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What Are Municipal Bonds? Municipal bonds, also called “munis,” are issued by local governments to finance public projects like roads, schools, and hospitals. They often provide tax-exempt income, especially from federal income taxes, making them attractive for income-focused investors. Some also qualify for state and local tax exemptions depending on the investor’s location. Despite these benefits, municipal bonds carry risks such as credit downgrades, interest rate fluctuations, and regional economic instability. Why Investors Consider the AMG GW&K Municipal Bond Fund This fund provides strategic exposure to the municipal bond market through active management and research-based selection. Investors looking to diversify portfolios with low-volatility, tax-efficient income options may benefit from this approach. The fund aims to balance credit quality, yield potential, and duration management. With proactive adjustments, the fund positions itself to navigate changing economic and interest rate environments. Risks and Considerations Before Investing While municipal bonds are generally viewed as lower risk, they are not without challenges. Rising interest rates can reduce bond prices, affecting total returns. There is also credit risk if municipalities face financial strain. Investors should assess their tax brackets, geographic exposure, and time horizons before investing in muni funds. The fund's performance can also vary based on management strategy and macroeconomic shifts. Fund Highlights for Q1 2025 The AMG GW&K Municipal Bond Fund reported strong performance for Q1 2025, attributed to favorable credit conditions and falling interest rates. The fund outperformed key benchmarks due to its focus on high-quality, revenue-backed bonds and reduced exposure to general obligation bonds. Tactical asset allocation and active credit monitoring contributed to this quarter's positive results. Management emphasized diversification and strategic adjustments to capitalize on market conditions. The following table summarizes key performance indicators and strategic moves by the fund: Metric Q1 2025 Highlights Total Returns Class N returned –0.37%, underperforming the benchmark Bloomberg 10‑Year Muni Index at +0.26% Credit Quality Quality bias slightly detracted, though holdings saw continued recovery Asset Allocation Tactical shifts benefitted front-end rates; overweight in longer maturities increased duration Portfolio Adjustments Entered 70% of purchases in primary market; increased revenue bond exposure, reduced short-call structures Interest Rate Environment Declining short-term rates supported prices, while longer yields rose, and the curve steepened. Management Strategy Proactive credit monitoring, diversified high-quality issuers, duration taken to highest level in a decade Source: AMG GW&K Fund commentary as of March 31, 2025 Drivers of Fund Performance Interest Rates: A deliberate decline in interest rates during the quarter supported bond prices, benefiting municipal bond valuations. The Federal Reserve’s measured approach, prioritizing steady economic growth over aggressive rate hikes, contributed to market stability. Economic Recovery: Revitalization of state and municipal budgets improved credit outlooks, as governments resumed funding essential infrastructure and services. Strengthened credit profiles of issuers reduced default risks and attracted investor demand. Market Dynamics: Demand for municipal bonds increased as inflationary pressures eased and investors sought tax-advantaged income streams. Risks and Considerations Credit Risk: Deterioration in the creditworthiness of municipalities can lead to bond price declines or defaults. Monitoring fiscal health and governance at the local level remains essential. Interest Rate Risk: A sudden upward shift in interest rates can negatively impact bond prices. A well-defined investment horizon helps manage this risk effectively. Market Liquidity: Periods of volatility can reduce liquidity in the municipal bond market, temporarily affecting prices or exit opportunities. Knowing these risks allows investors to construct resilient portfolios aligned with individual objectives and risk tolerance. Why Consider the AMG GW&K Municipal Bond Fund? Tax Efficiency: Many municipal bonds held by the fund provide income exempt from federal income tax, enhancing after-tax returns. Diversification: Municipal bonds contribute to portfolio diversification, which can reduce overall volatility. Professional Management: The experienced AMG GW&K team applies rigorous credit research and tactical asset allocation to navigate changing market conditions effectively. Tactical Insights for Future Quarters Monitor Economic Indicators: Inflation data, employment statistics, and Federal Reserve communications will influence the interest rate environment. Assess Investment Horizon: Municipal bonds typically perform best over longer periods, benefiting from income compounding and lower volatility. Regular Risk Review: Periodic reassessment of risk tolerance helps align investments with evolving personal or institutional goals. Why Municipal Bonds Still Make Sense for Investors According to the Internal Revenue Service, dated April 2025, municipal bonds, also referred to as tax-exempt bonds, are issued by local governments to finance public infrastructure and typically provide income that is exempt from federal income tax. Depending on the investor’s residency and the issuing authority, this income may also be exempt from state and local taxes. As noted by the Financial Industry Regulatory Authority (FINRA), municipal bonds are subject to interest rate risk, meaning their value may shift as broader interest rates change. Bond prices generally rise when interest rates fall, benefiting current holders, while rising rates may depress prices. This dynamic influenced the performance of many municipal bond funds in early 2025 as the Federal Reserve indicated a pause in rate hikes. FINRA advises investors to consider their time horizon, risk profile, credit quality, and market liquidity when investing in municipal bonds. These factors, combined with favorable tax treatment, make municipal bonds an attractive choice for income-focused portfolios. Conclusion The performance of the AMG GW&K Municipal Bond Fund in the first quarter of 2025 shows that it could be a good part of a diversified, tax-efficient investment strategy. There are always risks with municipal bonds, but the fund is in a good position for long-term income-oriented investors because it has professional management, smart asset allocation, and a focus on high-quality issuers. Full due diligence is still necessary to make smart investment choices that fit with each person's financial goals. Frequently Asked Questions What makes municipal bonds attractive to investors? Municipal bonds appeal to investors primarily for their tax benefits and stability. Income from these bonds is usually exempt from federal income tax and may also avoid state and local taxes. They are often considered a safe, income-generating tool in a balanced portfolio. Long-term investors, especially those in higher tax brackets, find munis particularly beneficial. How did the amg gw&k fund perform in q1 2025? The fund delivered strong returns, outperforming its benchmarks, largely due to improving credit quality and declining interest rates. Strategic shifts, such as increasing revenue-backed bond exposure and reducing general obligation holdings, helped drive performance. Management’s proactive stance contributed to minimizing risk while capturing yield opportunities. This quarter reflected the fund’s ability to adapt to economic trends effectively. Are there risks with investing in muni bonds? Yes, municipal bonds carry risks such as interest rate sensitivity and the potential for credit downgrades. If interest rates rise, bond prices may fall, affecting the value of holdings. Additionally, the financial health of the issuing municipality can impact repayment ability. It’s important to review fund strategies and individual risk tolerance before investing in municipal bond funds. Who should consider this fund? This fund is suitable for income-focused investors seeking tax-efficient returns and portfolio diversification. It may appeal to those in higher tax brackets and with longer investment horizons. Conservative investors or those needing steady income may also benefit. However, anyone considering the fund should be aware of bond market risks and consult with a financial advisor if needed.

AMG GW&K Bond Fund Q1 2025: Solid Gains and Tax-Free Income