if any, will normally be declared and paid at least annually in December. Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined in accordance with federal income tax regulations, which may differ from net investment income and net realized capital gains for financial statement purposes (U.S. GAAP). Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Permanent book and tax basis differences, if any, relating to shareholder distributions will result in
94
Notes to Financial Statements (continued) |
reclassifications to paid-in capital. Temporary differences arise when certain items of income, expense and gain or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Permanent differences are primarily due to the equalization utilized
and prior year true-up on REITs. Temporary differences are primarily due to the deferral of qualified late year losses, wash sales loss deferrals, capital loss carryovers and market-to-market of foreign currency.
The tax character of distributions paid during the fiscal years ended December 31, 2020 and December 31, 2019 were as follows:
| Enhanced Core Bond ESG | High Income | Municipal Bond | ||||||||||||||||
| Distributions paid from: | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Ordinary income * | $815,592 | $926,765 | $364,445 | $29,806 | $154,232 | $659,218 | ||||||||||||
| Tax-exempt income | — | — | — | — | 18,075,720 | 18,092,868 | ||||||||||||
| Long-term capital gains | — | — | 460,580 | — | 3,524,571 | — | ||||||||||||
| Paid-in capital | — | — | — | — | — | — | ||||||||||||
| $815,592 | $926,765 | $825,025 | $29,806 | $21,754,523 | $18,752,086 | |||||||||||||
| Municipal Enhanced | Global Allocation | Small Cap Core | ||||||||||||||||
| Distributions paid from: | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Ordinary income * | $1,182,108 | $766,280 | $1,199,737 | $4,414,354 | $4,358,429 | $994,828 | ||||||||||||
| Tax-exempt income | 7,549,526 | 7,002,372 | — | — | — | — | ||||||||||||
| Long-term capital gains | 2,730,802 | 1,129,412 | 4,990,089 | 10,472,587 | 10,672,469 | 22,550,089 | ||||||||||||
| Paid-in capital | — | — | 38,843 | — | — | — | ||||||||||||
| $11,462,436 | $8,898,064 | $6,228,669 | $14,886,941 | $15,030,898 | $23,544,917 | |||||||||||||
| Small/Mid Cap | Small Cap Value | |||||||||||
| Distributions paid from: | 2020 | 2019 | 2020 | 2019 | ||||||||
| Ordinary income * | $357,747 | $326,001 | $6,081,044 | $1,715,345 | ||||||||
| Long-term capital gains | 23,549 | 239,704 | 108,470,196 | 32,040,044 | ||||||||
| $381,296 | $565,705 | $114,551,240 | $33,755,389 | |||||||||
| * For tax purposes, short-term capital gain distributions, if any, are considered ordinary income distributions. |
95
Notes to Financial Statements (continued) |
As of December 31, 2020, the components of distributable earnings (excluding unrealized appreciation/depreciation) on a tax basis consisted of:
| Enhanced Core Bond ESG | High Income | Municipal Bond | Municipal Enhanced | ||||||||||
| Capital loss carryforward | $3,427,805 | — | — | — | |||||||||
| Undistributed ordinary income | 11,756 | — | $350,964 | $306,625 | |||||||||
| Undistributed tax-exempt income | — | — | 25,252 | 10,701 | |||||||||
| Undistributed long-term capital gains | — | — | 500,029 | 621,794 | |||||||||
| Late-year loss deferral | — | $53,756 | — | — | |||||||||
| Global Allocation | Small Cap Core | Small/Mid Cap | Small Cap Value | ||||||||||
| Capital loss carryforward | $1,215,727 | — | $646,338 | — | |||||||||
| Undistributed ordinary income | — | $4,437,440 | — | $97,383 | |||||||||
| Undistributed tax-exempt income | — | — | — | — | |||||||||
| Undistributed long-term capital gains | — | 8,663,042 | 3,928,875 | 4,511,398 | |||||||||
| Late-year loss deferral | 1,883 | — | — | — | |||||||||
At December 31, 2020, the cost of investments and the aggregate gross unrealized appreciation and depreciation for federal income tax purposes were as follows:
| Fund | Cost | Appreciation | Depreciation | Net Appreciation (Depreciation) | ||||||||
| Enhanced Core Bond ESG | $53,290,336 | $2,812,569 | $(19,102 | ) | $2,793,467 | |||||||
| High Income | 9,978,707 | 18,149 | (28,260 | ) | (10,111 | ) | ||||||
| Municipal Bond | 1,228,526,486 | 77,219,847 | (39,579 | ) | 77,180,268 | |||||||
| Municipal Enhanced | 298,430,376 | 24,488,017 | (22,470 | ) | 24,465,547 | |||||||
| Global Allocation | 115,065,538 | 37,000,374 | (435,714 | ) | 36,564,660 | |||||||
| Small Cap Core | 428,484,140 | 174,968,837 | (6,968,326 | ) | 168,000,511 | |||||||
| Small/Mid Cap | 194,495,162 | 76,587,922 | (5,470,523 | ) | 71,117,399 | |||||||
| Small Cap Value | 317,868,065 | 17,643,160 | (3,292,282 | ) | 14,350,878 | |||||||
e. FEDERAL TAXES
Each Fund currently qualifies as an investment company and intends to comply with the requirements under Subchapter M of the Internal Revenue Code of 1986, as amended, and to distribute substantially all of its taxable income and gains to its shareholders and to meet certain diversification and income requirements with respect to investment companies. Therefore, no provision for federal income or excise tax is included in the accompanying financial statements.
Additionally, based on each Fund’s understanding of the tax rules and rates related to income, gains and transactions for the foreign jurisdictions in which it invests, each Fund will provide for foreign taxes, and where appropriate, deferred foreign taxes.
Management has analyzed the Funds’ tax positions taken on federal income tax returns as of December 31, 2020, and for all open tax years (generally, the three prior taxable years), and has concluded that no provision for federal income tax is required in the Funds’ financial statements. Additionally, Management is not aware of any tax position for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
f. CAPITAL LOSS CARRYOVERS AND DEFERRALS
As of December 31, 2020, the following Funds had capital loss carryovers for federal income tax purposes as shown in the following chart. These amounts may be used to offset future realized capital gains indefinitely, and retain their character as short-term and/or long-term.
| Capital Loss Carryover Amounts |
||||||||||
| Fund | Short-Term | Long-Term | Total | |||||||
| Enhanced Core Bond ESG | 1,167,553 | 2,260,252 | 3,427,805 | |||||||
| Global Allocation | 1,215,727 | — | 1,215,727 | |||||||
| Small/Mid Cap* | — | 646,338 | 646,338 | |||||||
* Amounts may be limited due to sections 381-384 of the Internal Revenue Code.
96
Notes to Financial Statements (continued) |
As of December 31, 2020, High Income, Municipal Bond, Municipal Enhanced, Global Allocation, Small Cap Core and Small Cap Value had no accumulated net realized capital loss carryovers from securities transactions for federal income tax purposes. Should the Funds incur net capital losses for the year ending December 31, 2021, such amounts may be used to offset future realized capital gains, for an unlimited time period.
For the fiscal year ended December 31, 2020, the following Funds utilized capital loss carryovers as follows:
| Capital Loss Carryover Utilized |
|||||||
| Fund | Short-Term | Long-Term | |||||
| Enhanced Core Bond ESG | $346,462 | $502,937 | |||||
| Small/Mid Cap | 499,380 | 639,229 | |||||
| High Income | 319,209 | 601 | |||||
g. CAPITAL STOCK
The Trust’s Declaration of Trust authorizes for each Fund the issuance of an unlimited number of shares of beneficial interest, without par value. Each Fund records sales and repurchases of its capital stock on the trade date. For the fiscal year ended December 31, 2019, Small Cap Core transferred securities and cash to certain shareholders in connection with redemptions in-kind transactions in the amount of $47,933,644. For the purposes of U.S. GAAP, the transactions were treated as a sale of securities and the resulting gain or loss was recognized based on the market value of the securities on the date of the transfer. For tax purposes, no gains or losses were recognized.
For the fiscal years ended December 31, 2020 and December 31, 2019, the capital stock transactions by class for the Funds were as follows:
| Enhanced Core Bond ESG | High Income | |||||||||||||||||||||||
| December 31, 2020 | December 31, 2019 | December 31, 2020 | December 31, 2019 | |||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||
| Class N: | ||||||||||||||||||||||||
| Proceeds from sale of shares | 325,128 | $3,475,322 | 385,161 | $3,841,569 | 122,058 | $2,754,401 | 47,899 | $1,005,926 | ||||||||||||||||
| Reinvestment of distributions | 20,814 | 219,293 | 30,307 | 301,677 | 36,046 | 798,071 | 1,347 | 28,845 | ||||||||||||||||
| Cost of shares repurchased | (352,412 | ) | (3,703,576 | ) | (514,970 | ) | (5,145,719 | ) | (142,591 | ) | (3,100,201 | ) | (118,585 | ) | (2,450,499 | ) | ||||||||
| Share Conversion | — | — | 190,000 | 1,871,729 | — | — | — | — | ||||||||||||||||
| Net increase (decrease) | (6,470 | ) | $(8,961 | ) | 90,498 | $869,256 | 15,513 | $452,271 | (69,339 | ) | $(1,415,728 | ) | ||||||||||||
| Class I: | ||||||||||||||||||||||||
| Proceeds from sale of shares | 1,930,056 | $20,740,872 | 442,100 | $4,378,909 | — | — | — | — | ||||||||||||||||
| Reinvestment of distributions | 28,452 | 303,557 | 16,552 | 165,239 | — | — | — | — | ||||||||||||||||
| Cost of shares repurchased | (250,872 | ) | (2,616,750 | ) | (254,280 | ) | (2,503,281 | ) | — | — | — | — | ||||||||||||
| Net increase | 1,707,636 | $18,427,679 | 204,372 | $2,040,867 | — | — | — | — | ||||||||||||||||
| Class C:1 | ||||||||||||||||||||||||
| Proceeds from sale of shares | — | — | 81 | $779 | — | — | — | — | ||||||||||||||||
| Reinvestment of distributions | — | — | 1,516 | 14,667 | — | — | — | — | ||||||||||||||||
| Cost of shares repurchased | — | — | (52,291 | ) | (505,697 | ) | — | — | — | — | ||||||||||||||
| Share Conversion | — | — | (190,108 | ) | (1,871,729 | ) | — | — | — | — | ||||||||||||||
| Net decrease | — | — | (240,802 | ) | $(2,361,980 | ) | — | — | — | — | ||||||||||||||
| Class Z: | ||||||||||||||||||||||||
| Proceeds from sale of shares | 325,068 | $3,463,674 | 141,124 | $1,392,522 | — | — | — | — | ||||||||||||||||
| Reinvestment of distributions | 20,445 | 216,232 | 26,209 | 260,974 | — | — | — | — | ||||||||||||||||
| Cost of shares repurchased | (278,702 | ) | (2,935,192 | ) | (789,299 | ) | (7,834,838 | ) | — | — | — | — | ||||||||||||
| Net increase (decrease) | 66,811 | $744,714 | (621,966 | ) | $(6,181,342 | ) | — | — | — | — | ||||||||||||||
97
Notes to Financial Statements (continued) |
| Municipal Bond | Municipal Enhanced | |||||||||||||||||||||||
December 31, 2020 |
December 31, 2019 |
December 31, 2020 |
December 31, 2019 | |||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||
| Class N: | ||||||||||||||||||||||||
| Proceeds from sale of shares | 841,918 | $10,312,713 | 587,077 | $6,987,998 | 1,891,900 | $19,211,900 | 1,153,398 | $11,800,890 | ||||||||||||||||
| Reinvestment of distributions | 22,319 | 274,465 | 25,450 | 304,213 | 17,895 | 186,782 | 19,060 | 194,890 | ||||||||||||||||
| Cost of shares repurchased | (950,262 | ) | (11,578,005 | ) | (588,678 | ) | (7,045,640 | ) | (1,989,572 | ) | (20,374,161 | ) | (1,375,096 | ) | (14,098,046 | ) | ||||||||
| Net increase (decrease) | (86,025 | ) | $(990,827 | ) | 23,849 | $246,571 | (79,777 | ) | $(975,479 | ) | (202,638 | ) | $(2,102,266 | ) | ||||||||||
| Class I: | ||||||||||||||||||||||||
| Proceeds from sale of shares | 50,063,425 | $614,578,625 | 25,467,262 | $305,694,822 | 11,477,762 | $114,640,533 | 8,484,080 | $84,587,165 | ||||||||||||||||
| Reinvestment of distributions | 1,402,065 | 17,349,323 | 1,156,277 | 13,901,387 | 570,856 | 5,821,974 | 459,497 | 4,602,583 | ||||||||||||||||
| Cost of shares repurchased | (31,883,833 | ) | (389,584,617 | ) | (24,889,281 | ) | (298,253,997 | ) | (7,868,907 | ) | (78,826,067 | ) | (3,603,519 | ) | (35,740,786 | ) | ||||||||
| Net increase | 19,581,657 | $242,343,331 | 1,734,258 | $21,342,212 | 4,179,711 | $41,636,440 | 5,340,058 | $53,448,962 | ||||||||||||||||
| Class Z: | ||||||||||||||||||||||||
| Proceeds from sale of shares | — | — | — | — | 146 | $1,500 | — | — | ||||||||||||||||
| Reinvestment of distributions | — | — | — | — | 455 | 4,635 | 418 | $4,178 | ||||||||||||||||
| Net increase | — | — | — | — | 601 | $6,135 | 418 | $4,178 | ||||||||||||||||
| Global Allocation | Small Cap Core | |||||||||||||||||||||||
December 31, 2020 |
December 31, 2019 |
December 31, 2020 |
December 31, 2019 | |||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||
| Class N: | ||||||||||||||||||||||||
| Proceeds from sale of shares | 359,114 | $6,076,127 | 755,483 | $12,585,390 | 81,195 | $1,849,925 | 37,380 | $923,528 | ||||||||||||||||
| Reinvestment of distributions | 114,659 | 1,674,037 | 219,225 | 3,700,415 | 7,028 | 206,122 | 20,023 | 515,592 | ||||||||||||||||
| Cost of shares repurchased | (1,932,600 | ) | (31,474,792 | ) | (1,751,239 | ) | (29,287,443 | ) | (191,533 | ) | (4,505,002 | ) | (266,629 | ) | (6,460,696 | ) | ||||||||
| Net decrease | (1,458,827 | ) | $(23,724,628 | ) | (776,531 | ) | $(13,001,638 | ) | (103,310 | ) | $(2,448,955 | ) | (209,226 | ) | $(5,021,576 | ) | ||||||||
| Class I: | ||||||||||||||||||||||||
| Proceeds from sale of shares | 2,038,932 | $33,784,181 | 2,971,394 | $49,904,550 | 6,647,636 | $153,200,697 | 2,631,723 | $65,737,211 | ||||||||||||||||
| Reinvestment of distributions | 112,082 | 1,651,265 | 320,513 | 5,466,578 | 348,162 | 10,423,972 | 614,371 | 16,108,801 | ||||||||||||||||
| Cost of shares repurchased | (7,267,874 | ) | (114,947,733 | ) | (3,884,175 | ) | (66,016,224 | ) | (4,112,470 | ) | (96,834,817 | ) | (5,324,375 | ) | (130,505,862 | )2 | ||||||||
| Net increase (decrease) | (5,116,860 | ) | $(79,512,287 | ) | (592,268 | ) | $(10,645,096 | ) | 2,883,328 | $66,789,852 | (2,078,281 | ) | $(48,659,850 | ) | ||||||||||
| Class Z: | ||||||||||||||||||||||||
| Proceeds from sale of shares | 85,028 | $1,346,330 | 55,790 | $947,599 | 222,490 | $5,627,757 | 355,072 | $9,136,099 | ||||||||||||||||
| Reinvestment of distributions | 14,496 | 214,292 | 28,546 | 486,627 | 104,205 | 3,120,958 | 216,732 | 5,682,701 | ||||||||||||||||
| Cost of shares repurchased | (395,703 | ) | (6,255,591 | ) | (139,084 | ) | (2,358,411 | ) | (356,478 | ) | (8,924,122 | ) | (408,010 | ) | (10,367,264 | ) | ||||||||
| Net increase (decrease) | (296,179 | ) | $(4,694,969 | ) | (54,748 | ) | $(924,185 | ) | (29,783 | ) | $(175,407 | ) | 163,794 | $4,451,536 | ||||||||||
98
Notes to Financial Statements (continued) |
| Small/Mid Cap | Small Cap Value | |||||||||||||||||||||||
December 31, 2020 |
December 31, 2019 |
December 31, 2020 |
December 31, 2019 | |||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||
| Class N: | ||||||||||||||||||||||||
| Proceeds from sale of shares | 727 | $10,000 | 4,335 | $52,000 | 874,807 | $25,658,252 | 1,057,605 | $37,582,901 | ||||||||||||||||
| Reinvestment of distributions | — | — | 22 | 280 | 2,953,511 | 77,884,081 | 651,093 | 24,090,437 | ||||||||||||||||
| Cost of shares repurchased | — | — | — | — | (4,383,180 | ) | (125,831,759 | ) | (5,790,451 | ) | (205,246,902 | ) | ||||||||||||
| Net increase (decrease) | 727 | $10,000 | 4,357 | $52,280 | (554,862 | ) | $(22,289,426 | ) | (4,081,753 | ) | $(143,573,564 | ) | ||||||||||||
| Class I: | ||||||||||||||||||||||||
| Proceeds from sale of shares | 4,771,671 | $58,055,212 | 3,410,892 | $38,761,509 | 669,037 | $19,414,296 | 2,028,039 | $69,243,080 | ||||||||||||||||
| Reinvestment of distributions | 11,292 | 178,297 | 17,872 | 230,903 | 1,212,187 | 32,050,234 | 230,009 | 8,526,416 | ||||||||||||||||
| Cost of shares repurchased | (2,334,832 | ) | (26,093,366 | ) | (989,978 | ) | (11,582,617 | ) | (2,068,313 | ) | (58,336,031 | ) | (8,850,520 | ) | (318,805,182 | ) | ||||||||
| Net increase (decrease) | 2,448,131 | $32,140,143 | 2,438,786 | $27,409,795 | (187,089 | ) | $(6,871,501 | ) | (6,592,472 | ) | $(241,035,686 | ) | ||||||||||||
| Class Z: | ||||||||||||||||||||||||
| Proceeds from sale of shares | 740,790 | $9,664,314 | 2,176,455 | $26,780,755 | 34,276 | $1,038,772 | 92,524 | $3,363,298 | ||||||||||||||||
| Reinvestment of distributions | 11,828 | 187,001 | 24,497 | 316,750 | 120,519 | 3,178,096 | 21,334 | 789,359 | ||||||||||||||||
| Cost of shares repurchased | (1,583,660 | ) | (19,896,793 | ) | (1,393,119 | ) | (16,331,573 | ) | (80,517 | ) | (2,507,706 | ) | (341,573 | ) | (12,296,912 | ) | ||||||||
| Net increase (decrease) | (831,042 | ) | $(10,045,478 | ) | 807,833 | $10,765,932 | 74,278 | $1,709,162 | (227,715 | ) | $(8,144,255 | ) | ||||||||||||
| 1 | Effective May 31, 2019, Class C shares were converted into Class N shares. |
| 2 | Includes redemption in-kind in the amount of $47,933,644. |
At December 31, 2020, certain unaffiliated shareholders of record, individually or collectively held greater than 10% of the net assets of the Funds as follows: Small/Mid Cap - two own 36%. Transactions by this shareholder may have a material impact on the Fund.
h. REPURCHASE AGREEMENTS AND JOINT REPURCHASE AGREEMENTS
The Funds may enter into third-party repurchase agreements for temporary cash management purposes and third-party or bilateral joint repurchase agreements for reinvestment of cash collateral on securities lending transactions under the securities lending program offered by The Bank of New York Mellon (“BNYM”) (the “Program”) (collectively, “Repurchase Agreements”). The value of the underlying collateral, including accrued interest, must equal or exceed the value of the Repurchase Agreements during the term of the agreement. For joint repurchase agreements, the Funds participate on a pro rata basis with other clients of BNYM in its share of the underlying collateral under such joint repurchase agreements and in its share of proceeds from any repurchase or other disposition of the underlying collateral. The underlying collateral for all Repurchase Agreements is held in safekeeping by the Funds’ custodian or at the Federal Reserve Bank. If the seller defaults and the value of the collateral declines, or if bankruptcy proceedings commence with respect to the seller of the security, realization of the collateral by the Funds may be delayed or limited. Pursuant to the Program, the Funds are indemnified for such losses by BNYM on joint repurchase agreements.
At December 31, 2020, the market value of Repurchase Agreements outstanding for Enhanced Core Bond ESG, Global Allocation, and Small Cap Core were $2,379,186, $2,576,545, and $674,281, respectively.
i. FOREIGN CURRENCY TRANSLATION
The books and records of the Funds are maintained in U.S. dollars. The value of investments, assets and liabilities denominated in currencies other than U.S. dollars are translated into U.S. dollars based upon current foreign exchange rates. Purchases and sales of foreign investments, income and expenses are converted into U.S. dollars based on currency exchange rates prevailing on the respective dates of such transactions. Net realized and unrealized gain (loss) on foreign currency transactions represent: (1) foreign exchange gains and losses from the sale and holdings of foreign currencies; (2) gains and losses between trade date and settlement date on investment securities transactions and foreign currency exchange contracts; and (3) gains and losses from the difference between amounts of interest and dividends recorded and the amounts actually received.
The Funds do not isolate the net realized and unrealized gain or loss resulting from changes in exchange rates from the fluctuations in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
99
Notes to Financial Statements (continued) |
j. DELAYED DELIVERY TRANSACTIONS AND WHEN-ISSUED SECURITIES
The Funds (except Small Cap Value) may enter into securities transactions on a delayed delivery or when issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. During the time a delayed delivery sell is outstanding, the contract is marked to market daily and equivalent deliverable securities are held for the transaction. The value of the securities purchased on a delayed delivery or when-issued basis are identified as such in each Fund’s Schedule of Portfolio Investments. With respect to purchase commitments, the Fund identifies securities as segregated in its records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract, or if the issuer does not issue the securities due to political, economic, or other factors.
2. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
For each of the Funds, the Trusts have entered into an investment advisory agreement under which the Investment Manager, a subsidiary and the U.S. retail distribution arm of Affiliated Managers Group, Inc. (“AMG”), serves as investment manager to the Funds and is responsible for the Funds’ overall administration and operations. The Investment Manager selects one or more subadvisers for the Funds (subject to Board approval) and monitors each subadviser’s investment performance, security holdings and investment strategies. Each Fund’s investment portfolio is managed by GW&K Investment Management, LLC, (“GW&K”) who serves pursuant to a subadvisory agreement with the Investment Manager. AMG indirectly owns a majority interest in GW&K.
Investment management fees are paid directly by the Funds to the Investment Manager based on average daily net assets. For the fiscal year ended December 31, 2020, the Funds’ investment management fees were paid at the following annual rates of each Fund’s respective average daily net assets:
| Enhanced Core Bond ESG | 0.30% |
| High Income | 0.39%1 |
| Municipal Bond | |
| on first $25 million | 0.35% |
| on next $25 million | 0.30% |
| on next $50 million | 0.25% |
| on balance over $100 million | 0.20% |
| Municipal Enhanced | 0.45% |
| Global Allocation | 0.60% |
| Small Cap Core | 0.70% |
| Small/Mid Cap | 0.62%2 |
| Small Cap Value | 0.70%3 |
| 1 | Prior to December 4, 2020, the annual rate for the investment management fees for High Income was 0.55% of the Fund’s average daily net assets. |
| 2 | Prior to October 8, 2020, the annual rate for the investment management fees for Small Mid/Cap was 0.65% of the Fund’s average daily net assets. |
| 3 | Prior to December 4, 2020, the annual rate for the investment management fees for Small Cap Value was 0.73% of the Fund’s average daily net assets. |
The Investment Manager has contractually agreed, through at least May 1, 2021 for Enhanced Core Bond ESG, Municipal Bond, Municipal Enhanced, and Small Cap Core and through at least May 1, 2022 for High Income, Global Allocation, Small/Mid Cap, and Small Cap Value , to waive management fees and/or pay or reimburse fund expenses in order to limit total annual Fund operating expenses after fee waiver and expense reimbursements (exclusive of taxes, interest (including interest incurred in connection with bank and custody overdrafts, and in connection with securities sold short), shareholder servicing fees, distribution and service (12b-1) fees, brokerage commissions and other transaction costs, dividends payable with respect to securities sold short, acquired fund fees and expenses and extraordinary expenses) of Enhanced Core Bond ESG, High Income, Municipal Bond, Municipal Enhanced, Global Allocation, Small Cap Core, Small/Mid Cap and Small Cap Value to the annual rate of 0.48%. 0.59%, 0.34%, 0.59%, 0.81%, 0.90%, 0.82% and 0.90%, respectively, of each Fund’s average daily net assets (this annual rate or such other annual rate that may be in effect from time to time, the “Expense Cap”), subject to later reimbursement by the Funds in certain circumstances. Prior to April 17, 2020, Global Allocation expense limitation was 0.84%. Prior to October 8, 2020, Small/Mid Cap expense limitation was 0.85%. Prior to December 4, 2020, High Income and Small Cap Value expense limitation was 0.89% and 0.92%, respectively.
In general, for a period of up to 36 months after the date any amounts are paid, waived or reimbursed by the Investment Manager, the Investment Manager may recover such amounts from a Fund, provided that such repayment would not cause the Fund’s total annual operating expenses after fee waiver and expense reimbursements (exclusive of the items noted in the parenthetical above) to exceed either (i) the Expense Cap in effect at the time such amounts were paid, waived or reimbursed, or (ii) the Expense Cap in effect at the time of such repayment by the Fund.
The contractual expense limitation may only be terminated in the event the Investment Manager or a successor ceases to be the investment manager of a Fund or a successor fund, by mutual agreement between the Investment Manager and the Board, or in the event of a Fund’s liquidation unless the Fund is reorganized or is a party to a merger in which the surviving entity is successor to the accounting and performance information of a Fund.
At December 31, 2020, the Funds’ expiration of reimbursements subject to recoupment is as follows:
| Expiration Period |
Enhanced Core Bond ESG | High Income | Municipal Bond | |||||||
| Less than 1 year | $110,054 | $81,291 | $604,775 | |||||||
| 1-2 years | 153,359 | 94,471 | 651,229 | |||||||
| 2-3 years | 135,792 | 75,430 | 704,935 | |||||||
| Total | $399,205 | $251,192 | $1,960,939 | |||||||
100
Notes to Financial Statements (continued) |
| Expiration Period |
Municipal Enhanced | Global Allocation | Small Cap Core | |||||||
| Less than 1 year | $186,327 | $132,068 | $3,686 | |||||||
| 1-2 years | 220,347 | 179,640 | 48,563 | |||||||
| 2-3 years | 242,883 | 203,900 | 29,131 | |||||||
| Total | $649,557 | $515,608 | $81,380 | |||||||
| Expiration Period |
Small/Mid Cap | Small Cap Value | |||||
| Less than 1 year | $67,647 | $147,194 | |||||
| 1-2 years | 68,437 | 165,098 | |||||
| 2-3 years | 48,533 | 144,468 | |||||
| Total | $184,617 | $456,760 | |||||
The Trusts, on behalf of the Funds, have entered into an amended and restated Administration Agreement under which the Investment Manager serves as the Funds’ administrator (the “Administrator”) and is responsible for all non-portfolio management aspects of managing the Funds’ operations, including administration and shareholder services to each Fund. Each Fund pays a fee to the Administrator at the rate of 0.15% per annum of the Fund’s average daily net assets for this service.
The Funds are distributed by AMG Distributors, Inc. (the “Distributor”), a wholly-owned subsidiary of the Investment Manager. The Distributor serves as the distributor and underwriter for each Fund and is a registered broker-dealer and member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). Shares of each Fund will be continuously offered and will be sold directly to prospective purchasers and through brokers, dealers or other financial intermediaries who have executed selling agreements with the Distributor. Generally the Distributor bears all or a portion of the expenses of providing services pursuant to the distribution agreement, including the payment of the expenses relating to the distribution of prospectuses for sales purposes and any advertising or sales literature.
The Trusts have adopted a distribution and service plan (the “Plan”) with respect to the Class N shares, in accordance with the requirements of Rule 12b-1 under the 1940 Act and the requirements of the applicable rules of FINRA regarding asset-based sales charges. Pursuant to the Plan, each Fund, except High Income and Small Cap Value, may make payments to the Distributor for its expenditures in financing any activity primarily intended to result in the sale of each Fund’s Class N shares and for maintenance and personal service provided to existing shareholders of that class. The Plan authorized payments to the Distributor up to 0.25% annually of each Fund’s, except High Income and Small Cap Value, average daily net assets attributable to the Class N shares. The portion of payments made under the plan by Class N shares of each Fund, except High Income and Small Cap Value, for shareholder servicing may not exceed an annual rate of 0.25% of the average daily net asset value of each Fund’s shares of that class owned by clients of such broker, dealer or financial intermediary.
For Enhanced Core Bond ESG’s and Global Allocation’s Class I shares, for High Income’s Class N shares, and for each of the Class N and Class I shares of Municipal Bond, Municipal Enhanced, Small Cap Core, Small/Mid Cap, and Small Cap Value, the Board has approved reimbursement payments to the Investment
Manager for shareholder servicing expenses (“shareholder servicing fees”) incurred. Shareholder servicing fees include payments to financial intermediaries, such as broker-dealers (including fund supermarket platforms), banks, and trust companies who provide shareholder recordkeeping, account servicing and other services. The Class N and Class I shares may reimburse the Investment Manager for the actual amount incurred up to a maximum annual rate of each Class’s average daily net assets as shown in the table below.
The impact on the annualized expense ratios for the fiscal year ended December 31, 2020, were as follows:
| Fund | Maximum Annual Amount Approved |
Actual Amount Incurred |
| Enhanced Core Bond ESG | ||
| Class I | 0.10% | 0.07% |
| High Income | ||
| Class N1 | 0.25% | 0.02% |
| Municipal Bond | ||
| Class N | 0.15% | 0.12% |
| Class I | 0.05% | 0.05% |
| Municipal Enhanced | ||
| Class N | 0.15% | 0.15% |
| Class I | 0.05% | 0.05% |
| Global Allocation | ||
| Class I | 0.10% | 0.10% |
| Small Cap Core | ||
| Class N | 0.15% | 0.15% |
| Class I | 0.05% | 0.05% |
| Small/Mid Cap | ||
| Class N2 | 0.00% | 0.02% |
| Class I2 | 0.05% | 0.09% |
| Small Cap Value | ||
| Class N | 0.25% | 0.25% |
| Class I3 | 0.05% | 0.07% |
| 1 | Prior to December 4, 2020, Class N shares did not incur shareholder servicing fees. |
| 2 | Prior to October 8, 2020, the maximum annual amount approved was 0.15% and 0.10% for Class N and Class I shares, respectively. |
| 3 | Prior to December 4, 2020, the maximum annual amount approved was 0.15%. |
The Board provides supervision of the affairs of the Trusts and other trusts within the AMG Funds Family. The Trustees of the Trusts who are not affiliated with the Investment Manager receive an annual retainer and per meeting fees for regular, special and telephonic meetings, and they are reimbursed for out-of-pocket expenses incurred while carrying out their duties as Board members. The Chairman of the Board and the Audit Committee Chair receive additional annual retainers. Certain Trustees and Officers of the Funds are Officers and/or Directors of the Investment Manager, AMG and/or the Distributor.
101
Notes to Financial Statements (continued) |
The Securities and Exchange Commission (the “SEC”) granted an exemptive order that permits the Funds to lend and borrow money for certain temporary purposes directly to and from other eligible funds in the AMG Funds Family. Participation in this interfund lending program is voluntary for both the borrowing and lending funds, and an interfund loan is only made if it benefits each participating fund. The Administrator manages the program according to procedures approved by the Board, and the Board monitors the operation of the program. An interfund loan must comply with certain conditions set out in the exemptive order, which are designed to assure fairness and protect all participating funds. The interest earned and interest paid on interfund loans are included on the Statement of Operations as interest income and miscellaneous expense, respectively. At December 31, 2020, the Funds had no interfund loans outstanding.
The following Funds utilized the interfund loan program during the fiscal year ended December 31, 2020 as follows:
| Fund | Average Lent |
Number of Days |
Interest Earned |
Average Interest Rate |
|||||||||
| Municipal Bond | $3,082,989 | 11 | $886 | 0.954 | % | ||||||||
| Municipal Enhanced | 634,261 | 4 | 95 | 1.368 | % | ||||||||
| Global Allocation | 870,308 | 7 | 160 | 0.958 | % | ||||||||
| Small Cap Core | 3,532,151 | 3 | 270 | 0.930 | % | ||||||||
| Small Cap Value | 2,450,140 | 3 | 195 | 0.970 | % | ||||||||
| Fund | Average Borrowed |
Number of Days |
Interest Paid |
Average Interest Rate |
|||||||||
| Municipal Bond | $5,585,478 | 1 | $149 | 0.973 | % | ||||||||
| Municipal Enhanced | 3,275,164 | 1 | 87 | 0.966 | % | ||||||||
| Global Allocation | 6,270,940 | 12 | 1,922 | 0.932 | % | ||||||||
| Small Cap Value | 2,999,209 | 5 | 397 | 0.969 | % | ||||||||
3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities and U.S. Government Obligations) for the fiscal year ended December 31, 2020, were as follows:
| Long Term Securities | |||||||
| Fund | Purchases | Sales | |||||
| Enhanced Core Bond ESG | $46,147,869 | $32,483,408 | |||||
| High Income | 13,077,053 | 11,381,214 | |||||
| Municipal Bond | 409,245,901 | 175,656,653 | |||||
| Municipal Enhanced | 268,251,547 | 237,830,937 | |||||
| Global Allocation | 218,809,112 | 296,265,282 | |||||
| Small Cap Core | 216,932,036 | 168,486,521 | |||||
| Small/Mid Cap | 82,358,532 | 58,939,579 | |||||
| Small Cap Value | 390,783,833 | 512,708,533 | |||||
Purchases and sales of U.S. Government Obligations for the fiscal year ended December 31, 2020 were as follows:
| U.S. Government Obligations | |||||||
| Fund | Purchases | Sales | |||||
| Enhanced Core Bond ESG | $13,400,002 | $8,540,454 | |||||
| High Income | 775,043 | 2,716,015 | |||||
| Global Allocation | 39,618,584 | 75,575,338 | |||||
4. PORTFOLIO SECURITIES LOANED
The Funds participate in the Program providing for the lending of securities to qualified borrowers. Securities lending income includes earnings of such temporary cash investments, plus or minus any rebate to a borrower. These earnings (after any rebate) are then divided between BNYM, as a fee for its services under the Program, and the Funds, according to agreed-upon rates. Collateral on all securities loaned is accepted in cash, U.S. Treasury Obligations or U.S. Government Agency Obligations. Collateral is maintained at a minimum level of 102% (105% in the case of certain foreign securities) of the market value, plus interest, if applicable, of investments on loan. It is the Funds’ policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than the value of the securities on loan. Lending securities entails a risk of loss to the Funds if and to the extent that the market value of the securities loaned were to increase and the borrower did not increase the collateral accordingly, and the borrower fails to return the securities. Under the terms of the Program, the Funds are indemnified for such losses by BNYM. Cash collateral is held in separate omnibus accounts managed by BNYM, who is authorized to exclusively enter into joint repurchase agreements for that cash collateral. Securities collateral is held in separate omnibus accounts managed by BNYM that cannot be sold or pledged. BNYM bears the risk of any deficiency in the amount of the cash collateral available for return to the borrower due to any loss on the collateral invested. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities as soon as practical, which is normally within three business days.
The value of securities loaned on positions held, cash collateral and securities collateral received at December 31, 2020, were as follows:
| Fund | Securities Loaned |
Cash Collateral Received |
Securities Collateral Received |
Total Collateral Received |
|||||||||
| Enhanced Core Bond ESG | $2,928,951 | $2,379,186 | $659,095 | $3,038,281 | |||||||||
| Global Allocation | 8,270,264 | 2,576,545 | 6,105,109 | 8,681,654 | |||||||||
| Small Cap Core | 58,647,390 | 674,281 | 59,438,228 | 60,112,509 | |||||||||
| Small/Mid Cap | 16,713,653 | — | 17,116,018 | 17,116,018 | |||||||||
102
Notes to Financial Statements (continued) |
The following table summarizes the securities received as collateral for securities lending at December 31, 2020:
| Fund | Collateral Type |
Coupon Range |
Maturity Date Range |
| Enhanced Core Bond ESG | U.S. Treasury Obligations | 0.000%-6.000% | 01/15/21-05/15/50 |
| Global Allocation | U.S. Treasury Obligations | 0.000%-8.125% | 01/15/21-08/15/50 |
| Small Cap Core | U.S. Treasury Obligations | 0.000%-8.125% | 01/15/21-08/15/50 |
| Small/Mid Cap | U.S. Treasury Obligations | 0.000%-8.125% | 01/15/21-08/15/50 |
5. FOREIGN SECURITIES
Certain Funds invest in securities of foreign entities and in instruments denominated in foreign currencies which involve risks not typically associated with investments in domestic securities. Non-domestic securities carry special risks, such as exposure to currency fluctuations, less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. Realized gains in certain countries may be subject to foreign taxes at the Fund level and the Fund would pay such foreign taxes at the appropriate rate for each jurisdiction.
6. COMMITMENTS AND CONTINGENCIES
Under the Trusts’ organizational documents, its trustees and officers are indemnified against certain liabilities arising out of the performance of their duties to the Trusts. In addition, in the normal course of business, the Funds may enter into contracts and agreements that contain a variety of representations and warranties, which provide general indemnifications. The maximum exposure to the Funds under these arrangements is unknown, as this would involve future claims that may be made against a Fund that have not yet occurred. However, based on experience, the Funds had no prior claims or losses and expect the risks of loss to be remote.
7. RISKS ASSOCIATED WITH HIGH YIELD SECURITIES
Investing in high yield securities involves greater risks and considerations not typically associated with U.S. Government and other high quality/investment grade securities. High yield securities are generally below investment grade securities and do not have an established retail secondary market. Economic downturns may disrupt the high yield market and impair the issuer’s ability to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations and could cause the securities to become less liquid.
8. FORWARD COMMITMENTS
Certain transactions, such as futures and forward transactions, or delayed delivery securities may have a similar effect on a Fund’s net asset value as if a Fund had created a degree of leverage in its portfolio. However, if a Fund enters into such a transaction, a Fund will establish a segregated account with its custodian in which it will maintain cash, U.S. government securities or other liquid securities equal in value to its obligations in respect to such transaction. Securities and other assets held in the segregated account may not be sold while the transaction is outstanding, unless other suitable assets are substituted.
9. DERIVATIVE INSTRUMENTS
The following disclosures contain information on how and why High Income used derivative instruments previous to the change in subadviser, the credit risk and how derivative instruments affect the Funds’ financial position, and results of operations. The location and fair value amounts of these instruments on the Statement of Assets and Liabilities, and the realized gains and losses and changes in unrealized appreciation and depreciation on the Statement of Operations, each categorized by type of derivative contract, are included in a table at the end of the applicable Fund’s Schedule of Portfolio Investments. For the fiscal year ended December 31, 2020, the average quarterly balances of derivative financial instruments outstanding were as follows:
| High Income | ||||
| Foreign Currency Exchange Contracts | ||||
| Average U.S. Dollar amount purchased/sold | $287,304,441 | |||
| Financial Futures Contracts | ||||
| Average number of contracts purchased | 3 | |||
| Average notional value of contracts purchased | $436,650 | |||
10. FORWARD FOREIGN CURRENCY CONTRACTS
During the fiscal year ended December 31, 2020, High Income invested in forward foreign currency contracts, before the subadviser change, to facilitate transactions in foreign securities and to hedge against foreign currency exchange rate risk on its non- U.S. dollar denominated investment securities.
A forward foreign currency contract is an agreement between a fund and another party to buy or sell a currency at a set price at a future date. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked-to-market daily, and the change in market value is recorded as an unrealized appreciation or depreciation. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
At December 31, 2020, there were no open forward foreign currency contracts.
11. FUTURES CONTRACTS
Before the subadviser change, High Income purchased futures contracts to achieve a desired level of investment, whether to accommodate portfolio turnover or cash flows from capital shares transactions. There are certain risks associated with futures contracts. Prices may not move as expected or the Fund may not be able to close out the contract when it desires to do so, resulting in losses.
On entering into a futures contract, either cash or securities in an amount equal to a certain percentage of the contract value (initial margin) must be deposited with the futures broker. Subsequent variation margin payments are made or received by the Funds depending on the fluctuations in the value of the futures contracts and the value of cash or securities on deposit with the futures broker. The Funds must have total value at the futures broker consisting of either net unrealized gains, cash or securities collateral to meet the initial margin requirement, and any value over the initial margin requirement may be transferred to the Fund.
103
Notes to Financial Statements (continued) |
Variation margin on future contracts is recorded as unrealized appreciation or depreciation until the futures contract is closed or expired. The Funds recognize a realized gain or loss when the contract is closed or expires equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Fluctuations in the value of the contracts are recorded in the
Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures contracts.
At December 31, 2020, there were no open futures contracts.
12. MASTER NETTING AGREEMENTS
The Funds may enter into master netting agreements with their counterparties for the securities lending program and Repurchase Agreements, which provide the right, in the event of default (including bankruptcy or insolvency) for the non-defaulting party to liquidate the collateral and calculate net exposure to the defaulting party or request additional collateral. For financial reporting purposes, the Funds do not offset financial assets and financial liabilities that are subject to master netting agreements in the Statement of Assets and Liabilities. For securities lending transactions, see Note 4.
At December 31, 2020 there were no open foreign currency contracts or futures contracts.
The following table is a summary of the Funds’ open Repurchase Agreements that are subject to a master netting agreement as of December 31, 2020:
| Gross Amount Not Offset in the Statement of Assets and Liabilities |
||||||||||||||||
| Fund | Gross Amounts of Assets Presented in the Statement of Assets and Liabilities |
Offset Amount |
Net Asset Balance |
Collateral Received |
Net Amount |
|||||||||||
| Enhanced Core Bond ESG | ||||||||||||||||
| Citigroup Global Markets, Inc. | $1,000,000 | — | $1,000,000 | $1,000,000 | — | |||||||||||
| Morgan, Stanley & Co. LLC | 379,186 | — | 379,186 | 379,186 | — | |||||||||||
| RBC Dominion Securities, Inc. | 1,000,000 | — | 1,000,000 | 1,000,000 | — | |||||||||||
| Total | $2,379,186 | — | $2,379,186 | $2,379,186 | — | |||||||||||
| Global Allocation | ||||||||||||||||
| Citigroup Global Markets, Inc. | $1,000,000 | — | $1,000,000 | $1,000,000 | — | |||||||||||
| Daiwa Capital Markets America | 576,545 | — | 576,545 | 576,545 | — | |||||||||||
| RBC Dominion Securities, Inc. | 1,000,000 | — | 1,000,000 | 1,000,000 | — | |||||||||||
| Total | $2,576,545 | — | $2,576,545 | $2,576,545 | — | |||||||||||
| Small Cap Core | ||||||||||||||||
| Citigroup Global Markets, Inc. | $674,281 | — | $674,281 | $674,281 | — | |||||||||||
13. SUBSEQUENT EVENTS
The Funds have determined that no material events or transactions occurred through the issuance date of the Funds’ financial statements which require an additional disclosure in or adjustment of the Funds’ financial statements.
104
| Report of Independent Registered Public Accounting Firm |
TO THE BOARD OF TRUSTEES OF AMG FUNDS, AMG FUNDS II, AND AMG Funds III AND SHAREHOLDERS OF AMG GW&K ENHANCED CORE BOND ESG FUND, AMG GW&K GLOBAL ALLOCATION FUND, AMG GW&K HIGH INCOME FUND, AMG GW&K MUNICIPAL BOND FUND, AMG GW&K MUNICIPAL ENHANCED YIELD FUND, AMG GW&K SMALL CAP CORE FUND AMG GW&K SMALL/MID CAP FUND AND AMG GW&K SMALL CAP VALUE FUND
Opinions on the Financial Statements
We have audited the accompanying statements of assets and liabilities, including the schedules of portfolio investments, of AMG GW&K Enhanced Core Bond ESG Fund, AMG GW&K Global Allocation Fund (formerly AMG Chicago Equity Partners Balanced Fund) (two of the funds constituting AMG Funds II), AMG GW&K High Income Fund (formerly AMG Managers Global Income Opportunity Fund) (one of the funds constituting AMG Funds III), AMG GW&K Municipal Bond Fund, AMG GW&K Municipal Enhanced Yield Fund, AMG GW&K Small Cap Core Fund, AMG GW&K Small/Mid Cap Fund and AMG GW&K Small Cap Value Fund (formerly AMG Skyline Special Equities Fund) (five of the funds constituting AMG Funds) (collectively referred to hereafter as the “Funds”) as of December 31, 2020, the related statements of operations for the year ended December 31, 2020, the statement of changes in net assets for each of the two years in the period ended December 31, 2020, including the related notes, and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, each of the Funds’ financial statements present fairly, in all material respects, the financial position of the Funds as of December 31, 2020, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period ended December 31, 2020, and each of the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinions
These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 23, 2021
We have served as the auditor of one or more investment companies in AMG Funds Family since 1993.
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| Other Information (unaudited) |
TAX INFORMATION
The Funds each hereby designate the maximum amount allowable of its net taxable income as qualified dividends as provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003. The 2020 Form 1099-DIV you receive for each Fund will show the tax status of all distributions paid to you during the year.
Pursuant to section 852 of the Internal Revenue Code, AMG GW&K Enhanced Core Bond ESG Fund, AMG GW&K High Income Fund, AMG GW&K Municipal Bond Fund, AMG GW&K Municipal Enhanced Yield Fund, AMG GW&K Global Allocation Fund, AMG GW&K Small Cap Core Fund, AMG Small/Mid Cap Fund, and AMG GW&K Small Cap Value Fund each hereby designate $0, $460,580, $3,524,571, $2,730,802, $4,990,089, $10,672,469, $23,549 and $111,263,992, respectively, as a capital gain distribution with respect to the taxable year ended December 31, 2020, or if subsequently determined to be different, the net capital gains of such fiscal year.
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| AMG Funds | |
| Trustees and Officers |
| The Trustees and Officers of the Trust, their business addresses, principal occupations for the past five years and ages are listed below. The Trustees provide broad supervision over the affairs of the Trust and the Funds. The Trustees are experienced executives who meet periodically throughout the year to oversee the Funds’ activities, review contractual arrangements with companies that provide services to the Funds, and | review the Funds’ performance. Unless otherwise noted, the address of each Trustee or Officer is the address of the Trust: One Stamford Plaza, 263 Tresser Blvd, Suite 949, Stamford, Connecticut 06901.
There is no stated term of office for Trustees. Trustees serve until their resignation, retirement or removal in |
accordance with the Trust’s organizational documents and policies adopted by the Board from time to time. The Chairman of the Trustees, President, Treasurer and Secretary of the Trust are elected by the Trustees annually. Other officers hold office at the pleasure of the Trustees. |
Independent Trustees
The following Trustees are not “interested persons” of the Trust within the meaning of the 1940 Act:
| Number of Funds Overseen in Fund Complex |
Name, Age, Principal Occupation(s) During Past 5 Years and Other Directorships Held by Trustee |
● Trustee since 2012 ● Oversees 49 Funds in Fund Complex |
Bruce B. Bingham, 72 Partner, Hamilton Partners (real estate development firm) (1987-2020); Director of The Yacktman Funds (2 portfolios) (2000-2012). |
● Trustee since 2003 ● Oversees 52 Funds in Fund Complex |
Kurt A. Keilhacker, 57 Managing Partner, TechFund Capital (1997-Present); Managing Partner, TechFund Europe (2000-Present); Managing Partner, Elementum Ventures (2013-Present); Director, MetricStory, Inc. (2017-Present); Trustee, Wheaton College (2018-Present); Trustee, Gordon College (2001-2016); Trustee, Board Member, 6wind SA, (2002-2019). |
● Trustee since 2000 ● Oversees 49 Funds in Fund Complex |
Steven J. Paggioli, 70 Independent Consultant (2002-Present); Trustee, Professionally Managed Portfolios (28 portfolios); Advisory Board Member, Sustainable Growth Advisors, LP; Independent Director, Muzinich BDC, Inc. (business development company) (2019-Present); Director, The Wadsworth Group; Independent Director, Chase Investment Counsel(2008–2019); Executive Vice President, Secretary and Director, Investment Company Administration, LLC and First Fund Distributors, INC. (1990-2001). |
● Trustee since 2013 ● Oversees 49 Funds in Fund Complex
|
Richard F. Powers III, 75 Adjunct Professor, U.S. Naval War College (2016-Present); Adjunct Professor, Boston College (2011-2015); Director, Ameriprise Financial Inc. (2005-2009); President and CEO of Van Kampen Investments Inc. (1998-2003); President, Morgan Stanley Client Group (2000-2002); Executive Vice President and Chief Marketing Officer of the Morgan Stanley Individual Investor Group (1984-1998). |
● Independent Chairman ● Trustee since 2000 ● Oversees 52 Funds in Fund Complex |
Eric Rakowski, 62 Professor of Law, University of California at Berkeley School of Law (1990-Present); Tax Attorney at Davis Polk & Wardwell and clerked for Judge Harry T. Edwards of the U.S. Court of Appeals for the District of Columbia Circuit and for Justice William J. Brennan Jr. of the U.S. Supreme Court; Director of Harding, Loevner Funds, Inc. (9 portfolios); Trustee of Third Avenue Trust (3 portfolios) (2002-2019); Trustee of Third Avenue Variable Trust (1 portfolio) (2002-2019). |
● Trustee since 2013 ● Oversees 52 Funds in Fund Complex |
Victoria L. Sassine, 55 Adjunct Professor, Babson College (2007–Present); Director, Board of Directors, PRG Group (2017-Present); CEO, Founder, Scale Smarter Partners, LLC (2018-Present); Adviser, EVOFEM Biosciences (2019-Present); Teaching Fellow, Goldman Sachs 10,000 Small Business Initiative (2010-Present); Chairperson of the Board of Directors of Business Management Associates (2018 to 2019). |
● Trustee since 2004 - AMG Funds ● Trustee since 2000 - AMG Funds II ● Oversees 49 Funds in Fund Complex |
Thomas R. Schneeweis, 73 Professor Emeritus, University of Massachusetts (2013-Present); President, TRS Associates (1982-Present); Board Member, Chartered Alternative Investment Association (“CAIA”) (2002-Present); Director, CAIA Foundation (2010-2019); Director, Institute for Global Asset and Risk Management (Education) (2010-Present); Co-Owner, Quantitative Investment Technologies (2014-Present); Co-Owner, Yes Wealth Management (2018-Present); Director of Research, Yes Wealth Management (2018-Present); Partner, S Capital Wealth Advisors (2015-2018); Partner, S Capital Management, LLC (2007-2015); President, Alternative Investment Analytics, LLC, (formerly Schneeweis Partners, LLC) (2001-2013); Finance Professor, University of Massachusetts (1977-2013). |
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| AMG Funds | |
| Trustees and Officers (continued) |
Interested Trustees
Each Trustee in the following table is an “interested person” of the Trust within the meaning of the 1940 Act. Ms. Carsman is an interested person of the Trust within the meaning of the 1940 Act by virtue of her position with, and interest in securities of, AMG.
| Number of Funds Overseen in | |
| Fund Complex | Name, Age, Principal Occupation(s) During Past 5 Years and Other Directorships Held by Trustee |
● Trustee since 2011 ● Oversees 52 Funds in Fund Complex
|
Christine C. Carsman, 68 Senior Policy Advisor, Affiliated Managers Group, Inc. (2019-Present); Chair of the Board of Directors, AMG Funds plc (2015-2018); Director, AMG Funds plc (2010-2018); Executive Vice President, Deputy General Counsel and Chief Regulatory Counsel, Affiliated Managers Group, Inc. (2017-2018); Senior Vice President and Deputy General Counsel, Affiliated Managers Group, Inc. (2011-2016); Senior Vice President and Chief Regulatory Counsel, Affiliated Managers Group, Inc. (2007-2011); Vice President and Chief Regulatory Counsel, Affiliated Managers Group, Inc. (2004-2007); Senior Counsel, Vice President and Director of Operational Risk Management and Compliance, Wellington Management Company, LLP (1995-2004); Director of Harding, Loevner Funds, Inc. (9 portfolios) (2017-Present); Secretary and Chief Legal Officer, AMG Funds, AMG Funds I, AMG Funds II and AMG Funds III (2004-2011). |
| Officers | |
| Position(s) Held with Fund and Length of Time Served |
Name, Age, Principal Occupation(s) During Past 5 Years |
● President since 2018 ● Principal Executive Officer since 2018 ● Chief Executive Officer since 2018 ● Chief Operating Officer since 2007 |
Keitha L. Kinne, 62 Chief Operating Officer, AMG Funds LLC (2007-Present); Chief Investment Officer, AMG Funds LLC (2008-Present); President and Principal, AMG Distributors, Inc. (2018-Present); Chief Operating Officer, AMG Distributors, Inc. (2007-Present); President, Chief Executive Officer and Principal Executive Officer, AMG Funds, AMG Funds I, AMG Funds II, AMG Funds III and AMG Funds IV (2018-Present); Chief Operating Officer, AMG Funds, AMG Funds I, AMG Funds II, and AMG Funds III (2007-Present); Chief Operating Officer, AMG Funds IV (2016-Present); Chief Operating Officer and Chief Investment Officer, Aston Asset Management, LLC (2016); President and Principal Executive Officer, AMG Funds, AMG Funds I, AMG Funds II and AMG Funds III (2012-2014); Managing Partner, AMG Funds LLC (2007-2014); President and Principal, AMG Distributors, Inc. (2012-2014); Managing Director, Legg Mason & Co., LLC (2006-2007); Managing Director, Citigroup Asset Management (2004-2006). |
● Secretary since 2015 ● Chief Legal Officer since 2015 |
Mark J. Duggan, 55 Senior Vice President and Senior Counsel, AMG Funds LLC (2015-Present); Secretary and Chief Legal Officer, AMG Funds, AMG Funds I, AMG Funds II, AMG Funds III and AMG Funds IV (2015-Present); Attorney, K&L Gates, LLP (2009-2015). |
● Chief Financial Officer since 2017 ● Treasurer since 2017 ● Principal Financial Officer since 2017 ● Principal Accounting Officer since 2017 |
Thomas G. Disbrow, 54 Vice President, Mutual Fund Treasurer & CFO, AMG Funds, AMG Funds LLC (2017-Present); Chief Financial Officer, Principal Financial Officer, Treasurer and Principal Accounting Officer, AMG Funds, AMG Funds I, AMG Funds II, AMG Funds III and AMG Funds IV (2017-Present); Managing Director - Global Head of Traditional Funds Product Control, UBS Asset Management (Americas), Inc. (2015-2017); Managing Director - Head of North American Funds Treasury, UBS Asset Management (Americas), Inc. (2011-2015). |
| ● Deputy Treasurer since 2017 | John A. Starace, 50 Director, Mutual Fund Accounting, AMG Funds LLC (2017-Present); Vice President, Deputy Treasurer of Mutual Funds Services, AMG Funds LLC (2014-2017); Deputy Treasurer, AMG Funds, AMG Funds I, AMG Funds II, AMG Funds III and AMG Funds IV (2017-Present); Vice President, Citi Hedge Fund Services (2010-2014); Audit Senior Manager (2005-2010) and Audit Manager (2001-2005), Deloitte & Touche LLP. |
| ● Chief Compliance Officer since 2019 | Patrick J. Spellman, 46 Vice President, Chief Compliance Officer, AMG Funds LLC (2017-Present); Chief Compliance Officer and Sarbanes-Oxley Code of Ethics Compliance Officer, AMG Funds, AMG Funds I, AMG Funds II, AMG Funds III and AMG Funds IV (2019-Present); Chief Compliance Officer, AMG Distributors, Inc., (2010-Present); Senior Vice President, Chief Compliance Officer, AMG Funds LLC (2011-2017); Anti-Money Laundering Compliance Officer, AMG Funds, AMG Funds I, AMG Funds II, and AMG Funds III (2014-2019); Anti-Money Laundering Officer, AMG Funds IV, (2016-2019); Compliance Manager, Legal and Compliance, Affiliated Managers Group, Inc. (2005-2011). |
| ● Assistant Secretary since 2016 | Maureen A. Meredith, 35 Vice President, Counsel, AMG Funds LLC (2019-Present); Director, Counsel, AMG Funds LLC (2017-2018); Vice President, Counsel, AMG Funds LLC (2015-2017); Assistant Secretary, AMG Funds, AMG Funds I, AMG Funds II, AMG Funds III and AMG Funds IV (2016-Present); Associate, Ropes & Gray LLP (2011-2015); Law Fellow, Massachusetts Appleseed Center for Law and Justice (2010-2011). |
| ● Anti-Money Laundering Compliance Officer since 2019 | Hector D. Roman, 43 Director, Legal and Compliance, AMG Funds LLC (2020-Present); Manager, Legal and Compliance, AMG Funds LLC (2017-2019); Director of Compliance, Morgan Stanley Investment Management (2015-2017); Senior Advisory, PricewaterhouseCoopers LLP (2014-2015); Risk Manager, Barclays Investment Bank (2008-2014); Anti-Money Laundering Compliance Officer, AMG Funds, AMG Funds I, AMG Funds II, AMG Funds III and AMG Funds IV (2019-Present). |
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| Approval of Subadvisory Agreements |
AMG Managers Skyline Special Equities Fund: Approval of Subadvisory Agreements on December 3, 2020
At a telephonic meeting held on December 3, 20201, the Board of Trustees (the “Board” or the “Trustees”), and separately a majority of the Trustees who are not “interested persons” of AMG Funds (the “Trust”) (the “Independent Trustees”), unanimously voted to approve the interim subadvisory agreement between AMG Funds LLC (the “Investment Manager”) and GW&K Investment Management, LLC (“GW&K”) with respect to AMG Managers Skyline Special Equities Fund (the “Fund”) (the “Interim Subadvisory Agreement”), the new subadvisory agreement between the Investment Manager and GW&K with respect to the Fund (the “New Subadvisory Agreement” and together with the Interim Subadvisory Agreement, the “Agreements”), and the presentation of the New Subadvisory Agreement for shareholder approval at a special meeting to be held for such purpose. The Independent Trustees were separately represented by independent legal counsel in their consideration of the Agreements.
In considering the Agreements, the Trustees considered the information relating to the Fund and GW&K provided to them in connection with the meeting on December 3, 2020 and other meetings of the Board throughout the last twelve months, as well as in prior years. In considering the Agreements, the Trustees also considered information relating to the eleven other funds that GW&K sub-advises in the AMG Funds Family of Funds, which, as of December 3, 2020, consisted of 49 funds (the “AMG Funds Complex”). Prior to voting, the Independent Trustees: (a) reviewed the foregoing information; (b) received materials from their independent legal counsel discussing the legal standards applicable to their consideration of the Agreements; and (c) met with their independent legal counsel in a private session at which no representatives of management were present.
NATURE, EXTENT AND QUALITY OF SERVICES
In considering the nature, extent and quality of the services to be provided by GW&K, the Trustees reviewed information relating to GW&K’s financial condition, operations and personnel and the investment philosophy, strategies and techniques (the “Investment Strategy”) that are intended to be used by GW&K in managing the Fund. Among other things, at this meeting and/or prior meetings, the Trustees reviewed information on portfolio management and other professional staff, information regarding GW&K’s organizational and management structure, GW&K’s compliance policies
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and procedures, and GW&K’s brokerage policies and practices. The Trustees considered specific information provided regarding the experience of the individuals at GW&K that are expected to have portfolio management responsibility for the Fund. The Trustees noted that one proposed portfolio manager joined GW&K in 2005 and the other proposed portfolio manager joined GW&K in 2008. The Trustees further noted that one of the proposed portfolio managers serves as co-portfolio manager on other funds subadvised by GW&K in the AMG Funds Complex. In the course of their deliberations, the Trustees evaluated, among other things: (a) the expected services to be rendered by GW&K to the Fund; (b) the qualifications and experience of GW&K’s personnel; and (c) GW&K’s compliance program. The Trustees additionally considered GW&K’s risk management processes. The Trustees also took into account the financial condition of GW&K with respect to its ability to provide the services required under the Agreements and noted that, as of September 30, 2020, GW&K managed approximately $47 billion in assets.
PERFORMANCE
Because GW&K was proposing to manage the Fund with its small cap value investment strategy, the Trustees noted that they could not draw any conclusions regarding the performance of the Fund. The Trustees, however, considered the performance of GW&K with respect to its Small Cap Value Composite. The Trustees further considered the performance of the other funds in the AMG Funds Complex sub-advised by GW&K.
SUBADVISORY FEES, PROFITABILITY AND ECONOMIES OF SCALE
The Trustees noted that the Investment Manager, and not the Fund, is responsible for paying the fees charged by GW&K. In considering the anticipated profitability of GW&K with respect to the provision of subadvisory services to the Fund, the Trustees considered information regarding GW&K’s organization, management and financial stability. The Trustees noted that, because GW&K is an affiliate of the Investment Manager, a portion of GW&K’s revenues or anticipated profits might be shared directly or indirectly with the Investment Manager. The Trustees also noted that the subadvisory fee rate to be paid to GW&K under each Agreement was lower than the rate paid to Skyline Asset Management, L.P. (“Skyline”) under the former subadvisory agreement between the Investment Manager and Skyline with respect to the Fund.
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The Board took into account management’s discussion of the proposed subadvisory fee structure, and the services GW&K is expected to provide in performing its functions under the Agreements. The Trustees also were provided, in advance of their June 25, 2020 meeting, with the profitability of GW&K with respect to the other funds it sub-advises in the AMG Funds Complex. Based on the foregoing, the Trustees concluded that the profitability to GW&K is expected to be reasonable and that GW&K is not expected to realize material benefits from economies of scale that would warrant adjustments to the subadvisory fees at this time. Also with respect to economies of scale, the Trustees noted that as the Fund’s assets increase over time, the Fund may realize other economies of scale to the extent the increase in assets is proportionally greater than the increase in certain other expenses.
In addition, the Trustees considered other potential benefits of the subadvisory relationship to GW&K, including, among others, the potential broadening of GW&K’s small cap value investment capabilities, as well as the indirect benefits that GW&K may receive from GW&K’s relationship with the Fund, including any so-called “fallout benefits” to GW&K, such as reputational value derived from GW&K serving as subadviser to the Fund, which bears GW&K’s name. Taking into account all of the foregoing, the Trustees concluded that, in light of the nature, extent and quality of the services to be provided by GW&K, and the other considerations noted above with respect to GW&K, the Fund’s subadvisory fees are reasonable.
* * * *
After consideration of the foregoing, the Trustees reached the following conclusions (in addition to the conclusions discussed above) regarding each Agreement: (a) GW&K has demonstrated that it possesses the capability and resources to perform the duties required of it under each Agreement; (b) GW&K’s Investment Strategy is appropriate for pursuing the Fund’s investment objectives; (c) GW&K is reasonably likely to execute its investment strategy consistently over time; and (d) GW&K maintains appropriate compliance programs.
Based on all of the above-mentioned factors and their related conclusions, with no single factor or conclusion being determinative and with each Trustee not necessarily attributing the same weight to each factor, the Trustees concluded that approval of each Agreement would be in the best interests of the Fund and its shareholders. Accordingly, on December 3, 2020, the Trustees, and separately a majority of the Independent Trustees, unanimously voted to approve each Agreement. |
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| Approval of Subadvisory Agreements (continued) |
AMG Managers Global Income Opportunity Fund: Approval of Subadvisory Agreements on December 3, 2020
At a telephonic meeting held on December 3, 20201, the Board of Trustees (the “Board” or the “Trustees”), and separately a majority of the Trustees who are not “interested persons” of AMG Funds III (the “Trust”) (the “Independent Trustees”), unanimously voted to approve the interim subadvisory agreement between AMG Funds LLC (the “Investment Manager”) and GW&K Investment Management, LLC (“GW&K”) with respect to AMG Managers Global Income Opportunity Fund (the “Fund”) (the “Interim Subadvisory Agreement”), the new subadvisory agreement between the Investment Manager and GW&K with respect to the Fund (the “New Subadvisory Agreement” and together with the Interim Subadvisory Agreement, the “Agreements”), and the presentation of the New Subadvisory Agreement for shareholder approval at a special meeting to be held for such purpose. The Independent Trustees were separately represented by independent legal counsel in their consideration of the Agreements.
In considering the Agreements, the Trustees considered the information relating to the Fund and GW&K provided to them in connection with the meeting on December 3, 2020 and other meetings of the Board throughout the last twelve months, as well as in prior years. In considering the Agreements, the Trustees also considered information relating to the eleven other funds that GW&K sub-advises in the AMG Funds Family of Funds, which, as of December 3, 2020, consisted of 49 funds (the “AMG Funds Complex”). Prior to voting, the Independent Trustees: (a) reviewed the foregoing information; (b) received materials from their independent legal counsel discussing the legal standards applicable to their consideration of the Agreements; and (c) met with their independent legal counsel in a private session at which no representatives of management were present.
NATURE, EXTENT AND QUALITY OF SERVICES
In considering the nature, extent and quality of the services to be provided by GW&K, the Trustees reviewed information relating to GW&K’s financial condition, operations and personnel and the investment philosophy, strategies and techniques (the “Investment Strategy”) that are intended to be used by GW&K in managing the Fund. Among other things, at this meeting and/or prior meetings, the Trustees reviewed information on portfolio management and other professional staff, information regarding GW&K’s organizational and management structure, GW&K’s compliance policies
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and procedures, and GW&K’s brokerage policies and practices. The Trustees considered specific information provided regarding the experience of the individuals at GW&K that are expected to have portfolio management responsibility for the Fund. The Trustees noted that one proposed portfolio manager joined GW&K in 2005, and one proposed portfolio manager joined GW&K in 2013. The Trustees further noted that one of the proposed portfolio managers serves as a portfolio manager on other funds subadvised by GW&K in the AMG Funds Complex. In the course of their deliberations, the Trustees evaluated, among other things: (a) the expected services to be rendered by GW&K to the Fund; (b) the qualifications and experience of GW&K’s personnel; and (c) GW&K’s compliance program. The Trustees additionally considered GW&K’s risk management processes. The Trustees also took into account the financial condition of GW&K with respect to its ability to provide the services required under the Agreements and noted that, as of September 30, 2020, GW&K managed approximately $47 billion in assets.
PERFORMANCE
Because GW&K was proposing to manage the Fund with its high income investment strategy, the Trustees noted that they could not draw any conclusions regarding the performance of the Fund. The Trustees, however, considered the performance of GW&K with respect to its Short Term Focused High Income Composite. The Trustees further considered the performance of the other funds in the AMG Funds Complex sub-advised by GW&K.
SUBADVISORY FEES, PROFITABILITY AND ECONOMIES OF SCALE
The Trustees noted that the Investment Manager, and not the Fund, is responsible for paying the fees charged by GW&K. In considering the anticipated profitability of GW&K with respect to the provision of subadvisory services to the Fund, the Trustees considered information regarding GW&K’s organization, management and financial stability. The Trustees noted that, because GW&K is an affiliate of the Investment Manager, a portion of GW&K’s revenues or anticipated profits might be shared directly or indirectly with the Investment Manager. The Trustees also noted that the subadvisory fee rate to be paid to GW&K under each Agreement was lower than the rate paid to Loomis, Sayles & Company, L.P. (“Loomis”) under the former subadvisory agreement between the Investment Managers and Loomis with respect to the Fund.
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The Board took into account management’s discussion of the proposed subadvisory fee structure, and the services GW&K is expected to provide in performing its functions under the Agreements. The Trustees also were provided, in advance of their June 25, 2020 meeting, with the profitability of GW&K with respect to the other funds it sub-advises in the AMG Funds Complex. Based on the foregoing, the Trustees concluded that the profitability to GW&K is expected to be reasonable and that GW&K is not expected to realize material benefits from economies of scale that would warrant adjustments to the subadvisory fees at this time. Also with respect to economies of scale, the Trustees noted that as the Fund’s assets increase over time, the Fund may realize other economies of scale to the extent the increase in assets is proportionally greater than the increase in certain other expenses.
In addition, the Trustees considered other potential benefits of the subadvisory relationship to GW&K, including, among others, the potential broadening of GW&K’s short term high income investment capabilities, as well as the indirect benefits that GW&K may receive from GW&K’s relationship with the Fund, including any so-called “fallout benefits” to GW&K, such as reputational value derived from GW&K serving as subadviser to the Fund, which bears GW&K’s name. Taking into account all of the foregoing, the Trustees concluded that, in light of the nature, extent and quality of the services to be provided by GW&K, and the other considerations noted above with respect to GW&K, the Fund’s subadvisory fees are reasonable.
* * * *
After consideration of the foregoing, the Trustees reached the following conclusions (in addition to the conclusions discussed above) regarding each Agreement: (a) GW&K has demonstrated that it possesses the capability and resources to perform the duties required of it under each Agreement; (b) GW&K’s Investment Strategy is appropriate for pursuing the Fund’s investment objectives; (c) GW&K is reasonably likely to execute its investment strategy consistently over time; and (d) GW&K maintains appropriate compliance programs.
Based on all of the above-mentioned factors and their related conclusions, with no single factor or conclusion being determinative and with each Trustee not necessarily attributing the same weight to each factor, the Trustees concluded that approval of each Agreement would be in the best interests of the Fund and its shareholders. Accordingly, on |
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| Approval of Subadvisory Agreements (continued) |
December 3, 2020, the Trustees, and separately a majority of the Independent Trustees, unanimously voted to approve each Agreement.
1 The Trustees determined that the conditions surrounding the COVID-19 virus constituted unforeseen or emergency circumstances and that reliance on the Securities and Exchange
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Commission’s (“SEC”) exemptive order, which provides relief from the in-person voting requirements of the 1940 Act in certain circumstances (the “In-Person Relief”), was necessary or appropriate due to the circumstances related to current or potential effects of COVID-19. The Trustees unanimously wished to rely on the In-Person Relief with respect to the approval of those matters on the | agenda for the December 3, 2020 meeting that would otherwise require in-person votes under the 1940 Act. See Investment Company Release No. 33897 (June 19, 2020). This exemptive order supersedes, in part, a similar, earlier exemptive order issued by the SEC (Investment Company Release No. 33824 (March 25, 2020)). |
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INVESTMENT MANAGER AND ADMINISTRATOR AMG Funds LLC One Stamford Plaza 263 Tresser Blvd, Suite 949 Stamford, CT 06901 800.548.4539
DISTRIBUTOR AMG Distributors, Inc. One Stamford Plaza 263 Tresser Blvd, Suite 949 Stamford, CT 06901 800.548.4539
SUBADVISER GW&K Investment Management, LLC 222 Berkeley St. Boston, MA 02116
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CUSTODIAN The Bank of New York Mellon 111 Sanders Creek Parkway East Syracuse, NY 13057
LEGAL COUNSEL Ropes & Gray LLP Prudential Tower, 800 Boylston Street Boston, MA 02199-3600
TRANSFER AGENT BNY Mellon Investment Servicing (US) Inc. Attn: AMG Funds 4400 Computer Drive Westborough, MA 01581 800.548.4539
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This report is prepared for the Funds’ shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by an effective prospectus. To receive a free copy of the prospectus or Statement of Additional Information, which includes additional information about Fund Trustees, please contact us by calling 800.548.4539. Distributed by AMG Distributors, Inc., member FINRA/SIPC.
Current net asset values per share for each Fund are available on the Funds’ website at amgfunds.com.
A description of the policies and procedures each Fund uses to vote its proxies is available: (i) without charge, upon request, by calling 800.548.4539, or (ii) on the Securities and Exchange Commission’s (SEC) website at sec.gov. For information regarding each Fund’s proxy voting record for the 12-month period ended June 30, call 800.548.4539 or visit the SEC website at sec.gov.
The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to their reports on Form N-PORT. The Funds’ portfolio holdings on Form N-PORT are available on the SEC’s website at sec.gov and the Fund’s website at amgfunds.com. To review a complete list of the Funds’ portfolio holdings, or to view the most recent semi-annual report or annual report, please visit amgfunds.com. |
| amgfunds.com |
| AFFILIATE SUBADVISED FUNDS | AMG TimesSquare Emerging Markets Small Cap | AMG Managers Emerging Opportunities | ||||||
| AMG TimesSquare Global Small Cap | WEDGE Capital Management L.L.P. | |||||||
| BALANCED FUNDS | AMG TimesSquare International Small Cap | Next Century Growth Investors LLC | ||||||
| AMG GW&K Global Allocation | AMG TimesSquare Mid Cap Growth | RBC Global Asset Management (U.S.) Inc. | ||||||
| GW&K Investment Management, LLC | AMG TimesSquare Small Cap Growth | AMG Managers Fairpointe Mid Cap | ||||||
| TimesSquare Capital Management, LLC | Fairpointe Capital LLC | |||||||
| AMG FQ Global Risk-Balanced | ||||||||
| First Quadrant, L.P. | AMG Yacktman | AMG Managers LMCG Small Cap Growth | ||||||
| AMG Yacktman Focused | LMCG Investments, LLC | |||||||
| EQUITY FUNDS | AMG Yacktman Focused Fund - Security Selection | |||||||
| AMG FQ Tax-Managed U.S. Equity | Only | AMG Managers Montag & Caldwell Growth | ||||||
| AMG FQ Long-Short Equity | AMG Yacktman Special Opportunities | Montag & Caldwell, LLC | ||||||
| First Quadrant, L.P. | Yacktman Asset Management LP | AMG Managers Pictet International | ||||||
| AMG Frontier Small Cap Growth | FIXED INCOME FUNDS | Pictet Asset Management Limited | ||||||
| Frontier Capital Management Co., LLC | AMG GW&K Core Bond ESG | AMG Managers Silvercrest Small Cap | ||||||
| AMG GW&K Small Cap Core | AMG GW&K Enhanced Core Bond ESG | Silvercrest Asset Management Group LLC | ||||||
| AMG GW&K Small Cap Value | AMG GW&K High Income | AMG Managers Special Equity | ||||||
| AMG GW&K Small/Mid Cap | AMG GW&K Municipal Bond | Ranger Investment Management, L.P. | ||||||
| AMG GW&K Mid Cap | AMG GW&K Municipal Enhanced Yield | Lord, Abbett & Co. LLC | ||||||
| AMG GW&K Emerging Markets Equity | GW&K Investment Management, LLC | Smith Asset Management Group, L.P. | ||||||
| AMG GW&K Emerging Wealth Equity | Federated MDTA LLC | |||||||
| AMG GW&K International Small Cap | OPEN-ARCHITECTURE FUNDS | |||||||
| GW&K Investment Management, LLC | FIXED INCOME FUNDS | |||||||
| EQUITY FUNDS | AMG Managers DoubleLine Core Plus Bond | |||||||
| AMG Renaissance Large Cap Growth | AMG Managers Brandywine | DoubleLine Capital LP | ||||||
| The Renaissance Group LLC | AMG Managers Brandywine Blue | |||||||
| Friess Associates, LLC | AMG Managers Loomis Sayles Bond |
|||||||
| AMG River Road Dividend All Cap Value | Loomis, Sayles & Company, L.P. | |||||||
| AMG River Road Focused Absolute Value | AMG Managers CenterSquare Real Estate | |||||||
| AMG River Road Long-Short | CenterSquare Investment Management LLC | |||||||
| AMG River Road Small-Mid Cap Value | ||||||||
| AMG River Road Small Cap Value | ||||||||
| River Road Asset Management, LLC | ||||||||
| amgfunds.com | 123120 | AR019 |
| Item 2. | CODE OF ETHICS |
Registrant has adopted a Code of Ethics. See attached Exhibit (a)(1).
| Item 3. | AUDIT COMMITTEE FINANCIAL EXPERT |
Registrant’s Board of Trustees has determined that independent Trustee Mr. Steven J. Paggioli qualifies as an Audit Committee Financial Expert. Mr. Paggioli is “independent” as such term is defined in Form N-CSR.
| Item 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
| (a) | Audit Fees |
The aggregate fees billed by the Funds’ independent registered public accounting firm, PricewaterhouseCoopers LLP (“PwC”), to the Funds for the Funds’ two most recent fiscal years for professional services rendered for audits of annual financial statements, or services that are normally provided in connection with statutory and regulatory filings or engagements (“Audit Fees”) were as follows:
| Fund - AMG Funds III |
Fiscal 2020 | Fiscal 2019 | ||||||
| AMG Managers Special Equity Fund |
$ | 25,105 | $ | 23,678 | ||||
| AMG Managers Loomis Sayles Bond Fund |
$ | 54,098 | $ | 47,310 | ||||
| AMG GW&K High Income Fund |
$ | 35,892 | $ | 33,930 | ||||
| (b) | Audit-Related Fees |
There were no fees billed by PwC to the Funds in their two recent fiscal years for services rendered for assurance and related services that are reasonably related to the performance of the audit or review of the Fund’s financial statements, but are not reported as Audit Fees (“Audit-Related Fees”).
For the Funds’ two most recent fiscal years, there were no Audit-Related Fees billed by PwC for engagements related directly to the operations and financial reporting of one or more Funds by a Fund Service Provider. A Fund Service Provider is (a) any investment adviser to the Fund (not including any Subadvisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) or (b) any entity that provides ongoing services to the Fund and is controlling, controlled by or under common control with a Fund investment adviser described in (a).
| (c) | Tax Fees |
The aggregate fees billed by PwC to the Funds for the two most recent fiscal years for professional services rendered for tax compliance, tax advice, and tax planning (“Tax Fees”) were as follows:
| Fund - AMG Funds III |
Fiscal 2020 | Fiscal 2019 | ||||||
| AMG Managers Special Equity Fund |
$ | 6,250 | $ | 6,250 | ||||
| AMG Managers Loomis Sayles Bond Fund |
$ | 8,400 | $ | 8,400 | ||||
| AMG GW&K High Income Fund |
$ | 8,400 | $ | 8,400 | ||||
For the Funds’ two most recent fiscal years, Tax Fees billed by PwC for engagements by Fund Service Providers that related directly to the operations and financial reporting of the Funds were $0 for fiscal 2020 and $0 for fiscal 2019, respectively.
The services for which Tax Fees were charged comprise all services performed by professional staff in PwC’s tax division except those services related to the audit. Typically, this category would include fees for tax compliance, tax planning, and tax advice. Tax compliance, tax advice, and tax planning services include preparation of original and amended tax returns, claims for refund and tax payment-planning services, assistance with tax audits and appeals, tax advice related to mergers and acquisitions and requests for rulings or technical advice from taxing authorities.
| (d) | All Other Fees |
There were no other fees billed by PwC to the Funds for all other non-audit services (“Other Fees”) during the Funds’ two most recent fiscal years. During the same period, there were no Other Fees billed by PwC for engagements by Fund Service Providers that related directly to the operations and financial reporting of the Funds.
(e)(1) According to policies adopted by the Audit Committee, services provided by PwC to the Funds must be pre-approved by the Audit Committee. On an annual basis, the Audit Committee reviews and pre-approves various types of services that PwC may perform for the Funds without specific approval of each engagement, subject to specified budget limitations. As contemplated by the Sarbanes-Oxley Act of 2002 and related SEC rules, the Audit Committee also pre-approves non-audit services provided by PwC to any Fund Service Provider for any engagement that relates directly to the operations and financial reporting of the Funds. Any engagement that is not already pre-approved or that will exceed a pre-approved budget must be submitted to the Audit Committee for pre-approval. The Chairman of the Audit Committee is authorized on behalf of the Board of Trustees and the Audit Committee to approve the engagement of PwC to perform non-audit services subject to certain conditions, including notification to the Audit Committee of such pre-approval not later than the next meeting of the Audit Committee following the date of such pre-approval.
(e)(2) None.
(f) Not applicable.
(g) The aggregate fees billed by PwC in 2020 and 2019 for non-audit services rendered to the Funds and Fund Service Providers were $72,550 and $72,550, respectively. For the fiscal year ended December 31, 2020, this amount reflects the amounts disclosed above in Item 4(b),(c),(d), plus $49,500 in fees billed to the Fund Service Providers for non-audit services that did not relate directly to the operations and financial reporting of the Funds. For the fiscal year ended December 31, 2019, this amount reflects the amounts disclosed above in Item 4(b),(c),(d), plus $49,500 in fees billed to the Fund Service Providers for non-audit services that did not relate directly to the operations and financial reporting of the Funds.
(h) The Trust’s Audit Committee has considered whether the provision of non-audit services by registrant’s independent registered public accounting firm to the registrant’s investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provided ongoing services to the registrant that were not pre-approved by the Committee (because such services did not relate directly to the operations and financial reporting of the registrant) was compatible with maintaining the independence of the independent registered public accounting firm.
| Item 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS |
Not applicable.
| Item 6. | SCHEDULE OF INVESTMENTS |
The schedule of investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form.
| Item 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
Not applicable.
| Item 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
Not applicable.
| Item 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANIES AND AFFILIATED PURCHASERS |
Not applicable.
| Item 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
Not applicable.
| Item 11. | CONTROLS AND PROCEDURES |
(a) The Registrant’s principal executive and principal financial officers have concluded, based on their evaluation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing of this report, that the Registrant’s disclosure controls and procedures are reasonably designed to ensure that
information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes in the Registrant’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.
| Item 12. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
Not applicable.
| Item 13. | EXHIBITS |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMG FUNDS III
| By: | /s/ Keitha L. Kinne | |
| Keitha L. Kinne, Principal Executive Officer | ||
| Date: March 4, 2021 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ Keitha L. Kinne | |
| Keitha L. Kinne, Principal Executive Officer | ||
| Date: March 4, 2021 | ||
| By: |
/s/ Thomas Disbrow | |
| Thomas Disbrow, Principal Financial Officer | ||
| Date: March 4, 2021 | ||