N-CSR 1 d547868dncsr.htm AMG FUNDS AMG Funds
Table of Contents

 

 

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: 811-09521

 

 

AMG FUNDS

(Exact name of registrant as specified in charter)

 

 

600 Steamboat Road, Suite 300, Greenwich, Connecticut 06830

(Address of principal executive offices) (Zip code)

 

 

AMG Funds LLC

600 Steamboat Road, Suite 300, Greenwich, Connecticut 06830

(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, 2017 – DECEMBER 31, 2017

(Annual Shareholder Report)

 

 

 


Table of Contents
Item 1. Reports to Shareholders


Table of Contents
LOGO             ANNUAL REPORT

 

 

AMG Funds

December 31, 2017

AMG Chicago Equity Partners Balanced Fund

Class N: MBEAX      |     Class I: MBESX     |      Class Z: MBEYX

AMG Chicago Equity Partners Small Cap Value Fund

Class N: CESVX        |     Class I: CESSX      |     Class Z: CESIX

AMG Managers Amundi Intermediate Government Fund

Class N: MGIDX      |     Class I: MADIX     |      Class Z: MAMZX

AMG Managers Amundi Short Duration Government Fund

Class N: MGSDX      |     Class I: MANIX     |      Class Z: MATZX

 

 

 

amgfunds.com         |    123117             AR009


Table of Contents


Table of Contents

AMG Funds

Annual Report—December 31, 2017

 

 

 

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 Chicago Equity Partners Balanced Fund

     4  

AMG Chicago Equity Partners Small Cap Value Fund

     16  

AMG Managers Amundi Intermediate Government Fund

     23  

AMG Managers Amundi Short Duration Government Fund

     31  

FINANCIAL STATEMENTS

  

Statement of Assets and Liabilities

     41  

Balance sheets, net asset value (NAV) per share computations and cumulative undistributed amounts

  

Statement of Operations

     43  

Detail of sources of income, expenses, and realized and unrealized gains (losses) during the fiscal year

  

Statements of Changes in Net Assets

     44  

Detail of changes in assets for the past two fiscal years

  

Financial Highlights

     46  

Historical net asset values per share, distributions, total returns, income and expense ratios, turnover ratios and net assets

  

Notes to Financial Statements

     58  

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

     68  

OTHER INFORMATION

     69  

TRUSTEES AND OFFICERS

     70  

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 mutual funds. Such offering is made only by prospectus, which includes details as to offering price and other material information.

 


Table of Contents

 

LOGO             Letter to Shareholders

 

 

 

Dear Shareholder:

The last 12 months was a strong period for equity markets as the health of the global economy improved and positive investor sentiment helped extend the U.S. bull market into its ninth year. The S&P 500® Index, a widely followed barometer of the U.S. equity market, returned 21.83% during the fiscal year ended December 31, 2017. By comparison, small cap stocks underperformed large caps with a 14.65% return for the small cap Russell 2000® Index.

The S&P 500 Index has notched positive performance in every month since the U.S. presidential election amidst the backdrop of strong corporate earnings, improving global economic growth and the passage of sweeping tax reform. 2017 also marked a turning point for the broader global economy as growth accelerated in a more coordinated fashion around the world, global trade improved and commodities recovered. U.S. equity market volatility remained extremely low despite saber rattling in North Korea and a devastating hurricane season. In fact, the S&P 500 Index has not seen a pullback greater than 5% since the summer of 2016.

In total, all but two sectors of the S&P 500 Index were positive during the last 12 months; however, there was significant dispersion in performance across sectors. Information technology and materials stocks led the Index with returns of 38.87% and 23.25%, respectively, while companies within the energy and telecommunication services sectors were the laggards with returns of (1.11)% and (1.49)%, respectively. Growth stocks outperformed value during all four quarters of the year and ended 2017 with returns of 30.2% and 13.7% for the Russell 1000® Growth and Russell 1000® Value Indexes, respectively. International equities outperformed domestic equities for the first time since 2012 as the global economy picked up and international returns were boosted by a weaker U.S. Dollar with the MSCI All Country World ex-USA Index returning 27.19% during the year. Meanwhile, emerging markets had their strongest year since 2009 with a 37.3% return for the MSCI Emerging Markets Index.

The U.S. bond market produced modestly positive returns for the year, as measured by the 3.54% return for the Bloomberg Barclays U.S. Aggregate Bond Index, a broad measure of U.S. bond market performance. The yield curve flattened as the U.S. Federal Reserve (the Fed) continued to normalize monetary policy and short-term interest rates rose more than longer-term rates. The 2-year U.S. Treasury note rose 69 basis points during the year to yield 1.89% while the 10-year U.S. Treasury note

ended 2017 at a 2.40% yield, five basis points lower than where it started. Investment grade corporates outperformed Treasuries and securitized credits with returns of 6.42%, 2.31% and 2.51%, respectively. Bond investors willing to accept more credit risk were rewarded with higher returns as high yield bonds performed strongly and credit spreads tightened. The Bloomberg Barclays U.S. Corporate High Yield Index ended the period with a 7.50% return.

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. By partnering with AMG’s affiliated investment boutiques, AMG Funds provides access to a distinctive array of actively managed return-oriented investment strategies. Additionally, we oversee and distribute a number of complementary open-architecture mutual funds subadvised by unaffiliated investment managers. 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,

 

LOGO

Jeffery Cerutti

President

AMG Funds

 

           Periods ended December 31, 2017*  

Average Annual Total Returns

    1 Year     3 Years     5 Years  

Stocks:

        

Large Caps

     (S&P 500® Index)       21.83     11.41     15.79

Small Caps

     (Russell 2000® Index)       14.65     9.96     14.12

International

    
(MSCI All Country World
ex-USA Index)
 
 
    27.19     7.83     6.80

Bonds:

        

Investment Grade

    
(Bloomberg Barclays U.S.
Aggregate Bond Index)
 
 
    3.54     2.24     2.10

High Yield

    

(Bloomberg Barclays U.S.
Corporate High Yield
Index)
 
 
 
    7.50     6.35     5.78

Tax-exempt

    
(Bloomberg Barclays
Municipal Bond Index)
 
 
    5.45     2.98     3.02

Treasury Bills

    
(ICE BofAML 6-Month
U.S. Treasury Bill Index)
 
 
    0.95     0.62     0.43

 

* Source: Factset. Past performance is no guarantee of future results.
 

 

 

 

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Table of Contents

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 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

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.

Six Months Ended December 31, 2017    Expense
Ratio for
the Period
    Beginning
Account Value
07/01/17
     Ending
Account Value
12/31/17
     Expenses
Paid During
the Period*
 

AMG Chicago Equity Partners Balanced Fund

          

Based on Actual Fund Return

          

Class N

     1.09   $ 1,000      $ 1,080      $ 5.71  

Class I

     .94   $ 1,000      $ 1,080      $ 4.93  

Class Z

     .84   $ 1,000      $ 1,082      $ 4.41  

Based on Hypothetical 5% Annual Return

          

Class N

     1.09   $ 1,000      $ 1,020      $ 5.55  

Class I

     .94   $ 1,000      $ 1,020      $ 4.79  

Class Z

     .84   $ 1,000      $ 1,021      $ 4.28  

AMG Chicago Equity Partners Small Cap Value Fund

          

Based on Actual Fund Return

          

Class N

     1.35   $ 1,000      $ 1,069      $ 7.04  

Class I

     1.26   $ 1,000      $ 1,069      $ 6.57  

Class Z

     .95   $ 1,000      $ 1,072      $ 4.96  

Based on Hypothetical 5% Annual Return

          

Class N

     1.35   $ 1,000      $ 1,018      $ 6.87  

Class I

     1.26   $ 1,000      $ 1,019      $ 6.41  

Class Z

     .95   $ 1,000      $ 1,020      $ 4.84  

AMG Managers Amundi Intermediate Government Fund

          

Based on Actual Fund Return

          

Class N

     .84   $ 1,000      $ 1,006      $ 4.25  

Class I

     .73   $ 1,000      $ 1,006      $ 3.69  

Class Z

     .69   $ 1,000      $ 1,007      $ 3.49  

Based on Hypothetical 5% Annual Return

          

Class N

     .84   $ 1,000      $ 1,021      $ 4.28  

Class I

     .73   $ 1,000      $ 1,022      $ 3.72  

Class Z

     .69   $ 1,000      $ 1,022      $ 3.52  

AMG Managers Amundi Short Duration Government Fund

          

Based on Actual Fund Return

          

Class N

     .72   $ 1,000      $ 1,004      $ 3.64  

Class I

     .63   $ 1,000      $ 1,004      $ 3.18  

Class Z

     .57   $ 1,000      $ 1,005      $ 2.88  

Based on Hypothetical 5% Annual Return

          

Class N

     .72   $ 1,000      $ 1,022      $ 3.67  

Class I

     .63   $ 1,000      $ 1,022      $ 3.21  

Class Z

     .57   $ 1,000      $ 1,022      $ 2.91  

 

* 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 365.
 

 

 

 

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Table of Contents

AMG Chicago Equity Partners Balanced Fund

Portfolio Manager’s Comments (unaudited)

 

 

THE YEAR IN REVIEW

For the year ended December 31, 2017, the AMG Chicago Equity Partners Balanced Fund (Class N shares) (the “Fund”) returned 15.54%, compared to the 14.17% return for its benchmark, which consists of 60% the return of the Russell 1000® Index and 40% the return of the Bloomberg Barclays U.S. Aggregate Bond Index.

The portfolio is managed to emphasize stock selection while also using our proprietary models to adjust size, style and allocation exposures. The Fund has had a strong year, beating the benchmark in three of the four quarters. A 65/35 asset allocation was maintained throughout the year and the overweight to equities helped returns relative to the 60/40 benchmark. The market phase identified by the firm’s proprietary model was in expansion all year, so the Fund maintained its preference for growth over value—this also helped relative returns as growth beat value in 2017. The equity portion of the Fund significantly outperformed the Russell 1000® Index, helped by the preference for growth over value and good performance from the alpha model. The fixed income portion of the Fund underperformed the Bloomberg Barclays Aggregate Index. The portfolio maintained its underweight to corporate bonds as well as its emphasis on higher quality issuers in this environment, which hurt relative performance.

The strong stock market of 2017 reflected not only multiple expansion, but also strong corporate earnings growth. Economic indicators in the U.S.

were generally strong in the fourth quarter and throughout 2017, with a solid job market, strong housing numbers, improved growth and earnings expectations, and moderate inflation. As such, the Federal Reserve raised rates three times in the year, with the targeted federal funds rate ending the year at 1.5%. Regarding fixed income markets, from a valuation standpoint, risk premiums are at cycle lows, demonstrated by the corporate option-adjusted spread (OAS) declining 30 basis points over the year to end at 93 basis points. Throughout the year, the yield curve flattened as short rates rose and longer rates declined. Additionally, we have seen an increase in risk overall, including in balance sheet leverage. The Federal Reserve’s intent is to continue to raise rates and reverse Quantitative Easing.

Given this backdrop, the fixed income portion of the Fund continues to focus on downside protection and the equity portion continues to follow its disciplined approach. Our research has shown that constructing a well-diversified portfolio of companies with attractive valuation ratios, quality balance sheets, and positive growth and momentum expectations built through a disciplined, risk-controlled process offers the potential to deliver consistent excess returns for the equity portion of the Fund. For the fixed income portion of the Fund, current circumstances support our strategy of maintaining a high quality bias. We believe the current environment demands an emphasis on downside protection in bond portfolios, and we are managing the portfolio in line with that belief. We will continue to monitor inputs to our investment process for indications of improving conditions and opportunity

but believe our positioning is prudent and in line with our stated objectives. Overall, our philosophy will not change based on short-term trends or conditions in the market. We will continue to use our disciplined approach to provide added value at controlled levels of risk.

This commentary reflects the viewpoints of the portfolio manager, Chicago Equity Partners, LLC, as of December 31, 2017 and is not intended as a forecast or guarantee of future results, and is subject to change without notice.

CUMULATIVE TOTAL RETURN PERFORMANCE

AMG Chicago Equity Partners Balanced 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. This graph compares a hypothetical $10,000 investment made in the Fund’s Class N shares on December 31, 2007, to a $10,000 investment made in the 60% Russell 1000® Index/40% Bloomberg Barclays U.S. Aggregate Bond Index, Russell 1000® Index and 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.

 

 

 

 

4


Table of Contents

AMG Chicago Equity Partners Balanced Fund

Portfolio Manager’s Comments (continued)

 

 

 

CUMULATIVE TOTAL RETURN PERFORMANCE (continued)

 

LOGO

The table below shows the average annual total returns for the AMG Chicago Equity Partners Balanced Fund, the 60% Russell 1000® Index/40% Bloomberg Barclays U.S. Aggregate Bond Index, the Russell 1000® Index and the Bloomberg Barclays U.S. Aggregate Bond Index for the same time periods ended December 31, 2017.

 

     One     Five     Ten     Since     Inception  
Average Annual Total Returns1    Year     Years     Years     Inception     Date  

AMG Chicago Equity Partners Balanced Fund2, 3, 4, 5, 6, 7, 8

          

Class N

     15.54     9.67     7.25     8.05     01/02/97  

Class I

     15.71     9.89     —         9.62     11/30/12  

Class Z

     15.90     9.96     7.53     8.43     01/02/97  

60% Russell 1000® Index9 /40% Bloomberg Barclays U.S. Aggregate Bond Index10

     14.17     10.29     7.36     7.72     01/02/97  

Bloomberg Barclays U.S. Aggregate Bond Index10

     3.54     2.10     4.01     5.22     01/02/97  

Russell 1000® Index9

     21.69     15.71     8.59     8.52     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 800.835.3879 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, 2017. 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  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.
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  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.
9  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. Unlike the Fund, the Russell 1000® Index is unmanaged, is not available for investment, and does not incur expenses.
10  The Bloomberg Barclays U.S. Aggregate Bond Index represents securities that are SEC-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 Bloomberg Barclays U.S. Aggregate Bond Index is unmanaged, is not available for investment, and does not incur expenses.

The Russell 1000® Index is a trademark of the London Stock Exchange Group companies.

Not FDIC insured, nor bank guaranteed. May lose value.

 

 

 

 

 

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Table of Contents

AMG Chicago Equity Partners Balanced Fund

Fund Snapshots (unaudited)

December 31, 2017

 

 

PORTFOLIO BREAKDOWN

 

Sector

   % of
Net Assets
 

U.S. Government and Agency Obligations

     31.3  

Information Technology

     17.2  

Industrials

     10.4  

Consumer Discretionary

     9.1  

Financials

     8.9  

Health Care

     8.0  

Consumer Staples

     4.6  

Energy

     2.4  

Real Estate

     2.4  

Materials

     2.2  

Utilities

     1.7  

Telecommunication Services

     0.7  

Short-Term Investments*

     1.9  

Other Assets Less Liabilities**

     (0.8

 

* Includes reinvestment of cash collateral into joint repurchase agreements on security lending transactions.
** Includes repayment of cash collateral on security lending transactions.

TOP TEN HOLDINGS

 

Security Name

   % of
Net Assets
 

Apple, Inc.

     2.9  

U.S. Treasury Bonds, 2.750%, 08/15/42

     2.4  

Alphabet, Inc., Class A

     2.1  

U.S. Treasury Notes, 2.250%, 11/15/24

     2.0  

U.S. Treasury Notes, 2.250%, 02/15/27

     2.0  

Microsoft Corp.

     1.5  

Facebook, Inc., Class A

     1.4  

Amazon.com, Inc.

     1.2  

FHLMC Gold Pool, 3.500%, 01/01/46

     1.1  

U.S. Treasury Notes, 1.000%, 06/30/19

     1.1  
  

 

 

 

Top Ten as a Group

     17.7  
  

 

 

 
 

 

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.

 

 

 

6


Table of Contents

AMG Chicago Equity Partners Balanced Fund

Schedule of Portfolio Investments

December 31, 2017

 

 

 

     Shares      Value  

Common Stocks - 63.8%

     

Consumer Discretionary - 9.1%

     

888 Holdings PLC (Gibraltar)

     21,500      $ 81,772  

Amazon.com, Inc.*

     2,020        2,362,329  

Aoyama Trading Co., Ltd. (Japan)

     1,300        48,580  

Bellway PLC (United Kingdom)

     300        14,382  

Beneteau, S.A. (France)

     4,800        114,869  

Best Buy Co., Inc.

     1,420        97,227  

BorgWarner, Inc.

     5,780        295,300  

Burlington Stores, Inc.*

     6,240        767,707  

Cable One, Inc.1

     390        274,307  

Card Factory PLC (United Kingdom)

     29,400        117,138  

CarMax, Inc.*

     3,480        223,172  

Chipotle Mexican Grill, Inc.*

     195        56,361  

Choice Hotels International, Inc.

     1,840        142,784  

Comcast Corp., Class A

     34,675        1,388,734  

CTS Eventim AG & Co. KGaA (Germany)

     1,200        55,790  

De’ Longhi S.P.A. (Italy)

     100        3,027  

Dollar Tree, Inc.*

     3,140        336,953  

Domino’s Pizza, Inc.

     2,430        459,173  

Dunkin’ Brands Group, Inc.

     2,590        166,977  

EDION Corp. (Japan)

     5,500        63,946  

Exedy Corp. (Japan)

     3,500        107,831  

Harley-Davidson, Inc.1

     2,360        120,077  

Hilton Worldwide Holdings, Inc.

     9,285        741,500  

The Home Depot, Inc.

     10,045        1,903,829  

John Menzies PLC (United Kingdom)

     4,000        36,751  

Kadokawa Dwango Corp. (Japan)

     4,500        55,486  

Kindred Group PLC, SDR (Malta)

     3,100        44,264  

Liberty Interactive Corp. QVC Group, Class A*

     28,355        692,429  

Liberty Ventures*

     4,190        227,266  

Macy’s, Inc.1

     3,785        95,344  

Marriott International, Inc., Class A

     4,440        602,641  

McDonald’s Corp.

     5,400        929,448  

Misawa Homes Co., Ltd. (Japan)

     12,000        105,424  

N Brown Group PLC (United Kingdom)

     13,400        48,975  

Netflix, Inc.*

     4,620        886,855  

Nissan Shatai Co., Ltd. (Japan)

     3,100        31,642  

Omnicom Group, Inc.

     2,300        167,509  

Polaris Industries, Inc.1

     3,305        409,787  

Ralph Lauren Corp.1

     2,115        219,304  

Ross Stores, Inc.

     8,120        651,630  

Royal Caribbean Cruises, Ltd.

     1,070        127,630  
     Shares      Value  

Sanoma OYJ (Finland)

     8,600      $ 112,164  

Service Corp. International

     11,480        428,434  

Sirius XM Holdings, Inc.1

     36,585        196,096  

SKY Perfect JSAT Holdings, Inc. (Japan)

     11,900        54,464  

SSP Group PLC (United Kingdom)

     400        3,674  

Target Corp.

     4,295        280,249  

Thule Group AB (Sweden)2

     2,000        45,054  

Time Warner, Inc.

     1,910        174,708  

Tokai Rika Co., Ltd. (Japan)

     1,800        37,771  

Tupperware Brands Corp.

     4,875        305,662  

VF Corp.

     7,620        563,880  

Visteon Corp.*

     2,210        276,559  

Wacoal Holdings Corp. (Japan)

     1,500        47,314  

Total Consumer Discretionary

        17,802,179  

Consumer Staples - 4.6%

     

a2 Milk Co., Ltd. (New Zealand)*

     18,100        103,518  

Altria Group, Inc.

     7,625        544,501  

Archer-Daniels-Midland Co.

     9,070        363,526  

Brown-Forman Corp., Class B

     8,415        577,858  

The Coca-Cola Co.

     11,535        529,226  

Colgate-Palmolive Co.

     1,220        92,049  

Conagra Brands, Inc.

     15,970        601,590  

Constellation Brands, Inc., Class A

     3,650        834,281  

CVS Health Corp.

     4,120        298,700  

Edgewell Personal Care Co.*

     2,835        168,371  

The Estee Lauder Cos., Inc., Class A

     8,055        1,024,918  

Flowers Foods, Inc.

     7,530        145,404  

Ingredion, Inc.

     2,780        388,644  

La Doria S.P.A. (Italy)

     1,200        23,597  

Lamb Weston Holdings, Inc.

     4,955        279,710  

McCormick & Co., Inc., Non-Voting Shares

     1,080        110,063  

Origin Enterprises PLC (Ireland)

     8,300        63,138  

PepsiCo, Inc.

     5,970        715,922  

Philip Morris International, Inc.

     1,660        175,379  

Pilgrim’s Pride Corp.*

     11,040        342,902  

The Procter & Gamble Co.

     9,800        900,424  

Rami Levy Chain Stores Hashikma Marketing 2006, Ltd. (Israel)

     1,600        84,882  

Salmar A.S.A. (Norway)

     3,100        93,135  

Stock Spirits Group PLC (United Kingdom)

     27,200        98,696  
 

 

 

The accompanying notes are an integral part of these financial statements.

 

7


Table of Contents

AMG Chicago Equity Partners Balanced Fund

Schedule of Portfolio Investments (continued)

 

 

 

     Shares      Value  

Consumer Staples - 4.6% (continued)

     

Wal-Mart Stores, Inc.

     3,860      $ 381,175  

Total Consumer Staples

        8,941,609  

Energy - 2.4%

     

Anadarko Petroleum Corp.

     2,800        150,192  

Apache Corp.

     3,150        132,993  

Baker Hughes, a GE company

     2,810        88,908  

Cabot Oil & Gas Corp.

     4,870        139,282  

Chevron Corp.

     5,335        667,889  

CNX Resources Corp.*

     6,240        91,291  

ConocoPhillips

     7,425        407,558  

Devon Energy Corp.

     6,790        281,106  

EOG Resources, Inc.

     920        99,277  

EQT Corp.

     780        44,398  

Exxon Mobil Corp.

     11,525        963,951  

Japan Petroleum Exploration Co., Ltd. (Japan)

     2,800        74,013  

National Oilwell Varco, Inc.

     3,300        118,866  

Noble Corp. PLC (United Kingdom)*,1

     16,620        75,122  

Noble Energy, Inc.

     2,500        72,850  

Occidental Petroleum Corp.

     1,420        104,597  

Ocean Yield A.S.A. (Norway)

     2,700        22,855  

Pioneer Natural Resources

     745        128,773  

RPC, Inc.1

     22,950        585,914  

Sinanen Holdings Co., Ltd. (Japan)

     800        19,102  

Subsea 7, S.A. (United Kingdom)

     3,000        44,946  

Tethys Oil AB (Sweden)

     900        7,214  

Valero Energy Corp.

     2,940        270,215  

Whitehaven Coal, Ltd. (Australia)

     19,800        68,663  

Whiting Petroleum Corp.*

     3,000        79,440  

Total Energy

        4,739,415  

Financials - 7.6%

     

The Allstate Corp.

     12,150        1,272,226  

American Financial Group, Inc.

     640        69,466  

Ameriprise Financial, Inc.

     3,870        655,849  

Aspen Insurance Holdings, Ltd. (Bermuda)

     3,540        143,724  

Associated Banc-Corp.

     7,100        180,340  

Assurant, Inc.

     2,230        224,873  

Assured Guaranty, Ltd. (Bermuda)

     6,240        211,349  

Banca Mediolanum S.P.A. (Italy)

     1,300        11,254  

Banca Popolare Di Sondrio SCARL (Italy)

     15,300        55,871  

Bank of America Corp.

     28,255        834,087  

Berkshire Hathaway, Inc., Class B*

     2,850        564,927  

BlackRock, Inc.

     320        164,387  
     Shares      Value  

Chesnara PLC (United Kingdom)

     1,500      $ 7,883  

Citizens Financial Group, Inc.

     3,520        147,770  

CME Group, Inc.

     935        136,557  

Comerica, Inc.

     2,330        202,267  

Commerce Bancshares, Inc.

     4,043        225,761  

Corp. Financiera Alba, S.A. (Spain)

     1,700        97,336  

Cullen/Frost Bankers, Inc.1

     1,120        106,008  

Dah Sing Financial Holdings, Ltd. (Hong Kong)

     16,800        107,623  

Deutsche Pfandbriefbank AG (Germany)2

     7,100        113,420  

Discover Financial Services

     855        65,767  

Eaton Vance Corp.

     7,260        409,391  

Erie Indemnity Co., Class A

     1,020        124,277  

esure Group PLC (United Kingdom)

     30,900        103,673  

Fifth Third Bancorp

     8,240        250,002  

Franklin Resources, Inc.

     7,205        312,193  

Genworth Mortgage Insurance Australia, Ltd. (Australia)

     2,300        5,372  

Invesco, Ltd.

     4,150        151,641  

Japan Securities Finance Co., Ltd. (Japan)

     19,700        111,365  

JPMorgan Chase & Co.

     11,538        1,233,874  

Lincoln National Corp.

     2,540        195,250  

LPL Financial Holdings, Inc.

     1,880        107,423  

M&T Bank Corp.

     1,130        193,219  

Marusan Securities Co., Ltd. (Japan)

     11,500        102,888  

MetLife, Inc.

     5,510        278,586  

MFA Financial, Inc., REIT

     14,840        117,533  

Moody’s Corp.

     2,735        403,713  

Navient Corp.

     4,600        61,272  

Northern Trust Corp.

     6,350        634,301  

Plus500, Ltd. (Israel)

     8,400        102,881  

The Progressive Corp.

     9,930        559,257  

Prudential Financial, Inc.

     1,770        203,515  

Regions Financial Corp.

     12,230        211,334  

S&P Global, Inc.

     2,500        423,500  

SEI Investments Co.

     2,890        207,675  

SpareBank 1 Nord Norge (Norway)

     3,200        24,261  

State Street Corp.

     3,680        359,205  

SunTrust Banks, Inc.

     5,715        369,132  

SVB Financial Group*

     960        224,419  

T Rowe Price Group, Inc.

     950        99,683  

TD Ameritrade Holding Corp.

     11,070        566,009  

Torchmark Corp.

     1,480        134,251  

The Travelers Cos., Inc.

     665        90,201  
 

 

 

The accompanying notes are an integral part of these financial statements.

 

8


Table of Contents

AMG Chicago Equity Partners Balanced Fund

Schedule of Portfolio Investments (continued)

 

 

 

     Shares      Value  

Financials - 7.6% (continued)

     

US Bancorp

     6,565      $ 351,753  

Waddell & Reed Financial, Inc., Class A1

     10,210        228,091  

Wells Fargo & Co.

     5,330        323,371  

White Mountains Insurance Group, Ltd.

     110        93,641  

Total Financials

        14,966,897  

Health Care - 8.0%

     

AbbVie, Inc.

     2,760        266,920  

ABIOMED, Inc.*

     1,560        292,360  

ACADIA Pharmaceuticals, Inc.*,1

     7,855        236,514  

Aetna, Inc.

     1,775        320,192  

Align Technology, Inc.*

     3,080        684,345  

Amgen, Inc.

     415        72,168  

Baxter International, Inc.

     22,633        1,462,997  

Becton Dickinson & Co.

     224        47,818  

BioGaia AB, Class B (Sweden)

     800        31,793  

Bioverativ, Inc.*

     3,250        175,240  

Bristol-Myers Squibb Co.

     2,980        182,614  

Bruker Corp.

     15,465        530,759  

Cardinal Health, Inc.

     750        45,952  

Centene Corp.*

     2,490        251,191  

Cigna Corp.

     810        164,503  

COSMO Pharmaceuticals, N.V. (Ireland)

     100        15,024  

Eli Lilly & Co.

     2,970        250,846  

Exelixis, Inc.*

     16,450        500,080  

Express Scripts Holding Co.*

     900        67,176  

Gilead Sciences, Inc.

     4,915        352,111  

Humana, Inc.

     1,410        349,779  

IDEXX Laboratories, Inc.*

     4,390        686,508  

Idorsia, Ltd. (Switzerland)*

     200        5,223  

Indivior PLC (United Kingdom)*

     13,400        73,586  

IQVIA Holdings, Inc.*

     2,870        280,973  

Johnson & Johnson

     5,095        711,873  

KYORIN Holdings, Inc. (Japan)

     4,800        89,573  

McKesson Corp.

     690        107,605  

Merck & Co., Inc.

     17,695        995,698  

Mettler-Toledo International, Inc.*

     200        123,904  

Neurocrine Biosciences, Inc.*

     10,225        793,358  

Paramount Bed Holdings Co., Ltd. (Japan)

     1,500        74,124  

Perrigo Co. PLC (Ireland)

     4,425        385,683  

Pfizer, Inc.

     3,367        121,953  

Regeneron Pharmaceuticals, Inc.*

     1,210        454,912  

RHT Health Trust (Singapore)

     73,700        46,296  
     Shares      Value  

Ship Healthcare Holdings, Inc. (Japan)

     1,400      $ 46,275  

Toho Holdings Co., Ltd. (Japan)

     5,200        117,220  

UnitedHealth Group, Inc.

     7,060        1,556,448  

Varian Medical Systems, Inc.*

     4,985        554,083  

Veeva Systems, Inc., Class A*

     7,500        414,600  

Vertex Pharmaceuticals, Inc.*

     1,055        158,102  

WellCare Health Plans, Inc.*

     4,645        934,156  

Zoetis, Inc.

     9,050        651,962  

Total Health Care

        15,684,497  

Industrials - 8.1%

     

3M Co.

     4,945        1,163,905  

Aida Engineering, Ltd. (Japan)

     7,500        91,533  

Air New Zealand, Ltd. (New Zealand)

     37,300        84,326  

Allison Transmission Holdings, Inc.

     13,945        600,611  

Amadeus Fire AG (Germany)

     500        46,320  

Biesse S.P.A. (Italy)

     300        15,207  

The Boeing Co.

     4,770        1,406,721  

Caterpillar, Inc.

     11,555        1,820,837  

Cintas Corp.

     2,140        333,476  

Copa Holdings, S.A., Class A (Panama)

     950        127,357  

Costain Group PLC (United Kingdom)

     14,700        92,835  

Cummins, Inc.

     1,070        189,005  

Eaton Corp. PLC

     870        68,739  

Emerson Electric Co.

     2,910        202,798  

Enav S.P.A. (Italy)2

     5,100        27,599  

Expeditors International of Washington, Inc.

     14,420        932,830  

FACC AG (Austria)*

     4,800        99,664  

Flowserve Corp.

     2,050        86,367  

Fluor Corp.

     2,490        128,608  

Fortive Corp.

     2,630        190,280  

Galliford Try PLC (United Kingdom)

     1,700        29,517  

GATX Corp.1

     1,660        103,186  

General Electric Co.

     10,300        179,735  

Go-Ahead Group PLC (United Kingdom)

     2,100        42,218  

HEICO Corp.

     1,990        187,756  

Honeywell International, Inc.

     2,050        314,388  

Hopewell Holdings, Ltd. (Hong Kong)

     22,700        83,764  

Inabata & Co., Ltd. (Japan)

     600        9,077  

Ingersoll-Rand PLC

     710        63,325  

Itoki Corp. (Japan)

     6,500        48,034  

Jacobs Engineering Group, Inc.

     2,980        196,561  

Kanematsu Corp. (Japan)

     500        6,900  

KAR Auction Services, Inc.

     2,370        119,709  
 

 

 

The accompanying notes are an integral part of these financial statements.

 

9


Table of Contents

AMG Chicago Equity Partners Balanced Fund

Schedule of Portfolio Investments (continued)

 

 

 

     Shares      Value  

Industrials - 8.1% (continued)

 

  

Kirby Corp.*

     4,450      $ 297,260  

Komori Corp. (Japan)

     7,600        106,648  

Kyodo Printing Co., Ltd. (Japan)

     3,400        109,336  

Landstar System, Inc.

     4,820        501,762  

Macquarie Atlas Roads Group (Australia)

     22,000        107,571  

Mersen, S.A. (France)

     2,400        107,414  

Morgan Advanced Materials

     

PLC (United Kingdom)

     4,200        19,127  

Mota-Engil SGPS, S.A. (Portugal)

     26,000        114,271  

Namura Shipbuilding Co., Ltd. (Japan)

     17,400        107,028  

Northrop Grumman Corp.

     870        267,012  

OC Oerlikon Corp. AG (Switzerland)

     3,200        54,015  

Old Dominion Freight Line, Inc.

     3,930        516,991  

Oshkosh Corp.

     980        89,072  

Redde PLC (United Kingdom)

     17,000        40,224  

Rheinmetall AG (Germany)

     100        12,646  

Robert Half International, Inc.

     5,690        316,023  

Rockwell Automation, Inc.

     4,775        937,571  

SG Fleet Group, Ltd. (Australia)

     34,000        107,706  

Sojitz Corp. (Japan)

     11,100        34,007  

Spirit AeroSystems Holdings, Inc., Class A

     2,425        211,581  

Sulzer AG (Switzerland)

     800        97,039  

The Toro Co.

     770        50,227  

TransUnion*

     15,480        850,781  

Union Pacific Corp.

     620        83,142  

United Rentals, Inc.*

     7,485        1,286,746  

Valmont Industries, Inc.

     690        114,436  

Waste Management, Inc.

     1,290        111,327  

WW Grainger, Inc.

     1,020        240,975  

Total Industrials

        15,985,126  

Information Technology - 17.2%

     

Activision Blizzard, Inc.

     3,160        200,091  

Adobe Systems, Inc.*

     2,790        488,920  

Advanced Micro Devices, Inc.*

     11,890        122,229  

Alphabet, Inc., Class A*

     3,945        4,155,663  

Altium, Ltd. (Australia)

     900        9,303  

Apple, Inc.

     33,810        5,721,666  

Arista Networks, Inc.*

     3,665        863,401  

Atea A.S.A. (Norway)

     4,700        66,116  

Atlassian Corp. PLC, Class A (Australia)*

     2,180        99,234  

Broadcom, Ltd.

     510        131,019  

CDW Corp.

     18,100        1,257,769  
     Shares      Value  

Cisco Systems, Inc.

     7,240      $ 277,292  

Dell Technologies, Inc., Class V*

     1,800        146,304  

DXC Technology Co.

     2,800        265,720  

Facebook, Inc., Class A*

     15,285        2,697,191  

First Solar, Inc.*

     1,490        100,605  

Fortinet, Inc.*

     22,450        980,840  

Harris

     3,770        534,020  

Hewlett Packard Enterprise Co.

     4,740        68,066  

HP, Inc.

     19,450        408,644  

IAC/InterActiveCorp*

     910        111,275  

Ines Corp. (Japan)

     7,700        79,742  

IPG Photonics Corp.*

     1,390        297,641  

Jabil, Inc.

     6,740        176,925  

Juniper Networks, Inc.

     10,970        312,645  

Kainos Group PLC (United Kingdom)

     11,100        50,880  

Leidos Holdings, Inc.

     13,110        846,513  

LogMeIn, Inc.

     1,525        174,612  

Mastercard, Inc., Class A

     5,930        897,565  

Maxim Integrated Products, Inc.

     9,511        497,214  

Micron Technology, Inc.*

     2,490        102,389  

Microsoft Corp.

     35,365        3,025,122  

Nemetschek SE (Germany)

     200        17,892  

NVIDIA Corp.

     2,940        568,890  

PayPal Holdings, Inc.*

     11,090        816,446  

Red Hat, Inc.*

     880        105,688  

Shinko Electric Industries Co., Ltd. (Japan)

     12,100        97,764  

Siltronic AG (Germany)*

     400        57,829  

Skyworks Solutions, Inc.

     6,700        636,165  

Softcat PLC (United Kingdom)

     11,200        78,633  

Square, Inc., Class A*

     17,240        597,711  

Synopsys, Inc.*

     6,220        530,193  

Take-Two Interactive Software, Inc.*

     5,215        572,503  

Teradyne, Inc.

     2,635        110,327  

Texas Instruments, Inc.

     13,290        1,388,008  

Tower Semiconductor, Ltd. (Israel)*

     100        3,398  

Toyo Corp./Chuo-ku (Japan)

     12,300        107,891  

Universal Display Corp.

     1,260        217,539  

Venture Corp., Ltd. (Singapore)

     5,300        80,916  

Viavi Solutions, Inc.*

     20,960        183,190  

Visa, Inc., Class A

     7,670        874,533  

VMware, Inc., Class A*,1

     650        81,458  

Vtech Holdings (Hong Kong)

     3,700        48,392  

Western Digital Corp.

     4,970        395,264  
 

 

 

The accompanying notes are an integral part of these financial statements.

 

10


Table of Contents

AMG Chicago Equity Partners Balanced Fund

Schedule of Portfolio Investments (continued)

 

 

 

     Shares      Value  

Information Technology - 17.2% (continued)

 

  

Workday, Inc., Class A*

     2,540      $ 258,420  

Zebra Technologies Corp., Class A*

     7,160        743,208  

Total Information Technology

        33,738,874  

Materials - 2.2%

     

Air Products & Chemicals, Inc.

     1,855        304,368  

Albemarle Corp.

     400        51,156  

Avery Dennison Corp.

     1,850        212,491  

Berry Global Group, Inc.*

     12,390        726,921  

Cabot Corp.

     1,495        92,077  

The Chemours Co.

     10,910        546,155  

Domtar Corp.

     4,060        201,051  

DowDuPont, Inc.

     5,427        386,511  

DuluxGroup, Ltd. (Australia)

     12,400        73,893  

Ence Energia y Celulosa, S.A. (Spain)

     7,200        47,514  

FMC Corp.

     1,420        134,417  

Freeport-McMoRan, Inc.*

     24,725        468,786  

Huntsman Corp.

     4,950        164,785  

Marshalls PLC (United Kingdom)

     17,200        105,639  

Mitsubishi Steel Manufacturing Co., Ltd. (Japan)

     4,200        104,099  

The Navigator Co., S.A. (Portugal)

     3,700        18,839  

Newmont Mining Corp.

     3,755        140,888  

Nippon Paper Industries Co., Ltd. (Japan)

     5,800        110,089  

Nippon Soda Co., Ltd. (Japan)

     700        4,654  

Owens-Illinois, Inc.*

     5,000        110,850  

PPG Industries, Inc.

     585        68,340  

Svenska Cellulosa AB SCA, Class B (Sweden)

     6,400        65,965  

Toyo Ink SC Holdings Co., Ltd. (Japan)

     3,000        17,721  

Vedanta Resources PLC (India)

     11,300        122,260  

Westlake Chemical Corp.

     1,320        140,620  

Total Materials

        4,420,089  

Real Estate - 2.4%

     

Alexandria Real Estate Equities, Inc., REIT

     760        99,248  

alstria office REIT-AG, REIT (Germany)

     3,000        46,362  

Boston Properties, Inc., REIT

     1,530        198,946  

CapitaLand Retail China Trust, REIT (Singapore)

     7,500        9,084  

CBRE Group, Inc., Class A*

     11,950        517,554  

Columbia Property Trust, Inc., REIT

     7,400        169,830  

CoreSite Realty Corp., REIT

     4,990        568,361  

Corporate Office Properties Trust, REIT

     4,180        122,056  

DDR Corp., REIT

     23,260        208,410  

Digital Realty Trust, Inc., REIT

     5,600        637,840  
     Shares      Value  

Equity Residential, REIT

     3,475      $ 221,601  

Eurocommercial Properties, N.V. (Netherlands)

     600        26,140  

Hemfosa Fastigheter AB (Sweden)

     2,800        37,520  

Kungsleden AB (Sweden)

     15,500        112,399  

Leopalace21 Corp. (Japan)

     1,100        8,542  

The Macerich Co., REIT

     2,270        149,094  

NSI, N.V., REIT (Netherlands)

     100        4,171  

Outfront Media Inc., REIT

     10,125        234,900  

Piedmont Office Realty Trust, Inc., Class A, REIT

     14,790        290,032  

RDI REIT PLC, REIT (United Kingdom)

     215,200        106,380  

Realty Income Corp., REIT

     740        42,195  

Sabra Health Care REIT, Inc., REIT

     19,925        373,992  

Savills PLC (United Kingdom)

     5,400        72,397  

Senior Housing Properties Trust, REIT

     3,500        67,025  

Soilbuild Business Space REIT, REIT (Singapore)

     215,700        108,056  

Spirit Realty Capital, Inc., REIT

     16,000        137,292  

Tanger Factory Outlet Centers, Inc., REIT 1

     3,280        86,953  

Vastned Retail, N.V., REIT (Netherlands)

     200        9,911  

Total Real Estate

        4,666,291  

Telecommunication Services - 0.7%

     

AT&T, Inc.

     20,490        796,651  

B Communications, Ltd. (Israel)*

     6,200        113,419  

DNA Oyj (Finland)

     700        13,144  

Ei Towers S.P.A. (Italy)

     300        19,258  

T-Mobile US, Inc.*

     4,445        282,302  

Zayo Group Holdings, Inc.*

     4,510        165,968  

Total Telecommunication Services

        1,390,742  

Utilities - 1.5%

     

American Water Works Co., Inc.

     4,295        392,950  

Atmos Energy Corp.

     3,300        283,437  

CenterPoint Energy, Inc.

     9,475        268,711  

Consolidated Edison, Inc.

     2,620        222,569  

Entergy Corp.

     720        58,601  

Eversource Energy

     1,770        111,829  

Hokuriku Electric Power Co. (Japan)

     12,200        98,152  

NRG Energy, Inc.

     20,855        593,950  

OGE Energy Corp.

     4,240        139,538  

Pinnacle West Capital Corp.

     2,530        215,505  

PPL Corp.

     7,570        234,291  

REN - Redes Energeticas Nacionais SGPS,

     

S.A. (Portugal)

     14,500        43,129  

Vectren Corp.

     2,130        138,493  
 

 

 

The accompanying notes are an integral part of these financial statements.

 

11


Table of Contents

AMG Chicago Equity Partners Balanced Fund

Schedule of Portfolio Investments (continued)

 

 

 

     Shares      Value  

Utilities - 1.5% (continued)

     

Xcel Energy, Inc.

     2,650      $ 127,492  

Total Utilities

        2,928,647  

Total Common Stocks

     

(Cost $103,058,322)

        125,264,366  
     Principal Amount         

Corporate Bonds and Notes - 3.8%

 

  

Consumer Staples - 0.0%#

 

  

Colgate-Palmolive Co., MTN 1.750%, 03/15/19

   $ 105,000        104,703  

Financials - 1.3%

 

  

American Express Credit Corp., MTN 2.250%, 05/05/21

     160,000        158,813  

Bank of America Corp., MTN 2.503%, 10/21/22

     270,000        267,308  

Bank of Montreal, MTN (Canada) 2.100%, 12/12/19

     185,000        184,540  

The Goldman Sachs Group, Inc. 2.350%, 11/15/21

     320,000        315,438  

JPMorgan Chase & Co., MTN 2.295%, 08/15/21

     330,000        327,214  

Morgan Stanley, MTN 2.625%, 11/17/21

     295,000        293,817  

The Toronto-Dominion Bank, MTN (Canada) 2.250%, 11/05/191

     70,000        70,061  

US Bancorp, MTN 2.200%, 04/25/19

     175,000        175,527  

Visa, Inc. 2.200%, 12/14/20

     220,000        219,920  

Wells Fargo & Co. 2.500%, 03/04/21

     545,000        544,998  

Total Financials

        2,557,636  

Industrials - 2.3%

     

3M Co., MTN 2.000%, 06/26/22

     130,000        127,788  

Altria Group, Inc. 2.625%, 01/14/20

     200,000        201,346  

Apple, Inc. 2.300%, 05/11/22

     310,000        308,023  

AT&T, Inc. 4.100%, 02/15/282

     370,000        371,972  

BP Capital Markets PLC (United Kingdom) 1.676%, 05/03/19

     225,000        223,860  

Burlington Northern Santa Fe LLC 4.700%, 10/01/19

     65,000        67,770  

Cisco Systems, Inc. 1.400%, 02/28/18

     200,000        199,900  
     Principal Amount      Value  

Cisco Systems, Inc. 2.200%, 02/28/21

   $ 160,000      $ 159,565  

Dr Pepper Snapple Group, Inc. 3.130%, 12/15/23

     120,000        121,260  

Exxon Mobil Corp. 1.708%, 03/01/19

     95,000        94,794  

Ford Motor Co. 4.346%, 12/08/26

     120,000        125,336  

General Electric Co.

     

Series A 6.750%, 03/15/32

     45,000        61,737  

The Home Depot, Inc. 2.250%, 09/10/18

     210,000        210,620  

Johnson & Johnson 5.150%, 07/15/18

     90,000        91,678  

Lockheed Martin Corp. 1.850%, 11/23/18

     70,000        69,930  

McDonald’s Corp., MTN 5.350%, 03/01/18

     195,000        196,170  

6.300%, 10/15/37

     80,000        107,781  

PepsiCo, Inc. 2.250%, 05/02/22

     335,000        331,729  

Pfizer, Inc. 1.700%, 12/15/19

     230,000        228,619  

Shell International Finance BV (Netherlands) 1.875%, 05/10/21

     130,000        128,150  

TransCanada PipeLines, Ltd. (Canada) 3.800%, 10/01/20

     100,000        103,726  

Tyson Foods, Inc. 2.650%, 08/15/19

     200,000        201,039  

Union Pacific Corp. 3.646%, 02/15/24

     155,000        163,053  

United Parcel Service, Inc. 6.200%, 01/15/38

     120,000        165,483  

Verizon Communications, Inc. 2.946%, 03/15/22

     396,000        398,804  

Total Industrials

        4,460,133  

Utilities - 0.2%

     

Consolidated Edison Co. of New York, Inc.

     

Series 08-B 6.750%, 04/01/38

     105,000        151,056  

Dominion Energy, Inc. 4.450%, 03/15/21

     75,000        79,254  

Georgia Power Co. 5.400%, 06/01/40

     65,000        78,288  

PacifiCorp 6.000%, 01/15/39

     85,000        114,448  

Total Utilities

        423,046  

Total Corporate Bonds and Notes

     

(Cost $7,480,385)

        7,545,518  
 

 

 

The accompanying notes are an integral part of these financial statements.

 

12


Table of Contents

AMG Chicago Equity Partners Balanced Fund

Schedule of Portfolio Investments (continued)

 

 

 

     Principal
Amount
     Value  

U.S. Government and Agency Obligations - 31.3%

 

  

Fannie Mae - 2.8%

     

FNMA, 1.000%, 10/24/19

   $ 360,000      $ 354,193  

1.375%, 10/07/211

     170,000        165,419  

1.875%, 02/19/19

     440,000        440,163  

2.000%, 01/01/30

     57,355        56,470  

2.500%, 04/01/28 to 05/01/43

     1,742,100        1,713,683  

2.625%, 09/06/24

     305,000        309,344  

3.000%, 03/01/42 to 08/01/43

     575,059        578,309  

3.500%, 11/01/25 to 07/01/43

     301,315        311,195  

4.000%, 12/01/21 to 11/01/44

     320,064        335,667  

4.500%, 06/01/39 to 09/01/43

     740,615        792,613  

5.000%, 09/01/33 to 10/01/41

     308,405        333,389  

5.500%, 02/01/35 to 05/01/39

     147,372        162,702  

Total Fannie Mae

        5,553,147  

Freddie Mac - 9.1%

     

Federal Home Loan Mortgage Corp., 1.375%, 05/01/201

     170,000        167,516  

2.375%, 01/13/22

     105,000        106,005  

FHLMC Gold Pool, 2.500%, 07/01/28 to 09/01/46

     1,329,454        1,307,587  

3.000%, 01/01/29 to 11/01/47

     5,012,021        5,043,795  

3.500%, 03/01/42 to 10/01/47

     5,650,900        5,814,298  

4.000%, 03/01/44 to 11/01/45

     3,414,220        3,572,354  

4.500%, 02/01/39 to 04/01/44

     874,010        931,285  

5.000%, 07/01/35 to 07/01/41

     706,236        767,911  

5.500%, 04/01/38 to 01/01/39

     42,493        47,122  

Total Freddie Mac

        17,757,873  

U.S. Treasury Obligations - 19.4%

 

  

U.S. Treasury Bonds,

     

2.750%, 08/15/42 to 08/15/47

     5,925,000        5,960,996  

3.000%, 11/15/45

     1,155,000        1,213,246  

U.S. Treasury Notes,

     

0.875%, 07/31/19

     840,000        827,400  

1.000%, 06/30/19 to 11/30/19

     3,930,000        3,875,554  

1.125%, 07/31/21

     1,555,000        1,503,977  

1.375%, 05/31/20 to 08/31/20

     3,155,000        3,111,510  

1.500%, 02/28/19 to 01/31/22

     1,955,000        1,928,023  

1.625%, 07/31/20 to 05/15/26

     3,185,000        3,074,984  

1.750%, 05/15/22 to 06/30/22

     2,175,000        2,138,001  

1.875%, 11/30/21

     1,670,000        1,656,660  

2.000%, 02/15/25

     725,000        708,843  

2.250%, 11/15/24 to 02/15/27

     8,845,000        8,766,406  

2.500%, 08/15/23 to 05/15/24

     3,255,000        3,295,206  

Total U.S. Treasury Obligations

        38,060,806  
     

 

 

 

Total U.S. Government and Agency Obligations
(Cost $61,973,139)

        61,371,826  
     

 

 

 

 

     Shares      Value  

Rights - 0.0%

     

Health Care - 0.0%

     

Dyax Corp. CVR Expiration 12/31/19*,3,4 (Cost $0)

     670      $ 0  
     Principal Amount         

Short-Term Investments - 1.9%

 

  

Joint Repurchase Agreements - 1.3%5

 

  

Cantor Fitzgerald Securities, Inc., dated 12/29/17, due 01/02/18, 1.410% total to be received $1,000,157 (collateralized by various U.S. Government Agency Obligations, 0.000% - 8.500%, 01/31/18 - 06/20/63, totaling $1,020,000)

   $ 1,000,000        1,000,000  

Daiwa Capital Markets America, dated 12/29/17, due 01/02/18, 1.430% total to be received $448,828 (collateralized by various U.S. Government Agency Obligations, 0.000% - 6.500%, 01/11/18 - 12/01/51, totaling $457,732)

     448,757        448,757  

State of Wisconsin Investment Board, dated 12/29/17, due 01/02/18, 1.630% total to be received $1,000,181 (collateralized by various U.S. Government Agency Obligations, 0.125% - 3.875%, 01/15/19 - 02/15/46, totaling $1,027,770)

     1,000,000        1,000,000  

Total Joint Repurchase Agreements

        2,448,757  
     Shares         

Other Investment Companies - 0.6%

 

  

Dreyfus Preferred Government Money Market Fund, Institutional Class Shares, 1.25%6

     1,181,536        1,181,536  

Total Short-Term Investments
(Cost $3,630,293)

 

     3,630,293  

Total Investments - 100.8%
(Cost $176,142,139)

        197,812,003  

Other Assets, less Liabilities - (0.8)%

 

     (1,523,289
     

 

 

 

Net Assets - 100.0%

      $ 196,288,714  
     

 

 

 
 

 

#  Less than 0.05%.
*  Non-income producing security.
1  Some or all of these securities, amounting to $2,374,701 or 1.2% of net assets, were out on loan to various brokers.

 

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 buyers. At December 31, 2017, the value of these securities amounted to $558,045 or 0.3% of net assets.
3  Security’s value was determined by using significant unobservable inputs.
 

 

 

The accompanying notes are an integral part of these financial statements.

 

13


Table of Contents

AMG Chicago Equity Partners Balanced Fund

Schedule of Portfolio Investments (continued)

 

 

 

4 This security is restricted and not available for re-sale. The security was received as part of a corporate action on January 22, 2016.
5 Collateral received from brokers for securities lending was invested in these joint repurchase agreements.
6 Yield shown represents the December 31, 2017, seven day average yield, which refers to the sum of the previous seven days’ dividends paid, expressed as an annual percentage.

CVR         Contingent Value Rights

FHLMC    Freddie Mac

FNMA      Fannie Mae

MTN         Medium-Term Note

REIT         Real Estate Investment Trust

SDR          Sponsored Depositary Receipt

 

 

The following table summarizes the inputs used to value the Fund’s investments by the fair value hierarchy levels as of December 31, 2017:

 

     Level 1      Level 2      Level 3      Total  

Investments in Securities

           

Common Stocks

           

Information Technology

   $ 33,235,747      $ 503,127        —        $ 33,738,874  

Consumer Discretionary

     16,974,393        827,786        —          17,802,179  

Industrials

     15,064,347        920,779        —          15,985,126  

Health Care

     15,237,423        447,074        —          15,684,497  

Financials

     14,475,100        491,797        —          14,966,897  

Consumer Staples

     8,824,877        116,732        —          8,941,609  

Energy

     4,532,691        206,724        —          4,739,415  

Real Estate

     4,355,088        311,203        —          4,666,291  

Materials

     3,968,534        451,555        —          4,420,089  

Utilities

     2,830,495        98,152        —          2,928,647  

Telecommunication Services

     1,264,179        126,563        —          1,390,742  

Corporate Bonds and Notes

     —          7,545,518        —          7,545,518  

U.S. Government and Agency Obligations

     —          61,371,826        —          61,371,826  

Rights

     —          —        $ 0        —    

Short-Term Investments

           

Joint Repurchase Agreements

     —          2,448,757        —          2,448,757  

Other Investment Companies

     1,181,536        —          —          1,181,536  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments in Securities

   $ 121,944,410      $ 75,867,593      $ 0      $ 197,812,003  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  As a result of the fair valuation policy utilized by the Fund, certain international equity securities may be level 2 and could result in transfers between level 1 to level 2. (See Note 1(a) in the Notes to Financial Statements.)
  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.

At December 31, 2017, the Level 3 securities are Rights received as a result of a corporate action. The security’s value was determined by using significant unobservable inputs which generated a change in unrealized depreciation of $7.

As of December 31, 2017, the Fund had no transfers between levels from the beginning of the reporting period.

 

 

The accompanying notes are an integral part of these financial statements.

 

14


Table of Contents

AMG Chicago Equity Partners Balanced Fund

Schedule of Portfolio Investments (continued)

 

 

 

Country

   % of Long-Term
Investments
 

Australia

     0.2  

Austria

     0.0 #  

Bermuda

     0.2  

Canada

     0.2  

Finland

     0.1  

France

     0.1  

Germany

     0.2  

Gibraltar

     0.0 #  

Hong Kong

     0.1  

India

     0.1  

Ireland

     0.2  

Israel

     0.2  

Italy

     0.1  

Japan

     1.2  

Malta

     0.0 #  

Netherlands

     0.1  

New Zealand

     0.1  

Norway

     0.1  

Panama

     0.1  

Portugal

     0.1  

Singapore

     0.1  

Spain

     0.1  

Sweden

     0.1  

Switzerland

     0.1  

United Kingdom

     0.8  

United States

     95.4  
  

 

 

 
     100.0  
  

 

 

 

 

# Less than 0.05%.
 

 

 

The accompanying notes are an integral part of these financial statements.

 

15


Table of Contents

AMG Chicago Equity Partners Small Cap Value Fund

Portfolio Manager’s Comments (unaudited)

 

 

 

THE YEAR IN REVIEW

For the year ended December 31, 2017, the AMG Chicago Equity Partners Small Cap Value Fund (Class I shares) (the “Fund”) returned 5.35%, compared to the 7.84% return for its benchmark, the Russell 2000® Value Index.

The strong stock market of 2017 reflected not only multiple expansion, but also strong corporate earnings growth. Economic indicators in the U.S. were generally strong in the fourth quarter and throughout 2017, with a solid job market, strong housing numbers, improved growth and earnings expectations, and moderate inflation. As such, the Federal Reserve raised rates three times in the year, with the targeted federal funds rate ending the year at 1.5%.

While the Fund outperformed its benchmark in most months of 2017, weaker relative returns in March, May and December had the worst drag on relative performance for the year. In each of those months, at least two if not three factor groups detracted from returns. The Fund’s exposures to value and quality factors had weak performance, while momentum and growth were relatively strong. For the year, the spread between our top quintile-ranked and bottom quintile-ranked stocks was positive, but not as wide as the long-term average of our quantitative model.

Expectations for 2018 are for continued increased earnings as corporate tax reform is incorporated into expectations. It has been our experience that the market rewards a broad set of fundamental factors more often than not, which is why we consistently stick to our disciplined process.

The Fund is managed to emphasize stock selection while neutralizing size, style and sector exposure. Our research has shown that constructing a well-diversified portfolio of companies with attractive valuation ratios, quality balance sheets, and positive growth and momentum expectations built through a disciplined, risk-controlled process offers the potential to deliver consistent excess returns. Overall, our philosophy will not change based on short-term trends or conditions in the market. We will continue to use our disciplined approach to provide added value at controlled levels of risk.

This commentary reflects the viewpoints of the portfolio manager, Chicago Equity Partners, LLC, as of December 31, 2017 and is not intended as a forecast or guarantee of future results and is subject to change without notice.

 

 

 

 

16


Table of Contents

AMG Chicago Equity Partners Small Cap Value Fund

Portfolio Manager’s Comments (continued)

 

 

 

CUMULATIVE TOTAL RETURN PERFORMANCE

AMG Chicago Equity Partners 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. This graph compares a hypothetical $10,000 investment made in the Fund’s Class I shares on December 31, 2014 (inception date), to a $10,000 investment made in the Russell 2000® Value 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.

 

 

LOGO

The table below shows the average annual total returns for the AMG Chicago Equity Partners Small Cap Value Fund and the Russell 2000® Value Index for the same time periods ended December 31, 2017.

 

Average Annual Total Returns1    One
Year
    Since
Inception
    Inception
Date
 

AMG Chicago Equity Partners Small Cap Value Fund2, 3, 4, 5, 6, 7

      

Class N

     5.18     8.41     12/31/14  

Class I

     5.35     8.69     12/31/14  

Class Z

     5.63     8.86     12/31/14  

Russell 2000® Value Index8

     7.84     9.55     12/31/14  

 

 

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 800.835.3879 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, 2017. 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  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.
5  The Fund is subject to the risks associated with investments in emerging markets, such as erratic earnings patterns, economic and political instability, changing exchange controls, limitations on repatriation of foreign capital and changes in local governmental attitudes toward private investment, possibly leading to nationalization or confiscation of investor assets.
6  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.
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.

The Russell 2000® Value Index is a trademark of the London Stock Exchange Group companies.

Not FDIC insured, nor bank guaranteed. May lose value.

 

 

 

 

17


Table of Contents

AMG Chicago Equity Partners Small Cap Value Fund

Fund Snapshots (unaudited)

December 31, 2017

 

 

 

PORTFOLIO BREAKDOWN

 

Sector

   %of
Net Assets
 

Financials

     31.2  

Industrials

     15.5  

Consumer Discretionary

     8.6  

Information Technology

     8.6  

Real Estate

     8.1  

Utilities

     6.6  

Health Care

     6.1  

Energy

     5.4  

Materials

     5.0  

Consumer Staples

     2.7  

Telecommunication Services

     0.7  

Short-Term Investments*

     8.2  

Other Assets Less Liabilities**

     (6.7

 

*  Includes reinvestment of cash collateral into joint repurchase agreements on security lending transactions.
** Includes repayment of cash collateral on security lending transactions.

TOP TEN HOLDINGS

 

Security Name    %of
Net Assets
 

Wintrust Financial Corp.

     2.1  

Cathay General Bancorp

     1.9  

Vishay Intertechnology, Inc.

     1.7  

MGIC Investment Corp.

     1.6  

American Equity Investment Life Holding Co.

     1.6  

Waddell & Reed Financial, Inc., Class A

     1.5  

Invesco Mortgage Capital, Inc., 0.420%

     1.5  

Xenia Hotels & Resorts, Inc., 0.275%

     1.5  

Sunstone Hotel Investors, Inc., 0.580%

     1.4  

Halyard Health, Inc.

     1.3  
  

 

 

 

Top Ten as a Group

     16.1  
  

 

 

 
 

 

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.

 

 

18


Table of Contents

AMG Chicago Equity Partners Small Cap Value Fund

Schedule of Portfolio Investments

December 31, 2017

 

 

 

     Shares      Value  

Common Stocks - 98.5%

     

Consumer Discretionary - 8.6%

     

Beazer Homes USA, Inc.*

     540      $ 10,373  

Bridgepoint Education, Inc.*

     730        6,059  

The Buckle, Inc.1

     235        5,581  

Callaway Golf Co.

     1,245        17,343  

Career Education Corp.*

     605        7,308  

Citi Trends, Inc.

     260        6,880  

Conn’s, Inc.*,1

     545        19,375  

Cooper-Standard Holdings, Inc.*

     30        3,675  

Dana, Inc.

     250        8,002  

Deckers Outdoor Corp.*

     80        6,420  

Flexsteel Industries, Inc.

     120        5,614  

Group 1 Automotive, Inc.

     180        12,775  

Johnson Outdoors, Inc., Class A

     320        19,869  

KB Home

     255        8,147  

Marriott Vacations Worldwide Corp.

     120        16,225  

MDC Partners, Inc., Class A*

     1,560        15,210  

MSG Networks, Inc., Class A*

     375        7,594  

Office Depot, Inc.

     1,785        6,319  

Oxford Industries, Inc.

     70        5,263  

Stoneridge, Inc.*

     260        5,944  

Tilly’s, Inc., Class A

     235        3,469  

TopBuild Corp.*

     310        23,479  

Tower International, Inc.

     205        6,263  

tronc, Inc.*

     330        5,805  

ZAGG, Inc.*

     225        4,151  

Total Consumer Discretionary

        237,143  

Consumer Staples - 2.7%

     

Cal-Maine Foods, Inc.*

     75        3,334  

Central Garden & Pet Co., Class A*

     430        16,215  

Ingles Markets, Inc., Class A

     10        346  

Sanderson Farms, Inc.

     182        25,258  

SpartanNash Co.

     55        1,467  

SUPERVALU, Inc.*,1

     615        13,284  

United Natural Foods, Inc.*

     185        9,115  

Village Super Market, Inc., Class A

     215        4,930  

Total Consumer Staples

        73,949  

Energy - 5.4%

     

C&J Energy Services, Inc.*

     495        16,568  

Delek US Holdings, Inc.

     970        33,892  

Exterran Corp.*

     450        14,148  

McDermott International, Inc.*

     3,000        19,740  
     Shares      Value  

Newpark Resources, Inc.*

     1,620      $ 13,932  

Oasis Petroleum, Inc.*

     755        6,349  

Pacific Ethanol, Inc.*

     400        1,820  

ProPetro Holding Corp.*

     735        14,818  

Renewable Energy Group, Inc.*

     340        4,012  

Unit Corp.*

     210        4,620  

W&T Offshore, Inc.*

     5,545        18,354  

Total Energy

        148,253  

Financials - 31.2%

     

AG Mortgage Investment Trust, Inc., REIT

     635        12,071  

American Equity Investment Life Holding Co.

     1,400        43,022  

Anworth Mortgage Asset Corp., REIT

     2,275        12,376  

Apollo Commercial Real Estate Finance,
Inc., REIT 1

     3        55  

ARMOUR Residential REIT, Inc., REIT

     1,195        30,735  

The Bancorp, Inc.*

     1,180        11,658  

Bank of Commerce Holdings

     70        805  

The Bank of NT Butterfield & Son, Ltd. (Bermuda)

     975        35,383  

Cadence BanCorp*

     275        7,458  

Cathay General Bancorp

     1,205        50,815  

Chemical Financial Corp.

     240        12,833  

City Holding Co.

     60        4,048  

CNB Financial Corp.

     60        1,574  

CoBiz Financial, Inc.

     390        7,796  

Columbia Banking System, Inc.

     565        24,544  

Evercore, Inc., Class A

     80        7,200  

Farmers Capital Bank Corp.

     40        1,540  

FB Financial Corp.*

     100        4,199  

Federal Agricultural Mortgage Corp., Class C

     279        21,829  

First American Financial Corp.

     245        13,730  

First Commonwealth Financial Corp.

     575        8,234  

First Community Bancshares, Inc.

     65        1,867  

First Financial Bancorp

     1,224        32,252  

Hancock Holding Co.

     495        24,503  

Heritage Financial Corp.

     595        18,326  

Hope Bancorp, Inc.

     715        13,049  

Independent Bank Corp.

     570        12,740  

Invesco Mortgage Capital, Inc., REIT

     2,330        41,544  

Kearny Financial Corp.

     660        9,537  

Kemper Corp.

     100        6,890  

Lakeland Financial Corp.

     345        16,729  

Macatawa Bank Corp.

     380        3,800  

MBT Financial Corp.

     280        2,968  
 

 

 

The accompanying notes are an integral part of these financial statements.

 

19


Table of Contents

AMG Chicago Equity Partners Small Cap Value Fund

Schedule of Portfolio Investments (continued)

 

 

 

     Shares      Value  

Financials - 31.2% (continued)

     

Meta Financial Group, Inc.

     300      $ 27,795  

MGIC Investment Corp.*

     3,195        45,082  

New Residential Investment Corp., REIT

     855        15,287  

NMI Holdings, Inc., Class A*

     1,735        29,495  

Old Second Bancorp, Inc.

     440        6,006  

Oppenheimer Holdings, Inc., Class A

     130        3,484  

PCSB Financial Corp.*

     170        3,239  

Preferred Bank

     449        26,392  

RBB Bancorp

     65        1,779  

Republic Bancorp, Inc., Class A

     65        2,471  

Riverview Bancorp, Inc.

     740        6,416  

S&T Bancorp, Inc.

     300        11,943  

Shore Bancshares, Inc.

     170        2,839  

State Bank Financial Corp.

     390        11,638  

Third Point Reinsurance, Ltd. (Bermuda)*

     2,035        29,813  

UMB Financial Corp.

     85        6,113  

Universal Insurance Holdings, Inc.

     1,155        31,589  

Waddell & Reed Financial, Inc., Class A1

     1,895        42,334  

Walker & Dunlop, Inc.*

     80        3,800  

Wintrust Financial Corp.

     700        57,659  

Total Financials

        861,284  

Health Care - 6.1%

     

Agenus, Inc.*,1

     960        3,130  

Bluebird Bio, Inc.*

     55        9,795  

Diplomat Pharmacy, Inc.*

     115        2,308  

Emergent BioSolutions, Inc.*

     410        19,053  

Halyard Health, Inc.*

     800        36,944  

Innoviva, Inc.*

     1,550        21,994  

Lannett Co., Inc.*

     180        4,176  

Magellan Health, Inc.*

     130        12,551  

Novavax, Inc.*

     3,015        3,739  

Omeros Corp.*

     85        1,652  

Orthofix International, N.V.*

     115        6,290  

Owens & Minor, Inc.1

     340        6,419  

PDL BioPharma, Inc.*

     3,300        9,042  

PTC Therapeutics, Inc.*

     110        1,835  

Spectrum Pharmaceuticals, Inc.*

     235        4,453  

Tivity Health, Inc.*

     110        4,021  

Triple-S Management Corp.,

     

Class B (Puerto Rico)*

     535        13,295  
     Shares      Value  

Zogenix, Inc.*

     175      $ 7,009  

Total Health Care

        167,706  

Industrials - 15.5%

     

AAR Corp.

     480        18,859  

ACCO Brands Corp.*

     1,720        20,984  

Alamo Group, Inc.

     175        19,752  

Applied Industrial Technologies, Inc.

     100        6,810  

ArcBest Corp.

     10        358  

Briggs & Stratton Corp.

     900        22,833  

CAI International, Inc.*

     150        4,248  

Costamare, Inc. (Monaco)

     1,020        5,885  

Covenant Transportation Group, Inc., Class A*

     415        11,923  

CRA International, Inc.

     75        3,371  

DMC Global, Inc.

     130        3,257  

EMCOR Group, Inc.

     145        11,854  

Ennis, Inc.

     830        17,222  

The Greenbrier Cos., Inc.

     290        15,457  

KBR, Inc.1

     1,080        21,416  

Kelly Services, Inc., Class A

     680        18,544  

Kimball International, Inc., Class B

     290        5,414  

Meritor, Inc.*

     945        22,170  

Moog, Inc., Class A*

     305        26,489  

Northwest Pipe Co.*

     125        2,393  

Quad/Graphics, Inc.

     835        18,871  

Radiant Logistics, Inc.*

     770        3,542  

Rexnord Corp.*

     280        7,286  

Rush Enterprises, Inc., Class A*

     590        29,978  

SP Plus Corp.*

     500        18,550  

Textainer Group Holdings, Ltd.*

     670        14,405  

Triton International, Ltd. (Bermuda)

     500        18,725  

Tutor Perini Corp.*,1

     280        7,098  

Vectrus, Inc.*

     595        18,356  

Werner Enterprises, Inc.

     445        17,199  

YRC Worldwide, Inc.*

     1,080        15,530  

Total Industrials

        428,779  

Information Technology - 8.6%

     

ADTRAN, Inc.

     360        6,966  

Bel Fuse, Inc., Class B

     280        7,049  

Belden, Inc.

     215        16,592  

CACI International, Inc., Class A*

     55        7,279  

Comtech Telecommunications Corp.

     600        13,272  

Diodes, Inc.*

     410        11,755  

DSP Group, Inc.*

     240        3,000  
 

 

 

The accompanying notes are an integral part of these financial statements.

 

20


Table of Contents

AMG Chicago Equity Partners Small Cap Value Fund

Schedule of Portfolio Investments (continued)

 

 

 

     Shares      Value  

Information Technology - 8.6% (continued)

     

Electro Scientific Industries, Inc.*

     800      $ 17,144  

ePlus, Inc.*

     235        17,672  

Fitbit, Inc., Class A*

     755        4,311  

KVH Industries, Inc.*

     320        3,312  

ManTech International Corp., Class A

     65        3,262  

Progress Software Corp.

     550        23,413  

QAD, Inc., Class A

     220        8,547  

QuinStreet, Inc.*

     600        5,028  

Ribbon Communications, Inc.*

     855        6,609  

Sanmina Corp.*

     180        5,940  

Super Micro Computer, Inc.*

     60        1,256  

SYNNEX Corp.

     70        9,516  

Systemax, Inc.1

     295        9,815  

Viavi Solutions, Inc.*

     1,070        9,352  

Vishay Intertechnology, Inc.

     2,255        46,791  

Zedge, Inc., Class B*

     1        3  

Total Information Technology

        237,884  

Materials - 5.0%

     

Boise Cascade Co.

     135        5,387  

The Chemours Co.

     164        8,210  

Cleveland-Cliffs, Inc.*,1

     4,420        31,868  

Greif, Inc., Class A

     200        12,116  

Kronos Worldwide, Inc.

     550        14,173  

Louisiana-Pacific Corp.*

     285        7,484  

Ryerson Holding Corp.*

     950        9,880  

Schnitzer Steel Industries, Inc., Class A

     1,035        34,672  

Tronox, Ltd., Class A

     260        5,333  

Valhi, Inc.

     745        4,597  

Verso Corp., Class A*

     265        4,656  

Total Materials

        138,376  

Real Estate - 8.1%

     

Ashford Hospitality Trust, Inc., REIT

     1,630        10,970  

Chatham Lodging Trust, REIT

     830        18,891  

Chesapeake Lodging Trust, REIT

     895        24,245  

Consolidated-Tomoka Land Co.

     70        4,445  

DiamondRock Hospitality Co., REIT

     1,930        21,790  

First Industrial Realty Trust, Inc., REIT

     305        9,598  

iStar, Inc., REIT *

     940        10,622  

Jernigan Capital, Inc., REIT 1

     210        3,992  

Lexington Realty Trust, REIT

     1,555        15,006  

One Liberty Properties, Inc., REIT

     135        3,499  

Pebblebrook Hotel Trust, REIT 1

     390        14,496  
     Shares      Value  

PS Business Parks, Inc., REIT

     51      $ 6,380  

Sunstone Hotel Investors, Inc., REIT 1

     2,330        38,515  

Xenia Hotels & Resorts, Inc., REIT

     1,875        40,481  

Total Real Estate

        222,930  

Telecommunication Services - 0.7%

     

Cincinnati Bell, Inc.*

     420        8,757  

Iridium Communications, Inc. *,1

     885        10,443  

Total Telecommunication Services

        19,200  

Utilities - 6.6%

     

ALLETE, Inc.

     50        3,718  

American States Water Co.

     230        13,319  

Avista Corp.

     160        8,238  

California Water Service Group

     215        9,750  

Chesapeake Utilities Corp.

     105        8,248  

IDACORP, Inc.

     217        19,825  

New Jersey Resources Corp.

     405        16,281  

Northwest Natural Gas Co.

     30        1,790  

ONE Gas, Inc.

     250        18,315  

Otter Tail Corp.

     315        14,002  

PNM Resources, Inc.

     605        24,472  

SJW Group

     350        22,340  

Spire, Inc.

     70        5,261  

Unitil Corp.

     90        4,106  

WGL Holdings, Inc.

     140        12,018  

Total Utilities

        181,683  

Total Common Stocks
(Cost $2,399,132)

        2,717,187  
 

 

 

The accompanying notes are an integral part of these financial statements.

 

21


Table of Contents

AMG Chicago Equity Partners Small Cap Value Fund

Schedule of Portfolio Investments (continued)

 

 

 

     Principal
Amount
     Value  

Short-Term Investments - 8.2%

 

  

Joint Repurchase Agreements - 6.1%2

 

  

Cantor Fitzgerald Securities, Inc., dated 12/29/17, due 01/02/18, 1.410% total to be received $169,452 (collateralized by various U.S. Government Agency Obligations, 0.000% -8.500%, 01/31/18 - 06/20/63, totaling $172,813)

   $ 169,425      $ 169,425  
     Shares         

Other Investment Companies - 2.1%

 

  

Dreyfus Preferred Government Money Market Fund, Institutional Class Shares, 1.25%3

     57,469        57,469  

Total Short-Term Investments
(Cost $226,894)

 

     226,894  
         Value  

Total Investments - 106.7%
(Cost $2,626,026)

   $ 2,944,081  

Other Assets, less Liabilities - (6.7)%

     (184,419

Net Assets - 100.0%

     $ 2,759,662  
 

 

* Non-income producing security.
1  Some or all of these securities, amounting to $161,259 or 5.8% of net assets, were out on loan to various brokers.
2  Collateral received from brokers for securities lending was invested in these joint repurchase agreements.
3  Yield shown represents the December 31, 2017, seven day average yield, which refers to the sum of the previous seven days’ dividends paid, expressed as an annual percentage.

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, 2017:

 

     Level 1      Level 2      Level 3      Total  

Investments in Securities

           

Common Stocks

   $ 2,717,187        —          —        $ 2,717,187  

Short-Term Investments

           

Joint Repurchase Agreements

     —        $ 169,425        —          169,425  

Other Investment Companies

     57,469        —          —          57,469  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments in Securities

   $ 2,774,656      $ 169,425        —        $ 2,944,081  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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.

As of December 31, 2017, the Fund had no transfers between levels from the beginning of the reporting period.

 

 

The accompanying notes are an integral part of these financial statements.

 

22


Table of Contents

AMG Managers Amundi Intermediate Government Fund

Portfolio Manager’s Comments (unaudited)

 

 

 

THE YEAR IN REVIEW

During the year ended December 31, 2017, the AMG Managers Amundi Intermediate Government Fund (Class N shares) (formerly Class S shares) (the “Fund”) returned 1.68%, while the Citigroup Mortgage Index returned 2.47%.

Low interest rate volatility helped agency mortgage-backed securities (MBS) performance relative to U.S. Treasuries. Performance was weak early in the first quarter despite lower volatility, as concerns over Federal Reserve (Fed) policy impacted performance. Coupon performance was mixed, but the coupon stack generally widened modestly versus Treasury hedges and tighter versus swaps. Overseas buying, which helped to support Ginnie Mae (GNMA) MBS for much of 2016, was light for first quarter of 2017. MBS rebounded later in the quarter with the market gaining greater comfort concerning the tapering of asset purchases by the Fed.

Agency MBS continued to exhibit low spread volatility into the second quarter. While lower volatility and good carry helped agency MBS performance relative to U.S. Treasuries, spreads widened modestly during the quarter. The market had a muted reaction to the Fed’s continued guidance regarding their plans for the tapering of mortgage purchases. Prepayment speeds remained relatively low. Ginnie Mae/Fannie Mae (GNMA/FNMA) spreads were weaker in the quarter due to expectations of bank reform resulting in easier liquidity rules.

Agency MBS finished the third quarter in strong fashion as the sell-off in rates in September proved to be supportive of spreads. Generally, Agency MBS traded with short empirical durations throughout the quarter as concern over recent interest rate lows in August gave way to relief in September. Higher coupon MBS outperformed production coupons significantly. Higher rates also brought in fresh demand. Because the plan and timing of the Fed tapering were well previewed through the middle of the year, markets took the formal announcement in stride.

MBS performance began the fourth quarter with fair performance, only to finish stronger in the month of December. The Treasury rate curve flattened over the quarter, driving lower coupon FNMA and Freddie Mac (FHLMC) 30-year MBS to be best performers while higher coupon MBS lagged significantly despite the favorable prepayment environment.

 

The Fed began tapering their MBS portfolio in the fourth quarter. The immediate impact on the market was minimal. The size of the MBS market grew in 2016 and 2017 due to high net supply. However, the Fed maintained the size of its MBS portfolio, leading to a reduction of the Fed’s footprint on the market. The gradual start of tapering tempered the market impact.

PERFORMANCE AND POSITIONING

The Fund underperformed its benchmark during the period. Performance was negatively impacted by the Fund’s shorter-than-benchmark duration exposure as the Fed raised rates and short-term interest rates rose more than long-term rates. Agency FRMs (fixed-rate MBS) were positive contributors to performance in 2017. Specifically, the Fund remained underweight in lower coupon MBS and generally overweight in middle to higher coupon MBS relative to the benchmark. Our asset-backed securities (ABS) exposure also provided a contribution to the portfolio’s performance.

During 2017, 30-year Agency FRMs continued to account for the majority of the portfolio exposure, generally ranging between 100% and 110% of capital. We slightly reduced our exposure to 15-year Agency FRMs by 1% from 6.7% to 5.7% by year-end. We eliminated the modest 2% exposure to collateralized mortgage-backed securities (CMBS) over the course of the year. We have maintained our asset-backed securities (ABS) and Agency collateralized mortgage obligations (CMO) exposure at approximately 7% and 2% of capital, respectively.

The Fund held both U.S. Treasury and swap futures throughout the year. These derivative positions were held primarily to hedge the effective duration (i.e., interest rate risk) of the total portfolio. In general, the presence of these positions reduced the portfolio duration by 0.22 years to 0.35 years.

LOOKING FORWARD

In the aftermath of the financial crisis, multiple factors inhibited leverage, including tighter regulation and more costly secured financing. The unleveraged investor was then king. Times have changed, and balance sheets are expanding. We are now in the final phase of the credit cycle, the “leverage” phase. Abundant liquidity and low defaults support higher asset prices with low volatility. The resulting excellent Sharpe ratios invite the increasing application of leverage and extend the virtuous cycle, further compressing spreads.

The rates market is pricing fewer than half of the seven rate hikes that the Federal Open Market Committee (FOMC) forecasts over the next three

years. We think Fed rate hikes are underpriced. Still, we do not fear the Fed upsetting the apple cart, unless inflation surprises substantially to the upside.

Fundamentally, the U.S. housing market remains in healing mode. Affordability levels continue to support stable or rising home prices in most parts of the country. Mortgage credit availability has barely begun to expand from the severely restricted post-crisis levels. Housing construction rates and household formation rates are more likely to reveal a housing shortage than a housing surplus. One new obstacle to continued home price appreciation is the recent tax reform legislation that reduced the historic subsidy for home ownership. While we see modest risk in pockets of the housing market where home prices and state taxes are high, in the aggregate this headwind is likely to be overwhelmed by the aforementioned tailwinds. In the base case, the U.S. housing market remains positioned for home price gains that continue to outpace inflation in the majority of geographies and price points.

Additionally, the risk remains minimal for a “left tail” scenario of broad and severe home price declines. The housing crisis was made possible by an unsustainable combination of low affordability levels, weak mortgage credit standards and oversupply of housing. Today’s environment remains in the opposite corner of this matrix.

This commentary reflects the viewpoints of the portfolio manager, Amundi Pioneer Institutional Asset Management, Inc. as of December 31, 2017, and is not intended as a forecast or guarantee of future results and is subject to change without notice.

CUMULATIVE TOTAL RETURN PERFORMANCE

AMG Managers Amundi Intermediate Government 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. This graph compares a hypothetical $10,000 investment made in the Fund’s Class N (formerly Class S) shares on December 31, 2007, to a $10,000 investment made in the Bloomberg Barclays U.S. Aggregate Bond Index and the Citigroup Mortgage 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.

 

 

 

 

23


Table of Contents

AMG Managers Amundi Intermediate Government Fund

Portfolio Manager’s Comments (continued)

 

 

CUMULATIVE TOTAL RETURN PERFORMANCE (continued)

 

LOGO

The table below shows the average annual total returns for the AMG Managers Amundi Intermediate Government Fund and the Bloomberg Barclays U.S. Aggregate Bond Index and the Citigroup Mortgage Index for the same time periods ended December 31, 2017.

 

Average Annual Total Returns1    One
Year
    Five
Years
    Ten
Years
    Since
Inception
    Inception
Date
 

AMG Managers Amundi Intermediate Government Fund2, 3, 4, 5, 6, 7

 

Class N8

     1.68     1.90     3.84     5.48     03/31/92  

Class I

     —         —         —         1.15     02/24/17  

Class Z

     —         —         —         1.15     02/24/17  

Bloomberg Barclays U.S. Aggregate Bond Index9

     3.54     2.10     4.01     5.66     03/31/92  

Citigroup Mortgage Index10

     2.47     2.02     3.85     5.52     03/31/92  

 

 

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 800.835.3879 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, 2017. 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  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  Many bonds have call provisions which allow the debtors to pay them back before maturity. This is especially true with mortgage securities, which can be paid back anytime. Typically debtors prepay their debt when it is to their advantage (when interest rates drop making a new loan at current rates more attractive), and thus likely to the disadvantage of bondholders, who may have to reinvest prepayment proceeds in securities with lower yields. Prepayment risk will vary depending on the provisions of the security and current interest rates relative to the interest rate of the debt.
7  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.
8  Effective February 27, 2017, Class S was renamed Class N.
9  The Bloomberg Barclays U.S. Aggregate Bond Index represents securities that are SEC-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 Bloomberg Barclays U.S. Aggregate Bond Index is unmanaged, is not available for investment, and does not incur expenses.
10  The Citigroup Mortgage Index includes all outstanding government sponsored fixed-rate mortgage-backed securities, weighted in proportion to their current market capitalization. The Index reflects no deductions for fees, expenses, or taxes. Unlike the Fund, the Citigroup Mortgage Index is unmanaged, is not available for investment, and does not incur expenses.

Not FDIC insured, nor bank guaranteed. May lose value.

 

 

 

 

24


Table of Contents

AMG Managers Amundi Intermediate Government Fund

Fund Snapshots (unaudited)

December 31, 2017

 

 

PORTFOLIO BREAKDOWN

 

Category

   %of
Net Assets
 

U.S. Government and Agency Obligations

     123.4  

Asset-Backed Securities

     7.2  

Mortgage-Backed Securities

     0.4  

Short-Term Investments

     16.6  

TBA Forward Sale Commitments

     (0.9

Other Assets Less Liabilities*

     (46.7

 

* Includes payables for To Be Announced securities, and net unrealized appreciation of $16,584 on open futures contracts.

 

Rating

   % of
Market Value*
 

U.S. Government and Agency Obligations

     94.2  

Aaa

     5.5  

Aa

     0.0 # 

A

     0.0 # 

Baa

     0.1  

Ba

     0.1  

B

     0.1  

Caa & lower

     0.0 # 

N/R

     0.0 # 

 

* Includes market value of fixed-income securities only.
# Less than 0.05%.

TOP TEN HOLDINGS

 

Security Name

   %of
Net Assets
 

FHLMC Gold Pool, 4.000%, TBA 30 years

     15.0  

FNMA, 4.000%, TBA 30 years

     13.1  

FHLMC Gold Pool, 3.500%, TBA 30 years

     9.9  

FNMA, 3.000%, TBA 15 years

     3.9  

Progress Residential Trust, Series 2015-SFR2, Class A, 2.740%, 06/12/32

     2.7  

FNMA, 4.000%, 09/01/55

     2.6  

FNMA, 3.000%, 06/01/45

     2.3  

FNMA, 3.500%, TBA 30 years

     2.3  

FNMA, 4.500%, 09/01/53

     2.1  

FNMA, 4.500%, TBA 30 years

     2.0  
  

 

 

 

Top Ten as a Group

     55.9  
  

 

 

 

 

 

 

Credit quality ratings shown above reflect the highest rating assigned by either Standard & Poor’s (“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”). 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 either rating agency. 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.

 

 

 

25


Table of Contents

AMG Managers Amundi Intermediate Government Fund

Schedule of Portfolio Investments

December 31, 2017

 

 

     Principal
Amount
     Value  

Asset-Backed Securities - 7.2%

     

Colony American Homes

     

Series 2014-1A, Class A (1-Month LIBOR plus 1.150%), 2.627%, 05/17/31 (01/17/18)1,2,3

   $ 1,424,362      $ 1,428,227  

Series 2014-2A, Class A (1-Month LIBOR plus 0.950%), 2.427%, 07/17/31 (01/17/18)1,3

     1,210,550        1,212,613  

Invitation Homes Trust

     

Series 2015-SFR3, Class A (1-Month LIBOR plus 1.300%), 2.760%, 08/17/32 (01/17/18)1,3

     1,823,604        1,835,003  

Progress Residential Trust

     

Series 2015-SFR2, Class A 2.740%, 06/12/321,2

     2,955,301        2,947,970  

Series 2016-SFR1, Class A (1-Month LIBOR plus 1.500%), 2.960%, 09/17/33 (01/17/18)1,3

     351,817        355,774  

Total Asset-Backed Securities

     

(Cost $7,753,093)

        7,779,587  

Mortgage-Backed Securities - 0.4%

     

American Home Mortgage Assets Trust

     

Series 2005-1, Class 1A1 3.730%, 11/25/354

     44,522        39,470  

American Home Mortgage Investment Trust

     

Series 2004-1, Class 4A (6-Month LIBOR plus 2.000%), 3.661%, 04/25/44 (01/01/18)3

     88,880        83,336  

Series 2005-1, Class 5A1 (6-Month LIBOR plus 2.000%), 3.652%, 06/25/45 (01/01/18)3

     5,887        5,889  

Banc of America Funding

     

Series 2004-B, Class 1A2 3.218%, 12/20/344

     64,029        52,428  

GSR Mortgage Loan Trust

     

Series 2004-5, Class 1A3 (US Treasury 1 Year plus 1.750%), 3.360%, 05/25/34 (01/01/18)3

     17,528        17,216  

Reperforming Loan REMIC Trust

     

Series 2004-R2, Class 1AF1 (1-Month LIBOR plus 0.420%), 1.972%, 11/25/34 (01/25/18)1,3

     69,806        62,518  

Structured Asset Securities Corp.

     

Series 2005-RF1, Class A (1-Month LIBOR plus 0.350%), 1.902%, 03/25/35 (01/25/18)1,3

     157,481        140,623  
     Principal
Amount
     Value  

Wells Fargo Mortgage Backed Securities Trust

     

Series 2007-16, Class 1A1 6.000%, 12/28/37

   $ 79,425      $ 82,749  

Total Mortgage-Backed Securities

     

(Cost $525,364)

        484,229  

U.S. Government and Agency Obligations - 123.4%

     

Fannie Mae - 54.4%

     

FNMA,

     

2.500%, 02/01/43

     646,228        626,614  

3.000%, 01/01/43 to 06/01/452

     4,376,764        4,396,732  

3.000%, TBA 15 years5,6

     4,200,000        4,277,930  

(6-Month LIBOR plus 1.600%), 3.121%, 06/01/342,3

     426,737        442,906  

(12-Month LIBOR plus 1.624%), 3.420%, 08/01/343

     119,707        125,193  

3.500%, 05/01/42 to 10/01/452

     6,845,835        7,063,474  

3.500%, TBA 30 years5,6

     2,400,000        2,464,125  

4.000%, 12/01/26 to 09/01/552

     8,952,109        9,453,663  

4.000%, TBA 30 years5,6

     13,600,000        14,222,049  

4.500%, 11/01/26 to 09/01/532

     6,878,995        7,381,676  

4.500%, TBA 30 years5,6

     2,000,000        2,127,812  

4.750%, 07/01/34 to 09/01/34

     195,479        211,035  

5.000%, 06/01/18 to 08/01/40

     1,971,122        2,152,144  

5.500%, 02/01/18 to 08/01/412

     2,121,407        2,317,807  

6.000%, 11/01/22 to 06/01/392

     810,776        886,192  

6.500%, 07/01/32

     59,505        60,437  

7.000%, 11/01/222

     185,003        194,253  

FNMA REMICS,

     

Series 1994-55, Class H 7.000%, 03/25/242

     328,264        356,005  

Series 2005-13, Class AF

     

(1-Month LIBOR plus 0.400%), 1.952%, 03/25/352,3

     203,273        203,859  

FNMA REMICS Whole Loan

     

Series 2003-W4, Class 4A 7.500%, 10/25/424

     50,578        56,569  

Total Fannie Mae

        59,020,475  

Freddie Mac - 36.5%

     

FHLMC,

     

(US Treasury 1 Year plus 2.224%), 3.474%, 11/01/332,3

     392,045        409,827  

FHLMC Gold Pool, 3.000%, 10/01/42 to 06/01/45

     2,169,106        2,176,775  

3.500%, 04/01/32 to 02/01/472

     3,051,838        3,163,361  

3.500%, TBA 30 years5,6

     10,400,000        10,680,045  

4.000%, 09/01/31

     298,860        315,761  

4.000%, TBA 30 years5,6

     15,600,000        16,312,968  

4.500%, 02/01/20 to 09/01/412

     1,621,141        1,725,223  

5.000%, 05/01/18 to 06/01/412

     2,024,942        2,194,681  

5.500%, 01/01/18 to 01/01/392

     1,621,453        1,786,268  

6.000%, 09/01/21 to 01/01/24

     156,742        163,960  

7.000%, 07/01/19

     28,608        29,135  
 

 

 

The accompanying notes are an integral part of these financial statements.

 

26


Table of Contents

AMG Managers Amundi Intermediate Government Fund

Schedule of Portfolio Investments (continued)

 

 

 

     Principal
Amount
     Value  

Freddie Mac - 36.5% (continued)

     

FHLMC Gold Pool, 7.500%, 07/01/342

   $ 541,695      $ 631,934  

Total Freddie Mac

        39,589,938  

Ginnie Mae - 31.0%

     

GNMA,

     

3.000%, 11/15/42 to 06/20/45

     3,285,559        3,322,810  

3.000%, TBA 30 years5,6

     1,000,000        1,009,062  

3.500%, 08/15/43 to 11/20/452

     7,700,831        7,990,048  

4.000%, 06/20/43 to 04/20/472

     12,477,930        13,143,029  

4.500%, 05/15/39 to 02/15/462

     2,459,427        2,632,794  

4.500%, TBA 30 years5,6

     600,000        631,219  

5.000%, 12/15/35 to 12/15/452

     3,587,608        3,908,021  

5.500%, 10/15/39 to 11/15/392

     857,417        954,757  

7.500%, 09/15/28 to 11/15/31

     19,459        20,084  

Total Ginnie Mae

        33,611,824  

Interest Only Strip - 1.5%

     

FHLMC

     

Series 212, Class IO 6.000%, 05/15/31

     805        171  

FHLMC REMICS,

     

Series 2380, Class SI

     

(7.900% minus 1-Month LIBOR, Cap 7.900%,

     

Floor 0.000%), 6.423%, 06/15/313

     7,568        1,506  

Series 2922, Class SE

     

(6.750% minus 1-Month LIBOR, Cap 6.750%,

     

Floor 0.000%), 5.273%, 02/15/353

     77,443        14,257  

Series 2934, Class HI 5.000%, 02/15/20

     14,769        525  

Series 2934, Class KI 5.000%, 02/15/20

     9,884        328  

Series 2965, Class SA

     

(6.050% minus 1-Month LIBOR, Cap 6.050%, Floor 0.000%), 4.573%, 05/15/323

     154,041        20,339  

Series 2967, Class JI 5.000%, 04/15/20

     29,562        1,119  

Series 2980, Class SL

     

(6.700% minus 1-Month LIBOR, Cap 6.700%,

     

Floor 0.000%), 5.223%, 11/15/343

     112,039        25,611  

Series 3065, Class DI

     

(6.620% minus 1-Month LIBOR, Cap 6.620%,

     

Floor 0.000%), 5.143%, 04/15/353

     222,825        37,438  

Series 3308, Class S

     

(7.200% minus 1-Month LIBOR, Cap 7.200%,

     

Floor 0.000%), 5.723%, 03/15/323

     138,693        25,267  

Series 3424, Class XI

     

(6.570% minus 1-Month LIBOR, Cap 6.570%,

     

Floor 0.000%), 5.093%, 05/15/363

     183,514        30,035  

Series 3489, Class SD

     

(7.800% minus 1-Month LIBOR, Cap 7.800%,

     

Floor 0.000%), 6.323%, 06/15/323

     82,273        16,042  

Series 3685, Class EI 5.000%, 03/15/19

     9,292        85  

Series 3731, Class IO 5.000%, 07/15/19

     6,381        59  

Series 3882, Class AI 5.000%, 06/15/26

     41,834        1,190  
     Principal
Amount
     Value  

FHLMC REMICS,

     

Series 4395, Class TI 4.000%, 05/15/26

   $ 498,722      $ 46,962  

FNMA,

     

Series 222, Class 2 7.000%, 06/25/23

     4,065        600  

Series 343, Class 21 4.000%, 09/25/18

     6,678        54  

Series 343, Class 22 4.000%, 11/25/18

     3,758        37  

Series 351, Class 5 5.000%, 04/25/34

     22,796        4,086  

Series 351, Class 3 5.000%, 04/25/34

     46,302        8,067  

Series 351, Class 4 5.000%, 04/25/34

     26,926        4,826  

FNMA REMICS,

     

Series 2004-51, Class SX

     

(7.120% minus 1-Month LIBOR, Cap 7.120%,

     

Floor 0.000%), 5.568%, 07/25/343

     81,453        14,893  

Series 2004-64, Class SW

     

(7.050% minus 1-Month LIBOR, Cap 7.050%,

     

Floor 0.000%), 5.498%, 08/25/343

     265,541        47,247  

Series 2005-12, Class SC

     

(6.750% minus 1-Month LIBOR, Cap 6.750%,

     

Floor 0.000%), 5.198%, 03/25/353

     117,172        18,797  

Series 2005-45, Class SR

     

(6.720% minus 1-Month LIBOR, Cap 6.720%,

     

Floor 0.000%), 5.168%, 06/25/353

     209,961        35,907  

Series 2005-65, Class KI

     

(7.000% minus 1-Month LIBOR, Cap 7.000%,

     

Floor 0.000%), 5.448%, 08/25/352,3

     484,107        85,074  

Series 2005-89, Class S

     

(6.700% minus 1-Month LIBOR, Cap 6.700%,

     

Floor 0.000%), 5.148%, 10/25/353

     499,746        84,989  

Series 2006-3, Class SA

     

(6.150% minus 1-Month LIBOR, Cap 6.150%,

     

Floor 0.000%), 4.598%, 03/25/363

     99,022        14,531  

Series 2007-75, Class JI

     

(6.545% minus 1-Month LIBOR, Cap 6.545%,

     

Floor 0.000%), 4.993%, 08/25/373

     93,467        15,761  

Series 2008-86, Class IO 4.500%, 03/25/23

     29,935        468  

Series 2009-31, Class PI 5.000%, 11/25/38

     582,197        89,026  

Series 2010-121, Class IO 5.000%, 10/25/25

     20,444        416  

Series 2010-37, Class GI 5.000%, 04/25/25

     8,211        91  

Series 2010-65, Class IO 5.000%, 09/25/20

     87,529        2,925  

Series 2011-124, Class IC 3.500%, 09/25/21

     119,045        3,567  

Series 2011-69, Class AI 5.000%, 05/25/18

     1,816        6  

Series 2011-88, Class WI 3.500%, 09/25/26

     214,076        21,184  
 

 

 

The accompanying notes are an integral part of these financial statements.

 

27


Table of Contents

AMG Managers Amundi Intermediate Government Fund

Schedule of Portfolio Investments (continued)

 

 

 

     Principal
Amount
     Value  

Interest Only Strip - 1.5% (continued)

 

  

FNMA REMICS,

     

Series 2012-126, Class SJ

     

(5.000% minus 1-Month LIBOR, Cap 5.000%, Floor 0.000%), 3.448%, 11/25/423

   $ 505,412      $ 65,735  

GNMA,

     

Series 2011-167, Class IO 5.000%, 12/16/20

     28,937        813  

Series 2011-32, Class KS

     

(12.100% minus 2 times 1-Month LIBOR, Cap 12.100%, Floor 0.000%), 9.118%, 06/16/343

     118,236        8,148  

Series 2011-94, Class IS

     

(6.700% minus 1-Month LIBOR, Cap 6.700%,

     

Floor 0.000%), 5.209%, 06/16/363

     163,558        18,497  

Series 2012-103, Class IB 3.500%, 04/20/40

     169,689        15,376  

Series 2012-140, Class IC 3.500%, 11/20/42

     485,057        98,363  

Series 2012-34, Class KS

     

(6.050% minus 1-Month LIBOR, Cap 6.050%, Floor 0.000%), 4.559%, 03/16/423

     353,326        78,873  

Series 2012-69, Class QI 4.000%, 03/16/41

     208,431        30,558  

Series 2014-173, Class AI 4.000%, 11/20/38

     194,953        13,547  

Series 2016-108, Class QI 4.000%, 08/20/46

     277,411        63,144  

Series 2016-118, Class DS

     

(6.100% minus 1-Month LIBOR, Cap 6.100%,

     

Floor 0.000%), 4.599%, 09/20/463

     341,346        72,500  

Series 2016-145, Class UI 3.500%, 10/20/46

     442,499        88,059  

Series 2016-17, Class JS

     

(6.100% minus 1-Month LIBOR, Cap 6.100%,

     

Floor 0.000%), 4.599%, 02/20/463

     366,916        64,181  

Series 2016-20, Class SB

     

(6.100% minus 1-Month LIBOR, Cap 6.100%,

     

Floor 0.000%), 4.599%, 02/20/463

     382,496        68,390  

 

1  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 buyers. At December 31, 2017, the value of these securities amounted to $7,982,728 or 7.4% of net assets.
2  Some of this security has been pledged as collateral for delayed delivery securities.
3  Variable rate security. The rate shown is based on the latest available information as of December 31, 2017.
4  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.
5  All or part of the security is delayed delivery transaction. The market value for delayed delivery securities at December 31, 2017, amounted to $51,725,210, or 47.7% of net assets.
6  TBA Securities are purchased/sold on a forward commitment basis with an approximate principal amount and no defined maturity date. The actual principal and maturity date will be determined upon settlement when the specific mortgage pools are assigned.
     Principal
Amount
     Value  

GNMA,

     

Series 2016-46, Class JI 4.500%, 04/20/46

   $ 231,027      $ 50,540  

Series 2016-5, Class CS

     

(6.150% minus 1-Month LIBOR, Cap 6.150%,

     

Floor 0.000%), 4.649%, 01/20/463

     352,360        65,306  

Series 2016-81, Class IO 4.000%, 06/20/46

     431,944        81,762  

Series 2016-88, Class SM

     

(6.100% minus 1-Month LIBOR, Cap 6.100%,

     

Floor 0.000%), 4.599%, 07/20/463

     355,534        69,012  

Total Interest Only Strip

        1,626,290  

Total U.S. Government and Agency Obligations

     

(Cost $133,384,690)

        133,848,527  

Short-Term Investments - 16.6%

 

  

U.S. Government Obligation - 0.1%

 

  

U.S. Treasury Bill, 0.276%, 02/15/187,8

     90,000        89,878  
     Shares         

Other Investment Companies - 16.5%

 

  

Dreyfus Government Cash Management Fund, Institutional Class
Shares, 1.18%2,9

     14,228,475        14,228,475  

Dreyfus Preferred Government Money Market Fund, Institutional Class
Shares, 1.25%9

     3,722,763        3,722,763  

Total Other Investment Companies

        17,951,238  

Total Short-Term Investments
(Cost $18,041,116)

        18,041,116  

Total Investments - 147.6%
(Cost $159,704,263)

        160,153,459  

Other Assets, less Liabilities - (47.6)%

        (51,667,762

Net Assets - 100.0%

      $ 108,485,697  

 

7  Some or all of this security is held as collateral for futures contracts. The market value of collateral at December 31, 2017, amounted to $89,878, or 0.1% of net assets.
8  Represents yield to maturity at December 31, 2017.
9  Yield shown represents the December 31, 2017, seven day average yield, which refers to the sum of the previous seven days’ dividends paid, expressed as an annual percentage.

FHLMC Freddie Mac

FNMA Fannie Mae

GNMA Ginnie Mae

GSR Goldman Sachs REMIC

IO Interest Only

LIBOR London Interbank Offered Rate

REMICS Real Estate Mortgage Investment Conduit

TBA To Be Announced

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

28


Table of Contents

AMG Managers Amundi Intermediate Government Fund

Schedule of Portfolio Investments (continued)

 

 

 

TBA Forward Sale Commitments    

 

 

Security    Principal
Amount
     Settlement
Date
     Market
Value
     Proceeds  

GNMA, 3.000%, TBA 30 years

   $ 1,000,000        01/22/18      $ 1,009,063      $ (1,005,078
        

 

 

    

 

 

 
        Totals      $ 1,009,063      $ (1,005,078
        

 

 

    

 

 

 

Open Futures Contracts

 

 

Description    Number of
Contracts
     Position      Expiration
Date
     Current
Notional
Amount
    Value and
Unrealized
Gain/(Loss)
 

10-Year U.S. Treasury Note

     2        Long        03/20/18      $ 248,094     $ (1,692

U.S. Ultra Bond CBT Mar 18

     2        Long        03/20/18        335,312       1,730  

10-Year Interest Rate Swap

     35        Short        03/19/18        (3,438,203     10,030  

2-Year U.S. Treasury Note

     3        Short        03/29/18        (642,328     1,446  

5-Year Interest Rate Swap

     23        Short        03/19/18        (2,268,196     1,919  

5-Year U.S. Treasury Note

     5        Short        03/29/18        (580,820     3,151  
             

 

 

 
              Total     $ 16,584  
             

 

 

 

The following table summarizes the inputs used to value the Fund’s investments by the fair value hierarchy levels as of December 31, 2017:

 

     Level 1     Level 2     Level 3      Total  

Investments in Securities

         

Asset-Backed Securities

     —       $ 7,779,587       —        $ 7,779,587  

Mortgage-Backed Securities

     —         484,229       —          484,229  

U.S. Government and Agency Obligations

     —         133,848,527       —          133,848,527  

Short-Term Investments

         

U.S. Government Obligation

     —         89,878       —          89,878  

Other Investment Companies

   $ 17,951,238       —         —          17,951,238  
  

 

 

   

 

 

   

 

 

    

 

 

 

Total Investments in Securities

   $ 17,951,238     $ 142,202,221       —        $ 160,153,459  
  

 

 

   

 

 

   

 

 

    

 

 

 

TBA Sale Commitments

     —       $ (1,009,063     —        $ (1,009,063
  

 

 

   

 

 

   

 

 

    

 

 

 

Financial Derivative Instruments - Assets

         

Interest Rate Contracts

   $ 18,276       —         —        $ 18,276  

Financial Derivative Instruments - Liabilities

         

Interest Rate Contracts

     (1,692     —         —          (1,692
  

 

 

   

 

 

   

 

 

    

 

 

 

Total Financial Derivative Instruments

   $ 16,584       —         —        $ 16,584  
  

 

 

   

 

 

   

 

 

    

 

 

 

 

All U.S. government and agency obligations held in the Fund are Level 2 securities. For a detailed breakout of U.S. government and agency obligations by agency classification, please refer to the Fund’s Schedule of Portfolio Investments.

As of December 31, 2017, the Fund had no transfers between levels from the beginning of the reporting period.

 

 

The accompanying notes are an integral part of these financial statements.

 

29


Table of Contents

AMG Managers Amundi Intermediate Government Fund

Schedule of Portfolio Investments (continued)

 

 

 

The following schedule shows the value of derivative instruments at December 31, 2017:

 

    

Asset Derivatives

    

Liability Derivatives

 
Derivatives not accounted for as
hedging instruments
  

Statement of Assets and

Liabilities Location

   Fair Value      Statement of Assets and
Liabilities Location
   Fair Value  

Interest rate contracts

   Receivable for variation margin1    $ 1,281      Payable for variation margin1    $ 8,102  
     

 

 

       

 

 

 

 

1 Only current day’s variation margin is reported within the Statement of Assets and Liabilities. The variation margin is included in the open futures cumulative appreciation/depreciation of $16,584.

For the fiscal year ended December 31, 2017, the effect of derivative instruments on the Statement of Operations for the Fund and the amount of realized gain (loss) and unrealized gain (loss) on derivatives recognized in income is as follows:

 

    

Realized Gain (Loss)

    

Change in Unrealized Gain (Loss)

 
Derivatives not accounted for
as hedging instruments
   Statement of Operations
Location
   Realized
Gain/(Loss)
    

Statement of Operations

Location

   Change in
Unrealized
Gain (Loss)
 

Interest rate contracts

   Net realized gain (loss) on futures contracts    $ 5,893      Net change in unrealized appreciation/ depreciation on futures contracts    $ (9,807
     

 

 

       

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

30


Table of Contents

AMG Managers Amundi Short Duration Government Fund

Portfolio Manager’s Comments (unaudited)

 

 

 

 

THE YEAR IN REVIEW

During the year ended December 31, 2017, the AMG Managers Amundi Short Duration Government Fund (Class N shares) (formerly Class S shares) (the “Fund”) returned 0.58%, while the ICE BofA Merrill Lynch 6-Month U.S. Treasury Bill Index returned

0.95%.

Low interest rate volatility helped agency mortgage-backed securities (MBS) performance relative to U.S. Treasuries. Performance was weak early in the first quarter, despite lower volatility as concerns over Federal Reserve (Fed) policy impacted performance. Coupon performance was mixed, but the coupon stack generally widened modestly versus Treasury hedges and tighter versus swaps. Overseas buying, which helped to support Ginnie Mae (GNMA) MBS for much of 2016, was light for first quarter of 2017. MBS rebounded later in the quarter with the market gaining greater comfort concerning the tapering of asset purchases by the Fed.

Agency MBS continued to exhibit low spread volatility into the second quarter. While lower volatility and good carry helped agency MBS performance relative to U.S. Treasuries, spreads widened modestly during the quarter. The market had a muted reaction to the Fed’s continued guidance regarding their plans for the tapering of mortgage purchases. Prepayment speeds remained relatively low. Ginnie Mae/Fannie Mae (GNMA/FNMA) spreads were weaker in the quarter due to expectations of bank reform resulting in easier liquidity rules.

Agency MBS finished the third quarter in strong fashion as the sell-off in rates in September proved to be supportive of spreads. Generally, Agency MBS traded with short empirical durations throughout the quarter as concern over recent interest rate lows in August gave way to relief in September. Higher coupon MBS outperformed production coupons significantly. Higher rates also brought in fresh demand. Because the plan and timing of the Fed tapering were well-previewed through the middle of the year, markets took the formal announcement in stride.

MBS performance began the fourth quarter with fair performance, only to finish stronger in the month of December. The Treasury rate curve flattened over the

quarter, driving lower coupon FNMA and Freddie Mac (FHLMC) 30-year MBS to be best performers while higher coupon MBS lagged significantly despite the favorable prepayment environment.

The Fed began tapering their MBS portfolio in the fourth quarter. The immediate impact on the market was minimal. The size of the MBS market grew in 2016 and 2017 due to high net supply. However, the Fed maintained the size of its MBS portfolio, leading to a reduction of the Fed’s footprint on the market. The gradual start of tapering tempered the market impact.

PERFORMANCE AND POSITIONING

The Fund underperformed its benchmark during the period. Agency FRMs (fixed-rate MBS) contributed positively to performance in 2017. Our asset-backed security (ABS) exposure also contributed to the Fund’s performance. The Fund’s Agency collateralized-mortgage obligations (CMO) exposure detracted modestly from performance.

During 2017, we increased our positioning of 30-year Agency FRMs by 5% from 33% to 38% by year end. We slightly reduced our exposure to 15-year Agency FRMs by 4% to end the year at 10% of capital. Our asset-backed securities (ABS) positioning declined by a modest 1% to also end the year at 10% of capital.

Agency adjustable rate mortgages (ARMs) represented 21% of the fund’s positioning (1% higher than where we began the year). We sold the majority of our Agency CMO positions, which accounted for 6% of the portfolio at the beginning of the year.

The Fund held both U.S. Treasury and swap futures throughout the year. These derivative positions were held primarily to hedge the effective duration (i.e., interest rate risk) of the total portfolio. In general, the presence of these positions reduced the portfolio duration by 1.47 years to 1.73 years.

LOOKING FORWARD

In the aftermath of the financial crisis, multiple factors inhibited leverage, including tighter regulation and more costly secured financing. The unleveraged investor was then king. Times have

changed, and balance sheets are expanding. We are now in the final phase of the credit cycle, the “leverage” phase. Abundant liquidity and low defaults support higher asset pries with low volatility. The resulting excellent Sharpe ratios invite the increasing application of leverage and extend the virtuous cycle, further compressing spreads.

The rates market is pricing fewer than half of the seven rate hikes that the Federal Open Market Committee (FOMC) forecasts over the next three years. We think Fed rate hikes are underpriced. Still, we do not fear the Fed upsetting the apple cart, unless inflation surprises substantially to the upside.

Fundamentally, the U.S. housing market remains in healing mode. Affordability levels continue to support stable or rising home prices in most parts of the country. Mortgage credit availability has barely begun to expand from the severely restricted post-crisis levels. Housing construction rates and household formation rates are more likely to reveal a housing shortage than a housing surplus. One new obstacle to continued home price appreciation is the recent tax reform legislation that reduced the historic subsidy for home ownership. While we see modest risk in pockets of the housing market where home prices and state taxes are high, in the aggregate this headwind is likely to be overwhelmed by the aforementioned tailwinds. In the base case, the U.S. housing market remains positioned for home price gains that continue to outpace inflation in the majority of geographies and price points. Additionally, the risk remains minimal for a “left tail” scenario of broad and severe home price declines. The housing crisis was made possible by an unsustainable combination of low affordability levels, weak mortgage credit standards, and oversupply of housing. Today’s environment remains in the opposite corner of this matrix.

This commentary reflects the viewpoints of the portfolio manager, Amundi Pioneer Institutional Asset Management, Inc. as of December 31, 2017, and is not intended as a forecast or guarantee of future results and is subject to change without notice.

 

 

 

 

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Table of Contents

AMG Managers Amundi Short Duration Government Fund

Portfolio Manager’s Comments (continued)

 

 

CUMULATIVE TOTAL RETURN PERFORMANCE

AMG Managers Amundi Short Duration Government 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. This graph compares a hypothetical $10,000 investment made in the Fund’s Class N (formerly Class S) shares on December 31, 2007, to a $10,000 investment made in the ICE BofAML U.S. 6-Month Treasury Bill 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.

 

LOGO

The table below shows the average annual total returns for the AMG Managers Amundi Short Duration Government Fund and the ICE BofAML U.S. 6-Month Treasury Bill Index for the same time periods ended December 31, 2017.

 

Average Annual Total Returns1    One
Year
    Five
Years
    Ten
Years
    Since
Inception
    Inception
Date
 

AMG Managers Amundi Short Duration Government Fund2, 3, 4, 5, 6, 7

 

Class N8

     0.58     0.47     1.15     3.32     03/31/92  

Class I

     —         —         —         0.31     02/24/17  

Class Z

     —         —         —         0.44     02/24/17  

ICE BofAML U.S. 6-Month Treasury Bill Index9

     0.95     0.43     0.71     2.90     03/31/92  

 

 

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 800.835.3879 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, 2017. 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  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  Many bonds have call provisions which allow the debtors to pay them back before maturity. This is especially true with mortgage securities, which can be paid back anytime. Typically debtors prepay their debt when it is to their advantage (when interest rates drop making a new loan at current rates more attractive), and thus likely to the disadvantage of bondholders, who may have to reinvest prepayment proceeds in securities with lower yields. Prepayment risk will vary depending on the provisions of the security and current interest rates relative to the interest rate of the debt.
7  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.
8  Effective February 27, 2017, Class S was renamed Class N.
9  The ICE BofAML U.S. 6-Month Treasury Bill Index is an unmanaged index that measures returns of six-month Treasury Bills. Unlike the Fund, the ICE BofAML U.S. 6-Month Treasury Bill Index is unmanaged, is not available for investment, and does not incur expenses.

Not FDIC insured, nor bank guaranteed. May lose value.

 

 

 

 

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Table of Contents

AMG Managers Amundi Short Duration Government Fund

Fund Snapshots (unaudited)

December 31, 2017

 

 

PORTFOLIO BREAKDOWN

 

Category

   % of
Net Assets
 

U.S. Government and Agency Obligations

     86.5  

Asset-Backed Securities

     10.0  

Mortgage-Backed Securities

     0.3  

Short-Term Investments

     4.2  

TBA Forward Sale Commitments

     (2.9

Other Assets Less Liabilities*

     1.9  

 

* Includes net unrealized depreciation of $2,514 on open futures contracts.

 

Rating

   % of
Market Value*
 

U.S. Government and Agency Obligations

     89.4  

Aaa

     10.6  

 

* Includes market value of fixed-income securities only.

 

TOP TEN HOLDINGS

 

Security Name

   % of
Net Assets
 

GNMA, 6.000%, 01/15/36

     3.8  

FNMA, 4.000%, 02/01/41

     2.9  

FNMA, 5.500%, 05/01/34

     2.5  

FNMA, 4.500%, 04/01/35

     2.5  

United States Treasury Inflation Indexed Bonds, 2.375%, 01/15/27

     2.4  

FHLMC Gold Pool, 4.500%, 10/01/44

     2.4  

FNMA, 5.500%, 08/01/41

     2.3  

FHLMC Gold Pool, 4.500%, 03/01/42

     2.2  

Colony American Homes, Series 2015-1A, Class A, 2.632%, 07/17/32

     2.1  

FHLMC Gold Pool, 4.000%, 12/01/44

     2.1  
  

 

 

 

Top Ten as a Group

     25.2  
  

 

 

 
 

 

Credit quality ratings shown above reflect the highest rating assigned by either Standard & Poor’s (“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”). 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 either rating agency. 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.

 

 

33


Table of Contents

AMG Managers Amundi Short Duration Government Fund

Schedule of Portfolio Investments

December 31, 2017

 

 

 

     Principal
Amount
     Value  

Asset-Backed Securities - 10.0%

 

  

AmeriCredit Automobile Receivables Trust

     

Series 2013-3, Class D 3.000%, 07/08/19

   $ 233,343      $ 233,577  

Capital Auto Receivables Asset Trust

     

Series 2013-4, Class D 3.220%, 05/20/19

     769,448        769,960  

Colony American Homes

     

Series 2014-1A, Class A

     

(1-Month LIBOR plus 1.150%), 2.627%, 05/17/31 (01/17/18)1,2

     3,199,403        3,208,084  

Series 2014-2A, Class A

     

(1-Month LIBOR plus 0.950%), 2.427%, 07/17/31 (01/17/18)1,2

     1,154,984        1,156,953  

Series 2015-1A, Class A

     

(1-Month LIBOR plus 1.200%), 2.632%, 07/17/32 (01/17/18)1,2

     3,409,472        3,421,055  

Drive Auto Receivables Trust

     

Series 2015-AA, Class C 3.060%, 05/17/211

     1,269,060        1,274,499  

Series 2015-BA, Class C 2.760%, 07/15/211

     1,068,456        1,071,927  

Series 2015-CA, Class C 3.010%, 05/17/211

     323,174        324,512  

Series 2016-BA, Class B 2.560%, 06/15/201

     502,338        502,831  

Invitation Homes Trust

     

Series 2015-SFR3, Class A

     

(1-Month LIBOR plus 1.300%), 2.760%, 08/17/32 (01/17/18)1,2

     1,448,436        1,457,489  

Progress Residential Trust

     

Series 2016-SFR1, Class A

     

(1-Month LIBOR plus 1.500%), 2.960%, 09/17/33 (01/17/18)1,2

     510,382        516,123  

Santander Drive Auto Receivables Trust

     

Series 2013-4, Class D 3.920%, 01/15/20

     2,086,598        2,096,361  

Series 2014-1, Class C 2.360%, 04/15/20

     28,361        28,371  

Total Asset-Backed Securities
(Cost $16,043,174)

        16,061,742  

Mortgage-Backed Security - 0.3%

     

Angel Oak Mortgage Trust

     

Series 2017-2 2.478%, 07/25/47 (Cost $434,652)1,3

     434,657        430,813  

U.S. Government and Agency Obligations -86.5%

     

Fannie Mae - 54.4%

     

FNMA,

     

(US Treasury 1 Year plus 2.111%), 2.907%, 05/01/332

     975,968        1,025,748  

FNMA,

     

(6-Month LIBOR plus 1.500%), 2.912%, 02/01/332

     712,413        735,929  

(6-Month LIBOR plus 1.560%), 2.986%, 08/01/332

     300,710        311,621  

(US Treasury 1 Year plus 2.025%), 3.046%, 01/01/342

     501,798        525,238  

(6-Month LIBOR plus 1.600%), 3.121%, 06/01/342

     535,381        555,666  

(US Treasury 1 Year plus 2.253%), 3.148%, 05/01/342

     1,347,701        1,427,342  

(12-Month LIBOR plus 1.425%), 3.175%, 09/01/332

     677,705        716,334  

(US Treasury 1 Year plus 2.202%), 3.185%, 06/01/332

     273,711        286,723  

(US Treasury 1 Year plus 2.187%), 3.298%, 12/01/342

     1,341,915        1,410,697  

(12-Month LIBOR plus 1.575%), 3.325%, 12/01/332

     336,330        351,985  

(US Treasury 1 Year plus 2.108%), 3.341%, 09/01/332

     201,785        210,472  

(12-Month LIBOR plus 1.619%), 3.353%, 03/01/342

     166,383        174,691  

(12-Month LIBOR plus 1.616%), 3.375%, 10/01/352

     929,307        975,665  

(12-Month LIBOR plus 1.648%), 3.401%, 07/01/342

     876,669        920,620  

(12-Month LIBOR plus 1.624%), 3.420%, 08/01/342

     149,634        156,491  

(12-Month LIBOR plus 1.800%), 3.431%, 01/01/342

     951,332        1,006,068  

(US Treasury 1 Year plus 2.349%), 3.444%, 04/01/342

     394,683