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: 811-21829
BBH TRUST
On behalf of the following series:
BBH Select Series – Large Cap Fund
BBH Global Core Select
BBH Partner Fund – International Equity
BBH Limited Duration Fund
BBH Intermediate Municipal Bond Fund
BBH Income Fund
BBH U.S. Government Money Market Fund
(Exact name of registrant as specified in charter)
140 Broadway, New York, NY 10005
(Address of principal executive offices) (Zip Code)
Corporation Services Company
2711 Centerville Road, Suite 400
Wilmington, DE 19808
(Name and address of agent for service)
Registrant’s telephone number, including area code: (800) 575-1265
Date of fiscal year end: October 31
Date of reporting period: October 31, 2020
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
1
Item 1. | Report to Stockholders. |
Annual Report
OCTOBER 31, 2020
BBH Select Series — Large Cap Fund
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Funds’ shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other Fund communications electronically from the Fund by calling 1-800-575-1265 or from your financial intermediary.
You may elect to receive all future reports in paper free of charge. You can inform the Fund by calling 1-800-575-1265 or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper may apply to all funds in the fund complex or held with your financial intermediary.
BBH SELECT SERIES – LARGE CAP FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE
October 31, 2020
Our primary objective in managing BBH Select Series — Large Cap Fund (“the Fund”) is to provide attractive compounded returns over full market cycles in a risk-conscious way. We employ a bottom-up, fundamentals-based process that seeks to invest in competitively advantaged, well-managed, cash generative businesses that provide essential products and services. With reducing the likelihood of a permanent capital loss being one of our key goals, we work to explicitly identify key risks outside of company management’s control so that we can contemplate the range of potential outcomes for each business. Our portfolio construction decisions are driven by an approach that considers the quality of the businesses, their long-term growth prospects and their valuation levels relative to our appraisals of intrinsic value. We invest with a long-term ownership perspective and an expectation that our returns will be driven by the underlying performances of the businesses, their effectiveness at deploying capital and their operational and financial resilience during periods of economic stress. Neither our short-term nor long-term return objectives are predicated on benchmark comparisons. As a result, the performance of the Fund will likely differ meaningfully – both positively and negatively – from major indexes at various points within a long-term market cycle as we maintain our independent perspective and focus on long-term compounding.
The Institutional Share class of the Fund rose by 1.82% net of fees during its fiscal year ended October 31, 2020. During the same period, the S&P 500 Index (“S&P 500”) returned 9.71%. Since its inception on September 9, 2019, the Fund returned 2.66% on an annualized basis, compared to 10.55% for the S&P 500. Notably, fiscal year 2020 included the arrival of the COVID-19 pandemic, which created massive disruptions to global commercial activity and precipitated a sharp market correction in the early months of calendar 2020. At the low point in March, the Fund was down nearly 28% for its fiscal year, but then recovered alongside a broad rebound in risk assets spurred by numerous government and central bank interventions and the gradual easing of recessionary conditions.
As we evaluate the Fund’s performance in fiscal year 2020 and since inception, we note three distinct underlying elements:
(1)
In aggregate, our companies have executed well on their long-term strategies, and they have produced solid growth and fundamental performance while maintaining appropriately conservative capital structures. These achievements are evident at the roll-up portfolio level, where we have observed attractive growth in revenues, strong profit margins, solid returns on capital and reasonable debt levels (relative to pre-tax cash flows).
(2)
The Fund has experienced lower levels of periodic downside volatility relative to the broader market (as represented by the S&P 500).
(3)
We did not capture full market upside during periods of steep equity appreciation, mainly due to our relatively lower exposure to highly concentrated growth leadership stocks that overwhelmingly drove the performance of benchmark Index.
The third element cited above was the largest drag on the Fund’s relative performance. Retrospective market risk analysis clearly indicates that large-cap equity performance has been dominated by three factors: earnings growth, revenue growth and share price momentum. In contrast, valuation (i.e. lower multiples) as a factor has been a massive detractor to performance. There are indeed some legitimate fundamental drivers
BBH SELECT SERIES – LARGE CAP FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
of this divergence, not only because the large-cap growth leadership cohort has produced attractive financial results and has grown dramatically in terms of index representation, but also because several industry groups that reside in the value segment of the market have experienced material business headwinds that have pressured earnings. However, we also note expansive monetary policy, flows towards passive funds and the influence of quantitative and trend-following strategies have created an equity investment environment in which diversification and a balanced perspective regarding valuation have acted as hindrances to performance.
Our investment approach does not bind us to either ‘side’ of the market – growth or value – and in fact we find such nomenclature to be misleading because the prudent practice of public market equity investing should be focused on the interplay of the two, rather than a binary choice between them. In the establishment of our investment universe and ultimately the selection of our Fund’s concentrated portfolio, we first examine business quality, industry structure, long-term prospects, financial health and management capabilities. Only when we deem a company to have met appropriate thresholds on each of those dimensions do we undertake the task of determining entry valuation ranges for which we believe there is reasonable risk-adjusted compensation available to us as investors. If such compensation becomes diminished during the period of ownership, we actively rotate capital towards other opportunities, always with a guiding focus on business quality and long-term conviction. We believe this approach is prudent, transparent, repeatable and is supported by empirical evidence. It is not designed to beat, nor is it likely to beat, broad index returns over point-to-point periods inside of market cycles.
The Fund’s largest positive contributors during fiscal 2020 were Alphabet Inc., Copart Inc. and NIKE Inc. These businesses are category leaders in growing markets, and we believe they are well positioned to sustain attractive economic profits based on their competitive differentiation and industry structures.
The Fund’s largest detractors during fiscal 2020 were U.S. Bancorp, Bright Horizons Family Solutions Inc. and FleetCor Technologies Inc. Each of the three businesses was materially impacted by economic and operational pressures related to the COVID-19 pandemic. We sold our holdings of both U.S. Bancorp and Bright Horizons based on our view that other investment opportunities offered higher relative certainty. FleetCor, which remained in the Fund at the end of the fiscal year, has seen its business results improve alongside economic normalization, and we believe the company continues to have attractive opportunities for continued growth in multiple areas within the electronic payments industry.
During fiscal 2020, the Fund made new investments in Nike, Baxter International Inc., Progressive Corp., Amazon.com Inc., Visa Inc., Thermo Fisher Scientific Inc. and Starbucks Corp. In addition to the exits of U.S. Bancorp and Bright Horizons noted above, the Fund also sold its positions in Unilever PLC and Novartis AG.
As of October 31, 2020, the Fund had positions in 32 companies, with approximately 45% of the assets held in the ten largest holdings. The Fund ended the fiscal year trading at roughly 87% of our underlying intrinsic value estimates on a weighted average basis.
________________
Portfolio holdings are subject to change. |
Intrinsic value represents what we believe to be the value of a security based on our analysis of both tangible and intangible factors. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 3 |
BBH SELECT SERIES – LARGE CAP FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
Growth of $10,000 Invested in BBH Select Series - Large Cap Fund
The graph below illustrates the hypothetical investment of $10,0001 in the Class I shares of the Fund since inception (September 9, 2019) to October 31, 2020 as compared to the S&P 500.
The annualized gross expense ratios as shown in the February 28, 2020 prospectus for Class I and Retail Class shares were 0.75% and 5.79%, respectively. The annualized gross expense ratios for the year ended 10/31/2020 for Class I and Retail Class shares were 0.74% and 3.48%, respectively.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Fund performance changes over time and current performance may be lower or higher than what is stated. Fund shares redeemed within 30 days of purchase are subject to a redemption fee of 2.00%. Returns do not reflect the deductions of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. For performance current to the most recent month-end please call 1-800-575-1265.
Hypothetical performance results are calculated on a total return basis and include all portfolio income, unrealized and realized capital gains, losses and reinvestment of dividends and other earnings. No one shareholder has actually achieved these results and no representation is being made that any actual shareholder achieved, or is likely to achieve, similar results to those shown. Hypothetical performance does not represent actual trading and may not reflect the impact of material economic and market factors. Undue reliance should not be placed on hypothetical performance results in making an investment decision.
________________
1 | The Fund’s performance assumes the reinvestment of all dividends and distributions. The S&P 500 has been adjusted to reflect reinvestment of dividends on securities. The S&P 500 is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund’s performance. The S&P 500 is an unmanaged weighted index of 500 stocks providing a broad indicator of stock price movements. The composition of the index is materially different than the Fund’s holdings. The index is unmanaged. Investments cannot be made in an index. |
4
BBH SELECT SERIES – LARGE CAP FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of the BBH Trust and Shareholders of BBH Select Series – Large Cap Fund:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of BBH Select Series – Large Cap Fund (the “Fund”), one of the funds within BBH Trust, as of October 31, 2020, the related statement of operations for the year then ended, the statement of changes in net assets and financial highlights for the year then ended and for the period from September 9, 2019 (commencement of operations) to October 31, 2019, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2020, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the year then ended and for the period from September 9, 2019 (commencement of operations) to October 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the BBH Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the BBH Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The BBH Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the BBH Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 5 |
BBH SELECT SERIES – LARGE CAP FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued)
Our audit included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audit provides a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 21, 2021
We have served as the auditor of one or more Brown Brothers Harriman investment companies since 1991
6
BBH SELECT SERIES – LARGE CAP FUND
PORTFOLIO ALLOCATION
October 31, 2020
SECTOR DIVERSIFICATION
U.S. $ Value | Percent of Net Assets | |||||||
Common Stock: | ||||||||
Basic Materials | $ | 28,550,026 | 7.3 | % | ||||
Communications | 58,165,012 | 15.0 | ||||||
Consumer Cyclical | 52,110,160 | 13.4 | ||||||
Consumer Non-Cyclical | 123,251,930 | 31.6 | ||||||
Financials | 72,194,763 | 18.6 | ||||||
Industrials | 30,140,561 | 7.8 | ||||||
Technology | 20,760,507 | 5.4 | ||||||
Cash and Other Assets in Excess of Liabilities | 3,693,600 | 0.9 | ||||||
NET ASSETS | $ | 388,866,559 | 100.0 | % |
All data as of October 31, 2020. The Fund’s sector diversification is expressed as a percentage of net assets and may vary over time.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 7 |
BBH SELECT SERIES – LARGE CAP FUND
PORTFOLIO OF INVESTMENTS
October 31, 2020
Shares | Value | |||||||
| COMMON STOCK (99.1%) | |||||||
BASIC MATERIALS (7.3%) | ||||||||
113,112 | Celanese Corp. (Series A) | $ | 12,839,343 | |||||
71,302 | Linde, Plc. (Ireland) | 15,710,683 | ||||||
Total Basic Materials | 28,550,026 | |||||||
| ||||||||
COMMUNICATIONS (15.0%) | ||||||||
16,972 | Alphabet, Inc. (Class C)1 | 27,511,782 | ||||||
4,977 | Amazon.com, Inc.1 | 15,110,918 | ||||||
3,829 | Booking Holdings, Inc.1 | 6,212,552 | ||||||
220,875 | Comcast Corp. (Class A) | 9,329,760 | ||||||
Total Communications | 58,165,012 | |||||||
| ||||||||
CONSUMER CYCLICAL (13.4%) | ||||||||
162,195 | Copart, Inc.1 | 17,899,840 | ||||||
21,501 | Costco Wholesale Corp. | 7,689,188 | ||||||
45,256 | Dollar General Corp. | 9,445,380 | ||||||
92,766 | NIKE, Inc. (Class B) | 11,139,341 | ||||||
68,266 | Starbucks Corp. | 5,936,411 | ||||||
Total Consumer Cyclical | 52,110,160 | |||||||
| ||||||||
CONSUMER NON-CYCLICAL (31.6%) | ||||||||
245,102 | Alcon, Inc. (Switzerland)1 | 13,931,598 | ||||||
138,126 | Baxter International, Inc. | 10,714,434 | ||||||
169,275 | Brown-Forman Corp. (Class B) | 11,800,160 | ||||||
128,267 | Colgate-Palmolive Co. | 10,118,984 | ||||||
97,066 | Diageo, Plc. ADR (United Kingdom) | 12,636,052 | ||||||
54,537 | FleetCor Technologies, Inc.1 | 12,047,769 | ||||||
167,072 | Henry Schein, Inc.1 | 10,622,438 | ||||||
68,276 | Nestle SA ADR (Switzerland) | 7,665,346 | ||||||
128,424 | Perrigo Co., Plc. (Ireland) | 5,633,961 | ||||||
18,706 | Thermo Fisher Scientific, Inc. | 8,850,183 | ||||||
121,293 | Zoetis, Inc. (Class A) | 19,231,005 | ||||||
Total Consumer Non-Cyclical | 123,251,930 | |||||||
| ||||||||
FINANCIALS (18.6%) | ||||||||
154,329 | Arthur J Gallagher & Co. | 16,005,461 | ||||||
73 | Berkshire Hathaway, Inc. (Class A)1 | 22,082,501 | ||||||
55,687 | Mastercard, Inc. (Class A) | 16,073,496 | ||||||
|
The accompanying notes are an integral part of these financial statements.
8
BBH SELECT SERIES – LARGE CAP FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Shares | Value | |||||||
| COMMON STOCKS (continued) | |||||||
FINANCIALS (continued) | ||||||||
117,412 | Progressive Corp. | $ | 10,790,163 | |||||
39,861 | Visa, Inc. (Class A) | 7,243,142 | ||||||
Total Financials | 72,194,763 | |||||||
| INDUSTRIALS (7.8%) | |||||||
109,861 | Allegion, Plc. (Ireland) | 10,821,308 | ||||||
238,966 | AO Smith Corp. | 12,352,152 | ||||||
64,564 | Waste Management, Inc. | 6,967,101 | ||||||
Total Industrials | 30,140,561 | |||||||
| ||||||||
| TECHNOLOGY (5.4%) | |||||||
38,858 | KLA Corp. | 7,662,020 | ||||||
233,443 | Oracle Corp. | 13,098,487 | ||||||
Total Technology | 20,760,507 | |||||||
Total Common Stock | ||||||||
(Cost $356,632,750) | 385,172,959 |
TOTAL INVESTMENTS (Cost $356,632,750)2 | 99.1 | % | $ | 385,172,959 | |||
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES | 0.9 | % | 3,693,600 | ||||
NET ASSETS | 100.00 | % | $ | 388,866,559 |
____________
1 | Non-income producing security. |
2 | The aggregate cost for federal income tax purposes is $356,632,750, the aggregate gross unrealized appreciation is $39,215,580 and the aggregate gross unrealized depreciation is $10,675,371, resulting in net unrealized appreciation of $28,540,209. |
Abbreviation:
ADR – American Depositary Receipt.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 9 |
BBH SELECT SERIES – LARGE CAP FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
FAIR VALUE MEASUREMENTS
The Fund is required to disclose information regarding the fair value measurements of the Fund’s assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The disclosure requirement established a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the Fund’s own considerations about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
Authoritative guidance establishes three levels of the fair value hierarchy as follows:
— | Level 1 – unadjusted quoted prices in active markets for identical assets and liabilities. |
— | Level 2 – significant other observable inputs (including quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk, etc.). |
— | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of assets and liabilities). |
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires judgment by the investment adviser. The investment adviser considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the investment adviser’s perceived risk of that instrument.
The accompanying notes are an integral part of these financial statements.
10
BBH SELECT SERIES – LARGE CAP FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Financial assets within Level 1 are based on quoted market prices in active markets. The Fund does not adjust the quoted price for these instruments.
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include investment-grade corporate bonds, U.S. Treasury notes and bonds, and certain non-U.S. sovereign obligations, listed equities and over-the-counter derivatives and foreign equity securities whose values could be impacted by events occurring before the Fund’s pricing time, but after the close of the securities’ primary markets and are, therefore, fair valued according to procedures adopted by the Board of Trustees. As Level 2 financial assets include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Financial assets classified within Level 3 have significant unobservable inputs, as they trade infrequently. Level 3 financial assets include private equity and certain corporate debt securities.
Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon the actual sale of those investments.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2020.
Investments, at value | Unadjusted Quoted Prices in Active Markets for Identical Investments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of October 31, 2020 | |||||||||||||||
Common Stock: | |||||||||||||||||||
Basic Materials | $ | 28,550,026 | $ | — | $ | — | $ | 28,550,026 | |||||||||||
Communications | 58,165,012 | — | — | 58,165,012 | |||||||||||||||
Consumer Cyclical | 52,110,160 | — | — | 52,110,160 | |||||||||||||||
Consumer Non-Cyclical | 123,251,930 | — | — | 123,251,930 | |||||||||||||||
Financials | 72,194,763 | — | — | 72,194,763 | |||||||||||||||
Industrials | 30,140,561 | — | — | 30,140,561 | |||||||||||||||
Technology | 20,760,507 | — | — | 20,760,507 | |||||||||||||||
Investments, at value | $ | 385,172,959 | $ | — | $ | — | $ | 385,172,959 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 11 |
BBH SELECT SERIES – LARGE CAP FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2020
ASSETS: | ||||
Investments in securities, at value (Cost $356,632,750) | $ | 385,172,959 | ||
Cash | 2,990,818 | |||
Receivables for: | ||||
Investments sold | 1,901,629 | |||
Shares sold | 837,070 | |||
Dividends | 315,186 | |||
Investment advisory and administrative fee waiver reimbursement | 6,826 | |||
Prepaid assets | 6,971 | |||
Total Assets | 391,231,459 | |||
LIABILITIES: | ||||
Payables for: | ||||
Investments purchased | 1,977,728 | |||
Investment advisory and administrative fees | 222,785 | |||
Shares redeemed | 79,919 | |||
Professional fees | 55,964 | |||
Custody and fund accounting fees | 8,600 | |||
Transfer agent fees | 3,213 | |||
Distribution fees | 481 | |||
Accrued expenses and other liabilities | 16,210 | |||
Total Liabilities | 2,364,900 | |||
NET ASSETS | $ | 388,866,559 | ||
Net Assets Consist of: | ||||
Paid-in capital | $ | 368,740,286 | ||
Retained earnings | 20,126,273 | |||
Net Assets | $ | 388,866,559 |
NET ASSET VALUE AND OFFERING PRICE PER SHARE | ||||
CLASS I SHARES | ||||
($386,697,965 ÷ 37,550,134 shares outstanding) | $10.30 | |||
RETAIL CLASS SHARES | ||||
($2,168,594 ÷ 211,838 shares outstanding) | $10.24 |
The accompanying notes are an integral part of these financial statements.
12
BBH SELECT SERIES – LARGE CAP FUND
STATEMENT OF OPERATIONS
For the year ended October 31, 2020
NET INVESTMENT INCOME: | ||||
Income: | ||||
Dividends (net of foreign withholding taxes of $124,131) | $ | 4,329,066 | ||
Interest income | 1,663 | |||
Total Income | 4,330,729 | |||
Expenses: | ||||
Investment advisory and administrative fees | 2,616,205 | |||
Registration fees | 126,871 | |||
Professional fees | 78,031 | |||
Board of Trustees' fees | 55,625 | |||
Transfer agent fees | 39,518 | |||
Custody and fund accounting fees | 32,084 | |||
Distribution fees | 4,918 | |||
Miscellaneous expenses | 70,928 | |||
Total Expenses | 3,024,180 | |||
Investment advisory and administrative fee waiver | (47,750 | ) | ||
Net Expenses | 2,976,430 | |||
Net Investment Income | 1,354,299 | |||
NET REALIZED AND UNREALIZED GAIN: | ||||
Net realized loss on investments in securities | (9,767,949 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments in securities | 22,620,092 | |||
Net Realized and Unrealized Gain | 12,852,143 | |||
Net Increase in Net Assets Resulting from Operations | $ | 14,206,442 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 13 |
BBH SELECT SERIES – LARGE CAP FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended October 31, 2020 | For the period from September 9, 2019 (commencement of operations) to October 31, 2019 | |||||||||||
INCREASE (DECREASE) IN NET ASSETS: | ||||||||||||
Operations: | ||||||||||||
Net investment income | $ | 1,354,299 | $ | 169,815 | ||||||||
Net realized loss on investments in securities | (9,767,949 | ) | – | |||||||||
Net change in unrealized appreciation/(depreciation) on investments in securities | 22,620,092 | 5,920,117 | ||||||||||
Net increase in net assets resulting from operations | 14,206,442 | 6,089,932 | ||||||||||
Dividends and distributions declared: | ||||||||||||
Class I | (170,101 | ) | – | |||||||||
Total dividends and distributions declared | (170,101 | ) | – | |||||||||
Share transactions: | ||||||||||||
Proceeds from sales of shares | 106,103,818 | 395,151,093 | ||||||||||
Net asset value of shares issued to shareholders for reinvestment of dividends and distributions | 30,580 | – | ||||||||||
Proceeds from short-term redemption fees | 2,937 | 42 | ||||||||||
Cost of shares redeemed | (130,069,475 | ) | (2,478,709 | ) | ||||||||
Net increase (decrease) in net assets resulting from share transactions | (23,932,140 | ) | 392,672,426 | |||||||||
Total increase (decrease) in net assets | (9,895,799 | ) | 398,762,358 | |||||||||
NET ASSETS: | ||||||||||||
Beginning of year/period | 398,762,358 | – | ||||||||||
End of year/period | $ | 388,866,559 | $ | 398,762,358 |
The accompanying notes are an integral part of these financial statements.
14
BBH SELECT SERIES – LARGE CAP FUND
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a Class I share outstanding throughout each period.
For the year ended October 31, 2020 | For the period from September 9, 2019 (commencement of operations) to October 31, 2019 | |||||||||
Net asset value, beginning of period | $ | 10.12 | $ | 10.00 | ||||||
Income from investment operations: | ||||||||||
Net investment income1 | 0.03 | 0.01 | ||||||||
Net realized and unrealized gain | 0.15 | 0.11 | ||||||||
Total income from investment operations | 0.18 | 0.12 | ||||||||
Short-term redemption fees1 | 0.00 | 2 | – | |||||||
Less dividends and distributions: | ||||||||||
From investment income | 0.00 | 2 | – | |||||||
Total dividends and distributions | 0.00 | 2 | – | |||||||
Net asset value, end of period | $ | 10.30 | $ | 10.12 | ||||||
Total return | 1.82 | % | 1.20 | %3 | ||||||
Ratios/Supplemental data: | ||||||||||
Net assets, end of period (in millions) | $ | 387 | $ | 397 | ||||||
Ratio of expenses to average net assets before reductions | 0.74 | % | 0.75 | %4 | ||||||
Fee waiver | – | %5 | 0.01 | %4,5 | ||||||
Ratio of expenses to average net assets after reductions | 0.74 | % | 0.74 | %4 | ||||||
Ratio of net investment income to average net assets | 0.34 | % | 0.52 | %4 | ||||||
Portfolio turnover rate | 38 | % | 0 | %3 |
____________ | |
1 | Calculated using average shares outstanding for the period. |
2 | Less than $0.01. |
3 | Not annualized. |
4 | Annualized with the exception of audit fees, legal fees and registration fees. |
5 | The ratio of expenses to average net assets for the year ended October 31, 2020 and the period ended October 31, 2019 reflect fees reduced as result of a contractual operating expense limitation of the share class of 0.80%. The Agreement is effective through March 1, 2021 and may only be terminated during its term with approval of the Fund’s Board of Trustees. For the year ended October 31, 2020 and the period from September 9, 2019 to October 31, 2019 the waived fees were $0 and $27,976, respectively. |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 15 |
BBH SELECT SERIES – LARGE CAP FUND
FINANCIAL HIGHLIGHTS (continued)
Selected per share data and ratios for a Retail Class share outstanding throughout each period.
For the year ended October 31, 2020 | For the period from September 9, 2019 (commencement of operations) to October 31, 2019 | |||||||||
Net asset value, beginning of period | $ | 10.09 | $ | 10.00 | ||||||
Income from investment operations: | ||||||||||
Net investment income1 | 0.00 | 2 | 0.01 | |||||||
Net realized and unrealized gain | 0.15 | 0.08 | ||||||||
Total income from investment operations | 0.15 | 0.09 | ||||||||
Short-term redemption fees1 | – | 0.00 | 2 | |||||||
Net asset value, end of period | $ | 10.24 | $ | 10.09 | ||||||
Total return | 1.49 | % | 0.90 | %3 | ||||||
Ratios/Supplemental data: | ||||||||||
Net assets, end of period (in millions) | $ | 2 | $ | 2 | ||||||
Ratio of expenses to average net assets before reductions | 3.48 | % | 5.79 | %4 | ||||||
Fee waiver | 2.43 | %5 | 4.74 | %4,5 | ||||||
Ratio of expenses to average net assets after reductions | 1.05 | % | 1.05 | %4 | ||||||
Ratio of net investment income to average net assets | 0.03 | % | 0.46 | %4 | ||||||
Portfolio turnover rate | 38 | % | 0 | %3 |
____________ | |
1 | Calculated using average shares outstanding for the period. |
2 | Less than $0.01. |
3 | Not annualized. |
4 | Annualized with the exception of audit fees, legal fees and registration fees. |
5 | The ratio of expenses to average net assets for the year ended October 31, 2020 and the period ended October 31, 2019 reflect fees reduced as result of a contractual operating expense limitation of the share class of 1.05%. The Agreement is effective through March 1, 2021 and may only be terminated during its term with approval of the Fund’s Board of Trustees. For the year ended October 31, 2020 and the period from September 9, 2019 to October 31, 2019 the waived fees were $47,750 and $8,357, respectively. |
The accompanying notes are an integral part of these financial statements.
16
BBH SELECT SERIES – LARGE CAP FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2020
1.Organization. The Fund is a separate, non-diversified series of BBH Trust (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust was originally organized under the laws of the State of Maryland on July 16, 1990 as BBH Fund, Inc. and re-organized as a Delaware statutory trust on June 12, 2007. The Fund commenced operations on September 9, 2019 and offers two share classes, Class I and Retail Class. Neither Class I shares nor Retail Class shares automatically convert to any other share class of the Fund. The investment objective of the Fund is to provide investors with long-term growth of capital. As of October 31, 2020, there were seven series of the Trust.
2.Significant Accounting Policies. The Fund’s financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”). The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services — Investment Companies. The following summarizes significant accounting policies of the Fund:
A.Valuation of Investments. (1) The value of investments listed on a securities exchange is based on the last sale price on that exchange prior to the time when assets are valued, or in the absence of recorded sales, at the average of readily available closing bid and asked prices on such exchange; (2) securities not traded on an exchange are valued at the average of the quoted bid and asked prices in the over-the-counter market; (3) securities or other assets for which market quotations are not readily available are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Board of Trustees (the “Board”); (4) short-term investments, which mature in 60 days or less are valued at amortized cost if their original maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if their original maturity when acquired by the Fund was more than 60 days, unless the use of amortized cost is determined not to represent “fair value” by the Board.
B.Accounting for Investments and Income. Investment transactions are accounted for on the trade date. Realized gains and losses on investment transactions are determined based on the identified cost method. Dividend income and other distributions received from portfolio securities are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of securities received at ex-date. Distributions received on securities that represent a return of capital are recorded as a reduction of cost of investments. Distributions received on securities that represent a capital gain are recorded as a realized gain. Interest income is accrued daily. Investment income is recorded net of any foreign taxes withheld where recovery of such tax is uncertain.
C.Fund Expenses. Most expenses of the Trust can be directly attributed to a specific fund. Expenses which cannot be directly attributed to a fund are generally apportioned among each fund in the Trust
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 17 |
BBH SELECT SERIES – LARGE CAP FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
on a net assets basis or other suitable method. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
D.Federal Income Taxes. It is the Trust’s policy to comply with the requirements of the Internal Revenue Code (the “Code”) applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. The Fund files a tax return annually using tax accounting methods required under provisions of the Code, which may differ from GAAP, which is the basis on which these financial statements are prepared. Accordingly, the amount of net investment income and net realized gain reported in these financial statements may differ from that reported on the Fund’s tax return, due to certain book-to-tax timing differences such as losses deferred due to “wash sale” transactions and utilization of capital loss carryforwards. These differences may result in temporary over-distributions for financial statement purposes and are classified as distributions in excess of accumulated net realized gains or net investment income. These distributions do not constitute a return of capital. Permanent differences are reclassified between paid-in capital and retained earnings/(accumulated deficit) within the Statement of Assets and Liabilities based upon their tax classification. As such, the character of distributions to shareholders reported in the Financial Highlights table may differ from that reported to shareholders on Form 1099-DIV.
The Fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes (“ASC 740”). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The Fund did not have any unrecognized tax benefits as of October 31, 2020, nor were there any increases or decreases in unrecognized tax benefits for the year then ended. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as an income tax expense in the Statement of Operations. During the year ended October 31, 2020, the Fund did not incur any such interest or penalties. The Fund is subject to examination by U.S. federal and state tax authorities for returns filed for open tax period since September 9, 2019 (commencement of operations). The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
E.Dividends and Distributions to Shareholders. Dividends and distributions from net investment income to shareholders, if any, are paid annually and are recorded on the ex-dividend date. Distributions from net capital gains, if any, are generally declared and paid annually and are recorded on the ex-dividend date. The Fund declared dividends and distributions in the amount of $170,101 and $0 to Class I shares and Retail Class shareholders, respectively, during the year ended October 31, 2020.
18
BBH SELECT SERIES – LARGE CAP FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
The tax character of distributions paid during the years ended October 31, 2020 and 2019, respectively, were as follows:
Distributions paid from: | ||||||||||||||||||||
Ordinary income | Net long-term capital gain | Total taxable distributions | Tax return of capital | Total distributions paid | ||||||||||||||||
2020: | $170,101 | $ | — | $170,101 | $ | — | $170,101 | |||||||||||||
2019: | — | — | — | — | — |
As of October 31, 2020 and 2019, respectively, the components of retained earnings/(accumulated deficit) were as follows:
Components of retained earnings/(accumulated deficit): | |||||||||||||||||||||||||||||
Undistributed ordinary income | Undistributed long-term capital gain | Accumulated capital and other losses | Other book/tax temporary differences | Unrealized appreciation/ (depreciation) | Total retained earnings/ (accumulated deficit) | ||||||||||||||||||||||||
2020: | $1,354,013 | $ | — | $(9,767,949 | ) | $ | — | $28,540,209 | $20,126,273 |
| |||||||||||||||||||
2019: | 169,815 | — | — | — | 5,920,117 | 6,089,932 |
|
The Fund had $9,767,949 of post-December 22, 2010 net capital loss carryforwards as of October 31, 2020, of which $9,767,949 and $0, is attributable to short-term and long-term capital losses, respectively.
The Fund is permitted to carryforward capital losses for an unlimited period and they will retain their character as either short-term or long-term capital losses rather than being considered all short-term capital losses.
The differences between book-basis and tax-basis unrealized appreciation/(depreciation) would be attributable primarily to the tax deferral of losses on wash sales, if applicable.
To the extent future capital gains are offset by capital loss carryforwards, if any, such gains will not be distributed.
F.Use of Estimates. The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increase and decrease in net assets from operations during the reporting period. Actual results could differ from these estimates.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 19 |
BBH SELECT SERIES – LARGE CAP FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
3.Fees and Other Transactions with Affiliates.
A.Investment Advisory and Administrative Fees. Under a combined Investment Advisory and Administrative Services Agreement (“Agreement”) with the Trust, Brown Brothers Harriman & Co. (“BBH”) through a separately identifiable department (“SID” or “Investment Adviser”) provides investment advisory, portfolio management and administrative services to the Fund. The Fund pays a combined fee for investment advisory and administrative services calculated daily and paid monthly at an annual rate equivalent to 0.65% per annum on the first $3 billion of the Fund’s average daily net assets and 0.60% per annum on the Fund’s average daily net assets over $3 billion. For year ended October 31, 2020, the Fund incurred $2,616,205 under the Agreement.
B.Investment Advisory and Administrative Fee Waivers. Effective September 9, 2019 (commencement of operations), the Investment Adviser contractually agreed to limit the annual fund operating expenses (excluding interest, taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP, other extraordinary expenses not incurred in the ordinary course of the Fund’s business and for Retail Class, amounts payable pursuant to any plan adopted in accordance with Rule 12b-1) of Class I and Retail Class to 0.80%. The agreement will terminate on March 1, 2021, unless it is renewed by all parties to the agreement. The agreement may only be terminated during its term with approval of the Fund’s Board of Trustees. For the year ended October 31, 2020, the Investment Adviser waived fees in the amount of $0 and $47,750 for Class I and Retail Class, respectively.
C.Distribution (12b-1) Fees. The Fund has adopted a distribution plan pursuant to Rule 12b-1 for Retail Class shares that allows the Fund to pay distribution and other fees for the sale of its shares and for distribution-related services provided to shareholders. Because these fees are paid out of the Fund’s assets continuously, over time these fees will increase the cost of investment in Retail Class shares and may cost the Retail Class shareholder more than paying other types of sales charges. The maximum annual distribution fee for Retail Class shares is 0.25% of the average daily net assets of the Retail Class shares of the Fund. With this agreement along with the investment advisory and waiver agreements above, it is anticipated that total operating expenses for Retail Class shares will be no greater than 1.05% of the average daily net assets. For the year ended October 31, 2020, Retail Class shares of the Fund incurred $4,918 for Distribution (12b-1) Fees. This amount is presented under line item “Distribution fees” in the Statement of Operations.
D.Custody and Fund Accounting Fees. BBH acts as a custodian and fund accountant and receives custody and fund accounting fees from the Fund calculated daily and incurred monthly. BBH holds all of the Fund’s cash and investments and calculates the Fund’s daily net asset value. The custody fee is an asset and transaction-based fee. The fund accounting fee is an asset-based fee calculated at 0.004% of the Fund’s net asset value. For the year ended October 31, 2020, the Fund incurred $32,084 in custody and fund accounting fees. As per agreement with the Fund’s custodian, the Fund receives interest income on cash balances held by the custodian at the BBH Base Rate. The BBH Base Rate is defined as BBH’s effective trading rate in local money markets on each day. The total interest earned
20
BBH SELECT SERIES – LARGE CAP FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
by the Fund for the year ended October 31, 2020 was $1,663. This amount is included in "interest income" in the Statement of Operations. In the event that the Fund is overdrawn, under the custody agreement with BBH, BBH will make overnight loans to the Fund to cover overdrafts. Pursuant to their agreement, the Fund will pay the Federal Funds overnight investment rate on the day of the overdraft. The total interest incurred by the Fund for the year ended October 31, 2020, was $0. This amount is included under line item “Custody and fund accounting fees” in the Statement of Operations.
E.Board of Trustees’ Fees. Each Trustee who is not an “interested person” as defined under the 1940 Act receives an annual fee as well as reimbursement for reasonable out-of-pocket expenses from the Fund. For the year ended October 31, 2020, the Fund incurred $55,625 in independent Trustee compensation and expense reimbursements.
F.Officers of the Trust. Officers of the Trust are also employees of BBH. Officers are paid no fees by the Trust for their services to the Trust.
4.Investment Transactions. For the year ended October 31, 2020, the cost of purchases and the proceeds of sales of investment securities, other than short-term investments, were $152,046,030 and $163,858,182, respectively.
5.Shares of Beneficial Interest. The Trust is permitted to issue an unlimited number of Class I and Retail Class shares of beneficial interest at no par value. Transactions in Class I and Retail Class shares were as follows:
For the year ended October 31, 2020 | For the period ended October 31, 2019* | |||||||||||||||
Shares | Dollars | Shares | Dollars | |||||||||||||
Class I |
|
|
|
| ||||||||||||
Shares sold | 11,524,670 |
| $ | 105,474,945 |
| 39,489,027 |
| $ | 393,470,565 |
| ||||||
Shares issued in connection with reinvestments of dividends | 2,943 |
| 30,580 |
| — |
| — |
| ||||||||
Proceeds from short-term redemption fees | N/A |
| 2,937 |
| N/A |
| — |
| ||||||||
Shares redeemed | (13,218,054 | ) | (129,851,574 | ) | (248,452 | ) | (2,476,612 | ) | ||||||||
Net increase | (1,690,441 | ) | $ | (24,343,112 | ) | 39,240,575 | $ | 390,993,953 | ||||||||
Retail Class |
|
|
|
| ||||||||||||
Shares sold | 63,876 |
| $ | 628,873 |
| 169,825 |
| $ | 1,680,528 |
| ||||||
Shares issued in connection with reinvestments of dividends | — |
| — |
| — |
| — |
| ||||||||
Proceeds from short-term redemption fees | N/A |
| N/A |
| N/A |
| 42 |
| ||||||||
Shares redeemed | (21,650 | ) | (217,901 | ) | (213 | ) | (2,097 | ) | ||||||||
Net increase | 42,226 |
| $ | 410,972 |
| 169,612 |
| $ | 1,678,473 |
|
____________
* | The period represented is from September 9, 2019 (commencement of operations) to October 31, 2019. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 21 |
BBH SELECT SERIES – LARGE CAP FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
6. Principal Risk Factors and Indemnifications.
A. Principal Risk Factors. Investing in the Fund may involve certain risks, as discussed in the Fund’s prospectus, including but not limited to, those described below:
A shareholder may lose money by investing in the Fund (investment risk). The Fund is actively managed and the decisions by the Investment Adviser may cause the Fund to incur losses or miss profit opportunities (management risk). Price movements may occur due to factors affecting individual companies, such as the issuance of an unfavorable earnings report, or other events affecting particular industries or the equity market as a whole (equity securities risk). The value of securities held by the Fund may fall due to changing economic, political, regulatory or market conditions, or due to a company’s or issuer’s individual situation. Natural disasters, the spread of infectious illness and other public health emergencies, recession, terrorism and other unforeseeable events may lead to increased market volatility and may have adverse effects on world economies and markets generally (market risk). In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to assumption of large positions in securities of a small number of issuers (non-diversification risk). There are certain risks associated with investing in foreign securities not present in domestic investments, including, but not limited to, recovery of tax withheld by foreign jurisdictions (foreign investment risk). The Fund’s shareholders may be adversely impacted by asset allocation decisions made by an investment adviser whose discretionary clients make up a large percentage of the Fund’s shareholders (shareholder concentration risk). The extent of the Fund’s exposure to these risks in respect to these financial assets is included in their value as recorded in the Fund’s Statement of Assets and Liabilities.
Please refer to the Fund’s prospectus for a complete description of the principal risks of investing in the Fund.
B. Indemnifications. Under the Trust’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Fund, and shareholders are indemnified against personal liability for the obligations of the Trust. Additionally, in the normal course of business, the Fund enters into agreements with service providers that may contain indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
7. Significant Events. In the beginning of 2020, there was an outbreak of the novel corona virus (COVID 19) which has impacted the financial markets and the global economy as a whole. The outbreak of COVID 19 is still ongoing and the magnitude and impact on the financial markets is highly uncertain and cannot be predicted. The effect of this impact may adversely impact the future carrying value of investments and results of operations of the Fund.
22
BBH SELECT SERIES – LARGE CAP FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
There are no other significant events to report as they relate to the Fund.
8.Subsequent Events. Management has evaluated events and transactions that have occurred since October 31, 2020 through the date the financial statements were issued and determined that there were none that would require recognition or additional disclosure in the financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 23 |
BBH SELECT SERIES – LARGE CAP FUND
DISCLOSURE OF FUND EXPENSES
October 31, 2020
EXAMPLE
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested distributions, or other distributions; 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 an investment of $1,000 invested at the beginning of the period and held for the entire period (May 1, 2020 to October 31, 2020).
ACTUAL EXPENSES
The first line of the table below provides information about actual account values and actual expenses. You may use 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 the Period” to estimate the expenses you paid on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year 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 during the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% Hypothetical Example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
24
BBH SELECT SERIES – LARGE CAP FUND
DISCLOSURE OF FUND EXPENSES (continued)
October 31, 2020
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 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. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period May 1, 2020 to October 31, 20201 | |||||||||||||
Class I | |||||||||||||||
Actual | $1,000 | $1,131 | $4.02 | ||||||||||||
Hypothetical2 | $1,000 | $1,021 | $3.81 |
Beginning Account Value May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period May 1, 2020 to October 31, 20201 | |||||||||||||
Retail Class | |||||||||||||||
Actual | $1,000 | $1,129 | $5.62 | ||||||||||||
Hypothetical2 | $1,000 | $1,020 | $5.33 |
________________
1 | Expenses are equal to the Fund’s annualized expense ratio of 0.75% and 1.05% for Class I and Retail Class shares, respectively, multiplied by the average account value over the period, multiplied by 184/366. |
2 | Assumes a return of 5% before expenses. For the purposes of the calculation, the applicable annualized expense ratio for each class of shares is subtracted from the assumed return before expenses. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 25 |
BBH SELECT SERIES – LARGE CAP FUND
CONFLICTS OF INTEREST
October 31, 2020
Conflict of Interest
BBH, including the Investment Adviser, provides discretionary and non-discretionary investment management services and products to corporations, institutions and individual investors throughout the world. As a result, in the ordinary course of its businesses, BBH, including the Investment Adviser, may engage in activities in which its interests or the interests of its clients may conflict with or be adverse to the interests of the Funds. In addition, certain of such clients (including the Funds) utilize the services of BBH for which they will pay to BBH customary fees and expenses that will not be shared with the Funds.
The Investment Adviser and the Sub-Adviser have adopted and implemented policies and procedures that seek to manage conflicts of interest. Pursuant to such policies and procedures, the Investment Adviser and the Sub-Adviser monitor a variety of areas, including compliance with fund investment guidelines, the investment in only those securities that have been approved for purchase, and compliance with their respective Code of Ethics.
The Trust also manages these conflicts of interest. For example, the Trust has designated a chief compliance officer (“CCO”) and has adopted and implemented policies and procedures designed to manage the conflicts identified below and other conflicts that may arise in the course of the Funds’ operations in such a way as to safeguard the Funds from being negatively affected as a result of any such potential conflicts. From time to time, the Trustees receive reports from the Investment Adviser, the Sub-Adviser and the Trust’s CCO on areas of potential conflict.
Investors should carefully review the following, which describes potential and actual conflicts of interest that BBH, the Investment Adviser and Sub-Adviser can face in the operation of their respective investment management services. This section is not, and is not intended to be, a complete enumeration or explanation of all of the potential conflicts of interest that may arise. The Investment Adviser, the Sub-Adviser and the Funds have adopted policies and procedures reasonably designed to appropriately prevent, limit or mitigate the conflicts of interest described below. Additional information about potential conflicts of interest regarding the Investment Adviser is set forth in the Investment Adviser’s Form ADV. A copy of Part 1 and Part 2A of the Investment Adviser’s Form ADV is available on the SEC’s website (www.adviserinfo.sec.gov). In addition, many of the activities that create these conflicts of interest are limited and/or prohibited by law, unless an exception is available.
Other Clients and Allocation of Investment Opportunities. BBH, the Investment Adviser, and the Sub-Adviser manage funds and accounts of clients other than the Funds (“Other Clients”). In general, BBH, the Investment Adviser, and the Sub-Adviser face conflicts of interest when they render investment advisory services to different clients and, from time to time, provide dissimilar investment advice to different clients. Investment decisions will not necessarily be made in parallel among the Funds and Other Clients. Investments made by the Funds do not, and are not intended to, replicate the investments, or the investment methods and strategies, of Other Clients. Accordingly, such Other Clients’ accounts may produce results that are materially different from those experienced by the Funds. Certain other conflicts of interest may arise in connection with a portfolio manager’s management of the Funds’ investments, on the one hand, and the investments of other funds or accounts for which the portfolio manager is responsible, on the other. For example, it is possible that the various funds or accounts managed by the Investment Adviser or Sub-Adviser
26
BBH SELECT SERIES – LARGE CAP FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020
could have different investment strategies that, at times, might conflict with one another to the possible detriment of the Funds. From time to time, the Investment Adviser and Sub-Adviser, sponsor and with other investment pools and accounts which engage in the same or similar businesses as the Funds using the same or similar investment strategies. To the extent that the same investment opportunities might be desirable for more than one account or fund, possible conflicts could arise in determining how to allocate them because the Investment Adviser or Sub-Adviser may have an incentive to allocate investment opportunities to certain accounts or funds. However, BBH and the Sub-adviser have implemented policies and procedures designed to ensure that information relevant to investment decisions is disseminated promptly within its portfolio management teams and investment opportunities are allocated equitably among different clients. The policies and procedures require, among other things, objective allocation for limited investment opportunities, and documentation and review of justifications for any decisions to make investments only for select accounts or in a manner disproportionate to the size of the account. Nevertheless, access to investment opportunities may be allocated differently among accounts due to the particular characteristics of an account, such as size of the account, cash position, tax status, risk tolerance and investment restrictions or for other reasons.
Actual or potential conflicts of interest may also arise when a portfolio manager has management responsibilities to multiple accounts or funds, resulting in unequal commitment of time and attention to the portfolio management of the funds or accounts.
Affiliated Service Providers. Other potential conflicts might include conflicts between the Funds and its affiliated and unaffiliated service providers (e.g. conflicting duties of loyalty). In addition to providing investment management services through the SID, BBH provides administrative, custody, shareholder servicing and fund accounting services to the Funds. BBH may have conflicting duties of loyalty while servicing the Funds and/or opportunities to further its own interest to the detriment of the Funds. For example, in negotiating fee arrangements with affiliated service providers, BBH may have an incentive to agree to higher fees than it would in the case of unaffiliated providers. BBH acting in its capacity as the Funds’ administrator is the primary valuation agent of the Funds. BBH values securities and assets in the Funds according to the Funds’ valuation policies. Because the Investment Adviser’s advisory and administrative fees are calculated by reference to the Funds’ net assets, BBH and its affiliates may have an incentive to seek to overvalue certain assets.
Aggregation. Potential conflicts of interest also arise with the aggregation of trade orders. Purchases and sales of securities for the Funds may be aggregated with orders for other client accounts managed by the Sub-Adviser. The Sub-Adviser, however, is not required to aggregate orders if portfolio management decisions for different accounts are made separately, or if it is determined that aggregating is not practicable, or in cases involving client direction. Prevailing trading activity frequently may make impossible the receipt of the same price or execution on the entire volume of securities purchased or sold. When this occurs, the various prices may be averaged, and the Funds will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to the disadvantage of the Funds. In addition, under certain circumstances, the Funds will not be charged the same commission or commission equivalent rates in connection with an aggregated order.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 27 |
BBH SELECT SERIES – LARGE CAP FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020
Cross Trades. Under certain circumstances, the Investment Adviser and/or the Sub-adviser, on behalf of the Funds, may seek to buy from or sell securities to another fund or account advised by BBH, the Investment Adviser or the Sub-adviser. Subject to applicable law and regulation, BBH, the Investment Adviser or the Sub-adviser may (but is not required to) effect purchases and sales between BBH, the Investment Adviser or the Sub-adviser’s clients (“cross trades”), including the Funds, if BBH, the Investment Adviser or the Sub-adviser believe such transactions are appropriate based on each party’s investment objectives and guidelines. There may be potential conflicts of interest or regulatory issues relating to these transactions which could limit the Investment Adviser or the Sub-adviser’s decision to engage in these transactions for the Funds. BBH, the Investment Adviser and/or the Sub-adviser may have a potentially conflicting division of loyalties and responsibilities to the parties in such transactions.
Soft Dollars. The Investment Adviser may direct brokerage transactions and/or payment of a portion of client commissions (“soft dollars”) to specific brokers or dealers or other providers to pay for research or other appropriate services which provide, in the Investment Adviser’s view, appropriate assistance in the investment decision-making process (including with respect to futures, fixed price offerings and over-the-counter transactions). The use of a broker that provides research and securities transaction services may result in a higher commission than that offered by a broker who does not provide such services. The Investment Adviser will determine in good faith whether the amount of commission is reasonable in relation to the value of research and services provided and whether the services provide lawful and appropriate assistance in its investment decision-making responsibilities.
Research or other services obtained in this manner may be used in servicing any or all of the Funds and other accounts managed by the Investment Adviser, including in connection with accounts that do not pay commissions to the broker related to the research or other service arrangements. Such products and services may disproportionately benefit other client accounts relative to the Funds based on the amount of brokerage commissions paid by the Funds and such other accounts. To the extent that the Sub-Adviser uses soft dollars, it will not have to pay for those products and services itself.
BBH may receive research that is bundled with the trade execution, clearing, and/or settlement services provided by a particular broker-dealer. To the extent that the Sub-Adviser receives research on this basis, many of the same conflicts related to traditional soft dollars may exist. For example, the research effectively will be paid by client commissions that also will be used to pay for the execution, clearing, and settlement services provided by the broker-dealer and will not be paid by the Sub-Adviser.
Arrangements regarding compensation and delegation of responsibility may create conflicts relating to selection of brokers or dealers to execute Fund portfolio trades and/or specific uses of commissions from Fund portfolio trades, administration of investment advice and valuation of securities.
Investments in BBH Funds. From time to time BBH may invest a portion of the assets of its discretionary investment advisory clients in the Funds. That investment by BBH on behalf of its discretionary investment advisory clients in the Funds may be significant at times.
28
BBH SELECT SERIES – LARGE CAP FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020
Increasing a Fund’s assets may enhance investment flexibility and diversification and may contribute to economies of scale that tend to reduce the Funds’ expense ratio. In selecting the Funds for its discretionary investment advisory clients, BBH may limit its selection to funds managed by BBH or the Investment Adviser. BBH may not consider or canvass the universe of unaffiliated investment companies available, even though there may be unaffiliated investment companies that may be more appropriate or that have superior performance. BBH, the Investment Adviser and their affiliates providing services to the Funds benefit from additional fees when the Funds is included as an investment by a discretionary investment advisory client.
BBH reserves the right to redeem at any time some or all of the shares of the Funds acquired for its discretionary investment advisory clients’ accounts. A large redemption of shares of the Funds by BBH on behalf of its discretionary investment advisory clients could significantly reduce the asset size of the Funds, which might have an adverse effect on the Funds’ investment flexibility, portfolio diversification and expense ratio.
Valuation. When market quotations are not readily available, or are believed by BBH to be unreliable, the Funds’ investments will be valued at fair value by BBH pursuant to procedures adopted by the Funds’ Board of Trustees. When determining an asset’s “fair value”, BBH seeks to determine the price that a Fund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. The price generally may not be determined based on what the Funds might reasonably expect to receive for selling an asset at a later time or if it holds the asset to maturity. While fair value determinations will be based upon all available factors that BBH deems relevant at the time of the determination and may be based on analytical values determined by BBH using proprietary or third-party valuation models, fair value represents only a good faith approximation of the value of a security. The fair value of one or more securities may not, in retrospect, be the price at which those assets could have been sold during the period in which the particular fair values were used in determining the Funds’ net asset value. As a result, the Funds’ sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued by BBH (pursuant to Board-adopted procedures) at fair value, may have the effect of diluting or increasing the economic interest of existing shareholders.
Referral Arrangements. BBH may enter into advisory and/or referral arrangements with third parties. Such arrangements may include compensation paid by BBH to the third party. BBH may pay a solicitation fee for referrals and/or advisory or incentive fees. BBH may benefit from increased amounts of assets under management.
Personal Trading. BBH, including the Investment Adviser, and any of their respective partners, principals, directors, officers, employees, affiliates or agents, face conflicts of interest when transacting in securities for their own accounts because they could benefit by trading in the same securities as the Funds, which could have an adverse effect on the Funds. However, the Investment Adviser has implemented policies and procedures concerning personal trading by BBH Partners and employees. The policy and procedures are intended to prevent BBH Partners and employees from trading in the same securities as the Funds. However, BBH, including the Investment Adviser, has implemented policies and procedures concerning personal
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 29 |
BBH SELECT SERIES – LARGE CAP FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020
trading by BBH Partners and employees. The policies and procedures are intended to prevent BBH Partners and employees with access to Fund material non-public information from trading in the same securities as the Funds.
Gifts and Entertainment. From time to time, employees of BBH, including the Investment Adviser, and any of their respective partners, principals, directors, officers, employees, affiliates or agents, may receive gifts and/or entertainment from clients, intermediaries, or service providers to the Funds or BBH, including the Investment Adviser, which could have the appearance of affecting or may potentially affect the judgment of the employees, or the manner in which they conduct business. The Investment Adviser has implemented policies and procedures concerning gifts and entertainment to mitigate any impact on the judgment of BBH Partners and employees. BBH, including the Investment Adviser, has implemented policies and procedures concerning gifts and entertainment to mitigate any impact on the judgment of BBH Partners and employees.
30
BBH SELECT SERIES – LARGE CAP FUND
ADDITIONAL FEDERAL TAX INFORMATION
October 31, 2020
In January 2021, shareholders will receive Form 1099-DIV, which will include their share of qualified dividends distributed during the calendar year 2020. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their individual income tax returns.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 31 |
TRUSTEES AND OFFICERS OF BBH SELECT SERIES – LARGE CAP FUND
(unaudited)
Information pertaining to the Trustees and executive officers of the Trust is set forth below. The mailing address for each Trustee is c/o BBH Trust, 140 Broadway, New York, NY 10005.
Name and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee^ | Other Public Company or Investment Company Directorships held by Trustee During Past 5 Years | |||||
Independent Trustees | ||||||||||
H. Whitney Wagner Birth Year: 1956 | Chairman of the Board and Trustee | Chairman Since 2014; Trustee Since 2007 and 2006-2007 with the Predecessor Trust | President, Clear Brook Advisors, a registered investment advisor. | 7 | None. | |||||
Andrew S. Frazier Birth Year: 1948 | Trustee | Since 2010 | Retired. | 7 | Director of Western World Insurance Group, Inc. | |||||
Mark M. Collins Birth Year: 1956 | Trustee | Since 2011 | Partner of Brown Investment Advisory Incorporated, a registered investment advisor. | 7 | Chairman of Dillon Trust Company. | |||||
John M. Tesoro Birth Year: 1952 | Trustee | Since 2014 | Retired. | 7 | Trustee, Bridge Builder Trust (8 Funds), Director, Teton Advisers, Inc. (a registered investment adviser). | |||||
Joan A. Binstock Birth Year: 1954 | Trustee | Since 2019 | Partner, Chief Financial and Operations Officer, Lord Abbett & Co. LLC (1999-2018); Lovell Minnick Partners, Senior Adviser (2018-present). | 7 | None. |
32
TRUSTEES AND OFFICERS OF BBH SELECT SERIES – LARGE CAP FUND
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee^ | Other Public Company or Investment Company Directorships held by Trustee During Past 5 Years | |||||
Interested Trustees | ||||||||||
Susan C. Livingston+ 50 Post Office Square Boston, MA 02110 Birth Year: 1957 | Trustee | Since 2011 | Partner (since 1998) and Senior Client Advocate (since 2010) for BBH&Co. | 7 | None. | |||||
John A. Gehret+ 140 Broadway New York, NY 10005 Birth Year: 1959 | Trustee | Since 2011 | Limited Partner of BBH&Co. (2012-present). | 7 | None. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 33 |
TRUSTEES AND OFFICERS OF BBH SELECT SERIES ��� LARGE CAP FUND
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | |||
Officers | ||||||
Jean-Pierre Paquin 140 Broadway New York, NY 10005 Birth Year: 1973 | President and Principal Executive Officer | Since 2016 | Partner of BBH&Co. since 2015; joined BBH&Co. in 1996. | |||
Daniel Greifenkamp 140 Broadway New York, NY 10005 Birth Year: 1969 | Vice President | Since 2016 | Managing Director of BBH&Co. since 2014; joined BBH&Co. in 2011. | |||
Charles H. Schreiber 140 Broadway New York, NY 10005 Birth Year: 1957 | Treasurer and Principal Financial Officer | Since 2007 2006-2007 with the Predecessor Trust | Senior Vice President of BBH&Co. since 2001; joined BBH&Co. in 1999. | |||
Paul F. Gallagher 140 Broadway New York, NY 10005 Birth Year: 1959 | Chief Compliance Officer (“CCO”) | Since 2015 | Senior Vice President of BBH&Co. since 2015. | |||
Keith M. Kelley 140 Broadway New York, NY 10005 Birth Year: 1983 | Anti-Money Laundering Officer (“AMLO”) | Since 2016 | Vice President of BBH&Co. since February 2016; joined BBH&Co. in 2016; Director, Legal and Compliance, Morgan Stanley Smith Barney LLC (2014 – February 2016). |
34
TRUSTEES AND OFFICERS OF BBH SELECT SERIES – LARGE CAP FUND
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | |||
Suzan M. Barron 50 Post Office Square Boston, MA 02110 Birth Year: 1964 | Secretary | Since 2009 | Senior Vice President and Senior Investor Services Counsel, BBH&Co. since 2005. | |||
Crystal Cheung 140 Broadway New York, NY 10005 Birth Year: 1974 | Assistant Treasurer | Since 2018 | Assistant Vice President of BBH&Co. since 2016; joined BBH&Co. 2014. | |||
Brian J. Carroll 50 Post Office Square Boston, MA 02110 Birth Year:1985 | Assistant Secretary | Since 2018 | Associate and Investor Services Assistant Counsel of BBH&Co. since 2017; joined BBH&Co. 2014. |
________________
# | All officers of the Trust hold office for one year and until their respective successors are chosen and qualified (subject to the ability of the Trustees to remove any officer in accordance with the Trust’s By-laws). Mr. Wagner previously served on the Board of Trustees of the Predecessor Trust. |
+ | Ms. Livingston and Mr. Gehret are “interested persons” of the Trust as defined in the 1940 Act because of their positions as Partner and Limited Partner of BBH&Co., respectively. |
^ | The Fund Complex consists of the Trust, which has seven series, and each is counted as one “Portfolio” for purposes of this table. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 35 |
BBH SELECT SERIES – LARGE CAP FUND
OPERATION AND EFFECTIVENESS OF THE FUND’S LIQUIDITY RISK MANAGEMENT PROGRAM
October 31, 2020 (unaudited)
The Securities and Exchange Commission adopted Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”) to promote effective liquidity risk management throughout the open-end investment company industry in order to reduce the risk that funds will be unable to meet their redemption obligations and mitigate dilution of the interests of fund shareholders.
The Board of Trustees (the “Board”) of BBH Trust met on March 11, 2020 to review the liquidity risk management program (the “Program”) applicable to the funds of BBH Trust (the “Funds”) pursuant to the Liquidity Rule. The Board has appointed three members of the Brown Brothers Harriman & Co. Mutual Fund Advisory Department, the Investment Adviser to the Funds, as the Program Administrator for each Fund’s Program. The Program Administrator provided the Board with an annual report (the “Report”) that addressed the operations of the Program and assessed its adequacy and effectiveness of the Program. The Report covered the period from June 1, 2019 through January 31, 2020.
The Report noted that the Program complied with the key factors for consideration under the Liquidity Rule for assessing, managing and periodically reviewing a Fund’s liquidity risk, including the following points.
Liquidity classification. The Report described the Program’s liquidity classification methodology for categorizing the Funds’ investments into one of four liquidity buckets.
Highly Liquid Investment Minimum. The Report noted that one aspect of the Liquidity Rule is a requirement that funds that are expected to have less than 50% of assets classified as other than “highly liquid” should establish a minimum percentage of highly liquid assets that the fund is expected to hold on an on-going basis. The Program Administrator monitors the percentages of assets in each category on an ongoing basis and, given that no Fund has approached the 50% threshold, has made the determination that it is not necessary to assign a Highly Liquid Investment Minimum as provided for in the Liquidity Rule to any of the Funds.
The Fund’s investment strategy and liquidity of portfolio investments during normal and reasonably foreseeable stressed market conditions. During the Program reporting period, the Program Administrator reviewed whether each Fund’s investment strategy is appropriate for an open-end fund structure with a focus on Funds with more significant and consistent holdings of less liquid and illiquid assets and factored a Fund’s concentration in an issuer into the liquidity classification methodology by taking issuer position sizes into account.
Short-term and long-term cash flow projections during normal and reasonably foreseeable stressed market conditions. During the Program reporting period, the Program Administrator reviewed historical redemption activity and used this information as a component to establish each Fund’s reasonably anticipated trading size. The Program Administrator also took into consideration other factors such as shareholder ownership concentration, applicable distribution channels and the degree of certainty associated with a Fund’s short-term and long-term cash flow projections.
Holdings of cash and cash equivalents. The Program Administrator considered the degree to which each Fund held cash and cash equivalents as a component of each Fund’s ability to meet redemption requests.
36
BBH SELECT SERIES – LARGE CAP FUND
OPERATION AND EFFECTIVENESS OF THE FUND’S LIQUIDITY RISK MANAGEMENT PROGRAM (continued)
October 31, 2020 (unaudited)
There were no material changes to the Program during the reporting period. The Program Administrator has informed the Board that it believes that the Fund’s Program is adequately designed, has been implemented as intended, and has operated effectively since its implementation. No material exceptions have been noted since the implementation of the Program, and there were no liquidity events that impacted the Fund or its ability to meet redemption requests on a timely basis during the reporting period.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 37 |
Administrator Brown Brothers Harriman & Co. 140 Broadway New York, NY 10005
Distributor ALPS Distributors, Inc. 1290 Broadway, Suite 1100 Denver, CO 80203
Shareholder Servicing Agent Brown Brothers Harriman & Co. 140 Broadway New York, NY 10005 1-800-575-1265 | Investment Adviser Brown Brothers Harriman Mutual Fund Advisory Department 140 Broadway New York, NY 10005 |
To obtain information or make shareholder inquiries:
By telephone: | Call 1-800-575-1265 bbhfunds@bbh.com www.bbhfunds.com |
By E-mail send your request to: | |
On the internet: |
This report is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of the Fund.
For more complete information, visit www.bbhfunds.com for a prospectus. You should consider the Fund’s investment objectives, risks, charges and expenses carefully before you invest. Information about these and other important subjects is in the Fund’s prospectus, which you should read carefully before investing.
Holdings and allocations are subject to change. Fund holdings should not be relied on in making investment decisions and should not be construed as research or investment advice regarding particular securities. Current and future holdings are subject to risk.
The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available electronically on the SEC’s website (sec.gov). For a complete list of a fund’s portfolio holdings, view the most recent holdings listing, semi-annual report, or annual report on the Fund’s web site at http://www.bbhfunds.com.
A summary of the Fund’s Proxy Voting Policy that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund’s portfolio, as well as a record of how the Fund voted any such proxies during the most recent 12-month period ended June 30, is available, without charge, upon request by calling the toll-free number listed above. This information is also available on the SEC’s website at www.sec.gov.
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
Annual Report
OCTOBER 31, 2020
BBH Global Core Select
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Funds’ shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other Fund communications electronically from the Fund by calling 1-800-575-1265 or from your financial intermediary.
You may elect to receive all future reports in paper free of charge. You can inform the Fund by calling 1-800-575-1265 or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper may apply to all funds in the fund complex or held with your financial intermediary.
BBH GLOBAL CORE SELECT
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE
October 31, 2020
Global Core Select seeks to provide shareholders with long-term growth of capital and to generate attractive returns over time. Fundamental business analysis and a disciplined valuation framework based on our estimate of intrinsic value are the key elements underlying each Global Core Select investment. We look for companies that offer all, or most, of the following business and financial attributes: (i) essential products and services, (ii) loyal customers, (iii) leadership in an attractive market niche or industry, (iv) sustainable competitive advantages, (v) high returns on invested capital, and (vi) strong free cash flow. We believe businesses possessing these traits are positioned favorably to create value for investors through varying economic and market environments. In addition, we seek to invest in companies whose managers have high levels of integrity, are excellent operators, and are good capital allocators. Pursuant to our goal of reducing the risk of permanent capital loss, we explicitly identify key risks outside of company management’s control so that we can consider fully the range of potential outcomes for each business. Our portfolio construction decisions are driven by an approach that considers the quality of the businesses as well as their respective valuations, and we will typically sell an investment if there is a fundamental deterioration in the business. We invest with a long-term ownership perspective and expect that our returns over time will be driven by the underlying performance of the businesses, and its operational and financial resilience during periods of economic stress. As a result, the performance of the Fund will likely differ meaningfully – both positively and negatively – from major indexes at various points within a long-term market cycle as we maintain our independent perspective and focus on long-term compounding.
BBH Global Core Select Class N (“Global Core Select” or “the Fund”) returned -1.95%, net of fees, during its fiscal year ending October 31, 2020. During the same twelve-month period, the MSCI World index (“MSCI World”) returned 4.36%. From inception through October 31, 2020, Global Core Select has compounded at an annualized rate of 5.75% while the MSCI World has returned 8.43% per year.
The twelve-month period ending October 2020 was dominated by COVID-19 as the highly contagious, novel virus aggressively spread across the world. Government actions to mitigate the spread of the virus brought a vast proportion of economic activity to an abrupt halt through much of the first half of calendar 2020, and Central Banks and governments deployed massive monetary and fiscal programs to help mitigate the economic fallout. Global equity markets sold off sharply, bringing an abrupt end to the long-running bull market which peaked on February 19th and the MSCI World index declined by 34% from the market peak to March 23rd. Global markets have since rallied in response to significant central bank and government stimulus, with the MSCI World Index approaching pre-COVID levels by the end of October as prospects of re-opening and economic recovery improved. The Global Core Select Fund performed along a similar pattern, with a sharp decline from the peak in February to the March low as we saw a high level of correlation during that period. The Fund rebounded sharply from March 23rd to the end of October, ending the fiscal year with a modest decline. However, the Fund lagged the index return during the recovery period due to less exposure to a narrow group of U.S. technology and internet stocks that accounted for much of the index return.
During periods of market turmoil and economic uncertainty, we are reminded of the importance of the investment criteria that underpin our Global Core Select investment strategy. A critical element of our approach is the focus on financially strong companies with resilient business models, high levels of
________________
Intrinsic value represents what we believe to be the value of a security based on our analysis of both tangible and intangible factors. |
2
BBH GLOBAL CORE SELECT
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
discretionary cash flow, strong balance sheets, and the ability to self-finance operations and growth. We believe businesses that possess the characteristics that we look for are well-positioned to withstand economic shocks and subsequent weakness, and the flexibility to endure periods of financial market weakness. Accordingly, we stress-tested the financial and liquidity conditions of our holdings under various scenarios, and we made some portfolio changes to concentrate our investments in our highest-conviction positions. As is our practice, we take a long-term and through-the-cycle view when we analyze and value businesses and expect the strong management teams that that guide our portfolio companies will not only effectively manage through this crisis, but also anticipate and adapt to any structural changes that may result.
During fiscal 2020, we added seven new companies to the Global Core Select Fund: Nike, SAP, Kone, Assa Abloy, Shiseido, Amazon, and Visa. Nike is the largest seller of athletic footwear and apparel in the world. Nike continues to execute and evolve its strategy of superior innovation and marketing by closely following the consumer in a dynamic industry. We believe the Company is uniquely positioned to take share in the growing global activewear market and drive value creation over the long term through initiatives related to digital business, inventory management, distribution, and customer experience. We purchased Nike during the market drawdown in early 2020 and the business has shown strong recovery from COVID-related impact to the business. Nike was one of the biggest contributors to performance in the fiscal year.
SAP is a leading enterprise software vendor in the attractive Enterprise Resource Planning (ERP) software industry. Its products are mission-critical to its customers in managing financial reporting, supply chain, and production systems. Approximately 65% of SAP’s revenue is recurring, adding to the Company’s overall resilience. SAP is currently undergoing a product upgrade and business transition cycle which, while complex, should expand its addressable market with further potential for improved margins and returns.
Kone, based in Finland, is the third-largest elevator company globally with a strong and improving competitive position, including a leading market share in the Chinese new-equipment market. Service and maintenance represent 48% of revenues and 80% of profits, and this business has grown at a faster rate than peers. Services and modernization represent future growth opportunities in markets such as China, where this component of the business is underpenetrated.
Assa Abloy is the largest global supplier of access solutions; specifically, locks, digital identification systems, doors, gates, and entrance solutions serving commercial, industrial, and residential customers. Assa’s revenue base is larger than the next three industry participants combined, creating significant scale advantages, particularly in R&D where it spends several times more than its closest peers. The company generates attractive returns on invested capital and cash flow and has been an effective acquirer with M&A an integral part of topline growth.
Shiseido is a leading Japanese cosmetics company and the third largest prestige beauty company in the world, with leading positions in Japan and China. The global beauty market is structurally attractive, particularly the prestige skin care segment as brands with heritage, efficacy and authenticity command a price premium, and barriers to entry are high since the category requires significant brand investment. China is the second largest beauty market in the world and offers strong long-term growth potential as per capita consumption is still quite low relative to other countries. Shiseido also has the potential to improve its
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 3 |
BBH GLOBAL CORE SELECT
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
financial performance as margins and profitability have historically been below global peers. Management has a clear roadmap and levers to improve margins and returns.
Amazon has long been a company on our investment wish list, and our investment thesis evolved in two significant ways as a result of the COVID-19 pandemic. First, operating results confirmed that Amazon can achieve high levels of cash flow generation when operating at higher levels of capacity utilization across its vast infrastructure. Second, the company benefited from a large acceleration in e-commerce spending and cloud computing demand but did not show commensurate expansion in investment spending. This dynamic resulted in Amazon driving large incremental amounts of profitable business volumes across its asset base, which we believe is indicative of its inherently attractive margin and return potential as growth investments eventually taper. Importantly, given the secular growth powering its businesses, and the underlying investments that will be required, we still assume that the true tipping point for scaled margin inflection lies well in the future. Nevertheless, the dynamics at play helped to de-risk the potential range of profitability outcomes for the business at maturity.
Visa’s credit and debit card networks connect tens of millions of merchants to billions of credit and debit card accounts, and the company’s infrastructure serves as the means to authorize and settle card transactions quickly, accurately, and with enhanced security and fraud protection. The payments industry benefits from the secular tailwind of market share shifting from cash to electronic payments, a trend that we believe is accelerating due to COVID-19. The accelerated pace of e-commerce growth and market share gains has a positive impact as well on the aggregate market share of electronic payments. While COVID-19 related travel restrictions negatively impacted Visa’s highly profitable cross border payments, our view is that the durability of digital payment growth is underappreciated by the market and that Visa will enjoy sustained growth from the tailwinds of growing global spending, increasing card market share, e-commerce, as well as corporate payments opportunities.
We sold our positions in seven companies during the fiscal year largely to fund purchases of new investments and add to several existing investments. The decisions to sell Sanofi, Unilever, Perrigo and KBC were largely driven by the opportunities to deploy capital elsewhere in the Fund where we have greater conviction. However, in the cases of Anheuser Busch Inbev, Lloyds Banking Group, and Fairfax Financial, company-specific fundamentals factored into the sell decisions as well.
We sold our shares of Anheuser-Busch Inbev (ABI), one of the more significant detractors from our performance in the fiscal year, after the share price declined sharply when the COVID pandemic took hold. While our longer-term thesis remained intact, COVID-19 increased the risk profile of the investment and significantly impacted the company’s pace of de-leveraging. We believed that the range of government responses in several of ABI’s key markets, when combined with the inherent operating leverage in the industry, the potential for adverse currency movements, and ABI’s financial leverage, created a broader range of potential outcomes than we had anticipated and we decided to exit the position.
We exited Lloyds Banking Group after the banking environment in the United Kingdom deteriorated due COVID-19 and the Brexit overhang, both of which dampened corporate investment and consumer spending, and drove down short-term interest rates. The unfavorable banking environment, combined with Lloyds’
4
BBH GLOBAL CORE SELECT
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
balance sheet hedging strategy, are likely to pressure revenue for the foreseeable future. Additionally, heightened competition in the U.K mortgage market could put downward pressure on Lloyds’ returns on its largest business. These factors, combined with the announcement that the company’s CEO as well as the Chairman would be stepping down, prompted us to exit the position.
We began to reduce our position in Fairfax Financial in early in calendar 2020. While Fairfax ended calendar 2019 on a strong note, with over $2 billion in earnings and per-share book value growth in line with its long-term target of 15%, we were disappointed with the composition of earnings, which relied on realized and unrealized capital gains, and the core insurance operations underperformed relative to our expectations despite a rapidly-hardening insurance market and strong volume growth. We also grew concerned about the prospective pressure on Fairfax’s non-insurance operations, which include restaurants, travel, retail, and other economically sensitive assets, as the coronavirus pandemic spread.
Our largest positive contributors in fiscal 2020 were Alphabet, Copart, Nike, and Zoetis. Alphabet’s advertising business has recovered well from the depths of the COVID-19 economic crisis and the Company’s cloud computing business is demonstrating the benefit of large recent investments in capacity, features and go-to-market activity. We remain very positive on the key structural drivers of Alphabet’s businesses and believe that its continued investments in cloud, hardware, machine learning and other technologies will reinforce its competitive position and add value for the broader ecosystem of advertisers, application developers, business partners and consumers
Copart has reported strong results despite the negative effect COVID-19 has had on miles driven and salvage volume. Accident frequency and total loss frequency have increased during this period, as insurance carriers are choosing to “total” cars with lesser damage than before. Average selling prices at auction have increased as Copart leveraged its growing international base of buyers and its inventory of newer cars with less damage.
Zoetis has performed well as growth in the companion animal and non-U.S. production animal businesses offset weakness in the U.S. livestock market. The U.S. livestock business was pressured by supply chain disruptions caused by reduced animal processing capacity as well as the pandemic-driven shift from restaurants and foodservice to in-home consumption. We view animal health as a very attractive market, with demographic trends supporting attractive long-term growth.
The largest detractors from the Fund’s performance in fiscal 2020 were Lloyds Banking Group, Anheuser Busch Inbev, Fairfax Financial and Diageo. Diageo’s shares were under pressure during the fiscal year due to closures of bars and restaurants globally and restrictions on social gatherings of all sizes. Revenues will be adversely impacted while these measures are in place; however, the declines have been offset in some markets, particularly the United States, by increased purchases of spirits and beer for at-home consumption. In our view, Diageo is a fundamentally strong businesses with sustainable competitive advantages and structural growth dynamics and has demonstrated relative resiliency and maintained attractive levels of profitability, returns, and cash flow during previous recessionary periods. We expect a similar pattern once restrictions are lifted.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 5 |
BBH GLOBAL CORE SELECT
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
As of October 31, 2020, Global Core Select held positions in 33 companies, with approximately 44% of the assets in our ten largest holdings and our cash position was approximately 1.9%.
The Global Core Select investment team remains focused on the careful and patient application of our investment criteria and valuation requirements in all markets around the world. Our bottom-up research work emphasizes business quality, industry structure, growth opportunities, management skill, and corporate culture. We use absolute rather than relative methods to estimate companies’ intrinsic values, and we use the movement of market prices around these intrinsic value estimates to construct and manage a concentrated portfolio of high-quality businesses that each have the potential to create substantial shareholder value over many years.
________________
Portfolio holdings are subject to change. |
6
BBH GLOBAL CORE SELECT
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
GROWTH OF $10,000 INVESTED IN BBH GLOBAL CORE SELECT
The graph below illustrates the hypothetical investment of $10,0001 in the Class N shares of the Fund since inception, (March 28, 2013) to October 31, 2020 as compared to the MSCI World Index.
The annualized gross expense ratios as in the February 28, 2020 prospectus for Class N and Retail Class shares were 1.52% and 4.05%, respectively. The annualized gross expense ratios for the year ended 10/31/2020 for Class N and Retail Class shares were 1.62% and 4.66%, respectively.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Fund performance changes over time and current performance may be lower or higher than what is stated. Fund shares redeemed within 30 days of purchase are subject to a redemption fee of 2.00%. Returns do not reflect the deductions of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. For performance current to the most recent month-end please call 1-800-575-1265.
Hypothetical performance results are calculated on a total return basis and include all portfolio income, unrealized and realized capital gains, losses and reinvestment of dividends and other earnings. No one shareholder has actually achieved these results and no representation is being made that any actual shareholder achieved, or is likely to achieve, similar results to those shown. Hypothetical performance does not represent actual trading and may not reflect the impact of material economic and market factors. Undue reliance should not be placed on hypothetical performance results in making an investment decision.
________________
1 | The Fund’s performance assumes the reinvestment of all dividends and distributions. The MSCI World Index has been adjusted to reflect reinvestment of dividends on securities. The MSCI World Index is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the is unmanaged. The Fund’s holdings are materially different than the composition of the index. Investments cannot be made in an index. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 7 |
BBH GLOBAL CORE SELECT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of the BBH Trust and Shareholders of BBH Global Core Select:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of BBH Global Core Select (the “Fund”), one of the funds within BBH Trust, as of October 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2020, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the BBH Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the BBH Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The BBH Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the BBH Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 21, 2020
We have served as the auditor of one or more Brown Brothers Harriman investment companies since 1991.
8
BBH GLOBAL CORE SELECT
PORTFOLIO ALLOCATION
October 31, 2020
COUNTRY DIVERSIFICATION
U.S. $ Value | Percent of Net Assets | ||||||
Common Stock: | |||||||
Canada | $ | 2,591,891 | 5.2 | % | |||
Finland | 672,012 | 1.3 | |||||
France | 1,808,853 | 3.6 | |||||
Germany | 4,189,423 | 8.4 | |||||
Ireland | 1,944,280 | 3.9 | |||||
Japan | 1,138,506 | 2.3 | |||||
Netherlands | 2,551,028 | 5.0 | |||||
Sweden | 645,118 | 1.3 | |||||
Switzerland | 4,715,746 | 9.3 | |||||
United Kingdom | 5,242,245 | 10.5 | |||||
United States | 23,904,654 | 47.4 | |||||
Cash and Other Assets in Excess of Liabilities | 926,306 | 1.8 | |||||
NET ASSETS | $ | 50,330,062 | 100.0 | % |
All data as of October 31, 2020. The Fund’s country diversification is expressed as a percentage of net assets and may vary over time. The Fund’s country diversification is based on the respective security’s country of incorporation.
SECTOR DIVERSIFICATION
U.S. $ Value | Percent of Net Assets | ||||||
Common Stock: | |||||||
Basic Materials | $ | 5,264,325 | 10.5 | % | |||
Communications | 5,707,504 | 11.3 | |||||
Consumer Cyclical | 9,361,241 | 18.6 | |||||
Consumer Non-Cyclical | 20,413,746 | 40.6 | |||||
Financials | 5,394,917 | 10.7 | |||||
Industrials | 1,317,130 | 2.6 | |||||
Technology | 1,944,893 | 3.9 | |||||
Cash and Other Assets in Excess of Liabilities | 926,306 | 1.8 | |||||
NET ASSETS | $ | 50,330,062 | 100.0 | % |
All data as of October 31, 2020. The Fund's sector diversification is expressed as a percentage of net assets and may vary over time.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 9 |
BBH GLOBAL CORE SELECT
PORTFOLIO OF INVESTMENTS
October 31, 2020
Shares | Value | |||||
COMMON STOCK (98.2%) | ||||||
CANADA (5.2%) | ||||||
CONSUMER CYCLICAL | ||||||
58,411 | Alimentation Couche-Tard, Inc. (Class B) | $ | 1,798,307 | |||
FINANCIALS | ||||||
7,685 | Intact Financial Corp. | 793,584 | ||||
| Total Canada | 2,591,891 | ||||
| FINLAND (1.3%) | |||||
INDUSTRIALS | ||||||
8,435 | Kone Oyj (Class B) | 672,012 | ||||
Total Finland | 672,012 | |||||
| FRANCE (3.6%) | |||||
CONSUMER NON-CYCLICAL | ||||||
82,034 | Bureau Veritas S.A. | 1,808,853 | ||||
Total France | 1,808,853 | |||||
| GERMANY (8.4%) | |||||
BASIC MATERIALS | ||||||
45,171 | Fuchs Petrolub SE | 1,737,943 | ||||
FINANCIALS | ||||||
9,602 | Deutsche Boerse AG | 1,414,278 | ||||
TECHNOLOGY | ||||||
9,726 | SAP SE | 1,037,202 | ||||
Total Germany | 4,189,423 | |||||
IRELAND (3.9%) | ||||||
BASIC MATERIALS | ||||||
8,824 | Linde, Plc. | 1,944,280 | ||||
| Total Ireland | 1,944,280 | ||||
| JAPAN (2.3%) | |||||
CONSUMER NON-CYCLICAL | ||||||
18,358 | Shiseido Co., Ltd. | 1,138,506 | ||||
| Total Japan | 1,138,506 | ||||
| NETHERLANDS (5.0%) | |||||
CONSUMER NON-CYCLICAL | ||||||
117,991 | Davide Campari-Milano NV | 1,231,544 | ||||
17,057 | Heineken Holding NV | 1,319,484 | ||||
| Total Netherlands | 2,551,028 |
The accompanying notes are an integral part of these financial statements.
10
BBH GLOBAL CORE SELECT
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Shares | Value | |||||
COMMON STOCK (continued) | ||||||
SWEDEN (1.3%) | ||||||
INDUSTRIALS | ||||||
30,026 | Assa Abloy AB (Class B) | $ | 645,118 | |||
Total Sweden | 645,118 | |||||
| SWITZERLAND (9.3%) | |||||
CONSUMER NON-CYCLICAL | ||||||
36,537 | Alcon, Inc.1 | 2,073,641 | ||||
11,773 | Nestle S.A. | 1,323,675 | ||||
16,881 | Novartis AG | 1,318,430 | ||||
| Total Switzerland | 4,715,746 | ||||
| UNITED KINGDOM (10.5%) | |||||
CONSUMER CYCLICAL | ||||||
27,540 | InterContinental Hotels Group, Plc. | 1,391,517 | ||||
CONSUMER NON-CYCLICAL | ||||||
66,932 | Diageo, Plc. | 2,161,227 | ||||
19,208 | Reckitt Benckiser Group, Plc. | 1,689,501 | ||||
3,850,728 | ||||||
Total United Kingdom | 5,242,245 | |||||
| UNITED STATES (47.4%) | |||||
BASIC MATERIALS | ||||||
13,938 | Celanese Corp. (Series A) | 1,582,102 | ||||
COMMUNICATIONS | ||||||
1,936 | Alphabet, Inc. (Class C)1 | 3,138,275 | ||||
571 | Amazon.com, Inc.1 | 1,733,642 | ||||
515 | Booking Holdings, Inc.1 | 835,587 | ||||
5,707,504 | ||||||
CONSUMER CYCLICAL | ||||||
24,206 | Copart, Inc.1 | 2,671,374 | ||||
3,445 | Costco Wholesale Corp. | 1,232,001 | ||||
12,373 | NIKE, Inc. (Class B) | 1,485,750 | ||||
8,996 | Starbucks Corp. | 782,292 | ||||
6,171,417 | ||||||
CONSUMER NON-CYCLICAL | ||||||
14,458 | Colgate-Palmolive Co. | 1,140,592 | ||||
5,696 | FleetCor Technologies, Inc.1 | 1,258,303 | ||||
21,419 | Henry Schein, Inc.1 | 1,361,820 | ||||
16,324 | Zoetis, Inc. (Class A) | 2,588,170 | ||||
6,348,885 |
The accompanying notes are an integral part of these financial statements
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 11 |
BBH GLOBAL CORE SELECT
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Shares | Value | |||||
COMMON STOCK (continued) | ||||||
UNITED STATES (continued) | ||||||
FINANCIALS | ||||||
7,695 | Mastercard, Inc. (Class A) | $ | 2,221,085 | |||
5,316 | Visa, Inc. (Class A) | 965,970 | ||||
3,187,055 | ||||||
TECHNOLOGY | ||||||
16,177 | Oracle Corp. | 907,691 | ||||
| Total United States | 23,904,654 | ||||
| Total Common Stock (Cost $35,765,682) | 49,403,756 |
TOTAL INVESTMENTS (Cost $35,765,682)2 | 98.2 | % | $ | 49,403,756 | |||
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES | 1.8 | % | 926,306 | ||||
NET ASSETS | 100.00 | % | $ | 50,330,062 |
________________
1 | Non-income producing security. |
2 | The aggregate cost for federal income tax purposes is $35,832,073, the aggregate gross unrealized appreciation is $14,835,470 and the aggregate gross unrealized depreciation is $1,263,787, resulting in net unrealized appreciation of $13,571,683. |
The Fund’s country diversification is based on the respective security’s country of incorporation. |
The accompanying notes are an integral part of these financial statements.
12
BBH GLOBAL CORE SELECT
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
FAIR VALUE MEASUREMENTS
The Fund is required to disclose information regarding the fair value measurements of the Fund’s assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The disclosure requirement established a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the Fund’s own considerations about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
Authoritative guidance establishes three levels of the fair value hierarchy as follows:
— | Level 1 – unadjusted quoted prices in active markets for identical assets and liabilities. |
— | Level 2 – significant other observable inputs (including quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk, etc.). |
— | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of assets and liabilities). |
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires judgment by the investment adviser. The investment adviser considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the investment adviser’s perceived risk of that instrument.
Financial assets within Level 1 are based on quoted market prices in active markets. The Fund does not adjust the quoted price for these instruments.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 13 |
BBH GLOBAL CORE SELECT
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include investment-grade corporate bonds, U.S. Treasury notes and bonds, and certain non-U.S. sovereign obligations, listed equities and over-the-counter derivatives and foreign equity securities whose values could be impacted by events occurring before the Fund’s pricing time, but after the close of the securities’ primary markets and are, therefore, fair valued according to procedures adopted by the Board of Trustees. As Level 2 financial assets include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Financial assets classified within Level 3 have significant unobservable inputs, as they trade infrequently. Level 3 financial assets include private equity and certain corporate debt securities.
Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon the actual sale of those investments.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2020.
Investments, at value | Unadjusted Quoted Prices in Active Markets for Identical Investments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of October 31, 2020 | |||||||||||||||
Common Stock: | |||||||||||||||||||
Basic Materials | $ | 3,526,382 | $ | 1,737,943 | $ | — | $ | 5,264,325 | |||||||||||
Communications | 5,707,504 | – | — | 5,707,504 | |||||||||||||||
Consumer Cyclical | 7,969,724 | 1,391,517 | — | 9,361,241 | |||||||||||||||
Consumer Non-Cyclical | 6,348,885 | 14,064,861 | — | 20,413,746 | |||||||||||||||
Financials | 3,980,639 | 1,414,278 | — | 5,394,917 | |||||||||||||||
Industrials | — | 1,317,130 | — | 1,317,130 | |||||||||||||||
Technology | 907,691 | 1,037,202 | — | 1,944,893 | |||||||||||||||
Investments, at value | $ | 28,440,825 | $ | 20,962,931 | $ | — | $ | 49,403,756 |
The accompanying notes are an integral part of these financial statements.
14
BBH GLOBAL CORE SELECT
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2020
ASSETS: | |||||
Investments in securities, at value (Cost $35,765,682) | $ | 49,403,756 | |||
Cash | 947,098 | ||||
Foreign currency at value (Identified cost $60) | 61 | ||||
Receivables for: | |||||
Dividends | 93,348 | ||||
Investment advisory and administrative fee waiver reimbursement | 19,337 | ||||
Interest | 43 | ||||
Prepaid assets | 42 | ||||
Total Assets | 50,463,685 | ||||
LIABILITIES: | |||||
Payables for: | |||||
Professional fees | 63,576 | ||||
Investment advisory and administrative fees | 42,635 | ||||
Shareholder servicing fees | 8,976 | ||||
Custody and fund accounting fees | 6,905 | ||||
Transfer agent fees | 3,396 | ||||
Distribution fees | 228 | ||||
Accrued expenses and other liabilities | 7,907 | ||||
Total Liabilities | 133,623 | ||||
NET ASSETS | $ | 50,330,062 | |||
Net Assets Consist of: | |||||
Paid-in capital | $ | 36,528,421 | |||
Retained earnings | 13,801,641 | ||||
Net Assets | $ | 50,330,062 | |||
NET ASSET VALUE AND OFFERING PRICE PER SHARE | |||||
CLASS N SHARES | |||||
($49,306,626 ÷ 4,416,760 shares outstanding) | $11.16 | ||||
RETAIL CLASS SHARES | |||||
($1,023,436 ÷ 92,267 shares outstanding) | $11.09 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 15 |
BBH GLOBAL CORE SELECT
STATEMENT OF OPERATIONS
For the year ended October 31, 2020
NET INVESTMENT INCOME: | ||||
Income: | ||||
Dividends (net of foreign withholding taxes of $127,790) | $ | 541,977 | ||
Interest income | 6,792 | |||
Total Income | 548,769 | |||
Expenses: | ||||
Investment advisory and administrative fees | 493,719 | |||
Shareholder servicing fees | 103,941 | |||
Professional fees | 75,421 | |||
Board of Trustees’ fees | 58,282 | |||
Transfer agent fees | 40,160 | |||
Registration fees | 33,493 | |||
Custody and fund accounting fees | 32,176 | |||
Distribution fees | 2,728 | |||
Miscellaneous expenses | 33,811 | |||
Total Expenses | 873,731 | |||
Investment advisory and administrative fee waiver | (221,865 | ) | ||
Net Expenses | 651,866 | |||
Net Investment Loss | (103,097 | ) | ||
NET REALIZED AND UNREALIZED LOSS: | ||||
Net realized gain on investments in securities | 441,824 | |||
Net realized gain on foreign exchange transactions | 13,519 | |||
Net realized gain on investments in securities and foreign exchange transactions and translations | 455,343 | |||
Net change in unrealized appreciation/(depreciation) on investments in securities | (963,860 | ) | ||
Net change in unrealized appreciation/(depreciation) on foreign currency translations | 5,288 | |||
Net change in unrealized appreciation/(depreciation) on investments in securities and foreign currency translations. | (958,572 | ) | ||
Net Realized and Unrealized Loss | (503,229 | ) | ||
Net Decrease in Net Assets Resulting from Operations | $ | (606,326 | ) |
The accompanying notes are an integral part of these financial statements.
16
BBH GLOBAL CORE SELECT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended October 31, | ||||||||
2020 | 2019 | |||||||
INCREASE (DECREASE) IN NET ASSETS: | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (103,097 | ) | $ | 203,837 | |||
Net realized gain on investments in securities and foreign exchange transactions and translations | 455,343 | 7,014,367 | ||||||
Net change in unrealized appreciation/(depreciation) on investments in securities and foreign currency translations | (958,572 | ) | (1,466,836 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (606,326 | ) | 5,751,368 | |||||
Dividends and distributions declared: | ||||||||
Class N | (5,890,570 | ) | (8,731,749 | ) | ||||
Retail Class | (128,001 | ) | (191,903 | ) | ||||
Total dividends and distributions declared | (6,018,571 | ) | (8,923,652 | ) | ||||
Share transactions: | ||||||||
Proceeds from sales of shares1 | 3,297,716 | 2,956,006 | ||||||
Net asset value of shares issued to shareholders for reinvestment of dividends and distributions | 4,610,016 | 6,665,681 | ||||||
Proceeds from short-term redemption fees | – | 119 | ||||||
Cost of shares redeemed1 | (7,258,228 | ) | (38,176,915 | ) | ||||
Net increase/(decrease) in net assets resulting from share transactions. | 649,504 | (28,555,109 | ) | |||||
Total decrease in net assets | (5,975,393 | ) | (31,727,393 | ) | ||||
NET ASSETS: | ||||||||
Beginning of year | 56,305,455 | 88,032,848 | ||||||
End of year | $ | 50,330,062 | $ | 56,305,455 |
________________
1 | Includes share exchanges. See Note 5 in Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 17 |
BBH GLOBAL CORE SELECT
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a Class N share outstanding throughout each year.
For the years ended October 31, | ||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
Net asset value, beginning of year | $ | 12.69 | $ | 12.88 | $ | 13.32 | $ | 11.11 | $ | 11.37 | ||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income (loss)1 | (0.02 | ) | 0.04 | 0.07 | 0.05 | 0.06 | ||||||||||||||
Net realized and unrealized gain (loss) | (0.15 | ) | 1.35 | (0.21 | ) | 2.22 | (0.18 | ) | ||||||||||||
Total income (loss) from investment operations | (0.17 | ) | 1.39 | (0.14 | ) | 2.27 | (0.12 | ) | ||||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.04 | ) | (0.08 | ) | (0.05 | ) | (0.06 | ) | (0.07 | ) | ||||||||||
From net realized gains | (1.32 | ) | (1.50 | ) | (0.25 | ) | — | (0.07 | ) | |||||||||||
Total dividends and distributions | (1.36 | ) | (1.58 | ) | (0.30 | ) | (0.06 | ) | (0.14 | ) | ||||||||||
Short-term redemption fees1 | — | 0.00 | 2 | — | — | 0.00 | 2 | |||||||||||||
Net asset value, end of year | $ | 11.16 | $ | 12.69 | $ | 12.88 | $ | 13.32 | $ | 11.11 | ||||||||||
Total return | (1.95 | )% | 13.10 | % | (1.11 | )% | 20.54 | % | (1.06 | )% | ||||||||||
Ratios/Supplemental data: | ||||||||||||||||||||
Net assets, end of year (in millions) | $ | 49 | $ | 55 | $ | 86 | $ | 130 | $ | 108 | ||||||||||
Ratio of expenses to average net assets before reductions | 1.62 | % | 1.52 | % | 1.33 | % | 1.36 | % | 1.38 | % | ||||||||||
Fee waiver | 0.37 | %3 | 0.25 | %3 | 0.05 | %3 | 0.10 | %3 | 0.13 | %3 | ||||||||||
Expense offset arrangement | – | % | 0.02 | % | 0.03 | % | 0.01 | % | 0.01 | % | ||||||||||
Ratio of expenses to average net assets after reductions | 1.25 | % | 1.25 | % | 1.25 | % | 1.25 | % | 1.24 | % | ||||||||||
Ratio of net investment income to average net assets | (0.19 | )% | 0.34 | % | 0.52 | % | 0.44 | % | 0.58 | % | ||||||||||
Portfolio turnover rate | 29 | % | 24 | % | 19 | % | 23 | % | 19 | % |
________________
1 | Calculated using average shares outstanding for the year. |
2 | Less than $0.01. |
3 | The ratio of expenses to average net assets for the years ended October 31, 2020, 2019, 2018, 2017 and 2016 reflect fees reduced as result of a contractual operating expense limitation of the share class of 1.25%. The agreement is effective for all years presented and is effective through March 1, 2021. For the years ended October 31, 2020, 2019, 2018, 2017 and 2016, the waived fees were $187,390, $148,510, $70,117, $110,626 and $146,074, respectively. |
The accompanying notes are an integral part of these financial statements.
18
BBH GLOBAL CORE SELECT
FINANCIAL HIGHLIGHTS (continued)
Selected per share data and ratios for a Retail Class share outstanding throughout each year.
For the years ended October 31, | ||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
Net asset value, beginning of year | $ | 12.61 | $ | 12.81 | $ | 13.24 | $ | 11.05 | $ | 11.31 | ||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income (loss)1 | (0.05 | ) | 0.01 | 0.02 | 0.02 | 0.04 | ||||||||||||||
Net realized and unrealized gain (loss) | (0.14 | ) | 1.34 | (0.18 | ) | 2.20 | (0.18 | ) | ||||||||||||
Total income (loss) from investment operations | (0.19 | ) | 1.35 | (0.16 | ) | 2.22 | (0.14 | ) | ||||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.01 | ) | (0.05 | ) | (0.02 | ) | (0.03 | ) | (0.05 | ) | ||||||||||
From net realized gains | (1.32 | ) | (1.50 | ) | (0.25 | ) | — | (0.07 | ) | |||||||||||
Total dividends and distributions | (1.33 | ) | (1.55 | ) | (0.27 | ) | (0.03 | ) | (0.12 | ) | ||||||||||
Short-term redemption fees1 | — | — | — | — | — | |||||||||||||||
Net asset value, end of year | $ | 11.09 | $ | 12.61 | $ | 12.81 | $ | 13.24 | $ | 11.05 | ||||||||||
Total return | (2.19 | )% | 12.78 | % | (1.26 | )% | 20.18 | % | (1.25 | )% | ||||||||||
Ratios/Supplemental data: | ||||||||||||||||||||
Net assets, end of year (in millions) | $ | 1 | $ | 1 | $ | 2 | $ | 4 | $ | 4 | ||||||||||
Ratio of expenses to average net assets before reductions | 4.66 | % | 4.05 | % | 2.94 | % | 2.44 | % | 2.65 | % | ||||||||||
Fee waiver | 3.16 | %2 | 2.53 | %2 | 1.45 | %2 | 0.93 | %2 | 1.14 | %2 | ||||||||||
Expense offset arrangement | — | % | 0.02 | % | 0.02 | % | 0.01 | % | 0.01 | % | ||||||||||
Ratio of expenses to average net assets after reductions | 1.50 | % | 1.50 | % | 1.47 | % | 1.50 | % | 1.50 | % | ||||||||||
Ratio of net investment income to average net assets | (0.45 | )% | 0.11 | % | 0.13 | % | 0.20 | % | 0.32 | % | ||||||||||
Portfolio turnover rate | 29 | % | 24 | % | 19 | % | 23 | % | 19 | % |
________________
1 | Calculated using average shares outstanding for the year. |
2 | The ratio of expenses to average net assets for the years ended October 31, 2020, 2019, 2018, 2017 and 2016 reflect fees reduced as result of a contractual operating expense limitation of the share class of 1.50%. The agreement is effective for all years presented and is effective through March 1, 2021. For the years ended October 31, 2020, 2019, 2018, 2017 and 2016, the waived fees were $34,475, $34,567, $32,231, $35,288 and $40,663, respectively. |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 19 |
BBH GLOBAL CORE SELECT
NOTES TO FINANCIAL STATEMENTS
October 31, 2020
1.Organization. The Fund is a separate, non-diversified series of BBH Trust (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The investment objective of the Fund is to provide investors with long-term growth of capital. The Trust was originally organized under the laws of the State of Maryland on July 16, 1990 as BBH Fund, Inc. and re-organized as a Delaware statutory trust on June 12, 2007. The Fund is the successor to the BBH private investment fund, BBH Global Funds, LLC — Global Core Select, which launched on April 2, 2012. The fund commenced operations on March 28, 2013 and offers two share classes, Class N and Retail Class. Neither Class N shares nor Retail Class shares automatically convert to any other class of shares of the Fund. The investment objective of the Fund is to provide investors with long-term growth of capital. As of October 31, 2020 there were seven series of the Trust.
2.Significant Accounting Policies. The Fund’s financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”). The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services — Investment Companies. The following summarizes significant accounting policies of the Fund:
A.Valuation of Investments. (1) The value of investments listed on a securities exchange is based on the last sale price on that exchange prior to the time when assets are valued, or in the absence of recorded sales, at the average of readily available closing bid and asked prices on such exchange; (2) securities not traded on an exchange are valued at the average of the quoted bid and asked prices in the over-the counter market; (3) securities or other assets for which market quotations are not readily available are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Board of Trustees (the “Board”); (4) for securities traded on international exchanges, if events which may affect the value of the Fund’s securities occur after the close of the primary exchange on which such securities trade and before the Fund’s net asset value is next determined, then those securities will be fair valued as determined in good faith under supervision of the Board. The Fund currently uses a systematic fair value model provided by an independent third party to adjust the observed values of international securities on a daily basis; (5) short-term investments, which mature in 60 days or less are valued at amortized cost if their original maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if their original maturity when acquired by the Fund was more than 60 days, unless the use of amortized cost is determined not to represent “fair value” by the Board.
B.Accounting for Investments and Income. Investment transactions are accounted for on the trade date. Realized gains and losses on investment transactions are determined based on the identified cost method. Dividend income and other distributions received from portfolio securities are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of securities received at ex-date. Distributions received on securities that represent a return of capital are recorded as a reduction of cost of investments. Distributions received on securities
20
BBH GLOBAL CORE SELECT
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
that represent a capital gain are recorded as a realized gain. Interest income is accrued daily. Investment income is recorded net of any foreign taxes withheld where recovery of such tax is uncertain.
C.Fund Expenses. Most expenses of the Trust can be directly attributed to a specific fund. Expenses which cannot be directly attributed to a fund are generally apportioned among each fund in the Trust on a net assets basis or other suitable method. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
D.Repurchase Agreements. The Fund may enter into repurchase agreements. Repurchase agreements are transactions in which the Fund buys a security from a dealer or bank and agrees to sell the security back at a mutually agreed upon time and price. The repurchase price normally is in excess of the purchase price, reflecting an agreed upon interest rate. The rate is effective for the period of time that assets of the Fund are invested in the agreement and is not related to the coupon rate on the underlying security. The Fund will enter into repurchase agreements only with banks and other recognized financial institutions, such as securities dealers, deemed creditworthy by the investment adviser. The Fund’s custodian or sub-custodian will take possession of the securities subject to repurchase agreements. The investment adviser, custodian or sub-custodian will monitor the value of the underlying collateral each day to ensure that the value of the security always equals or exceeds the repurchase price.
Repurchase agreements are entered into by the Fund under Master Repurchase Agreements (“MRA”) which permit the Fund, under certain circumstances including an event of default (such as bankruptcy or insolvency), to offset payables and/or receivables under the MRA with collateral held and/or posted to the counterparty and create one single net payment due to or from the Fund. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of the MRA counterparty’s bankruptcy or insolvency. Lastly, the MRA does not preclude the Fund from selling, transferring, pledging or hypothecating the underlying collateral but no such transaction shall relieve the Fund of its obligation to transfer the collateral to the counterparty upon the latter’s repurchase of the securities.
The Fund’s repurchase agreements are disclosed on a gross basis and information related to collateral, which could be offset in event of default, are shown in the Portfolio of Investments.
E.Forward Foreign Currency Exchange Contracts. The Fund may enter into forward foreign currency exchange contracts (“Contracts”) in connection with planned purchases or sales of securities to economically hedge the U.S. dollar value of securities denominated in a particular currency, or to increase or shift its exposure to a currency other than U.S. dollars. The Fund has no specific limitation on the percentage of assets which may be committed to these types of Contracts. The Fund could be exposed to risks if the counterparties to the Contracts are unable to meet the terms of their Contracts or if the value of the foreign currency changes unfavorably. The U.S. dollar values of foreign currency
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 21 |
BBH GLOBAL CORE SELECT
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
underlying all contractual commitments held by the Fund are determined using forward foreign currency exchange rates supplied by a quotation service. During the year ended October 31, 2020, the Fund had no open contracts.
F.Foreign Currency Translations. The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange of such currency against the U.S. dollar to determine the value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. Upon the purchase or sale of a security denominated in foreign currency, the Fund may enter into forward foreign currency exchange contracts for the purchase or sale, for a fixed amount of U.S. dollars, of the amount of foreign currency involved in the underlying security transaction. Reported net realized gains and losses arise from the sales of portfolio securities, sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. The effect of changes in foreign exchange rates on foreign denominated securities is reflected in the net realized and unrealized gain or loss on investments in securities and foreign exchange transactions and translations and net change in unrealized appreciation or depreciation on investments in securities and foreign currency translations within the Statement of Operations. Net unrealized appreciation or depreciation on foreign currency translations arise from changes in the value of the assets and liabilities, excluding investments in securities, at period end, resulting from changes in the exchange rate.
G.Federal Income Taxes. The Fund may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries, as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests.
Realized gains in certain countries may be subject to foreign taxes at the Fund level, based on statutory rates. The Fund accrues for such foreign taxes on net realized and unrealized gains at the appropriate rate for each jurisdiction, as applicable. The amount, if any, is disclosed as a liability in the Statement of Assets and Liabilities and as an expense in the Statement of Operations.
It is the Trust’s policy to comply with the requirements of the Internal Revenue Code (the “Code”) applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. The Fund files a tax return annually using tax accounting methods required under provisions of the Code, which may differ from GAAP, which is the basis on which these financial statements are prepared. Accordingly, the amount of net investment income and net realized gain reported in these financial statements may differ from that reported on the Fund’s tax return, due to certain book-to-tax timing differences such as losses deferred due to “wash sale” transactions and utilization of capital loss carryforwards. These
22
BBH GLOBAL CORE SELECT
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
differences may result in temporary over-distributions for financial statement purposes and are classified as distributions in excess of accumulated net realized gains or net investment income. These distributions do not constitute a return of capital. Permanent differences are reclassified between paid-in capital and retained earnings/(accumulated deficit) within the Statement of Assets and Liabilities based upon their tax classification. As such, the character of distributions to shareholders reported in the Financial Highlights table may differ from that reported to shareholders on Form 1099-DIV.
The Fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes (“ASC 740”). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The Fund did not have any unrecognized tax benefits as of October 31, 2020, nor were there any increases or decreases in unrecognized tax benefits for the year then ended. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as an income tax expense in the Statement of Operations. During the year ended October 31, 2020, the Fund did not incur any such interest or penalties. The Fund is subject to examination by U.S. federal and state tax authorities for returns filed for the prior three years. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
H.Dividends and Distributions to Shareholders. Dividends and distributions from net investment income to shareholders, if any, are paid annually and are recorded on the ex-dividend date. Distributions from net capital gains, if any, are generally declared and paid annually and are recorded on the ex-dividend date. The Fund declared dividends and distributions in the amount of $5,890,570 and $128,001 to Class N and Retail Class shareholders, respectively, during the year ended October 31, 2020. In addition, the Fund designated a portion of the payment made to redeeming shareholders as a distribution for income tax purposes.
The tax character of distributions paid during the years ended October 31, 2020 and 2019 was as follows:
Distributions paid from: | |||||||||||||||||||||||||
Ordinary income | Net long-term capital gain | Total taxable distributions | Tax return of capital | Total distributions paid | |||||||||||||||||||||
2020: | $ | 193,139 | $ | 5,825,432 | $ | 6,018,571 | $ | — | $ | 6,018,571 | |||||||||||||||
2019: | 423,530 | 8,500,122 | 8,923,652 | — | 8,923,652 |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 23 |
BBH GLOBAL CORE SELECT
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
As of October 31, 2020 and 2019 respectively, the components of retained earnings/(accumulated deficit) were as follows:
Components of retained earnings/(accumulated deficit): | |||||||||||||||||||||||||||||||||
Undistributed ordinary income | Undistributed long-term capital gain | Retained earnings/ (accumulated deficit) | Accumulated capital and other losses | Other book/tax temporary differences | Unrealized appreciation/ (depreciation) | Total retained earnings/ (accumulated deficit) | |||||||||||||||||||||||||||
2020: | $ | — | $ | 227,277 | $ | 227,277 | $ | — | $ | (66,391 | ) | $ | 13,640,755 | $ | 13,801,641 | ||||||||||||||||||
2019: | 193,099 | 5,825,288 | 6,018,387 | — | (159,446 | ) | 14,599,327 | 20,458,268 |
The Fund did not have a net capital loss carryforward at October 31, 2020.
The Fund is permitted to carryforward capital losses for an unlimited period and they will retain their character as either short-term or long-term capital losses rather than being considered all short-term capital losses.
Total distributions paid may differ from amounts reported in the Statements of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid.
The differences between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales.
To the extent future capital gains are offset by capital loss carryforwards, if any, such gains will not be distributed.
I.Use of Estimates. The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increase and decrease in net assets from operations during the reporting period. Actual results could differ from these estimates.
3.Fees and Other Transactions with Affiliates.
A.Investment Advisory and Administrative Fees. Under a combined Investment Advisory and Administrative Services Agreement (“Agreement”) with the Trust, Brown Brothers Harriman & Co. (“BBH”) through a separately identifiable department (“SID” or “Investment Adviser”) provides investment advisory, portfolio management and administrative services to the Fund. The Fund pays a combined fee for investment advisory and administrative services calculated daily and paid monthly at an annual rate equivalent to 0.95% on the first $3 billion of the Fund’s average daily net assets and 0.90% per annum on the Fund’s average daily net assets over $3 billion. For the year ended October 31, 2020, the Fund incurred $493,719 under the Agreement.
24
BBH GLOBAL CORE SELECT
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
B.Investment Advisory and Administrative Fee Waivers. Effective March 28, 2013, the Investment Adviser contractually agreed to limit the annual Fund operating expenses (excluding interest, taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP, other extraordinary expenses not incurred in the ordinary course of the Fund’s business and for Retail Class, amounts payable pursuant to any plan adopted in accordance with Rule 12b-1) of Class N and Retail Class to 1.25%. The agreement will terminate on March 1, 2020, unless it is renewed by all parties to the agreement. The agreement may only be terminated during its term with approval of the Fund’s Board of Trustees. For the year ended October 31, 2020, the Investment Adviser waived fees in the amount of $187,390 and $34,475 for Class N and Retail Class, respectively.
C.Shareholder Servicing Fees. The Trust has a shareholder servicing agreement with BBH. BBH receives a fee from the Fund calculated daily and paid monthly at an annual rate of 0.20% of Class N and Retail Class shares’ average daily net assets. For the year ended October 31, 2020, the Fund incurred shareholder servicing fees in the amount of $101,758 and $2,183 for Class N and Retail Class, respectively.
D.Distribution (12b-1) Fees. The Fund has adopted a distribution plan pursuant to Rule 12b-1 for Retail Class shares that allows the Fund to pay distribution and other fees for the sale of its shares and for distribution-related services provided to shareholders. Because these fees are paid out of the Fund’s assets continuously, over time these fees will increase the cost of investment in Retail Class shares and may cost the shareholder more than paying other types of sales charges. The maximum annual distribution fee for Retail Class shares is 0.25% of the average daily net assets of the Retail Class shares of the Fund. With this agreement along with the investment advisory and waiver agreements above, it is anticipated that total operating expenses for Retail Class shares will be no greater than 1.50% of the average daily net assets. For the year ended October 31, 2020, Retail Class shares of the Fund incurred $2,728 for Distribution (12b-1) Fees. This amount is presented under line item “Distribution fees” in the Statement of Operations.
E.Custody and Fund Accounting Fees. BBH acts as a custodian and fund accountant and receives custody and fund accounting fees from the Fund calculated daily and incurred monthly. BBH holds all of the Fund’s cash and investments and calculates the Fund’s daily net asset value. The custody fee is an asset and transaction-based fee. The fund accounting fee is an asset-based fee calculated at 0.004% of the Fund’s net asset value. For the year ended October 31, 2020, the Fund incurred $32,176 in custody and fund accounting fees. As per agreement with the Fund’s custodian, the Fund received interest income on cash balances held by the custodian at the BBH Base Rate. The BBH Base Rate is defined as BBH’s effective trading rate in local money markets on each day. The total interest earned by the Fund for the year ended October 31, 2020 was $6,792. This amount is included in “Interest income” in the Statement of Operations. In the event that the Fund is overdrawn, under the custody agreement with BBH, BBH will make overnight loans to the Fund to cover overdrafts. Pursuant to their agreement, the Fund will pay the Federal Funds overnight investment rate on the day of the overdraft.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 25 |
BBH GLOBAL CORE SELECT
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
The total interest incurred by the Fund for the year ended October 31, 2020, was $0. This amount is included under line item “Custody and fund accounting fees” in the Statement of Operations.
F.Board of Trustees’ Fees. Each Trustee who is not an “interested person” as defined under the 1940 Act receives an annual fee as well as reimbursement for reasonable out-of-pocket expenses from the Fund. For the year ended October 31, 2020, the Fund incurred $58,282 in independent Trustee compensation and expense reimbursements.
G.Officers of the Trust. Officers of the Trust are also employees of BBH. Officers are paid no fees by the Trust for their services to the Trust.
4.Investment Transactions. For the year ended October 31, 2020, the cost of purchases and the proceeds of sales of investment securities, other than short-term investments, were $14,538,720 and $19,307,081, respectively.
5. Shares of Beneficial Interest. The Trust is permitted to issue an unlimited number of Class N and Retail Class shares of beneficial interest, at no par value. Transactions in Class N and Retail Class shares were as follows:
For the year ended October 31, 2020 | For the year ended October 31, 2019 | |||||||||||||||
Shares | Dollars | Shares | Dollars | |||||||||||||
Class N | ||||||||||||||||
Shares sold | 327,203 | $ | 3,218,841 | 253,310 | $ | 2,830,782 | ||||||||||
Shares issued in connection with reinvestments of dividends | 379,008 | 4,510,200 | 609,286 | 6,507,179 | ||||||||||||
Proceeds from short-term redemption fees | N/A | N/A | N/A | 119 | ||||||||||||
Shares redeemed | (631,663 | ) | (7,043,895 | ) | (3,216,458 | ) | (37,352,261 | ) | ||||||||
Net increase (decrease) | 74,548 | $ | 685,146 | (2,353,862 | ) | $ | (28,014,181 | ) | ||||||||
Retail Class | ||||||||||||||||
Shares sold | 7,315 | $ | 78,875 | 10,541 | $ | 125,224 | ||||||||||
Shares issued in connection with reinvestments of dividends | 8,430 | 99,816 | 14,897 | 158,502 | ||||||||||||
Shares redeemed | (18,728 | ) | (214,333 | ) | (67,645 | ) | (824,654 | ) | ||||||||
Net decrease | (2,983 | ) | $ | (35,642 | ) | (42,207 | ) | $ | (540,928 | ) |
Included in Shares sold and Shares redeemed are shareholder exchanges and during the year ended October 31, 2020, 561 shares of Retail Class were exchanged for 557 shares of Class N valued at $6,101.
26
BBH GLOBAL CORE SELECT
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
6. Principal Risk Factors and Indemnifications.
A. Principal Risk Factors. Investing in the Fund may involve certain risks, as discussed in the Fund’s prospectus, including but not limited to, those described below:
A shareholder may lose money by investing in the Fund (investment risk). The Fund is actively managed and the decisions by the Investment Adviser may cause the Fund to incur losses or miss profit opportunities (management risk). Price movements may occur due to factors affecting individual companies, such as the issuance of an unfavorable earnings report, or other events affecting particular industries or the equity market as a whole (equity securities risk). The value of securities held by the Fund may fall due to changing economic, political, regulatory or market conditions, or due to a company’s or issuer’s individual situation. Natural disasters, the spread of infectious illness and other public health emergencies, recession, terrorism and other unforeseeable events may lead to increased market volatility and may have adverse effects on world economies and markets generally (market risk). Stocks of medium-sized companies tend to be more volatile and less liquid than stocks of large companies (medium-sized company risk). In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to assumption of large positions in securities of a small number of issuers (non-diversification risk). There are certain risks associated with investing in foreign securities not present in domestic investments, including, but not limited to, recovery of tax withheld by foreign jurisdictions (foreign investment risk), capital controls imposed by foreign governments in response to economic or political events that may impact the ability of the Fund to buy, sell or otherwise transfer securities or currency (capital controls risk), and risks from investing in securities of issuers based in developing countries (emerging markets risk). Non-U.S. currencies invested in by the Fund may depreciate against the U.S. dollar (currency exchange rate risk). The Fund’s shareholders may be adversely impacted by asset allocation decisions made by an investment adviser whose discretionary clients make up a large percentage of the Fund’s shareholders (shareholder concentration risk). The extent of the Fund’s exposure to these risks in respect to these financial assets is included in their value as recorded in the Fund’s Statement of Assets and Liabilities.
Please refer to the Fund’s prospectus for a complete description of the principal risks of investing in the Fund.
B. Indemnifications. Under the Trust’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Fund, and shareholders are indemnified against personal liability for the obligations of the Trust. Additionally, in the normal course of business, the Fund enters into agreements with service providers that may contain indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 27 |
BBH GLOBAL CORE SELECT
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
7.Significant Events. In the beginning of 2020, there was an outbreak of the novel corona virus (COVID 19) which has impacted the financial markets and the global economy as a whole. The outbreak of COVID 19 is still ongoing and the magnitude and impact on the financial markets is highly uncertain and cannot be predicted. The effect of this impact may adversely impact the future carrying value of investments and results of operations of the Fund.
There are no other significant events to report as they relate to the Fund.
8.Subsequent Events. Management has evaluated events and transactions that have occurred since October 31, 2020 through the date the financial statements were issued and determined that there were none that would require recognition or additional disclosure in the financial statements.
28
BBH GLOBAL CORE SELECT
DISCLOSURE OF FUND EXPENSES
October 31, 2020 (unaudited)
EXAMPLE
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested distributions, or other distributions; 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 an investment of $1,000 invested at the beginning of the period and held for the entire period (May 1, 2020 to October 31, 2020).
ACTUAL EXPENSES
The first line of the table below provides information about actual account values and actual expenses. You may use 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 the Period” to estimate the expenses you paid on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year 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 during the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% Hypothetical Example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 29 |
BBH GLOBAL CORE SELECT
DISCLOSURE OF FUND EXPENSES (continued)
October 31, 2020 (unaudited)
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 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. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period May 1, 2020 to October 31, 20201 | |||||||||||||
Class N | |||||||||||||||
Actual | $ | 1,000 | $ | 1,107 | $ | 6.61 | |||||||||
Hypothetical2 | $ | 1,000 | $ | 1,019 | $ | 6.33 |
Beginning Account Value May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period May 1, 2020 to October 31, 20201 | |||||||||||||
Retail Class | |||||||||||||||
Actual | $ | 1,000 | $ | 1,106 | $ | 7.93 | |||||||||
Hypothetical2 | $ | 1,000 | $ | 1,018 | $ | 7.60 |
________________
1 | Expenses are equal to the Fund’s annualized expense ratio of 1.25% and 1.50% for Class N and Retail Class shares, respectively, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
2 | Assumes a return of 5% before expenses. For the purposes of the calculation, the applicable annualized expenses ratio for each class of shares is subtracted from the assumed return before expenses. |
30
BBH GLOBAL CORE SELECT
CONFLICTS OF INTEREST
October 31, 2020 (unaudited)
Conflicts of Interest
BBH, including the Investment Adviser, provides discretionary and non-discretionary investment management services and products to corporations, institutions and individual investors throughout the world. As a result, in the ordinary course of its businesses, BBH, including the Investment Adviser, may engage in activities in which its interests or the interests of its clients may conflict with or be adverse to the interests of the Funds. In addition, certain of such clients (including the Funds) utilize the services of BBH for which they will pay to BBH customary fees and expenses that will not be shared with the Funds.
The Investment Adviser and the Sub-Adviser have adopted and implemented policies and procedures that seek to manage conflicts of interest. Pursuant to such policies and procedures, the Investment Adviser and the Sub-Adviser monitor a variety of areas, including compliance with fund investment guidelines, the investment in only those securities that have been approved for purchase, and compliance with their respective Code of Ethics.
The Trust also manages these conflicts of interest. For example, the Trust has designated a chief compliance officer (“CCO”) and has adopted and implemented policies and procedures designed to manage the conflicts identified below and other conflicts that may arise in the course of the Funds’ operations in such a way as to safeguard the Funds from being negatively affected as a result of any such potential conflicts. From time to time, the Trustees receive reports from the Investment Adviser, the Sub-Adviser and the Trust’s CCO on areas of potential conflict.
Investors should carefully review the following, which describes potential and actual conflicts of interest that BBH, the Investment Adviser and Sub-Adviser can face in the operation of their respective investment management services. This section is not, and is not intended to be, a complete enumeration or explanation of all of the potential conflicts of interest that may arise. The Investment Adviser, the Sub-Adviser and the Funds have adopted policies and procedures reasonably designed to appropriately prevent, limit or mitigate the conflicts of interest described below. Additional information about potential conflicts of interest regarding the Investment Adviser is set forth in the Investment Adviser’s Form ADV. A copy of Part 1 and Part 2A of the Investment Adviser’s Form ADV is available on the SEC’s website (www.adviserinfo.sec.gov). In addition, many of the activities that create these conflicts of interest are limited and/or prohibited by law, unless an exception is available.
Other Clients and Allocation of Investment Opportunities. BBH, the Investment Adviser, and the Sub-Adviser manage funds and accounts of clients other than the Funds (“Other Clients”). In general, BBH, the Investment Adviser, and the Sub-Adviser face conflicts of interest when they render investment advisory services to different clients and, from time to time, provide dissimilar investment advice to different clients. Investment decisions will not necessarily be made in parallel among the Funds and Other Clients. Investments made by the Funds do not, and are not intended to, replicate the investments, or the investment methods and strategies, of Other Clients. Accordingly, such Other Clients’ accounts may produce results that are materially different from those experienced by the Funds. Certain other conflicts of interest may arise in connection with a portfolio manager’s management of the Funds’ investments, on the one hand, and the investments of other funds or accounts for which the portfolio manager is responsible, on the other. For example, it is possible that the various funds or accounts managed by the Investment Adviser or Sub-Adviser
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 31 |
BBH GLOBAL CORE SELECT
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
could have different investment strategies that, at times, might conflict with one another to the possible detriment of the Funds. From time to time, the Investment Adviser and Sub-Adviser, sponsor and with other investment pools and accounts which engage in the same or similar businesses as the Funds using the same or similar investment strategies. To the extent that the same investment opportunities might be desirable for more than one account or fund, possible conflicts could arise in determining how to allocate them because the Investment Adviser or Sub-Adviser may have an incentive to allocate investment opportunities to certain accounts or funds. However, BBH and the Sub-adviser have implemented policies and procedures designed to ensure that information relevant to investment decisions is disseminated promptly within its portfolio management teams and investment opportunities are allocated equitably among different clients. The policies and procedures require, among other things, objective allocation for limited investment opportunities, and documentation and review of justifications for any decisions to make investments only for select accounts or in a manner disproportionate to the size of the account. Nevertheless, access to investment opportunities may be allocated differently among accounts due to the particular characteristics of an account, such as size of the account, cash position, tax status, risk tolerance and investment restrictions or for other reasons.
Actual or potential conflicts of interest may also arise when a portfolio manager has management responsibilities to multiple accounts or funds, resulting in unequal commitment of time and attention to the portfolio management of the funds or accounts.
Affiliated Service Providers. Other potential conflicts might include conflicts between the Funds and its affiliated and unaffiliated service providers (e.g. conflicting duties of loyalty). In addition to providing investment management services through the SID, BBH provides administrative, custody, shareholder servicing and fund accounting services to the Funds. BBH may have conflicting duties of loyalty while servicing the Funds and/or opportunities to further its own interest to the detriment of the Funds. For example, in negotiating fee arrangements with affiliated service providers, BBH may have an incentive to agree to higher fees than it would in the case of unaffiliated providers. BBH acting in its capacity as the Funds’ administrator is the primary valuation agent of the Funds. BBH values securities and assets in the Funds according to the Funds’ valuation policies. Because the Investment Adviser’s advisory and administrative fees are calculated by reference to the Funds’ net assets, BBH and its affiliates may have an incentive to seek to overvalue certain assets.
Aggregation. Potential conflicts of interest also arise with the aggregation of trade orders. Purchases and sales of securities for the Funds may be aggregated with orders for other client accounts managed by the Sub-Adviser. The Sub-Adviser, however, is not required to aggregate orders if portfolio management decisions for different accounts are made separately, or if it is determined that aggregating is not practicable, or in cases involving client direction. Prevailing trading activity frequently may make impossible the receipt of the same price or execution on the entire volume of securities purchased or sold. When this occurs, the various prices may be averaged, and the Funds will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to the disadvantage of the Funds. In addition, under certain circumstances, the Funds will not be charged the same commission or commission equivalent rates in connection with an aggregated order.
32
BBH GLOBAL CORE SELECT
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
Cross Trades. Under certain circumstances, the Investment Adviser and/or the Sub-adviser, on behalf of the Funds, may seek to buy from or sell securities to another fund or account advised by BBH, the Investment Adviser or the Sub-adviser. Subject to applicable law and regulation, BBH, the Investment Adviser or the Sub-adviser may (but is not required to) effect purchases and sales between BBH, the Investment Adviser or the Sub-adviser’s clients (“cross trades”), including the Funds, if BBH, the Investment Adviser or the Sub-adviser believe such transactions are appropriate based on each party’s investment objectives and guidelines. There may be potential conflicts of interest or regulatory issues relating to these transactions which could limit the Investment Adviser or the Sub-adviser’s decision to engage in these transactions for the Funds. BBH, the Investment Adviser and/or the Sub-adviser may have a potentially conflicting division of loyalties and responsibilities to the parties in such transactions.
Soft Dollars. The Investment Adviser may direct brokerage transactions and/or payment of a portion of client commissions (“soft dollars”) to specific brokers or dealers or other providers to pay for research or other appropriate services which provide, in the Investment Adviser’s view, appropriate assistance in the investment decision-making process (including with respect to futures, fixed price offerings and over-the-counter transactions). The use of a broker that provides research and securities transaction services may result in a higher commission than that offered by a broker who does not provide such services. The Investment Adviser will determine in good faith whether the amount of commission is reasonable in relation to the value of research and services provided and whether the services provide lawful and appropriate assistance in its investment decision-making responsibilities.
Research or other services obtained in this manner may be used in servicing any or all of the Funds and other accounts managed by the Investment Adviser, including in connection with accounts that do not pay commissions to the broker related to the research or other service arrangements. Such products and services may disproportionately benefit other client accounts relative to the Funds based on the amount of brokerage commissions paid by the Funds and such other accounts. To the extent that the Sub-Adviser uses soft dollars, it will not have to pay for those products and services itself.
BBH may receive research that is bundled with the trade execution, clearing, and/or settlement services provided by a particular broker-dealer. To the extent that the Sub-Adviser receives research on this basis, many of the same conflicts related to traditional soft dollars may exist. For example, the research effectively will be paid by client commissions that also will be used to pay for the execution, clearing, and settlement services provided by the broker-dealer and will not be paid by the Sub-Adviser.
Arrangements regarding compensation and delegation of responsibility may create conflicts relating to selection of brokers or dealers to execute Fund portfolio trades and/or specific uses of commissions from Fund portfolio trades, administration of investment advice and valuation of securities.
Investments in BBH Funds. From time to time BBH may invest a portion of the assets of its discretionary investment advisory clients in the Funds. That investment by BBH on behalf of its discretionary investment advisory clients in the Funds may be significant at times.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 33 |
BBH GLOBAL CORE SELECT
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
Increasing a Fund’s assets may enhance investment flexibility and diversification and may contribute to economies of scale that tend to reduce the Funds’ expense ratio. In selecting the Funds for its discretionary investment advisory clients, BBH may limit its selection to funds managed by BBH or the Investment Adviser. BBH may not consider or canvass the universe of unaffiliated investment companies available, even though there may be unaffiliated investment companies that may be more appropriate or that have superior performance. BBH, the Investment Adviser and their affiliates providing services to the Funds benefit from additional fees when the Funds is included as an investment by a discretionary investment advisory client.
BBH reserves the right to redeem at any time some or all of the shares of the Funds acquired for its discretionary investment advisory clients’ accounts. A large redemption of shares of the Funds by BBH on behalf of its discretionary investment advisory clients could significantly reduce the asset size of the Funds, which might have an adverse effect on the Funds’ investment flexibility, portfolio diversification and expense ratio.
Valuation. When market quotations are not readily available, or are believed by BBH to be unreliable, the Funds’ investments will be valued at fair value by BBH pursuant to procedures adopted by the Funds’ Board of Trustees. When determining an asset’s “fair value”, BBH seeks to determine the price that a Fund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. The price generally may not be determined based on what the Funds might reasonably expect to receive for selling an asset at a later time or if it holds the asset to maturity. While fair value determinations will be based upon all available factors that BBH deems relevant at the time of the determination and may be based on analytical values determined by BBH using proprietary or third-party valuation models, fair value represents only a good faith approximation of the value of a security. The fair value of one or more securities may not, in retrospect, be the price at which those assets could have been sold during the period in which the particular fair values were used in determining the Funds’ net asset value. As a result, the Funds’ sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued by BBH (pursuant to Board-adopted procedures) at fair value, may have the effect of diluting or increasing the economic interest of existing shareholders.
Referral Arrangements. BBH may enter into advisory and/or referral arrangements with third parties. Such arrangements may include compensation paid by BBH to the third party. BBH may pay a solicitation fee for referrals and/or advisory or incentive fees. BBH may benefit from increased amounts of assets under management.
Personal Trading. BBH, including the Investment Adviser, and any of their respective partners, principals, directors, officers, employees, affiliates or agents, face conflicts of interest when transacting in securities for their own accounts because they could benefit by trading in the same securities as the Funds, which could have an adverse effect on the Funds. However, the Investment Adviser has implemented policies and procedures concerning personal trading by BBH Partners and employees. The policy and procedures are intended to prevent BBH Partners and employees from trading in the same securities as the Funds. However, BBH, including the Investment Adviser, has implemented policies and procedures concerning personal
34
BBH GLOBAL CORE SELECT
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
trading by BBH Partners and employees. The policies and procedures are intended to prevent BBH Partners and employees with access to Fund material non-public information from trading in the same securities as the Funds.
Gifts and Entertainment. From time to time, employees of BBH, including the Investment Adviser, and any of their respective partners, principals, directors, officers, employees, affiliates or agents, may receive gifts and/or entertainment from clients, intermediaries, or service providers to the Funds or BBH, including the Investment Adviser, which could have the appearance of affecting or may potentially affect the judgment of the employees, or the manner in which they conduct business. The Investment Adviser has implemented policies and procedures concerning gifts and entertainment to mitigate any impact on the judgment of BBH Partners and employees. BBH, including the Investment Adviser, has implemented policies and procedures concerning gifts and entertainment to mitigate any impact on the judgment of BBH Partners and employees.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 35 |
BBH GLOBAL CORE SELECT
ADDITIONAL FEDERAL TAX INFORMATION
October 31, 2020 (unaudited)
The Fund hereby designates $5,946,780 as an approximate amount of capital gain dividend for the purpose of dividends paid deduction.
Under Section 854(b)(2) of the Internal Revenue Code (the “Code”), the Fund designates up to a maximum of $193,139 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the year ended October 31, 2020. In January 2021, shareholders will receive Form 1099-DIV, which will include their share of qualified dividends distributed during the calendar year 2020. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their individual income tax returns.
71.89% of the ordinary income dividends paid by the Fund during the year ended October 31, 2020 qualifies for the dividends received deduction available to corporate shareholders.
36
TRUSTEES AND OFFICERS OF BBH GLOBAL CORE SELECT
(unaudited)
Information pertaining to the Trustees and executive officers of the Trust is set forth below. The mailing address for each Trustee is c/o BBH Trust, 140 Broadway, New York, NY 10005.
Name and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee^ | Other Public Company or Investment Company Directorships held by Trustee During Past 5 Years | |||||
Independent Trustees | ||||||||||
H. Whitney Wagner Birth Year: 1956 | Chairman of the Board and Trustee | Chairman Since 2014; Trustee Since 2007 and 2006-2007 with the Predecessor Trust | President, Clear Brook Advisors, a registered investment adviser. | 7 | None. | |||||
Andrew S. Frazier Birth Year: 1948 | Trustee | Since 2010 | Retired. | 7 | Director of Western World Insurance Group, Inc. | |||||
Mark M. Collins Birth Year: 1956 | Trustee | Since 2011 | Partner of Brown Investment Advisory Incorporated, a registered investment adviser. | 7 | Chairman of Dillon Trust Company. | |||||
John M. Tesoro Birth Year: 1952 | Trustee | Since 2014 | Retired. | 7 | Trustee, Bridge Builder Trust (8 Funds); Director of Teton Advisors, Inc. (a registered investment adviser). | |||||
Joan A. Binstock Birth Year: 1954 | Trustee | Since 2019 | Partner, Chief Financial and Operations Officer, Lord Abbett & Co. LLC (1999-2018); Lovell Minnick Partners, Senior Adviser (2018-present). | 7 | None. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 37 |
TRUSTEES AND OFFICERS OF BBH GLOBAL CORE SELECT
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee^ | Other Public Company or Investment Company Directorships held by Trustee During Past 5 Years | |||||
Interested Trustees | ||||||||||
Susan C. Livingston+ 50 Post Office Square Boston, MA 02110 Birth Year: 1957 | Trustee | Since 2011 | Partner (since 1998) and Senior Client Advocate (since 2010) for BBH&Co. | 7 | None. | |||||
John A. Gehret+ 140 Broadway New York, NY 10005 Birth Year: 1959 | Trustee | Since 2011 | Limited Partner of BBH&Co. (2012-present). | 7 | None. |
38
TRUSTEES AND OFFICERS OF BBH GLOBAL CORE SELECT
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | |||
Officers | ||||||
Jean-Pierre Paquin 140 Broadway New York, NY 10005 Birth Year: 1973 | President and Principal Executive Officer | Since 2016 | Partner of BBH&Co. since 2015; joined BBH&Co. in 1996. | |||
Daniel Greifenkamp 140 Broadway New York, NY 10005 Birth Year: 1969 | Vice President | Since 2016 | Managing Director of BBH&Co. since 2014; joined BBH&Co. in 2011. | |||
Charles H. Schreiber 140 Broadway New York, NY 10005 Birth Year: 1957 | Treasurer and Principal Financial Officer | Since 2007 2006-2007 with the Predecessor Trust | Senior Vice President of BBH&Co. since 2001; joined BBH&Co. in 1999. | |||
Paul F. Gallagher 140 Broadway New York, NY 10005 Birth Year: 1959 | Chief Compliance Officer (“CCO”) | Since 2015 | Senior Vice President of BBH&Co. since 2015. | |||
Keith M. Kelley 140 Broadway New York, NY 10005 Birth Year: 1983 | Anti-Money Laundering Officer (“AMLO”) | Since 2016 | Vice President of BBH&Co. since February 2016; joined BBH&Co. in 2016; Director, Legal and Compliance, Morgan Stanley Smith Barney LLC (2014- February 2016). |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 39 |
TRUSTEES AND OFFICERS OF BBH GLOBAL CORE SELECT
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | |||
Suzan M. Barron 50 Post Office Square Boston, MA 02110 Birth Year: 1964 | Secretary | Since 2009 | Senior Vice President and Senior Investor Services Counsel, BBH&Co. since 2005. | |||
Crystal Cheung 140 Broadway New York, NY 10005 Birth Year: 1974 | Assistant Treasurer | Since 2018 | Assistant Vice President of BBH&Co. since 2016; joined BBH&Co. 2014. | |||
Brian J. Carroll 50 Post Office Square Boston, MA 02110 Birth Year: 1985 | Assistant Secretary | Since 2018 | Associate and Investor Services Assistant Counsel of BBH&Co. since 2017; joined BBH&Co. 2014. |
________________
# | All officers of the Trust hold office for one year and until their respective successors are chosen and qualified (subject to the ability of the Trustees to remove any officer in accordance with the Trust’s By-laws). Mr. Wagner previously served on the Board of Trustees of the Predecessor Trust. |
+ | Ms. Livingston and Mr. Gehret are “interested persons” of the Trust as defined in the 1940 Act because of their positions as Partner and Limited Partner of BBH&Co., respectively. |
^ | The Fund Complex consists of the Trust, which has seven series, and each is counted as one “Portfolio” for purposes of this table. |
40
BBH GLOBAL CORE SELECT
OPERATION AND EFFECTIVENESS OF THE FUND’S LIQUIDITY RISK MANAGEMENT PROGRAM
October 31, 2020 (unaudited)
The Securities and Exchange Commission adopted Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”) to promote effective liquidity risk management throughout the open-end investment company industry in order to reduce the risk that funds will be unable to meet their redemption obligations and mitigate dilution of the interests of fund shareholders.
The Board of Trustees (the “Board”) of BBH Trust met on March 11, 2020 to review the liquidity risk management program (the “Program”) applicable to the funds of BBH Trust (the “Funds”) pursuant to the Liquidity Rule. The Board has appointed three members of the Brown Brothers Harriman & Co. Mutual Fund Advisory Department, the Investment Adviser to the Funds, as the Program Administrator for each Fund’s Program. The Program Administrator provided the Board with an annual report (the “Report”) that addressed the operations of the Program and assessed its adequacy and effectiveness of the Program. The Report covered the period from June 1, 2019 through January 31, 2020.
The Report noted that the Program complied with the key factors for consideration under the Liquidity Rule for assessing, managing and periodically reviewing a Fund’s liquidity risk, including the following points.
Liquidity classification. The Report described the Program’s liquidity classification methodology for categorizing the Funds’ investments into one of four liquidity buckets.
Highly Liquid Investment Minimum. The Report noted that one aspect of the Liquidity Rule is a requirement that funds that are expected to have less than 50% of assets classified as other than “highly liquid” should establish a minimum percentage of highly liquid assets that the fund is expected to hold on an on-going basis. The Program Administrator monitors the percentages of assets in each category on an ongoing basis and, given that no Fund has approached the 50% threshold, has made the determination that it is not necessary to assign a Highly Liquid Investment Minimum as provided for in the Liquidity Rule to any of the Funds.
The Fund’s investment strategy and liquidity of portfolio investments during normal and reasonably foreseeable stressed market conditions. During the Program reporting period, the Program Administrator reviewed whether each Fund’s investment strategy is appropriate for an open-end fund structure with a focus on Funds with more significant and consistent holdings of less liquid and illiquid assets and factored a Fund’s concentration in an issuer into the liquidity classification methodology by taking issuer position sizes into account.
Short-term and long-term cash flow projections during normal and reasonably foreseeable stressed market conditions. During the Program reporting period, the Program Administrator reviewed historical redemption activity and used this information as a component to establish each Fund’s reasonably anticipated trading size. The Program Administrator also took into consideration other factors such as shareholder ownership concentration, applicable distribution channels and the degree of certainty associated with a Fund’s short-term and long-term cash flow projections.
Holdings of cash and cash equivalents. The Program Administrator considered the degree to which each Fund held cash and cash equivalents as a component of each Fund’s ability to meet redemption requests.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 41 |
BBH GLOBAL CORE SELECT
OPERATION AND EFFECTIVENESS OF THE FUND’S LIQUIDITY RISK MANAGEMENT PROGRAM (continued)
October 31, 2020 (unaudited)
There were no material changes to the Program during the reporting period. The Program Administrator has informed the Board that it believes that the Fund’s Program is adequately designed, has been implemented as intended, and has operated effectively since its implementation. No material exceptions have been noted since the implementation of the Program, and there were no liquidity events that impacted the Fund or its ability to meet redemption requests on a timely basis during the reporting period.
42
Administrator Brown Brothers Harriman & Co. 140 Broadway New York, NY 10005
Distributor ALPS Distributors, Inc. 1290 Broadway, Suite 1100 Denver, CO 80203
Shareholder Servicing Agent Brown Brothers Harriman & Co. 140 Broadway New York, NY 10005 1-800-575-1265 | Investment Adviser Brown Brothers Harriman Mutual Fund Advisory Department 140 Broadway New York, NY 10005 |
To obtain information or make shareholder inquiries:
By telephone: | Call 1-800-575-1265 bbhfunds@bbh.com www.bbhfunds.com |
By E-mail send your request to: | |
On the internet: |
This report is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of the Fund.
For more complete information, visit www.bbhfunds.com for a prospectus. You should consider the Fund’s investment objectives, risks, charges and expenses carefully before you invest. Information about these and other important subjects is in the Fund’s prospectus, which you should read carefully before investing.
Holdings and allocations are subject to change. Fund holdings should not be relied on in making investment decisions and should not be construed as research or investment advice regarding particular securities. Current and future holdings are subject to risk.
The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available electronically on the SEC’s website (sec.gov). For a complete list of a fund’s portfolio holdings, view the most recent holdings listing, semi-annual report, or annual report on the Fund’s web site at http://www.bbhfunds.com.
A summary of the Fund’s Proxy Voting Policy that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund’s portfolio, as well as a record of how the Fund voted any such proxies during the most recent 12-month period ended June 30, is available, without charge, upon request by calling the toll-free number listed above. This information is also available on the SEC’s website at www.sec.gov.
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
Annual Report
OCTOBER 31, 2020
BBH Partner Fund – International Equity
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Funds’ shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other Fund communications electronically from the Fund by calling 1-800-575-1265 or from your financial intermediary.
You may elect to receive all future reports in paper free of charge. You can inform the Fund by calling 1-800-575-1265 or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper may apply to all funds in the fund complex or held with your financial intermediary.
BBH PARTNER FUND – INTERNATIONAL EQUITY
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE
October 31, 2020
The BBH Partner Fund – International Equity (“the Fund” or “BBH International”) Class I Shares returned 11.59%, net of fees, during the trailing twelve-month period ending October 31, 2020. During the same twelve-month period, the Fund’s benchmark, the MSCI Europe, Australasia Far East Index (the “EAFE”) returned -6.86%. From inception through October 31, 2020, the fund has compounded at an annualized rate of 5.72%, net of fees, while the MSCI EAFE has returned 4.34% per year.
On February 24, 2017, Select Equity Group (“SEG”) replaced Mondrian and Walter Scott as the Fund’s sole sub-adviser and assumed day to day management of the Fund’s portfolio. Since the sub-adviser transition in February of 2017, the Fund has returned 10.28% (annualized, net of fees), while the MSCI EAFE returned 3.05% (annualized).
Over the trailing twelve-month period, the Fund outperformed its benchmark driven by the Fund’s cash position heading into the market downturn which provided meaningful downside protection, an overweight position in the Technology sector, and individual security performance from the following holdings: Adyen NV, Alibaba Group Holding, ASML Holding NV, Merck KGaA and Tencent Holdings. The largest detractors to performance during the same time period include: Amadeus IT Group SA, CP All PCL, Credit Suisse Group AG, Melrose Industries PLC, SAP SE and weak stock selection in the Industrials sector relative to MSCI EAFE index.
Select Equity Group invests in a concentrated portfolio of predominantly non-U.S. domiciled businesses that are deemed to be “Select Equity pedigree”. The key criteria used to evaluate a company are as follows:
•
Predictable Growth: SEG typically looks for businesses that are able to grow earnings per share and free cash flow at a double-digit rate per year throughout the cycle. Additionally, the team prefers companies that can achieve this growth in a highly predictable and sustainable manner.
•
Strong Returns on Invested Capital (ROIC): the team looks for companies that have strong ROICs, better than average returns on assets, etc. that are achieved through having strong and growing margins and low capital intensity.
•
Defensible Competitive Moat(s): the team spends most of their time assessing the nature of a company’s “moat”. Companies with strong moats and/or natural barriers to entry that protect a company’s competitive advantage enable continued earnings per share and ROIC growth.
•
Capital Stewardship: strong management teams with good capital allocation skills are essential to perpetuating the above characteristics of a company.
SEG believes that, with patience, the market will provide an attractive opportunity to invest at what the investment team deems a fair valuation. The Firm has maintained a research-intensive, value-based approached to investing in high-quality businesses.
________________
Portfolio holdings are subject to change. |
2 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
Growth of $10,000 Invested in BBH Partner Fund – International Equity
The graph below illustrates the hypothetical investment of $10,0001 in the Class I shares of the Fund (Effective February 24, 2017, the Fund’s Class N shares were converted into Class I shares) over the ten years ended October 31, 2020 as compared to the MSCI EAFE.
The annualized gross expense ratio as in the February 28, 2020 prospectus for Class I shares was 0.71%. The annualized gross expense ratios for the year ended 10/31/2020 for Class I shares was 0.69%. Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Fund performance changes over time and current performance may be lower or higher than what is stated. Fund shares redeemed within 30 days of purchase are subject to a redemption fee of 2.00%. Returns do not reflect the deductions of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. For performance current to the most recent month-end please call 1-800-575-1265.
Hypothetical performance results are calculated on a total return basis and include all portfolio income, unrealized and realized capital gains, losses and reinvestment of dividends and other earnings. No one shareholder has actually achieved these results and no representation is being made that any actual shareholder achieved, or is likely to achieve, similar results to those shown. Hypothetical performance does not represent actual trading and may not reflect the impact of material economic and market factors. Undue reliance should not be placed on hypothetical performance results in making an investment decision.
________________
1 | The Fund’s performance assumes the reinvestment of all dividends and distributions. The EAFE has been adjusted to reflect reinvestment of dividends on securities in the index. The EAFE is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund’s performance. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 3 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of the BBH Trust and Shareholders of BBH Partner Fund – International Equity:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments of BBH Partner Fund – International Equity (the “Fund”), one of the funds within BBH Trust, as of October 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2020, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the BBH Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the BBH Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The BBH Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the BBH Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
4 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued)
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 21, 2020
We have served as the auditor of one or more Brown Brothers Harriman investment companies since 1991.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 5 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
PORTFOLIO ALLOCATION
October 31, 2020
COUNTRY DIVERSIFICATION
U.S. $ Value | Percent of Net Assets | ||||||
Common Stock: | |||||||
Australia | $ | 41,154,430 | 2.0 | % | |||
Bermuda | 39,980,187 | 2.0 | |||||
Canada | 111,139,053 | 5.4 | |||||
Cayman Islands | 196,600,038 | 9.7 | |||||
France | 172,309,444 | 8.6 | |||||
Germany | 177,223,875 | 8.8 | |||||
Hong Kong | 99,389,958 | 4.9 | |||||
Ireland | 62,608,205 | 3.0 | |||||
Japan | 222,670,337 | 11.0 | |||||
Jersey | 36,695,312 | 1.8 | |||||
Luxembourg | 7,655,849 | 0.4 | |||||
Netherlands | 169,977,184 | 8.4 | |||||
South Korea | 28,460,182 | 1.4 | |||||
Spain | 48,121,471 | 2.3 | |||||
Sweden | 92,156,179 | 4.5 | |||||
Switzerland | 228,941,207 | 11.3 | |||||
Taiwan | 46,003,953 | 2.3 | |||||
United Kingdom | 86,689,733 | 4.2 | |||||
United States | 74,592,808 | 3.7 | |||||
Registered Investment Companies: | |||||||
United States | 63,250,000 | 3.1 | |||||
Cash and Other Assets in Excess of Liabilities | 23,528,078 | 1.2 | |||||
NET ASSETS | $ | 2,029,147,483 | 100.0 | % |
All data as of October 31, 2020. The Fund’s country diversification is expressed as a percentage of net assets and may vary over time. The Fund’s country diversification is derived from respective security’s country of incorporation.
The accompanying notes are an integral part of these financial statements.
6 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
PORTFOLIO ALLOCATION (continued)
October 31, 2020
SECTOR DIVERSIFICATION
U.S. $ Value | Percent of Net Assets | ||||||
Common Stock: | |||||||
Communications | $ | 257,722,570 | 12.7 | % | |||
Consumer Cyclical | 151,273,480 | 7.4 | |||||
Consumer Non-Cyclical | 643,056,957 | 31.7 | |||||
Financials | 254,866,924 | 12.6 | |||||
Industrials | 221,968,110 | 10.9 | |||||
Technology | 413,481,364 | 20.4 | |||||
Registered Investment Companies | 63,250,000 | 3.1 | |||||
Cash and Other Assets in Excess of Liabilities | 23,528,078 | 1.2 | |||||
NET ASSETS | $ | 2,029,147,483 | 100.0 | % |
All data as of October 31, 2020. The Fund’s sector diversification is expressed as a percentage of net assets and may vary over time.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 7 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
PORTFOLIO OF INVESTMENTS
October 31, 2020
Shares/ Units | Value | |||||
COMMON STOCK (95.7%) | ||||||
AUSTRALIA (2.0%) | ||||||
CONSUMER NON-CYCLICAL | ||||||
202,601 | CSL, Ltd | $ | 41,154,430 | |||
Total Australia | 41,154,430 | |||||
| BERMUDA (2.0%) | |||||
CONSUMER NON-CYCLICAL | ||||||
494,376 | IHS Markit, Ltd. | 39,980,187 | ||||
Total Bermuda | 39,980,187 | |||||
| CANADA (5.4%) | |||||
CONSUMER CYCLICAL | ||||||
1,612,353 | Alimentation Couche-Tard, Inc. (Class B) | 49,639,712 | ||||
TECHNOLOGY | ||||||
58,602 | Constellation Software, Inc | 61,499,341 | ||||
Total Canada | 111,139,053 | |||||
| CAYMAN ISLANDS (9.7%) | |||||
COMMUNICATIONS | ||||||
2,245,612 | Alibaba Group Holding, Ltd.1 | 85,461,087 | ||||
1,449,345 | Tencent Holdings, Ltd | 111,138,951 | ||||
Total Cayman Islands | 196,600,038 | |||||
| FRANCE (8.6%) | |||||
CONSUMER CYCLICAL | ||||||
42,397 | LVMH Moet Hennessy Louis Vuitton SE | 19,917,361 | ||||
CONSUMER NON-CYCLICAL | ||||||
75,003 | EssilorLuxottica S.A1 | 9,298,256 | ||||
122,477 | L’Oreal S.A | 39,690,855 | ||||
316,591 | Pernod Ricard S.A | 51,121,808 | ||||
100,110,919 | ||||||
INDUSTRIALS | ||||||
399,616 | Safran S.A.1 | 42,493,459 | ||||
TECHNOLOGY | ||||||
57,216 | Dassault Systemes SE | 9,787,705 | ||||
Total France | 172,309,444 |
The accompanying notes are an integral part of these financial statements.
8 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Shares/ Units | Value | |||||
COMMON STOCKS (continued) | ||||||
GERMANY (8.8%) | ||||||
CONSUMER CYCLICAL | ||||||
32,829 | Adidas AG1 | $ | 9,761,116 | |||
CONSUMER NON-CYCLICAL | ||||||
555,117 | Merck KGaA | 82,258,972 | ||||
TECHNOLOGY | ||||||
798,969 | SAP SE | 85,203,787 | ||||
Total Germany | 177,223,875 | |||||
| HONG KONG (4.9%) | |||||
FINANCIALS | ||||||
10,541,625 | AIA Group, Ltd | 99,389,958 | ||||
Total Hong Kong | 99,389,958 | |||||
| IRELAND (3.0%) | |||||
INDUSTRIALS | ||||||
1,293,542 | CRH, Plc | 45,447,804 | ||||
TECHNOLOGY | ||||||
79,113 | Accenture, Plc. (Class A) | 17,160,401 | ||||
Total Ireland | 62,608,205 | |||||
| JAPAN (11.0%) | |||||
CONSUMER CYCLICAL | ||||||
251,177 | Shimano, Inc | 57,403,113 | ||||
CONSUMER NON-CYCLICAL | ||||||
991,260 | Shiseido Co., Ltd | 61,474,872 | ||||
INDUSTRIALS | ||||||
69,595 | Hoya Corp | 7,894,008 | ||||
91,709 | Keyence Corp | 41,663,182 | ||||
49,557,190 | ||||||
TECHNOLOGY | ||||||
304,865 | Obic Co., Ltd | 54,235,162 | ||||
Total Japan | 222,670,337 |
The accompanying notes are an integral part of these financial statements.
9 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Shares/ Units | Value | |||||
COMMON STOCKS (continued) | ||||||
JERSEY (1.8%) | ||||||
CONSUMER NON-CYCLICAL | ||||||
823,200 | Experian, Plc | $ | 29,996,184 | |||
TECHNOLOGY | ||||||
241,410 | Clarivate, Plc.1 | 6,699,128 | ||||
Total Jersey | 36,695,312 | |||||
| LUXEMBOURG (0.4%) | |||||
COMMUNICATIONS | ||||||
31,914 | Spotify Technology S.A.1 | 7,655,849 | ||||
Total Luxembourg | 7,655,849 | |||||
| NETHERLANDS (8.4%) | |||||
CONSUMER NON-CYCLICAL | ||||||
24,307 | Adyen NV1,2 | 41,043,734 | ||||
318,543 | Heineken NV | 28,301,870 | ||||
692,321 | Koninklijke Philips NV | 32,183,995 | ||||
101,529,599 | ||||||
TECHNOLOGY | ||||||
188,152 | ASML Holding NV | 68,447,585 | ||||
Total Netherlands | 169,977,184 | |||||
| SOUTH KOREA (1.4%) | |||||
CONSUMER NON-CYCLICAL | ||||||
21,694 | LG Household & Health Care, Ltd | 28,460,182 | ||||
Total South Korea | 28,460,182 | |||||
| SPAIN (2.3%) | |||||
CONSUMER NON-CYCLICAL | ||||||
655,856 | Amadeus IT Group S.A | 31,456,585 | ||||
616,417 | Grifols S.A. | 16,664,886 | ||||
Total Spain | 48,121,471 |
The accompanying notes are an integral part of these financial statements.
10 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Shares/ Units | Value | |||||
COMMON STOCKS (continued) | ||||||
SWEDEN (4.5%) | ||||||
COMMUNICATIONS | ||||||
4,795,806 | Telefonaktiebolaget LM Ericsson (Class B) | $ | 53,466,683 | |||
INDUSTRIALS | ||||||
1,353,469 | Assa Abloy AB (Class B) | 29,079,686 | ||||
131,520 | Hexagon AB (Class B) | 9,609,810 | ||||
38,689,496 | ||||||
Total Sweden | 92,156,179 | |||||
| SWITZERLAND (11.3%) | |||||
CONSUMER CYCLICAL | ||||||
153,358 | Cie Financiere Richemont S.A | 9,612,762 | ||||
CONSUMER NON-CYCLICAL | ||||||
1,184,692 | Alcon, Inc.1 | 67,236,653 | ||||
156,039 | Nestle S.A | 17,543,952 | ||||
84,780,605 | ||||||
FINANCIALS | ||||||
269,202 | Chubb, Ltd | 34,972,032 | ||||
65,482 | Partners Group Holding AG | 59,004,737 | ||||
93,976,769 | ||||||
INDUSTRIALS | ||||||
164,915 | Sika AG | 40,571,071 | ||||
Total Switzerland | 228,941,207 | |||||
| TAIWAN (2.3%) | |||||
TECHNOLOGY | ||||||
548,515 | Taiwan Semiconductor Manufacturing Co., Ltd. ADR | 46,003,953 | ||||
Total Taiwan | 46,003,953 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 11 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Shares/ Units | Value | |||||
COMMON STOCKS (continued) | ||||||
UNITED KINGDOM (4.2%) | ||||||
CONSUMER NON-CYCLICAL | ||||||
97,917 | Reckitt Benckiser Group, Plc | $ | 8,612,601 | |||
838,998 | RELX, Plc | 16,576,935 | ||||
25,189,536 | ||||||
FINANCIALS | ||||||
39,721,630 | Melrose Industries, Plc.1 | 61,500,197 | ||||
Total United Kingdom | 86,689,733 | |||||
| UNITED STATES (3.7%) | |||||
CONSUMER CYCLICAL | ||||||
15,470 | Lululemon Athletica, Inc.1 | 4,939,416 | ||||
INDUSTRIALS | ||||||
5,220 | Mettler-Toledo International, Inc.1 | 5,209,090 | ||||
TECHNOLOGY | ||||||
517,251 | Fidelity National Information Services, Inc | 64,444,302 | ||||
Total United States | 74,592,808 | |||||
Total Common Stock (Cost $1,588,484,179) | 1,942,369,405 |
The accompanying notes are an integral part of these financial statements.
12 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Shares/ Units | Value | |||||
REGISTERED INVESTMENT COMPANIES (3.1%) | ||||||
63,250,000 | Morgan Stanley Institutional Liquidity Funds — Treasury Securities Portfolio, Institutional Share Class | $ | 63,250,000 | |||
| ||||||
| Total Registered Investment Companies (Cost $63,250,000) | 63,250,000 | ||||
|
TOTAL INVESTMENTS (Cost $1,651,734,179)3 | 98.8 | % | $ | 2,005,619,405 | |||
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES | 1.2 | % | 23,528,078 | ||||
NET ASSETS | 100.00 | % | $ | 2,029,147,483 |
________________
1 | Non-income producing security. |
2 | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. Total market value of Rule 144A securities owned at October 31, 2020 was $41,043,734 or 2.0% of net assets. Unless otherwise noted, these securities are not considered illiquid. |
3 | The aggregate cost for federal income tax purposes is $1,673,869,903, the aggregate gross unrealized appreciation is $423,136,117 and the aggregate gross unrealized depreciation is $91,386,615, resulting in net unrealized appreciation of $331,749,502. |
The Fund’s country diversification is based on the respective security’s country of incorporation.
Abbreviation:
ADR – American Depositary Receipt
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 13 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
FAIR VALUE MEASUREMENTS
The Fund is required to disclose information regarding the fair value measurements of the Fund’s assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The disclosure requirement established a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including, for example, the risk inherent in a particular valuation technique used to measure fair value, including the model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the Fund’s own considerations about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
Authoritative guidance establishes three levels of the fair value hierarchy as follows:
— | Level 1 – unadjusted quoted prices in active markets for identical assets and liabilities. |
— | Level 2 – significant other observable inputs (including quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk, etc.). |
— | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of assets and liabilities). |
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires judgment by the investment adviser. The investment adviser considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the investment adviser’s perceived risk of that instrument.
The accompanying notes are an integral part of these financial statements.
14 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Financial assets within Level 1 are based on quoted market prices in active markets. The Fund does not adjust the quoted price for these instruments.
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include investment-grade corporate bonds, U.S. Treasury notes and bonds, and certain non-U.S. sovereign obligations and over-the-counter derivatives and foreign equity securities whose values could be impacted by events occurring before the Fund’s pricing time, but after the close of the securities’ primary markets and are, therefore, fair valued according to procedures adopted by the Board of Trustees. As Level 2 financial assets include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Financial assets classified within Level 3 have significant unobservable inputs, as they trade infrequently. Level 3 financial assets include private equity and certain corporate debt securities.
Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon the actual sale of those investments.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 15 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2020.
Investments, at value | Unadjusted Quoted Prices in Active Markets for Identical Investments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of October 31, 2020 | ||||||||||||
Common Stock: | ||||||||||||||||
Australia | $ | — | $ | 41,154,430 | $ | — | $ | 41,154,430 | ||||||||
Bermuda | 39,980,187 | – | — | 39,980,187 | ||||||||||||
Canada | 111,139,053 | – | — | 111,139,053 | ||||||||||||
Cayman Islands | — | 196,600,038 | — | 196,600,038 | ||||||||||||
France | — | 172,309,444 | — | 172,309,444 | ||||||||||||
Germany | — | 177,223,875 | — | 177,223,875 | ||||||||||||
Hong Kong | — | 99,389,958 | — | 99,389,958 | ||||||||||||
Ireland | 17,160,401 | 45,447,804 | — | 62,608,205 | ||||||||||||
Japan | — | 222,670,337 | — | 222,670,337 | ||||||||||||
Jersey | 6,699,128 | 29,996,184 | — | 36,695,312 | ||||||||||||
Luxembourg | 7,655,849 | – | — | 7,655,849 | ||||||||||||
Netherlands | — | 169,977,184 | — | 169,977,184 | ||||||||||||
South Korea | — | 28,460,182 | — | 28,460,182 | ||||||||||||
Spain | — | 48,121,471 | — | 48,121,471 | ||||||||||||
Sweden | — | 92,156,179 | — | 92,156,179 | ||||||||||||
Switzerland | 34,972,032 | 193,969,175 | — | 228,941,207 | ||||||||||||
Taiwan | 46,003,953 | – | — | 46,003,953 | ||||||||||||
United Kingdom | — | 86,689,733 | — | 86,689,733 | ||||||||||||
United States | 74,592,808 | – | — | 74,592,808 | ||||||||||||
Registered Investment Companies: | ||||||||||||||||
United States | 63,250,000 | – | — | 63,250,000 | ||||||||||||
Investments, at value | $ | 401,453,411 | $ | 1,604,165,994 | $ | — | $ | 2,005,619,405 |
The accompanying notes are an integral part of these financial statements.
16 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2020
ASSETS: | ||||||
Investments in securities, at value (Cost $1,651,734,179) | $ | 2,005,619,405 | ||||
Cash | 40,985,082 | |||||
Foreign currency at value (Identified cost $4,359,051) | 4,360,960 | |||||
Receivables for: | ||||||
Dividends | 2,779,743 | |||||
Shares sold | 1,570,267 | |||||
Interest | 2,521 | |||||
Prepaid assets | 14,971 | |||||
Total Assets | 2,055,332,949 | |||||
LIABILITIES: | ||||||
Payables for: | ||||||
Investments purchased | 21,483,410 | |||||
Shares redeemed | 3,338,632 | |||||
Investment advisory and administrative fees | 1,168,525 | |||||
Custody and fund accounting fees | 113,501 | |||||
Professional fees | 65,452 | |||||
Transfer agent fees | 2,793 | |||||
Accrued expenses and other liabilities | 13,153 | |||||
Total Liabilities | 26,185,466 | |||||
NET ASSETS | $ | 2,029,147,483 | ||||
Net Assets Consist of: | ||||||
Paid-in capital | $ | 1,632,679,708 | ||||
Retained earnings | 396,467,775 | |||||
Net Assets | $ | 2,029,147,483 | ||||
NET ASSET VALUE AND OFFERING PRICE PER SHARE | ||||||
CLASS I SHARES | ||||||
($2,029,147,483 ÷ 114,456,711 shares outstanding) | $ | 17.73 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 17 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
STATEMENT OF OPERATIONS
For the year ended October 31, 2020
NET INVESTMENT INCOME: | ||||
Income: | ||||
Dividends (net of foreign withholding taxes of $1,705,382) | $ | 17,138,984 | ||
Interest income | 220,758 | |||
Other income | 38 | |||
Total Income | 17,359,780 | |||
Expenses: | ||||
Investment advisory and administrative fees | 12,353,479 | |||
Custody and fund accounting fees | 504,594 | |||
Professional fees | 75,378 | |||
Board of Trustees’ fees | 58,282 | |||
Transfer agent fees | 31,286 | |||
Miscellaneous expenses | 133,982 | |||
Total Expenses | 13,157,001 | |||
Net Investment Income | 4,202,779 | |||
NET REALIZED AND UNREALIZED GAIN: | ||||
Net realized gain on investments in securities | 44,244,619 | |||
Net realized gain on foreign exchange transactions and translations | 273,365 | |||
Net realized gain on investments in securities and foreign exchange transactions and translations | 44,517,984 | |||
Net change in unrealized appreciation/(depreciation) on investments in securities | 156,158,826 | |||
Net change in unrealized appreciation/(depreciation) on foreign currency translations | 155,095 | |||
Net change in unrealized appreciation/(depreciation) on investments in securities and foreign currency translations | 156,313,921 | |||
Net Realized and Unrealized Gain | 200,831,905 | |||
Net Increase in Net Assets Resulting from Operations | $ | 205,034,684 |
The accompanying notes are an integral part of these financial statements.
18 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended October 31, | ||||||||
2020 | 2019 | |||||||
INCREASE IN NET ASSETS: | ||||||||
Operations: | ||||||||
Net investment income | $ | 4,202,779 | $ | 10,510,311 | ||||
Net realized gain on investments in securities and foreign exchange transactions and translations | 44,517,984 | 16,497,449 | ||||||
Net change in unrealized appreciation/(depreciation) on investments in securities and foreign currency translations | 156,313,921 | 215,694,369 | ||||||
Net increase in net assets resulting from operations | 205,034,684 | 242,702,129 | ||||||
Dividends and distributions declared: | ||||||||
Class I | (30,519,179 | ) | (105,213,063 | ) | ||||
Share transactions: | ||||||||
Proceeds from sales of shares | 310,598,256 | 302,686,930 | ||||||
Net asset value of shares issued to shareholders for reinvestment of dividends and distributions | 1,103,760 | 4,408,555 | ||||||
Cost of shares redeemed | (247,264,351 | ) | (160,123,583 | ) | ||||
Net increase in net assets resulting from share transactions | 64,437,665 | 146,971,902 | ||||||
Total increase in net assets | 238,953,170 | 284,460,968 | ||||||
NET ASSETS: | ||||||||
Beginning of year | 1,790,194,313 | 1,505,733,345 | ||||||
End of year | $ | 2,029,147,483 | $ | 1,790,194,313 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 19 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a Class I share outstanding throughout each year.
For the years ended October 31, | ||||||||||||||||||||
2020 | 2019 | 2018 | 2017* | 2016 | ||||||||||||||||
Net asset value, beginning of year | $ | 16.15 | $ | 14.90 | $ | 16.75 | $ | 14.46 | $ | 14.54 | ||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income1 | 0.04 | 0.10 | 0.18 | 0.14 | 0.34 | |||||||||||||||
Net realized and unrealized gain (loss) | 1.81 | 2.19 | (0.83 | ) | 2.47 | (0.14 | ) | |||||||||||||
Total income (loss) from investment operations | 1.85 | 2.29 | (0.65 | ) | 2.61 | 0.20 | ||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.09 | ) | (0.16 | ) | (0.10 | ) | (0.32 | ) | (0.28 | ) | ||||||||||
From net realized gains | (0.18 | ) | (0.88 | ) | (1.10 | ) | — | — | ||||||||||||
Total dividends and distributions | (0.27 | ) | (1.04 | ) | (1.20 | ) | (0.32 | ) | (0.28 | ) | ||||||||||
Short-term redemption fees1 | — | — | — | 0.00 | 2 | 0.00 | 2 | |||||||||||||
Net asset value, end of year | $ | 17.73 | $ | 16.15 | $ | 14.90 | $ | 16.75 | $ | 14.46 | ||||||||||
Total return | 11.59 | % | 16.92 | % | (4.12 | )% | 18.51 | % | 1.51 | % | ||||||||||
Ratios/Supplemental data: | ||||||||||||||||||||
Net assets, end of year (in millions) | $ | 2,029 | $ | 1,790 | $ | 1,506 | $ | 1,426 | $ | 914 | ||||||||||
Ratio of expenses to average net assets before reductions | 0.69 | % | 0.71 | % | 0.68 | % | 0.74 | % | 0.85 | % | ||||||||||
Expense offset arrangement | 0.00 | % | 0.01 | % | 0.03 | % | 0.01 | % | 0.00 | %3 | ||||||||||
Ratio of expenses to average net assets after reductions | 0.69 | % | 0.70 | % | 0.65 | % | 0.73 | % | 0.85 | % | ||||||||||
Ratio of net investment income to average net assets | 0.22 | % | 0.66 | % | 1.15 | % | 0.91 | % | 2.41 | % | ||||||||||
Portfolio turnover rate | 77 | % | 135 | % | 124 | % | 130 | % | 12 | % |
____________
* | Effective February 24, 2017 Class N shares were converted into Class I shares. |
1 | Calculated using average shares outstanding for the year. |
2 | Less than $0.01. |
3 | Less than 0.01%. |
The accompanying notes are an integral part of these financial statements.
20 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
NOTES TO FINANCIAL STATEMENTS
October 31, 2020
1.Organization. The Fund is a separate, diversified series of BBH Trust (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust was originally organized under the laws of the State of Maryland on July 16, 1990 as BBH Fund, Inc. and re-organized as a Delaware statutory trust on June 12, 2007. The Fund commenced operations on June 6, 1997. The Fund commenced operations on June 6, 1997 and currently offers one class of shares, Class I. The investment objective of the Fund is long-term maximization of total return, primarily through capital appreciation. As of October 31, 2020, there were seven series of the Trust.
2.Significant Accounting Policies. The Fund’s financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”). The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services — Investment Companies. The following summarizes significant accounting policies of the Fund:
A.Valuation of Investments. (1) The value of investments listed on a securities exchange is based on the last sale price on that exchange prior to the time when assets are valued, or in the absence of recorded sales, at the average of readily available closing bid and asked prices on such exchange; (2) securities not traded on an exchange are valued at the average of the quoted bid and asked prices in the over-the-counter market; (3) securities or other assets for which market quotations are not readily available are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Board of Trustees (the “Board”); (4) for securities traded on international exchanges, if events which may affect the value of the Fund’s securities occur after the close of the primary exchange on which such securities trade and before the Fund’s net asset value is next determined, then those securities will be fair valued as determined in good faith under supervision of the Board. The Fund currently uses a systematic fair value model provided by an independent third party to adjust the observed values of international securities on a daily basis; (5) short-term investments, which mature in 60 days or less are valued at amortized cost if their original maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if their original maturity when acquired by the Fund was more than 60 days, unless the use of amortized cost is determined not to represent “fair value” by the Board.
B.Accounting for Investments and Income. Investment transactions are accounted for on the trade date. Realized gains and losses on investment transactions are determined based on the identified cost method. Dividend income and other distributions received from portfolio securities are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of securities received at ex-date. Distributions received on securities that represent a return of capital are recorded as a reduction of cost of investments. Distributions received on securities that represent a capital gain are recorded as a realized gain. Interest income is accrued daily. Investment income is recorded net of any foreign taxes withheld where recovery of such tax is uncertain.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 21 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
C.Fund Expenses. Most expenses of the Trust can be directly attributed to a specific fund. Expenses which cannot be directly attributed to a fund are generally apportioned among each fund in the Trust on a net assets basis. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
D.Forward Foreign Currency Exchange Contracts. The Fund may enter into forward foreign currency exchange contracts (“Contracts”) in connection with planned purchases or sales of securities to economically hedge the U.S. dollar value of securities denominated in a particular currency, or to increase or shift its exposure to a currency other than U.S. dollars. The Fund has no specific limitation on the percentage of assets which may be committed to these types of Contracts. The Fund could be exposed to risks if the counterparties to the Contracts are unable to meet the terms of their Contracts or if the value of the foreign currency changes unfavorably. The U.S. dollar values of foreign currency underlying all contractual commitments held by the Fund are determined using forward foreign currency exchange rates supplied by a quotation service. During the year ended October 31, 2020, the Fund had no open contracts.
E.Foreign Currency Translations. The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange of such currency against the U.S. dollar to determine the value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. Upon the purchase or sale of a security denominated in foreign currency, the Fund may enter into forward foreign currency exchange contracts for the purchase or sale, for a fixed amount of U.S. dollars, of the amount of foreign currency involved in the underlying security transaction. Reported net realized gains and losses arise from the sales of portfolio securities, sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. The effect of changes in foreign exchange rates on foreign denominated securities is reflected in the net realized and unrealized gain or loss on investments in securities and foreign exchange transactions and translations and net change in unrealized appreciation or depreciation on investments in securities and foreign currency translations within the Statement of Operations. Net unrealized appreciation or depreciation on foreign currency translations arise from changes in the value of the assets and liabilities, excluding investments in securities, at period end, resulting from changes in the exchange rate.
F.Federal Income Taxes. The Fund may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries, as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests.
22 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
Realized gains in certain countries may be subject to foreign taxes at the Fund level, based on statutory rates. The Fund accrues for such foreign taxes on net realized and unrealized gains at the appropriate rate for each jurisdiction, as applicable. The amount, if any, is disclosed as a liability in the Statement of Assets and Liabilities and as an expense in the Statement of Operations.
It is the Trust’s policy to comply with the requirements of the Internal Revenue Code (the “Code”) applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. The Fund files a tax return annually using tax accounting methods required under provisions of the Code, which may differ from GAAP, which is the basis on which these financial statements are prepared. Accordingly, the amount of net investment income and net realized gain reported in these financial statements may differ from that reported on the Fund’s tax return, due to certain book-to-tax timing differences such as losses deferred due to “wash sale” transactions and utilization of capital loss carryforwards. These differences may result in temporary over-distributions for financial statement purposes and are classified as distributions in excess of accumulated net realized gains or net investment income. These distributions do not constitute a return of capital. Permanent differences are reclassified between paid-in capital and retained earnings/(accumulated deficit) within the Statement of Assets and Liabilities based upon their tax classification. As such, the character of distributions to shareholders reported in the Financial Highlights table may differ from that reported to shareholders on Form 1099-DIV.
The Fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes (“ASC 740”). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The Fund did not have any unrecognized tax benefits as of October 31, 2020, nor were there any increases or decreases in unrecognized tax benefits for the year then ended. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as an income tax expense in the Statement of Operations. During the year ended October 31, 2020, the Fund did not incur any such interest or penalties. The Fund is subject to examination by U.S. federal and state tax authorities for returns filed for the prior three years. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
G.Dividends and Distributions to Shareholders. Dividends and distributions from net investment income to shareholders, if any, are paid annually and are recorded on the ex-dividend date. Distributions from net capital gains, if any, are generally declared and paid annually and are recorded on the ex-dividend date. The Fund declared dividends and distributions in the amount of $30,519,179 to Class I shares during the year ended October 31, 2020. In addition, the Fund designated a portion of the payment made to redeeming shareholders as a distribution for income tax purposes.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 23 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
The tax character of distributions paid during the years ended October 31, 2020 and 2019, respectively, were as follows:
Distributions paid from: | |||||||||||||||||||||||||
Ordinary income | Net long-term capital gain | Total taxable distributions | Tax return of capital | Total distributions paid | |||||||||||||||||||||
2020: | $ | 9,900,534 | $ | 20,618,645 | $ | 30,519,179 | $ | — | $ | 30,519,179 | |||||||||||||||
2019: | 52,364,709 | 52,848,354 | 105,213,063 | — | 105,213,063 |
As of October 31, 2020 and 2019, respectively, the components of retained earnings/(accumulated deficit) were as follows:
Components of retained earnings/(accumulated deficit): | |||||||||||||||||||||||||||||
Undistributed ordinary income | Undistributed long-term capital gain | Accumulated capital and other losses | Other book/tax temporary differences | Unrealized appreciation/ (depreciation) | Total retained earnings/ (accumulated deficit) | ||||||||||||||||||||||||
2020: | $37,703,687 | $26,880,257 | $ | — | $(22,135,724 | ) | $354,019,555 | $396,467,775 | |||||||||||||||||||||
2019: | 9,893,173 | 20,608,301 | — | (5,630,070 | ) | 197,705,634 | 222,577,038 |
The Fund did not have a net capital loss carryforward at October 31, 2020.
The Fund is permitted to carryforward capital losses for an unlimited period and they will retain their character as either short-term or long-term capital losses rather than being considered all short-term capital losses.
Total distributions paid may differ from amounts reported in the Statements of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid.
The differences between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales.
To the extent future capital gains are offset by capital loss carryforwards, if any, such gains will not be distributed.
H.Use of Estimates. The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increase and decrease in net assets from operations during the reporting period. Actual results could differ from these estimates.
24 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
3. Fees and Other Transactions with Affiliates
A.Investment Advisory and Administrative Fees. Under a combined Investment Advisory and Administrative Services Agreement (“Agreement”) with the Trust, Brown Brothers Harriman & Co. (“BBH”) through a separately identifiable department (“SID” or “Investment Adviser”) provides investment advisory, portfolio management and administrative services to the Fund. BBH employs a “manager-of-managers” investment approach, whereby it allocates the Fund’s assets to the Fund’s sub-adviser, currently Select Equity Group, L.P. (“Select Equity Group” or the “Sub-adviser”). The Sub-adviser is responsible for investing the assets of the Fund and the Investment Adviser oversees the Sub-adviser and evaluates its performance results. The Fund’s investment advisory and administrative services fee is calculated daily and paid monthly at an annual rate equivalent to 0.65% per annum on the first $3 billion of average daily net assets and 0.60% per annum on all average daily net assets over $3 billion. The Investment Adviser pays its Sub-adviser a percentage from its investment advisory and administrative fees. For the year ended October 31, 2020, the Fund incurred $12,353,479 for services under the Agreement.
B.Custody and Fund Accounting Fees. BBH acts as a custodian and fund accountant and receives custody and fund accounting fees from the Fund calculated daily and incurred monthly. BBH holds all of the Fund’s cash and investments and calculates the Fund’s daily net asset value. The custody fee is an asset and transaction-based fee. The fund accounting fee is an asset-based fee calculated at 0.004% of the Fund’s net asset value. For the year ended October 31, 2020, the Fund incurred $504,594 in custody and fund accounting fees. As per agreement with the Fund’s custodian, the Fund receives interest income on cash balances held by the custodian at the BBH Base Rate. The BBH Base Rate is defined as BBH’s effective trading rate in local money markets on each day. The total interest earned by the Fund for the year ended October 31, 2020 was $220,758. This amount is included in “Interest income” in the Statement of Operations. In the event that the Fund is overdrawn, under the custody agreement with BBH, BBH will make overnight loans to the Fund to cover overdrafts. Pursuant to their agreement, the Fund will pay the Federal Funds overnight investment rate on the day of the overdraft. The total interest incurred by the Fund for the year ended October 31, 2020, was $1. This amount is included under line item “Custody and fund accounting fees” in the Statement of Operations.
C.Board of Trustees’ Fees. Each Trustee who is not an “interested person” as defined under the 1940 Act receives an annual fee as well as reimbursement for reasonable out-of-pocket expenses from the Fund. For the year ended October 31, 2020, the Fund incurred $58,282 in independent Trustee compensation and expense reimbursements.
D.Officers of the Trust. Officers of the Trust are also employees of BBH. Officers are paid no fees by the Trust for their services to the Trust.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 25 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
4.Investment Transactions. For the year ended October 31, 2020, the cost of purchases and the proceeds of sales of investment securities, other than short-term investments, were $1,558,792,353 and $1,298,550,634, respectively.
5.Shares of Beneficial Interest. The Trust is permitted to issue an unlimited number of Class I shares of beneficial interest, at no par value. Transactions in Class I shares were as follows:
For the year ended October 31, 2020 | For the year ended October 31, 2019 | |||||||||||||||
Shares | Dollars | Shares | Dollars | |||||||||||||
Class I | ||||||||||||||||
Shares sold | 19,197,875 | $ | 310,598,256 | 20,226,132 | $ | 302,686,930 | ||||||||||
Shares issued in connection with reinvestments of dividends | 66,491 | 1,103,760 | 332,220 | 4,408,555 | ||||||||||||
Shares redeemed | (15,676,766 | ) | (247,264,351 | ) | (10,766,674 | ) | (160,123,583 | ) | ||||||||
Net increase | 3,587,600 | $ | 64,437,665 | 9,791,678 | $ | 146,971,902 |
6. Principal Risk Factors and Indemnifications.
A.Principal Risk Factors. Investing in the Fund may involve certain risks, as discussed in the Fund’s prospectus, including, but not limited to, those described below:
A shareholder may lose money by investing in the Fund (investment risk). The Fund is actively managed and the decisions by the Sub- Adviser may cause the Fund to incur losses or miss profit opportunities (management risk). Price movements may occur due to factors affecting individual companies, such as the issuance of an unfavorable earnings report, or other events affecting particular industries or the equity market as a whole (equity securities risk). The value of securities held by the Fund may fall due to changing economic, political, regulatory or market conditions, or due to a company’s or issuer’s individual situation. Natural disasters, the spread of infectious illness and other public health emergencies, recession, terrorism and other unforeseeable events may lead to increased market volatility and may have adverse effects on world economies and markets generally (market risk). The Fund may, from time to time, invest in a limited number of issuers. As a result, the appreciation or depreciation of any one security held by the Fund will have a greater impact on the Fund’s net asset value than it would if the Fund invested in a larger number of securities. Although that strategy has the potential to generate attractive returns over time, it also increases the Fund’s volatility and may lead to greater losses (concentrated portfolio holdings risk). There are certain risks associated with investing in foreign securities not present in domestic investments, including, but not limited to, recovery of tax withheld by foreign jurisdictions (foreign investment risk), capital controls imposed by foreign governments in response to economic or political events that may impact the ability of the Fund to buy, sell or otherwise transfer securities or currency (capital controls risk), and risks from investing in securities of issuers based in developing countries (emerging markets risk). Non-U.S. currencies
26 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
invested in by the Fund may depreciate against the U.S. dollar (currency exchange rate risk). The Fund’s shareholders may be adversely impacted by asset allocation decisions made by an investment adviser whose discretionary clients make up a large percentage of the Fund’s shareholders (shareholder concentration risk). The derivatives held by the Fund including forwards and futures, may be riskier than other types of investments and may increase the volatility of the Fund (derivatives risk). Derivatives may be sensitive to changes in economic and market conditions and may create leverage, which could result in losses that significantly exceed the Fund’s original investment. Derivatives expose the Fund to counter-party risk, which is the risk that the derivative counterparty will not fulfill its contractual obligations (and includes credit risk associated with the counterparty). Because the Fund invests in large cap company securities, it may underperform other funds during periods when the Fund’s large cap securities are out of favor (large cap company risk). The extent of the Fund’s exposure to these risks in respect to these financial assets is included in their value as recorded in the Fund’s Statement of Assets and Liabilities.
Please refer to the Fund’s prospectus for a complete description of the principal risks of investing in the Fund.
B.Indemnifications. Under the Trust’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Fund, and shareholders are indemnified against personal liability for the obligations of the Trust. Additionally, in the normal course of business, the Fund enters into agreements with service providers that may contain indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
7.Significant Events. In the beginning of 2020, there was an outbreak of the novel corona virus (COVID 19) which has impacted the financial markets and the global economy as a whole. The outbreak of COVID 19 is still ongoing and the magnitude and impact on the financial markets is highly uncertain and cannot be predicted. The effect of this impact may adversely impact the future carrying value of investments and results of operations of the Fund.
There are no other significant events to report as they relate to the Fund.
8.Subsequent Events. Management has evaluated events and transactions that have occurred since October 31, 2020 through the date the financial statements were issued and determined that there were none that would require recognition or additional disclosure in the financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 27 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
DISCLOSURE OF FUND EXPENSES
October 31, 2020 (unaudited)
EXAMPLE
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested distributions, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management 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 an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (May 1, 2020 to October 31, 2020).
ACTUAL EXPENSES
The first line of the table below provides information about actual account values and actual expenses. You may use 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 the Period” to estimate the expenses you paid on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year 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 during the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% Hypothetical Example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
28 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
DISCLOSURE OF FUND EXPENSES (continued)
October 31, 2020 (unaudited)
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 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. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period May 1, 2020 to October 31, 20201 | |||||||||||||
Class I | |||||||||||||||
Actual | $ | 1,000 | $ | 1,195 | $ | 3.79 | |||||||||
Hypothetical2 | $ | 1,000 | $ | 1,022 | $ | 3.49 |
____________
1 | Expenses are equal to the Fund’s annualized expense ratio of 0.69% for I shares, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
2 | Assumes a return of 5% before expenses. For the purposes of the calculation, the applicable annualized expenses ratio for each class of shares is subtracted from the assumed return before expenses. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 29 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
CONFLICTS OF INTEREST
October 31, 2020 (unaudited)
Conflicts of Interest
BBH, including the Investment Adviser, provides discretionary and non-discretionary investment management services and products to corporations, institutions and individual investors throughout the world. As a result, in the ordinary course of its businesses, BBH, including the Investment Adviser, may engage in activities in which its interests or the interests of its clients may conflict with or be adverse to the interests of the Funds. In addition, certain of such clients (including the Funds) utilize the services of BBH for which they will pay to BBH customary fees and expenses that will not be shared with the Funds.
The Investment Adviser and the Sub-Adviser have adopted and implemented policies and procedures that seek to manage conflicts of interest. Pursuant to such policies and procedures, the Investment Adviser and the Sub-Adviser monitor a variety of areas, including compliance with fund investment guidelines, the investment in only those securities that have been approved for purchase, and compliance with their respective Code of Ethics.
The Trust also manages these conflicts of interest. For example, the Trust has designated a chief compliance officer (“CCO”) and has adopted and implemented policies and procedures designed to manage the conflicts identified below and other conflicts that may arise in the course of the Funds’ operations in such a way as to safeguard the Funds from being negatively affected as a result of any such potential conflicts. From time to time, the Trustees receive reports from the Investment Adviser, the Sub-Adviser and the Trust’s CCO on areas of potential conflict.
Investors should carefully review the following, which describes potential and actual conflicts of interest that BBH, the Investment Adviser and Sub-Adviser can face in the operation of their respective investment management services. This section is not, and is not intended to be, a complete enumeration or explanation of all of the potential conflicts of interest that may arise. The Investment Adviser, the Sub-Adviser and the Funds have adopted policies and procedures reasonably designed to appropriately prevent, limit or mitigate the conflicts of interest described below. Additional information about potential conflicts of interest regarding the Investment Adviser is set forth in the Investment Adviser’s Form ADV. A copy of Part 1 and Part 2A of the Investment Adviser’s Form ADV is available on the SEC’s website (www.adviserinfo.sec.gov). In addition, many of the activities that create these conflicts of interest are limited and/or prohibited by law, unless an exception is available.
Other Clients and Allocation of Investment Opportunities. BBH, the Investment Adviser, and the Sub-Adviser manage funds and accounts of clients other than the Funds (“Other Clients”). In general, BBH, the Investment Adviser, and the Sub-Adviser face conflicts of interest when they render investment advisory services to different clients and, from time to time, provide dissimilar investment advice to different clients. Investment decisions will not necessarily be made in parallel among the Funds and Other Clients. Investments made by the Funds do not, and are not intended to, replicate the investments, or the investment methods and strategies, of Other Clients. Accordingly, such Other Clients’ accounts may produce results that are materially different from those experienced by the Funds. Certain other conflicts of interest may arise in connection with a portfolio manager’s management of the Funds’ investments, on the one hand, and the investments of other funds or accounts for which the portfolio manager is responsible, on the other. For example, it is possible that the various funds or accounts managed by the Investment Adviser or Sub-Adviser
30 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
could have different investment strategies that, at times, might conflict with one another to the possible detriment of the Funds. From time to time, the Investment Adviser and Sub-Adviser, sponsor and with other investment pools and accounts which engage in the same or similar businesses as the Funds using the same or similar investment strategies. To the extent that the same investment opportunities might be desirable for more than one account or fund, possible conflicts could arise in determining how to allocate them because the Investment Adviser or Sub-Adviser may have an incentive to allocate investment opportunities to certain accounts or funds. However, BBH and the Sub-adviser have implemented policies and procedures designed to ensure that information relevant to investment decisions is disseminated promptly within its portfolio management teams and investment opportunities are allocated equitably among different clients. The policies and procedures require, among other things, objective allocation for limited investment opportunities, and documentation and review of justifications for any decisions to make investments only for select accounts or in a manner disproportionate to the size of the account. Nevertheless, access to investment opportunities may be allocated differently among accounts due to the particular characteristics of an account, such as size of the account, cash position, tax status, risk tolerance and investment restrictions or for other reasons.
Actual or potential conflicts of interest may also arise when a portfolio manager has management responsibilities to multiple accounts or funds, resulting in unequal commitment of time and attention to the portfolio management of the funds or accounts.
Affiliated Service Providers. Other potential conflicts might include conflicts between the Funds and its affiliated and unaffiliated service providers (e.g. conflicting duties of loyalty). In addition to providing investment management services through the SID, BBH provides administrative, custody, shareholder servicing and fund accounting services to the Funds. BBH may have conflicting duties of loyalty while servicing the Funds and/or opportunities to further its own interest to the detriment of the Funds. For example, in negotiating fee arrangements with affiliated service providers, BBH may have an incentive to agree to higher fees than it would in the case of unaffiliated providers. BBH acting in its capacity as the Funds’ administrator is the primary valuation agent of the Funds. BBH values securities and assets in the Funds according to the Funds’ valuation policies. Because the Investment Adviser’s advisory and administrative fees are calculated by reference to the Funds’ net assets, BBH and its affiliates may have an incentive to seek to overvalue certain assets.
Aggregation. Potential conflicts of interest also arise with the aggregation of trade orders. Purchases and sales of securities for the Funds may be aggregated with orders for other client accounts managed by the Sub-Adviser. The Sub-Adviser, however, is not required to aggregate orders if portfolio management decisions for different accounts are made separately, or if it is determined that aggregating is not practicable, or in cases involving client direction. Prevailing trading activity frequently may make impossible the receipt of the same price or execution on the entire volume of securities purchased or sold. When this occurs, the various prices may be averaged, and the Funds will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to the disadvantage of the Funds. In addition, under certain circumstances, the Funds will not be charged the same commission or commission equivalent rates in connection with an aggregated order.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 31 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
Cross Trades. Under certain circumstances, the Investment Adviser and/or the Sub-adviser, on behalf of the Funds, may seek to buy from or sell securities to another fund or account advised by BBH, the Investment Adviser or the Sub-adviser. Subject to applicable law and regulation, BBH, the Investment Adviser or the Sub-adviser may (but is not required to) effect purchases and sales between BBH, the Investment Adviser or the Sub-adviser’s clients (“cross trades”), including the Funds, if BBH, the Investment Adviser or the Sub-adviser believe such transactions are appropriate based on each party’s investment objectives and guidelines. There may be potential conflicts of interest or regulatory issues relating to these transactions which could limit the Investment Adviser or the Sub-adviser’s decision to engage in these transactions for the Funds. BBH, the Investment Adviser and/or the Sub-adviser may have a potentially conflicting division of loyalties and responsibilities to the parties in such transactions.
Soft Dollars. The Investment Adviser may direct brokerage transactions and/or payment of a portion of client commissions (“soft dollars”) to specific brokers or dealers or other providers to pay for research or other appropriate services which provide, in the Investment Adviser’s view, appropriate assistance in the investment decision-making process (including with respect to futures, fixed price offerings and over-the-counter transactions). The use of a broker that provides research and securities transaction services may result in a higher commission than that offered by a broker who does not provide such services. The Investment Adviser will determine in good faith whether the amount of commission is reasonable in relation to the value of research and services provided and whether the services provide lawful and appropriate assistance in its investment decision-making responsibilities.
Research or other services obtained in this manner may be used in servicing any or all of the Funds and other accounts managed by the Investment Adviser, including in connection with accounts that do not pay commissions to the broker related to the research or other service arrangements. Such products and services may disproportionately benefit other client accounts relative to the Funds based on the amount of brokerage commissions paid by the Funds and such other accounts. To the extent that the Sub-Adviser uses soft dollars, it will not have to pay for those products and services itself.
BBH may receive research that is bundled with the trade execution, clearing, and/or settlement services provided by a particular broker-dealer. To the extent that the Sub-Adviser receives research on this basis, many of the same conflicts related to traditional soft dollars may exist. For example, the research effectively will be paid by client commissions that also will be used to pay for the execution, clearing, and settlement services provided by the broker-dealer and will not be paid by the Sub-Adviser.
Arrangements regarding compensation and delegation of responsibility may create conflicts relating to selection of brokers or dealers to execute Fund portfolio trades and/or specific uses of commissions from Fund portfolio trades, administration of investment advice and valuation of securities.
Investments in BBH Funds. From time to time BBH may invest a portion of the assets of its discretionary investment advisory clients in the Funds. That investment by BBH on behalf of its discretionary investment advisory clients in the Funds may be significant at times.
32 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
Increasing a Fund’s assets may enhance investment flexibility and diversification and may contribute to economies of scale that tend to reduce the Funds’ expense ratio. In selecting the Funds for its discretionary investment advisory clients, BBH may limit its selection to funds managed by BBH or the Investment Adviser. BBH may not consider or canvass the universe of unaffiliated investment companies available, even though there may be unaffiliated investment companies that may be more appropriate or that have superior performance. BBH, the Investment Adviser and their affiliates providing services to the Funds benefit from additional fees when the Funds is included as an investment by a discretionary investment advisory client.
BBH reserves the right to redeem at any time some or all of the shares of the Funds acquired for its discretionary investment advisory clients’ accounts. A large redemption of shares of the Funds by BBH on behalf of its discretionary investment advisory clients could significantly reduce the asset size of the Funds, which might have an adverse effect on the Funds’ investment flexibility, portfolio diversification and expense ratio.
Valuation. When market quotations are not readily available, or are believed by BBH to be unreliable, the Funds’ investments will be valued at fair value by BBH pursuant to procedures adopted by the Funds’ Board of Trustees. When determining an asset’s “fair value”, BBH seeks to determine the price that a Fund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. The price generally may not be determined based on what the Funds might reasonably expect to receive for selling an asset at a later time or if it holds the asset to maturity. While fair value determinations will be based upon all available factors that BBH deems relevant at the time of the determination and may be based on analytical values determined by BBH using proprietary or third-party valuation models, fair value represents only a good faith approximation of the value of a security. The fair value of one or more securities may not, in retrospect, be the price at which those assets could have been sold during the period in which the particular fair values were used in determining the Funds’ net asset value. As a result, the Funds’ sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued by BBH (pursuant to Board-adopted procedures) at fair value, may have the effect of diluting or increasing the economic interest of existing shareholders.
Referral Arrangements. BBH may enter into advisory and/or referral arrangements with third parties. Such arrangements may include compensation paid by BBH to the third party. BBH may pay a solicitation fee for referrals and/or advisory or incentive fees. BBH may benefit from increased amounts of assets under management.
Personal Trading. BBH, including the Investment Adviser, and any of their respective partners, principals, directors, officers, employees, affiliates or agents, face conflicts of interest when transacting in securities for their own accounts because they could benefit by trading in the same securities as the Funds, which could have an adverse effect on the Funds. However, the Investment Adviser has implemented policies and procedures concerning personal trading by BBH Partners and employees. The policy and procedures are intended to prevent BBH Partners and employees from trading in the same securities as the Funds. However, BBH, including the Investment Adviser, has implemented policies and procedures concerning personal
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 33 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
trading by BBH Partners and employees. The policies and procedures are intended to prevent BBH Partners and employees with access to Fund material non-public information from trading in the same securities as the Funds.
Gifts and Entertainment. From time to time, employees of BBH, including the Investment Adviser, and any of their respective partners, principals, directors, officers, employees, affiliates or agents, may receive gifts and/or entertainment from clients, intermediaries, or service providers to the Funds or BBH, including the Investment Adviser, which could have the appearance of affecting or may potentially affect the judgment of the employees, or the manner in which they conduct business. The Investment Adviser has implemented policies and procedures concerning gifts and entertainment to mitigate any impact on the judgment of BBH Partners and employees. BBH, including the Investment Adviser, has implemented policies and procedures concerning gifts and entertainment to mitigate any impact on the judgment of BBH Partners and employees.
34 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
ADDITIONAL FEDERAL TAX INFORMATION
October 31, 2020 (unaudited)
The Fund hereby designates $21,243,413 as an approximate amount of capital gain dividend for the purpose of dividends paid deduction.
Under Section 854(b)(2) of the Internal Revenue Code (the “Code”), the Fund designates up to a maximum of $9,900,534 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the year ended October 31, 2020. In January 2021, shareholders will receive Form 1099-DIV, which will include their share of qualified dividends distributed during the calendar year 2020. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their individual income tax returns. The amounts which represent income derived from sources within, and taxes paid to foreign counties or possessions of the United States are as follows:
Foreign Source Income | Foreign Taxes Paid | |||
$16,163,784 | $1,562,044 |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 35 |
TRUSTEES AND OFFICERS OF BBH PARTNER FUND – INTERNATIONAL EQUITY
(unaudited)
Information pertaining to the Trustees and executive officers of the Trust is set forth below. The mailing address for each Trustee is c/o BBH Trust, 140 Broadway, New York, NY 10005.
Name and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee^ | Other Public Company or Investment Company Directorships held by Trustee During Past 5 Years | |||||
Independent Trustees | ||||||||||
H. Whitney Wagner Birth Year: 1956 | Chairman of the Board and Trustee | Chairman Since 2014; Trustee Since 2007 and 2006-2007 with the Predecessor Trust | President, Clear Brook Advisors, a registered investment adviser. | 7 | None. | |||||
Andrew S. Frazier Birth Year: 1948 | Trustee | Since 2010 | Retired. | 7 | Director of Western World Insurance Group, Inc. | |||||
Mark M. Collins Birth Year: 1956 | Trustee | Since 2011 | Partner of Brown Investment Advisory Incorporated, a registered investment adviser. | 7 | Chairman of Dillon Trust Company. | |||||
John M. Tesoro Birth Year: 1952 | Trustee | Since 2014 | Retired. | 7 | Trustee, Bridge Builder Trust (8 Funds); Director of Teton Advisors, Inc. (a registered investment adviser). | |||||
Joan A. Binstock Birth Year: 1954 | Trustee | Since 2019 | Partner, Chief Financial and Operations Officer, Lord Abbett & Co. LLC (1999-2018); Lovell Minnick Partners, Senior Adviser (2018-present). | 7 | None. |
36 |
TRUSTEES AND OFFICERS OF BBH PARTNER FUND – INTERNATIONAL EQUITY
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee^ | Other Public Company or Investment Company Directorships held by Trustee During Past 5 Years | |||||
Interested Trustees | ||||||||||
Susan C. Livingston+ 50 Post Office Square Boston, MA 02110 Birth Year: 1957 | Trustee | Since 2011 | Partner (since 1998) and Senior Client Advocate (since 2010) for BBH&Co. | 7 | None. | |||||
John A. Gehret+ 140 Broadway New York, NY 10005 Birth Year: 1959 | Trustee | Since 2011 | Limited Partner of BBH&Co. (2012-present). | 7 | None. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 37 |
TRUSTEES AND OFFICERS OF BBH PARTNER FUND – INTERNATIONAL EQUITY
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | |||
Officers | ||||||
Jean-Pierre Paquin 140 Broadway New York, NY 10005 Birth Year: 1973 | President and Principal Executive Officer | Since 2016 | Partner of BBH&Co. since 2015; joined BBH&Co. in 1996. | |||
Daniel Greifenkamp 140 Broadway New York, NY 10005 Birth Year: 1969 | Vice President | Since 2016 | Managing Director of BBH&Co. since 2014; joined BBH&Co. in 2011. | |||
Charles H. Schreiber 140 Broadway New York, NY 10005 Birth Year: 1957 | Treasurer and Principal Financial Officer | Since 2007 2006-2007 with the Predecessor Trust | Senior Vice President of BBH&Co. since 2001; joined BBH&Co. in 1999. | |||
Paul F. Gallagher 140 Broadway New York, NY 10005 Birth Year: 1959 | Chief Compliance Officer (“CCO”) | Since 2015 | Senior Vice President of BBH&Co. since 2015. | |||
Keith M. Kelley 140 Broadway New York, NY 10005 Birth Year: 1983 | Anti-Money Laundering Officer (“AMLO”) | Since 2016 | Vice President of BBH&Co. since February 2016; joined BBH&Co. in 2016; Director, Legal and Compliance, Morgan Stanley Smith Barney LLC (2014- February 2016). |
38 |
TRUSTEES AND OFFICERS OF BBH PARTNER FUND – INTERNATIONAL EQUITY
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | |||
Suzan M. Barron 50 Post Office Square Boston, MA 02110 Birth Year: 1964 | Secretary | Since 2009 | Senior Vice President and Senior Investor Services Counsel, BBH&Co. since 2005. | |||
Crystal Cheung 140 Broadway New York, NY 10005 Birth Year: 1974 | Assistant Treasurer | Since 2018 | Assistant Vice President of BBH&Co. since 2016; joined BBH&Co. 2014. | |||
Brian J. Carroll 50 Post Office Square Boston, MA 02110 Birth Year: 1985 | Assistant Secretary | Since 2018 | Associate and Investor Services Assistant Counsel of BBH&Co. since 2017; joined BBH&Co. 2014. |
________________
# | All officers of the Trust hold office for one year and until their respective successors are chosen and qualified (subject to the ability of the Trustees to remove any officer in accordance with the Trust’s By-laws). Mr. Wagner previously served on the Board of Trustees of the Predecessor Trust. |
+ | Ms. Livingston and Mr. Gehret are “interested persons” of the Trust as defined in the 1940 Act because of their positions as Partner and Limited Partner of BBH&Co., respectively. |
^ | The Fund Complex consists of the Trust, which has seven series, and each is counted as one “Portfolio” for purposes of this table. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 39 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
OPERATION AND EFFECTIVENESS OF THE FUND’S LIQUIDITY RISK MANAGEMENT PROGRAM
October 31, 2020 (unaudited)
The Securities and Exchange Commission adopted Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”) to promote effective liquidity risk management throughout the open-end investment company industry in order to reduce the risk that funds will be unable to meet their redemption obligations and mitigate dilution of the interests of fund shareholders.
The Board of Trustees (the “Board”) of BBH Trust met on March 11, 2020 to review the liquidity risk management program (the “Program”) applicable to the funds of BBH Trust (the “Funds”) pursuant to the Liquidity Rule. The Board has appointed three members of the Brown Brothers Harriman & Co. Mutual Fund Advisory Department, the Investment Adviser to the Funds, as the Program Administrator for each Fund’s Program. The Program Administrator provided the Board with an annual report (the “Report”) that addressed the operations of the Program and assessed its adequacy and effectiveness of the Program. The Report covered the period from June 1, 2019 through January 31, 2020.
The Report noted that the Program complied with the key factors for consideration under the Liquidity Rule for assessing, managing and periodically reviewing a Fund’s liquidity risk, including the following points.
Liquidity classification. The Report described the Program’s liquidity classification methodology for categorizing the Funds’ investments into one of four liquidity buckets.
Highly Liquid Investment Minimum. The Report noted that one aspect of the Liquidity Rule is a requirement that funds that are expected to have less than 50% of assets classified as other than “highly liquid” should establish a minimum percentage of highly liquid assets that the fund is expected to hold on an on-going basis. The Program Administrator monitors the percentages of assets in each category on an ongoing basis and, given that no Fund has approached the 50% threshold, has made the determination that it is not necessary to assign a Highly Liquid Investment Minimum as provided for in the Liquidity Rule to any of the Funds.
The Fund’s investment strategy and liquidity of portfolio investments during normal and reasonably foreseeable stressed market conditions. During the Program reporting period, the Program Administrator reviewed whether each Fund’s investment strategy is appropriate for an open-end fund structure with a focus on Funds with more significant and consistent holdings of less liquid and illiquid assets and factored a Fund’s concentration in an issuer into the liquidity classification methodology by taking issuer position sizes into account.
Short-term and long-term cash flow projections during normal and reasonably foreseeable stressed market conditions. During the Program reporting period, the Program Administrator reviewed historical redemption activity and used this information as a component to establish each Fund’s reasonably anticipated trading size. The Program Administrator also took into consideration other factors such as shareholder ownership concentration, applicable distribution channels and the degree of certainty associated with a Fund’s short-term and long-term cash flow projections.
Holdings of cash and cash equivalents. The Program Administrator considered the degree to which each Fund held cash and cash equivalents as a component of each Fund’s ability to meet redemption requests.
40 |
BBH PARTNER FUND – INTERNATIONAL EQUITY
OPERATION AND EFFECTIVENESS OF THE FUND’S LIQUIDITY RISK MANAGEMENT PROGRAM (continued)
October 31, 2020 (unaudited)
There were no material changes to the Program during the reporting period. The Program Administrator has informed the Board that it believes that the Fund’s Program is adequately designed, has been implemented as intended, and has operated effectively since its implementation. No material exceptions have been noted since the implementation of the Program, and there were no liquidity events that impacted the Fund or its ability to meet redemption requests on a timely basis during the reporting period.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 41 |
Administrator Brown Brothers Harriman & Co. 140 Broadway New York, NY 10005
Distributor ALPS Distributors, Inc. 1290 Broadway, Suite 1100 Denver, CO 80203 �� Shareholder Servicing Agent Brown Brothers Harriman & Co. 140 Broadway New York, NY 10005 1-800-575-1265 | Investment Adviser Brown Brothers Harriman Mutual Fund Advisory Department 140 Broadway New York, NY 10005 |
To obtain information or make shareholder inquiries:
By telephone: | Call 1-800-575-1265 bbhfunds@bbh.com www.bbhfunds.com |
By E-mail send your request to: | |
On the internet: |
This report is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of the Fund.
For more complete information, visit www.bbhfunds.com for a prospectus. You should consider the Fund’s investment objectives, risks, charges and expenses carefully before you invest. Information about these and other important subjects is in the Fund’s prospectus, which you should read carefully before investing.
Holdings and allocations are subject to change. Fund holdings should not be relied on in making investment decisions and should not be construed as research or investment advice regarding particular securities. Current and future holdings are subject to risk.
The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available electronically on the SEC’s website (sec.gov). For a complete list of a fund’s portfolio holdings, view the most recent holdings listing, semi-annual report, or annual report on the Fund’s web site at http://www.bbhfunds.com.
A summary of the Fund’s Proxy Voting Policy that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund’s portfolio, as well as a record of how the Fund voted any such proxies during the most recent 12-month period ended June 30, is available, without charge, upon request by calling the toll-free number listed above. This information is also available on the SEC’s website at www.sec.gov.
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
Annual Report
OCTOBER 31, 2020
BBH Limited Duration Fund
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Funds’ shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other Fund communications electronically from the Fund by calling 1-800-575-1265 or from your financial intermediary.
You may elect to receive all future reports in paper free of charge. You can inform the Fund by calling 1-800-575-1265 or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper may apply to all funds in the fund complex or held with your financial intermediary.
BBH LIMITED DURATION FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE
October 31, 2020
During this fiscal year, the Fund witnessed the first widespread pandemic in the United States in 100 years, the worst month ever for credit in March, unprecedented purchasing of credit by the Federal Reserve in the second quarter, and record issuance of corporate debt through the remainder of the year. Despite the many surprises in market volatility, the firm guidance of our investment process and the long experience of our team were of enormous assistance in preserving and enhancing shareholder capital through the year, with returns of 2.24% for the 12 months (I Shares). We are quite proud of how rapidly we repositioned, how consistently we followed our process, and the excellent results our active management continues to produce into the calendar year-end.
2
BBH LIMITED DURATION FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
For the first four months of the fiscal year, November 2019 through February 2020, our valuation criteria made it very difficult to add credit exposure to the Fund. Compensation for credit was simply too meager, at levels that typically lead credit to underperform Treasuries. The cash and Treasury component of the Fund was over 25% in February. Spread duration, a risk measure we use of how sensitive the portfolio is to changes in “credit spreads” (the additional yield on credit instruments over a comparable-maturity Treasury), was around 1.6 years, reflecting our credit concentration in shorter maturities.
Then, as Coronavirus cases began to spread in the U.S., and businesses began to close their doors, Credit spreads increased by 2.4%, or 240 “basis points”* from March 4 to March 26th. At the low point around March 20, investment grade credit had underperformed Treasuries by nearly 15%, and ended the month more than 12% behind Treasuries. This underperformance exceeded even September of 2008, the month Lehman and AIG failed (-7.74%). Liquidity stress in short credit (under three years) was also intense, affecting funds like ours in short and ultra-short duration ranges particularly severely. Asset Backed Securities (“ABS”) and Commercial Mortgage-Backed securities (“CMBS”) also came under surprising selling pressure, and exhibited unusual price volatility, especially given their substantial credit. We now understand that banks were forced sellers, primarily of higher quality, short credit, as they struggled to keep required levels of liquidity while funding credit lines and repurchase agreements. Although the Federal Reserve’s unprecedented decision to backstop credit took all the headlines, their immediate decisions to provide unlimited funding to financial institutions, and suspend the liquidity regulations, constituted the most important actions to end the rout.
We went from an environment with few opportunities and a strong macroeconomic backdrop to an environment with lots of opportunities, but also many new and unknown risks. Both parts of our discipline, credit and valuation, worked well for us. We were clearly entering a potentially unprecedented stress test for travel and entertainment-related industries, as well as a challenging time for small businesses and unemployment.
________________
Portfolio holdings and characteristics are subject to change. |
*One “basis point” or “bp” is 1/100th of a percent (0.01% or 0.0001) |
Spread Duration is the price sensitivity of a bond or portfolio of bonds to changes in spreads. |
Spread or Option-Adjusted Spread (OAS) is the additional yield compared to a comparable duration Treasury |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 3 |
BBH LIMITED DURATION FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
Thanks to our underwriting process, we had already stress-tested each and every credit for a terrible economic environment, when we purchased it. That discipline and preparation helped us “hold our credits with strong hands”, avoiding selling and realizing price impairments. As the fiscal year ends, all but one of our holdings appear to be headed towards maturing at or above our original cost. Secondly, our valuation framework was telling us to buy more credit, and we did. As our long-term shareholders know, we are not typically a high turnover manager, but we were quite active traders in the Spring. Our purchases of credit in April and May were more than 10% of the Fund. By June, valuations had already recovered in many of the names we purchased, and we started to sell, for valuation, as much as we were buying, but the overall brisk pace of activity continued.
Record corporate issuance made it possible to buy large amounts of corporate credit. We nearly doubled the corporate spread duration of the Fund, and brought the total spread duration closer to two years by the end of the Fiscal year. In the subsequent months, structured markets began to warm up again, and we were able to add higher yielding ABS and CMBS opportunities as well. The timely addition of these credit exposures through this year’s volatility is the primary contributors to the Fund’s performance. On October 31, the portfolio yield of the Fund was about 1.96%, made up of 1.71% of “spread”, defined as the incremental yield of the Fund’s portfolio in excess of Treasuries of the same duration(s) as the Fund portfolio, and only 0.25% of Treasury yield. In February of 2020, the Fund's portfolio yield was 2.43%, but made up of 0.88% of spread and 1.55% of Treasury-equivalent yield. In April, after Treasury yields had plummeted by more than 1%, the portfolio spread peaked at 3.89%. The very high spreads in the spring and summer gave us many opportunities to invest in higher yields for our shareholders, even as Treasury rates have substantially diminished as a source of yield.
Portfolio holdings and characteristics are subject to change.
Attribution figures are presented gross of fees. An investor's returns will be reduced by fees incurred by the management of the Fund.
Past performance does not guarantee future results.
4
BBH LIMITED DURATION FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
We note with satisfaction that our performance through this summer keeps us in the top quartile of our competitive fund universe (Morningstar U.S.-Domiciled Ultrashort Bond category) for the past twelve months, and the top decile for the three, five and ten year periods. This is the third major pullback in credit markets since we incorporated this valuation framework into our process and began using it to guide our allocations to credit for all of our funds. Each of these episodes – the Euro Crisis of 2011-2012, the Energy Bust of 2014-2016, and the Pandemic of 2020, has been performance-enhancing and process-reinforcing for us. We feel more strongly than ever that focusing on purchasing durable credits only when they are available at attractive prices is the best way to preserve capital and enhance returns for our investors. Patience and holding out for our criteria fit constitute the arduous work of seeking to generate performance.
Looking forward, we find the markets becoming expensive again, although, as noted above, the portfolio still has excess yield we expect to earn either through further price appreciation or simply the passage of time. If markets continue in this direction, we may shed risk exposure in the Fund and possibly even enter another period like last Winter, where we must again be patient and selective to add value. On the other hand, the Treasury and the Fed seem somewhat at odds about credit support programs right now, even as we crest another pandemic wave. There may be more volatility, and opportunities, yet. We look forward to meeting whatever challenges come our way along with you.
We wish you all a Happy New Year, thank you for being a client, and hope to meet many of you, virtually or otherwise, in the coming months.
________________
Portfolio holdings and characteristics are subject to change. |
As of 10/31/2020, the BBH Limited Duration Fund was rated against the following numbers of U.S.-domiciled Ultrashort Bond category funds over the following time periods: 210 funds for the last year, 170 funds for the last three year, 130 funds in the last five years, and 61 funds in the last ten years. Class I one-, three-, five- and ten-year periods percentile rankings were 14, 3, 2 and 3, respectively. Class N one-, three-, five- and ten-year periods percentile rankings were 21, 4, 3 and 6, respectively. Rankings are based on risk-adjusted return. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. |
A Durable Credit is a credit instrument which, in our analysis, is likely to make full repayment of principal through a wide variety of economic scenarios. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 5 |
BBH LIMITED DURATION FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
Investors in the Fund should be able to withstand short-term fluctuations in the fixed income markets in return for potentially higher returns over the long term. The value of portfolios changes every day and can be affected by changes in interest rates, general market conditions and other political, social and economic developments.
Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, maturity, call and inflation risk; investments may be worth more or less than the original cost when redeemed.
Bond prices are sensitive to changes in interest rates and a rise in interest rates can cause a decline in their prices.
Asset-Backed Securities (“ABS”) are subject to risks due to defaults by the borrowers; failure of the issuer or servicer to perform; the variability in cash flows due to amortization or acceleration features; changes in interest rates which may influence the prepayments of the underlying securities; misrepresentation of asset quality, value or inadequate controls over disbursements and receipts; and the ABS being structured in ways that give certain investors less credit risk protection than others.
The Fund also invests in derivative instruments, investments whose values depend on the performance of the underlying security, assets, interest rate, index or currency and entail potentially higher volatility and risk of loss compared to traditional stock or bond investments. Foreign investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards.
Illiquid investments subject the Fund to the risk that it may not be able to sell the investments when desired or at favorable prices.
6
BBH LIMITED DURATION FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
Growth of $10,000 Invested in BBH Limited Duration
The graph below illustrates the hypothetical investment of $10,0001 in the Class N shares of the Fund over the ten years ended October 31, 2020 as compared to the BCTSY.
The annualized gross expense ratios as in the February 28, 2020 prospectus for Class N and Class I shares were 0.51% and 0.28%, respectively. The annualized gross expense ratios for the year ended 10/31/2020 for Class N and Class I shares were 0.49% and 0.27%, respectively.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Fund performance changes over time and current performance may be lower or higher than what is stated. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. For performance current to the most recent month-end please call 1-800-575-1265.
________________
1 | The Fund’s performance assumes the reinvestment of all dividends and distributions. The Barclays Capital U.S. 1-3 Year Treasury Bond Index (“BCTSY”) has been adjusted to reflect reinvestment of dividends on securities in the index. The BCTSY is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund’s performance. |
The Reference Benchmark is an unmanaged weighted index comprised as follows: 40% Bloomberg Barclays Short-Term Corporate Index; 40% Bloomberg Barclays US Aggregate ABS Index; and 20% Bloomberg Barclays US Treasury Bills Index. The indexes are not available for direct investment. The Fund does not measure its performance success nor alter its construction in relation to any particular benchmark or index. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 7 |
BBH LIMITED DURATION FUND
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
To the Trustees of the BBH Trust and Shareholders of BBH Limited Duration Fund:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of BBH Limited Duration Fund (the “Fund”), one of the funds within BBH Trust, as of October 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2020, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the BBH Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the BBH Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The BBH Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the BBH Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
8
BBH LIMITED DURATION FUND
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM (continued)
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 21, 2020
We have served as the auditor of one or more Brown Brothers Harriman investment companies since 1991.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 9 |
BBH LIMITED DURATION FUND
PORTFOLIO ALLOCATION
October 31, 2020
BREAKDOWN BY SECURITY TYPE
U.S. $ Value | Percent of Net Assets | ||||||
Asset Backed Securities | $ | 2,103,449,131 | 26.0 | % | |||
Commercial Mortgage Backed Securities | 404,736,707 | 5.0 | |||||
Corporate Bonds | 2,870,334,379 | 35.6 | |||||
Exchange-Traded Funds | 167,414,500 | 2.1 | |||||
Loan Participations and Assignments | 806,346,176 | 10.0 | |||||
Municipal Bonds | 102,492,053 | 1.3 | |||||
Residential Mortgage Backed Securities | 113,673,208 | 1.4 | |||||
U.S. Government Agency Obligations | 123,962,236 | 1.5 | |||||
U.S. Treasury Bills | 1,509,115,005 | 18.7 | |||||
Liabilities in Excess of Other Assets | (129,991,768 | ) | (1.6 | ) | |||
NET ASSETS | $ | 8,071,531,627 | 100.0 | % |
All data as of October 31, 2020. The Fund’s sector diversification is expressed as a percentage of net assets and may vary over time.
The accompanying notes are an integral part of these financial statements.
10
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||
ASSET BACKED SECURITIES (26.0%) | |||||||||||||
$ | 14,663,073 | AIM Aviation Finance, Ltd. 2015-1A1 | 02/15/40 | 4.213 | % | $ | 10,975,787 | ||||||
5,812,127 | Amur Equipment Finance Receivables V LLC 2018-1A1 | 12/20/23 | 3.240 | 5,851,735 | |||||||||
11,321,991 | Amur Equipment Finance Receivables VI LLC 2018-2A1 | 07/20/22 | 3.890 | 11,506,207 | |||||||||
14,408,337 | Amur Equipment Finance Receivables VII LLC 2019-1A1. | 06/20/24 | 2.630 | 14,680,676 | |||||||||
18,113,610 | Bankers Healthcare Group Securitization Trust 2020-A1. | 09/17/31 | 2.560 | 18,114,295 | |||||||||
25,093,204 | BCC Funding Corp. XVI LLC 2019-1A1 | 08/20/24 | 2.460 | 25,376,067 | |||||||||
14,393,405 | Business Jet Securities LLC 2018-11 | 02/15/33 | 4.335 | 14,523,210 | |||||||||
32,192,103 | Business Jet Securities LLC 2018-21 | 06/15/33 | 4.447 | 32,463,730 | |||||||||
19,550,000 | Business Jet Securities LLC 2020-1A1 | 11/15/35 | 2.981 | 19,670,563 | |||||||||
23,250,640 | Capital Automotive LLC 2017-1A1 | 04/15/47 | 3.870 | 23,266,295 | |||||||||
20,690,000 | CARS-DB4 LP 2020-1A1 | 02/15/50 | 3.190 | 21,131,392 | |||||||||
16,652,714 | Cazenovia Creek Funding II LLC 2018-1A1 | 07/15/30 | 3.561 | 16,712,832 | |||||||||
1,140,583 | CCG Receivables Trust 2018-11 | 06/16/25 | 2.500 | 1,143,991 | |||||||||
25,152,540 | CF Hippolyta LLC 2020-11 | 07/15/60 | 1.690 | 25,418,382 | |||||||||
2,222,587 | Chesapeake Funding II LLC 2017-2A1 | 05/15/29 | 1.990 | 2,227,128 | |||||||||
5,696,121 | Chesapeake Funding II LLC 2017-4A1 | 11/15/29 | 2.120 | 5,735,606 | |||||||||
11,960,071 | Chesapeake Funding II LLC 2018-1A1 | 04/15/30 | 3.040 | 12,140,599 | |||||||||
22,706,704 | Chesapeake Funding II LLC 2019-1A1 | 04/15/31 | 2.940 | 23,137,893 | |||||||||
30,362,700 | Chesapeake Funding II LLC 2020-1A1 | 08/16/32 | 0.870 | 30,478,111 | |||||||||
15,912,720 | Chesterfield Financial Holdings LLC 2014-1A1 | 12/15/34 | 4.500 | 15,691,541 | |||||||||
7,116,935 | CIG Auto Receivables Trust 2019-1A1 | 08/15/24 | 3.330 | 7,194,620 | |||||||||
30,058,051 | CIG Auto Receivables Trust 2020-1 2020-1A1 | 10/12/23 | 0.680 | 30,075,433 | |||||||||
18,960,000 | Credit Acceptance Auto Loan Trust 2019-3A1 | 11/15/28 | 2.380 | 19,446,705 | |||||||||
57,480,000 | Credit Acceptance Auto Loan Trust 2020-3 2020-3A1 | 10/15/29 | 1.240 | 57,449,185 | |||||||||
57,920,000 | Delamare Cards MTN Issuer, Plc. 2018-1A (1-Month USD-LIBOR + 0.700%)1,2 | 11/19/25 | 0.847 | 57,911,306 | |||||||||
1,149,332 | Drive Auto Receivables Trust 2019-4 | 06/15/22 | 2.320 | 1,150,393 | |||||||||
7,826,171 | ECAF I, Ltd. 2015-1A1 | 06/15/40 | 3.473 | 7,237,538 | |||||||||
17,170,000 | Elm Trust 2020-3A1 | 08/20/29 | 2.954 | 17,245,629 | |||||||||
3,896,580 | Enterprise Fleet Financing LLC 2018-11 | 10/20/23 | 2.870 | 3,913,746 | |||||||||
15,060,299 | Enterprise Fleet Financing LLC 2019-11 | 10/20/24 | 2.980 | 15,342,747 | |||||||||
2,030,003 | Exeter Automobile Receivables Trust 2019-3A1 | 09/15/22 | 2.590 | 2,033,680 | |||||||||
6,658,060 | Exeter Automobile Receivables Trust 2019-4A1 | 01/17/23 | 2.180 | 6,680,899 | |||||||||
10,424,517 | Exeter Automobile Receivables Trust 2020-1A1 | 06/15/23 | 2.050 | 10,503,476 | |||||||||
31,388,287 | FNA LLC 2019-13 | 12/10/31 | 3.000 | 31,388,287 | |||||||||
5,465,513 | Foursight Capital Automobile Receivables Trust 2019-11 | 03/15/23 | 2.580 | 5,491,502 | |||||||||
13,930,171 | Foursight Capital Automobile Receivables Trust 2020-11 | 09/15/23 | 1.970 | 14,040,729 | |||||||||
274,486 | FREED ABS Trust 2018-11 | 07/18/24 | 3.610 | 274,617 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 11 |
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||
ASSET BACKED SECURITIES (continued) | |||||||||||||
$ | 879,895 | FREED ABS Trust 2018-21 | 10/20/25 | 3.990 | % | $ | 883,701 | ||||||
11,367,759 | FREED ABS Trust 2019-21 | 11/18/26 | 2.620 | 11,416,435 | |||||||||
14,230,476 | FREED ABS Trust 2020-FP11 | 03/18/27 | 2.520 | 14,260,451 | |||||||||
28,469,252 | Global SC Finance VII Srl 2020-1A1 | 10/17/40 | 2.170 | 28,431,718 | |||||||||
29,350,000 | Global SC Finance VII Srl 2020-2A1 | 11/19/40 | 2.260 | 29,391,372 | |||||||||
24,690,000 | Hercules Capital Funding Trust 2018-1A1 | 11/22/27 | 4.605 | 24,896,480 | |||||||||
3,004,262 | Hertz Fleet Lease Funding LP 2017-11 | 04/10/31 | 2.130 | 3,005,844 | |||||||||
14,220,000 | Lendmark Funding Trust 2018-1A1 | 12/21/26 | 3.810 | 14,374,687 | |||||||||
28,190,000 | Lendmark Funding Trust 2019-1A1 | 12/20/27 | 3.000 | 27,857,823 | |||||||||
21,710,000 | Lendmark Funding Trust 2019-2A1 | 04/20/28 | 2.780 | 21,926,809 | |||||||||
29,605,000 | Mariner Finance Issuance Trust 2018-AA1 | 11/20/30 | 4.200 | 29,739,247 | |||||||||
12,620,000 | Mariner Finance Issuance Trust 2019-AA1 | 07/20/32 | 2.960 | 12,829,016 | |||||||||
16,460,000 | Mariner Finance Issuance Trust 2020-AA1 | 08/21/34 | 2.190 | 16,488,366 | |||||||||
6,047,911 | MCA Fund II Holding LLC 2017-1 (3-Month USD-LIBOR + 1.650%)1,2 | 08/15/28 | 1.930 | 6,041,452 | |||||||||
20,312,347 | MelTel Land Funding LLC 2019-1A1 | 04/15/49 | 3.768 | 21,111,496 | |||||||||
15,024,004 | Nationstar HECM Loan Trust 2019-2A1,2,4 | 11/25/29 | 2.272 | 15,063,236 | |||||||||
35,113,614 | Nationstar HECM Loan Trust 2020-1A1,2,4 | 09/25/30 | 1.269 | 35,121,434 | |||||||||
12,630,000 | Navistar Financial Dealer Note Master Owner Trust II 2019-1 (1-Month USD-LIBOR + 0.640%)1,2 | 05/25/24 | 0.789 | 12,636,108 | |||||||||
27,120,000 | Navistar Financial Dealer Note Master Trust 2020-1 (1-Month USD-LIBOR + 0.950%)1,2 | 07/25/25 | 1.099 | 27,286,240 | |||||||||
19,000,000 | Neuberger Berman Loan Advisers Clo 36 Ltd. 2020-36A (3-Month USD-LIBOR + 1.700%)1,2 | 04/20/33 | 1.918 | 18,726,942 | |||||||||
5,050,895 | New Mexico Educational Assistance Foundation 2013-1 (1-Month USD-LIBOR + 0.700%)2 | 01/02/25 | 0.849 | 5,052,057 | |||||||||
40,570,000 | New Residential Advance Receivables Trust Advance Receivables Backed 2020-T11 | 08/15/53 | 1.426 | 40,608,546 | |||||||||
6,055,870 | Newtek Small Business Loan Trust 2016-1A (1-Month USD-LIBOR + 3.000%)1,2 | 02/25/42 | 3.149 | 6,055,873 | |||||||||
21,040,000 | NextGear Floorplan Master Owner Trust 2018-2A1 | 10/15/23 | 3.690 | 21,655,029 | |||||||||
21,800,000 | NextGear Floorplan Master Owner Trust 2019-1A1 | 02/15/24 | 3.210 | 22,519,058 | |||||||||
17,140,000 | NextGear Floorplan Master Owner Trust 2019-2A1 | 10/15/24 | 2.070 | 17,594,878 | |||||||||
30,640,000 | NextGear Floorplan Master Owner Trust 2020-1A1 | 02/15/25 | 1.550 | 31,209,974 | |||||||||
10,804,300 | NMEF Funding LLC 2019-A1 | 08/17/26 | 2.730 | 10,855,562 | |||||||||
24,700,000 | NRZ Advance Receivables Trust 2015-ON1 2020-T21 | 09/15/53 | 1.475 | 24,741,247 | |||||||||
17,000,000 | NRZ Advance Receivables Trust 2015-ON1 2020-T31 | 10/15/52 | 1.317 | 17,015,227 | |||||||||
25,020,000 | OneMain Financial Issuance Trust 2019-1A1 | 02/14/31 | 3.480 | 25,298,545 | |||||||||
24,865,000 | Oportun Funding X LLC 2018-C1 | 10/08/24 | 4.100 | 25,266,547 |
The accompanying notes are an integral part of these financial statements.
12
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||
ASSET BACKED SECURITIES (continued) | |||||||||||||
$ | 44,890,000 | Oportun Funding XII LLC 2018-D1 | 12/09/24 | 4.150 | % | $ | 45,698,271 | ||||||
26,430,000 | Oportun Funding XIII LLC 2019-A1 | 08/08/25 | 3.080 | 26,598,034 | |||||||||
13,350,709 | OSCAR US Funding Trust IX LLC 2018-2A1 | 09/12/22 | 3.390 | 13,500,363 | |||||||||
10,246,863 | OSCAR US Funding Trust X LLC 2019-1A1 | 04/11/22 | 3.100 | 10,294,393 | |||||||||
7,509,821 | OSCAR US Funding Trust XI LLC 2019-2A1 | 08/10/22 | 2.490 | 7,562,628 | |||||||||
20,000,000 | Palmer Square Loan Funding, Ltd. 2019-3A (3-Month USD-LIBOR + 1.600%)1,2 | 08/20/27 | 1.853 | 19,664,306 | |||||||||
15,000,000 | Palmer Square Loan Funding, Ltd. 2019-4A (3-Month USD-LIBOR + 1.600%)1,2 | 10/24/27 | 1.815 | 14,712,815 | |||||||||
38,101,050 | Pawnee Equipment Receivables Series LLC 2019-11 | 10/15/24 | 2.290 | 38,451,080 | |||||||||
33,826,181 | Pawnee Equipment Receivables Series LLC 2020-11 | 11/17/25 | 1.370 | 33,806,538 | |||||||||
21,680,000 | PFS Financing Corp. 2018-B1 | 02/15/23 | 2.890 | 21,829,588 | |||||||||
18,200,000 | PFS Financing Corp. 2019-A1 | 04/15/24 | 2.860 | 18,653,701 | |||||||||
27,650,000 | PFS Financing Corp. 2019-C1 | 10/15/24 | 2.230 | 28,374,165 | |||||||||
23,070,000 | PFS Financing Corp. 2020-F1 | 08/15/24 | 0.930 | 23,131,648 | |||||||||
41,500,000 | Regional Management Issuance Trust 2018-21 | 01/18/28 | 4.560 | 41,932,189 | |||||||||
18,070,000 | Regional Management Issuance Trust 2020-11 | 10/15/30 | 2.340 | 18,099,651 | |||||||||
27,400,000 | Republic Finance Issuance Trust 2019-A1 | 11/22/27 | 3.430 | 27,719,196 | |||||||||
16,470,000 | Republic Finance Issuance Trust 2020-A1 | 11/20/30 | 2.470 | 16,506,773 | |||||||||
31,000,000 | Santander Drive Auto Receivables Trust 2020-3 | 07/15/24 | 0.520 | 31,056,910 | |||||||||
34,490,000 | Santander Revolving Auto Loan Trust 2019-A1 | 01/26/32 | 2.510 | 36,566,260 | |||||||||
4,105,323 | SCF Equipment Leasing LLC 2019-1A1 | 03/20/23 | 3.040 | 4,109,607 | |||||||||
17,860,923 | SCF Equipment Leasing LLC 2019-2A1 | 06/20/24 | 2.220 | 18,045,544 | |||||||||
12,099,881 | Shenton Aircraft Investment I, Ltd. 2015-1A1 | 10/15/42 | 4.750 | 10,246,242 | |||||||||
50,956,333 | Stack Infrastructure Issuer LLC 2019-1A1 | 02/25/44 | 4.540 | 54,144,008 | |||||||||
19,160,000 | Stack Infrastructure Issuer LLC 2020-1A1 | 08/25/45 | 1.893 | 19,224,722 | |||||||||
30,805,000 | SWC Funding LLC 2018-1A1,3 | 08/15/33 | 4.750 | 30,553,505 | |||||||||
1,365,036 | Tax Ease Funding LLC 2016-1A1 | 06/15/28 | 3.131 | 1,368,233 | |||||||||
1,290,300 | THL Credit Wind River CLO, Ltd. 2012-1A (3-Month USD-LIBOR + 0.880%)1,2 | 01/15/26 | 1.117 | 1,287,103 | |||||||||
32,040,000 | THL Credit Wind River CLO, Ltd. 2017-1A (3-Month USD-LIBOR + 1.140%)1,2 | 04/18/29 | 1.358 | 31,719,972 | |||||||||
1,885,968 | TLF National Tax Lien Trust 2017-1A1 | 12/15/29 | 3.090 | 1,898,416 | |||||||||
27,390,000 | Trafigura Securitisation Finance, Plc. 2018-1A1 | 03/15/22 | 3.730 | 27,661,791 | |||||||||
15,520,938 | Veros Automobile Receivables Trust 2020-11 | 09/15/23 | 1.670 | 15,561,178 | |||||||||
3,158,409 | Westlake Automobile Receivables Trust 2019-1A1 | 05/16/22 | 3.060 | 3,165,034 | |||||||||
16,168,453 | Westlake Automobile Receivables Trust 2019-2A (1-Month USD-LIBOR + 0.470%)1,2 | 02/15/23 | 0.618 | 16,177,858 | |||||||||
18,190,093 | Westlake Automobile Receivables Trust 2019-3A1 | 02/15/23 | 2.150 | 18,313,829 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 13 |
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||
ASSET BACKED SECURITIES (continued) | |||||||||||||
$ | 77,740,000 | Westlake Automobile Receivables Trust 2020-3A1 | 05/15/24 | 0.560 | % | $ | 77,764,978 | ||||||
50,885,000 | World Financial Network Credit Card Master Trust 2018-A | 12/16/24 | 3.070 | 51,288,024 | |||||||||
9,771,791 | WRG Debt Funding II LLC 2017-11,3 | 03/15/26 | 4.458 | 9,772,646 | |||||||||
Total Asset Backed Securities | |||||||||||||
(Cost $2,091,821,459) | 2,103,449,131 | ||||||||||||
COMMERCIAL MORTGAGE BACKED SECURITIES (5.0%) | |||||||||||||
26,807,000 | BB-UBS Trust 2012-TFT1,2,4 | 06/05/30 | 3.584 | 17,415,765 | |||||||||
16,961,191 | BX Commercial Mortgage Trust 2018-IND (1-Month USD-LIBOR + 0.750%)1,2 | 11/15/35 | 0.898 | 16,886,637 | |||||||||
14,723,609 | BX Commercial Mortgage Trust 2019-XL (1-Month USD-LIBOR + 0.920%)1,2 | 10/15/36 | 1.068 | 14,714,433 | |||||||||
30,200,000 | BX Trust 2019-RP (1-Month USD-LIBOR + 1.045%)1,2 | 06/15/34 | 1.193 | 28,312,035 | |||||||||
14,227,523 | BXMT, Ltd. 2017-FL1 (1-Month USD-LIBOR + 0.870%)1,2. | 06/15/35 | 1.020 | 14,166,911 | |||||||||
39,480,000 | BXMT, Ltd. 2020-FL2 (1-Month USD-LIBOR + 0.900%)1,2. | 02/16/37 | 1.047 | 38,846,611 | |||||||||
20,990,000 | BXMT, Ltd. 2020-FL3 (1-Month USD-LIBOR + 1.400%)1,2. | 03/15/37 | 1.550 | 20,998,404 | |||||||||
31,329,000 | CG-CCRE Commercial Mortgage Trust 2014-FL2 (1-Month USD-LIBOR + 2.900%)1,2 | 11/15/31 | 2.726 | 25,831,700 | |||||||||
681,361 | Commercial Mortgage Pass Through Certificates 2013-GAM1 | 02/10/28 | 1.705 | 679,696 | |||||||||
9,690,000 | Commercial Mortgage Pass Through Certificates 2013-GAM1,2,4 | 02/10/28 | 3.531 | 7,494,012 | |||||||||
47,420,000 | GB Trust 2020-FLIX (1-Month USD-LIBOR + 1.120%)1,2 | 08/15/37 | 1.268 | 47,419,986 | |||||||||
19,337,720 | HPLY Trust 2019-HIT (1-Month USD-LIBOR + 1.000%)1,2. | 11/15/36 | 1.148 | 18,637,478 | |||||||||
33,957,624 | KKR Industrial Portfolio Trust 2020-AIP (1-Month USD-LIBOR + 1.037%)1,2 | 03/15/37 | 1.185 | 33,999,449 | |||||||||
10,100,000 | KREF, Ltd. 2018-FL1 (1-Month USD-LIBOR + 1.100%)1,2 | 06/15/36 | 1.247 | 10,024,682 | |||||||||
32,615,000 | Morgan Stanley Capital I Trust 2017-CLS (1-Month USD-LIBOR + 0.700%)1,2 | 11/15/34 | 0.848 | 32,534,911 | |||||||||
24,260,000 | STWD, Ltd. 2019-FL1 (1-Month USD-LIBOR + 1.080%)1,2 | 07/15/38 | 1.228 | 23,911,619 | |||||||||
53,364,000 | TPG Real Estate Finance Issuer, Ltd. 2018-FL2 (1-Month USD-LIBOR + 1.130%)1,2 | 11/15/37 | 1.277 | 52,862,378 | |||||||||
Total Commercial Mortgage Backed Securities | |||||||||||||
(Cost $424,990,289) | 404,736,707 | ||||||||||||
CORPORATE BONDS (35.6%) | |||||||||||||
AGRICULTURE (0.3%) | |||||||||||||
23,089,000 | Bunge, Ltd. Finance Corp. | 11/24/20 | 3.500 | 23,129,831 | |||||||||
AUTO MANUFACTURERS (0.7%) | |||||||||||||
54,780,000 | General Motors Financial Co., Inc. | 11/06/20 | 2.450 | 54,783,471 |
The accompanying notes are an integral part of these financial statements.
14
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||
CORPORATE BONDS (continued) | |||||||||||||
BANKS (11.3%) | |||||||||||||
$ | 14,895,000 | ANZ New Zealand Int'l, Ltd., London Branch1 | 03/19/24 | 3.400 | % | $ | 16,153,350 | ||||||
19,435,000 | ASB Bank, Ltd.1 | 06/14/23 | 3.750 | 20,971,911 | |||||||||
38,090,000 | Australia & New Zealand Banking Group, Ltd. | 11/16/20 | 2.700 | 38,122,757 | |||||||||
25,185,000 | Australia & New Zealand Banking Group, Ltd. | 05/19/22 | 2.625 | 26,087,320 | |||||||||
54,710,000 | Bank of New Zealand1 | 02/20/24 | 3.500 | 59,478,345 | |||||||||
14,660,000 | BNZ International Funding, Ltd., London Branch1 | 03/01/23 | 3.375 | 15,615,718 | |||||||||
19,610,000 | Canadian Imperial Bank of Commerce (SOFR + 0.800%)2 | 03/17/23 | 0.888 | 19,740,799 | |||||||||
9,198,000 | Citigroup, Inc. | 08/02/21 | 2.350 | 9,336,759 | |||||||||
17,940,000 | Commonwealth Bank of Australia1 | 09/06/21 | 2.000 | 18,207,001 | |||||||||
23,400,000 | DNB Bank ASA1 | 12/02/22 | 2.150 | 24,216,834 | |||||||||
10,635,000 | Fifth Third Bancorp | 01/25/24 | 3.650 | 11,582,399 | |||||||||
45,888,000 | Goldman Sachs Group, Inc. | 07/27/21 | 5.250 | 47,535,515 | |||||||||
33,350,000 | HSBC Holdings, Plc. (SOFR + 1.929%)2 | 06/04/26 | 2.099 | 34,058,625 | |||||||||
33,270,000 | JPMorgan Chase & Co. (SOFR + 1.585%)2 | 03/13/26 | 2.005 | 34,487,972 | |||||||||
33,923,000 | Lloyds Banking Group, Plc. | 03/12/24 | 3.900 | 36,914,243 | |||||||||
39,660,000 | Mitsubishi UFJ Financial Group, Inc. | 07/17/25 | 1.412 | 40,305,675 | |||||||||
40,735,000 | Morgan Stanley | 01/25/21 | 5.750 | 41,243,225 | |||||||||
13,760,000 | National Australia Bank, Ltd. | 09/20/21 | 3.375 | 14,131,520 | |||||||||
16,070,000 | Santander Holdings USA, Inc. | 06/07/24 | 3.500 | 17,305,412 | |||||||||
39,890,000 | Skandinaviska Enskilda Banken AB1 | 11/17/20 | 2.625 | 39,927,322 | |||||||||
12,345,000 | Skandinaviska Enskilda Banken AB | 03/15/21 | 2.625 | 12,454,937 | |||||||||
30,395,000 | Svenska Handelsbanken AB | 11/20/23 | 3.900 | 33,501,581 | |||||||||
25,085,000 | Toronto-Dominion Bank | 04/07/21 | 2.125 | 25,285,178 | |||||||||
45,355,000 | Toronto-Dominion Bank | 06/11/21 | 3.250 | 46,194,671 | |||||||||
61,285,000 | Truist Bank | 03/09/23 | 1.250 | 62,424,613 | |||||||||
21,430,000 | Truist Financial Corp. | 12/06/23 | 3.750 | 23,437,459 | |||||||||
22,470,000 | US Bancorp | 05/12/25 | 1.450 | 23,158,013 | |||||||||
30,005,000 | US Bank NA | 11/16/21 | 3.450 | 30,921,430 | |||||||||
13,500,000 | US Bank NA | 05/23/22 | 2.650 | 13,968,330 | |||||||||
22,790,000 | Wells Fargo & Co. (SOFR + 1.600%)2 | 06/02/24 | 1.654 | 23,285,211 | |||||||||
19,370,000 | Wells Fargo & Co. (SOFR + 2.000%)2 | 04/30/26 | 2.188 | 20,138,882 | |||||||||
22,155,000 | Wells Fargo Bank NA (3-Month USD-LIBOR + 0.650%)2. | 09/09/22 | 2.082 | 22,465,108 | |||||||||
12,500,000 | Westpac Banking Corp. | 05/13/21 | 2.100 | 12,620,693 | |||||||||
915,278,808 | |||||||||||||
BEVERAGES (0.2%) | |||||||||||||
13,050,000 | Anheuser-Busch InBev Worldwide, Inc. | 01/23/25 | 4.150 | 14,802,081 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 15 |
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||
CORPORATE BONDS (continued) | |||||||||||||
BIOTECHNOLOGY (0.3%) | |||||||||||||
$ | 25,120,000 | Gilead Sciences, Inc. | 09/29/23 | 0.750 | % | $ | 25,179,188 | ||||||
BUILDING MATERIALS (0.0%) | |||||||||||||
3,000,000 | CRH America, Inc. | 01/15/21 | 5.750 | 3,030,792 | |||||||||
CHEMICALS (0.2%) | |||||||||||||
12,880,000 | DuPont de Nemours, Inc. | 11/15/20 | 3.766 | 12,894,554 | |||||||||
COMPUTERS (0.2%) | |||||||||||||
17,250,000 | Dell International LLC / EMC Corp.1 | 06/15/23 | 5.450 | 18,980,812 | |||||||||
DIVERSIFIED FINANCIAL SERVICES (4.5%) | |||||||||||||
21,880,000 | AerCap Ireland Capital DAC / AerCap Global Aviation Trust | 09/15/23 | 4.500 | 22,722,506 | |||||||||
47,945,000 | AerCap Ireland Capital DAC / AerCap Global Aviation Trust | 02/15/24 | 3.150 | 47,528,482 | |||||||||
3,920,000 | AerCap Ireland Capital DAC / AerCap Global Aviation Trust | 10/15/27 | 4.625 | 3,885,171 | |||||||||
24,843,000 | Air Lease Corp. | 03/01/21 | 2.500 | 25,002,875 | |||||||||
37,385,000 | Alliance Data Systems Corp.1 | 12/15/24 | 4.750 | 34,674,587 | |||||||||
52,899,000 | American Express Co. | 05/17/21 | 3.375 | 53,635,721 | |||||||||
8,552,000 | American Express Co. | 11/05/21 | 3.700 | 8,816,383 | |||||||||
33,535,000 | Avolon Holdings Funding, Ltd.1 | 01/15/26 | 5.500 | 34,254,059 | |||||||||
24,645,000 | Blackstone / GSO Secured Lending Fund1 | 07/14/23 | 3.650 | 24,879,697 | |||||||||
19,925,000 | Blackstone / GSO Secured Lending Fund1 | 01/15/26 | 3.625 | 19,642,862 | |||||||||
16,045,000 | Capital One Financial Corp. | 05/11/23 | 2.600 | 16,813,703 | |||||||||
14,430,000 | Credit Acceptance Corp.1 | 12/31/24 | 5.125 | 14,321,775 | |||||||||
$2,785,000 | Credit Acceptance Corp. | 03/15/26 | 6.625 | 2,889,438 | |||||||||
49,455,000 | Drawbridge Special Opportunities Fund1 | 08/01/21 | 5.000 | 49,939,376 | |||||||||
359,006,635 | |||||||||||||
ELECTRIC (1.5%) | |||||||||||||
33,445,000 | Dominion Energy, Inc. | 03/15/25 | 3.300 | 36,751,571 | |||||||||
18,525,000 | Exelon Generation Co. LLC | 06/01/25 | 3.250 | 20,150,676 | |||||||||
21,306,000 | NV Energy, Inc. | 11/15/20 | 6.250 | 21,347,896 | |||||||||
43,500,000 | Southern Co. | 07/01/21 | 2.350 | 43,992,788 | |||||||||
122,242,931 | |||||||||||||
HEALTHCARE-PRODUCTS (0.2%) | |||||||||||||
15,916,000 | Fresenius US Finance II, Inc.1 | 02/01/21 | 4.250 | 16,051,971 | |||||||||
HEALTHCARE-SERVICES (1.1%) | |||||||||||||
6,895,000 | Centene Corp. | 01/15/25 | 4.750 | 7,084,612 | |||||||||
20,087,000 | MEDNAX, Inc.1 | 12/01/23 | 5.250 | 20,237,653 |
The accompanying notes are an integral part of these financial statements.
16
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||
CORPORATE BONDS (continued) | |||||||||||||
HEALTHCARE-SERVICES (continued) | |||||||||||||
$ | 60,630,000 | Sutter Health | 08/15/25 | 1.321 | % | $ | 60,888,678 | ||||||
88,210,943 | |||||||||||||
INSURANCE (2.5%) | |||||||||||||
18,891,000 | American International Group, Inc. | 03/01/21 | 3.300 | 19,030,277 | |||||||||
24,310,000 | Athene Global Funding1 | 01/25/22 | 4.000 | 25,185,267 | |||||||||
14,500,000 | Athene Global Funding1 | 07/01/22 | 3.000 | 14,939,217 | |||||||||
32,345,000 | Athene Global Funding1 | 06/29/25 | 2.550 | 33,444,255 | |||||||||
12,290,000 | Enstar Group, Ltd. | 03/10/22 | 4.500 | 12,730,853 | |||||||||
19,330,000 | Pacific Life Global Funding II1 | 06/24/25 | 1.200 | 19,528,066 | |||||||||
31,810,000 | Sirius International Group, Ltd.1 | 11/01/26 | 4.600 | 30,696,650 | |||||||||
31,750,000 | United Insurance Holdings Corp. | 12/15/27 | 6.250 | 31,172,180 | |||||||||
16,740,000 | Vitality Re VIII, Ltd. (Underlying Investment Yield + 1.750%)1,2 | 01/08/22 | 1.836 | 16,669,692 | |||||||||
203,396,457 | |||||||||||||
INTERNET (0.3%) | |||||||||||||
19,060,000 | Expedia Group, Inc.1 | 12/15/23 | 3.600 | 19,599,017 | |||||||||
4,805,000 | Expedia Group, Inc.1 | 08/01/27 | 4.625 | 5,038,493 | |||||||||
24,637,510 | |||||||||||||
INVESTMENT COMPANIES (5.1%) | |||||||||||||
1,845,000 | Ares Capital Corp. | 01/19/22 | 3.625 | 1,892,525 | |||||||||
71,705,000 | Ares Capital Corp. | 01/15/26 | 3.875 | 73,493,124 | |||||||||
41,185,000 | BlackRock TCP Capital Corp. | 08/23/24 | 3.900 | 41,636,701 | |||||||||
35,855,000 | Business Development Corp. of America1 | 12/30/22 | 4.750 | 35,161,373 | |||||||||
18,375,000 | Business Development Corp. of America1 | 12/15/24 | 4.850 | 17,957,956 | |||||||||
31,955,000 | FS KKR Capital Corp. | 07/15/24 | 4.625 | 32,236,449 | |||||||||
24,150,000 | FS KKR Capital Corp. | 02/01/25 | 4.125 | 24,079,200 | |||||||||
42,821,000 | FS KKR Capital Corp. II1 | 02/14/25 | 4.250 | 40,496,229 | |||||||||
39,855,000 | Golub Capital BDC, Inc. | 04/15/24 | 3.375 | 39,749,531 | |||||||||
35,005,000 | Main Street Capital Corp. | 05/01/24 | 5.200 | 36,617,935 | |||||||||
31,201,000 | Owl Rock Capital Corp. | 04/15/24 | 5.250 | 32,545,439 | |||||||||
10,000,000 | Owl Rock Capital Corp. | 03/30/25 | 4.000 | 10,012,089 | |||||||||
27,070,000 | Owl Rock Capital Corp. II1 | 11/26/24 | 4.625 | 27,224,706 | |||||||||
413,103,257 | |||||||||||||
MACHINERY-CONSTRUCTION & MINING (0.8%) | |||||||||||||
35,330,000 | Caterpillar Financial Services Corp. | 03/15/21 | 2.900 | 35,673,803 | |||||||||
24,145,000 | Caterpillar Financial Services Corp. | 07/07/23 | 0.650 | 24,291,319 | |||||||||
59,965,122 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 17 |
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||
CORPORATE BONDS (continued) | |||||||||||||
MACHINERY- DIVERSIFIED (0.2%) | |||||||||||||
$ | 17,865,000 | John Deere Capital Corp. | 01/10/22 | 3.200 | % | $ | 18,489,564 | ||||||
MEDIA (0.1%) | |||||||||||||
3,787,000 | Charter Communications Operating LLC / Charter Communications Operating Capital | 07/23/22 | 4.464 | 4,013,017 | |||||||||
OIL & GAS (1.2%) | |||||||||||||
32,248,000 | Apache Corp. | 11/15/25 | 4.625 | 30,635,600 | |||||||||
17,822,000 | Newfield Exploration Co. | 07/01/24 | 5.625 | 17,242,785 | |||||||||
56,165,000 | Occidental Petroleum Corp. | 08/15/22 | 2.700 | 51,938,584 | |||||||||
99,816,969 | |||||||||||||
PHARMACEUTICALS (1.4%) | |||||||||||||
30,540,000 | AbbVie, Inc.1 | 12/15/21 | 5.000 | 31,708,497 | |||||||||
15,895,000 | AbbVie, Inc.1 | 03/15/22 | 3.450 | 16,455,611 | |||||||||
26,260,000 | AbbVie, Inc.1 | 11/21/22 | 2.300 | 27,209,420 | |||||||||
38,680,000 | Bristol-Myers Squibb Co. | 05/14/21 | 2.550 | 39,151,101 | |||||||||
114,524,629 | |||||||||||||
PIPELINES (1.0%) | |||||||||||||
32,765,000 | Energy Transfer Operating LP | 06/01/21 | 4.650 | 33,194,768 | |||||||||
24,865,000 | Northriver Midstream Finance LP1 | 02/15/26 | 5.625 | 24,628,783 | |||||||||
20,870,000 | Sunoco Logistics Partners Operations LP | 04/01/21 | 4.400 | 21,125,496 | |||||||||
78,949,047 | |||||||||||||
PRIVATE EQUITY (0.3%) | |||||||||||||
20,015,000 | Owl Rock Technology Finance Corp.1 | 12/15/25 | 4.750 | 19,828,528 | |||||||||
REAL ESTATE INVESTMENT TRUSTS (0.3%) | |||||||||||||
19,215,000 | Scentre Group Trust 1 / Scentre Group Trust 21 | 01/28/26 | 3.625 | 20,540,619 | |||||||||
SEMICONDUCTORS (0.4%) | |||||||||||||
33,545,000 | ams AG1 | 07/31/25 | 7.000 | 35,473,837 | |||||||||
TELECOMMUNICATIONS (1.0%) | |||||||||||||
8,174,250 | Sprint Spectrum Co. LLC / Sprint Spectrum Co. II LLC / Sprint Spectrum Co. III LLC1 | 03/20/23 | 3.360 | 8,250,843 | |||||||||
72,440,000 | Telefonica Emisiones S.A. | 02/16/21 | 5.462 | 73,466,256 | |||||||||
81,717,099 |
The accompanying notes are an integral part of these financial statements.
18
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||
CORPORATE BONDS (continued) | |||||||||||||
TRUCKING & LEASING (0.5%) | |||||||||||||
$ | 7,700,000 | Aviation Capital Group LLC1 | 01/20/22 | 2.875 | % | $ | 7,687,647 | ||||||
33,230,000 | Aviation Capital Group LLC1 | 12/15/24 | 5.500 | 34,599,060 | |||||||||
42,286,707 | |||||||||||||
Total Corporate Bonds (Cost $2,816,671,421) | 2,870,334,379 | ||||||||||||
EXCHANGE-TRADED FUNDS (2.1%) | |||||||||||||
3,050,000 | iShares 1-5 Year Investment Grade Corporate Bond ETF | 167,414,500 | |||||||||||
Total Exchange-Traded Funds | |||||||||||||
(Cost $167,902,000) | 167,414,500 | ||||||||||||
LOAN PARTICIPATIONS AND ASSIGNMENTS (10.0%) | |||||||||||||
16,678,532 | Allen Media LLC (Entertainment Studios) (3-Month USD-LIBOR + 5.500%)2 | 02/10/27 | 5.720 | 16,105,291 | |||||||||
11,937,026 | Aria Energy Operating LLC (1-Month USD-LIBOR + 4.500%)2 | 05/27/22 | 5.500 | 11,499,295 | |||||||||
23,000,000 | Asplundh Tree Expert LLC (1-Month USD-LIBOR + 2.500%)2 | 09/07/27 | 2.640 | 22,928,240 | |||||||||
20,775,495 | Avolon TLB Borrower 1 (US) LLC Term B3 (1-Month USD-LIBOR + 1.750%)2 | 01/15/25 | 2.500 | 19,960,057 | |||||||||
38,144,880 | Axalta Coating Systems Dutch Holding B BV (Axalta Coating Systems U.S. Holdings, Inc.) (3-Month USD-LIBOR + 1.750%)2 | 06/01/24 | 1.970 | 36,952,853 | |||||||||
11,670,532 | BCP Renaissance Parent LLC (2-Month USD-LIBOR + 3.500%)2 | 10/31/24 | 4.500 | 10,693,125 | |||||||||
80,000,000 | Boeing Co. (3-Month USD-LIBOR + 1.250%)2 | 02/07/22 | 1.466 | 78,266,400 | |||||||||
3,520,161 | Broadcom, Inc. Term A3 (1-Month USD-LIBOR + 1.125%)2 | 11/04/22 | 1.273 | 3,511,361 | |||||||||
7,048,125 | Broadcom, Inc. Term A5 (1-Month USD-LIBOR + 1.250%)2 | 11/04/24 | 1.398 | 6,801,441 | |||||||||
22,153,675 | Buckeye Partners LP (1-Month USD-LIBOR + 2.750%)2 | 11/01/26 | 2.897 | 21,706,614 | |||||||||
45,251,877 | CenturyLink, Inc. Term A (1-Month USD-LIBOR + 2.000%)2 | 01/31/25 | 2.148 | 43,962,198 | |||||||||
3,828,997 | Charter Communications Operating LLC (CCO Safari LLC) Term A2 (1-Month USD-LIBOR + 1.500%)2 | 03/31/23 | 1.650 | 3,781,135 | |||||||||
32,926,192 | Charter Communications Operating LLC (CCO Safari LLC) Term B1 (1-Month USD-LIBOR + 1.750%)2 | 04/30/25 | 1.900 | 32,190,620 | |||||||||
28,169,764 | Clarios Global LP (1-Month USD-LIBOR + 3.500%)2 | 04/30/26 | 3.648 | 27,317,629 | |||||||||
36,693,784 | Clean Harbors, Inc. (1-Month USD-LIBOR + 1.750%)2 | 06/28/24 | 1.898 | 36,537,835 | |||||||||
26,325,000 | DaVita, Inc. Term A (1-Month USD-LIBOR + 1.500%)2 | 08/12/24 | 1.648 | 25,798,500 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 19 |
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||
LOAN PARTICIPATIONS AND ASSIGNMENTS (continued) | |||||||||||||
$ | 24,675,944 | Dell International LLC Term B1 (1-Month USD-LIBOR + 2.000%)2 | 09/19/25 | 2.750 | % | $ | 24,388,963 | ||||||
25,891,030 | Delos Finance S.a r.l. (3-Month USD-LIBOR + 1.750%)2 | 10/06/23 | 1.970 | 25,011,771 | |||||||||
38,654,929 | Eastern Power LLC (TPF II LC LLC) (3-Month USD-LIBOR + 3.750%)2 | 10/02/25 | 4.750 | 38,351,101 | |||||||||
29,146,871 | Elanco Animal Health, Inc. (1-Month USD-LIBOR + 1.750%)2 | 08/01/27 | 1.899 | 28,484,946 | |||||||||
14,519,231 | EnLink Midstream Partners, LP (1-Month USD-LIBOR + 1.500%)2,3 | 12/10/21 | 1.647 | 13,938,461 | |||||||||
33,726,690 | Frontera Generation Holdings LLC (3-Month USD-LIBOR + 4.250%)2 | 05/02/25 | 5.250 | 9,376,020 | |||||||||
2,775,615 | HCA, Inc. Term B12 (1-Month USD-LIBOR + 1.750%)2 | 03/13/25 | 1.898 | 2,758,268 | |||||||||
12,782,265 | HCA, Inc. Term B13 (1-Month USD-LIBOR + 1.750%)2 | 03/18/26 | 1.898 | 12,706,978 | |||||||||
32,532,051 | LYB Americas Finance Company LLC (3-Month USD-LIBOR + 1.250%)2 | 03/29/22 | 1.466 | 31,881,410 | |||||||||
15,555,556 | Marvell Technology Group, Ltd. Term A (1-Month USD-LIBOR + 1.375%)2,3 | 06/04/21 | 1.515 | 15,516,667 | |||||||||
39,205,796 | NorthRiver Midstream Finance LP Term B (3-Month USD-LIBOR + 3.250%)2 | 10/01/25 | 3.475 | 36,569,206 | |||||||||
8,510,187 | RPI Intermediate Finance Trust Term B1 (1-Month USD-LIBOR + 1.750%)2 | 02/11/27 | 1.898 | 8,459,637 | |||||||||
42,000,000 | SkyMiles IP, Ltd. (3-Month USD-LIBOR + 3.750%)2 | 10/20/27 | 3.966 | 41,798,820 | |||||||||
9,942,335 | SS&C Technologies Holdings, Inc. Term B3 (1-Month USD-LIBOR + 1.750%)2 | 04/16/25 | 1.898 | 9,650,328 | |||||||||
6,029,700 | SS&C Technologies Holdings, Inc. Term B4 (1-Month USD-LIBOR + 1.750%)2 | 04/16/25 | 1.898 | 5,852,607 | |||||||||
8,369,528 | SS&C Technologies Holdings, Inc. Term B5 (1-Month USD-LIBOR + 1.750%)2 | 04/16/25 | 1.898 | 8,126,058 | |||||||||
17,760,188 | UGI Energy Services, LLC (1-Month USD-LIBOR + 3.750%)2 | 08/13/26 | 3.898 | 17,582,586 | |||||||||
16,219,094 | Vistra Operations Co. LLC (Tex Operations Co. LLC) (1-Month USD-LIBOR + 1.750%)2 | 12/31/25 | 1.898 | 15,823,834 | |||||||||
31,631,652 | Western Digital Corp. Term B4 (1-Month USD-LIBOR + 1.750%)2 | 04/29/23 | 1.898 | 31,339,059 | |||||||||
32,347,840 | Wyndham Hotels & Resorts, Inc. Term B (1-Month USD-LIBOR + 1.750%)2 | 05/30/25 | 1.898 | 30,716,862 | |||||||||
Total Loan Participations and Assignments | |||||||||||||
(Cost $845,166,632) | 806,346,176 |
The accompanying notes are an integral part of these financial statements.
20
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||
MUNICIPAL BONDS (1.3%) | |||||||||||||
$ | 110,000 | Indiana Health & Educational Facilities Financing Authority, Revenue Bonds2,4 | 11/15/31 | 1.750 | % | $ | 111,487 | ||||||
7,560,000 | Indiana Health & Educational Facilities Financing Authority, Revenue Bonds2,4 | 11/15/31 | 1.750 | 7,663,723 | |||||||||
14,525,000 | New Jersey Economic Development Authority, Revenue Bonds | 06/15/21 | 5.000 | 14,900,326 | |||||||||
10,100,000 | New Jersey Turnpike Authority, Revenue Bonds (1-Month USD-LIBOR + 0.700%)2 | 01/01/24 | 0.804 | 10,087,779 | |||||||||
3,253,000 | Pennsylvania Industrial Development Authority, Revenue Bonds1 | 07/01/21 | 2.967 | 3,290,215 | |||||||||
16,530,000 | Texas Municipal Gas Acquisition & Supply Corp. I, Revenue Bonds | 12/15/26 | 6.250 | 19,352,332 | |||||||||
47,545,000 | Texas Municipal Gas Acquisition & Supply Corp. II, Revenue Bonds (3-Month USD-LIBOR + 0.690%)2 | 09/15/27 | 0.855 | 47,086,191 | |||||||||
Total Municipal Bonds | |||||||||||||
(Cost $101,084,667) | 102,492,053 | ||||||||||||
RESIDENTIAL MORTGAGE BACKED SECURITIES (1.4%) | |||||||||||||
31,779,003 | Cascade Funding Mortgage Trust 2019-RM31,2,4 | 06/25/69 | 2.800 | 31,589,826 | |||||||||
12,215,706 | Pepper Residential Securities Trust No. 23A (1-Month USD-LIBOR + 0.950%)1,2 | 08/18/60 | 1.097 | 12,039,077 | |||||||||
7,827,995 | Pepper Residential Securities Trust No. 24A (1-Month USD-LIBOR + 0.900%)1,2 | 11/18/60 | 1.047 | 7,808,129 | |||||||||
24,340,243 | RESIMAC Premier 2019-2A (1-Month USD-LIBOR + 0.950%)1,2 | 02/10/51 | 1.095 | 24,342,365 | |||||||||
17,670,000 | RESIMAC Premier 2020-1A (1-Month USD-LIBOR + 1.050%)1,2 | 02/07/52 | 1.209 | 17,672,069 | |||||||||
20,267,358 | RMF Proprietary Issuance Trust 2019-11,2,4 | 10/25/63 | 2.750 | 20,221,742 | |||||||||
Total Residential Mortgage Backed Securities (Cost $113,939,370) | 113,673,208 | ||||||||||||
U.S. GOVERNMENT AGENCY OBLIGATIONS (1.5%) | |||||||||||||
25,622,000 | Federal Farm Credit Banks Funding Corp. | 08/25/25 | 0.610 | 25,466,110 | |||||||||
50,168,000 | Federal Home Loan Mortgage Corp. | 10/27/25 | 0.600 | 50,025,345 | |||||||||
36,490,000 | Federal Home Loan Mortgage Corp. | 10/27/25 | 0.625 | 36,322,903 | |||||||||
61,128 | Federal Home Loan Mortgage Corp. (FHLMC) Non Gold Guaranteed (1-Year USD-LIBOR + 1.757%)2 | 04/01/36 | 3.684 | 64,398 | |||||||||
14,524 | Federal Home Loan Mortgage Corp. (FHLMC) Non Gold Guaranteed (6-Month USD-LIBOR + 1.740%)2 | 12/01/36 | 2.865 | 14,617 | |||||||||
17,996 | Federal Home Loan Mortgage Corp. (FHLMC) Non Gold Guaranteed (1-Year USD-LIBOR + 1.745%)2 | 01/01/37 | 3.745 | 18,070 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 21 |
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||
U.S. GOVERNMENT AGENCY OBLIGATIONS (continued) | |||||||||||||
$ | 4,819,362 | Federal National Mortgage Association (FNMA) | 07/01/35 | 5.000 | % | $ | 5,552,914 | ||||||
319,646 | Federal National Mortgage Association (FNMA) | 11/01/35 | 5.500 | 378,603 | |||||||||
33,756 | Federal National Mortgage Association (FNMA) (1-Year USD-LIBOR + 1.985%)2 | 07/01/36 | 2.762 | 35,777 | |||||||||
70,849 | Federal National Mortgage Association (FNMA) (1-Year USD-LIBOR + 1.723%)2 | 09/01/36 | 2.481 | 74,259 | |||||||||
28,704 | Federal National Mortgage Association (FNMA) (1-Year USD-LIBOR + 1.754%)2 | 01/01/37 | 3.795 | 29,096 | |||||||||
278,784 | Federal National Mortgage Association (FNMA) | 08/01/37 | 5.500 | 328,475 | |||||||||
3,320,960 | Federal National Mortgage Association (FNMA) | 08/01/37 | 5.500 | 3,914,321 | |||||||||
1,495,467 | Federal National Mortgage Association (FNMA) | 06/01/40 | 6.500 | 1,728,138 | |||||||||
8,931 | Government National Mortgage Association (GNMA) (1-Year CMT Index + 1.500%)2 | 08/20/29 | 2.250 | 9,210 | |||||||||
Total U.S. Government Agency Obligations | |||||||||||||
(Cost $123,302,600) | 123,962,236 | ||||||||||||
U.S. TREASURY BILLS (18.7%) | |||||||||||||
153,000,000 | U.S. Cash Management Bill5 | 01/26/21 | 0.000 | 152,949,424 | |||||||||
175,000,000 | U.S. Treasury Bill5 | 11/10/20 | 0.000 | 174,996,338 | |||||||||
136,500,000 | U.S. Treasury Bill5 | 11/19/20 | 0.000 | 136,494,034 | |||||||||
170,500,000 | U.S. Treasury Bill5 | 11/27/20 | 0.000 | 170,488,085 | |||||||||
186,000,000 | U.S. Treasury Bill5 | 12/10/20 | 0.000 | 185,980,647 | |||||||||
276,250,000 | U.S. Treasury Bill5 | 01/14/21 | 0.000 | 276,202,946 | |||||||||
203,000,000 | U.S. Treasury Bill5 | 01/21/21 | 0.000 | 202,960,980 | |||||||||
204,000,000 | U.S. Treasury Bill5,6 | 02/11/21 | 0.000 | 203,946,344 | |||||||||
5,100,000 | U.S. Treasury Bill5,6 | 07/15/21 | 0.000 | 5,096,207 | |||||||||
Total U.S. Treasury Bills | |||||||||||||
(Cost $1,509,118,992) | 1,509,115,005 |
TOTAL INVESTMENTS (Cost $8,193,997,430)7 | 101.6 | % | $8,201,523,395 | ||||
LIABILITIES IN EXCESS OF OTHER ASSETS | (1.6 | )% | (129,991,768 | ) | |||
NET ASSETS | 100.0 | % | $8,071,531,627 |
____________
1 | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. Total market value of Rule 144A securities owned at October 31, 2020 was $3,445,090,629 or 42.7% of net assets. |
2 | Variable rate instrument. Interest rates change on specific dates (such as coupon or interest payment date). The yield shown represents the October 31, 2020 coupon or interest rate. |
The accompanying notes are an integral part of these financial statements.
22
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
3 | Security that used significant unobservable inputs to determine fair value. |
4 | This variable rate security is based on a predetermined schedule and the rate at period end also represents the reference rate at period end. |
5 | Security issued with zero coupon. Income is recognized through accretion of discount. |
6 | All or a portion of this security is held at the broker as collateral for open futures contracts. |
7 | The aggregate cost of investments and derivatives for federal income tax purposes is $8,196,019,065, the aggregate gross unrealized appreciation is $88,337,462 and the aggregate gross unrealized depreciation is $ 80,812,207, resulting in net unrealized appreciation of $7,525,255. |
| |
Abbreviations: | |
CMT – Constant Maturity Treasury. | |
FHLMC – Federal Home Loan Mortgage Corporation. | |
FNMA – Federal National Mortgage Association. | |
GNMA – Government National Mortgage Association. | |
LIBOR – London Interbank Offered Rate. | |
MTN – Medium Term Note. | |
SOFR – Secured Overnight Financing Rate |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 23 |
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
FINANCIAL FUTURES CONTRACTS
The following futures contracts were open at October 31, 2020:
Number | Unrealized | |||||||||||||||
of | Expiration | Notional | Market | Gain / | ||||||||||||
Description | Contracts | Date | Amount | Value | (Loss) | |||||||||||
Contracts to Sell: | ||||||||||||||||
U.S. Treasury 2-Year Notes | 1,912 | December 2020 | $422,298,063 | $422,253,250 | $ | 44,813 | ||||||||||
U.S. Treasury 5-Year Notes | 6,635 | December 2020 | 835,172,795 | 833,366,370 | 1,806,425 | |||||||||||
U.S. Treasury 10-Year Notes | 181 | December 2020 | 25,187,281 | 25,017,594 | 169,687 | |||||||||||
$ | 2,020,925 |
FAIR VALUE MEASUREMENTS
The Fund is required to disclose information regarding the fair value measurements of the Fund’s assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The disclosure requirement established a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including, for example, the risk inherent in a particular valuation technique used to measure fair value, including the model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the Fund’s own considerations about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
Authoritative guidance establishes three levels of the fair value hierarchy as follows:
— | Level 1 – unadjusted quoted prices in active markets for identical assets and liabilities. |
— | Level 2 – significant other observable inputs (including quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk, etc.). |
— | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of assets and liabilities). |
The accompanying notes are an integral part of these financial statements.
24
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires judgment by the investment adviser. The investment adviser considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the investment adviser’s perceived risk of that instrument.
Financial assets within Level 1 are based on quoted market prices in active markets. The Fund does not adjust the quoted price for these instruments.
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include investment-grade corporate bonds, U.S. Treasury notes and bonds, and certain non-U.S. sovereign obligations and over-the-counter derivatives. As Level 2 financial assets include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Financial assets classified within Level 3 have significant unobservable inputs, as they trade infrequently. Level 3 financial assets include asset backed securities and certain corporate debt securities.
Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon the actual sale of those investments.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 25 |
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2020.
Investments, at value | Unadjusted Quoted Prices in Active Markets for Identical Investments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of October 31, 2020 | |||||||||||||||
Asset Backed Securities | $ | — | $ | 2,031,734,693 | $ | 71,714,438 | $ | 2,103,449,131 | |||||||||||
Commercial Mortgage Backed Securities | — | 404,736,707 | — | 404,736,707 | |||||||||||||||
Corporate Bonds | — | 2,870,334,379 | — | 2,870,334,379 | |||||||||||||||
Exchange-Traded Funds | 167,414,500 | — | — | 167,414,500 | |||||||||||||||
Loan Participations and Assignments | — | 776,891,048 | 29,455,128 | 806,346,176 | |||||||||||||||
Municipal Bonds | — | 102,492,053 | — | 102,492,053 | |||||||||||||||
Residential Mortgage Backed Securities | — | 113,673,208 | — | 113,673,208 | |||||||||||||||
U.S. Government Agency Obligations | — | 123,962,236 | — | 123,962,236 | |||||||||||||||
U.S. Treasury Bills | — | 1,509,115,005 | — | 1,509,115,005 | |||||||||||||||
Total Investment, at value | $ | 167,414,500 | $ | 7,932,939,329 | $ | 101,169,566 | $ | 8,201,523,395 | |||||||||||
Other Financial Instruments, at value | |||||||||||||||||||
Financial Futures Contracts | $ | 2,020,925 | $ | — | $ | — | $ | 2,020,925 | |||||||||||
Other Financial Instruments, at value | $ | 2,020,925 | $ | — | $ | — | $ | 2,020,925 |
The accompanying notes are an integral part of these financial statements.
26
BBH LIMITED DURATION FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
The following is a reconciliation of assets for which significant unobservable inputs (Level 3) were used in determining fair value during the year ended October 31, 2020:
Asset Backed Securities | Loan Participations and Assignments | Total | |||||||||||||
Balance as of October 31, 2019 | $ | 61,293,512 | $ | — | $ | 61,293,512 | |||||||||
Purchases | 34,105,000 | 14,410,336 | 48,515,336 | ||||||||||||
Sales / Paydowns | (22,165,835 | ) | — | (22,165,835 | ) | ||||||||||
Realized gains (losses) | — | — | — | ||||||||||||
Change in unrealized appreciation (depreciation) | (1,595,187 | ) | (521,718 | ) | (2,116,905 | ) | |||||||||
Amortization | 76,948 | 49,843 | 126,791 | ||||||||||||
Transfers from Level 3 | — | — | — | ||||||||||||
Transfers to Level 3 | — | 15,516,667 | 15,516,667 | ||||||||||||
Balance as of October 31, 2020 | $ | 71,714,438 | $ | 29,455,128 | $ | 101,169,566 |
The Fund’s investments classified as Level 3 were valued using a model approach, including the Fund’s assumptions in determining their fair value.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 27 |
BBH LIMITED DURATION FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2020
ASSETS: | ||||
Investments in securities, at value (Cost $8,193,997,430) | $ | 8,201,523,395 | ||
Cash | 15,139,980 | |||
Receivables for: | ||||
Interest | 33,743,156 | |||
Shares sold | 31,272,585 | |||
Investments sold | 18,573,546 | |||
Futures variation margin on open contracts | 344,972 | |||
Investment advisory and administrative fee waiver reimbursement | 58,845 | |||
Other | 2,552,286 | |||
Prepaid assets | 39,690 | |||
Total Assets | 8,303,248,455 | |||
LIABILITIES: | ||||
Payables for: | ||||
Investments purchased | 216,010,421 | |||
Shares redeemed | 12,669,324 | |||
Investment advisory and administrative fees | 1,737,626 | |||
Dividends declared | 902,720 | |||
Custody and fund accounting fees | 165,229 | |||
Professional fees | 93,672 | |||
Shareholder servicing fees | 77,329 | |||
Transfer agent fees | 5,033 | |||
Accrued expenses and other liabilities | 55,474 | |||
Total Liabilities | 231,716,828 | |||
NET ASSETS | $ | 8,071,531,627 | ||
Net Assets Consist of: | ||||
Paid-in capital | $ | 8,123,322,429 | ||
Accumulated deficit | (51,790,802 | ) | ||
Net Assets | $ | 8,071,531,627 |
NET ASSET VALUE AND OFFERING PRICE PER SHARE | ||||
CLASS N SHARES | ||||
($461,308,181 ÷ 45,087,385 shares outstanding) | $10.23 | |||
CLASS I SHARES | ||||
($7,610,223,446 ÷ 744,188,617 shares outstanding) | $10.23 |
The accompanying notes are an integral part of these financial statements.
28
BBH LIMITED DURATION FUND
STATEMENT OF OPERATIONS
For the year ended October 31, 2020
NET INVESTMENT INCOME: | ||||
Income: | ||||
Dividends | $ | 312,768 | ||
Interest income | 193,782,231 | |||
Other income | 3,102,805 | |||
Total Income | 197,197,804 | |||
Expenses: | ||||
Investment advisory and administrative fees | 18,910,389 | |||
Shareholder servicing fees | 830,992 | |||
Custody and fund accounting fees | 687,002 | |||
Professional fees | 106,336 | |||
Transfer agent fees | 63,936 | |||
Board of Trustees’ fees | 58,282 | |||
Miscellaneous expenses | 457,049 | |||
Total Expenses | 21,113,986 | |||
Investment advisory and administrative fee waiver | (595,975 | ) | ||
Net Expenses | 20,518,011 | |||
Net Investment Income | 176,679,793 | |||
NET REALIZED AND UNREALIZED LOSS: | ||||
Net realized gain on investments in securities | 18,968,786 | |||
Net realized loss on futures contracts | (14,739,565 | ) | ||
Net realized gain on investments in securities and futures contracts | 4,229,221 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments in securities | (54,157,780 | ) | ||
Net change in unrealized appreciation/(depreciation) on futures contracts | (153,572 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments in securities and futures contracts | (54,311,352 | ) | ||
Net Realized and Unrealized Loss | (50,082,131 | ) | ||
Net Increase in Net Assets Resulting from Operations | $ | 126,597,662 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 29 |
BBH LIMITED DURATION FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended October 31, | ||||||||
2020 | 2019 | |||||||
INCREASE IN NET ASSETS: | ||||||||
Operations: | ||||||||
Net investment income | $ | 176,679,793 | $ | 193,945,072 | ||||
Net realized gain (loss) on investments in securities and futures contracts | 4,229,221 | (22,899,028 | ) | |||||
Net change in unrealized appreciation/(depreciation) on investments in securities and futures contracts | (54,311,352 | ) | 89,071,170 | |||||
Net increase in net assets resulting from operations | 126,597,662 | 260,117,214 | ||||||
Dividends and distributions declared: | ||||||||
Class N | (9,638,723 | ) | (10,061,064 | ) | ||||
Class I | (166,935,856 | ) | (184,257,128 | ) | ||||
Total dividends and distributions declared | (176,574,579 | ) | (194,318,192 | ) | ||||
Share transactions: | ||||||||
Proceeds from sales of shares1 | 4,159,732,686 | 3,382,156,185 | ||||||
Net asset value of shares issued to shareholders for reinvestment of dividends and distributions | 37,126,855 | 44,010,458 | ||||||
Proceeds from short-term redemption fees | – | 501 | ||||||
Cost of shares redeemed1 | (3,215,918,972 | ) | (2,626,931,509 | ) | ||||
Net increase in net assets resulting from share transactions | 980,940,569 | 799,235,635 | ||||||
Total increase in net assets | 930,963,652 | 865,034,657 | ||||||
NET ASSETS: | ||||||||
Beginning of year | 7,140,567,975 | 6,275,533,318 | ||||||
End of year | $ | 8,071,531,627 | $ | 7,140,567,975 |
________________
1 | Includes share exchanges. See Note 5 in Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
30
BBH LIMITED DURATION FUND
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a Class N share outstanding throughout each year.
For the years ended October 31, | ||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
Net asset value, beginning of year | $ | 10.26 | $ | 10.15 | $ | 10.19 | $ | 10.13 | $ | 10.14 | ||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income1 | 0.24 | 0.30 | 0.26 | 0.21 | 0.19 | |||||||||||||||
Net realized and unrealized gain (loss) | (0.03 | ) | 0.11 | (0.06 | ) | 0.05 | (0.00 | )2 | ||||||||||||
Total income from investment operations | 0.21 | 0.41 | 0.20 | 0.26 | 0.19 | |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.24 | ) | (0.30 | ) | (0.24 | ) | (0.20 | ) | (0.20 | ) | ||||||||||
Total dividends and distributions. | (0.24 | ) | (0.30 | ) | (0.24 | ) | (0.20 | ) | (0.20 | ) | ||||||||||
Net asset value, end of year | $ | 10.23 | $ | 10.26 | $ | 10.15 | $ | 10.19 | $ | 10.13 | ||||||||||
Total return | 2.06 | % | 4.14 | % | 2.03 | % | 2.64 | % | 1.90 | % | ||||||||||
Ratios/Supplemental data: | ||||||||||||||||||||
Net assets, end of year (in millions) | $ | 461 | $ | 371 | $ | 275 | $ | 72 | $ | 42 | ||||||||||
Ratio of expenses to average net assets before reductions | 0.49 | % | 0.51 | % | 0.50 | % | 0.67 | % | 0.49 | % | ||||||||||
Fee waiver | 0.14 | %3 | 0.16 | %3 | 0.15 | %3 | 0.27 | %3 | 0.01 | %3 | ||||||||||
Expense offset arrangement | 0.00 | % | 0.00 | %4 | 0.00 | %4 | 0.00 | %4 | 0.00 | %4 | ||||||||||
Ratio of expenses to average net assets after reductions | 0.35 | % | 0.35 | % | 0.35 | % | 0.40 | % | 0.48 | % | ||||||||||
Ratio of net investment income to average net assets | 2.32 | % | 2.98 | % | 2.52 | % | 2.05 | % | 1.91 | % | ||||||||||
Portfolio turnover rate | 51 | % | 53 | % | 48 | % | 52 | % | 53 | % |
____________
1 | Calculated using average shares outstanding for the year. |
2 | Less than $0.01. |
3 | The ratio of expenses to average net assets for the years ended October 31, 2020, 2019, 2018 and 2017, reflect fees reduced as result of contractual operating expense limitation of the share class. Prior to March 24, 2017, the expense limitation of the share class was 0.48%. Following March 24, 2017, the expense limitation was changed to 0.35%. The agreement is effective for the periods beginning on December 29, 2015 and can be changed at any time at the sole discretion of the Investment Advisor. For the years ended October 31, 2020, 2019, 2018, 2017 and 2016, the waived fees were $595,975, $538,703, $242,627, $132,560 and $45,079, respectively. |
4 | Less than 0.01%. |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 31 |
BBH LIMITED DURATION FUND
FINANCIAL HIGHLIGHTS (continued)
Selected per share data and ratios for a Class I share outstanding throughout each year.
For the years ended October 31, | ||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
Net asset value, beginning of year | $ | 10.25 | $ | 10.15 | $ | 10.19 | $ | 10.13 | $ | 10.14 | ||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income1 | 0.24 | 0.31 | 0.25 | 0.22 | 0.22 | |||||||||||||||
Net realized and unrealized gain (loss) | (0.02 | ) | 0.10 | (0.04 | ) | 0.06 | (0.01 | ) | ||||||||||||
Total income from investment operations | 0.22 | 0.41 | 0.21 | 0.28 | 0.21 | |||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.24 | ) | (0.31 | ) | (0.25 | ) | (0.22 | ) | (0.22 | ) | ||||||||||
Total dividends and distributions. | (0.24 | ) | (0.31 | ) | (0.25 | ) | (0.22 | ) | (0.22 | ) | ||||||||||
Net asset value, end of year | $ | 10.23 | $ | 10.25 | $ | 10.15 | $ | 10.19 | $ | 10.13 | ||||||||||
Total return | 2.24 | % | 4.12 | % | 2.11 | % | 2.77 | % | 2.13 | % | ||||||||||
Ratios/Supplemental data: | ||||||||||||||||||||
Net assets, end of year (in millions) | $ | 7,610 | $ | 6,769 | $ | 6,000 | $ | 6,346 | $ | 4,737 | ||||||||||
Ratio of expenses to average net assets before reductions | 0.27 | % | 0.28 | % | 0.27 | % | 0.28 | % | 0.27 | % | ||||||||||
Expense offset arrangement | 0.00 | %2 | 0.00 | %2 | 0.00 | %2 | 0.00 | %2 | 0.00 | %2 | ||||||||||
Ratio of expenses to average net assets after reductions | 0.27 | % | 0.28 | % | 0.27 | % | 0.28 | % | 0.27 | % | ||||||||||
Ratio of net investment income to average net assets | 2.40 | % | 3.04 | % | 2.47 | % | 2.17 | % | 2.21 | % | ||||||||||
Portfolio turnover rate | 51 | % | 53 | % | 48 | % | 52 | % | 53 | % |
____________
1 | Calculated using average shares outstanding for the year. |
2 | Less than 0.01%. |
The accompanying notes are an integral part of these financial statements.
32
BBH LIMITED DURATION FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2020
1.Organization. The Fund is a separate, diversified series of BBH Trust (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust was originally organized under the laws of the State of Maryland on July 16, 1990 as BBH Fund, Inc. and re-organized as a Delaware statutory trust on June 12, 2007. The Fund commenced operation on December 22, 2000 and offers two share classes, Class N and Class I. Neither Class N shares nor Class I shares automatically convert to any other share class of the Fund. The investment objective of the Fund is to provide maximum total return, consistent with preservation of capital and prudent investment management. As of October 31, 2020, there were seven series of the Trust.
2.Significant Accounting Policies. The Fund’s financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”). The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services — Investment Companies. The following summarizes significant accounting policies of the Fund:
A.Valuation of Investments. Bonds and other fixed income securities, including restricted securities (other than short-term obligations but including listed issues) are valued at their most recent bid prices (sales price if the principal market is an exchange) in the principal market in which such securities are normally traded, on the basis of valuations furnished by a pricing service, use of which has been approved by the Board of Trustees (the “Board”). In making such valuations, the pricing service utilizes both dealer supplied valuations and electronic data processing techniques, which take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, without exclusive reliance upon quoted prices, or exchange or over-the-counter prices, since such valuations are believed to reflect more accurately the fair value of such securities. Futures contracts held by the Fund are valued daily at the official settlement price of the exchange on which it is traded.
Securities or other assets for which market quotations are not readily available are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Board. Short-term investments, which mature in 60 days or less are valued at amortized cost if their original maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if their original maturity when acquired by the Fund was more than 60 days, unless the use of amortized cost is determined not to represent “fair value” by the Board.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 33 |
BBH LIMITED DURATION FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
B.Accounting for Investments and Income. Investment transactions are accounted for on the trade date. Realized gains and losses on investment transactions are determined based on the identified cost method. Interest income is accrued daily and consists of interest accrued, discount earned (including, if any, both original issue and market discount) and premium amortization on the investments of the Fund. Investment income is recorded net of any foreign taxes withheld where recovery of such tax is uncertain. Debt obligations may be placed on non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivable when the collection of all or a portion of the interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is reasonably assured.
C.Fund Expenses. Most expenses of the Trust can be directly attributed to a specific fund. Expenses which cannot be directly attributed to a fund are generally apportioned among each fund in the Trust on a net assets basis or other suitable method. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
D.Financial Futures Contracts. The Fund may enter into open futures contracts in order to economically hedge against anticipated future changes in interest rates which otherwise might either adversely affect the value of securities held for the Fund or adversely affect the prices of securities that are intended to be purchased at a later date for the Fund. The contractual amount of the futures contracts represents the investment the Fund has in a particular contract and does not necessarily represent the amounts potentially subject to risk of loss. Trading in futures contracts involves, to varying degrees, risk of loss in excess of any futures variation margin reflected in the Statement of Assets and Liabilities. The measurement of risk associated with futures contracts is meaningful only when all related and offsetting transactions are considered. Gains and losses are realized upon the expiration or closing of the futures contracts.
Risks related to the use of futures contracts include possible illiquidity of the futures markets, contract prices that can be highly volatile and imperfectly correlated to movements in economically hedged security values and/or interest rates, and potential losses in excess of the Fund’s initial investment.
Open future contracts held at October 31, 2020, are listed in the Portfolio of Investments.
For the year ended October 31, 2020, the average monthly notional amount of open futures contracts was $758,012,167. The range of monthly notional amounts was $361,173,635 to $1,282,658,139.
34
BBH LIMITED DURATION FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
Fair Values of Derivative Instruments as of October 31, 2020
Derivatives not accounted for as economically hedging instruments under authoritative guidance for derivatives instruments and hedging activities:
Asset Derivatives | Liability Derivatives | |||||||||||||
Risk | Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | ||||||||||
Interest Rate Risk | Net unrealized appreciation/(depreciation) on investments in securities and futures contracts | $ | 2,020,925 | * | Net unrealized appreciation/(depreciation) on investments in securities and futures contracts | $ | — | |||||||
Total | $ | 2,020,925 | $ | — |
____________________
* | Includes cumulative appreciation/(depreciation) of futures contracts as reported in the Statement of Assets and Liabilities and Notes to Financial Statements. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Instruments on the Statement of Operations
Interest Rate Risk | ||||||
Net Realized Gain/(Loss) on Derivatives | ||||||
Futures Contracts | $ | (14,739,565 | ) | |||
Net Change in Unrealized Appreciation/(Depreciation) on Derivatives | ||||||
Futures Contracts | $ | (153,572 | ) |
E.Rule 144A Securities. The Fund may purchase securities that are not registered under the Securities Act of 1933, as amended (“1933 Act”) but that can be sold to “qualified institutional buyers” in accordance with the requirements stated in Rule 144A under the 1933 Act (“Rule 144A Securities”). A Rule 144A Security may be considered illiquid and therefore, under SEC Regulations for open-end investment companies, subject to the 15% limitation on the purchase of illiquid securities, unless it is determined on an ongoing basis that an adequate trading market exists for the security, which is the case for the Fund. Guidelines have been adopted and the daily function of determining and monitoring liquidity of Rule 144A Securities has been delegated to the investment adviser. All relevant factors will be considered in determining the liquidity of Rule 144A Securities and all investments in Rule 144A Securities will be carefully monitored. Information regarding Rule 144A Securities is included at the end of the Portfolio of Investments.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 35 |
BBH LIMITED DURATION FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
F.Loan Participations and Assignments. The Fund may invest in loan participations and assignments, which include institutionally traded floating and fixed-rate debt securities generally acquired as an assignment from another holder of, or participation interest in, loans originated by a bank or financial institution (the “Lender”) that acts as agent for all holders. Some loan participations and assignments may be purchased on a “when-issued” basis. The agent administers the terms of the loan, as specified in the loan agreement. When investing in a loan assignment, the Fund acquires the loan in whole or in part and becomes a lender under the loan agreement. The Fund generally has the right to enforce compliance with the terms of the loan agreement with the borrower.
Assignments and participations involve credit, interest rate, and liquidity risk. Interest rates on floating rate securities adjust with interest rate changes and/or issuer credit quality, and unexpected changes in such rates could result in losses to the Fund. The interest rates paid on a floating rate security in which the Fund invests generally are readjusted periodically to an increment over a designated benchmark rate, such as the one-month, three-month, six-month, or one-year London Interbank Offered Rate (“LIBOR”). LIBOR is a short-term interest rate that banks charge one another and is generally representative of the most competitive and current cash rates.
The Fund may have difficulty trading assignments and participations to third parties. There may be restrictions on transfer and only limited opportunities may exist to sell such securities in secondary markets. As a result, the Fund may be unable to sell assignments or participations at the desired time or may be able to sell only at a price less than fair market value. The Fund utilizes an independent third party to value individual loan participations and assignments on a daily basis.
G.Federal Income Taxes. It is the Trust’s policy to comply with the requirements of the Internal Revenue Code (the “Code”) applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. The Fund files a tax return annually using tax accounting methods required under provisions of the Code, which may differ from GAAP, which is the basis on which these financial statements are prepared. Accordingly, the amount of net investment income and net realized gain reported in these financial statements may differ from that reported on the Fund’s tax return, due to certain book-to-tax timing differences such as losses deferred due to “wash sale” transactions and utilization of capital loss carryforwards. These differences may result in temporary over-distributions for financial statement purposes and are classified as distributions in excess of accumulated net realized gains or net investment income. These distributions do not constitute a return of capital. Permanent differences are reclassified between paid-in capital and retained earnings/(accumulated deficit) within the Statement of Assets and Liabilities based upon their tax classification. As such, the character of distributions to shareholders reported in the Financial Highlights table may differ from that reported to shareholders on Form 1099-DIV.
36
BBH LIMITED DURATION FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
The Fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes (“ASC 740”). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The Fund did not have any unrecognized tax benefits as of October 31, 2020, nor were there any increases or decreases in unrecognized tax benefits for the year then ended. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as an income tax expense in the Statement of Operations. During the year ended October 31, 2020, the Fund did not incur any such interest or penalties. The Fund is subject to examination by U.S. federal and state tax authorities for returns filed for the prior three fiscal years. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
H.Dividends and Distributions to Shareholders. Dividends and distributions from net investment income to shareholders are declared daily and paid monthly to shareholders. Distributions from net capital gains, if any, are generally declared and paid annually and are recorded on the ex-dividend date. The Fund declared dividends and distributions in the amount of $9,638,723 and $166,935,856 to Class N and Class I shareholders, respectively, during the year ended October 31, 2020.
The tax character of distributions paid during the years ended October 31, 2020 and 2019, respectively, were as follows:
Distributions paid from: | |||||||||||||||||||||||||
Ordinary income | Net long-term capital gain | Total taxable distributions | Tax return of capital | Total distributions paid | |||||||||||||||||||||
2020: | $ | 176,574,579 | $ | — | $ | 176,574,579 | $ | — | $ | 176,574,579 | |||||||||||||||
2019: | 194,318,192 | — | 194,318,192 | — | 194,318,192 |
As of October 31, 2020 and 2019, respectively, the components of retained earnings/(accumulated deficit) were as follows:
Components of retained earnings/(accumulated deficit): | |||||||||||||||||||||||||||||
Undistributed ordinary income | Undistributed long-term capital gain | Accumulated capital and other losses | Other book/tax temporary differences | Book unrealized appreciation/ (depreciation) | Total retained earnings/ (accumulated deficit) | ||||||||||||||||||||||||
2020: | $ | — | $ | — | $ | (59,316,057 | ) | $ | (2,021,635 | ) | $ | 9,546,890 | $ | (51,790,802 | ) | ||||||||||||||
2019: | 1,958,944 | — | (65,872,821 | ) | (2,175,829 | ) | 63,858,242 | (2,231,464 | ) |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 37 |
BBH LIMITED DURATION FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
The Fund had $59,316,057 of post-December 22, 2010 net capital loss carryforwards as of October 31, 2020, of which $6,617,854 and $52,698,203, is attributable to short-term and long-term capital losses, respectively.
The Fund is permitted to carryforward capital losses for an unlimited period and they will retain their character as either short-term or long-term capital losses rather than being considered all short-term capital losses.
Total distributions paid may differ from amounts reported in the Statements of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid.
The differences between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales and paydowns on fixed income securities.
To the extent future capital gains are offset by capital loss carryforwards, if any, such gains will not be distributed.
I.Use of Estimates. The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increase and decrease in net assets from operations during the reporting period. Actual results could differ from these estimates.
3.Fees and Other Transactions with Affiliates.
A.Investment Advisory and Administrative Fees. Under a combined Investment Advisory and Administrative Services Agreement (“Agreement”) with the Trust, Brown Brothers Harriman & Co. (“BBH”) through a separately identifiable department (“SID” or “Investment Adviser”) provides investment advisory, portfolio management and administrative services to the Fund. The Fund pays a combined fee for investment advisory and administrative services calculated daily and paid monthly at an annual rate equivalent to 0.30% per annum on the first $1 billion of the Fund’s average daily net assets and 0.25% per annum on the Fund’s average daily net assets over $1 billion. For the year ended October 31, 2020, the Fund incurred $18,910,389 for services under the Agreement.
B.Investment Advisory and Administrative Fee Waivers. Effective March 24, 2017 the Investment Adviser has contractually agreed to waive fees and/or reimburse expenses for the Fund’s Class N shares in order to limit total annual fund operating expenses (excluding interest, taxes, brokerage
38
BBH LIMITED DURATION FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
commissions, other expenditures that are capitalized in accordance with GAAP, other extraordinary expenses not incurred in the ordinary course of the Fund’s business) of Class N to 0.35%. For the year ended October 31, 2020, the Investment Adviser waived fees in the amount of $595,975 for Class N.
C.Shareholder Servicing Fees. The Trust has a shareholder servicing agreement with BBH. BBH receives a fee from the Fund calculated daily and paid monthly at an annual rate of 0.20% of Class N shares’ average daily net assets. For the year ended October 31, 2020, Class N shares of the Fund incurred $830,992 in shareholder servicing fees.
D.Custody and Fund Accounting Fees. BBH acts as a custodian and fund accountant and receives custody and fund accounting fees from the Fund calculated daily and incurred monthly. BBH holds all of the Fund’s cash and investments and calculates the Fund’s daily net asset value. The custody fee is an asset and transaction-based fee. The fund accounting fee is an asset-based fee calculated at 0.004% of the Fund’s net asset value. For the year ended October 31, 2020, the Fund incurred $687,002 in custody and fund accounting fees. As per agreement with the Fund’s custodian, the Fund receives interest income on cash balances held by the custodian at the BBH Base Rate. The BBH Base Rate is defined as BBH’s effective trading rate in local money markets on each day. The total interest earned by the Fund for the year ended October 31, 2020 was $67,383. This amount is included in “Interest income” in the Statement of Operations. In the event that the Fund is overdrawn, under the custody agreement with BBH, BBH will make overnight loans to the Fund to cover overdrafts. Pursuant to their agreement, the Fund will pay the Federal Funds overnight investment rate on the day of the overdraft. The total interest incurred by the Fund for the year ended October 31, 2020, was $4,786. This amount is included under line item “Custody and fund accounting fees” in the Statement of Operations.
E.Board of Trustees’ Fees. Each Trustee who is not an “interested person” as defined under the 1940 Act receives an annual fee as well as reimbursement for reasonable out-of-pocket expenses from the Fund. For the year ended October 31, 2020, the Fund incurred $58,282 in independent Trustee compensation and expense reimbursements.
F.Officers of the Trust. Officers of the Trust are also employees of BBH. Officers are paid no fees by the Trust for their services to the Trust.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 39 |
BBH LIMITED DURATION FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
4.Investment Transactions. For the year ended October 31, 2020, the cost of purchases and the proceeds of sales of investment securities, other than short-term investments, were $3,766,868,781 and $2,821,332,333, respectively.
5.Shares of Beneficial Interest. The Trust is permitted to issue an unlimited number of Class N shares and Class I shares of beneficial interest, at no par value. Transactions in Class N and Class I shares were as follows:
For the year ended October 31, 2020 | For the year ended October 31, 2019 | |||||||||||||||
Shares | Dollars | Shares | Dollars | |||||||||||||
Class N | ||||||||||||||||
Shares sold | 38,050,699 | $ | 388,416,903 | 24,313,000 | $ | 247,981,386 | ||||||||||
Shares issued in connection with reinvestments of dividends | 911,844 | 9,267,354 | 938,363 | 9,579,579 | ||||||||||||
Proceeds from short-term redemption fees | N/A | – | N/A | 501 | ||||||||||||
Shares redeemed | (30,058,670 | ) | (304,777,755 | ) | (16,202,982 | ) | (165,389,532 | ) | ||||||||
Net increase | 8,903,873 | $ | 92,906,502 | 9,048,381 | $ | 92,171,934 | ||||||||||
Class I | ||||||||||||||||
Shares sold | 369,593,937 | $ | 3,771,315,783 | 306,868,172 | $ | 3,134,174,799 | ||||||||||
Shares issued in connection with reinvestments of dividends | 2,741,019 | 27,859,501 | 3,375,545 | 34,430,879 | ||||||||||||
Shares redeemed | (288,332,500 | ) | (2,911,141,217 | ) | (241,370,268 | ) | (2,461,541,977 | ) | ||||||||
Net increase/(decrease) | 84,002,456 | $ | 888,034,067 | 68,873,449 | $ | 707,063,701 |
Included in Shares Sold and Shares Redeemed are shareholder exchanges during the years ended October 31, 2020 and the year ended October 31, 2019. Specifically:
During the year ended October 31, 2020, 815,626 shares of Class N were exchanged for 816,288 shares of Class I valued at $8,142,838 and 22,929 shares of Class I were exchanged for 22,929 shares of Class N valued at $235,706.
During the year ended October 31, 2019, 352,122 shares of Class N were exchanged for 352,351 shares of Class I valued at $3,604,324.
40
BBH LIMITED DURATION FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
6.Principal Risk Factors and Indemnifications.
A.Principal Risk Factors. Investing in the Fund may involve certain risks, as discussed in the Fund’s prospectus, including but not limited to, those described below:
A shareholder may lose money by investing in the Fund (investment risk). The Fund is actively managed and the decisions by the Investment Adviser may cause the Fund to incur losses or miss profit opportunities (management risk). In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to failure of a counterparty to a transaction to perform (credit risk), changes in interest rates (interest rate risk), higher volatility for securities with longer maturities (maturity risk), financial performance or leverage of the issuer (issuer risk), difficulty in being able to purchase or sell a security (illiquid securities risk), or certain risks associated with investing in foreign securities not present in domestic investments, including, but not limited to, recovery of tax withheld by foreign jurisdictions (foreign investment risk). The Fund’s use of derivatives creates risks that are different from, or possibly greater than, the risks associated with investing directly in securities as the Fund could lose more than the principal amount invested (derivatives risk). The Fund invests in asset-backed and mortgage-backed securities (mortgage-backed securities risk) which are subject to the risk that borrowers may default on the obligations that underlie these securities. In addition, these securities may be paid off sooner (prepayment risk) or later than expected which may increase the volatility of securities during periods of fluctuating interest rates. The Fund may invest in bonds issued by foreign governments which may be unable or unwilling to make interest payments and/or repay the principal owed (sovereign debt risk). The Fund’s use of borrowing, in reverse repurchase agreements and investment in some derivatives, involves leverage. Leverage tends to exaggerate the effect of any increase or decrease in the value of the Fund’s securities and may cause the Fund to be more volatile (leverage risk). The value of securities held by the Fund may decline in response to certain events, including: those directly involving the companies or issuers whose securities are held by the Fund; conditions affecting the general economy; overall market changes; local, regional or political, social or economic instability; and currency and interest rate and price fluctuations. Natural disasters, the spread of infectious illness and other public health emergencies, recession, terrorism and other unforeseeable events may lead to increased market volatility and may have adverse effects on world economies and markets generally (market risk). The Fund’s shareholders may be adversely impacted by asset allocation decisions made by an investment adviser whose discretionary clients make up a large percentage of the Fund’s shareholders (shareholder concentration risk). While the U.S. Government has historically provided financial support to U.S. government-sponsored agencies or instrumentalities during times of financial stress, such as the various actions taken to stabilize the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation during the credit crisis of 2008, no assurance can be given that it will do so in the future. Such securities are neither issued nor guaranteed by the U.S. Treasury (U.S. Government Agency Securities Risk). LIBOR is scheduled to be phased out by the end of 2021. The Fund may invest in private placement securities that are issued pursuant to Regulation S which have not been registered with the U.S. Securities and Exchange Commission ("SEC"). These securities may be subject
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 41 |
BBH LIMITED DURATION FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
to contractual restrictions which prohibit or limit their resale (Regulation S risk). The unavailability and/or discontinuation of LIBOR may affect the value, liquidity or return on certain fund investments that mature later than 2021 and may result in costs incurred in connection with closing out positions and entering into new positions. Any pricing adjustments to the fund’s investments resulting from a substitute reference rate may also adversely affect the fund’s performance and/or net asset value (LIBOR Transition risk). The extent of the Fund’s exposure to these risks in respect to these financial assets is included in their value as recorded in the Fund’s Statement of Assets and Liabilities.
Please refer to the Fund’s prospectus for a complete description of the principal risks of investing in the Fund.
B.Indemnifications. Under the Trust’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Fund, and shareholders are indemnified against personal liability for the obligations of the Trust. Additionally, in the normal course of business, the Fund enters into agreements with service providers that may contain indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
7.Recent Pronouncements.
A.ASU 2017-08. In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU 2017-08”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU 2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU 2017-08 is effective for years, and interim periods within those years, beginning after December 15, 2018. The application of ASU 2017-08 did not have a significant impact on the Fund’s financial statements.
8.Significant Events. In the beginning of 2020, there was an outbreak of the novel corona virus (COVID 19) which has impacted the financial markets and the global economy as a whole. The outbreak of COVID 19 is still ongoing and the magnitude and impact on the financial markets is highly uncertain and cannot be predicted. The effect of this impact may adversely impact the future carrying value of investments and results of operations of the Fund.
There are no other significant events to report as they relate to the Fund.
42
BBH LIMITED DURATION FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
9.Subsequent Events. Management has evaluated events and transactions that have occurred since October 31, 2020 through the date the financial statements were issued and determined that there were none that would require recognition or additional disclosure in the financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 43 |
BBH LIMITED DURATION FUND
DISCLOSURE OF FUND EXPENSES
October 31, 2020 (unaudited)
EXAMPLE
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested distributions, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management 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 an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (May 1, 2020 to October 31, 2020).
ACTUAL EXPENSES
The first line of the table provides information about actual account values and actual expenses. You may use 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 the Period” to estimate the expenses you paid on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year 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 during the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% Hypothetical Example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
44
BBH LIMITED DURATION FUND
DISCLOSURE OF FUND EXPENSES (continued)
October 31, 2020 (unaudited)
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 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. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period May 1, 2020 to October 31, 20201 | |||||||||||||
Class N | |||||||||||||||
Actual | $ | 1,000 | $ | 1,035 | $ | 1.79 | |||||||||
Hypothetical2 | $ | 1,000 | $ | 1,023 | $ | 1.78 |
Beginning Account Value May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period May 1, 2020 to October 31, 20201 | |||||||||||||
Class I | |||||||||||||||
Actual | $ | 1,000 | $ | 1,036 | $ | 1.40 | |||||||||
Hypothetical2 | $ | 1,000 | $ | 1,024 | $ | 1.39 |
________________
1 | Expenses are equal to the Fund’s annualized expense ratio of 0.35% and 0.27% for Class N and I shares, respectively, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
2 | Assumes a return of 5% before expenses. For the purposes of the calculation, the applicable annualized expenses ratio for each class of shares is subtracted from the assumed return before expenses. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 45 |
BBH LIMITED DURATION FUND
CONFLICTS OF INTEREST
October 31, 2020 (unaudited)
Conflicts of Interest
BBH, including the Investment Adviser, provides discretionary and non-discretionary investment management services and products to corporations, institutions and individual investors throughout the world. As a result, in the ordinary course of its businesses, BBH, including the Investment Adviser, may engage in activities in which its interests or the interests of its clients may conflict with or be adverse to the interests of the Funds. In addition, certain of such clients (including the Funds) utilize the services of BBH for which they will pay to BBH customary fees and expenses that will not be shared with the Funds.
The Investment Adviser and the Sub-Adviser have adopted and implemented policies and procedures that seek to manage conflicts of interest. Pursuant to such policies and procedures, the Investment Adviser and the Sub-Adviser monitor a variety of areas, including compliance with fund investment guidelines, the investment in only those securities that have been approved for purchase, and compliance with their respective Code of Ethics.
The Trust also manages these conflicts of interest. For example, the Trust has designated a chief compliance officer (“CCO”) and has adopted and implemented policies and procedures designed to manage the conflicts identified below and other conflicts that may arise in the course of the Funds’ operations in such a way as to safeguard the Funds from being negatively affected as a result of any such potential conflicts. From time to time, the Trustees receive reports from the Investment Adviser, the Sub-Adviser and the Trust’s CCO on areas of potential conflict.
Investors should carefully review the following, which describes potential and actual conflicts of interest that BBH, the Investment Adviser and Sub-Adviser can face in the operation of their respective investment management services. This section is not, and is not intended to be, a complete enumeration or explanation of all of the potential conflicts of interest that may arise. The Investment Adviser, the Sub-Adviser and the Funds have adopted policies and procedures reasonably designed to appropriately prevent, limit or mitigate the conflicts of interest described below. Additional information about potential conflicts of interest regarding the Investment Adviser is set forth in the Investment Adviser’s Form ADV. A copy of Part 1 and Part 2A of the Investment Adviser’s Form ADV is available on the SEC’s website (www.adviserinfo.sec.gov). In addition, many of the activities that create these conflicts of interest are limited and/or prohibited by law, unless an exception is available.
Other Clients and Allocation of Investment Opportunities. BBH, the Investment Adviser, and the Sub-Adviser manage funds and accounts of clients other than the Funds (“Other Clients”). In general, BBH, the Investment Adviser, and the Sub-Adviser face conflicts of interest when they render investment advisory services to different clients and, from time to time, provide dissimilar investment advice to different clients. Investment decisions will not necessarily be made in parallel among the Funds and Other Clients. Investments made by the Funds do not, and are not intended to, replicate the investments, or the investment methods and strategies, of Other Clients. Accordingly, such Other Clients’ accounts may produce results that are materially different from those experienced by the Funds. Certain other conflicts of interest may arise in connection with a portfolio manager’s management of the Funds’ investments, on the one hand, and the investments of other funds or accounts for which the portfolio manager is responsible, on the other. For example, it is possible that the various funds or accounts managed by the Investment Adviser or Sub-Adviser
46
BBH LIMITED DURATION FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
could have different investment strategies that, at times, might conflict with one another to the possible detriment of the Funds. From time to time, the Investment Adviser and Sub- Adviser, sponsor and with other investment pools and accounts which engage in the same or similar businesses as the Funds using the same or similar investment strategies. To the extent that the same investment opportunities might be desirable for more than one account or fund, possible conflicts could arise in determining how to allocate them because the Investment Adviser or Sub-Adviser may have an incentive to allocate investment opportunities to certain accounts or funds. However, BBH and the Sub-adviser have implemented policies and procedures designed to ensure that information relevant to investment decisions is disseminated promptly within its portfolio management teams and investment opportunities are allocated equitably among different clients. The policies and procedures require, among other things, objective allocation for limited investment opportunities, and documentation and review of justifications for any decisions to make investments only for select accounts or in a manner disproportionate to the size of the account. Nevertheless, access to investment opportunities may be allocated differently among accounts due to the particular characteristics of an account, such as size of the account, cash position, tax status, risk tolerance and investment restrictions or for other reasons.
Actual or potential conflicts of interest may also arise when a portfolio manager has management responsibilities to multiple accounts or funds, resulting in unequal commitment of time and attention to the portfolio management of the funds or accounts.
Affiliated Service Providers. Other potential conflicts might include conflicts between the Funds and its affiliated and unaffiliated service providers (e.g. conflicting duties of loyalty). In addition to providing investment management services through the SID, BBH provides administrative, custody, shareholder servicing and fund accounting services to the Funds. BBH may have conflicting duties of loyalty while servicing the Funds and/or opportunities to further its own interest to the detriment of the Funds. For example, in negotiating fee arrangements with affiliated service providers, BBH may have an incentive to agree to higher fees than it would in the case of unaffiliated providers. BBH acting in its capacity as the Funds’ administrator is the primary valuation agent of the Funds. BBH values securities and assets in the Funds according to the Funds’ valuation policies. Because the Investment Adviser’s advisory and administrative fees are calculated by reference to the Funds’ net assets, BBH and its affiliates may have an incentive to seek to overvalue certain assets.
Aggregation. Potential conflicts of interest also arise with the aggregation of trade orders. Purchases and sales of securities for the Funds may be aggregated with orders for other client accounts managed by the Sub-Adviser. The Sub-Adviser, however, is not required to aggregate orders if portfolio management decisions for different accounts are made separately, or if it is determined that aggregating is not practicable, or in cases involving client direction. Prevailing trading activity frequently may make impossible the receipt of the same price or execution on the entire volume of securities purchased or sold. When this occurs, the various prices may be averaged, and the Funds will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to the disadvantage of the Funds. In addition, under certain circumstances, the Funds will not be charged the same commission or commission equivalent rates in connection with an aggregated order.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 47 |
BBH LIMITED DURATION FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
Cross Trades. Under certain circumstances, the Investment Adviser and/or the Sub-adviser, on behalf of the Funds, may seek to buy from or sell securities to another fund or account advised by BBH, the Investment Adviser or the Sub-adviser. Subject to applicable law and regulation, BBH, the Investment Adviser or the Sub-adviser may (but is not required to) effect purchases and sales between BBH, the Investment Adviser or the Sub-adviser’s clients (“cross trades”), including the Funds, if BBH, the Investment Adviser or the Sub-adviser believe such transactions are appropriate based on each party’s investment objectives and guidelines. There may be potential conflicts of interest or regulatory issues relating to these transactions which could limit the Investment Adviser or the Sub-adviser’s decision to engage in these transactions for the Funds. BBH, the Investment Adviser and/or the Sub-adviser may have a potentially conflicting division of loyalties and responsibilities to the parties in such transactions.
Soft Dollars. The Investment Adviser may direct brokerage transactions and/or payment of a portion of client commissions (“soft dollars”) to specific brokers or dealers or other providers to pay for research or other appropriate services which provide, in the Investment Adviser’s view, appropriate assistance in the investment decision-making process (including with respect to futures, fixed price offerings and over-the-counter transactions). The use of a broker that provides research and securities transaction services may result in a higher commission than that offered by a broker who does not provide such services. The Investment Adviser will determine in good faith whether the amount of commission is reasonable in relation to the value of research and services provided and whether the services provide lawful and appropriate assistance in its investment decision-making responsibilities.
Research or other services obtained in this manner may be used in servicing any or all of the Funds and other accounts managed by the Investment Adviser, including in connection with accounts that do not pay commissions to the broker related to the research or other service arrangements. Such products and services may disproportionately benefit other client accounts relative to the Funds based on the amount of brokerage commissions paid by the Funds and such other accounts. To the extent that the Sub-Adviser uses soft dollars, it will not have to pay for those products and services itself.
BBH may receive research that is bundled with the trade execution, clearing, and/or settlement services provided by a particular broker-dealer. To the extent that the Sub-Adviser receives research on this basis, many of the same conflicts related to traditional soft dollars may exist. For example, the research effectively will be paid by client commissions that also will be used to pay for the execution, clearing, and settlement services provided by the broker-dealer and will not be paid by the Sub-Adviser.
Arrangements regarding compensation and delegation of responsibility may create conflicts relating to selection of brokers or dealers to execute Fund portfolio trades and/or specific uses of commissions from Fund portfolio trades, administration of investment advice and valuation of securities.
Investments in BBH Funds. From time to time BBH may invest a portion of the assets of its discretionary investment advisory clients in the Funds. That investment by BBH on behalf of its discretionary investment advisory clients in the Funds may be significant at times.
48
BBH LIMITED DURATION FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
Increasing a Fund’s assets may enhance investment flexibility and diversification and may contribute to economies of scale that tend to reduce the Funds’ expense ratio. In selecting the Funds for its discretionary investment advisory clients, BBH may limit its selection to funds managed by BBH or the Investment Adviser. BBH may not consider or canvass the universe of unaffiliated investment companies available, even though there may be unaffiliated investment companies that may be more appropriate or that have superior performance. BBH, the Investment Adviser and their affiliates providing services to the Funds benefit from additional fees when the Funds is included as an investment by a discretionary investment advisory client.
BBH reserves the right to redeem at any time some or all of the shares of the Funds acquired for its discretionary investment advisory clients’ accounts. A large redemption of shares of the Funds by BBH on behalf of its discretionary investment advisory clients could significantly reduce the asset size of the Funds, which might have an adverse effect on the Funds’ investment flexibility, portfolio diversification and expense ratio.
Valuation. When market quotations are not readily available, or are believed by BBH to be unreliable, the Funds’ investments will be valued at fair value by BBH pursuant to procedures adopted by the Funds’ Board of Trustees. When determining an asset’s “fair value”, BBH seeks to determine the price that a Fund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. The price generally may not be determined based on what the Funds might reasonably expect to receive for selling an asset at a later time or if it holds the asset to maturity. While fair value determinations will be based upon all available factors that BBH deems relevant at the time of the determination and may be based on analytical values determined by BBH using proprietary or third-party valuation models, fair value represents only a good faith approximation of the value of a security. The fair value of one or more securities may not, in retrospect, be the price at which those assets could have been sold during the period in which the particular fair values were used in determining the Funds’ net asset value. As a result, the Funds’ sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued by BBH (pursuant to Board-adopted procedures) at fair value, may have the effect of diluting or increasing the economic interest of existing shareholders.
Referral Arrangements. BBH may enter into advisory and/or referral arrangements with third parties. Such arrangements may include compensation paid by BBH to the third party. BBH may pay a solicitation fee for referrals and/or advisory or incentive fees. BBH may benefit from increased amounts of assets under management.
Personal Trading. BBH, including the Investment Adviser, and any of their respective partners, principals, directors, officers, employees, affiliates or agents, face conflicts of interest when transacting in securities for their own accounts because they could benefit by trading in the same securities as the Funds, which could have an adverse effect on the Funds. However, the Investment Adviser has implemented policies and procedures concerning personal trading by BBH Partners and employees. The policy and procedures are intended to prevent BBH Partners and employees from trading in the same securities as the Funds. However, BBH, including the Investment Adviser, has implemented policies and procedures concerning personal
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 49 |
BBH LIMITED DURATION FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
trading by BBH Partners and employees. The policies and procedures are intended to prevent BBH Partners and employees with access to Fund material non-public information from trading in the same securities as the Funds.
Gifts and Entertainment. From time to time, employees of BBH, including the Investment Adviser, and any of their respective partners, principals, directors, officers, employees, affiliates or agents, may receive gifts and/or entertainment from clients, intermediaries, or service providers to the Funds or BBH, including the Investment Adviser, which could have the appearance of affecting or may potentially affect the judgment of the employees, or the manner in which they conduct business. The Investment Adviser has implemented policies and procedures concerning gifts and entertainment to mitigate any impact on the judgment of BBH Partners and employees. BBH, including the Investment Adviser, has implemented policies and procedures concerning gifts and entertainment to mitigate any impact on the judgment of BBH Partners and employees.
50
BBH LIMITED DURATION FUND
ADDITIONAL FEDERAL TAX INFORMATION
October 31, 2020 (unaudited)
The qualified investment income (“QII”) percentage for the year ended October 31, 2020 was 81.76%. In January 2021, shareholders will receive Form 1099-DIV, which will include their share of qualified dividends distributed during the calendar year 2020. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their individual income tax returns.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 51 |
TRUSTEES AND OFFICERS OF BBH LIMITED DURATION FUND
(unaudited)
Information pertaining to the Trustees and executive officers of the Trust is set forth below. The mailing address for each Trustee is c/o BBH Trust, 140 Broadway, New York, NY 10005.
Name and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee^ | Other Public Company or Investment Company Directorships held by Trustee During Past 5 Years | |||||
Independent Trustees | ||||||||||
H. Whitney Wagner Birth Year: 1956 | Chairman of the Board and Trustee | Chairman Since 2014; Trustee Since 2007 and 2006-2007 with the Predecessor Trust | President, Clear Brook Advisors, a registered investment adviser. | 7 | None. | |||||
Andrew S. Frazier Birth Year: 1948 | Trustee | Since 2010 | Retired. | 7 | Director of Western World Insurance Group, Inc. | |||||
Mark M. Collins Birth Year: 1956 | Trustee | Since 2011 | Partner of Brown Investment Advisory Incorporated, a registered investment adviser. | 7 | Chairman of Dillon Trust Company. | |||||
John M. Tesoro Birth Year: 1952 | Trustee | Since 2014 | Retired. | 7 | Trustee, Bridge Builder Trust (8 Funds); Director of Teton Advisors, Inc. (a registered investment adviser). | |||||
Joan A. Binstock Birth Year: 1954 | Trustee | Since 2019 | Partner, Chief Financial and Operations Officer, Lord Abbett & Co. LLC (1999-2018); Lovell Minnick Partners, Senior Adviser (2018-present). | 7 | None. |
52
TRUSTEES AND OFFICERS OF BBH LIMITED DURATION FUND
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee^ | Other Public Company or Investment Company Directorships held by Trustee During Past 5 Years | |||||
Interested Trustees | ||||||||||
Susan C. Livingston+ 50 Post Office Square Boston, MA 02110 Birth Year: 1957 | Trustee | Since 2011 | Partner (since 1998) and Senior Client Advocate (since 2010) for BBH&Co. | 7 | None. | |||||
John A. Gehret+ 140 Broadway New York, NY 10005 Birth Year: 1959 | Trustee | Since 2011 | Limited Partner of BBH&Co. (2012-present). | 7 | None. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 53 |
TRUSTEES AND OFFICERS OF BBH LIMITED DURATION FUND
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | |||
Officers | ||||||
Jean-Pierre Paquin 140 Broadway New York, NY 10005 Birth Year: 1973 | President and Principal Executive Officer | Since 2016 | Partner of BBH&Co. since 2015; joined BBH&Co. in 1996. | |||
Daniel Greifenkamp 140 Broadway New York, NY 10005 Birth Year: 1969 | Vice President | Since 2016 | Managing Director of BBH&Co. since 2014; joined BBH&Co. in 2011. | |||
Charles H. Schreiber 140 Broadway New York, NY 10005 Birth Year: 1957 | Treasurer and Principal Financial Officer | Since 2007 2006-2007 with the Predecessor Trust | Senior Vice President of BBH&Co. since 2001; joined BBH&Co. in 1999. | |||
Paul F. Gallagher 140 Broadway New York, NY 10005 Birth Year: 1959 | Chief Compliance Officer (“CCO”) | Since 2015 | Senior Vice President of BBH&Co. since 2015. | |||
Keith M. Kelley 140 Broadway New York, NY 10005 Birth Year: 1983 | Anti-Money Laundering Officer (“AMLO”) | Since 2016 | Vice President of BBH&Co. since February 2016; joined BBH&Co. in 2016; Director, Legal and Compliance, Morgan Stanley Smith Barney LLC (2014 – February 2016). |
54
TRUSTEES AND OFFICERS OF BBH LIMITED DURATION FUND
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | |||
Suzan M. Barron 50 Post Office Square Boston, MA 02110 Birth Year: 1964 | Secretary | Since 2009 | Senior Vice President and Senior Investor Services Counsel, BBH&Co. since 2005. | |||
Crystal Cheung 140 Broadway New York, NY 10005 Birth Year: 1974 | Assistant Treasurer | Since 2018 | Assistant Vice President of BBH&Co. since 2016; joined BBH&Co. in 2014. | |||
Brian J. Carroll 50 Post Office Square Boston, MA 02110 Birth Year: 1985 | Assistant Secretary | Since 2018 | Associate and Investor Services Assistant Counsel of BBH&Co. since 2017; joined BBH&Co. in 2014. |
________________
# | All officers of the Trust hold office for one year and until their respective successors are chosen and qualified (subject to the ability of the Trustees to remove any officer in accordance with the Trust’s By-laws). Mr. Wagner previously served on the Board of Trustees of the Predecessor Trust. |
+ | Ms. Livingston and Mr. Gehret are “interested persons” of the Trust as defined in the 1940 Act because of their positions as Partner and Limited Partner of BBH&Co., respectively. |
^ | The Fund Complex consists of the Trust, which has seven series, and each is counted as one “Portfolio” for purposes of this table. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 55 |
BBH LIMITED DURATION FUND
OPERATION AND EFFECTIVENESS OF THE FUND’S LIQUIDITY RISK MANAGEMENT PROGRAM
October 31, 2020 (unaudited)
The Securities and Exchange Commission adopted Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”) to promote effective liquidity risk management throughout the open-end investment company industry in order to reduce the risk that funds will be unable to meet their redemption obligations and mitigate dilution of the interests of fund shareholders.
The Board of Trustees (the “Board”) of BBH Trust met on March 11, 2020 to review the liquidity risk management program (the “Program”) applicable to the funds of BBH Trust (the “Funds”) pursuant to the Liquidity Rule. The Board has appointed three members of the Brown Brothers Harriman & Co. Mutual Fund Advisory Department, the Investment Adviser to the Funds, as the Program Administrator for each Fund’s Program. The Program Administrator provided the Board with an annual report (the “Report”) that addressed the operations of the Program and assessed its adequacy and effectiveness of the Program. The Report covered the period from June 1, 2019 through January 31, 2020.
The Report noted that the Program complied with the key factors for consideration under the Liquidity Rule for assessing, managing and periodically reviewing a Fund’s liquidity risk, including the following points.
Liquidity classification. The Report described the Program’s liquidity classification methodology for categorizing the Funds’ investments into one of four liquidity buckets.
Highly Liquid Investment Minimum. The Report noted that one aspect of the Liquidity Rule is a requirement that funds that are expected to have less than 50% of assets classified as other than “highly liquid” should establish a minimum percentage of highly liquid assets that the fund is expected to hold on an on-going basis. The Program Administrator monitors the percentages of assets in each category on an ongoing basis and, given that no Fund has approached the 50% threshold, has made the determination that it is not necessary to assign a Highly Liquid Investment Minimum as provided for in the Liquidity Rule to any of the Funds.
The Fund’s investment strategy and liquidity of portfolio investments during normal and reasonably foreseeable stressed market conditions. During the Program reporting period, the Program Administrator reviewed whether each Fund’s investment strategy is appropriate for an open-end fund structure with a focus on Funds with more significant and consistent holdings of less liquid and illiquid assets and factored a Fund’s concentration in an issuer into the liquidity classification methodology by taking issuer position sizes into account.
Short-term and long-term cash flow projections during normal and reasonably foreseeable stressed market conditions. During the Program reporting period, the Program Administrator reviewed historical redemption activity and used this information as a component to establish each Fund’s reasonably anticipated trading size. The Program Administrator also took into consideration other factors such as shareholder ownership concentration, applicable distribution channels and the degree of certainty associated with a Fund’s short-term and long-term cash flow projections.
Holdings of cash and cash equivalents. The Program Administrator considered the degree to which each Fund held cash and cash equivalents as a component of each Fund’s ability to meet redemption requests.
56
BBH LIMITED DURATION FUND
OPERATION AND EFFECTIVENESS OF THE FUND’S LIQUIDITY RISK MANAGEMENT PROGRAM (continued)
October 31, 2020 (unaudited)
There were no material changes to the Program during the reporting period. The Program Administrator has informed the Board that it believes that the Fund’s Program is adequately designed, has been implemented as intended, and has operated effectively since its implementation. No material exceptions have been noted since the implementation of the Program, and there were no liquidity events that impacted the Fund or its ability to meet redemption requests on a timely basis during the reporting period.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 57 |
Administrator Brown Brothers Harriman & Co. 140 Broadway New York, NY 10005
Distributor ALPS Distributors, Inc. 1290 Broadway, Suite 1100 Denver, CO 80203
Shareholder Servicing Agent Brown Brothers Harriman & Co. 140 Broadway New York, NY 10005 1-800-575-1265 | Investment Adviser Brown Brothers Harriman Mutual Fund Advisory Department 140 Broadway New York, NY 10005 |
To obtain information or make shareholder inquiries:
By telephone: | Call 1-800-575-1265 bbhfunds@bbh.com www.bbhfunds.com |
By E-mail send your request to: | |
On the internet: |
This report is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of the Fund.
For more complete information, visit www.bbhfunds.com for a prospectus. You should consider the Fund’s investment objectives, risks, charges and expenses carefully before you invest. Information about these and other important subjects is in the Fund’s prospectus, which you should read carefully before investing.
Holdings and allocations are subject to change. Fund holdings should not be relied on in making investment decisions and should not be construed as research or investment advice regarding particular securities. Current and future holdings are subject to risk.
The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available electronically on the SEC’s website (sec.gov). For a complete list of a fund’s portfolio holdings, view the most recent holdings listing, semi-annual report, or annual report on the Fund’s web site at http://www.bbhfunds.com.
A summary of the Fund’s Proxy Voting Policy that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund’s portfolio, as well as a record of how the Fund voted any such proxies during the most recent 12-month period ended June 30, is available, without charge, upon request by calling the toll-free number listed above. This information is also available on the SEC’s website at www.sec.gov.
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
Annual Report
OCTOBER 31, 2020
BBH Intermediate Municipal Bond Fund
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Funds’ shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other Fund communications electronically from the Fund by calling 1-800-575-1265 or from your financial intermediary.
You may elect to receive all future reports in paper free of charge. You can inform the Fund by calling 1-800-575-1265 or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper may apply to all funds in the fund complex or held with your financial intermediary.
BBH INTERMEDIATE MUNICIPAL BOND FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE
October 31, 2020
BBH Intermediate Municipal Bond Fund (the “Fund”) Class I produced a total return of 4.18% (net of fees and expenses) for the twelve-month period ending October 31, 2020 as compared to the benchmark Barclays Capital 1-15 Year Municipal Index1 which had a return of 3.66%.
The objective of the Intermediate Municipal Bond Fund is to provide maximum total return with an emphasis on current income, consistent with the preservation of capital and prudent investment management. We seek to achieve this objective by investing in a limited number of durable credits with attractive return potential. Our objective and strategy have remained the same since we launched the Fund on April 1, 2014. We are excited that the Fund’s net assets nearly doubled during the twelve-month period and ended October just under $750mm. We were fortunate to have received net inflows each month of the fiscal year, which provided valuable resources to invest throughout the pandemic.
In the Municipal market, valuations are often disconnected from their underlying fundamentals, particularly during periods of heightened market volatility. As the Fund’s fiscal year began, Municipal yields had declined significantly as had credit spreads. Buoyed by strong municipal mutual fund inflows, this trend continued through February. When the COVID crisis began in March, the U.S. experienced an unprecedented shock. The Municipal market suffered extreme volatility, worse than that during the Global Financial Crisis. Investors fled for the safety of cash, leading municipal mutual funds to experience multiple weeks of record redemptions. Municipal yields and credit spreads jumped, creating the most attractive valuations we had seen in quite some time. Strong responses from the Federal Government and the Federal Reserve helped restore more orderly markets. As investors regained confidence and re-entered the market, Municipals have been recovering since the Spring.
For the twelve-month period, intermediate-maturity tax-exempt interest rates decreased 60 to 90 basis points2 and, in a reversal of the prior year, the performance of lower-rated bonds significantly lagged those of securities with better ratings. The Fund’s high-quality orientation in securities that fund essential services or critical infrastructure benefited performance and helped the Fund remain resilient in the face of the pandemic.
We invest our portfolios from the bottom-up and have continued to identify more opportunities in Revenue Bonds than in General Obligation issues (GO). As of October 31, 2020, the Fund held approximately 65% in Revenue Bonds and the 35% balance in GOs. Similar to last year, within the Revenue sector, we have found significant opportunities in State Housing Finance Authority (HFA) bonds, which comprised 21% of Fund assets at the end of the fiscal year.
The credits in which we invest possess layers of protection that serve as margins of safety. Since the onset of the pandemic we have been attracted to the credit strengths of States and bonds that are supported or backed by state-level revenues. These bonds benefit from many of the same credit strengths as State GO debt but are often available at much higher yields. Our large exposures to states, state-supported school districts, state housing finance authorities, and state-level dedicated tax bonds form the core of our Fund’s strategy.
________________
A Durable Credit is a credit instrument which, in our analysis, is likely to make full repayment of principal through a wide variety of economic scenarios. | |
A margin of safety exists when the additional yield offers, in BBH's view, compensation for the potential credit, liquidity and inherent price volatility of that type of security and it is therefore more likely to outperform an equivalent maturity Treasury instrument over a 3-5 year horizon. |
2
BBH INTERMEDIATE MUNICIPAL BOND FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
Beyond traditional credit opportunities, we have also actively invested in bonds with non-standard coupon structures, including floating rate securities and zero-coupon bonds (zeros). As of October 31st, excluding cash equivalents, the Fund held about 10% in floating rate securities and 16% in zeros. We also found attractive opportunities in lower coupon callable debt.
As of this writing, COVID-19 infections are rising rapidly. Although we are optimistic about the progress of several vaccines, we are concerned about the ongoing health and economic risks wrought by the virus. High quality yields now reside at or near historic lows, constraining our opportunity set. The combination of rising risks and lower compensation make us cautious. Looking forward, we see a wide range of potential economic and market outcomes and, as a result, we will continue to evaluate new opportunities patiently and conservatively.
Thank you for your continued confidence and stay well.
________________
There is no assurance the objective will be achieved. Holdings are subject to change. | |
Non-standard coupon securities are floating rate notes or lower coupon notes. | |
A floating-rate security has a variable interest rate. | |
1 | Barclays Municipal Bond 1-15 Year Blend (1-17) Index is a sub-index of the Barclays Capital Municipal Bond Index, a rules-based market value-weighted index of bonds with maturities of one year to 17 years engineered for the tax-exempt bond market. One cannot invest directly in an index. |
2 | One “basis point” or “bp” is 1/100th of a percent (0.01% or 0.0001). |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 3 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
Growth of $10,000 Invested in BBH Intermediate Municipal Bond
The graph below illustrates the hypothetical investment of $10,0001 in the Class N shares of the Fund since inception (April 1, 2014) to October 31, 2020 as compared to the BMBB.
The annualized gross expense ratios as shown in the February 28, 2020 prospectus for Class N and Class I shares were 0.77% and 0.50%, respectively. The annualized gross expense ratios for the year ended 10/31/2020 for Class N and Class I shares were 0.71% and 0.47%, respectively. The annualized gross expense ratios for the year ended 10/31/2020 for Class N and Class I shares were 0.71% and 0.47%, respectively.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Fund performance changes over time and current performance may be lower or higher than what is stated. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. For performance current to the most recent month-end please call 1-800-575-1265.
Hypothetical performance results are calculated on a total return basis and include all portfolio income, unrealized and realized capital gains, losses and reinvestment of dividends and other earnings. No one shareholder has actually achieved these results and no representation is being made that any actual shareholder achieved, or is likely to achieve, similar results to those shown. Hypothetical performance does not represent actual trading and may not reflect the impact of material economic and market factors. Undue reliance should not be placed on hypothetical performance results in making an investment decision.
________________
1 | The Fund’s performance assumes the reinvestment of all dividends and distributions. The Barclays Municipal Bond 1-15 Year Blend (1-17) Index (“BMBB”) has been adjusted to reflect reinvestment of dividends on securities in the index. The BMBB is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund’s performance. The index is unmanaged. Investments cannot be made in the index. |
4
BBH INTERMEDIATE MUNICIPAL BOND FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of the BBH Trust and Shareholders of BBH Intermediate Municipal Bond Fund:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of BBH Intermediate Municipal Bond Fund (the “Fund”), one of the funds within BBH Trust, as of October 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2020, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the BBH Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the BBH Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The BBH Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the BBH Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 5 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued)
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 21, 2020
We have served as the auditor of one or more Brown Brothers Harriman investment companies since 1991.
6
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO ALLOCATION
October 31, 2020
BREAKDOWN BY SECURITY TYPE
U.S. $ Value | Percent of Net Assets | ||||||||
Municipal Bonds | $ | 765,655,640 | 102.4 | % |
| ||||
Liabilities in Excess of Other Assets | (17,764,863 | ) | (2.4 | ) |
| ||||
NET ASSETS | $ | 747,890,777 | 100.0 | % |
|
All data as of October 31, 2020. The Fund’s security type diversification is expressed as a percentage of net assets and may vary over time.
CREDIT QUALITY
U.S. $ Value | Percent of Total Investments | ||||||||
AAA | $ | 217,483,624 | 28.4 | % |
| ||||
AA | 328,056,995 | 42.8 |
|
| |||||
A | 160,240,286 | 20.9 |
|
| |||||
BBB | 47,205,240 | 6.2 |
|
| |||||
SP-1 | 7,674,545 | 1.0 |
|
| |||||
SP-2 | 4,994,950 | 0.7 |
|
| |||||
TOTAL INVESTMENTS | $ | 765,655,640 | 100.0 | % |
|
All data as of October 31, 2020. The Fund’s credit quality is expressed as a percentage of total investments and may vary over time. Ratings are provided by Standard and Poor’s (S&P). Where S&P ratings are not available, they are substituted with Moody’s. S&P and Moody’s are independent third parties.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 7 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
| MUNICIPAL BONDS (102.4%) |
|
|
| |||||||||||
Alabama (0.0%) | |||||||||||||||
$ | 150,000 | Alabama 21st Century Authority, Revenue Bonds. | 06/01/21 | 5.000 | % | $ | 154,066 | ||||||||
Total Alabama | 154,066 | ||||||||||||||
| Arizona (0.3%) | ||||||||||||||
2,250,000 | Coconino County Pollution Control Corp., Revenue Bonds1,2 | 09/01/32 | 1.875 | 2,263,612 | |||||||||||
205,000 | Salt Verde Financial Corp., Revenue Bonds | 12/01/22 | 5.250 | 222,612 | |||||||||||
Total Arizona | 2,486,224 | ||||||||||||||
| California (13.2%) | ||||||||||||||
510,000 | Anaheim City School District, General Obligation Bonds, NPFG3 | 08/01/24 | 0.000 | 493,282 | |||||||||||
1,000,000 | Anaheim City School District, General Obligation Bonds, NPFG3 | 08/01/26 | 0.000 | 934,440 | |||||||||||
1,040,000 | Anaheim City School District, General Obligation Bonds, AGM, NPFG3 | 08/01/28 | 0.000 | 926,276 | |||||||||||
2,140,000 | Anaheim City School District, General Obligation Bonds, AGM, NPFG3 | 08/01/29 | 0.000 | 1,849,945 | |||||||||||
750,000 | Anaheim Public Financing Authority, Revenue Bonds, AGM3 | 09/01/30 | 0.000 | 624,705 | |||||||||||
3,000,000 | Bay Area Toll Authority, Revenue Bonds | 04/01/54 | 5.000 | 3,482,610 | |||||||||||
4,375,000 | Burbank Unified School District, General Obligation Bonds, NPFG3 | 08/01/23 | 0.000 | 4,280,981 | |||||||||||
6,550,000 | Burbank Unified School District, General Obligation Bonds, NPFG3 | 08/01/24 | 0.000 | 6,340,007 | |||||||||||
6,060,000 | California Infrastructure & Economic Development Bank, Revenue Bonds (1-Month USD-LIBOR + 0.330%)2 | 10/01/47 | 0.434 | 6,066,181 | |||||||||||
1,185,000 | California Pollution Control Financing Authority, Revenue Bonds1,2. | 11/01/40 | 3.125 | 1,305,681 | |||||||||||
1,040,000 | Chaffey Joint Union High School District, General Obligation Bonds3 | 08/01/33 | 0.000 | 766,875 | |||||||||||
2,025,000 | Chula Vista Elementary School District, Revenue Bonds3 | 08/01/23 | 0.000 | 2,003,839 | |||||||||||
2,000,000 | Coast Community College District, General Obligation Bonds3 | 08/01/35 | 0.000 | 1,385,320 | |||||||||||
1,015,000 | Downey Unified School District, General Obligation Bonds3 | 08/01/33 | 0.000 | 741,640 | |||||||||||
1,000,000 | Downey Unified School District, General Obligation Bonds3 | 08/01/35 | 0.000 | 667,310 | |||||||||||
1,400,000 | Glendale Community College District, General Obligation Bonds3 | 08/01/32 | 0.000 | 1,081,836 |
The accompanying notes are an integral part of these financial statements.
8
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
California (continued) | |||||||||||||||
$ | 1,250,000 | Glendale Community College District, General Obligation Bonds3 | 08/01/33 | 0.000 | % | $ | 925,638 | ||||||||
1,100,000 | Glendale Community College District, General Obligation Bonds3 | 08/01/35 | 0.000 | 756,404 | |||||||||||
3,870,000 | Glendale Community College District, General Obligation Bonds3 | 08/01/36 | 0.000 | 2,561,553 | |||||||||||
1,040,000 | Golden State Tobacco Securitization Corp., Revenue Bonds, AGM3 | 06/01/25 | 0.000 | 1,000,324 | |||||||||||
5,500,000 | Golden State Tobacco Securitization Corp., Revenue Bonds, AMBAC3 | 06/01/27 | 0.000 | 5,049,825 | |||||||||||
1,000,000 | Grossmont Healthcare District, General Obligation Bonds, AMBAC3 | 07/15/30 | 0.000 | 852,770 | |||||||||||
1,100,000 | La Mesa-Spring Valley School District, General Obligation Bonds, NPFG3 | 08/01/26 | 0.000 | 1,037,916 | |||||||||||
1,660,000 | Lake Tahoe Unified School District, General Obligation Bonds, NPFG3 | 08/01/27 | 0.000 | 1,540,430 | |||||||||||
1,110,000 | Lake Tahoe Unified School District, General Obligation Bonds, NPFG3 | 08/01/30 | 0.000 | 951,081 | |||||||||||
725,000 | Long Beach Bond Finance Authority, Revenue Bonds | 11/15/22 | 5.250 | 790,895 | |||||||||||
680,000 | Long Beach Bond Finance Authority, Revenue Bonds (3-Month USD-LIBOR + 1.450%)2 | 11/15/27 | 1.638 | 685,120 | |||||||||||
1,000,000 | Monterey Peninsula Community College District, General Obligation Bonds3 | 08/01/29 | 0.000 | 844,530 | |||||||||||
4,000,000 | Newark Unified School District, General Obligation Bonds, AGM3 | 08/01/25 | 0.000 | 3,863,880 | |||||||||||
9,105,000 | Northern California Gas Authority No 1, Revenue Bonds (3-Month USD-LIBOR + 0.720%)2 | 07/01/27 | 0.871 | 9,017,046 | |||||||||||
1,725,000 | Oak Grove School District, General Obligation Bonds3 | 08/01/31 | 0.000 | 1,477,928 | |||||||||||
1,030,000 | Oak Grove School District, General Obligation Bonds3 | 08/01/32 | 0.000 | 872,832 | |||||||||||
1,050,000 | Oak Park Unified School District, General Obligation Bonds, AGM3 | 08/01/28 | 0.000 | 946,754 | |||||||||||
975,000 | Placer Union High School District, General Obligation Bonds, AGM3 | 08/01/30 | 0.000 | 822,588 | |||||||||||
775,000 | Roseville Joint Union High School District, General Obligation Bonds, AGM3 | 08/01/30 | 0.000 | 660,835 | |||||||||||
1,035,000 | Roseville Joint Union High School District, General Obligation Bonds3 | 08/01/33 | 0.000 | 712,121 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 9 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
California (continued) | |||||||||||||||
$ | 3,000,000 | San Diego Unified School District, General Obligation Bonds3 | 07/01/37 | 0.000 | % | $ | 1,694,250 | ||||||||
1,600,000 | San Mateo County Transportation Authority, Revenue Bonds4 | 11/02/20 | 0.080 | 1,600,000 | |||||||||||
1,000,000 | Santa Ana Unified School District, General Obligation Bonds, NPFG3 | 08/01/24 | 0.000 | 967,220 | |||||||||||
11,000,000 | Southern California Public Power Authority, Revenue Bonds4 | 11/02/20 | 0.070 | 11,000,000 | |||||||||||
5,000,000 | State of California, General Obligation Bonds | 11/01/28 | 5.000 | 6,590,800 | |||||||||||
4,000,000 | State of California, General Obligation Bonds (1-Month USD-LIBOR + 0.760%)2 | 12/01/31 | 0.864 | 4,000,920 | |||||||||||
2,415,000 | State of California, General Obligation Bonds | 12/01/32 | 2.850 | 2,620,251 | |||||||||||
1,000,000 | Ukiah Unified School District, General Obligation Bonds, NPFG3 | 08/01/24 | 0.000 | 972,280 | |||||||||||
1,040,000 | Windsor Unified School District, General Obligation Bonds3 | 08/01/33 | 0.000 | 774,904 | |||||||||||
Total California | 98,542,023 | ||||||||||||||
| Colorado (1.0%) | ||||||||||||||
2,300,000 | Colorado Health Facilities Authority, Revenue Bonds4 | 11/02/20 | 0.110 | 2,300,000 | |||||||||||
1,734,159 | Colorado Housing & Finance Authority, Revenue Bonds, GNMA | 11/01/48 | 4.200 | 1,850,850 | |||||||||||
1,900,000 | E-470 Public Highway Authority, Revenue Bonds, NPFG3 | 09/01/25 | 0.000 | 1,820,637 | |||||||||||
1,750,000 | E-470 Public Highway Authority, Revenue Bonds, NPFG3 | 09/01/27 | 0.000 | 1,606,080 | |||||||||||
Total Colorado | 7,577,567 | ||||||||||||||
| Connecticut (5.1%) | ||||||||||||||
1,135,000 | Connecticut Housing Finance Authority, Revenue Bonds, FHLMC, FNMA, GNMA | 11/15/22 | 2.100 | 1,166,144 | |||||||||||
530,000 | Connecticut Housing Finance Authority, Revenue Bonds | 05/15/23 | 2.800 | 553,511 | |||||||||||
1,605,000 | Connecticut Housing Finance Authority, Revenue Bonds5 | 05/15/26 | 1.150 | 1,592,401 | |||||||||||
1,070,000 | Connecticut Housing Finance Authority, Revenue Bonds5 | 11/15/26 | 1.200 | 1,061,911 | |||||||||||
2,120,000 | Connecticut Housing Finance Authority, Revenue Bonds5 | 05/15/27 | 1.350 | 2,103,252 |
The accompanying notes are an integral part of these financial statements.
10
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
Connecticut (continued) | |||||||||||||||
$ | 1,000,000 | Connecticut Housing Finance Authority, Revenue Bonds5 | 11/15/27 | 1.400 | % | $ | 991,070 | ||||||||
165,000 | Connecticut Housing Finance Authority, Revenue Bonds | 05/15/30 | 2.000 | 162,799 | |||||||||||
350,000 | Connecticut Housing Finance Authority, Revenue Bonds | 11/15/30 | 2.050 | 345,447 | |||||||||||
400,000 | Connecticut Housing Finance Authority, Revenue Bonds | 05/15/31 | 2.100 | 394,928 | |||||||||||
1,505,000 | Connecticut Housing Finance Authority, Revenue Bonds | 11/15/41 | 4.000 | 1,621,201 | |||||||||||
2,845,000 | Connecticut State Health & Educational Facilities Authority, Revenue Bonds1,2 | 07/01/42 | 2.000 | 3,054,904 | |||||||||||
3,655,000 | Connecticut State Health & Educational Facilities Authority, Revenue Bonds1,2 | 07/01/49 | 1.800 | 3,788,773 | |||||||||||
245,000 | State of Connecticut, General Obligation Bonds (SIFMA Municipal Swap Index Yield + 0.900%)2 | 03/01/23 | 1.020 | 247,031 | |||||||||||
1,000,000 | State of Connecticut, General Obligation Bonds (SIFMA Municipal Swap Index Yield + 0.990%)2 | 03/01/25 | 1.110 | 1,009,280 | |||||||||||
1,845,000 | State of Connecticut, General Obligation Bonds | 03/01/26 | 5.000 | 2,109,905 | |||||||||||
2,050,000 | State of Connecticut Special Tax Revenue, Revenue Bonds | 08/01/25 | 5.000 | 2,474,370 | |||||||||||
2,945,000 | State of Connecticut Special Tax Revenue, Revenue Bonds | 09/01/26 | 5.000 | 3,661,519 | |||||||||||
1,065,000 | State of Connecticut Special Tax Revenue, Revenue Bonds | 08/01/27 | 5.000 | 1,276,615 | |||||||||||
2,205,000 | State of Connecticut Special Tax Revenue, Revenue Bonds | 01/01/29 | 5.000 | 2,786,635 | |||||||||||
3,000,000 | State of Connecticut Special Tax Revenue, Revenue Bonds | 05/01/29 | 5.000 | 3,911,760 | |||||||||||
1,115,000 | State of Connecticut Special Tax Revenue, Revenue Bonds | 05/01/30 | 5.000 | 1,471,588 | |||||||||||
2,000,000 | State of Connecticut Special Tax Revenue, Revenue Bonds | 05/01/36 | 4.000 | 2,319,120 | |||||||||||
Total Connecticut | 38,104,164 | ||||||||||||||
| District of Columbia (1.1%) | ||||||||||||||
1,000,000 | District of Columbia, Revenue Bonds | 03/01/27 | 5.000 | 1,273,210 | |||||||||||
5,000,000 | District of Columbia, Revenue Bonds | 10/01/28 | 5.000 | 6,601,650 | |||||||||||
Total District of Columbia | 7,874,860 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 11 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
Florida (2.3%) | |||||||||||||||
$ | 1,015,000 | County of Hillsborough Solid Waste & Resource Recovery Revenue, Revenue Bonds | 09/01/24 | 5.000 | % | $ | 1,179,390 | ||||||||
1,135,000 | Florida Housing Finance Corp., Revenue Bonds, FHLMC, FNMA, GNMA | 07/01/49 | 4.000 | 1,238,194 | |||||||||||
4,540,000 | Florida Housing Finance Corp., Revenue Bonds, FHLMC, FNMA, GNMA | 01/01/50 | 4.250 | 5,032,272 | |||||||||||
1,750,000 | State of Florida, General Obligation Bonds | 06/01/26 | 5.000 | 2,185,330 | |||||||||||
2,125,000 | State of Florida Lottery Revenue, Revenue Bonds. | 07/01/25 | 5.000 | 2,577,455 | |||||||||||
3,675,000 | State of Florida Lottery Revenue, Revenue Bonds. | 07/01/27 | 5.000 | 4,594,669 | |||||||||||
Total Florida | 16,807,310 | ||||||||||||||
| Georgia (4.5%) | ||||||||||||||
4,850,000 | Development Authority of Burke County, Revenue Bonds1,2 | 10/01/32 | 2.250 | 5,021,399 | |||||||||||
5,000,000 | Development Authority of Burke County, Revenue Bonds1,2 | 01/01/40 | 1.500 | 5,057,200 | |||||||||||
1,200,000 | Development Authority of Burke County, Revenue Bonds1,2 | 11/01/45 | 3.000 | 1,253,688 | |||||||||||
2,290,000 | Development Authority of Burke County, Revenue Bonds1,2 | 11/01/45 | 3.250 | 2,481,673 | |||||||||||
65,000 | Georgia Municipal Electric Authority, Revenue Bonds, NPFG1,2 | 01/01/21 | 2.440 | 64,996 | |||||||||||
345,000 | Georgia Municipal Electric Authority, Revenue Bonds | 01/01/25 | 5.000 | 405,772 | |||||||||||
1,265,000 | Georgia Municipal Electric Authority, Revenue Bonds | 01/01/26 | 5.000 | 1,534,938 | |||||||||||
800,000 | Georgia Municipal Electric Authority, Revenue Bonds | 01/01/27 | 5.000 | 987,216 | |||||||||||
990,000 | Georgia Municipal Electric Authority, Revenue Bonds | 01/01/29 | 5.000 | 1,247,895 | |||||||||||
2,700,000 | Georgia Municipal Electric Authority, Revenue Bonds | 01/01/29 | 5.000 | 3,380,589 | |||||||||||
1,140,000 | Georgia Municipal Electric Authority, Revenue Bonds | 01/01/31 | 5.000 | 1,418,833 | |||||||||||
1,000,000 | Georgia Municipal Electric Authority, Revenue Bonds | 01/01/33 | 5.000 | 1,230,920 | |||||||||||
500,000 | Georgia Municipal Electric Authority, Revenue Bonds | 01/01/34 | 5.000 | 613,055 | |||||||||||
1,750,000 | Monroe County Development Authority, Revenue Bonds | 07/01/25 | 2.250 | 1,798,685 |
The accompanying notes are an integral part of these financial statements.
12
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
Georgia (continued) | |||||||||||||||
$ | 3,500,000 | Monroe County Development Authority, Revenue Bonds1,2 | 01/01/39 | 1.500 | % | $ | 3,540,040 | ||||||||
1,200,000 | State of Georgia, General Obligation Bonds | 02/01/25 | 5.000 | 1,439,244 | |||||||||||
1,710,000 | State of Georgia, General Obligation Bonds | 12/01/26 | 5.000 | 2,169,391 | |||||||||||
Total Georgia | 33,645,534 | ||||||||||||||
| Illinois (4.4%) | ||||||||||||||
755,000 | Chicago Transit Authority, Revenue Bonds | 06/01/21 | 5.000 | 773,596 | |||||||||||
2,000,000 | Chicago Transit Authority, Revenue Bonds | 06/01/21 | 5.000 | 2,048,080 | |||||||||||
600,000 | Illinois Finance Authority, Revenue Bonds4 | 11/02/20 | 0.090 | 600,000 | |||||||||||
2,000,000 | Illinois Finance Authority, Revenue Bonds | 08/15/27 | 5.000 | 2,532,980 | |||||||||||
2,000,000 | Illinois Finance Authority, Revenue Bonds | 08/15/28 | 5.000 | 2,580,980 | |||||||||||
1,805,000 | Illinois Finance Authority, Revenue Bonds | 08/15/29 | 5.000 | 2,365,037 | |||||||||||
2,990,000 | Illinois Finance Authority, Revenue Bonds | 07/15/32 | 3.000 | 3,198,493 | |||||||||||
1,285,000 | Illinois Finance Authority, Revenue Bonds | 08/15/32 | 5.000 | 1,681,320 | |||||||||||
2,000,000 | Illinois Finance Authority, Revenue Bonds | 08/15/34 | 5.000 | 2,587,500 | |||||||||||
2,470,000 | Illinois Finance Authority, Revenue Bonds | 08/15/36 | 4.000 | 2,882,885 | |||||||||||
95,000 | Illinois Finance Authority, Revenue Bonds1,2 | 07/15/57 | 5.000 | 103,993 | |||||||||||
205,000 | Railsplitter Tobacco Settlement Authority, Revenue Bonds | 06/01/21 | 5.250 | 210,658 | |||||||||||
4,675,000 | Railsplitter Tobacco Settlement Authority, Revenue Bonds | 06/01/24 | 5.000 | 5,386,114 | |||||||||||
680,000 | Railsplitter Tobacco Settlement Authority, Revenue Bonds | 06/01/26 | 5.000 | 829,042 | |||||||||||
4,055,000 | Railsplitter Tobacco Settlement Authority, Revenue Bonds | 06/01/27 | 5.000 | 4,900,346 | |||||||||||
470,000 | Railsplitter Tobacco Settlement Authority, Revenue Bonds | 06/01/28 | 5.000 | 564,366 | |||||||||||
Total Illinois | 33,245,390 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 13 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
Indiana (2.6%) | |||||||||||||||
$ | 1,665,000 | Indiana Bond Bank, Revenue Bonds (3-Month USD-LIBOR + 0.970%)2 | 10/15/22 | 1.129 | % | $ | 1,665,117 | ||||||||
800,000 | Indiana Finance Authority, Revenue Bonds4 | 11/02/20 | 0.110 | 800,000 | |||||||||||
2,000,000 | Indiana Finance Authority, Revenue Bonds1,2 | 12/01/58 | 2.250 | 2,111,080 | |||||||||||
4,400,000 | Indiana Housing & Community Development Authority, Revenue Bonds4 | 11/02/20 | 0.100 | 4,400,000 | |||||||||||
3,770,000 | Indiana Housing & Community Development Authority, Revenue Bonds | 01/01/49 | 3.750 | 4,207,207 | |||||||||||
1,580,000 | Indiana Housing & Community Development Authority, Revenue Bonds, GNMA | 07/01/22 | 5.000 | 1,694,945 | |||||||||||
1,565,000 | Indiana Housing & Community Development Authority, Revenue Bonds, GNMA | 01/01/23 | 5.000 | 1,709,465 | |||||||||||
2,470,000 | Indiana Housing & Community Development Authority, Revenue Bonds, GNMA | 07/01/49 | 3.250 | 2,684,149 | |||||||||||
Total Indiana | 19,271,963 | ||||||||||||||
| Iowa (0.7%) | ||||||||||||||
595,000 | Iowa Finance Authority, Revenue Bonds, FHLMC, FNMA, GNMA | 07/01/46 | 4.000 | 630,141 | |||||||||||
4,160,000 | Iowa Finance Authority, Revenue Bonds, FHLMC, FNMA, GNMA | 01/01/50 | 3.750 | 4,647,677 | |||||||||||
Total Iowa | 5,277,818 | ||||||||||||||
| Kentucky (0.8%) | ||||||||||||||
4,965,000 | Kentucky Public Energy Authority, Revenue Bonds1,2 | 12/01/49 | 4.000 | 5,595,257 | |||||||||||
Total Kentucky | 5,595,257 | ||||||||||||||
| Louisiana (0.0%) | ||||||||||||||
25,000 | Tobacco Settlement Financing Corp., Revenue Bonds | 05/15/22 | 5.000 | 26,701 | |||||||||||
Total Louisiana | 26,701 |
The accompanying notes are an integral part of these financial statements.
14
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
Maryland (2.8%) | |||||||||||||||
$ | 1,125,000 | County of Baltimore, General Obligation Bonds | 02/01/26 | 5.000 | % | $ | 1,392,750 | ||||||||
2,200,000 | County of Prince George's, General Obligation Bonds | 07/15/26 | 5.000 | 2,758,932 | |||||||||||
3,500,000 | County of Prince George's, General Obligation Bonds | 09/15/27 | 5.000 | 4,524,730 | |||||||||||
135,000 | State of Maryland, General Obligation Bonds | 08/01/24 | 5.000 | 158,595 | |||||||||||
10,000,000 | State of Maryland, General Obligation Bonds | 03/15/25 | 5.000 | 12,023,200 | |||||||||||
Total Maryland | 20,858,207 | ||||||||||||||
| Massachusetts (3.7%) | ||||||||||||||
1,805,000 | Commonwealth of Massachusetts, Revenue Bonds, AGM1,2 | 06/01/22 | 3.443 | 1,845,576 | |||||||||||
11,865,000 | Commonwealth of Massachusetts, General Obligation Bonds (3-Month USD-LIBOR + 0.550%)2 | 11/01/25 | 0.718 | 11,849,813 | |||||||||||
4,625,000 | Commonwealth of Massachusetts, General Obligation Bonds | 07/01/26 | 5.000 | 5,788,280 | |||||||||||
1,200,000 | Commonwealth of Massachusetts, General Obligation Bonds | 09/01/26 | 5.000 | 1,508,352 | |||||||||||
5,000,000 | Massachusetts Clean Water Trust, Revenue Bonds1,2 | 08/01/23 | 3.900 | 5,093,150 | |||||||||||
1,000,000 | Massachusetts Housing Finance Agency, Revenue Bonds | 12/01/21 | 2.500 | 1,019,270 | |||||||||||
370,000 | Massachusetts Housing Finance Agency, Revenue Bonds | 06/01/34 | 3.300 | 396,078 | |||||||||||
485,000 | Massachusetts Housing Finance Agency, Revenue Bonds | 12/01/36 | 3.450 | 519,755 | |||||||||||
Total Massachusetts | 28,020,274 | ||||||||||||||
| Michigan (5.0%) | ||||||||||||||
1,930,000 | Brighton Area School District, General Obligation Bonds | 05/01/33 | 3.000 | 2,117,905 | |||||||||||
2,385,000 | Brighton Area School District, General Obligation Bonds | 05/01/34 | 3.000 | 2,606,590 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 15 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
Michigan (continued) | |||||||||||||||
$ | 115,000 | Detroit City School District, General Obligation Bonds, BHAC, FGIC | 05/01/25 | 5.250 | % | $ | 128,327 | ||||||||
110,000 | Detroit City School District, General Obligation Bonds, AGM | 05/01/27 | 5.250 | 137,886 | |||||||||||
5,025,000 | Detroit City School District, General Obligation Bonds, AGM | 05/01/29 | 5.250 | 6,558,932 | |||||||||||
5,350,000 | Detroit City School District, General Obligation Bonds, AGM | 05/01/29 | 6.000 | 6,752,770 | |||||||||||
1,550,000 | Detroit City School District, General Obligation Bonds, AGM | 05/01/30 | 5.250 | 2,058,974 | |||||||||||
3,675,000 | Detroit City School District, General Obligation Bonds, AGM | 05/01/32 | 5.250 | 4,981,132 | |||||||||||
1,195,000 | Michigan Finance Authority, Revenue Bonds | 05/01/28 | 5.000 | 1,464,186 | |||||||||||
1,235,000 | Pontiac School District, General Obligation Bonds. | 05/01/26 | 5.000 | 1,506,502 | |||||||||||
1,355,000 | Pontiac School District, General Obligation Bonds. | 05/01/27 | 5.000 | 1,682,178 | |||||||||||
1,480,000 | Pontiac School District, General Obligation Bonds. | 05/01/28 | 5.000 | 1,863,749 | |||||||||||
1,310,000 | Pontiac School District, General Obligation Bonds. | 05/01/29 | 5.000 | 1,665,757 | |||||||||||
1,240,000 | Pontiac School District, General Obligation Bonds. | 05/01/31 | 5.000 | 1,578,371 | |||||||||||
1,250,000 | State of Michigan Trunk Line Revenue, Revenue Bonds | 11/15/23 | 5.000 | 1,427,425 | |||||||||||
1,000,000 | State of Michigan Trunk Line Revenue, Revenue Bonds | 11/15/24 | 5.000 | 1,186,500 | |||||||||||
Total Michigan | 37,717,184 | ||||||||||||||
| Minnesota (4.0%) | ||||||||||||||
40,000 | Minnesota Housing Finance Agency, Revenue Bonds, FHLMC, FNMA, GNMA | 01/01/27 | 3.350 | 42,158 | |||||||||||
445,000 | Minnesota Housing Finance Agency, Revenue Bonds, FHLMC, FNMA, GNMA | 07/01/27 | 3.400 | 469,591 | |||||||||||
995,000 | Minnesota Housing Finance Agency, Revenue Bonds, FHLMC, FNMA, GNMA | 01/01/28 | 1.750 | 1,023,447 | |||||||||||
1,148,181 | Minnesota Housing Finance Agency, Revenue Bonds, FHLMC, FNMA, GNMA | 03/01/47 | 2.930 | 1,191,995 | |||||||||||
1,391,787 | Minnesota Housing Finance Agency, Revenue Bonds, FHA, FHLMC, FNMA, GNMA | 01/01/49 | 3.600 | 1,461,321 | |||||||||||
3,637,514 | Minnesota Housing Finance Agency, Revenue Bonds, FHLMC, FNMA, GNMA | 03/01/49 | 3.450 | 3,807,640 |
The accompanying notes are an integral part of these financial statements.
16
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
Minnesota (continued) | |||||||||||||||
$ | 1,326,280 | Minnesota Housing Finance Agency, Revenue Bonds, FHLMC, FNMA, GNMA | 06/01/49 | 3.150 | % | $ | 1,385,220 | ||||||||
6,569,930 | Minnesota Housing Finance Agency, Revenue Bonds, FHLMC, FNMA, GNMA | 01/01/50 | 2.470 | 6,698,372 | |||||||||||
1,000,000 | Sartell-St Stephen Independent School District No 748, General Obligation Bonds3 | 02/01/33 | 0.000 | 731,980 | |||||||||||
6,655,000 | Shakopee Independent School District No 720, General Obligation Bonds3,5 | 02/01/28 | 0.000 | 6,011,528 | |||||||||||
5,155,000 | Shakopee Independent School District No 720, General Obligation Bonds3,5 | 02/01/29 | 0.000 | 4,534,596 | |||||||||||
2,250,000 | St Paul Independent School District No 625, Certificates of Participation | 02/01/32 | 2.000 | 2,298,015 | |||||||||||
Total Minnesota | 29,655,863 | ||||||||||||||
Mississippi (0.1%) | |||||||||||||||
1,000,000 | Mississippi Business Finance Corp., Revenue Bonds1,2 | 03/01/27 | 2.200 | 1,042,490 | |||||||||||
Total Mississippi | 1,042,490 | ||||||||||||||
Missouri (0.5%) | |||||||||||||||
3,665,000 | Missouri Housing Development Commission, Revenue Bonds, FHLMC, FNMA, GNMA | 05/01/51 | 3.250 | 4,069,983 | |||||||||||
Total Missouri | 4,069,983 | ||||||||||||||
Montana (0.2%) | |||||||||||||||
1,435,000 | Montana Board of Housing, Revenue Bonds | 12/01/43 | 4.000 | 1,559,644 | |||||||||||
Total Montana | 1,559,644 | ||||||||||||||
Nebraska (2.0%) | |||||||||||||||
2,515,000 | Central Plains Energy Project, Revenue Bonds | 09/01/27 | 5.000 | 2,694,345 | |||||||||||
3,675,000 | Central Plains Energy Project, Revenue Bonds1,2 | 03/01/50 | 5.000 | 4,116,992 | |||||||||||
1,650,000 | Nebraska Investment Finance Authority, Revenue Bonds, FHLMC, FNMA, GNMA | 03/01/28 | 1.850 | 1,695,672 | |||||||||||
1,480,000 | Nebraska Investment Finance Authority, Revenue Bonds, FHLMC, FNMA, GNMA | 09/01/28 | 1.900 | 1,522,328 | |||||||||||
1,710,000 | Nebraska Investment Finance Authority, Revenue Bonds, FHLMC, FNMA, GNMA | 03/01/29 | 1.950 | 1,758,906 | |||||||||||
3,160,000 | Nebraska Investment Finance Authority, Revenue Bonds, FHLMC, FNMA, GNMA | 09/01/49 | 4.000 | 3,471,386 | |||||||||||
Total Nebraska | 15,259,629 | ||||||||||||||
Nevada (0.2%) | |||||||||||||||
1,250,000 | County of Clark, Revenue Bonds1,2 | 01/01/36 | 1.650 | 1,258,088 | |||||||||||
Total Nevada | 1,258,088 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 17 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
New Hampshire (0.1%) | |||||||||||||||
$ | 1,000,000 | New Hampshire Business Finance Authority, Revenue Bonds | 08/01/24 | 3.125 | % | $ | 1,064,960 | ||||||||
Total New Hampshire | 1,064,960 | ||||||||||||||
| New Jersey (5.6%) | ||||||||||||||
1,420,000 | Holmdel Township School District, General Obligation Bonds | 02/01/27 | 3.250 | 1,633,838 | |||||||||||
2,055,000 | Mount Laurel Township Board of Education, General Obligation Bonds | 09/01/22 | 2.500 | 2,117,862 | |||||||||||
2,075,000 | Mount Laurel Township Board of Education, General Obligation Bonds | 09/01/23 | 2.500 | 2,171,404 | |||||||||||
1,630,000 | Mount Laurel Township Board of Education, General Obligation Bonds | 09/01/24 | 2.500 | 1,732,087 | |||||||||||
3,830,000 | New Jersey Economic Development Authority, Revenue Bonds (SIFMA Municipal Swap Index Yield + 1.550%)2 | 09/01/27 | 1.670 | 3,784,921 | |||||||||||
4,700,000 | New Jersey Economic Development Authority, Revenue Bonds (SIFMA Municipal Swap Index Yield + 1.600%)2 | 03/01/28 | 1.720 | 4,650,838 | |||||||||||
2,200,000 | New Jersey Economic Development Authority, Revenue Bonds1,2 | 11/01/34 | 1.200 | 2,229,062 | |||||||||||
3,350,000 | New Jersey Health Care Facilities Financing Authority, Revenue Bonds1,2 | 07/01/45 | 5.000 | 4,102,778 | |||||||||||
3,235,000 | New Jersey Transportation Trust Fund Authority, Revenue Bonds3 | 12/15/26 | 0.000 | 2,750,462 | |||||||||||
1,380,000 | New Jersey Transportation Trust Fund Authority, Revenue Bonds3 | 12/15/28 | 0.000 | 1,086,626 | |||||||||||
4,355,000 | New Jersey Transportation Trust Fund Authority, Revenue Bonds3 | 12/15/30 | 0.000 | 3,151,844 | |||||||||||
6,000,000 | New Jersey Transportation Trust Fund Authority, Revenue Bonds3 | 12/15/31 | 0.000 | 4,163,460 | |||||||||||
2,760,000 | New Jersey Turnpike Authority, Revenue Bonds (1-Month USD-LIBOR + 0.750%)2 | 01/01/30 | 0.854 | 2,761,739 | |||||||||||
1,375,000 | Rumson Boro School District, General Obligation Bonds | 07/15/33 | 2.000 | 1,391,569 | |||||||||||
1,750,000 | Township of Ewing, General Obligation Bonds | 08/01/27 | 3.000 | 1,955,135 | |||||||||||
1,750,000 | Township of Ewing, General Obligation Bonds | 08/01/29 | 2.000 | 1,814,365 | |||||||||||
Total New Jersey | 41,497,990 |
The accompanying notes are an integral part of these financial statements.
18
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
New Mexico (0.7%) | |||||||||||||||
$ | 1,705,000 | New Mexico Mortgage Finance Authority, Revenue Bonds, FHLMC, FNMA, GNMA | 01/01/49 | 4.000 | % | $ | 1,876,676 | ||||||||
3,050,000 | New Mexico Mortgage Finance Authority, Revenue Bonds, FHLMC, FNMA, GNMA | 01/01/51 | 3.500 | 3,380,773 | |||||||||||
Total New Mexico | 5,257,449 | ||||||||||||||
| New York (3.9%) | ||||||||||||||
5,000,000 | Metropolitan Transportation Authority, Revenue Bonds | 02/01/22 | 4.000 | 4,994,950 | |||||||||||
4,485,000 | Metropolitan Transportation Authority, Revenue Bonds (1-Month USD-LIBOR + 0.820%)2 | 11/01/26 | 0.920 | 4,353,365 | |||||||||||
1,000,000 | New York City Transitional Finance Authority Future Tax Secured Revenue, Revenue Bonds4. | 11/02/20 | 0.110 | 1,000,000 | |||||||||||
4,000,000 | New York City Transitional Finance Authority Future Tax Secured Revenue, Revenue Bonds5. | 08/01/28 | 5.000 | 5,137,560 | |||||||||||
3,000,000 | New York City Transitional Finance Authority Future Tax Secured Revenue, Revenue Bonds. | 11/01/28 | 5.000 | 3,866,160 | |||||||||||
2,000,000 | New York State Dormitory Authority, Revenue Notes | 03/31/21 | 5.000 | 2,039,520 | |||||||||||
925,000 | New York State Dormitory Authority, Revenue Bonds | 02/15/24 | 5.000 | 1,062,640 | |||||||||||
5,000,000 | New York State Urban Development Corp., Revenue Bonds | 03/15/28 | 5.000 | 6,388,200 | |||||||||||
Total New York | 28,842,395 | ||||||||||||||
| North Carolina (3.0%) | ||||||||||||||
2,315,000 | County of New Hanover, Revenue Bonds | 10/01/26 | 5.000 | 2,840,366 | |||||||||||
1,725,000 | County of Wake, General Obligation Bonds | 03/01/24 | 5.000 | 1,996,205 | |||||||||||
910,000 | North Carolina Housing Finance Agency, Revenue Bonds, FHLMC, FNMA, GNMA | 01/01/23 | 2.750 | 942,587 | |||||||||||
925,000 | North Carolina Housing Finance Agency, Revenue Bonds, FHLMC, FNMA, GNMA | 07/01/23 | 2.800 | 965,561 | |||||||||||
4,935,000 | North Carolina Housing Finance Agency, Revenue Bonds, FNMA, GNMA | 01/01/50 | 4.000 | 5,517,478 | |||||||||||
2,700,000 | North Carolina Housing Finance Agency, Revenue Bonds | 07/01/50 | 4.000 | 3,063,096 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 19 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
North Carolina (continued) | |||||||||||||||
$ | 1,570,000 | State of North Carolina, General Obligation Bonds | 06/01/24 | 5.000 | % | $ | 1,835,566 | ||||||||
2,000,000 | State of North Carolina, General Obligation Bonds | 06/01/27 | 5.000 | 2,573,800 | |||||||||||
2,225,000 | State of North Carolina, General Obligation Bonds | 06/01/32 | 2.000 | 2,335,182 | |||||||||||
Total North Carolina | 22,069,841 | ||||||||||||||
| North Dakota (1.0%) | ||||||||||||||
2,200,000 | North Dakota Housing Finance Agency, Revenue Bonds | 07/01/32 | 2.800 | 2,344,870 | |||||||||||
4,795,000 | North Dakota Housing Finance Agency, Revenue Bonds | 07/01/49 | 4.250 | 5,335,444 | |||||||||||
Total North Dakota | 7,680,314 | ||||||||||||||
| Ohio (3.0%) | ||||||||||||||
3,300,000 | Ohio Higher Educational Facility Commission, Revenue Bonds4 | 11/02/20 | 0.100 | 3,300,000 | |||||||||||
2,000,000 | Ohio Higher Educational Facility Commission, Revenue Bonds (1-Month USD-LIBOR + 0.420%)2 | 10/01/44 | 0.524 | 1,998,140 | |||||||||||
6,770,000 | Ohio Water Development Authority Water Pollution Control Loan Fund, Revenue Bonds | 12/01/27 | 5.000 | 8,793,079 | |||||||||||
5,700,000 | State of Ohio, Revenue Bonds4 | 11/02/20 | 0.110 | 5,700,000 | |||||||||||
2,195,000 | State of Ohio, General Obligation Bonds | 08/01/25 | 5.000 | 2,671,249 | |||||||||||
Total Ohio | 22,462,468 | ||||||||||||||
| Oklahoma (0.7%) | ||||||||||||||
4,830,000 | Oklahoma Housing Finance Agency, Revenue Bonds, FHLMC, FNMA, GNMA | 09/01/49 | 4.000 | 5,406,992 | |||||||||||
Total Oklahoma | 5,406,992 | ||||||||||||||
| Oregon (6.0%) | ||||||||||||||
5,400,000 | Clackamas & Washington Counties School District No 3, General Obligation Bonds3 | 06/15/35 | 0.000 | 3,868,560 | |||||||||||
1,020,000 | Clackamas County School District No 115, General Obligation Bonds3 | 06/15/27 | 0.000 | 948,763 | |||||||||||
1,670,000 | Lane County School District No 1 Pleasant Hill, General Obligation Bonds3 | 06/15/27 | 0.000 | 1,562,586 | |||||||||||
1,445,000 | Multnomah & Clackamas Counties School District No 10JT Gresham-Barlow, General Obligation Bonds3 | 06/15/32 | 0.000 | 1,119,268 | |||||||||||
3,905,000 | Salem-Keizer School District No 24J, General Obligation Bonds3 | 06/15/25 | 0.000 | 3,787,342 |
The accompanying notes are an integral part of these financial statements.
20
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
Oregon (continued) | |||||||||||||||
$ | 4,275,000 | Salem-Keizer School District No 24J, General Obligation Bonds3 | 06/15/26 | 0.000 | % | $ | 4,064,157 | ||||||||
5,000,000 | Salem-Keizer School District No 24J, General Obligation Bonds3 | 06/15/26 | 0.000 | 4,734,850 | |||||||||||
5,000,000 | Salem-Keizer School District No 24J, General Obligation Bonds3 | 06/15/27 | 0.000 | 4,632,450 | |||||||||||
1,500,000 | Salem-Keizer School District No 24J, General Obligation Bonds3 | 06/15/28 | 0.000 | 1,362,555 | |||||||||||
2,745,000 | Salem-Keizer School District No 24J, General Obligation Bonds3 | 06/15/28 | 0.000 | 2,482,166 | |||||||||||
1,385,000 | Salem-Keizer School District No 24J, General Obligation Bonds3 | 06/15/29 | 0.000 | 1,784,462 | |||||||||||
900,000 | Salem-Keizer School District No 24J, General Obligation Bonds3 | 06/15/30 | 0.000 | 1,181,970 | |||||||||||
1,045,000 | Salem-Keizer School District No 24J, General Obligation Bonds3 | 06/15/31 | 0.000 | 859,460 | |||||||||||
2,500,000 | Salem-Keizer School District No 24J, General Obligation Bonds3 | 06/15/31 | 0.000 | 3,248,450 | |||||||||||
1,000,000 | Salem-Keizer School District No 24J, General Obligation Bonds3 | 06/15/33 | 0.000 | 754,990 | |||||||||||
1,045,000 | Salem-Keizer School District No 24J, General Obligation Bonds3 | 06/15/35 | 0.000 | 724,154 | |||||||||||
5,000,000 | Umatilla County School District No 8R Hermiston, General Obligation Bonds3 | 06/15/32 | 0.000 | 3,991,450 | |||||||||||
2,225,000 | Washington & Multnomah Counties School District No 48J Beaverton, General Obligation Bonds3 | 06/15/33 | 0.000 | 1,579,750 | |||||||||||
1,500,000 | Washington Clackamas & Yamhill Counties School District No 88J, General Obligation Bonds3 | 06/15/31 | 0.000 | 1,184,685 | |||||||||||
1,055,000 | Washington Clackamas & Yamhill Counties School District No 88J, General Obligation Bonds3 | 06/15/33 | 0.000 | 756,572 | |||||||||||
Total Oregon | 44,628,640 | ||||||||||||||
| Other Territory (0.3%) | ||||||||||||||
2,445,000 | FHLMC Multifamily VRD Certificates, Revenue Bonds6 | 05/15/27 | 2.304 | 2,586,443 | |||||||||||
Total Other Territory | 2,586,443 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 21 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
Pennsylvania (4.0%) | |||||||||||||||
$ | 150,000 | Allegheny County Airport Authority, Revenue Bonds, FGIC | 01/01/22 | 5.000 | % | $ | 157,733 | ||||||||
85,000 | Allegheny County Airport Authority, Revenue Bonds, FGIC | 01/01/23 | 5.000 | 93,076 | |||||||||||
2,400,000 | Lancaster County Hospital Authority, Revenue Bonds4 | 11/02/20 | 0.120 | 2,400,000 | |||||||||||
1,000,000 | New Kensington-Arnold School District, General Obligation Bonds, BAM | 05/15/28 | 2.500 | 1,079,790 | |||||||||||
1,225,000 | North Penn Water Authority, Revenue Bonds (SIFMA Municipal Swap Index Yield + 0.560%)2 | 11/01/24 | 0.680 | 1,217,258 | |||||||||||
5,500,000 | School District of Philadelphia, Revenue Notes | 06/30/21 | 4.000 | 5,635,025 | |||||||||||
2,000,000 | School District of Philadelphia, General Obligation Bonds | 09/01/23 | 5.000 | 2,240,740 | |||||||||||
525,000 | School District of Philadelphia, General Obligation Bonds, AGM, FGIC | 06/01/24 | 5.000 | 599,886 | |||||||||||
1,710,000 | School District of Philadelphia, General Obligation Bonds | 09/01/26 | 5.000 | 2,083,481 | |||||||||||
1,725,000 | School District of Philadelphia, General Obligation Bonds | 09/01/27 | 5.000 | 2,146,952 | |||||||||||
1,610,000 | School District of Philadelphia, General Obligation Bonds | 09/01/28 | 5.000 | 2,043,589 | |||||||||||
2,210,000 | State Public School Building Authority, Revenue Bonds, AGM | 06/01/32 | 5.000 | 2,654,011 | |||||||||||
6,255,000 | State Public School Building Authority, Revenue Bonds, AGM | 06/01/33 | 5.000 | 7,479,604 | |||||||||||
Total Pennsylvania | 29,831,145 | ||||||||||||||
| South Carolina (0.1%) | ||||||||||||||
975,000 | South Carolina State Housing Finance & Development Authority, Revenue Bonds | 07/01/34 | 2.650 | 1,019,489 | |||||||||||
Total South Carolina | 1,019,489 | ||||||||||||||
| South Dakota (2.8%) | ||||||||||||||
1,410,000 | Educational Enhancement Funding Corp., Revenue Bonds | 06/01/25 | 5.000 | 1,559,587 | |||||||||||
3,785,000 | Educational Enhancement Funding Corp., Revenue Bonds | 06/01/26 | 5.000 | 4,171,827 | |||||||||||
1,500,000 | South Dakota Housing Development Authority, Revenue Bonds, FHLMC, FNMA, GNMA | 11/01/32 | 3.400 | 1,617,810 | |||||||||||
610,000 | South Dakota Housing Development Authority, Revenue Bonds | 11/01/44 | 4.000 | 640,531 |
The accompanying notes are an integral part of these financial statements.
22
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
South Dakota (continued) | |||||||||||||||
$ | 2,845,000 | South Dakota Housing Development Authority, Revenue Bonds | 11/01/48 | 4.500 | % | $ | 3,197,239 | ||||||||
3,095,000 | South Dakota Housing Development Authority, Revenue Bonds | 11/01/49 | 4.000 | 3,477,728 | |||||||||||
5,420,000 | South Dakota Housing Development Authority, Revenue Bonds | 11/01/50 | 3.750 | 6,061,240 | |||||||||||
Total South Dakota | 20,725,962 | ||||||||||||||
| Tennessee (1.6%) | ||||||||||||||
2,485,000 | Clarksville Natural Gas Acquisition Corp., Revenue Bonds | 12/15/21 | 5.000 | 2,602,143 | |||||||||||
3,195,000 | Tennessee Housing Development Agency, Revenue Bonds | 01/01/47 | 3.500 | 3,371,556 | |||||||||||
4,995,000 | Tennessee Housing Development Agency, Revenue Bonds | 07/01/50 | 3.500 | 5,593,451 | |||||||||||
Total Tennessee | 11,567,150 | ||||||||||||||
| Texas (9.1%) | ||||||||||||||
910,000 | City of Houston Airport System Revenue, Revenue Bonds | 07/01/24 | 5.000 | 1,047,255 | |||||||||||
1,170,000 | City of Houston Airport System Revenue, Revenue Bonds | 07/01/25 | 5.000 | 1,388,111 | |||||||||||
1,150,000 | City of Houston Airport System Revenue, Revenue Bonds | 07/01/30 | 5.000 | 1,476,680 | |||||||||||
1,000,000 | City of Houston Airport System Revenue, Revenue Bonds | 07/01/31 | 5.000 | 1,272,820 | |||||||||||
1,000,000 | City of Houston Airport System Revenue, Revenue Bonds | 07/01/34 | 5.000 | 1,246,420 | |||||||||||
500,000 | City of San Antonio Electric & Gas Systems Revenue, Revenue Bonds1,2 | 02/01/48 | 2.750 | 522,500 | |||||||||||
5,250,000 | Conroe Independent School District, General Obligation Bonds5 | 02/15/27 | 5.000 | 6,639,045 | |||||||||||
2,000,000 | Fort Bend Independent School District, General Obligation Bonds | 08/15/28 | 5.000 | 2,624,520 | |||||||||||
1,000,000 | Hays Consolidated Independent School District, General Obligation Bonds | 02/15/27 | 5.000 | 1,256,880 | |||||||||||
3,455,000 | Leander Independent School District, General Obligation Bonds3 | 08/15/29 | 0.000 | 2,572,109 | |||||||||||
1,025,000 | Love Field Airport Modernization Corp., Revenue Bonds | 11/01/25 | 5.000 | 1,212,411 | |||||||||||
2,000,000 | Round Rock Independent School District, General Obligation Bonds | 08/01/34 | 2.750 | 2,124,280 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 23 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
Texas (continued) | |||||||||||||||
$ | 1,000,000 | State of Texas, General Obligation Bonds | 08/01/26 | 5.000 | % | $ | 1,243,990 | ||||||||
1,985,000 | Texas Department of Housing & Community Affairs, Revenue Bonds, GNMA | 09/01/33 | 3.350 | 2,133,041 | |||||||||||
2,910,000 | Texas Department of Housing & Community Affairs, Revenue Bonds, GNMA | 09/01/34 | 2.700 | 3,088,267 | |||||||||||
3,675,832 | Texas Department of Housing & Community Affairs, Revenue Bonds, FNMA | 03/01/35 | 3.400 | 3,973,685 | |||||||||||
1,350,000 | Texas Department of Housing & Community Affairs, Revenue Bonds, GNMA | 09/01/35 | 2.150 | 1,365,728 | |||||||||||
6,638,637 | Texas Department of Housing & Community Affairs, Revenue Bonds, FHLMC, FNMA, GNMA | 09/01/47 | 2.835 | 6,898,274 | |||||||||||
1,065,000 | Texas Department of Housing & Community Affairs, Revenue Bonds, GNMA | 03/01/50 | 4.000 | 1,215,974 | |||||||||||
10,000 | Texas Municipal Gas Acquisition & Supply Corp. I, Revenue Bonds | 12/15/20 | 5.250 | 10,053 | |||||||||||
510,000 | Texas Municipal Gas Acquisition & Supply Corp. I, Revenue Bonds | 12/15/21 | 5.250 | 535,454 | |||||||||||
7,870,000 | Texas Municipal Gas Acquisition & Supply Corp. I, Revenue Bonds (3-Month USD-LIBOR + 0.700%)2 | 12/15/26 | 0.868 | 7,811,369 | |||||||||||
4,570,000 | Texas Municipal Gas Acquisition & Supply Corp. I, Revenue Bonds | 12/15/26 | 6.250 | 5,350,282 | |||||||||||
4,185,000 | Texas Municipal Gas Acquisition & Supply Corp. II, Revenue Bonds (SIFMA Municipal Swap Index Yield + 0.550%)2 | 09/15/27 | 0.670 | 4,175,375 | |||||||||||
4,175,000 | Texas Municipal Gas Acquisition & Supply Corp. II, Revenue Bonds (3-Month USD-LIBOR + 0.690%)2 | 09/15/27 | 0.855 | 4,134,711 | |||||||||||
655,000 | Texas Municipal Gas Acquisition & Supply Corp. II, Revenue Bonds (3-Month USD-LIBOR + 0.870%)2 | 09/15/27 | 1.038 | 653,965 | |||||||||||
1,000,000 | Wylie Independent School District, General Obligation Bonds3 | 08/15/24 | 0.000 | 981,540 | |||||||||||
1,000,000 | Wylie Independent School District, General Obligation Bonds3 | 08/15/25 | 0.000 | 972,060 | |||||||||||
Total Texas | 67,926,799 |
The accompanying notes are an integral part of these financial statements.
24
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
Virginia (3.4%) | |||||||||||||||
$ | 1,755,000 | City of Virginia Beach, General Obligation Bonds. | 04/01/25 | 5.000 | % | $ | 2,111,739 | ||||||||
2,005,000 | County of Arlington, General Obligation Bonds | 08/15/25 | 5.000 | 2,460,416 | |||||||||||
1,215,000 | County of Arlington, General Obligation Bonds | 08/15/30 | 2.500 | 1,308,968 | |||||||||||
6,040,000 | Virginia College Building Authority, Revenue Bonds | 09/01/27 | 5.000 | 7,796,130 | |||||||||||
1,835,000 | Virginia College Building Authority, Revenue Bonds | 02/01/28 | 5.000 | 2,382,362 | |||||||||||
5,000,000 | Virginia Commonwealth Transportation Board, Revenue Bonds | 05/15/24 | 5.000 | 5,814,300 | |||||||||||
2,300,000 | Virginia Housing Development Authority, Revenue Bonds | 01/01/23 | 2.740 | 2,389,401 | |||||||||||
1,205,000 | Virginia Public School Authority, Revenue Bonds | 08/01/26 | 5.000 | 1,505,949 | |||||||||||
Total Virginia | 25,769,265 | ||||||||||||||
| Washington (1.2%) | ||||||||||||||
425,000 | Port of Seattle, Revenue Bonds | 06/01/27 | 3.750 | 449,501 | |||||||||||
1,050,000 | State of Washington, General Obligation Bonds | 08/01/26 | 5.000 | 1,313,582 | |||||||||||
1,330,000 | State of Washington, General Obligation Bonds, NPFG3 | 06/01/30 | 0.000 | 1,153,855 | |||||||||||
200,000 | Washington State Housing Finance Commission, Revenue Bonds | 06/01/44 | 3.500 | 205,662 | |||||||||||
1,955,000 | Washington State Housing Finance Commission, Revenue Bonds, FHLMC, FNMA, GNMA | 12/01/47 | 4.000 | 2,051,342 | |||||||||||
4,000,000 | Washington State Housing Finance Commission, Revenue Bonds (SIFMA Municipal Swap Index Yield + 0.550%)2 | 12/01/48 | 0.670 | 4,008,440 | |||||||||||
Total Washington | 9,182,382 | ||||||||||||||
| Wisconsin (0.9%) | ||||||||||||||
300,000 | County of Milwaukee Airport Revenue, Revenue Bonds | 12/01/28 | 5.250 | 334,989 | |||||||||||
1,800,000 | Public Finance Authority, Revenue Bonds1,2 | 07/01/29 | 2.000 | 1,813,050 | |||||||||||
4,500,000 | Wisconsin Health & Educational Facilities Authority, Revenue Bonds4 | 11/02/20 | 0.110 | 4,500,000 | |||||||||||
Total Wisconsin | 6,648,039 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 25 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
MUNICIPAL BONDS (continued) | |||||||||||||||
Wyoming (0.5%) | |||||||||||||||
$ | 3,120,000 | Wyoming Community Development Authority, Revenue Bonds | 12/01/48 | 4.000 | % | $ | 3,437,678 | ||||||||
Total Wyoming | 3,437,678 | ||||||||||||||
Total Municipal Bonds | |||||||||||||||
(Cost $734,934,655) | 765,655,640 |
TOTAL INVESTMENTS (Cost $734,934,655)7 | 102.4 | % | $ | 765,655,640 | |||||||||||
LIABILITIES IN EXCESS OF OTHER ASSETS | (2.4) | % | (17,764,863 | ) | |||||||||||
NET ASSETS | 100.00 | % | $ | 747,890,777 |
_______________________ | |
1 | This variable rate security is based on a predetermined schedule and the rate at period end also represents the reference rate at period end. |
2 | Variable rate instrument. Interest rates change on specific dates (such as coupon or interest payment date). The yield shown represents the October 31, 2020 coupon or interest rate. |
3 | Security issued with zero coupon. Income is recognized through accretion of discount. |
4 | Variable rate demand note. The maturity date reflects the demand repayment dates. Interest rates change on specific dates (such as coupon or interest payment date). The yield shown represents the coupon or interest rate as of October 31, 2020. |
5 | Represent a security purchased on a when-issued basis. |
6 | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. Total market value of Rule 144A securities owned at October 31, 2020 was $ 2,586,443 or 0.3% of net assets. Unless otherwise noted, these securities are not considered illiquid. |
7 | The aggregate cost for federal income tax purposes is $734,936,188, the aggregate gross unrealized appreciation is $31,219,525 and the aggregate gross unrealized depreciation is $500,073, resulting in net unrealized appreciation of $30,719,452. |
The accompanying notes are an integral part of these financial statements.
26
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Abbreviations: | |
AGM - Assured Guaranty Municipal Corporation. | |
AMBAC - AMBAC Financial Group, Inc. | |
BAM - Build America Mutual. | |
BHAC - Berkshire Hathaway Assurance Corporation. | |
FGIC - Financial Guaranty Insurance Company. | |
FHA - Federal Housing Administration. | |
FHLMC - Federal Home Loan Mortgage Corporation. | |
FNMA - Federal National Mortgage Association. | |
GNMA - Government National Mortgage Association. | |
LIBOR - London Interbank Offered Rate. | |
NPFG - National Public Finance Guarantee Corporation. | |
SIFMA - Securities Industry and Financial Markets Association. |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 27 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
FAIR VALUE MEASUREMENTS
The Fund is required to disclose information regarding the fair value measurements of the Fund’s assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The disclosure requirement established a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including, for example, the risk inherent in a particular valuation technique used to measure fair value, including the model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the Fund’s own considerations about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
Authoritative guidance establishes three levels of the fair value hierarchy as follows:
— | Level 1 – unadjusted quoted prices in active markets for identical assets and liabilities. |
— | Level 2 – significant other observable inputs (including quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk, etc.). |
— | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of assets and liabilities). |
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires judgment by the investment adviser. The investment adviser considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the investment adviser’s perceived risk of that instrument.
The accompanying notes are an integral part of these financial statements.
28
BBH INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Financial assets within Level 1 are based on quoted market prices in active markets. The Fund does not adjust the quoted price for these instruments.
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include municipal bonds, investment-grade corporate bonds, U.S. Treasury notes and bonds, and certain non-U.S. sovereign obligations and over-the-counter derivatives. As Level 2 financial assets include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Financial assets classified within Level 3 have significant unobservable inputs, as they trade infrequently. Level 3 financial assets include private equity and certain corporate debt securities.
Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon the actual sale of those investments.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2020.
Investments, at value | Unadjusted Quoted Prices in Active Markets for Identical Investments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of October 31, 2020 | ||||||||||||||||
Municipal Bonds* | $ | — | $ | 765,655,640 | $ | — | $ | 765,655,640 | ||||||||||||
Total Investment, at value | $ | — | $ | 765,655,640 | $ | — | $ | 765,655,640 |
_______________________ | |
* | For geographical breakdown of municipal bond investments, refer to the Portfolio Investments. |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 29 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2020
ASSETS: | ||||
Investments in securities, at value (Cost $734,934,655) | $ | 765,655,640 | ||
Cash | 23,928 | |||
Receivables for: | ||||
Shares sold | 5,798,457 | |||
Interest | 5,360,400 | |||
Investment advisory and administrative fee waiver reimbursement | 4,652 | |||
Prepaid assets | 664 | |||
Total Assets | 776,843,741 | |||
LIABILITIES: | ||||
Payables for: | ||||
Investments purchased | 28,026,422 | |||
Shares redeemed | 486,186 | |||
Investment advisory and administrative fees | 245,913 | |||
Professional fees | 71,638 | |||
Dividends declared | 59,196 | |||
Custody and fund accounting fees | 28,938 | |||
Shareholder servicing fees | 15,350 | |||
Transfer agent fees | 3,228 | |||
Distribution fees | 725 | |||
Accrued expenses and other liabilities | 15,368 | |||
Total Liabilities | 28,952,964 | |||
NET ASSETS | $ | 747,890,777 | ||
Net Assets Consist of: | ||||
Paid-in capital | $ | 716,354,796 | ||
Retained earnings | 31,535,981 | |||
Net Assets | $ | 747,890,777 |
NET ASSET VALUE AND OFFERING PRICE PER SHARE | ||||
CLASS N SHARES | ||||
($91,713,891 ÷ 8,364,973 shares outstanding) | $10.96 | |||
CLASS I SHARES | ||||
($656,176,886 ÷ 59,898,515 shares outstanding) | $10.95 |
The accompanying notes are an integral part of these financial statements.
30
BBH INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF OPERATIONS
For the year ended October 31, 2020
NET INVESTMENT INCOME: | ||||
Income: | ||||
Interest income | $ | 12,116,826 | ||
Other income | 203 | |||
Total Income | 12,117,029 | |||
Expenses: | ||||
Investment advisory and administrative fees | 2,175,764 | |||
Shareholder servicing fees | 133,547 | |||
Custody and fund accounting fees | 108,445 | |||
Professional fees | 84,461 | |||
Registration fees | 81,196 | |||
Board of Trustees’ fees | 58,488 | |||
Transfer agent fees | 37,464 | |||
Distribution fees | 725 | |||
Miscellaneous expenses | 57,316 | |||
Total Expenses | 2,737,406 | |||
Investment advisory and administrative fee waiver | (41,531 | ) | ||
Net Expenses | 2,695,875 | |||
Net Investment Income | 9,421,154 | |||
NET REALIZED AND UNREALIZED GAIN: | ||||
Net realized gain on investments in securities | 882,684 | |||
Net change in unrealized appreciation/(depreciation) on investments in securities | 15,478,840 | |||
Net Realized and Unrealized Gain | 16,361,524 | |||
Net Increase in Net Assets Resulting from Operations | $ | 25,782,678 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 31 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended October 31, | ||||||||
2020 | 2019 | |||||||
INCREASE IN NET ASSETS: | ||||||||
Operations: | ||||||||
Net investment income | $ | 9,421,154 | $ | 6,962,982 | ||||
Net realized gain on investments in securities | 882,684 | 1,944,789 | ||||||
Net change in unrealized appreciation/(depreciation) on investments in securities | 15,478,840 | 16,257,303 | ||||||
Net increase in net assets resulting from operations | 25,782,678 | 25,165,074 | ||||||
Dividends and distributions declared: | ||||||||
Class N | (1,300,344 | ) | (926,059 | ) | ||||
Class I | (9,979,557 | ) | (6,267,068 | ) | ||||
Total dividends and distributions declared | (11,279,901 | ) | (7,193,127 | ) | ||||
Share transactions: | ||||||||
Proceeds from sales of shares* | 429,297,126 | 235,768,201 | ||||||
Net asset value of shares issued to shareholders for reinvestment of dividends and distributions | 3,707,156 | 2,145,264 | ||||||
Proceeds from short-term redemption fees | 2,857 | 660 | ||||||
Cost of shares redeemed* | (88,067,119 | ) | (30,569,515 | ) | ||||
Net increase in net assets resulting from share transactions | 344,940,020 | 207,344,610 | ||||||
Total increase in net assets | 359,442,797 | 225,316,557 | ||||||
NET ASSETS: | ||||||||
Beginning of year | 388,447,980 | 163,131,423 | ||||||
End of year | $ | 747,890,777 | $ | 388,447,980 |
_______________________ | |
* | Includes share exchanges. See Note 5 in Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
32
BBH INTERMEDIATE MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a Class N share outstanding throughout each year.
For the years ended October 31, | ||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
Net asset value, beginning of year | $ | 10.76 | $ | 10.15 | $ | 10.48 | $ | 10.56 | $ | 10.29 | ||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income1 | 0.17 | 0.21 | 0.21 | 0.22 | 0.18 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.25 | 0.62 | (0.23 | ) | 0.11 | 0.29 | ||||||||||||||
Total income (loss) from investment operations | 0.42 | 0.83 | (0.02 | ) | 0.33 | 0.47 | ||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.17 | ) | (0.21 | ) | (0.21 | ) | (0.26 | ) | (0.18 | ) | ||||||||||
From net realized gains | (0.05 | ) | (0.01 | ) | (0.10 | ) | (0.15 | ) | (0.02 | ) | ||||||||||
Total dividends and distributions | (0.22 | ) | (0.22 | ) | (0.31 | ) | (0.41 | ) | (0.20 | ) | ||||||||||
Short-term redemption fees1 | 0.00 | 2 | 0.00 | 2 | 0.00 | 2 | 0.00 | 2 | 0.00 | 2 | ||||||||||
Net asset value, end of year | $ | 10.96 | $ | 10.76 | $ | 10.15 | $ | 10.48 | $ | 10.56 | ||||||||||
Total return | 4.00 | % | 8.21 | % | (0.26 | )% | 3.20 | % | 4.64 | % | ||||||||||
Ratios/Supplemental data: | ||||||||||||||||||||
Net assets, end of year (in millions) | $ | 92 | $ | 54 | $ | 34 | $ | 16 | $ | 23 | ||||||||||
Ratio of expenses to average net assets before reductions | 0.71 | % | 0.77 | % | 0.91 | % | 1.05 | % | 1.03 | % | ||||||||||
Fee waiver | 0.06 | %3 | 0.12 | %3 | 0.26 | %3 | 0.40 | %3 | 0.38 | %3 | ||||||||||
Expense offset arrangement | 0.00 | %4 | 0.00 | %4 | 0.00 | %4 | 0.00 | %4 | 0.00 | %4 | ||||||||||
Ratio of expenses to average net assets after reductions | 0.65 | % | 0.65 | % | 0.65 | % | 0.65 | % | 0.65 | % | ||||||||||
Ratio of net investment income to average net assets | 1.58 | % | 2.01 | % | 2.07 | % | 2.16 | % | 1.73 | % | ||||||||||
Portfolio turnover rate | 32 | % | 104 | % | 146 | % | 125 | % | 77 | % | ||||||||||
Portfolio turnover rate5 | 19 | % | 32 | % | 52 | % | 64 | % | 40 | % |
____________
1 | Calculated using average shares outstanding for the year. |
2 | Less than $0.01. |
3 | The ratio of expenses to average net assets for the years ended October 31, 2020, 2019, 2018, 2017 and 2016, reflect fees reduced as result of a contractual operating expense limitation of the share class to 0.65%. The agreement is effective for period beginning on April 1, 2014 and will terminate on March 1, 2021, unless it is renewed by all parties to the agreement. For the years ended October 31, 2020, 2019, 2018, 2017 and 2016, the waived fees were $41,531, $55,422, $63,024, $78,871 and $92,199, respectively. |
4 | Less than 0.01%. |
5 | The portfolio turnover rate excludes variable rate demand notes. |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 33 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS (continued)
Selected per share data and ratios for a Class I share outstanding throughout each year.
For the years ended October 31, | ||||||||||||||||||||
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
Net asset value, beginning of year | $ | 10.75 | $ | 10.14 | $ | 10.47 | $ | 10.55 | $ | 10.28 | ||||||||||
Income from investment operations: | ||||||||||||||||||||
Net investment income1 | 0.19 | 0.23 | 0.23 | 0.25 | 0.20 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.25 | 0.61 | (0.24 | ) | 0.09 | 0.29 | ||||||||||||||
Total income (loss) from investment operations | 0.44 | 0.84 | (0.01 | ) | 0.34 | 0.49 | ||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.19 | ) | (0.22 | ) | (0.22 | ) | (0.27 | ) | (0.20 | ) | ||||||||||
From net realized gains | (0.05 | ) | (0.01 | ) | (0.10 | ) | (0.15 | ) | (0.02 | ) | ||||||||||
Total dividends and distributions | (0.24 | ) | (0.23 | ) | (0.32 | ) | (0.42 | ) | (0.22 | ) | ||||||||||
Short-term redemption fees1 | 0.00 | 2 | 0.00 | 2 | — | 0.00 | 2 | 0.00 | 2 | |||||||||||
Net asset value, end of year | $ | 10.95 | $ | 10.75 | $ | 10.14 | $ | 10.47 | $ | 10.55 | ||||||||||
Total return | 4.18 | % | 8.38 | % | (0.12 | )% | 3.36 | % | 4.80 | % | ||||||||||
Ratios/Supplemental data: | ||||||||||||||||||||
Net assets, end of year (in millions) | $ | 656 | $ | 334 | $ | 129 | $ | 71 | $ | 66 | ||||||||||
Ratio of expenses to average net assets before reductions | 0.47 | % | 0.50 | % | 0.62 | % | 0.69 | % | 0.68 | % | ||||||||||
Fee waiver | 0.00 | %3,4 | 0.00 | %3,4 | 0.12 | %3 | 0.19 | %3 | 0.18 | %3 | ||||||||||
Expense offset arrangement | 0.00 | %4 | 0.00 | %4 | 0.00 | %4 | 0.00 | %4 | 0.00 | %4 | ||||||||||
Ratio of expenses to average net assets after reductions | 0.47 | % | 0.50 | % | 0.50 | % | 0.50 | % | 0.50 | % | ||||||||||
Ratio of net investment income to average net assets | 1.75 | % | 2.17 | % | 2.23 | % | 2.46 | % | 1.88 | % | ||||||||||
Portfolio turnover rate | 32 | % | 104 | % | 146 | % | 125 | % | 77 | % | ||||||||||
Portfolio turnover rate5 | 19 | % | 32 | % | 52 | % | 64 | % | 40 | % |
____________
1 | Calculated using average shares outstanding for the year. |
2 | Less than $0.01. |
3 | The ratio of expenses to average net assets for the years ended October 31, 2020, 2019, 2018, 2017 and 2016, reflect fees reduced as result of a contractual operating expense limitation of the share class to 0.50%. The agreement is effective for period beginning on April 1, 2014 and will terminate on March 1, 2021, unless it is renewed by all parties to the agreement. For the years ended October 31, 2020, 2019, 2018, 2017 and 2016, the waived fees were $—, $6,608, $111,441, $123,485 and $121,168, respectively. |
4 | Less than 0.01% |
5 | The portfolio turnover rate excludes variable rate demand notes. |
The accompanying notes are an integral part of these financial statements.
34
BBH INTERMEDIATE MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2020
1. Organization. The Fund is a separate, diversified series of BBH Trust (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust was originally organized under the laws of the State of Maryland on July 16, 1990 as BBH Fund, Inc. and re-organized as a Delaware statutory trust on June 12, 2007. The Fund commenced operations on April 1, 2014 and offers two share classes, Class N and Class I. Neither Class N shares nor Class I shares automatically convert to any other share class of the Fund. The investment objective of the Fund is to protect investor’s capital and generate attractive risk-adjusted returns. As of October 31, 2020, there were seven series of the Trust.
2. Significant Accounting Policies. The Fund’s financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”). The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services – Investment Companies. The following summarizes significant accounting policies of the Fund:
A. Valuation of Investments. Prices of municipal bonds are provided by an external pricing service approved by the Fund’s Board of Trustees (the “Board”). These securities are generally classified as Level 2. The evaluated vendor pricing is based on methods that may include consideration of the following: yields or prices of municipal securities of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value from security dealers, evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligor’s credit characteristics considered relevant.
Securities or other assets for which market quotations are not readily available are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Board. Short-term investments, which mature in 60 days or less are valued at amortized cost if their original maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if their original maturity when acquired by the Fund was more than 60 days, unless the use of amortized cost is determined not to represent “fair value” by the Board.
B. Accounting for Investments and Income. Investment transactions are accounted for on the trade date. Realized gains and losses on investment transactions are determined based on the identified cost method. Interest income is accrued daily and consists of interest accrued, discount earned (including, if any, both original issue and market discount) and premium amortization on the investments of the Fund. Debt obligations may be placed on non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivable when the collection of all or a portion of the interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is reasonably assured.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 35 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
C. Fund Expenses. Most expenses of the Trust can be directly attributed to a specific fund. Expenses which cannot be directly attributed to a fund are generally apportioned among each fund in the Trust on a net assets basis or other suitable method. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
D. Federal Income Taxes. It is the Trust’s policy to comply with the requirements of the Internal Revenue Code (the “Code”) applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. The Fund files a tax return annually using tax accounting methods required under provisions of the Code, which may differ from GAAP, which is the basis on which these financial statements are prepared. Accordingly, the amount of net investment income and net realized gain reported in these financial statements may differ from that reported on the Fund’s tax return, due to certain book-to-tax timing differences such as losses deferred due to “wash sale” transactions and utilization of capital loss carryforwards. These differences may result in temporary over-distributions for financial statement purposes and are classified as distributions in excess of accumulated net realized gains or net investment income. These distributions do not constitute a return of capital. Permanent differences are reclassified between paid-in capital and retained earnings/(accumulated deficit) within the Statement of Assets and Liabilities based upon their tax classification. As such, the character of distributions to shareholders reported in the Financial Highlights table may differ from that reported to shareholders on Form 1099-DIV.
The Fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes (“ASC 740”). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The Fund did not have any unrecognized tax benefits as of October 31, 2020, nor were there any increases or decreases in unrecognized tax benefits for the year then ended. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as an income tax expense in the Statement of Operations. During the year ended October 31, 2020, the Fund did not incur any such interest or penalties. The Fund is subject to examination by U.S. federal and state tax authorities for returns filed for the prior three years. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
E. Dividends and Distributions to Shareholders. Dividends and distributions from net investment income to shareholders are declared daily and paid monthly to shareholders. Distributions from net capital gains, if any, are generally declared and paid annually and are recorded on the ex-dividend date. The Fund declared dividends and distributions in the amount of $1,300,344 and $9,979,557 to Class N and Class I shareholders, respectively, during the year ended October 31, 2020. In addition, the Fund designated a portion of the payment made to redeeming shareholders as a distribution for income tax purpose.
36
BBH INTERMEDIATE MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
The tax character of distributions paid during the years ended October 31, 2020 and 2019, respectively, were as follows:
Distributions paid from: | ||||||||||||||||||||||||||||||
Ordinary income | Net long-term capital gain | Total taxable distributions | Tax exempt income | Tax return of capital | Total distributions paid | |||||||||||||||||||||||||
2020: | $1,789,349 | $118,951 | $1,908,300 | $9,371,601 | $ | — | $11,279,901 | |||||||||||||||||||||||
2019: | 26,771 | 252,349 | 279,120 | 6,914,007 | — | 7,193,127 |
As of October 31, 2020 and 2019, respectively, the components of retained earnings/(accumulated deficit) were as follows:
Components of retained earnings/(accumulated deficit): | |||||||||||||||||||||||||||||||||
Undistributed ordinary income | Undistributed long-term capital gain | Undistributed tax-exempt income | Accumulated capital and other losses | Other book/tax temporary differences | Unrealized appreciation/ (depreciation) | Total retained earnings/ (accumulated deficit) | |||||||||||||||||||||||||||
2020: | $ | 191,668 | $602,567 | $22,294 | $ | — | $(1,533 | ) | $30,720,985 | $31,535,981 | |||||||||||||||||||||||
2019: | 1,734,251 | 117,366 | 22,204 | — | (2,775 | ) | 15,242,145 | 17,113,191 |
The Fund did not have a net capital loss carryforward at October 31, 2020.
The Fund is permitted to carryforward capital losses for an unlimited period and they will retain their character as either short-term or long-term capital losses rather than being considered all short-term capital losses.
Total distributions paid may differ from amounts reported in the Statements of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid.
To the extent future capital gains are offset by capital loss carryforwards, if any, such gains will not be distributed.
F.Use of Estimates. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from these estimates.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 37 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
3. Fees and Other Transactions with Affiliates.
A. Investment Advisory and Administrative Fees. Effective April 1, 2014 (commencement of operations), under a combined Investment Advisory and Administrative Services Agreement (“Agreement”) with the Trust, Brown Brothers Harriman & Co. (“BBH”) through a separately identifiable department (“SID” or “Investment Adviser”) provides investment advisory, portfolio management and administrative services to the Fund. The Fund’s investment advisory and administrative services fee is calculated daily and paid monthly at an annual rate equivalent to 0.40% of the Fund’s average daily net assets. For the year ended October 31, 2020, the Fund incurred $2,175,764 under the Agreement.
B. Investment Advisory and Administrative Fee Waiver. Effective April 1, 2014 (commencement of operations), the Investment Adviser contractually agreed to limit the annual fund operating expenses (excluding interest, taxes, brokerage commissions, other expenditures that are capitalized in accordance with GAAP and other extraordinary expenses not incurred in the ordinary course of the Fund’s business) of Class N and Class I to 0.65% and 0.50%, respectively. The agreement will terminate on March 1, 2021, unless it is renewed by all parties to the agreement. The agreement may only be terminated during its term with approval of the Fund’s Board of Trustees. For the year ended October 31, 2020, the Investment Adviser waived fees in the amount of $41,531 and $0 for Class N and Class I, respectively.
C. Shareholder Servicing Fees. The Trust has a shareholder servicing agreement with BBH. BBH receives a fee from the Fund calculated daily and paid monthly at an annual rate of 0.20% of Class N shares’ average daily net assets. For the year ended October 31, 2020, Class N shares of the Fund incurred $133,547 in shareholder servicing fees.
D. Custody and Fund Accounting Fees. BBH acts as a custodian and fund accountant and receives custody and fund accounting fees from the Fund calculated daily and incurred monthly. BBH holds all of the Fund’s cash and investments and calculates the Fund’s daily net asset value. The custody fee is an asset and transaction-based fee. The fund accounting fee is an asset-based fee calculated at 0.004% of the Fund’s net asset value. For the year ended October 31, 2020, the Fund incurred $108,445 in custody and fund accounting fees. As per agreement with the Fund’s custodian, the Fund receives interest income on cash balances held by the custodian at the BBH Base Rate. The BBH Base Rate is defined as BBH’s effective trading rate in local money markets on each day. The total interest earned by the Fund under the revised agreement for the year ended October 31, 2020 was $1,938. This amount is included in “Interest income” in the Statement of Operations. In the event that the Fund is overdrawn, under the custody agreement with BBH, BBH will make overnight loans to the Fund to cover overdrafts. Pursuant to their agreement, the Fund will pay the Federal Funds overnight investment rate on the day of the overdraft. The total interest incurred by the Fund for the year ended October 31, 2020 was $1,133. This amount is included under line item “Custody and fund accounting fees” in the Statement of Operations.
38
BBH INTERMEDIATE MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
E. Board of Trustees’ Fees. Each Trustee who is not an “interested person” as defined under the 1940 Act receives an annual fee as well as reimbursement for reasonable out-of-pocket expenses from the Fund. For the year ended October 31, 2020, the Fund incurred $58,488 in independent Trustee compensation and expense reimbursements.
F. Officers of the Trust. Officers of the Trust are also employees of BBH. Officers are paid no fees by the Trust for their services to the Trust.
4.Investment Transactions. For the year ended October 31, 2020, the cost of purchases and the proceeds of sales of investment securities, other than short-term investments, was $506,486,232 and $171,707,823, respectively.
5.Shares of Beneficial Interest. The Trust is permitted to issue an unlimited number of Class N shares and Class I shares of beneficial interest, at no par value. Transactions in Class N and Class I shares were as follows:
For the year ended October 31, 2020 | For the year ended October 31, 2019 | |||||||||||||||
Shares | Dollars | Shares | Dollars | |||||||||||||
Class N | ||||||||||||||||
Shares sold | 5,598,508 | $ | 60,922,314 | 2,613,287 | $ | 27,515,420 | ||||||||||
Shares issued in connection with reinvestments of dividends | 119,749 | 1,297,371 | 87,252 | 923,281 | ||||||||||||
Proceeds from short-term redemption fees | N/A | 2,422 | N/A | 306 | ||||||||||||
Shares redeemed | (2,416,961 | ) | (26,142,859 | ) | (1,016,178 | ) | (10,657,541 | ) | ||||||||
Net increase | 3,301,296 | $ | 36,079,248 | 1,684,361 | $ | 17,781,466 | ||||||||||
Class I | ||||||||||||||||
Shares sold | 34,364,204 | $ | 368,374,812 | 20,123,983 | $ | 208,252,781 | ||||||||||
Shares issued in connection with reinvestments of dividends | 222,188 | 2,409,785 | 115,417 | 1,221,983 | ||||||||||||
Proceeds from short-term redemption fees | N/A | 435 | N/A | 354 | ||||||||||||
Shares redeemed | (5,743,724 | ) | (61,924,260 | ) | (1,892,297 | ) | (19,911,974 | ) | ||||||||
Net increase | 28,842,668 | $ | 308,860,772 | 18,347,103 | $ | 189,563,144 |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 39 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
Included in Shares Sold and Shares Redeemed are shareholder exchanges during the years ended October 31, 2020 and 2019. Specifically:
During the year ended 2020, 994,055 shares of Class N were exchanged for 994,975 shares of Class I valued at $10,757,858.
During the year ended 2019, 19,044 shares of Class N were exchanged for 19,062 shares of Class I valued at $196,818.
6. Principal Risk Factors and Indemnifications.
A. Principal Risk Factors. Investing in the Fund may involve certain risks, as discussed in the Fund’s prospectus, including but not limited to, those described below:
A shareholder may lose money by investing in the Fund (investment risk). The Fund is actively managed and the decisions by the Investment Adviser may cause the Fund to incur losses or miss profit opportunities (management risk). Additionally, in the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to redemption of securities by the issuer before maturity (call risk), failure of a counterparty to a transaction to perform (credit risk), changes in interest rates, higher volatility for securities with longer maturities (interest rate risk), difficulty in being able to purchase or sell a security (liquidity risk) and a significant position in municipal securities in a particular state (geographic risk). Political, legislative and economic events may affect a municipal security’s value, interest payments, repayments of principal and the Fund’s ability to sell it (municipal issuer risk). Additionally, as the Fund’s exposure to similar municipal revenue sectors increases, the Fund will become more sensitive to adverse economic, business or political developments relevant to these sectors (municipal revenue sector risk). The Fund’s use of derivatives creates risks that are different from, or possibly greater than, the risks associated with investing directly in securities as the Fund could lose more than the principal amount invested (derivatives risk). The value of securities held by the Fund may decline in response to certain events, including: those directly involving the companies or issuers whose securities are held by the Fund; conditions affecting the general economy; overall market changes; and political and regulatory events. Natural disasters, the spread of infectious illness and other public health emergencies, recession, terrorism and other unforeseeable events may lead to increased market volatility and may have adverse effects on world economies and markets generally (market risk). While the Fund endeavors to purchase only bona fide tax exempt bonds, there is a risk that a bond may be reclassified by the IRS as a taxable bond creating taxable income for the Fund and its shareholders (taxation risk). The Fund’s shareholders may be adversely impacted by asset allocation decisions made by an investment adviser whose discretionary clients may make up a large percentage of the Fund’s shareholders (shareholder concentration risk). LIBOR is scheduled to be phased out by 2021. The unavailability and/or discontinuation of LIBOR may affect the value, liquidity or return on certain fund investments that mature later than 2021 and may result in costs incurred in connection with closing out positions and entering into new positions. Any pricing adjustments to the fund’s
40
BBH INTERMEDIATE MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
investments resulting from a substitute reference rate may also adversely affect the fund’s performance and/or net asset value (LIBOR Transition Risk). The extent of the Fund’s exposure to these risks in respect to these financial assets is included in their value as recorded in the Fund’s Statement of Assets and Liabilities.
Please refer to the Fund’s prospectus for a complete description of the principal risks of investing in the Fund.
B. Indemnifications. Under the Trust’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Fund, and shareholders are indemnified against personal liability for the obligations of the Trust. Additionally, in the normal course of business, the Fund enters into agreements with service providers that may contain indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
7. Recent pronouncements.
A. ASU 2017-08. In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU 2017-08”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU 2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU 2017-08 is effective for years, and interim periods within those years, beginning after December 15, 2018. The application of ASU 2017-08 did not have a significant impact on the Fund’s financial statements.
8.Significant Events. In the beginning of 2020, there was an outbreak of the novel corona virus (COVID 19) which has impacted the financial markets and the global economy as a whole. The outbreak of COVID 19 is still ongoing and the magnitude and impact on the financial markets is highly uncertain and cannot be predicted. The effect of this impact may adversely impact the future carrying value of investments and results of operations of the Fund.
There are no other significant events to report as they relate to the Fund.
9. Subsequent Events. Management has evaluated events and transactions that have occurred since October 31, 2020 through the date the financial statements were issued and determined that there were none that would require recognition or additional disclosure in the financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 41 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
DISCLOSURE OF FUND EXPENSES
October 31, 2020 (unaudited)
EXAMPLE
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested distributions, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management 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 an investment of $1,000 invested at the beginning of the period and held for the entire period (May 1, 2020 to October 31, 2020).
ACTUAL EXPENSES
The first line of the table provides information about actual account values and actual expenses. You may use 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 the Period” to estimate the expenses you paid on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year 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 during the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% Hypothetical Example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
42
BBH INTERMEDIATE MUNICIPAL BOND FUND
DISCLOSURE OF FUND EXPENSES (continued)
October 31, 2020 (unaudited)
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 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. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period May 1, 2020 to October 31, 20201 | ||||||||||
Class N | ||||||||||||
Actual | $1,000 | $1,046 | $3.34 | |||||||||
Hypothetical2 | $1,000 | $1,022 | $3.30 |
Beginning Account Value May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period May 1, 2020 to October 31, 20201 | ||||||||||
Class I | ||||||||||||
Actual | $1,000 | $1,047 | $2.41 | |||||||||
Hypothetical2 | $1,000 | $1,023 | $2.38 |
________________
1 | Expenses are equal to the Fund’s annualized expense ratio of 0.65% and 0.47% for Class N and I shares, respectively, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). |
2 | Assumes a return of 5% before expenses. For the purposes of the calculation, the applicable annualized expenses ratio for each class of shares is subtracted from the assumed return before expenses. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 43 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
CONFLICTS OF INTEREST
October 31, 2020 (unaudited)
Conflicts of Interest
BBH, including the Investment Adviser, provides discretionary and non-discretionary investment management services and products to corporations, institutions and individual investors throughout the world. As a result, in the ordinary course of its businesses, BBH, including the Investment Adviser, may engage in activities in which its interests or the interests of its clients may conflict with or be adverse to the interests of the Funds. In addition, certain of such clients (including the Funds) utilize the services of BBH for which they will pay to BBH customary fees and expenses that will not be shared with the Funds.
The Investment Adviser and the Sub-Adviser have adopted and implemented policies and procedures that seek to manage conflicts of interest. Pursuant to such policies and procedures, the Investment Adviser and the Sub-Adviser monitor a variety of areas, including compliance with fund investment guidelines, the investment in only those securities that have been approved for purchase, and compliance with their respective Code of Ethics.
The Trust also manages these conflicts of interest. For example, the Trust has designated a chief compliance officer (“CCO”) and has adopted and implemented policies and procedures designed to manage the conflicts identified below and other conflicts that may arise in the course of the Funds’ operations in such a way as to safeguard the Funds from being negatively affected as a result of any such potential conflicts. From time to time, the Trustees receive reports from the Investment Adviser, the Sub-Adviser and the Trust’s CCO on areas of potential conflict.
Investors should carefully review the following, which describes potential and actual conflicts of interest that BBH, the Investment Adviser and Sub-Adviser can face in the operation of their respective investment management services. This section is not, and is not intended to be, a complete enumeration or explanation of all of the potential conflicts of interest that may arise. The Investment Adviser, the Sub-Adviser and the Funds have adopted policies and procedures reasonably designed to appropriately prevent, limit or mitigate the conflicts of interest described below. Additional information about potential conflicts of interest regarding the Investment Adviser is set forth in the Investment Adviser’s Form ADV. A copy of Part 1 and Part 2A of the Investment Adviser’s Form ADV is available on the SEC’s website (www.adviserinfo.sec.gov). In addition, many of the activities that create these conflicts of interest are limited and/or prohibited by law, unless an exception is available.
Other Clients and Allocation of Investment Opportunities. BBH, the Investment Adviser, and the Sub-Adviser manage funds and accounts of clients other than the Funds (“Other Clients”). In general, BBH, the Investment Adviser, and the Sub-Adviser face conflicts of interest when they render investment advisory services to different clients and, from time to time, provide dissimilar investment advice to different clients. Investment decisions will not necessarily be made in parallel among the Funds and Other Clients. Investments made by the Funds do not, and are not intended to, replicate the investments, or the investment methods and strategies, of Other Clients. Accordingly, such Other Clients’ accounts may produce results that are materially different from those experienced by the Funds. Certain other conflicts of interest may arise in connection with a portfolio manager’s management of the Funds’ investments, on the one hand, and the investments of other funds or accounts for which the portfolio manager is responsible, on the other. For example, it is possible that the various funds or accounts managed by the Investment Adviser or Sub-Adviser
44
BBH INTERMEDIATE MUNICIPAL BOND FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
could have different investment strategies that, at times, might conflict with one another to the possible detriment of the Funds. From time to time, the Investment Adviser and Sub-Adviser, sponsor and with other investment pools and accounts which engage in the same or similar businesses as the Funds using the same or similar investment strategies. To the extent that the same investment opportunities might be desirable for more than one account or fund, possible conflicts could arise in determining how to allocate them because the Investment Adviser or Sub-Adviser may have an incentive to allocate investment opportunities to certain accounts or funds. However, BBH and the Sub-adviser have implemented policies and procedures designed to ensure that information relevant to investment decisions is disseminated promptly within its portfolio management teams and investment opportunities are allocated equitably among different clients. The policies and procedures require, among other things, objective allocation for limited investment opportunities, and documentation and review of justifications for any decisions to make investments only for select accounts or in a manner disproportionate to the size of the account. Nevertheless, access to investment opportunities may be allocated differently among accounts due to the particular characteristics of an account, such as size of the account, cash position, tax status, risk tolerance and investment restrictions or for other reasons.
Actual or potential conflicts of interest may also arise when a portfolio manager has management responsibilities to multiple accounts or funds, resulting in unequal commitment of time and attention to the portfolio management of the funds or accounts.
Affiliated Service Providers. Other potential conflicts might include conflicts between the Funds and its affiliated and unaffiliated service providers (e.g. conflicting duties of loyalty). In addition to providing investment management services through the SID, BBH provides administrative, custody, shareholder servicing and fund accounting services to the Funds. BBH may have conflicting duties of loyalty while servicing the Funds and/or opportunities to further its own interest to the detriment of the Funds. For example, in negotiating fee arrangements with affiliated service providers, BBH may have an incentive to agree to higher fees than it would in the case of unaffiliated providers. BBH acting in its capacity as the Funds’ administrator is the primary valuation agent of the Funds. BBH values securities and assets in the Funds according to the Funds’ valuation policies. Because the Investment Adviser’s advisory and administrative fees are calculated by reference to the Funds’ net assets, BBH and its affiliates may have an incentive to seek to overvalue certain assets.
Aggregation. Potential conflicts of interest also arise with the aggregation of trade orders. Purchases and sales of securities for the Funds may be aggregated with orders for other client accounts managed by the Sub-Adviser. The Sub-Adviser, however, is not required to aggregate orders if portfolio management decisions for different accounts are made separately, or if it is determined that aggregating is not practicable, or in cases involving client direction. Prevailing trading activity frequently may make impossible the receipt of the same price or execution on the entire volume of securities purchased or sold. When this occurs, the various prices may be averaged, and the Funds will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to the disadvantage of the Funds. In addition, under certain circumstances, the Funds will not be charged the same commission or commission equivalent rates in connection with an aggregated order.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 45 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
Cross Trades. Under certain circumstances, the Investment Adviser and/or the Sub-adviser, on behalf of the Funds, may seek to buy from or sell securities to another fund or account advised by BBH, the Investment Adviser or the Sub-adviser. Subject to applicable law and regulation, BBH, the Investment Adviser or the Sub-adviser may (but is not required to) effect purchases and sales between BBH, the Investment Adviser or the Sub-adviser’s clients (“cross trades”), including the Funds, if BBH, the Investment Adviser or the Sub-adviser believe such transactions are appropriate based on each party’s investment objectives and guidelines. There may be potential conflicts of interest or regulatory issues relating to these transactions which could limit the Investment Adviser or the Sub-adviser’s decision to engage in these transactions for the Funds. BBH, the Investment Adviser and/or the Sub-adviser may have a potentially conflicting division of loyalties and responsibilities to the parties in such transactions.
Soft Dollars. The Investment Adviser may direct brokerage transactions and/or payment of a portion of client commissions (“soft dollars”) to specific brokers or dealers or other providers to pay for research or other appropriate services which provide, in the Investment Adviser’s view, appropriate assistance in the investment decision-making process (including with respect to futures, fixed price offerings and over-the-counter transactions). The use of a broker that provides research and securities transaction services may result in a higher commission than that offered by a broker who does not provide such services. The Investment Adviser will determine in good faith whether the amount of commission is reasonable in relation to the value of research and services provided and whether the services provide lawful and appropriate assistance in its investment decision-making responsibilities.
Research or other services obtained in this manner may be used in servicing any or all of the Funds and other accounts managed by the Investment Adviser, including in connection with accounts that do not pay commissions to the broker related to the research or other service arrangements. Such products and services may disproportionately benefit other client accounts relative to the Funds based on the amount of brokerage commissions paid by the Funds and such other accounts. To the extent that the Sub-Adviser uses soft dollars, it will not have to pay for those products and services itself.
BBH may receive research that is bundled with the trade execution, clearing, and/or settlement services provided by a particular broker-dealer. To the extent that the Sub-Adviser receives research on this basis, many of the same conflicts related to traditional soft dollars may exist. For example, the research effectively will be paid by client commissions that also will be used to pay for the execution, clearing, and settlement services provided by the broker-dealer and will not be paid by the Sub-Adviser.
Arrangements regarding compensation and delegation of responsibility may create conflicts relating to selection of brokers or dealers to execute Fund portfolio trades and/or specific uses of commissions from Fund portfolio trades, administration of investment advice and valuation of securities.
Investments in BBH Funds. From time to time BBH may invest a portion of the assets of its discretionary investment advisory clients in the Funds. That investment by BBH on behalf of its discretionary investment advisory clients in the Funds may be significant at times.
46
BBH INTERMEDIATE MUNICIPAL BOND FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
Increasing a Fund’s assets may enhance investment flexibility and diversification and may contribute to economies of scale that tend to reduce the Funds’ expense ratio. In selecting the Funds for its discretionary investment advisory clients, BBH may limit its selection to funds managed by BBH or the Investment Adviser. BBH may not consider or canvass the universe of unaffiliated investment companies available, even though there may be unaffiliated investment companies that may be more appropriate or that have superior performance. BBH, the Investment Adviser and their affiliates providing services to the Funds benefit from additional fees when the Funds is included as an investment by a discretionary investment advisory client.
BBH reserves the right to redeem at any time some or all of the shares of the Funds acquired for its discretionary investment advisory clients’ accounts. A large redemption of shares of the Funds by BBH on behalf of its discretionary investment advisory clients could significantly reduce the asset size of the Funds, which might have an adverse effect on the Funds’ investment flexibility, portfolio diversification and expense ratio.
Valuation. When market quotations are not readily available, or are believed by BBH to be unreliable, the Funds’ investments will be valued at fair value by BBH pursuant to procedures adopted by the Funds’ Board of Trustees. When determining an asset’s “fair value”, BBH seeks to determine the price that a Fund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. The price generally may not be determined based on what the Funds might reasonably expect to receive for selling an asset at a later time or if it holds the asset to maturity. While fair value determinations will be based upon all available factors that BBH deems relevant at the time of the determination and may be based on analytical values determined by BBH using proprietary or third-party valuation models, fair value represents only a good faith approximation of the value of a security. The fair value of one or more securities may not, in retrospect, be the price at which those assets could have been sold during the period in which the particular fair values were used in determining the Funds’ net asset value. As a result, the Funds’ sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued by BBH (pursuant to Board-adopted procedures) at fair value, may have the effect of diluting or increasing the economic interest of existing shareholders.
Referral Arrangements. BBH may enter into advisory and/or referral arrangements with third parties. Such arrangements may include compensation paid by BBH to the third party. BBH may pay a solicitation fee for referrals and/or advisory or incentive fees. BBH may benefit from increased amounts of assets under management.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 47 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
Personal Trading. BBH, including the Investment Adviser, and any of their respective partners, principals, directors, officers, employees, affiliates or agents, face conflicts of interest when transacting in securities for their own accounts because they could benefit by trading in the same securities as the Funds, which could have an adverse effect on the Funds. However, the Investment Adviser has implemented policies and procedures concerning personal trading by BBH Partners and employees. The policy and procedures are intended to prevent BBH Partners and employees from trading in the same securities as the Funds. However, BBH, including the Investment Adviser, has implemented policies and procedures concerning personal trading by BBH Partners and employees. The policies and procedures are intended to prevent BBH Partners and employees with access to Fund material non-public information from trading in the same securities as the Funds.
Gifts and Entertainment. From time to time, employees of BBH, including the Investment Adviser, and any of their respective partners, principals, directors, officers, employees, affiliates or agents, may receive gifts and/or entertainment from clients, intermediaries, or service providers to the Funds or BBH, including the Investment Adviser, which could have the appearance of affecting or may potentially affect the judgment of the employees, or the manner in which they conduct business. The Investment Adviser has implemented policies and procedures concerning gifts and entertainment to mitigate any impact on the judgment of BBH Partners and employees. BBH, including the Investment Adviser, has implemented policies and procedures concerning gifts and entertainment to mitigate any impact on the judgment of BBH Partners and employees.
48
BBH INTERMEDIATE MUNICIPAL BOND FUND
ADDITIONAL FEDERAL TAX INFORMATION
October 31, 2020 (unaudited)
The Fund hereby designates $198,938 as an approximate amount of capital gain dividend for the purpose of dividends paid deduction.
The qualified investment income (“QII”) percentage for the year ended October 31, 2020 was 100%. In January 2021, shareholders will receive Form 1099-DIV, which will include their share of qualified dividends distributed during the calendar year 2020. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their individual income tax returns.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 49 |
TRUSTEES AND OFFICERS OF BBH INTERMEDIATE MUNICIPAL BOND FUND
(unaudited)
Information pertaining to the Trustees and executive officers of the Trust is set forth below. The mailing address for each Trustee is c/o BBH Trust, 140 Broadway, New York, NY 10005.
Name and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee^ | Other Public Company or Investment Company Directorships held by Trustee During Past 5 Years | |||||
Independent Trustees | ||||||||||
H. Whitney Wagner Birth Year: 1956 | Chairman of the Board and Trustee | Chairman Since 2014; Trustee Since 2007 and 2006-2007 with the Predecessor Trust | President, Clear Brook Advisors, a registered investment adviser. | 7 | None. | |||||
Andrew S. Frazier Birth Year: 1948 | Trustee | Since 2010 | Retired. | 7 | Director of Western World Insurance Group, Inc. | |||||
Mark M. Collins Birth Year: 1956 | Trustee | Since 2011 | Partner of Brown Investment Advisory Incorporated, a registered investment adviser. | 7 | Chairman of Dillon Trust Company. | |||||
John M. Tesoro Birth Year: 1952 | Trustee | Since 2014 | Retired. | 7 | Trustee, Bridge Builder Trust (8 Funds); Director of Teton Advisors, Inc. (a registered investment adviser). | |||||
Joan A. Binstock Birth Year: 1954 | Trustee | Since 2019 | Partner, Chief Financial and Operations Officer, Lord Abbett & Co. LLC (1999-2018); Lovell Minnick Partners, Senior Adviser (2018-present). | 7 | None. |
50
TRUSTEES AND OFFICERS OF BBH INTERMEDIATE MUNICIPAL BOND FUND
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee^ | Other Public Company or Investment Company Directorships held by Trustee During Past 5 Years | |||||
Interested Trustees | ||||||||||
Susan C. Livingston+ 50 Post Office Square Boston, MA 02110 Birth Year: 1957 | Trustee | Since 2011 | Partner (since 1998) and Senior Client Advocate (since 2010) for BBH&Co. | 7 | None. | |||||
John A. Gehret+ 140 Broadway New York, NY 10005 Birth Year: 1959 | Trustee | Since 2011 | Limited Partner of BBH&Co. (2012-present). | 7 | None. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 51 |
TRUSTEES AND OFFICERS OF BBH INTERMEDIATE MUNICIPAL BOND FUND
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | |||
Officers | ||||||
Jean-Pierre Paquin 140 Broadway New York, NY 10005 Birth Year: 1973 | President and Principal Executive Officer | Since 2016 | Partner of BBH&Co. since 2015; joined BBH&Co. in 1996. | |||
Daniel Greifenkamp 140 Broadway New York, NY 10005 Birth Year: 1969 | Vice President | Since 2016 | Managing Director of BBH&Co. since 2014; joined BBH&Co. in 2011. | |||
Charles H. Schreiber 140 Broadway New York, NY 10005 Birth Year: 1957 | Treasurer and Principal Financial Officer | Since 2007 2006-2007 with the Predecessor Trust | Senior Vice President of BBH&Co. since 2001; joined BBH&Co. in 1999. | |||
Paul F. Gallagher 140 Broadway New York, NY 10005 Birth Year: 1959 | Chief Compliance Officer (“CCO”) | Since 2015 | Senior Vice President of BBH&Co. since 2015. | |||
Keith M. Kelley 140 Broadway New York, NY 10005 Birth Year: 1983 | Anti-Money Laundering Officer (“AMLO”) | Since 2016 | Vice President of BBH&Co. since February 2016; joined BBH&Co. in 2016; Director, Legal and Compliance, Morgan Stanley Smith Barney LLC (2014- February 2016). |
52
TRUSTEES AND OFFICERS OF BBH INTERMEDIATE MUNICIPAL BOND FUND
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | |||
Suzan M. Barron 50 Post Office Square Boston, MA 02110 Birth Year: 1964 | Secretary | Since 2009 | Senior Vice President and Senior Investor Services Counsel, BBH&Co. since 2005. | |||
Crystal Cheung 140 Broadway New York, NY 10005 Birth Year: 1974 | Assistant Treasurer | Since 2018 | Assistant Vice President of BBH&Co. since 2016; joined BBH&Co. 2014. | |||
Brian J. Carroll 50 Post Office Square Boston, MA 02110 Birth Year: 1985 | Assistant Secretary | Since 2018 | Associate and Investor Services Assistant Counsel of BBH&Co. since 2017; joined BBH&Co. 2014. |
________________
# | All officers of the Trust hold office for one year and until their respective successors are chosen and qualified (subject to the ability of the Trustees to remove any officer in accordance with the Trust’s By-laws). Mr. Wagner previously served on the Board of Trustees of the Predecessor Trust. |
+ | Ms. Livingston and Mr. Gehret are “interested persons” of the Trust as defined in the 1940 Act because of their positions as Partner and Limited Partner of BBH&Co., respectively. |
^ | The Fund Complex consists of the Trust, which has seven series, and each is counted as one “Portfolio” for purposes of this table. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 53 |
BBH INTERMEDIATE MUNICIPAL BOND FUND
OPERATION AND EFFECTIVENESS OF THE FUND’S LIQUIDITY RISK MANAGEMENT PROGRAM
October 31, 2020 (unaudited)
The Securities and Exchange Commission adopted Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”) to promote effective liquidity risk management throughout the open-end investment company industry in order to reduce the risk that funds will be unable to meet their redemption obligations and mitigate dilution of the interests of fund shareholders.
The Board of Trustees (the “Board”) of BBH Trust met on March 11, 2020 to review the liquidity risk management program (the “Program”) applicable to the funds of BBH Trust (the “Funds”) pursuant to the Liquidity Rule. The Board has appointed three members of the Brown Brothers Harriman & Co. Mutual Fund Advisory Department, the Investment Adviser to the Funds, as the Program Administrator for each Fund’s Program. The Program Administrator provided the Board with an annual report (the “Report”) that addressed the operations of the Program and assessed its adequacy and effectiveness of the Program. The Report covered the period from June 1, 2019 through January 31, 2020.
The Report noted that the Program complied with the key factors for consideration under the Liquidity Rule for assessing, managing and periodically reviewing a Fund’s liquidity risk, including the following points.
Liquidity classification. The Report described the Program’s liquidity classification methodology for categorizing the Funds’ investments into one of four liquidity buckets.
Highly Liquid Investment Minimum. The Report noted that one aspect of the Liquidity Rule is a requirement that funds that are expected to have less than 50% of assets classified as other than “highly liquid” should establish a minimum percentage of highly liquid assets that the fund is expected to hold on an on-going basis. The Program Administrator monitors the percentages of assets in each category on an ongoing basis and, given that no Fund has approached the 50% threshold, has made the determination that it is not necessary to assign a Highly Liquid Investment Minimum as provided for in the Liquidity Rule to any of the Funds.
The Fund’s investment strategy and liquidity of portfolio investments during normal and reasonably foreseeable stressed market conditions. During the Program reporting period, the Program Administrator reviewed whether each Fund’s investment strategy is appropriate for an open-end fund structure with a focus on Funds with more significant and consistent holdings of less liquid and illiquid assets and factored a Fund’s concentration in an issuer into the liquidity classification methodology by taking issuer position sizes into account.
Short-term and long-term cash flow projections during normal and reasonably foreseeable stressed market conditions. During the Program reporting period, the Program Administrator reviewed historical redemption activity and used this information as a component to establish each Fund’s reasonably anticipated trading size. The Program Administrator also took into consideration other factors such as shareholder ownership concentration, applicable distribution channels and the degree of certainty associated with a Fund’s short-term and long-term cash flow projections.
Holdings of cash and cash equivalents. The Program Administrator considered the degree to which each Fund held cash and cash equivalents as a component of each Fund’s ability to meet redemption requests.
54
BBH INTERMEDIATE MUNICIPAL BOND FUND
OPERATION AND EFFECTIVENESS OF THE FUND’S LIQUIDITY RISK MANAGEMENT PROGRAM (continued)
October 31, 2020 (unaudited)
There were no material changes to the Program during the reporting period. The Program Administrator has informed the Board that it believes that the Fund’s Program is adequately designed, has been implemented as intended, and has operated effectively since its implementation. No material exceptions have been noted since the implementation of the Program, and there were no liquidity events that impacted the Fund or its ability to meet redemption requests on a timely basis during the reporting period.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 55 |
Administrator Brown Brothers Harriman & Co. 140 Broadway New York, NY 10005
Distributor ALPS Distributors, Inc. 1290 Broadway, Suite 1100 Denver, CO 80203
Shareholder Servicing Agent Brown Brothers Harriman & Co. 140 Broadway New York, NY 10005 1-800-575-1265 | Investment Adviser Brown Brothers Harriman Mutual Fund Advisory Department 140 Broadway New York, NY 10005 |
To obtain information or make shareholder inquiries:
By telephone: | Call 1-800-575-1265 bbhfunds@bbh.com www.bbhfunds.com |
By E-mail send your request to: | |
On the internet: |
This report is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of the Fund.
For more complete information, visit www.bbhfunds.com for a prospectus. You should consider the Fund’s investment objectives, risks, charges and expenses carefully before you invest. Information about these and other important subjects is in the Fund’s prospectus, which you should read carefully before investing.
Holdings and allocations are subject to change. Fund holdings should not be relied on in making investment decisions and should not be construed as research or investment advice regarding particular securities. Current and future holdings are subject to risk.
The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available electronically on the SEC’s website (sec.gov). For a complete list of a fund’s portfolio holdings, view the most recent holdings listing, semi-annual report, or annual report on the Fund’s web site at http://www.bbhfunds.com.
A summary of the Fund’s Proxy Voting Policy that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund’s portfolio, as well as a record of how the Fund voted any such proxies during the most recent 12-month period ended June 30, is available, without charge, upon request by calling the toll-free number listed above. This information is also available on the SEC’s website at www.sec.gov.
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
Annual Report
OCTOBER 31, 2020
BBH Income Fund
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Funds’ shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other Fund communications electronically from the Fund by calling 1-800-575-1265 or from your financial intermediary.
You may elect to receive all future reports in paper free of charge. You can inform the Fund by calling 1-800-575-1265 or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper may apply to all funds in the fund complex or held with your financial intermediary.
BBH INCOME FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE
October 31, 2020
During this fiscal year, the Fund witnessed the first widespread pandemic in the United States in 100 years, the worst month ever for credit in March, unprecedented purchasing of credit by the Federal Reserve in the second quarter, and record issuance of corporate debt through the remainder of the year. Despite the many surprises in market volatility, the firm guidance of our investment process and the long experience of our team were of enormous assistance in preserving and enhancing shareholder capital through the year, with returns of over 7.87% for the 12 months (I Shares). We are quite proud of how rapidly we repositioned, how consistently we followed our process, and the excellent results our active management continues to produce into the calendar year-end.
For the first four months of the fiscal year, November 2019 through February 2020, our valuation criteria made it very difficult to add credit exposure to the Fund. Compensation for credit was simply too meager, at levels that typically lead credit to underperform Treasuries. The cash and Treasury component of the Fund was over 25% from November through February. Spread duration, a risk measure we use of how sensitive the portfolio is to changes in “credit spreads” (the additional yield on credit instruments over a comparable-maturity Treasury), was around 2.6 years, as much of our credit was in shorter maturities.
________________
Spread Duration is the price sensitivity of a bond or portfolio of bonds to changes in spreads. |
Spread or Option-Adjusted Spread (OAS) is the additional yield compared to a comparable duration Treasury. |
2
BBH INCOME FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
Then, as Coronavirus cases began to spread in the U.S., and businesses began to close their doors, Credit spreads increased by 2.4%, or 240 “basis points” from March 4 to March 26th. At the low point around March 20, investment grade credit had underperformed Treasuries by nearly 15%, and ended the month more than 12% behind Treasuries. This underperformance exceeded even September of 2008, the month Lehman and AIG failed (-7.74%). Liquidity stress in short credit (under three years) was also intense. We now understand that banks were forced sellers, primarily of higher quality, short credit, as they struggled to keep required levels of liquidity while funding credit lines and repurchase agreements. Although the Federal Reserve’s unprecedented decision to backstop credit took all the headlines, their immediate decisions to provide unlimited funding to financial institutions, and suspend the liquidity regulations, constituted the most important actions to end the rout.
We went from an environment with few opportunities and a strong macroeconomic backdrop to an environment with lots of opportunities, but also many new and unknown risks. Both parts of our discipline, credit and valuation, worked well for us. We were clearly entering a potentially unprecedented stress test for travel and entertainment-related industries, as well as a challenging time for small businesses and unemployment.
Thanks to our underwriting process, we had already stress-tested each and every credit for a terrible economic environment, when we purchased it. That discipline and preparation helped us “hold our credits with strong hands”, avoiding selling and realizing price impairments. As the fiscal year ends, all but one of our holdings appear to be headed towards maturing at or above our original cost. Secondly, our valuation framework was telling us to buy more credit, and we did. As our long-term shareholders know, we are not typically a high turnover manager, but we were quite active traders in the Spring. Our purchases of credit in April and May were more than 10% of the Fund. By June, valuations had already recovered in many of the names we purchased, and we started to sell, for valuation, as much as we were buying, but the overall brisk pace of activity continued.
Record corporate issuance made it possible to buy large amounts of corporate credit. We nearly doubled the corporate spread duration of the Fund, and brought the total spread duration up to 4.3 years by August, where it has remained through the end of the Fiscal year. In the subsequent months, structured markets began to warm up again, and we were able to add higher yielding ABS and CMBS opportunities as well. The timely addition of these credit exposures through this year’s volatility is the primary contributors to the Fund’s performance of 8.05% (Class I) vs the Barcap Aggregate return of 6.35%. On October 31, the portfolio yield of the Fund was about 3.53%, made up of 2.95% of “spread”, defined as the incremental yield of the Fund's portfolio in excess of Treasuries of the same duration, and only 0.58% of Treasury yield. Going into February of 2020, the Fund’s portfolio yield was 2.94%, but made up of 1.4% of spread and 1.54% of Treasury-equivalent yield. By April, after Treasury yields had plummeted by more than 1%, the portfolio spread peaked at 3.8%. The very high spreads in the spring and summer gave us many opportunities to invest in higher yields for our shareholders, even as Treasury rates have substantially diminished as a source of yield.
________________
One “basis point” or “bp” is 1/100th of a percent (0.01% or 0.0001). |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 3 |
BBH INCOME FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
Portfolio holdings and characteristics are subject to change.
Attribution figures are presented gross of fees. An investor’s returns will be reduced by fees incurred by the management of the Fund.
Past performance does not guarantee future results.
We note with satisfaction that our performance through this summer has put us in the 11th percentile of our competitive fund universe (Morningstar Intermediate Core-Plus Bond category) for the last twelve months. This is the third major pullback in credit markets since we incorporated this valuation framework into our process and began using it to guide our allocations to credit for all of our funds. Each of these episodes – the Euro Crisis of 2011-2012, the Energy Bust of 2014-2016, and the Pandemic of 2020, has been performance-enhancing and process-reinforcing for us. We feel more strongly than ever that focusing on purchasing durable credits only when they are available at attractive prices is the best way to preserve capital and enhance returns for our investors. Patience and holding out for our criteria fit constitute the arduous work of seeking to generate performance.
Looking forward, we find the markets becoming expensive again, although, as noted above, the portfolio still has excess yield we expect to earn either through further price appreciation or simply the passage of time. If markets continue in this direction, we may shed risk exposure in the Fund and possibly even enter another period like last Winter, where we must again be patient and selective to add value. On the other hand, the Treasury and the Fed seem somewhat at odds about credit support programs right now, even as we crest another pandemic wave. There may be more volatility, and opportunities, yet. We look forward to meeting whatever challenges come our way along with you.
We wish you all a Happy New Year, thank you for being a client, and hope to meet many of you, virtually or otherwise, in the coming months.
________________
Portfolio holdings and characteristics are subject to change. |
A Durable Credit is a credit instrument which, in our analysis, is likely to make full repayment of principal through a wide variety of economic scenarios. |
4
BBH INCOME FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
As of 10/31/2020, the BBH Income Fund Class I share was rated against 603 funds in the Intermediate Core-Plus Bond category for the last year. The Class I Share was ranked in the 11th percentile rankings for the period. Rankings are based on risk-adjusted return. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. |
Growth of $10,000 Invested in BBH Income
The graph below illustrates the hypothetical investment of $10,0001 in the Class I shares of the Fund since inception (June 27, 2018) to October 31, 2020 as compared to the Bloomberg Barclays U.S. Aggregate Bond Index.
The annualized gross expense ratio as shown in the February 28, 2020 prospectus for Class I shares was 0.52%. The annualized gross expense ratios for the year ended 10/31/2020 for Class I shares was 0.48%.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Fund performance changes over time and current performance may be lower or higher than what is stated. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. For performance current to the most recent month-end please call 1-800-575-1265.
________________
1 | The Fund’s performance assumes the reinvestment of all dividends and distributions. The Bloomberg Barclays U.S. Aggregate Bond Index has been adjusted to reflect reinvestment of dividends on securities in the index. The Bloomberg Barclays U.S. Aggregate Bond Index is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund’s performance. The index is unmanaged. Investments cannot be made in the index. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 5 |
BBH INCOME FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)
October 31, 2020
Hypothetical performance results are calculated on a total return basis and include all portfolio income, unrealized and realized capital gains, losses and reinvestment of dividends and other earnings. No one shareholder has actually achieved these results and no representation is being made that any actual shareholder achieved, or is likely to achieve, similar results to those shown. Hypothetical performance does not represent actual trading and may not reflect the impact of material economic and market factors. Undue reliance should not be placed on hypothetical performance results in making an investment decision.
Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, maturity, call and inflation risk; investments may be worth more or less than the original cost when redeemed. The value of some asset- backed securities and mortgage-backed securities may be particularly sensitive to changes in prevailing interest rates and are subject to prepayment and extension risks, as well as risk that the underlying borrower will be unable to meet its obligations. Below investment grade bonds, commonly known as junk bonds, are subject to a high level of credit and market risks.
The Fund also invests in derivative instruments, investments whose values depend on the performance of the underlying security, assets, interest rate, index or currency and entail potentially higher volatility and risk of loss compared to traditional bond investments.
Foreign investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards. Prices of emerging market securities can be significantly more volatile than the prices of securities in developed countries, and currency risk and political risks are accentuated in emerging markets.
The Fund may engage in certain investment activities that involve the use of leverage, which may magnify losses.
A significant investment of Fund assets within one or more sectors, industries, securities and/or durations may increase its vulnerability to any single economic, political, or regulatory developments, which will have a greater impact on the Fund's return.
Illiquid investments subject the Fund to the risk that it may not be able to sell the investments when desired or at favorable prices.
To the extent that the Fund experiences a large purchase or redemption on any business day, the Fund's performance may be adversely affected.
6
BBH INCOME FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of the BBH Trust and Shareholders of BBH Income Fund:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of BBH Income Fund (the “Fund”), one of the funds within BBH Trust, as of October 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the two years in the period then ended and for the period from June 27, 2018 (commencement of operations) to October 31, 2018, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2020, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the two years in the period then ended and for the period from June 27, 2018 (commencement of operations) to October 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the BBH Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the BBH Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The BBH Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the BBH Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 7 |
BBH INCOME FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued)
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 21, 2020
We have served as the auditor of one or more Brown Brothers Harriman investment companies since 1991.
8
BBH INCOME FUND
PORTFOLIO ALLOCATION
October 31, 2020
BREAKDOWN BY SECURITY TYPE
U.S. $ Value | Percent of Net Assets | ||||||||
Asset Backed Securities | $ | 109,197,291 | 23.3 | % | |||||
Commercial Mortgage Backed Securities | 21,436,158 | 4.6 | |||||||
Corporate Bonds | 236,567,342 | 50.6 | |||||||
Loan Participations and Assignments | 59,686,844 | 12.7 | |||||||
Preferred Stock | 2,764,500 | 0.6 | |||||||
Residential Mortgage Backed Securities | 3,636,839 | 0.8 | |||||||
U.S. Inflation Linked Debt | 11,804,486 | 2.5 | |||||||
U.S. Treasury Bonds and Notes | 16,708,724 | 3.6 | |||||||
U.S. Treasury Bills | 599,984 | 0.1 |
| ||||||
Cash and Other Assets in Excess of Liabilities | 5,481,717 | 1.2 |
| ||||||
NET ASSETS | $ | 467,883,885 | 100.0 | % |
|
All data as of October 31, 2020. The Fund’s sector diversification is expressed as a percentage of net assets and may vary over time.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 9 |
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | |||||||||||||
| ASSET BACKED SECURITIES (23.3%) | |||||||||||||||
$ | 594,949 | ACC Trust 2019-11 | 05/20/22 | 3.750 | % | $ | 598,739 | |||||||||
886,734 | ACC Trust 2019-21 | 02/21/23 | 2.820 | 892,248 | ||||||||||||
2,638,500 | ACC Trust 2020-A1 | 03/20/23 | 6.000 | 2,723,226 | ||||||||||||
1,328,599 | Adams Outdoor Advertising LP 2018-11 | 11/15/48 | 4.810 | 1,379,942 | ||||||||||||
742,696 | Amur Equipment Finance Receivables VI LLC 2018-2A1 | 07/20/22 | 3.890 | 754,780 | ||||||||||||
2,860,000 | Antares CLO, Ltd. 2020-1A (3-Month USD-LIBOR + 1.900%)1,2 | 10/23/31 | 0.000 | 2,852,934 | ||||||||||||
628,150 | ARI Fleet Lease Trust 2018-B1 | 08/16/27 | 3.220 | 634,974 | ||||||||||||
1,289,877 | BCC Funding Corp. XVI LLC 2019-1A1 | 08/20/24 | 2.460 | 1,304,417 | ||||||||||||
1,520,000 | Business Jet Securities LLC 2020-1A1 | 11/15/35 | 2.981 | 1,529,374 | ||||||||||||
1,430,000 | CARS-DB4 LP 2020-1A1 | 02/15/50 | 4.170 | 1,462,445 | ||||||||||||
372,704 | Cazenovia Creek Funding II LLC 2018-1A1 | 07/15/30 | 3.561 | 374,049 | ||||||||||||
217,141 | CCG Receivables Trust 2018-21 | 12/15/25 | 3.090 | 219,859 | ||||||||||||
1,125,349 | CF Hippolyta LLC 2020-11 | 07/15/60 | 2.280 | 1,130,541 | ||||||||||||
2,000,000 | Credit Acceptance Auto Loan Trust 2020-2A1 | 09/17/29 | 1.930 | 2,014,564 | ||||||||||||
2,000,000 | Delamare Cards MTN Issuer, Plc. 2018-1A (1-Month USD-LIBOR + 0.700%)1,2 | 11/19/25 | 0.847 | 1,999,700 | ||||||||||||
1,798,427 | Drug Royalty III LP 1 2018-1A (3-Month USD-LIBOR + 1.600%)1,2 | 10/15/31 | 1.837 | 1,768,677 | ||||||||||||
1,070,000 | Elm Trust 2020-3A1 | 08/20/29 | 2.954 | 1,074,713 | ||||||||||||
2,490,000 | Elm Trust 2020-4A1 | 10/20/29 | 2.286 | 2,489,851 | ||||||||||||
374,943 | Enterprise Fleet Financing LLC 2017-21 | 01/20/23 | 2.220 | 377,006 | ||||||||||||
627,030 | Enterprise Fleet Financing LLC 2018-31 | 05/20/24 | 3.380 | 636,352 | ||||||||||||
452,674 | FCI Funding LLC 2019-1A1 | 02/18/31 | 3.630 | 459,168 | ||||||||||||
1,794,668 | FNA LLC 2019-13 | 12/10/31 | 3.000 | 1,794,668 | ||||||||||||
2,100,000 | Ford Credit Floorplan Master Owner Trust A 2018-3 | 10/15/23 | 3.520 | 2,161,840 | ||||||||||||
2,700,000 | FREED ABS TRUST 2018-21 | 10/20/25 | 4.610 | 2,742,933 | ||||||||||||
582,432 | FREED ABS TRUST 2019-21 | 11/18/26 | 2.620 | 584,926 | ||||||||||||
2,763,239 | FREED ABS TRUST 2020-2CP1 | 06/18/27 | 4.520 | 2,795,012 | ||||||||||||
1,803,482 | Global SC Finance VII Srl 2020-1A1 | 10/17/40 | 2.170 | 1,801,104 | ||||||||||||
1,700,000 | Global SC Finance VII Srl 2020-2A1 | 11/19/40 | 2.260 | 1,702,396 | ||||||||||||
1,000,000 | GM Financial Consumer Automobile Receivables Trust 2017-2A1 | 11/16/22 | 2.070 | 1,003,607 | ||||||||||||
1,390,000 | Hercules Capital Funding Trust 2018-1A1 | 11/22/27 | 4.605 | 1,401,625 |
The accompanying notes are an integral part of these financial statements.
10
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | |||||||||||||
ASSET BACKED SECURITIES (continued) | ||||||||||||||||
$ | 2,340,000 | Hercules Capital Funding Trust 2019-1A1 | 02/20/28 | 4.703 | % | $ | 2,359,863 | |||||||||
1,070,000 | Hertz Vehicle Financing II LP 2019-1A1 | 03/25/23 | 4.100 | 1,066,670 | ||||||||||||
1,430,000 | Lendmark Funding Trust 2019-1A1 | 12/20/27 | 3.000 | 1,413,150 | ||||||||||||
1,120,000 | Lendmark Funding Trust 2019-2A1 | 04/20/28 | 2.780 | 1,131,185 | ||||||||||||
551,080 | LIAS Administration Fee Issuer LLC 2018-1A | 07/25/48 | 5.956 | 621,434 | ||||||||||||
2,000,000 | Mariner Finance Issuance Trust 2018-AA1 | 11/20/30 | 4.200 | 2,009,069 | ||||||||||||
690,000 | Mariner Finance Issuance Trust 2019-AA1 | 07/20/32 | 2.960 | 701,428 | ||||||||||||
1,070,000 | Mariner Finance Issuance Trust 2020-AA1 | 08/21/34 | 2.190 | 1,071,844 | ||||||||||||
1,095,417 | NADG NNN Operating LP 2019-11 | 12/28/49 | 3.368 | 1,121,716 | ||||||||||||
2,520,000 | New Residential Advance Receivables Trust Advance Receivables Backed 2020-T11 | 08/15/53 | 1.426 | 2,522,394 | ||||||||||||
542,316 | Newtek Small Business Loan Trust 2018-1 (1-Month USD-LIBOR + 1.700%)1,2 | 02/25/44 | 1.849 | 528,900 | ||||||||||||
257,253 | Newtek Small Business Loan Trust 2018-1 (1-Month USD-LIBOR + 3.000%)1,2 | 02/25/44 | 3.149 | 234,011 | ||||||||||||
1,370,000 | NextGear Floorplan Master Owner Trust 2018-2A1 | 10/15/23 | 3.690 | 1,410,047 | ||||||||||||
615,056 | NMEF Funding LLC 2019-A1 | 08/17/26 | 2.730 | 617,974 | ||||||||||||
1,080,000 | OneMain Financial Issuance Trust 2019-1A1 | 02/14/31 | 3.480 | 1,092,024 | ||||||||||||
1,540,000 | OneMain Financial Issuance Trust 2020-1A1 | 05/14/32 | 3.840 | 1,620,920 | ||||||||||||
300,000 | Oportun Funding IX LLC 2018-B1 | 07/08/24 | 3.910 | 304,864 | ||||||||||||
2,660,000 | Oportun Funding X LLC 2018-C1 | 10/08/24 | 4.590 | 2,677,159 | ||||||||||||
2,070,000 | Oportun Funding XII LLC 2018-D1 | 12/09/24 | 4.830 | 2,092,873 | ||||||||||||
388,102 | OSCAR US Funding Trust IX LLC 2018-2A1 | 09/12/22 | 3.390 | 392,452 | ||||||||||||
1,580,000 | Oscar US Funding XI LLC 2019-2A1 | 09/11/23 | 2.590 | 1,619,521 | ||||||||||||
1,280,000 | Oxford Finance Funding LLC 2019-1A1 | 02/15/27 | 4.459 | 1,326,633 | ||||||||||||
3,450,000 | Oxford Finance Funding LLC 2020-1A1 | 02/15/28 | 3.101 | 3,514,326 | ||||||||||||
1,520,000 | Palmer Square Loan Funding, Ltd. 2019-2A (3-Month USD-LIBOR + 2.250%)1,2 | 04/20/27 | 2.468 | 1,488,763 | ||||||||||||
1,940,000 | Palmer Square Loan Funding, Ltd. 2019-3A (3-Month USD-LIBOR + 2.100%)1,2 | 08/20/27 | 2.353 | 1,887,197 | ||||||||||||
1,500,000 | PFS Financing Corp. 2018-F1 | 10/15/23 | 3.520 | 1,544,030 | ||||||||||||
1,202,436 | ReadyCap Lending Small Business Loan Trust 2019-2 (U.S. Prime Rate - 0.500%)1,2 | 12/27/44 | 2.750 | 1,121,169 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 11 |
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | |||||||||||||
ASSET BACKED SECURITIES (continued) | ||||||||||||||||
$ | 2,940,000 | Regional Management Issuance Trust 2018-21 | 01/18/28 | 4.940 | % | $ | 2,985,005 | |||||||||
1,390,000 | Republic Finance Issuance Trust 2019-A1 | 11/22/27 | 3.430 | 1,406,193 | ||||||||||||
2,060,000 | Republic Finance Issuance Trust 2020-A1 | 11/20/30 | 2.470 | 2,064,599 | ||||||||||||
2,130,000 | Sabey Data Center Issuer LLC 2020-11 | 04/20/45 | 3.812 | 2,198,980 | ||||||||||||
1,500,000 | Santander Drive Auto Receivables Trust 2020-1 | 12/15/25 | 4.110 | 1,607,167 | ||||||||||||
1,940,000 | Santander Revolving Auto Loan Trust 2019-A1 | 01/26/32 | 2.510 | 2,056,786 | ||||||||||||
2,192,833 | Stack Infrastructure Issuer LLC 2019-1A1 | 02/25/44 | 4.540 | 2,330,010 | ||||||||||||
600,000 | SWC Funding LLC 2018-1A1,3 | 08/15/33 | 4.750 | 595,102 | ||||||||||||
1,400,000 | Synchrony Card Issuance Trust 2018-A1 | 09/15/24 | 3.380 | 1,437,166 | ||||||||||||
1,886,964 | Textainer Marine Containers VII, Ltd. 2020-1A1 | 08/21/45 | 2.730 | 1,921,501 | ||||||||||||
64,515 | THL Credit Wind River CLO, Ltd. 2012-1A (3-Month USD-LIBOR + 0.880%)1,2 | 01/15/26 | 1.117 | 64,355 | ||||||||||||
1,650,000 | THL Credit Wind River CLO, Ltd. 2017-1A (3-Month USD-LIBOR + 1.140%)1,2 | 04/18/29 | 1.358 | 1,633,519 | ||||||||||||
1,400,000 | Trafigura Securitisation Finance, Plc. 2018-1A1 | 03/15/22 | 3.730 | 1,413,892 | ||||||||||||
1,400,000 | World Financial Network Credit Card Master Trust 2018-B | 07/15/25 | 3.460 | 1,435,274 | ||||||||||||
2,500,000 | World Financial Network Credit Card Master Trust 2019-A | 12/15/25 | 3.140 | 2,585,436 | ||||||||||||
3,300,000 | WRG Debt Funding IV LLC 2020-11,3 | 07/15/28 | 6.535 | 3,305,020 | ||||||||||||
| Total Asset Backed Securities (Cost $107,776,888) | 109,197,291 | ||||||||||||||
| COMMERCIAL MORTGAGE BACKED SECURITIES (4.6%) | |||||||||||||||
2,190,000 | BXMT, Ltd. 2020-FL2 (1-Month USD-LIBOR + 0.900%)1,2 | 02/16/37 | 1.047 | 2,154,865 | ||||||||||||
1,250,000 | BXMT, Ltd. 2020-FL3 (1-Month USD-LIBOR + 2.550%)1,2 | 03/15/37 | 2.700 | 1,250,765 | ||||||||||||
146,085 | CG-CCRE Commercial Mortgage Trust 2014-FL2 (1-Month USD-LIBOR + 4.000%)1,2,3 | 11/15/31 | 4.149 | 118,752 | ||||||||||||
786,000 | CG-CCRE Commercial Mortgage Trust 2014-FL2 (1-Month USD-LIBOR + 4.000%)1,2 | 11/15/31 | 4.148 | 589,099 |
The accompanying notes are an integral part of these financial statements.
12
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | |||||||||||||
COMMERCIAL MORTGAGE BACKED SECURITIES (continued) | ||||||||||||||||
$ | 1,375,473 | CG-CCRE Commercial Mortgage Trust 2014-FL2 (1-Month USD-LIBOR + 4.750%)1,2,3 | 11/15/31 | 4.898 | % | $ | 962,556 | |||||||||
600,000 | CGMS Commercial Mortgage Trust 2017-MDRB (1-Month USD-LIBOR + 1.750%)1,2 | 07/15/30 | 1.898 | 570,925 | ||||||||||||
890,000 | Citigroup Commercial Mortgage Trust 2019-SMRT1 | 01/10/36 | 4.149 | 956,994 | ||||||||||||
3,540,000 | CSMC 2018-SITE1,2,4 | 04/15/36 | 4.782 | 3,225,294 | ||||||||||||
1,000,000 | Hudsons Bay Simon JV Trust 2015-HB101,2,4 | 08/05/34 | 5.629 | 698,844 | ||||||||||||
240,000 | JPMBB Commercial Mortgage Securities Trust 2014-C241,2,4 | 11/15/47 | 3.907 | 180,120 | ||||||||||||
1,960,000 | KREF, Ltd. 2018-FL1 (1-Month USD-LIBOR + 1.100%)1,2 | 06/15/36 | 1.247 | 1,945,384 | ||||||||||||
3,070,000 | Morgan Stanley Capital I Trust 2019-BPR (1-Month USD-LIBOR + 1.400%)1,2 | 05/15/36 | 1.548 | 2,940,341 | ||||||||||||
890,000 | STWD, Ltd. 2019-FL1 (1-Month USD-LIBOR + 1.600%)1,2 | 07/15/38 | 1.748 | 874,983 | ||||||||||||
2,000,000 | TPG Real Estate Finance Issuer, Ltd. 2018-FL2 (1-Month USD-LIBOR + 1.130%)1,2 | 11/15/37 | 1.277 | 1,981,200 | ||||||||||||
300,000 | UBS-BAMLL Trust 2012-WRM1 | 06/10/30 | 3.663 | 297,010 | ||||||||||||
2,915,000 | Wells Fargo Commercial Mortgage Trust 2020-SDAL (1-Month USD-LIBOR + 1.340%)1,2 | 02/15/37 | 1.488 | 2,689,026 | ||||||||||||
| Total Commercial Mortgage Backed Securities (Cost $23,051,034) | 21,436,158 | ||||||||||||||
| CORPORATE BONDS (50.6%) | |||||||||||||||
AEROSPACE/DEFENSE (2.3%) | ||||||||||||||||
2,220,000 | BAE Systems, Plc.1 | 04/15/30 | 3.400 | 2,469,472 | ||||||||||||
3,250,000 | Boeing Co. | 05/01/23 | 4.508 | 3,442,905 | ||||||||||||
2,700,000 | Boeing Co. | 02/01/28 | 3.250 | 2,699,880 | ||||||||||||
2,280,000 | Embraer Netherlands Finance BV | 02/01/27 | 5.400 | 2,168,326 | ||||||||||||
10,780,583 | ||||||||||||||||
| AIRLINES (0.6%) | |||||||||||||||
3,000,000 | Delta Air Lines, Inc./ SkyMiles IP, Ltd.1 | 10/20/28 | 4.750 | 3,066,636 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 13 |
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | |||||||||||||
CORPORATE BONDS (continued) | ||||||||||||||||
AUTO MANUFACTURERS (0.9%) | ||||||||||||||||
$ | 1,110,000 | Daimler Finance North America LLC1 | 02/12/21 | 2.300 | % | $ | 1,115,535 | |||||||||
3,140,000 | General Motors Financial Co., Inc. | 11/06/20 | 2.450 | 3,140,199 | ||||||||||||
4,255,734 | ||||||||||||||||
| BANKS (4.5%) | |||||||||||||||
1,155,000 | ANZ New Zealand Int'l, Ltd., London Branch1 | 03/19/24 | 3.400 | 1,252,576 | ||||||||||||
2,100,000 | ASB Bank, Ltd.1 | 06/14/23 | 3.750 | 2,266,067 | ||||||||||||
1,365,000 | Bank of New Zealand1 | 02/20/24 | 3.500 | 1,483,969 | ||||||||||||
1,735,000 | HSBC Holdings, Plc | 03/31/30 | 4.950 | 2,111,737 | ||||||||||||
1,140,000 | HSBC Holdings, Plc (SOFR + 2.387%)2 | 06/04/31 | 2.848 | 1,182,493 | ||||||||||||
2,020,000 | JPMorgan Chase & Co. (SOFR + 1.585%)2 | 03/13/26 | 2.005 | 2,093,950 | ||||||||||||
2,340,000 | Lloyds Banking Group, Plc | 05/08/25 | 4.450 | 2,652,692 | ||||||||||||
2,440,000 | Mitsubishi UFJ Financial Group, Inc. | 07/17/25 | 1.412 | 2,479,724 | ||||||||||||
1,410,000 | Morgan Stanley (SOFR + 1.990%)2 | 04/28/26 | 2.188 | 1,476,864 | ||||||||||||
505,000 | Santander Holdings USA, Inc. | 12/03/21 | 4.450 | 524,565 | ||||||||||||
810,000 | Santander Holdings USA, Inc. | 03/28/22 | 3.700 | 839,469 | ||||||||||||
1,245,000 | Wells Fargo & Co. (SOFR + 2.000%)2 | 04/30/26 | 2.188 | 1,294,419 | ||||||||||||
1,165,000 | Wells Fargo & Co. (SOFR + 2.100%)2 | 06/02/28 | 2.393 | 1,210,801 | ||||||||||||
20,869,326 | ||||||||||||||||
| BEVERAGES (0.4%) | |||||||||||||||
1,310,000 | Anheuser-Busch InBev Worldwide, Inc. | 01/23/39 | 5.450 | 1,695,245 | ||||||||||||
| BIOTECHNOLOGY (0.8%) | |||||||||||||||
1,395,000 | Amgen, Inc. | 02/21/27 | 2.200 | 1,465,504 | ||||||||||||
2,170,000 | Biogen, Inc. | 05/01/50 | 3.150 | 2,099,936 | ||||||||||||
3,565,440 | ||||||||||||||||
| CHEMICALS (0.4%) | |||||||||||||||
1,955,000 | Olin Corp. | 08/01/29 | 5.625 | 2,020,962 | ||||||||||||
| COMMERCIAL SERVICES (1.0%) | |||||||||||||||
4,480,000 | Block Financial LLC | 08/15/30 | 3.875 | 4,615,371 | ||||||||||||
COMPUTERS (0.4%) | ||||||||||||||||
1,715,000 | Dell International LLC / EMC Corp.1 | 06/15/26 | 6.020 | 2,033,039 |
The accompanying notes are an integral part of these financial statements.
14
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | |||||||||||||
CORPORATE BONDS (continued) | ||||||||||||||||
DIVERSIFIED FINANCIAL SERVICES (6.5%) | ||||||||||||||||
$ | 1,080,000 | AerCap Ireland Capital DAC / AerCap Global Aviation Trust | 09/15/23 | 4.500 | % | $ | 1,121,586 | |||||||||
3,960,000 | AerCap Ireland Capital DAC / AerCap Global Aviation Trust | 10/15/27 | 4.625 | 3,924,815 | ||||||||||||
6,755,000 | Air Lease Corp. | 03/01/21 | 2.500 | 6,798,471 | ||||||||||||
3,055,000 | Alliance Data Systems Corp.1 | 12/15/24 | 4.750 | 2,833,513 | ||||||||||||
2,685,000 | Avolon Holdings Funding, Ltd.1 | 07/01/24 | 3.950 | 2,632,670 | ||||||||||||
925,000 | Avolon Holdings Funding, Ltd.1 | 01/15/26 | 5.500 | 944,834 | ||||||||||||
2,295,000 | Blackstone / GSO Secured Lending Fund1 | 07/14/23 | 3.650 | 2,316,856 | ||||||||||||
750,000 | Brightsphere Investment Group, Inc. | 07/27/26 | 4.800 | 793,613 | ||||||||||||
2,345,000 | Capital One Financial Corp | 05/11/27 | 3.650 | 2,598,583 | ||||||||||||
840,000 | Credit Acceptance Corp.1 | 12/31/24 | 5.125 | 833,700 | ||||||||||||
1,400,000 | Credit Acceptance Corp. | 03/15/26 | 6.625 | 1,452,500 | ||||||||||||
1,650,000 | Drawbridge Special Opportunities Fund LP1 | 08/01/21 | 5.000 | 1,666,161 | ||||||||||||
2,665,000 | Oxford Finance LLC / Oxford Finance Co-Issuer II, Inc.1 | 12/15/22 | 6.375 | 2,643,680 | ||||||||||||
30,560,982 | ||||||||||||||||
| ELECTRIC (2.9%) | |||||||||||||||
2,340,000 | AEP Transmission Co. LLC | 04/01/50 | 3.650 | 2,722,518 | ||||||||||||
2,800,000 | Electricite de France S.A.1 | 09/21/28 | 4.500 | 3,298,696 | ||||||||||||
1,705,000 | Exelon Generation Co. LLC | 10/01/39 | 6.250 | 2,053,268 | ||||||||||||
2,095,000 | Narragansett Electric Co.1 | 04/09/30 | 3.395 | 2,361,845 | ||||||||||||
1,060,000 | PacifiCorp. | 04/01/24 | 3.600 | 1,157,963 | ||||||||||||
1,975,000 | Vistra Operations Co. LLC1 | 01/30/27 | 3.700 | 2,087,415 | ||||||||||||
13,681,705 | ||||||||||||||||
| FOOD (0.5%) | |||||||||||||||
2,160,000 | Kraft Heinz Foods Co.1 | 10/01/39 | 4.625 | 2,316,197 | ||||||||||||
| HEALTHCARE-SERVICES (4.2%) | |||||||||||||||
1,280,000 | Advocate Health & Hospitals Corp | 06/15/50 | 3.008 | 1,287,948 | ||||||||||||
1,930,000 | Ascension Health | 11/15/29 | 2.532 | 2,045,459 | ||||||||||||
825,000 | Centene Corp. | 12/15/27 | 4.250 | 868,478 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 15 |
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | |||||||||||||
CORPORATE BONDS (continued) | ||||||||||||||||
HEALTHCARE-SERVICES (continued) | ||||||||||||||||
$ | 6,675,000 | MEDNAX, Inc.1 | 01/15/27 | 6.250 | % | $ | 6,889,935 | |||||||||
1,130,000 | Mercy Health | 07/01/28 | 4.302 | 1,269,871 | ||||||||||||
2,085,000 | Orlando Health Obligated Group | 10/01/50 | 3.327 | 2,115,475 | ||||||||||||
2,545,000 | PeaceHealth Obligated Group | 11/15/50 | 3.218 | 2,518,618 | ||||||||||||
2,490,000 | Sutter Health | 08/15/30 | 2.294 | 2,496,051 | ||||||||||||
19,491,835 | ||||||||||||||||
| INSURANCE (8.5%) | |||||||||||||||
4,175,000 | Aegon NV (6-Month USD-LIBOR + 3.540%)2 | 04/11/48 | 5.500 | 4,550,149 | ||||||||||||
967,000 | Athene Global Funding1 | 01/25/22 | 4.000 | 1,001,816 | ||||||||||||
2,035,000 | Athene Global Funding1 | 06/29/25 | 2.550 | 2,104,160 | ||||||||||||
4,295,000 | AXIS Specialty Finance LLC (5-Year CMT Index + 3.186%)2 | 01/15/40 | 4.900 | 4,349,251 | ||||||||||||
1,600,000 | Enstar Finance LLC (5-Year CMT Index + 5.468%)2 | 09/01/40 | 5.750 | 1,627,519 | ||||||||||||
3,145,000 | Enstar Group, Ltd. | 06/01/29 | 4.950 | 3,468,322 | ||||||||||||
2,195,000 | Fairfax Financial Holdings, Ltd. | 04/29/30 | 4.625 | 2,348,083 | ||||||||||||
4,765,000 | Fidelis Insurance Holdings, Ltd. (5-Year CMT Index + 6.323%)1,2 | 04/01/41 | 6.625 | 4,750,679 | ||||||||||||
1,675,000 | First American Financial Corp. | 05/15/30 | 4.000 | 1,871,487 | ||||||||||||
1,180,000 | New York Life Insurance Co.1 | 05/15/50 | 3.750 | 1,316,115 | ||||||||||||
2,305,000 | PartnerRe Finance B LLC (5-Year CMT Index + 3.815%)2 | 10/01/50 | 4.500 | 2,310,320 | ||||||||||||
2,995,000 | Sirius International Group, Ltd.1 | 11/01/26 | 4.600 | 2,890,175 | ||||||||||||
1,800,000 | Swiss Re Finance Luxembourg S.A. (5-Year CMT Index + 3.582%)1,2 | 04/02/49 | 5.000 | 2,065,723 | ||||||||||||
2,520,000 | Teachers Insurance & Annuity Association of America1 | 05/15/50 | 3.300 | 2,574,693 | ||||||||||||
2,660,000 | United Insurance Holdings Corp. | 12/15/27 | 6.250 | 2,611,591 | ||||||||||||
39,840,083 | ||||||||||||||||
| INTERNET (1.0%) | |||||||||||||||
2,485,000 | Expedia Group, Inc.1 | 05/01/25 | 6.250 | 2,732,674 | ||||||||||||
1,785,000 | Expedia Group, Inc.1 | 08/01/27 | 4.625 | 1,871,740 | ||||||||||||
4,604,414 |
The accompanying notes are an integral part of these financial statements.
16
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | |||||||||||||
CORPORATE BONDS (continued) | ||||||||||||||||
INVESTMENT COMPANIES (4.8%) | ||||||||||||||||
$ | 3,370,000 | Ares Capital Corp. | 01/15/26 | 3.875 | % | $ | 3,454,038 | |||||||||
1,680,000 | BlackRock TCP Capital Corp. | 08/23/24 | 3.900 | 1,698,426 | ||||||||||||
200,000 | Business Development Corp. of America1 | 12/30/22 | 4.750 | 196,131 | ||||||||||||
2,930,000 | Business Development Corp. of America1 | 12/15/24 | 4.850 | 2,863,500 | ||||||||||||
1,655,000 | FS KKR Capital Corp. | 07/15/24 | 4.625 | 1,669,577 | ||||||||||||
1,370,000 | FS KKR Capital Corp. | 02/01/25 | 4.125 | 1,365,984 | ||||||||||||
3,450,000 | FS KKR Capital Corp. II1 | 02/14/25 | 4.250 | 3,262,698 | ||||||||||||
2,320,000 | Golub Capital BDC, Inc. | 04/15/24 | 3.375 | 2,313,860 | ||||||||||||
3,465,000 | Main Street Capital Corp. | 05/01/24 | 5.200 | 3,624,658 | ||||||||||||
610,000 | Owl Rock Capital Corp. | 03/30/25 | 4.000 | 610,737 | ||||||||||||
1,445,000 | Owl Rock Capital Corp. II1 | 11/26/24 | 4.625 | 1,453,258 | ||||||||||||
22,512,867 | ||||||||||||||||
| MEDIA (0.8%) | |||||||||||||||
3,860,000 | TEGNA, Inc. | 09/15/29 | 5.000 | 3,908,250 | ||||||||||||
| OIL & GAS (2.8%) | |||||||||||||||
1,890,000 | Apache Corp. | 11/15/25 | 4.625 | 1,795,500 | ||||||||||||
2,280,000 | Equinor ASA | 04/06/25 | 2.875 | 2,462,746 | ||||||||||||
860,000 | Equinor ASA | 05/22/30 | 2.375 | 896,459 | ||||||||||||
2,610,000 | Exxon Mobil Corp. | 03/19/30 | 3.482 | 2,950,180 | ||||||||||||
1,410,000 | Newfield Exploration Co. | 07/01/24 | 5.625 | 1,364,175 | ||||||||||||
4,355,000 | Occidental Petroleum Corp. | 08/15/24 | 2.900 | 3,624,666 | ||||||||||||
13,093,726 | ||||||||||||||||
PHARMACEUTICALS (0.6%) | ||||||||||||||||
1,695,000 | AbbVie, Inc. | 05/14/25 | 3.600 | 1,875,954 | ||||||||||||
455,000 | AbbVie, Inc. | 05/14/35 | 4.500 | 553,057 | ||||||||||||
450,000 | AbbVie, Inc. | 05/14/36 | 4.300 | 532,819 | ||||||||||||
2,961,830 | ||||||||||||||||
| PIPELINES (1.3%) | |||||||||||||||
1,730,000 | Enable Midstream Partners LP | 09/15/29 | 4.150 | 1,550,433 | ||||||||||||
1,545,000 | Energy Transfer Operating LP (3-Month USD-LIBOR + 4.028%)2,5 | 6.250 | 1,036,231 | |||||||||||||
1,150,000 | Northriver Midstream Finance LP1 | 02/15/26 | 5.625 | 1,139,075 | ||||||||||||
2,230,000 | Sunoco Logistics Partners Operations LP | 04/01/21 | 4.400 | 2,257,300 | ||||||||||||
5,983,039 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 17 |
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | |||||||||||||
CORPORATE BONDS (continued) | ||||||||||||||||
PRIVATE EQUITY (1.5%) | ||||||||||||||||
$ | 2,095,000 | Apollo Management Holdings LP (5-Year CMT Index + 3.266%)1,2 | 01/14/50 | 4.950 | % | $ | 2,091,786 | |||||||||
3,495,000 | Owl Rock Technology Finance Corp.1 | 06/30/25 | 6.750 | 3,736,657 | ||||||||||||
1,105,000 | Owl Rock Technology Finance Corp.1 | 12/15/25 | 4.750 | 1,094,705 | ||||||||||||
6,923,148 | ||||||||||||||||
| REAL ESTATE INVESTMENT TRUSTS (2.2%) | |||||||||||||||
1,275,000 | HAT Holdings I LLC / HAT Holdings II LLC1 | 07/15/24 | 5.250 | 1,313,250 | ||||||||||||
2,300,000 | HAT Holdings I LLC / HAT Holdings II LLC1 | 09/15/30 | 3.750 | 2,297,125 | ||||||||||||
1,380,000 | Scentre Group Trust 1 / Scentre Group Trust 21 | 02/12/25 | 3.500 | 1,459,396 | ||||||||||||
1,945,000 | Scentre Group Trust 1 / Scentre Group Trust 21 | 01/28/26 | 3.625 | 2,079,183 | ||||||||||||
1,345,000 | Scentre Group Trust 2 (5-Year CMT Index + 4.685%)1,2 | 09/24/80 | 5.125 | 1,322,425 | ||||||||||||
1,720,000 | WEA Finance LLC1 | 01/15/27 | 2.875 | 1,688,290 | ||||||||||||
10,159,669 | ||||||||||||||||
| RETAIL (0.6%) | |||||||||||||||
3,450,000 | Nordstrom, Inc. | 04/01/30 | 4.375 | 2,663,826 | ||||||||||||
| SEMICONDUCTORS (0.5%) | |||||||||||||||
2,100,000 | ams AG1 | 07/31/25 | 7.000 | 2,220,750 | ||||||||||||
| TELECOMMUNICATIONS (0.1%) | |||||||||||||||
313,750 | Sprint Spectrum Co. LLC / Sprint Spectrum Co. II LLC / Sprint Spectrum Co. III LLC1 | 03/20/23 | 3.360 | 316,690 | ||||||||||||
| TRUCKING & LEASING (0.5%) | |||||||||||||||
2,330,000 | Aviation Capital Group LLC1 | 12/15/24 | 5.500 | 2,425,995 | ||||||||||||
| Total Corporate Bonds (Cost $227,837,509) | 236,567,342 | ||||||||||||||
LOAN PARTICIPATIONS AND ASSIGNMENTS (12.7%) | ||||||||||||||||
3,088,985 | Allen Media LLC (Entertainment Studios) (3-Month USD-LIBOR + 5.500%)2 | 02/10/27 | 5.720 | 2,982,817 | ||||||||||||
1,653,832 | Aria Energy Operating LLC (1-Month USD-LIBOR + 4.500%)2 | 05/27/22 | 5.500 | 1,593,186 |
The accompanying notes are an integral part of these financial statements.
18
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | |||||||||||||
LOAN PARTICIPATIONS AND ASSIGNMENTS (continued) | ||||||||||||||||
$ | 1,180,745 | Avolon TLB Borrower 1 (US) LLC Term B3 (1-Month USD-LIBOR + 1.750%)2 | 01/15/25 | 2.500 | % | $ | 1,134,401 | |||||||||
1,982,539 | Axalta Coating Systems Dutch Holding B BV Term B3 (3-Month USD-LIBOR + 1.750%)2 | 06/01/24 | 1.970 | 1,920,585 | ||||||||||||
3,158,223 | BCP Renaissance Parent LLC (2-Month USD-LIBOR + 3.500%)2 | 10/31/24 | 4.500 | 2,893,722 | ||||||||||||
1,351,875 | Broadcom, Inc. Term A5 (1-Month USD-LIBOR + 1.250%)2 | 11/04/24 | 1.398 | 1,304,559 | ||||||||||||
1,407,925 | Buckeye Partners LP (1-Month USD-LIBOR + 2.750%)2 | 11/01/26 | 2.897 | 1,379,513 | ||||||||||||
3,205,125 | CenturyLink, Inc. Term A (1-Month USD-LIBOR + 2.000%)2 | 01/31/25 | 2.148 | 3,113,779 | ||||||||||||
2,204,023 | Clarios Global LP (1-Month USD-LIBOR + 3.500%)2 | 04/30/26 | 3.648 | 2,137,352 | ||||||||||||
2,925,000 | DaVita, Inc. Term A (1-Month USD-LIBOR + 1.500%)2 | 08/12/24 | 1.648 | 2,866,500 | ||||||||||||
2,838,029 | Dell International LLC Term B1 (1-Month USD-LIBOR + 2.000%)2 | 09/19/25 | 2.750 | 2,805,023 | ||||||||||||
2,500,000 | Delos Finance S.a r.l. (3-Month USD-LIBOR + 1.750%)2 | 10/06/23 | 1.970 | 2,415,100 | ||||||||||||
4,081,178 | Eastern Power LLC (TPF II LC LLC) (3-Month USD-LIBOR + 3.750%)2 | 10/02/25 | 4.750 | 4,049,100 | ||||||||||||
2,231,550 | Elanco Animal Health, Inc. (1-Month USD-LIBOR + 1.750%)2 | 08/01/27 | 1.899 | 2,180,871 | ||||||||||||
1,959,900 | Frontera Generation Holdings LLC (3-Month USD-LIBOR + 4.250%)2 | 05/02/25 | 5.250 | 544,852 | ||||||||||||
1,982,247 | Greatbatch, Ltd. Term B (1-Month USD-LIBOR + 2.500%)2 | 10/27/22 | 3.500 | 1,960,660 | ||||||||||||
687,763 | HCA, Inc. Term B12 (1-Month USD-LIBOR + 1.750%)2 | 03/13/25 | 1.898 | 683,465 | ||||||||||||
3,702,061 | Helix Gen Funding LLC (1-Month USD-LIBOR + 3.750%)2 | 06/03/24 | 4.750 | 3,654,934 | ||||||||||||
2,868,250 | ICH US Intermediate Holdings II, Inc. (3-Month USD-LIBOR + 5.750%)2 | 12/24/26 | 6.750 | 2,862,886 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 19 |
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | |||||||||||||
LOAN PARTICIPATIONS AND ASSIGNMENTS (continued) | ||||||||||||||||
$ | 2,729,621 | NorthRiver Midstream Finance LP Term B (3-Month USD-LIBOR + 3.250%)2 | 10/01/25 | 3.475 | % | $ | 2,546,054 | |||||||||
1,278,749 | RPI Intermediate Finance Trust Term B1 (1-Month USD-LIBOR + 1.750%)2 | 02/11/27 | 1.898 | 1,271,153 | ||||||||||||
589,857 | SS&C Technologies Holdings, Inc. Term B3 (1-Month USD-LIBOR + 1.750%)2 | 04/16/25 | 1.898 | 572,533 | ||||||||||||
414,416 | SS&C Technologies Holdings, Inc. Term B4 (1-Month USD-LIBOR + 1.750%)2 | 04/16/25 | 1.898 | 402,245 | ||||||||||||
725,011 | SS&C Technologies Holdings, Inc. Term B5 (1-Month USD-LIBOR + 1.750%)2 | 04/16/25 | 1.898 | 703,920 | ||||||||||||
2,908,483 | Stericycle, Inc. (1-Month USD-LIBOR + 1.875%)2 | 11/17/22 | 2.023 | 2,763,059 | ||||||||||||
3,046,100 | Tivity Health, Inc. Term B (1-Month USD-LIBOR + 5.250%)2 | 03/06/26 | 5.398 | 2,984,325 | ||||||||||||
1,387,438 | UGI Energy Services LLC (1-Month USD-LIBOR + 3.750%)2 | 08/13/26 | 3.898 | 1,373,563 | ||||||||||||
1,839,757 | Vistra Operations Company LLC (Tex Operations Company LLC) (1-Month USD-LIBOR + 1.750%)2 | 12/31/25 | 1.898 | 1,794,922 | ||||||||||||
2,940,000 | Wyndham Hotels & Resorts, Inc. Term B (1-Month USD-LIBOR + 1.750%)2 | 05/30/25 | 1.898 | 2,791,765 | ||||||||||||
| Total Loan Participations and Assignments (Cost $62,104,287) | 59,686,844 | ||||||||||||||
PREFERRED STOCK (0.6%) | ||||||||||||||||
114,000 | Trinity Capital, Inc.1,6 | 01/16/25 | 7.000 | 2,764,500 | ||||||||||||
Total Preferred Stock (Cost $2,850,000) | 2,764,500 | |||||||||||||||
| RESIDENTIAL MORTGAGE BACKED SECURITIES (0.8%) | |||||||||||||||
948,529 | Cascade Funding Mortgage Trust 2018-RM21,2,4 | 10/25/68 | 4.000 | 982,088 | ||||||||||||
1,635,621 | Cascade Funding Mortgage Trust 2019-RM31,2,4 | 06/25/69 | 2.800 | 1,625,884 | ||||||||||||
1,031,188 | RMF Proprietary Issuance Trust 2019-11,2,4 | 10/25/63 | 2.750 | 1,028,867 | ||||||||||||
| Total Residential Mortgage Backed Securities (Cost $3,603,605) | 3,636,839 |
The accompanying notes are an integral part of these financial statements.
20
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | |||||||||||||
U.S. INFLATION LINKED DEBT (2.5%) | ||||||||||||||||
$ | 2,274,705 | U.S. Treasury Inflation Indexed Bond | 02/15/50 | 0.250 | % | $ | 2,610,905 | |||||||||
7,977,618 | U.S. Treasury Inflation Indexed Note | 01/15/29 | 0.875 | 9,193,581 | ||||||||||||
| Total U.S. Inflation Linked Debt (Cost $10,793,618) | 11,804,486 | ||||||||||||||
| U.S. TREASURY BONDS AND NOTES (3.6%) | |||||||||||||||
1,750,000 | U.S. Treasury Bond | 08/15/40 | 3.875 | 2,523,145 | ||||||||||||
3,130,000 | U.S. Treasury Bond | 02/15/50 | 2.000 | 3,407,298 | ||||||||||||
700,000 | U.S. Treasury Note7 | 02/15/23 | 2.000 | 729,121 | ||||||||||||
6,950,000 | U.S. Treasury Note7 | 10/31/23 | 1.625 | 7,247,004 | ||||||||||||
800,000 | U.S. Treasury Note7 | 08/15/26 | 1.500 | 845,906 | ||||||||||||
| 2,000,000 | U.S. Treasury Note | 08/15/30 | 0.625 | 1,956,250 | |||||||||||
Total U.S. Treasury Bonds and Notes (Cost $16,736,664) | 16,708,724 | |||||||||||||||
U.S. TREASURY BILLS (0.1%) | ||||||||||||||||
600,000 | U.S. Treasury Bill8 | 11/12/20 | 0.000 | 599,984 | ||||||||||||
Total U.S. Treasury Bills (Cost $599,984) | 599,984 |
TOTAL INVESTMENTS (Cost $455,353,589)9 | 98.8 | % | $ | 462,402,168 | |||||||
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES | 1.2 | % | 5,481,717 | ||||||||
NET ASSETS | 100.0 | % | $ | 467,883,885 |
____________
1 | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. Total market value of Rule 144A securities owned at October 31, 2020 was $222,173,288 or 47.5% of net assets. |
2 | Variable rate instrument. Interest rates change on specific dates (such as coupon or interest payment date). The yield shown represents the October 31, 2020 coupon or interest rate. |
3 | Security that used significant unobservable inputs to determine fair value. |
4 | This variable rate security is based on a predetermined schedule and the rate at period end also represents the reference rate at period end. |
5 | Security is perpetual in nature and has no stated maturity date. |
6 | Non-income producing security. |
7 | All or a portion of this security is held at the broker as collateral for open futures contracts. |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 21 |
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
8 | Security issued with zero coupon. Income is recognized through accretion of discount. |
9 | The aggregate cost of investments and derivatives for federal income tax purposes is $454,174,709, the aggregate gross unrealized appreciation is $15,341,035 and the aggregate gross unrealized depreciation is $8,474,324, resulting in net unrealized appreciation of $6,866,711. |
Abbreviations:
CMT – Constant Maturity Treasury.
LIBOR – London Interbank Offered Rate.
MTN – Medium Term Note.
SOFR – Secured Overnight Financing Rate.
FINANCIAL FUTURES CONTRACTS
The following futures contracts were open at October 31, 2020:
Number of | Expiration | Notional | Market | Unrealized Gain / | ||||||||||||
Description | Contracts | Date | Amount | Value | (Loss) | |||||||||||
Contracts to Buy: | ||||||||||||||||
U.S. Long Bond | 158 | December 2020 | $ | 27,875,157 | $ | 27,250,063 | $ | (625,094 | ) | |||||||
U.S. Treasury 2-Year Notes | 119 | December 2020 | 26,278,547 | 26,280,406 | 1,859 | |||||||||||
U.S. Treasury 10-Year Notes. | 15 | December 2020 | 2,084,297 | 2,073,281 | (11,016 | ) | ||||||||||
U.S. Ultra Bond | 115 | December 2020 | 25,471,031 | 24,725,000 | (746,031 | ) | ||||||||||
$ | (1,380,282 | ) | ||||||||||||||
Contracts to Sell: | ||||||||||||||||
U.S. Treasury 5-Year Notes | 75 | December 2020 | $ | 9,439,651 | 9,420,117 | $ | 19,534 | |||||||||
Net Unrealized (Loss) on Open Futures Contracts | $ | (1,360,748 | ) |
The accompanying notes are an integral part of these financial statements.
22
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
FAIR VALUE MEASUREMENTS
The Fund is required to disclose information regarding the fair value measurements of the Fund’s assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The disclosure requirement established a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including, for example, the risk inherent in a particular valuation technique used to measure fair value, including the model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the Fund’s own considerations about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
Authoritative guidance establishes three levels of the fair value hierarchy as follows:
— | Level 1 – unadjusted quoted prices in active markets for identical assets and liabilities. |
— | Level 2 – significant other observable inputs (including quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk, etc.). |
— | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of assets and liabilities). |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 23 |
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires judgment by the investment adviser. The investment adviser considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the investment adviser’s perceived risk of that instrument.
Financial assets within Level 1 are based on quoted market prices in active markets. The Fund does not adjust the quoted price for these instruments.
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include investment-grade corporate bonds, U.S. Treasury notes and bonds, and certain non-U.S. sovereign obligations and over-the-counter derivatives. As Level 2 financial assets include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Financial assets classified within Level 3 have significant unobservable inputs, as they trade infrequently. Level 3 financial assets include private equity and certain corporate debt securities.
Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon the actual sale of those investments.
The accompanying notes are an integral part of these financial statements.
24
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2020.
Investments, at value | Unadjusted Quoted Prices in Active Markets for Identical Investments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of October 31, 2020 | ||||||||||||
Asset Backed Securities | $ | — |
| $ | 103,502,501 |
| $ | 5,694,790 |
| $ | 109,197,291 |
| ||||
Commercial Mortgage Backed Securities | — |
| 20,354,850 |
| 1,081,308 |
| 21,436,158 |
| ||||||||
Corporate Bonds | — |
| 236,567,342 |
| — |
| 236,567,342 |
| ||||||||
Loan Participations and Assignments | — |
| 59,686,844 |
| — |
| 59,686,844 |
| ||||||||
Preferred Stock | — |
| 2,764,500 |
| — |
| 2,764,500 |
| ||||||||
Residential Mortgage Backed Securities | — |
| 3,636,839 |
| — |
| 3,636,839 |
| ||||||||
U.S. Inflation Linked Debt | — |
| 11,804,486 |
| — |
| 11,804,486 |
| ||||||||
U.S. Treasury Bonds and Notes | — |
| 16,708,724 |
| — |
| 16,708,724 |
| ||||||||
U.S. Treasury Bills | — | 599,984 | — | 599,984 | ||||||||||||
Total Investment, at value | $ | — | $ | 455,626,070 | $ | 6,776,098 | $ | 462,402,168 | ||||||||
Other Financial Instruments, at value | ||||||||||||||||
Financial Futures Contracts | $ | (1,360,748 | ) | $ | — | $ | — | $ | (1,360,748 | ) | ||||||
Other Financial Instruments, at value | $ | (1,360,748 | ) | $ | — | $ | — | $ | (1,360,748 | ) |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 25 |
BBH INCOME FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
The following is a reconciliation of assets for which significant unobservable inputs (Level 3) were used in determining fair value during the year ended October 31, 2020:
Asset Backed Securities | Commercial Mortgage Backed Securities | Total | |||||||||||
Balance as of October 31, 2019 | $ | 623,321 |
| $ | — |
| $ | 623,321 |
| ||||
Purchases | 5,249,978 |
| — |
| 5,249,978 |
| |||||||
Sales / Paydowns | (155,332 | ) | — |
| (155,332 | ) | |||||||
Realized gains (losses) | – |
| — |
| — |
| |||||||
Change in unrealized appreciation (depreciation) | (24,698 | ) | — |
| (24,698 | ) | |||||||
Amortization | 1,521 |
| — |
| 1,521 |
| |||||||
Transfers from Level 3 |
| — |
| – |
| ||||||||
Transfers to Level 3 | — |
| 1,081,308 |
| 1,081,308 |
| |||||||
Balance as of October 31, 2020 | $ | 5,694,790 | $ | 1,081,308 | $ | 6,776,098 |
The Fund’s investments classified as Level 3 were valued using a model approach, including the Fund’s assumptions in determining their fair value.
The accompanying notes are an integral part of these financial statements.
26
BBH INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2020
ASSETS: | |||||
Investments in securities, at value (Cost $455,353,589) | $ | 462,402,168 | |||
Cash | 225,654 | ||||
Receivables for: | |||||
Investments sold | 11,175,329 | ||||
Interest | 2,899,000 | ||||
Shares sold | 136,000 | ||||
Total Assets | 476,838,151 | ||||
LIABILITIES: | |||||
Payables for: | |||||
Investments purchased | 8,407,520 | ||||
Investment advisory and administrative fees | 157,810 | ||||
Dividends declared | 125,581 | ||||
Futures variation margin on open contracts | 119,640 | ||||
Professional fees | 82,255 | ||||
Custody and fund accounting fees | 27,116 | ||||
Shares redeemed | 20,000 | ||||
Transfer agent fees | 2,711 | ||||
Accrued expenses and other liabilities | 11,633 | ||||
Total Liabilities | 8,954,266 | ||||
NET ASSETS | $ | 467,883,885 | |||
Net Assets Consist of: | |||||
Paid-in capital | $ | 441,440,079 | |||
Retained earnings | 26,443,806 | ||||
Net Assets | $ | 467,883,885 | |||
NET ASSET VALUE AND OFFERING PRICE PER SHARE | |||||
CLASS I SHARES | |||||
($467,883,885 ÷ 43,429,034 shares outstanding) | $10.77 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 27 |
BBH INCOME FUND
STATEMENT OF OPERATIONS
For the year ended October 31, 2020
NET INVESTMENT INCOME: | ||||
Income: | ||||
Dividends | $ | 132,446 | ||
Interest income | 16,153,247 | |||
Other income | 136,365 | |||
Total Income | 16,422,058 | |||
Expenses: | ||||
Investment advisory and administrative fees | 1,766,988 | |||
Custody and fund accounting fees | 109,910 | |||
Professional fees | 91,976 | |||
Board of Trustees' fees | 58,488 | |||
Transfer agent fees | 33,359 | |||
Miscellaneous expenses | 63,071 | |||
Total Expenses | 2,123,792 | |||
Net Investment Income | 14,298,266 | |||
NET REALIZED AND UNREALIZED GAIN: | ||||
Net realized gain on investments in securities | 12,829,363 | |||
Net realized gain on futures contracts | 7,624,686 | |||
Net realized gain on investments in securities and futures contracts | 20,454,049 | |||
Net change in unrealized appreciation/(depreciation) on investments in securities | (1,404,448 | ) | ||
Net change in unrealized appreciation/(depreciation) on futures contracts | 90,462 | |||
Net change in unrealized appreciation/(depreciation) on investments in securities and futures contracts | (1,313,986 | ) | ||
Net Realized and Unrealized Gain | 19,140,063 | |||
Net Increase in Net Assets Resulting from Operations | $ | 33,438,329 |
The accompanying notes are an integral part of these financial statements.
28
BBH INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended October 31, | ||||||||
2020 | 2019 | |||||||
INCREASE IN NET ASSETS: | ||||||||
Operations: | ||||||||
Net investment income | $ | 14,298,266 | $ | 10,500,682 | ||||
Net realized gain on investments in securities and futures contracts | 20,454,049 | 14,359,678 | ||||||
Net change in unrealized appreciation/(depreciation) on investments in securities and futures contracts | (1,313,986 | ) | 8,773,138 | |||||
Net increase in net assets resulting from operations | 33,438,329 | 33,633,498 | ||||||
Dividends and distributions declared: | ||||||||
Class I | (26,351,493 | ) | (10,503,452) |
| ||||
Share transactions: | ||||||||
Proceeds from sales of shares | 119,485,340 | 243,690,338 | ||||||
Net asset value of shares issued to shareholders for reinvestment of dividends and distributions | 1,898,492 | 844,086 | ||||||
Proceeds from short-term redemption fees | 4,617 | 60 | ||||||
Cost of shares redeemed | (66,597,003 | ) | (8,239,111 | ) | ||||
Net increase in net assets resulting from share transactions | 54,791,446 | 236,295,373 | ||||||
Total increase in net assets | 61,878,282 | 259,425,419 | ||||||
NET ASSETS: | ||||||||
Beginning of year | 406,005,603 | 146,580,184 | ||||||
End of year | $ | 467,883,885 | $ | 406,005,603 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 29 |
BBH INCOME FUND
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a Class I share outstanding throughout each period.
For the years ended October 31, | For the period from June 27, 2018 (commencement of operations) to October 31, 2018 | ||||||||||||
2020 | 2019 | ||||||||||||
Net asset value, beginning of period | $ | 10.61 | $ | 9.83 | $ | 10.00 | |||||||
Income from investment operations: | |||||||||||||
Net investment income1 | 0.34 | 0.36 | 0.10 | ||||||||||
Net realized and unrealized gain (loss) | 0.46 | 0.78 | (0.17 | ) | |||||||||
Total income (loss) from investment operations | 0.80 | 1.14 | (0.07 | ) | |||||||||
Less dividends and distributions: | |||||||||||||
From net investment income | (0.34 | ) | (0.36 | ) | (0.10 | ) | |||||||
From net realized gains | (0.30 | ) | – | – | |||||||||
Total dividends and distributions | (0.64 | ) | (0.36 | ) | (0.10 | ) | |||||||
Short-term redemptions fees1 | 0.00 | 2 | 0.00 | 2 | – | ||||||||
Net asset value, end of period | $ | 10.77 | $ | 10.61 | $ | 9.83 | |||||||
Total return | 7.87 | % | 11.76 | % | (0.75 | )%3 | |||||||
Ratios/Supplemental data: | |||||||||||||
Net assets, end of period (in millions) | $ | 468 | $ | 406 | $ | 147 | |||||||
Ratio of expenses to average net assets before reductions | 0.48 | % | 0.52 | % | 0.67 | %4 | |||||||
Fee waiver5 | – | % | 0.02 | % | 0.17 | %4 | |||||||
Ratio of expenses to average net assets after reductions | 0.48 | % | 0.50 | % | 0.50 | %4 | |||||||
Ratio of net investment income to average net assets | 3.24 | % | 3.49 | % | 3.12 | %4 | |||||||
Portfolio turnover rate | 116 | % | 77 | % | 94 | %3 |
____________ | |
1 | Calculated using average shares outstanding for the period. |
2 | Less than $0.01. |
3 | Not annualized. |
4 | Annualized with the exception of audit fees, legal fees and registration fees. |
5 | The ratio of expenses to average net assets for the years ended October 31, 2020, 2019 and the period ended October 31, 2018 reflect fees reduced as result of a contractual operating expense limitation of the Fund to 0.50%. The agreement is effective through March 1, 2021 and may only be terminated during its term with approval of the Fund’s Board of Trustees. For the years ended October 31, 2020, 2019 and the period from June 27, 2018 to October 31, 2018, the waived fees were $–, $55,757 and $94,185, respectively. |
The accompanying notes are an integral part of these financial statements.
30
BBH INCOME FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2020
1.Organization. The Fund is a separate, diversified series of BBH Trust (the “Trust”), which is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust was originally organized under the laws of the State of Maryland on July 16, 1990 as BBH Fund, Inc. and re-organized as a Delaware statutory trust on June 12, 2007. The Fund commenced operations on June 27, 2018 and offers two share classes, Class N and Class I. As of October 31, 2020, Class N shares are not available for purchase by investors but may offer them in the future. The investment objective of the Fund is to provide maximum total return, consistent with preservation of capital and prudent investment management. Neither Class N shares nor Class I shares automatically convert to any other share class of the Fund. As of October 31, 2020, there were seven series of the Trust.
2.Significant Accounting Policies. The Fund’s financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”). The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services — Investment Companies. The following summarizes significant accounting policies of the Fund:
A.Valuation of Investments. Bonds and other fixed income securities, including restricted securities (other than short-term obligations but including listed issues) are valued at their most recent bid prices (sales price if the principal market is an exchange) in the principal market in which such securities are normally traded, on the basis of valuations furnished by a pricing service, use of which has been approved by the Board of Trustees (the “Board”). In making such valuations, the pricing service utilizes both dealer supplied valuations and electronic data processing techniques, which take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, without exclusive reliance upon quoted prices, or exchange or over-the-counter prices, since such valuations are believed to reflect more accurately the fair value of such securities. Futures contracts held by the Fund are valued daily at the official settlement price of the exchange of which it is traded.
Securities or other assets for which market quotations are not readily available are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Board. Short-term investments, which mature in 60 days or less are valued at amortized cost if their original maturity was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if their original maturity when acquired by the Fund was more than 60 days, unless the use of amortized cost is determined not to represent “fair value” by the Board.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 31 |
BBH INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
B.Accounting for Investments and Income. Investment transactions are accounted for on the trade date. Realized gains and losses on investment transactions are determined based on the identified cost method. Interest income is accrued daily and consists of interest accrued, discount earned (including, if any, both original issue and market discount) and premium amortization on the investments of the Fund. Investment income is recorded net of any foreign taxes withheld where recovery of such tax is uncertain. Debt obligations may be placed on non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivable when the collection of all or a portion of the interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is reasonably assured.
C.Fund Expenses. Most expenses of the Trust can be directly attributed to a specific fund. Expenses which cannot be directly attributed to a fund are generally apportioned among each fund in the Trust on a net assets basis or other suitable method. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
D.Financial Futures Contracts. The Fund may enter into open futures contracts in order to economically hedge against anticipated future changes in interest rates which otherwise might either adversely affect the value of securities held for the Fund or adversely affect the prices of securities that are intended to be purchased at a later date for the Fund. The contractual amount of the futures contracts represents the investment the Fund has in a particular contract and does not necessarily represent the amounts potentially subject to risk of loss. Trading in futures contracts involves, to varying degrees, risk of loss in excess of any futures variation margin reflected in the Statement of Assets and Liabilities. The measurement of risk associated with futures contracts is meaningful only when all related and offsetting transactions are considered. Gains and losses are realized upon the expiration or closing of the futures contracts.
Risks related to the use of futures contracts include possible illiquidity of the futures markets, contract prices that can be highly volatile and imperfectly correlated to movements in economically hedged security values and/or interest rates, and potential losses in excess of the Fund’s initial investment.
Open future contracts held at October 31, 2020, are listed in the Portfolio of Investments.
For the year ended October 31, 2020, the average monthly notional amount of open futures contracts was $98,183,554. The range of monthly notional amounts was $71,990,079 to $114,012,256.
32
BBH INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
Fair Values of Derivative Instruments as of October 31, 2020
Derivatives not accounted for as economically hedging instruments under authoritative guidance for derivatives instruments and hedging activities:
Asset Derivatives | Liability Derivatives | |||||||||||||
Risk | Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | ||||||||||
Interest Rate Risk | Net unrealized appreciation/ (depreciation) on futures contracts | $ | 21,393 | * | Net unrealized appreciation/ (depreciation) on futures contracts | $ | (1,382,141 | )* | ||||||
Total | $ | 21,393 | $ | (1,382,141 | ) |
____________
* | Includes cumulative appreciation/(depreciation) of futures contracts as reported in the Statement of Assets and Liabilities and Notes to Financial Statements. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Effect of Derivative Instruments on the Statement of Operations
Interest Rate Risk | ||||||
Net Realized Gain on Derivatives | ||||||
Futures Contracts | $ | 7,624,686 | ||||
Net Change in Unrealized Appreciation/(Depreciation) on | ||||||
Derivatives Futures Contracts | $ | 90,462 |
E.Rule 144A Securities. The Fund may purchase securities that are not registered under the Securities Act of 1933, as amended (“1933 Act”) but that can be sold to “qualified institutional buyers” in accordance with the requirements stated in Rule 144A under the 1933 Act (“Rule 144A Securities”). A Rule 144A Security may be considered illiquid, under SEC Regulations for open-end investment companies, and therefore subject to the 15% limitation on the purchase of illiquid securities, unless it is determined on an ongoing basis that an adequate trading market exists for the security, which is the case for the Fund. Guidelines have been adopted and the daily function of determining and monitoring liquidity of Rule 144A Securities has been delegated to the investment adviser. All relevant factors will be considered in determining the liquidity of Rule 144A Securities and all investments in Rule 144A Securities will be carefully monitored. Information regarding Rule 144A Securities is included at the end of the Portfolio of Investments.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 33 |
BBH INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
F.Loan Participations and Assignments. The Fund may invest in loan participations and assignments, which include institutionally traded floating and fixed-rate debt securities generally acquired as an assignment from another holder of, or participation interest in, loans originated by a bank or financial institution (the “Lender”) that acts as agent for all holders. Some loan participations and assignments may be purchased on a “when-issued” basis. The agent administers the terms of the loan, as specified in the loan agreement. When investing in a loan assignment, the Fund acquires the loan in whole or in part and becomes a lender under the loan agreement. The Fund generally has the right to enforce compliance with the terms of the loan agreement with the borrower.
Assignments and participations involve credit, interest rate, and liquidity risk. Interest rates on floating rate securities adjust with interest rate changes and/or issuer credit quality, and unexpected changes in such rates could result in losses to the Fund. The interest rates paid on a floating rate security in which the Fund invests generally are readjusted periodically to an increment over a designated benchmark rate, such as the one-month, three-month, six-month, or one-year London Interbank Offered Rate (“LIBOR”). LIBOR is a short-term interest rate that banks charge one another and is generally representative of the most competitive and current cash rates.
The Fund may have difficulty trading assignments and participations to third parties. There may be restrictions on transfer and only limited opportunities may exist to sell such securities in secondary markets. As a result, the Fund may be unable to sell assignments or participations at the desired time or may be able to sell only at a price less than fair market value. The Fund utilizes an independent third party to value individual loan participations and assignments on a daily basis.
G.Federal Income Taxes. It is the Trust’s policy to comply with the requirements of the Internal Revenue Code (the “Code”) applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. The Fund files a tax return annually using tax accounting methods required under provisions of the Code, which may differ from GAAP, which is the basis on which these financial statements are prepared. Accordingly, the amount of net investment income and net realized gain reported in these financial statements may differ from that reported on the Fund’s tax return, due to certain book-to-tax timing differences such as losses deferred due to “wash sale” transactions and utilization of capital loss carryforwards. These differences may result in temporary over-distributions for financial statement purposes and are classified as distributions in excess of accumulated net realized gains or net investment income. These distributions do not constitute a return of capital. Permanent differences are reclassified between paid-in capital and retained earnings/(accumulated deficit) within the Statement of Assets and Liabilities based upon their tax classification. As such, the character of distributions to shareholders reported in the Financial Highlights table may differ from that reported to shareholders on Form 1099-DIV.
The Fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes (“ASC 740”). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit
34
BBH INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
of a tax position taken or expected to be taken in a tax return. The Fund did not have any unrecognized tax benefits as of October 31, 2020, nor were there any increases or decreases in unrecognized tax benefits for the period then ended. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as an income tax expense in the Statement of Operations. During the year ended October 31, 2020, the Fund did not incur any such interest or penalties. The Fund is subject to examination by U.S. federal and state tax authorities for returns filed for all open tax periods since June 27, 2018 (commencement of operations). The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
H.Dividends and Distributions to Shareholders. Dividends and distributions from net investment income to shareholders are declared daily and paid monthly to shareholders. Distributions from net capital gains, if any, are generally declared and paid annually and are recorded on the ex-dividend date. The Fund declared dividends in the amount of $26,351,493 to Class I shareholders during the year ended October 31, 2020. In addition, the Fund designated a portion of the payment made to redeeming shareholders as a distribution for income tax purposes.
The tax character of distributions paid during the years ended October 31, 2020 and 2019, respectively, were as follows:
Distributions paid from: | ||||||||||||||||||||
Ordinary income | Net long-term capital gain | Total taxable distributions | Tax return of capital | Total distributions paid | ||||||||||||||||
2020: | $ | 22,866,799 | $ | 3,484,694 | $ | 26,351,493 | $ | — | $ | 26,351,493 | ||||||||||
2019: | 10,503,452 | — | 10,503,452 | — | 10,503,452 |
As of October 31, 2020 and 2019, respectively, the components of retained earnings/(accumulated deficit) were as follows:
Components of retained earnings/(accumulated deficit): | |||||||||||||||||||||||||||||
Undistributed ordinary income | Undistributed long-term capital gain | Accumulated capital and other losses | Other book/tax temporary differences | Unrealized appreciation/ (depreciation) | Total retained earnings/ (accumulated deficit) | ||||||||||||||||||||||||
2020: | $13,177,330 | $6,525,346 | $ | — | $1,053,299 | $5,687,831 | $26,443,806 | ||||||||||||||||||||||
2019: | 8,805,637 | 3,483,486 | — | 1,374,109 | 7,001,817 | 20,665,049 |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 35 |
BBH INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
The Fund did not have a net capital loss carryforwards as of October 31, 2020.
The Fund is permitted to carryforward capital losses for an unlimited period and they will retain their character as either short-term or long-term capital losses rather than being considered all short-term capital losses.
Total distributions paid may differ from amounts reported in the Statements of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid.
The differences between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales and paydowns on fixed income securities.
To the extent future capital gains are offset by capital loss carryforwards, if any, such gains will not be distributed.
I.Use of Estimates. The preparation of the financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increase and decrease in net assets from operations during the reporting period. Actual results could differ from these estimates.
3.Fees and Other Transactions with Affiliates.
A.Investment Advisory and Administrative Fees. Effective June 27, 2018 (commencement of operations), under a combined Investment Advisory and Administrative Services Agreement (“Agreement”) with the Trust, Brown Brothers Harriman & Co. (“BBH”) through a separately identifiable department (“SID” or “Investment Adviser”) provides investment advisory, portfolio management and administrative services to the Fund. The Fund pays a combined fee for investment advisory and administrative services calculated daily and paid monthly at an annual rate equivalent to 0.40% per annum. For the year ended October 31, 2020, the Fund incurred $1,766,988 for services under the Agreement.
B.Investment Advisory and Administrative Fee Waivers. Effective June 27, 2018 (commencement of operations), the Investment Adviser has contractually agreed to waive fees and/or reimburse expenses in order to limit the total annual fund operating expenses (excluding interests, taxes, brokerage commissions, other expenditures that are capitalized in accordance with generally accepted accounting principles, and other extraordinary expenses not incurred in the ordinary course of the
36
BBH INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
Fund’s business) for Class I shares to 0.50%. The agreement will terminate on March 1, 2021, unless it is renewed by all parties to the agreement. The agreement may only be terminated during its term with approval of the Fund’s Board of Trustees. For the year ended October 31, 2020, the Investment Adviser waived fees in the amount of $0 for Class I.
C.Custody and Fund Accounting Fees. BBH acts as a custodian and fund accountant and receives custody and fund accounting fees from the Fund calculated daily and incurred monthly. BBH holds all of the Fund’s cash and investments and calculates the Fund’s daily net asset value. The custody fee is an asset and transaction-based fee. The fund accounting fee is an asset-based fee calculated at 0.004% of the Fund’s net asset value. For the year ended October 31, 2020, the Fund incurred $109,910 in custody and fund accounting fees. The Fund receives interest income on cash balances held by the custodian at the BBH Base Rate. The BBH Base Rate is defined as BBH’s effective trading rate in local money markets on each day. The total interest earned by the Fund for the year ended October 31, 2020 was $ 2,048. This amount is included in “Interest income” in the Statement of Operations. In the event that the Fund is overdrawn, under the custody agreement with BBH, BBH will make overnight loans to the Fund to cover overdrafts. Pursuant to their agreement, the Fund will pay the Federal Funds overnight investment rate on the day of the overdraft. The total interest incurred by the Fund for the year ended October 31, 2020, was $396. This amount is included under line item “Custody and fund accounting fees” in the Statement of Operations.
D.Board of Trustees’ Fees. Each Trustee who is not an “interested person” as defined under the 1940 Act receives an annual fee as well as reimbursement for reasonable out-of-pocket expenses from the Fund. For the year ended October 31, 2020, the Fund incurred $58,488 in independent Trustee compensation and expense reimbursements.
E.Officers of the Trust. Officers of the Trust are also employees of BBH. Officers are paid no fees by the Trust for their services to the Trust.
4.Investment Transactions. For the year ended October 31, 2020, the cost of purchases and the proceeds of sales of investment securities, other than short-term investments, were $532,650,731 and $494,707,984, respectively.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 37 |
BBH INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
5. Shares of Beneficial Interest. The Trust is permitted to issue an unlimited number of Class I shares of beneficial interest, at no par value. Transactions in Class I shares were as follows:
For the year ended | For the year ended | |||||||||||||||
October 31, 2020 | October 31, 2019 | |||||||||||||||
Shares | Dollars | Shares | Dollars | |||||||||||||
Class I | ||||||||||||||||
Shares sold | 11,360,524 | $ | 119,485,340 | 24,062,581 | $ | 243,690,338 | ||||||||||
Shares issued in connection with reinvestments of dividends | 182,738 | 1,898,492 | 81,846 | 844,086 | ||||||||||||
Proceeds from short-term redemption fees | N/A | 4,617 | N/A | 60 | ||||||||||||
Shares redeemed | (6,380,176 | ) | (66,597,003 | ) | (794,212 | ) | (8,239,111 | ) | ||||||||
Net increase | 5,163,086 | $ | 54,791,446 | 23,350,215 | $ | 236,295,373 |
6. Principal Risk Factors and Indemnifications.
A.Principal Risk Factors. Investing in the Fund may involve certain risks, as discussed in the Fund’s prospectus, including but not limited to, those described below:
A shareholder may lose money by investing in the Fund (investment risk). The Fund is actively managed and the decisions by the Investment Adviser may cause the Fund to incur losses or miss profit opportunities (management risk). In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to failure of a counterparty to a transaction to perform (credit risk), changes in interest rates (interest rate risk), higher volatility for securities with longer maturities (maturity risk), financial performance or leverage of the issuer (issuer risk), difficulty in being able to purchase or sell a security (illiquid investment risk), or certain risks associated with investing in foreign securities not present in domestic investments, including, but not limited to, recovery of tax withheld by foreign jurisdictions (foreign investment risk). Investments in other investment companies are subject to market and selection risk, as well as the specific risks associated with the investment companies’ portfolio securities (investment in other investment companies risk), and risks from investing in securities of issuers based in developing countries (emerging markets risk). The Fund’s use of derivatives creates risks that are different from, or possibly greater than, the risks associated with investing directly in securities as the Fund could lose more than the principal amount invested (derivatives risk). Political, legislative and economic events may affect a municipal security’s value, interest payments, repayments of principal and the Fund’s ability to sell it (municipal issuer risk). Due to uncertainty regarding the ability of the issuer to pay principal and interest, securities that are rated below investment grade (i.e., Ba1/BB+ or lower) (junk bond risk), and their unrated equivalents, may be subject to greater risks than securities which have higher credit ratings, including a high risk of default. If the issuer of the securities in which the Fund invests redeems them before maturity the Fund may have to reinvest the proceeds in securities that pay a lower
38
BBH INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
interest rate (call risk). The Fund invests in asset-backed (asset-backed securities risk) and mortgage-backed securities (mortgage-backed securities risk) which are subject to the risk that borrowers may default on the obligations that underlie these securities. In addition, these securities may be paid off sooner (prepayment risk) or later than expected which may increase the volatility of securities during periods of fluctuating interest rates. The Fund may invest in bonds issued by foreign governments which may be unable or unwilling to make interest payments and/or repay the principal owed (sovereign debt risk). The Fund’s use of borrowing, in reverse repurchase agreements and investment in some derivatives, involves leverage. Leverage tends to exaggerate the effect of any increase or decrease in the value of the Fund’s securities and may cause the Fund to be more volatile (leverage risk). Loan participations, delayed funding loans and revolving credit facilities may have the effect of requiring the Fund to increase its investments in a company at a time when it might not otherwise decide to do so (loan risk). The value of securities held by the Fund may decline in response to certain events, including: those directly involving the companies or issuers whose securities are held by the Fund; conditions affecting the general economy; overall market changes; local, regional or political, social or economic instability; and currency and interest rate and price fluctuations. Natural disasters, the spread of infectious illness and other public health emergencies, recession, terrorism and other unforeseeable events may lead to increased market volatility and may have adverse effects on world economies and markets generally (market risk). A significant investment of Fund assets within one or more sectors, industries, securities and/or durations may increase the Fund’s sensitivity to adverse economic, business, political, or other, risks associated with such sector, industry, security or duration (sector risk). The Fund’s shareholders may be adversely impacted by asset allocation decisions made by an investment adviser whose discretionary clients make up a large percentage of the Fund’s shareholders (shareholder concentration risk). Even though the Fund’s investments in repurchase agreements are collateralized at all times, there is some risk to the Fund if the other party to the agreement should default on its obligations (repurchase agreement risk). While the U.S. Government has historically provided financial support to U.S. government-sponsored agencies or instrumentalities during times of financial stress, such as the various actions taken to stabilize the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation during the credit crisis of 2008, no assurance can be given that it will do so in the future. Such securities are neither issued nor guaranteed by the U.S. Treasury (U.S. Government Agency Securities Risk). The Fund may invest in private placement securities that are issued pursuant to Regulation S which have not been registered with the U.S. Securities and Exchange Commission ("SEC"). These securities may be subject to contractual restrictions which prohibit or limit their resale (Regulation S risk). LIBOR is scheduled to be phased out by the end of 2021. The unavailability and/or discontinuation of LIBOR may affect the value, liquidity or return on certain fund investments that mature later than 2021 and may result in costs incurred in connection with closing out positions and entering into new positions. Any pricing adjustments to the fund’s investments resulting from a substitute reference rate may also adversely affect the fund’s performance and/or net asset value (LIBOR Transition risk). The extent of the Fund’s
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 39 |
BBH INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
exposure to these risks in respect to these financial assets is included in their value as recorded in the Fund’s Statement of Assets and Liabilities.
Please refer to the Fund’s prospectus for a complete description of the principal risks of investing in the Fund.
B.Indemnifications. Under the Trust’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Fund, and shareholders are indemnified against personal liability for the obligations of the Trust. Additionally, in the normal course of business, the Fund enters into agreements with service providers that may contain indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
7. Recent Pronouncements.
A.ASU 2017-08. In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU 2017-08”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU 2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU 2017-08 is effective for years, and interim periods within those years, beginning after December 15, 2018. The application of ASU 2017-08 did not have a significant impact on the Fund’s financial statements.
8.Significant Events. In the beginning of 2020, there was an outbreak of the novel corona virus (COVID 19) which has impacted the financial markets and the global economy as a whole. The outbreak of COVID 19 is still ongoing and the magnitude and impact on the financial markets is highly uncertain and cannot be predicted. The effect of this impact may adversely impact the future carrying value of investments and results of operations of the Fund.
There are no other significant events to report as they relate to the Fund.
9.Subsequent Events. Management has evaluated events and transactions that have occurred since October 31, 2020 through the date the financial statements were issued and determined that there were none that would require recognition or additional disclosure in the financial statements.
40
BBH INCOME FUND
DISCLOSURE OF FUND EXPENSES
October 31, 2020 (unaudited)
EXAMPLE
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested distributions, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management 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 an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (May 1, 2020, to October 31, 2020).
ACTUAL EXPENSES
The first line of the table provides information about actual account values and actual expenses. You may use 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 the Period” to estimate the expenses you paid on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year 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 during the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% Hypothetical Example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 41 |
BBH INCOME FUND
DISCLOSURE OF FUND EXPENSES (continued)
October 31, 2020 (unaudited)
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 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. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period May 1, 2020 to October 31, 20201 | |||||||||||||
Class I | |||||||||||||||
Actual | $ | 1,000 | $ | 1,061 | $ | 2.44 | |||||||||
Hypothetical2 | $ | 1,000 | $ | 1,023 | $ | 2.39 |
________________
1 | Expenses are equal to the Fund’s annualized expense ratio of 0.47% for Class I shares, multiplied by the average account value over the period and multiplied by 184/366 (to reflect the one-half year period). |
2 | Assumes a return of 5% before expenses. For the purposes of the calculation, the applicable annualized expenses ratio for each class of shares is subtracted from the assumed return before expenses. |
42
BBH INCOME FUND
CONFLICTS OF INTEREST
October 31, 2020 (unaudited)
Conflicts of Interest
BBH, including the Investment Adviser, provides discretionary and non-discretionary investment management services and products to corporations, institutions and individual investors throughout the world. As a result, in the ordinary course of its businesses, BBH, including the Investment Adviser, may engage in activities in which its interests or the interests of its clients may conflict with or be adverse to the interests of the Funds. In addition, certain of such clients (including the Funds) utilize the services of BBH for which they will pay to BBH customary fees and expenses that will not be shared with the Funds.
The Investment Adviser and the Sub-Adviser have adopted and implemented policies and procedures that seek to manage conflicts of interest. Pursuant to such policies and procedures, the Investment Adviser and the Sub-Adviser monitor a variety of areas, including compliance with fund investment guidelines, the investment in only those securities that have been approved for purchase, and compliance with their respective Code of Ethics.
The Trust also manages these conflicts of interest. For example, the Trust has designated a chief compliance officer (“CCO”) and has adopted and implemented policies and procedures designed to manage the conflicts identified below and other conflicts that may arise in the course of the Funds’ operations in such a way as to safeguard the Funds from being negatively affected as a result of any such potential conflicts. From time to time, the Trustees receive reports from the Investment Adviser, the Sub-Adviser and the Trust’s CCO on areas of potential conflict.
Investors should carefully review the following, which describes potential and actual conflicts of interest that BBH, the Investment Adviser and Sub-Adviser can face in the operation of their respective investment management services. This section is not, and is not intended to be, a complete enumeration or explanation of all of the potential conflicts of interest that may arise. The Investment Adviser, the Sub-Adviser and the Funds have adopted policies and procedures reasonably designed to appropriately prevent, limit or mitigate the conflicts of interest described below. Additional information about potential conflicts of interest regarding the Investment Adviser is set forth in the Investment Adviser’s Form ADV. A copy of Part 1 and Part 2A of the Investment Adviser’s Form ADV is available on the SEC’s website (www.adviserinfo.sec.gov). In addition, many of the activities that create these conflicts of interest are limited and/or prohibited by law, unless an exception is available.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 43 |
BBH INCOME FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
Other Clients and Allocation of Investment Opportunities. BBH, the Investment Adviser, and the Sub-Adviser manage funds and accounts of clients other than the Funds (“Other Clients”). In general, BBH, the Investment Adviser, and the Sub-Adviser face conflicts of interest when they render investment advisory services to different clients and, from time to time, provide dissimilar investment advice to different clients. Investment decisions will not necessarily be made in parallel among the Funds and Other Clients. Investments made by the Funds do not, and are not intended to, replicate the investments, or the investment methods and strategies, of Other Clients. Accordingly, such Other Clients’ accounts may produce results that are materially different from those experienced by the Funds. Certain other conflicts of interest may arise in connection with a portfolio manager’s management of the Funds’ investments, on the one hand, and the investments of other funds or accounts for which the portfolio manager is responsible, on the other. For example, it is possible that the various funds or accounts managed by the Investment Adviser or Sub-Adviser could have different investment strategies that, at times, might conflict with one another to the possible detriment of the Funds. From time to time, the Investment Adviser and Sub-Adviser, sponsor and with other investment pools and accounts which engage in the same or similar businesses as the Funds using the same or similar investment strategies. To the extent that the same investment opportunities might be desirable for more than one account or fund, possible conflicts could arise in determining how to allocate them because the Investment Adviser or Sub-Adviser may have an incentive to allocate investment opportunities to certain accounts or funds. However, BBH and the Sub-adviser have implemented policies and procedures designed to ensure that information relevant to investment decisions is disseminated promptly within its portfolio management teams and investment opportunities are allocated equitably among different clients. The policies and procedures require, among other things, objective allocation for limited investment opportunities, and documentation and review of justifications for any decisions to make investments only for select accounts or in a manner disproportionate to the size of the account. Nevertheless, access to investment opportunities may be allocated differently among accounts due to the particular characteristics of an account, such as size of the account, cash position, tax status, risk tolerance and investment restrictions or for other reasons.
Actual or potential conflicts of interest may also arise when a portfolio manager has management responsibilities to multiple accounts or funds, resulting in unequal commitment of time and attention to the portfolio management of the funds or accounts.
44
BBH INCOME FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
Affiliated Service Providers. Other potential conflicts might include conflicts between the Funds and its affiliated and unaffiliated service providers (e.g. conflicting duties of loyalty). In addition to providing investment management services through the SID, BBH provides administrative, custody, shareholder servicing and fund accounting services to the Funds. BBH may have conflicting duties of loyalty while servicing the Funds and/or opportunities to further its own interest to the detriment of the Funds. For example, in negotiating fee arrangements with affiliated service providers, BBH may have an incentive to agree to higher fees than it would in the case of unaffiliated providers. BBH acting in its capacity as the Funds’ administrator is the primary valuation agent of the Funds. BBH values securities and assets in the Funds according to the Funds’ valuation policies. Because the Investment Adviser’s advisory and administrative fees are calculated by reference to the Funds’ net assets, BBH and its affiliates may have an incentive to seek to overvalue certain assets.
Aggregation. Potential conflicts of interest also arise with the aggregation of trade orders. Purchases and sales of securities for the Funds may be aggregated with orders for other client accounts managed by the Sub-Adviser. The Sub-Adviser, however, is not required to aggregate orders if portfolio management decisions for different accounts are made separately, or if it is determined that aggregating is not practicable, or in cases involving client direction. Prevailing trading activity frequently may make impossible the receipt of the same price or execution on the entire volume of securities purchased or sold. When this occurs, the various prices may be averaged, and the Funds will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to the disadvantage of the Funds. In addition, under certain circumstances, the Funds will not be charged the same commission or commission equivalent rates in connection with an aggregated order.
Cross Trades. Under certain circumstances, the Investment Adviser and/or the Sub-adviser, on behalf of the Funds, may seek to buy from or sell securities to another fund or account advised by BBH, the Investment Adviser or the Sub-adviser. Subject to applicable law and regulation, BBH, the Investment Adviser or the Sub-adviser may (but is not required to) effect purchases and sales between BBH, the Investment Adviser or the Sub-adviser’s clients (“cross trades”), including the Funds, if BBH, the Investment Adviser or the Sub-adviser believe such transactions are appropriate based on each party’s investment objectives and guidelines. There may be potential conflicts of interest or regulatory issues relating to these transactions which could limit the Investment Adviser or the Sub-adviser’s decision to engage in these transactions for the Funds. BBH, the Investment Adviser and/or the Sub-adviser may have a potentially conflicting division of loyalties and responsibilities to the parties in such transactions.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 45 |
BBH INCOME FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
Soft Dollars. The Investment Adviser may direct brokerage transactions and/or payment of a portion of client commissions (“soft dollars”) to specific brokers or dealers or other providers to pay for research or other appropriate services which provide, in the Investment Adviser’s view, appropriate assistance in the investment decision-making process (including with respect to futures, fixed price offerings and over-the-counter transactions). The use of a broker that provides research and securities transaction services may result in a higher commission than that offered by a broker who does not provide such services. The Investment Adviser will determine in good faith whether the amount of commission is reasonable in relation to the value of research and services provided and whether the services provide lawful and appropriate assistance in its investment decision-making responsibilities.
Research or other services obtained in this manner may be used in servicing any or all of the Funds and other accounts managed by the Investment Adviser, including in connection with accounts that do not pay commissions to the broker related to the research or other service arrangements. Such products and services may disproportionately benefit other client accounts relative to the Funds based on the amount of brokerage commissions paid by the Funds and such other accounts. To the extent that the Sub-Adviser uses soft dollars, it will not have to pay for those products and services itself.
BBH may receive research that is bundled with the trade execution, clearing, and/or settlement services provided by a particular broker-dealer. To the extent that the Sub-Adviser receives research on this basis, many of the same conflicts related to traditional soft dollars may exist. For example, the research effectively will be paid by client commissions that also will be used to pay for the execution, clearing, and settlement services provided by the broker-dealer and will not be paid by the Sub-Adviser.
Arrangements regarding compensation and delegation of responsibility may create conflicts relating to selection of brokers or dealers to execute Fund portfolio trades and/or specific uses of commissions from Fund portfolio trades, administration of investment advice and valuation of securities.
Investments in BBH Funds. From time to time BBH may invest a portion of the assets of its discretionary investment advisory clients in the Funds. That investment by BBH on behalf of its discretionary investment advisory clients in the Funds may be significant at times.
Increasing a Fund’s assets may enhance investment flexibility and diversification and may contribute to economies of scale that tend to reduce the Funds’ expense ratio. In selecting the Funds for its discretionary investment advisory clients, BBH may limit its selection to funds managed by BBH or the Investment Adviser. BBH may not consider or canvass the universe of unaffiliated investment companies available, even though there may be unaffiliated investment companies that may be more appropriate or that have superior performance. BBH, the Investment Adviser and their affiliates providing services to the Funds benefit from additional fees when the Funds is included as an investment by a discretionary investment advisory client.
BBH reserves the right to redeem at any time some or all of the shares of the Funds acquired for its discretionary investment advisory clients’ accounts. A large redemption of shares of the Funds by BBH on behalf of its discretionary investment advisory clients could significantly reduce the asset size of the Funds, which might have an adverse effect on the Funds’ investment flexibility, portfolio diversification and expense ratio.
46
BBH INCOME FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
Valuation. When market quotations are not readily available, or are believed by BBH to be unreliable, the Funds’ investments will be valued at fair value by BBH pursuant to procedures adopted by the Funds’ Board of Trustees. When determining an asset’s “fair value”, BBH seeks to determine the price that a Fund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. The price generally may not be determined based on what the Funds might reasonably expect to receive for selling an asset at a later time or if it holds the asset to maturity. While fair value determinations will be based upon all available factors that BBH deems relevant at the time of the determination and may be based on analytical values determined by BBH using proprietary or third-party valuation models, fair value represents only a good faith approximation of the value of a security. The fair value of one or more securities may not, in retrospect, be the price at which those assets could have been sold during the period in which the particular fair values were used in determining the Funds’ net asset value. As a result, the Funds’ sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued by BBH (pursuant to Board-adopted procedures) at fair value, may have the effect of diluting or increasing the economic interest of existing shareholders.
Referral Arrangements. BBH may enter into advisory and/or referral arrangements with third parties. Such arrangements may include compensation paid by BBH to the third party. BBH may pay a solicitation fee for referrals and/or advisory or incentive fees. BBH may benefit from increased amounts of assets under management.
Personal Trading. BBH, including the Investment Adviser, and any of their respective partners, principals, directors, officers, employees, affiliates or agents, face conflicts of interest when transacting in securities for their own accounts because they could benefit by trading in the same securities as the Funds, which could have an adverse effect on the Funds. However, the Investment Adviser has implemented policies and procedures concerning personal trading by BBH Partners and employees. The policy and procedures are intended to prevent BBH Partners and employees from trading in the same securities as the Funds. However, BBH, including the Investment Adviser, has implemented policies and procedures concerning personal trading by BBH Partners and employees. The policies and procedures are intended to prevent BBH Partners and employees with access to Fund material non-public information from trading in the same securities as the Funds.
Gifts and Entertainment. From time to time, employees of BBH, including the Investment Adviser, and any of their respective partners, principals, directors, officers, employees, affiliates or agents, may receive gifts and/or entertainment from clients, intermediaries, or service providers to the Funds or BBH, including the Investment Adviser, which could have the appearance of affecting or may potentially affect the judgment of the employees, or the manner in which they conduct business. The Investment Adviser has implemented policies and procedures concerning gifts and entertainment to mitigate any impact on the judgment of BBH Partners and employees. BBH, including the Investment Adviser, has implemented policies and procedures concerning gifts and entertainment to mitigate any impact on the judgment of BBH Partners and employees.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 47 |
BBH INCOME FUND
ADDITIONAL FEDERAL TAX INFORMATION
October 31, 2020 (unaudited)
The Fund hereby designates $4,792,773 as an approximate amount of capital gain dividend for the purpose of dividends paid deduction.
The qualified investment income (“QII”) percentage for the period ended October 31, 2020 was 83.13%. In January 2021, shareholders will receive Form 1099-DIV, which will include their share of qualified dividends distributed during the calendar year 2020. Shareholders are advised to check with their tax advisers for information on the treatment of these amounts on their individual income tax returns.
48
TRUSTEES AND OFFICERS OF BBH INCOME FUND
(unaudited)
Information pertaining to the Trustees and executive officers of the Trust is set forth below. The mailing address for each Trustee is c/o BBH Trust, 140 Broadway, New York, NY 10005.
Name and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee^ | Other Public Company or Investment Company Directorships held by Trustee During Past 5 Years | |||||
Independent Trustees | ||||||||||
H. Whitney Wagner Birth Year: 1956 | Chairman of the Board and Trustee | Chairman Since 2014; Trustee Since 2007 and 2006-2007 with the Predecessor Trust | President, Clear Brook Advisors, a registered investment adviser. | 7 | None. | |||||
Andrew S. Frazier Birth Year: 1948 | Trustee | Since 2010 | Retired. | 7 | Director of Western World Insurance Group, Inc. | |||||
Mark M. Collins Birth Year: 1956 | Trustee | Since 2011 | Partner of Brown Investment Advisory Incorporated, a registered investment adviser. | 7 | Chairman of Dillon Trust Company. | |||||
John M. Tesoro Birth Year: 1952 | Trustee | Since 2014 | Retired. | 7 | Trustee, Bridge Builder Trust (8 Funds); Director of Teton Advisors, Inc. (a registered investment adviser). | |||||
Joan A. Binstock Birth Year: 1954 | Trustee | Since 2019 | Partner, Chief Financial and Operations Officer, Lord Abbett & Co. LLC (1999-2018); Lovell Minnick Partners, Senior Adviser (2018-present). | 7 | None. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 49 |
TRUSTEES AND OFFICERS OF BBH INCOME FUND
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee^ | Other Public Company or Investment Company Directorships held by Trustee During Past 5 Years | |||||
Interested Trustees | ||||||||||
Susan C. Livingston+ 50 Post Office Square Boston, MA 02110 Birth Year: 1957 | Trustee | Since 2011 | Partner (since 1998) and Senior Client Advocate (since 2010) for BBH&Co. | 7 | None. | |||||
John A. Gehret+ 140 Broadway New York, NY 10005 Birth Year: 1959 | Trustee | Since 2011 | Limited Partner of BBH&Co. (2012-present). | 7 | None. |
50
TRUSTEES AND OFFICERS OF BBH INCOME FUND
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | |||
Officers | ||||||
Jean-Pierre Paquin 140 Broadway New York, NY 10005 Birth Year: 1973 | President and Principal Executive Officer | Since 2016 | Partner of BBH&Co. since 2015; joined BBH&Co. in 1996. | |||
Daniel Greifenkamp 140 Broadway New York, NY 10005 Birth Year: 1969 | Vice President | Since 2016 | Managing Director of BBH&Co. since 2014; joined BBH&Co. in 2011. | |||
Charles H. Schreiber 140 Broadway New York, NY 10005 Birth Year: 1957 | Treasurer and Principal Financial Officer | Since 2007 2006-2007 with the Predecessor Trust | Senior Vice President of BBH&Co. since 2001; joined BBH&Co. in 1999. | |||
Paul F. Gallagher 140 Broadway New York, NY 10005 Birth Year: 1959 | Chief Compliance Officer (“CCO”) | Since 2015 | Senior Vice President of BBH&Co. since 2015. | |||
Keith M. Kelley 140 Broadway New York, NY 10005 Birth Year: 1983 | Anti-Money Laundering Officer (“AMLO”) | Since 2016 | Vice President of BBH&Co. since February 2016; joined BBH&Co. in 2016; Director, Legal and Compliance, Morgan Stanley Smith Barney LLC (2014 – February 2016). | |||
Suzan M. Barron 50 Post Office Square Boston, MA 02110 Birth Year: 1964 | Secretary | Since 2009 | Senior Vice President and Senior Investor Services Counsel, BBH&Co. since 2005. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 51 |
TRUSTEES AND OFFICERS OF BBH INCOME FUND
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | |||
Crystal Cheung 140 Broadway New York, NY 10005 Birth Year: 1974 | Assistant Treasurer | Since 2018 | Assistant Vice President of BBH&Co. since 2016; joined BBH&Co. 2014. | |||
Brian J. Carroll 50 Post Office Square Boston, MA 02110 Birth Year: 1985 | Assistant Secretary | Since 2018 | Associate and Investor Services Assistant Counsel of BBH&Co. since 2017; joined BBH&Co. 2014. |
________________
# | All officers of the Trust hold office for one year and until their respective successors are chosen and qualified (subject to the ability of the Trustees to remove any officer in accordance with the Trust’s By-laws). Mr. Wagner previously served on the Board of Trustees of the Predecessor Trust. |
+ | Ms. Livingston and Mr. Gehret are “interested persons” of the Trust as defined in the 1940 Act because of their positions as Partner and Limited Partner of BBH&Co., respectively. |
^ | The Fund Complex consists of the Trust, which has seven series, and each is counted as one “Portfolio” for purposes of this table. |
52
BBH INCOME FUND
OPERATION AND EFFECTIVENESS OF THE FUND’S LIQUIDITY RISK MANAGEMENT PROGRAM
October 31, 2020 (unaudited)
The Securities and Exchange Commission adopted Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”) to promote effective liquidity risk management throughout the open-end investment company industry in order to reduce the risk that funds will be unable to meet their redemption obligations and mitigate dilution of the interests of fund shareholders.
The Board of Trustees (the “Board”) of BBH Trust met on March 11, 2020 to review the liquidity risk management program (the “Program”) applicable to the funds of BBH Trust (the “Funds”) pursuant to the Liquidity Rule. The Board has appointed three members of the Brown Brothers Harriman & Co. Mutual Fund Advisory Department, the Investment Adviser to the Funds, as the Program Administrator for each Fund’s Program. The Program Administrator provided the Board with an annual report (the “Report”) that addressed the operations of the Program and assessed its adequacy and effectiveness of the Program. The Report covered the period from June 1, 2019 through January 31, 2020.
The Report noted that the Program complied with the key factors for consideration under the Liquidity Rule for assessing, managing and periodically reviewing a Fund’s liquidity risk, including the following points.
Liquidity classification. The Report described the Program’s liquidity classification methodology for categorizing the Funds’ investments into one of four liquidity buckets.
Highly Liquid Investment Minimum. The Report noted that one aspect of the Liquidity Rule is a requirement that funds that are expected to have less than 50% of assets classified as other than “highly liquid” should establish a minimum percentage of highly liquid assets that the fund is expected to hold on an on-going basis. The Program Administrator monitors the percentages of assets in each category on an ongoing basis and, given that no Fund has approached the 50% threshold, has made the determination that it is not necessary to assign a Highly Liquid Investment Minimum as provided for in the Liquidity Rule to any of the Funds.
The Fund’s investment strategy and liquidity of portfolio investments during normal and reasonably foreseeable stressed market conditions. During the Program reporting period, the Program Administrator reviewed whether each Fund’s investment strategy is appropriate for an open-end fund structure with a focus on Funds with more significant and consistent holdings of less liquid and illiquid assets and factored a Fund’s concentration in an issuer into the liquidity classification methodology by taking issuer position sizes into account.
Short-term and long-term cash flow projections during normal and reasonably foreseeable stressed market conditions. During the Program reporting period, the Program Administrator reviewed historical redemption activity and used this information as a component to establish each Fund’s reasonably anticipated trading size. The Program Administrator also took into consideration other factors such as shareholder ownership concentration, applicable distribution channels and the degree of certainty associated with a Fund’s short-term and long-term cash flow projections.
Holdings of cash and cash equivalents. The Program Administrator considered the degree to which each Fund held cash and cash equivalents as a component of each Fund’s ability to meet redemption requests.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 53 |
BBH INCOME FUND
OPERATION AND EFFECTIVENESS OF THE FUND’S LIQUIDITY RISK MANAGEMENT PROGRAM (continued)
October 31, 2020 (unaudited)
There were no material changes to the Program during the reporting period. The Program Administrator has informed the Board that it believes that the Fund’s Program is adequately designed, has been implemented as intended, and has operated effectively since its implementation. No material exceptions have been noted since the implementation of the Program, and there were no liquidity events that impacted the Fund or its ability to meet redemption requests on a timely basis during the reporting period.
54
Administrator Brown Brothers Harriman & Co. 140 Broadway New York, NY 10005
Distributor ALPS Distributors, Inc. 1290 Broadway, Suite 1100 Denver, CO 80203
Shareholder Servicing Agent Brown Brothers Harriman & Co. 140 Broadway New York, NY 10005 1-800-575-1265 | Investment Adviser Brown Brothers Harriman Mutual Fund Advisory Department 140 Broadway New York, NY 10005 |
To obtain information or make shareholder inquiries:
By telephone: | Call 1-800-575-1265 bbhfunds@bbh.com www.bbhfunds.com |
By E-mail send your request to: | |
On the internet: |
This report is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of the Fund.
For more complete information, visit www.bbhfunds.com for a prospectus. You should consider the Fund’s investment objectives, risks, charges and expenses carefully before you invest. Information about these and other important subjects is in the Fund’s prospectus, which you should read carefully before investing.
Holdings and allocations are subject to change. Fund holdings should not be relied on in making investment decisions and should not be construed as research or investment advice regarding particular securities. Current and future holdings are subject to risk.
The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available electronically on the SEC’s website (sec.gov). For a complete list of a fund’s portfolio holdings, view the most recent holdings listing, semi-annual report, or annual report on the Fund’s web site at http://www.bbhfunds.com.
A summary of the Fund’s Proxy Voting Policy that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund’s portfolio, as well as a record of how the Fund voted any such proxies during the most recent 12-month period ended June 30, is available, without charge, upon request by calling the toll-free number listed above. This information is also available on the SEC’s website at www.sec.gov.
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
Annual Report
OCTOBER 31, 2020
BBH U.S. Government Money Market Fund
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Funds’ shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other Fund communications electronically from the Fund by calling 1-800-575-1265 or from your financial intermediary.
You may elect to receive all future reports in paper free of charge. You can inform the Fund by calling 1-800-575-1265 or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper may apply to all funds in the fund complex or held with your financial intermediary.
BBH U.S. GOVERNMENT MONEY MARKET FUND
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE
October 31, 2020
For the 12-month period ended October 31, 2020, the BBH U.S. Government Money Market Fund (the “Fund”) returned 0.47% and 0.59% for its regular and institutional shares, respectively. We believe the performance of the Fund remains competitive with industry peers, while maintaining a high degree of quality and liquidity throughout the period.
The Fund seeks to maximize income while attempting to preserve capital and maintain liquidity by investing in securities issued or guaranteed as to principal and interest by the U.S. Government or its Agencies and repurchase agreements fully backed by such instruments.
The reporting period began on the heels of the Federal Reserve’s (“Fed”) decision to reduce the Federal Funds Rate target by 25 basis points* to a range of 1.5% to 1.75%. In all, the Fed lowered its target for short-term interest rates three times between August 2019 and October 2019. The more accommodative stance taken by the Fed was in part based on the potential economic fallout from broadening trade disputes as well as inflation measures undershooting the Fed’s targets. In December markets welcomed a truce in the U.S.-China trade conflict. This coupled with modest economic growth and low unemployment reduced market expectations of additional short-term interest rate cuts in 2020.
In early 2020, the spread of COVID-19 caused a sharp decline in U.S. economic activity. The Fed acted with force, lowering the Federal Funds Rate target by 50 basis points to a range of 1% to 1.25% on March 3rd and then all the way down to the 0%-0.25% range on March 15th. The Fed made available a broad menu of facilities to restore liquidity and functionality in financial markets. It conducted large-scale asset purchases and introduced various lending facilities. Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act designed to mitigate the impact of the lockdowns on American households and businesses. During the middle of 2020 as lockdowns were eased and businesses reopened, the economy began its rebound. Despite an improving economy and positive vaccine developments, we anticipate near zero short-term interest rates to persist given the acceleration in new COVID-19 cases and its potential global economic impact.
The investment team for the BBH U.S. Government Money Market Fund maintained what it believed to be a prudent investment strategy throughout the period, with a weighted average maturity typically between 40 and 50 days.
Past performance does not guarantee future results and current performance may be lower or higher than the past performance quoted. For performance current to the most recent month-end please call 1-800-625-5759.
You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
_______________________
Portfolio holdings and characteristics are subject to change. |
*One "basis point" or "bp" is 1/100th of a percent (0.01% or 0.0001) |
2
BBH U.S. GOVERNMENT MONEY MARKET FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of the BBH Trust and Shareholders of BBH U.S. Government Money Market Fund:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of BBH U.S. Government Money Market Fund (the “Fund”), one of the funds within the BBH Trust, as of October 31, 2020, the related statements of operations for the year then ended, the statements of changes in net assets for the year then ended, for the period from July 1, 2019 to October 31, 2019 and for the year in the period ended June 30, 2019, the financial highlights for the year then ended, the period from July 1, 2019 to October 31, 2019 and for each of the four years in the period ended June 30, 2019, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2020, and the results of its operations for the year then ended, the changes in its net assets for the year then ended, the period from July 1, 2019 to October 31, 2019 and for each of the year in the period ended June 30, 2019, and the financial highlights for the year then ended, the period from July 1, 2019 to October 31, 2019 and for each of the four years in the period ended June 30, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the BBH Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the BBH Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The BBH Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the BBH Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 3 |
BBH U.S. GOVERNMENT MONEY MARKET FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued)
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 21, 2020
We have served as the auditor of one or more Brown Brothers Harriman investment companies since 1991.
4
BBH U.S. GOVERNMENT MONEY MARKET FUND
PORTFOLIO ALLOCATION
October 31, 2020
BREAKDOWN BY SECURITY TYPE
U.S. $ Value | Percent of Net Assets | |||||||
U.S. Treasury Bills | $ | 3,329,592,460 | 94.2 | % | ||||
Repurchase Agreements | 175,000,000 | 4.9 | ||||||
Cash and Other Assets in Excess of Liabilities | 30,954,345 | 0.9 | ||||||
NET ASSETS | $ | 3,535,546,805 | 100.0 | % |
All data as of October 31, 2020. The Fund's breakdown by security type is expressed as a percentage of net assets and may vary over time.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 5 |
BBH U.S. GOVERNMENT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
U.S. TREASURY BILLS (94.2%) | |||||||||||||||
$ | 180,000,000 | U.S. Treasury Bill1,2 | 11/12/20 | 0.093 | % | $ | 179,994,870 | ||||||||
180,000,000 | U.S. Treasury Bill1,2 | 11/17/20 | 0.098 | 179,992,187 | |||||||||||
170,000,000 | U.S. Treasury Bill1,2 | 11/19/20 | 0.093 | 169,992,123 | |||||||||||
200,000,000 | U.S. Treasury Bill1 | 11/24/20 | 0.071 | 199,990,928 | |||||||||||
225,000,000 | U.S. Treasury Bill1,2 | 11/27/20 | 0.094 | 224,984,714 | |||||||||||
225,000,000 | U.S. Treasury Bill1 | 12/01/20 | 0.077 | 224,985,656 | |||||||||||
220,000,000 | U.S. Treasury Bill1,2 | 12/03/20 | 0.103 | 219,979,920 | |||||||||||
200,000,000 | U.S. Treasury Bill1 | 12/08/20 | 0.092 | 199,981,192 | |||||||||||
245,000,000 | U.S. Treasury Bill1,2 | 12/10/20 | 0.089 | 244,976,340 | |||||||||||
225,000,000 | U.S. Treasury Bill1,2 | 12/17/20 | 0.083 | 224,976,137 | |||||||||||
180,000,000 | U.S. Treasury Bill1,2 | 01/05/21 | 0.089 | 179,971,012 | |||||||||||
200,000,000 | U.S. Treasury Bill1,2 | 01/07/21 | 0.093 | 199,965,476 | |||||||||||
135,000,000 | U.S. Treasury Bill1,2 | 01/12/21 | 0.110 | 134,970,420 | |||||||||||
160,000,000 | U.S. Treasury Bill1,2 | 01/14/21 | 0.094 | 159,968,961 | |||||||||||
170,000,000 | U.S. Treasury Bill1,2 | 01/21/21 | 0.097 | 169,962,931 | |||||||||||
235,000,000 | U.S. Treasury Bill1,2 | 01/28/21 | 0.095 | 234,945,721 | |||||||||||
180,000,000 | U.S. Treasury Bill1,2 | 02/04/21 | 0.097 | 179,953,872 | |||||||||||
Total U.S. Treasury Bills (Cost $3,329,592,460) | 3,329,592,460 |
The accompanying notes are an integral part of these financial statements.
6
BBH U.S. GOVERNMENT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
REPURCHASE AGREEMENTS (4.9%) | |||||||||||||||
$ | 55,000,000 | BNP Paribas (Agreement dated 10/30/20 collateralized by FHLB 3.900%-3.930%, due 07/11/33-02/25/36, original par $20,000, value $21,135, FHLMC 2.124%-7.500%, due 11/01/22-10/ 01/50, original par $11,424,680, value $1,523,571, FNMA 2.500%-5.500%, due 04/01/27-08/01/50, original par $33,131,605, value $27,734,662, GNMA 1.875%-4.500%, due 02/15/41-04/20/50, original par $21,752,748, value $12,005,906, U.S. Treasury Securities 0.000%-2.875%, due 03/25/21-05/31/25, original par $13,968,400, value $14,814,726) | 11/02/20 | 0.080 | % | $ | 55,000,000 | ||||||||
65,000,000 | National Australia Bank Ltd. (Agreement dated 10/30/20 collateralized by U.S. Treasury Bonds 7.250%, due 08/15/22, original par $58,100,000, value $66,300,000) | 11/02/20 | 0.040 | 65,000,000 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 7 |
BBH U.S. GOVERNMENT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Principal Amount | Maturity Date | Interest Rate | Value | ||||||||||||
REPURCHASE AGREEMENTS (continued) | |||||||||||||||
$ | 55,000,000 | Societe Generale (Agreement dated 10/30/20 collateralized by FHLMC 3.298%-5.331%, due 11/01/30-09/01/48, original par $29,143,496, value $18,904,093, FNMA 2.500%-4.500%, due 11/01/47-02/01/57, original par $16,156,792, value $14,218,020, GNMA 2.000%-4.000%, due 12/20/26-09/20/50, original par $39,005,136, value $10,735,089, U.S. Treasury Securities 0.000%-6.875%, due 11/15/20-08/15/25, original par $11,467,797, value $12,242,798) | 11/02/20 | 0.090 | % | $ | 55,000,000 | ||||||||
Total Repurchase Agreements (Cost $175,000,000) | 175,000,000 | ||||||||||||||
TOTAL INVESTMENTS (Cost $3,504,592,460)3 | 99.1 | % |
| $ | 3,504,592,460 | ||||||||||
ASSETS IN EXCESS OF OTHER LIABILITIES | 0.9 | % | 30,954,345 | ||||||||||||
NET ASSETS | 100.0 | % | $ | 3,535,546,805 |
_______________________
1 | Coupon represents a yield to maturity. |
2 | Coupon represents a weighted average yield. |
3 | The aggregate cost for federal income tax purposes is $3,504,592,460, the aggregate gross unrealized appreciation is $0 and the aggregate gross unrealized depreciation is $0 resulting in net unrealized depreciation of $0. |
Abbreviations:
FHLB – Federal Home Loan Bank.
FHLMC – Federal Home Loan Mortgage Corporation.
FNMA – Federal National Mortgage Association.
GNMA – Government National Mortgage Association.
The accompanying notes are an integral part of these financial statements.
8
BBH U.S. GOVERNMENT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
FAIR VALUE MEASUREMENTS
The Fund is required to disclose information regarding the fair value measurements of the Fund’s assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The disclosure requirement established a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including, for example, the risk inherent in a particular valuation technique used to measure fair value, including the model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the Fund’s own considerations about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
Authoritative guidance establishes three levels of the fair value hierarchy as follows:
— | Level 1 – unadjusted quoted prices in active markets for identical assets and liabilities. |
— | Level 2 – significant other observable inputs (including quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk, etc.). |
— | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of assets and liabilities). |
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires judgment by the investment adviser. The investment adviser considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the investment adviser’s perceived risk of that instrument.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 9 |
BBH U.S. GOVERNMENT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2020
Financial assets within Level 1 are based on quoted market prices in active markets. The Fund does not adjust the quoted price for these instruments.
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include investment-grade corporate bonds, U.S. Treasury notes and bonds, and certain non-U.S. sovereign obligations and over-the-counter derivatives. As Level 2 financial assets include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Financial assets classified within Level 3 have significant unobservable inputs, as they trade infrequently. Level 3 financial assets include private equity and certain corporate debt securities. As observable prices are not available for these securities, valuation techniques are used to derive fair value.
At October 31, 2020, 100%of the Fund’s investments were valued using amortized cost, in accordance with rules under the Investment Company Act of 1940, as amended (the “1940 Act”). Amortized cost approximates the fair value of a security, but since the value is not obtained from a quoted price in an active market, securities valued at amortized cost are considered to be valued using Level 2 inputs.
Because of the inherent uncertainties of valuation, the values reflected in the financial statements may materially differ from the value received upon the actual sale of those investments.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2020.
Investments, at value | Unadjusted Quoted Prices in Active Markets for Identical Investments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of October 31, 2020 | ||||||||||||||||
U.S. Treasury Bills | $ | — | $3,329,592,460 | $ | — | $3,329,592,460 | ||||||||||||||
Repurchase Agreements | — | 175,000,000 | — | 175,000,000 | ||||||||||||||||
Total Investment, at value | $ | — | $3,504,592,460 | $ | — | $3,504,592,460 |
The accompanying notes are an integral part of these financial statements.
10
BBH U.S. GOVERNMENT MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2020
ASSETS: | ||||
Investments, at cost which approximates fair value | $3,329,592,460 | |||
Repurchase agreements (Cost $175,000,000) | 175,000,000 | |||
Cash | 31,306,201 | |||
Receivables for: | ||||
Investment advisory and administrative fees waiver reimbursement | 451,610 | |||
Interest | 1,490 | |||
Prepaid assets | 23,879 | |||
Total Assets | 3,536,375,640 | |||
LIABILITIES: | ||||
Payables for: | ||||
Investment advisory and administrative fees | 634,547 | |||
Dividends declared | 59,879 | |||
Custody and fund accounting fees | 59,619 | |||
Professional fees | 52,717 | |||
Shareholder servicing fees | 8,845 | |||
Transfer agent fees | 2,514 | |||
Accrued expenses and other liabilities | 10,714 | |||
Total Liabilities | 828,835 | |||
NET ASSETS | $3,535,546,805 | |||
Net Assets Consist of: | ||||
Paid-in capital | $3,535,581,994 | |||
Accumulated deficit | (35,189 | ) | ||
Net Assets | $3,535,546,805 |
NET ASSET VALUE AND OFFERING PRICE PER SHARE REGULAR SHARES | ||||
($60,948,916 ÷ 60,954,521 shares outstanding) | $1.00 | |||
INSTITUTIONAL SHARES | ||||
($3,474,597,889 ÷ 3,474,633,491 shares outstanding) | $1.00 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 11 |
BBH U.S. GOVERNMENT MONEY MARKET FUND
STATEMENT OF OPERATIONS
For the year ended October 31, 2020
NET INVESTMENT INCOME: | ||||
Income: | ||||
Interest income | $ | 19,169,845 | ||
Other income | 16,949 | |||
Total Income | 19,186,794 | |||
Expenses: | ||||
Investment advisory and administrative fees | 6,178,010 | |||
Custody and fund accounting fees | 251,375 | |||
Shareholder servicing fees | 129,433 | |||
Professional fees | 60,661 | |||
Board of Trustees’ fees | 58,399 | |||
Transfer agent fees | 31,069 | |||
Miscellaneous expenses | 170,602 | |||
Total Expenses | 6,879,549 | |||
Investment advisory, administrative and shareholder service fee waiver | (1,390,227 | ) | ||
Net Expenses | 5,489,322 | |||
Net Investment Income | 13,697,472 | |||
NET REALIZED GAIN: | ||||
Net realized gain on investments | 40,269 | |||
Net Increase in Net Assets Resulting from Operations | $ | 13,737,741 |
The accompanying notes are an integral part of these financial statements.
12
BBH U.S. GOVERNMENT MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended October 31, 2020 | For the period from July 1, 2019 to October 31, 2019 | For the year ended June 30, 2019 | ||||||||||
INCREASE IN NET ASSETS: | ||||||||||||
Operations: | ||||||||||||
Net investment income | $ | 13,697,472 | $ | 14,106,526 | $ | 45,083,987 | ||||||
Net realized gain on investments | 40,269 | 42,235 | 12,619 | |||||||||
Net increase in net assets resulting from operations | 13,737,741 | 14,148,761 | 45,096,606 | |||||||||
Distributions declared: | ||||||||||||
Regular Shares | (345,171 | ) | (359,145 | ) | (826,257 | ) | ||||||
Institutional Shares | (13,392,570 | ) | (13,788,994 | ) | (44,270,349 | ) | ||||||
Total distributions declared | (13,737,741 | ) | (14,148,139 | ) | (45,096,606 | ) | ||||||
From Fund Share (Principal) Transactions at Net Asset Value of $1.00 per share: | ||||||||||||
Fund shares sold and fund shares issued in connection with reinvestments of dividends | 8,663,555,206 | 2,560,331,601 | 7,032,223,805 | |||||||||
Fund shares repurchased | (7,238,357,034 | ) | (2,637,758,587 | ) | (6,615,829,390 | ) | ||||||
Net increase (decrease) in net assets resulting from fund share transactions | 1,425,198,172 | (77,426,986 | ) | 416,394,415 | ||||||||
Total increase (decrease) in net assets | 1,425,198,172 | (77,426,364 | ) | 416,394,415 | ||||||||
NET ASSETS: | ||||||||||||
Beginning of period | 2,110,348,633 | 2,187,774,997 | 1,771,380,582 | |||||||||
End of period | $ | 3,535,546,805 | $ | 2,110,348,633 | $ | 2,187,774,997 |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 13 |
BBH U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a Regular Share outstanding throughout each period.
For the year ended October 31, 2020 | For the period from July 1, 2019 to October 31, 2019 | |||||||||||||||||||||||||
For the years ended June 30, | ||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||
Net asset value, beginning of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||
Net investment income1 | 0.01 | 0.01 | 0.02 | 0.01 | 0.00 | 2 | 0.00 | 2 | ||||||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||||||||
From net investment income | (0.01 | ) | (0.01 | ) | (0.02 | ) | (0.01 | ) | 0.00 | 2 | 0.00 | 2 | ||||||||||||||
Total distributions | (0.01 | ) | (0.01 | ) | (0.02 | ) | (0.01 | ) | 0.00 | 2 | 0.00 | 2 | ||||||||||||||
Net asset value, end of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
Total return | 0.47 | % | 0.55 | %3 | 1.76 | % | 0.81 | % | 0.08 | % | 0.01 | % | ||||||||||||||
Ratios/Supplemental data: | ||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 61 | $ | 71 | $ | 62 | $ | 62 | $ | 67 | $ | 49 | ||||||||||||||
Ratio of expenses to average net assets before reductions | 0.48 | % | 0.47 | %4 | 0.49 | % | 0.50 | % | 0.48 | % | 0.48 | % | ||||||||||||||
Expense reimbursement5 | 0.14 | % | – | % | – | % | – | % | 0.10 | % | 0.38 | % | ||||||||||||||
Expense offset arrangement | – | % | – | % | 0.01 | % | 0.02 | % | 0.00 | %6 | 0.00 | %6 | ||||||||||||||
Ratio of expenses to average net assets after reductions. | 0.34 | % | 0.47 | %4 | 0.48 | % | 0.48 | % | 0.38 | % | 0.10 | % | ||||||||||||||
Ratio of net investment income to average net assets | 0.53 | % | 1.64 | % | 1.75 | % | 0.78 | % | 0.08 | % | 0.01 | % |
____________ | |
1 | Calculated using average shares outstanding for the period. |
2 | Less than $0.01 per share. |
3 | Not Annualized. |
4 | Annualized with the exception of audit fees. |
5 | During the year ended October 31, 2020, the period ended October 31, 2019, and the years ended June 30, 2019, 2018, 2017 and 2016, the investment advisory and administrative fee/shareholder servicing fee waivers, as a result of a minimum yield agreement, were $90,799, $-, $-, $-, $50,768 and $2,511,954, respectively. |
6 | Less than 0.01%. |
The accompanying notes are an integral part of these financial statements.
14
BBH U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS (continued)
Selected per share data and ratios for an Institutional Share outstanding throughout each period.
For the year ended October 31, 2020 | For the period from July 1, 2019 to October 31, 2019 | |||||||||||||||||||||||||
For the years ended June 30, | ||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||
Net asset value, beginning of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||
Net investment income1 | 0.01 | 0.01 | 0.02 | 0.01 | 0.00 | 2 | 0.00 | 2 | ||||||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||||||||
From net investment income | (0.01 | ) | (0.01 | ) | (0.02 | ) | (0.01) | 0.00 | 2 | 0.00 | 2 | |||||||||||||||
Total distributions | (0.01 | ) | (0.01 | ) | (0.02 | ) | (0.01) | 0.00 | 2 | 0.00 | 2 | |||||||||||||||
Net asset value, end of period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
Total return | 0.59 | % | 0.63 | %3 | 2.02 | % | 1.06 | % | 0.22 | % | 0.02 | % | ||||||||||||||
Ratios/Supplemental data: | ||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 3,475 | $ | 2,040 | $ | 2,126 | $ | 1,710 | $ | 1,455 | $ | 1,605 | ||||||||||||||
Ratio of expenses to average net assets before reductions | 0.24 | % | 0.24 | %4 | 0.24 | % | 0.26 | % | 0.24 | % | 0.25 | % | ||||||||||||||
Expense reimbursement5 | 0.05 | % | – | % | – | % | – | % | – | % | 0.05 | % | ||||||||||||||
Expense offset arrangement | – | % | – | % | 0.01 | % | 0.02 | % | 0.00 | %6 | 0.00 | %6 | ||||||||||||||
Ratio of expenses to average net assets after reductions | 0.19 | % | 0.24 | %4 | 0.23 | % | 0.24 | % | 0.24 | % | 0.20 | % | ||||||||||||||
Ratio of net investment income to average net assets | 0.48 | % | 1.86 | % | 2.02 | % | 1.07 | % | 0.21 | % | 0.03 | % |
____________ | |
1 | Calculated using average shares outstanding for the period. |
2 | Less than $0.01 per share. |
3 | Not Annualized. |
4 | Annualized with the exception of audit fees. |
5 | During the year ended October 31, 2020, the period ended October 31, 2019, and the years ended June 30, 2019, 2018, 2017 and 2016, the investment advisory and administrative fee/shareholder servicing fee waivers, as a result of a minimum yield agreement, were $1,299,428, $-, $-, $-, $- and $573,823, respectively. |
6 | Less than 0.01%. |
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 15 |
BBH U.S. GOVERNMENT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
October 31, 2020
1. Organization. The Fund is a separate series of BBH Trust (the “Trust”), which is registered under the 1940 Act, as an open-end management investment company. The Trust was originally organized as a Massachusetts business trust on June 7, 1983 and re-organized as a Delaware statutory trust on June 12, 2007. The Fund commenced operations on December 12, 1983. The Declaration of Trust permits the Board of Trustees of the Trust (the “Board”) to create an unlimited number of series, each of which may issue a separate class of shares. The Fund currently offers two classes of shares, Regular Shares and Institutional Shares. The investment objective of the Fund is to provide investors with as high a level of income as is consistent with the preservation of capital and the maintenance of liquidity. At October 31, 2020, there were seven series of the Trust. Effective July 1, 2019, the Fund changed its fiscal year end from June 30, 2019 to October 31, 2019.
2.Significant Accounting Policies. The Fund’s financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”). The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 Financial Services — Investment Companies. The following summarizes significant accounting policies of the Fund:
A. Valuation of Investments. The Fund values its investments at amortized cost, which approximates fair value. The amortized cost method values a security at its cost at the time of purchase and thereafter assumes a constant amortization to maturity of any discount or premium. The Fund’s use of amortized cost is in compliance with Rule 2a-7 of the 1940 Act. In the event that security valuations do not approximate fair value, securities may be valued as determined in accordance with procedures adopted by the Board.
B. Accounting for Investments and Income. Investment transactions are accounted for on the trade date. Realized gains and losses on investment transactions are determined based on the identified cost method. Interest income is accrued as earned and consists of interest accrued, accretion of discount on debt securities (including both original issue and market discount) and premium amortization on the investments of the Fund.
C. Fund Expenses. Most expenses of the Trust can be directly attributed to a specific fund. Expenses which cannot be directly attributed to a fund are generally apportioned among each fund in the Trust on a net assets basis or other suitable method. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
D.Repurchase Agreements. The Fund may enter into repurchase agreements. Repurchase agreements are transactions in which the Fund buys a security from a dealer or bank and agrees to sell the security back at a mutually agreed upon time and price. The repurchase price normally is in excess of the purchase price, reflecting an agreed upon interest rate. The rate is effective for the period of time that assets of the Fund are invested in the agreement and is not related to the coupon rate on the
16
BBH U.S. GOVERNMENT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
underlying security. The Fund will enter into repurchase agreements only with banks and other recognized financial institutions, such as securities dealers, deemed creditworthy by the investment adviser. The Fund’s custodian or sub-custodian will take possession of the securities subject to repurchase agreements. The investment adviser, custodian or sub-custodian will monitor the marked-to-market value of the underlying collateral each day to ensure that the value of the security always equals or exceeds the repurchase price.
Repurchase agreements are entered into by the Fund under Master Repurchase Agreements (MRA) which permit the Fund, under certain circumstances including an event of default (such as bankruptcy or insolvency), to offset payables and/or receivables under the MRA with collateral held and/or posted to the counterparty and create one single net payment due to or from the Fund. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of the MRA counterparty’s bankruptcy or insolvency. Lastly, the MRA does not preclude the Fund from selling, transferring, pledging or hypothecating the underlying collateral but no such transaction shall relieve the Fund of its obligation to transfer the collateral to the counterparty upon the latter’s repurchase of the securities.
The Fund’s repurchase agreements are disclosed on a gross basis and information related to collateral, which could be offset in event of default, are shown in the Portfolio of Investments.
E.Federal Income Taxes. It is the Trust’s policy to comply with the requirements of the Internal Revenue Code (the “Code”) applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. The Fund files a tax return annually using tax accounting methods required under provisions of the Code, which may differ from GAAP, which is the basis on which these financial statements are prepared. Accordingly, the amount of net investment income and net realized gain reported in these financial statements may differ from that reported on the Fund’s tax return, due to certain book-to-tax timing differences such as losses deferred due to “wash sale” transactions and utilization of capital loss carryforwards. These differences result in temporary over-distributions for financial statement purposes and are classified as distributions in excess of accumulated net realized gains or net investment income. These distributions do not constitute a return of capital. Permanent differences are reclassified between paid-in capital and retained earnings/(accumulated deficit) within the Statement of Assets & Liabilities based upon their tax classification. As such, the character of distributions to shareholders reported in the Financial Highlights table may differ from that reported to shareholders on Form 1099-DIV.
The Fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes (“ASC 740”). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The Fund did not have any unrecognized tax benefits as of October 31, 2020, nor were there any increases or decreases in unrecognized tax benefits for the period then ended. The Fund recognizes interest and penalties, if any, related to
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 17 |
BBH U.S. GOVERNMENT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
unrecognized tax benefits as an income tax expense in the Statement of Operations. During the year ended October 31, 2020, the Fund did not incur any such interest or penalties. The Fund is subject to examination by U.S. federal and state tax authorities for returns filed for the prior three years. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
F.Dividends and Distributions to Shareholders. Dividends and distributions from net investment income to shareholders are declared daily and paid monthly to shareholders. Distributions from net capital gains, if any, are generally declared and paid annually and are recorded on the ex-dividend date. The Fund declared dividends in the amounts of $345,171 and $13,392,570 to Regular and Institutional shareholders, respectively, during the year ended October 31, 2020.
The tax character of distributions paid during the year ended October 31, 2020 and the period ended October 31, 2019, respectively, were as follows:
Distributions paid from: | ||||||||||||||||||||
Ordinary income | Net long-term capital gain | Total taxable distributions | Total Distributions paid | |||||||||||||||||
During the year ended October 31, 2020: | $13,737,741 | $ | – | $13,737,741 | $13,737,741 |
| ||||||||||||||
During the period from July 1, 2019 to October 31, 2019: | 14,148,139 | – | 14,148,139 | 14,148,139 |
|
As of October 31, 2020 and 2019, respectively, the components of retained earnings/(accumulated deficit) were as follows:
Components of retained earnings/(accumulated deficit): | |||||||||||||||||||||||||||||
Undistributed ordinary income | Undistributed long-term capital gain | Accumulated capital and other losses | Other book/tax temporary differences | Unrealized appreciation/ (depreciation) | Total retained earnings/ (accumulated deficit) | ||||||||||||||||||||||||
October 31, 2020: | $24,690 | $ | — | $ | — | $(59,879 | ) | $ | — | $(35,189 | ) | ||||||||||||||||||
October 31, 2019: | 129,346 | — | — | (164,535 | ) | — | (35,189 | ) |
The Fund did not have a net capital loss carryforward at October 31, 2020.
The Fund is permitted to carryforward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period and they will retain their character as either short-term or long-term capital losses rather than being considered all short-term capital losses.
Total distributions paid may differ from the amounts shown in the Statements of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid.
18
BBH U.S. GOVERNMENT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
There are no significant differences between book-basis and tax-basis unrealized appreciation/(depreciation) for investments for the current period.
To the extent future capital gains are offset by future capital loss carryforwards, if any, such gains will not be distributed.
G. Use of Estimates. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from these estimates.
3. Fees and Other Transactions with Affiliates.
A.Investment Advisory and Administrative Fees. Effective June 12, 2007, under a combined Investment Advisory and Administrative Services Agreement (“Agreement”) with the Trust, Brown Brothers Harriman & Co. (“BBH”) through a separately identifiable department (“SID” or “Investment Adviser”) provides investment advisory and portfolio management services to the Fund. BBH also provides administrative services to the Fund. The Fund pays a combined fee for investment advisory and administrative services calculated daily and paid monthly at an annual rate equivalent to 0.25% on the first $1,000,000,000 of the Fund’s average daily net assets and 0.20% of the Fund’s average daily net assets in excess of $1,000,000,000. For the year ended October 31, 2020, the Fund incurred $6,178,010 for services under the Agreement.
B.Investment Advisory and Administrative Fee Waiver. BBH has voluntarily agreed to waive its Investment Advisory and Administrative Fee and credit daily to the Fund an amount necessary to maintain the minimum annualized yield of the Fund at 1 basis point (0.01%). The amount credited each day will offset the daily accrual of the Investment Advisory and Administrative Fee. This is a voluntary waiver that can be changed at any time at the sole discretion of BBH. For the year ended October 31, 2020, BBH waived fees in the amount of $60,421 and $1,299,428 for Regular Shares and Institutional Shares, respectively.
C.Shareholder Servicing Fees. The Trust has a shareholder servicing agreement with BBH. BBH receives a fee from the Regular Shares of the Fund calculated daily and paid monthly at an annual rate of 0.20% of the Regular Shares’ average daily net assets. For the year ended October 31, 2020, the Regular Shares of the Fund incurred $129,433 in shareholder servicing fees.
D.Shareholder Servicing Fee Waiver. BBH has voluntarily agreed to waive its Shareholder Servicing Fee for the Regular Shares only when the Investment Advisory and Administrative Fee waiver described above is not enough to maintain the minimum daily yield of the Fund at 1 basis point (0.01%). The amount credited each day will offset to the daily accrual of the Shareholder Servicing Fee. This is a voluntary waiver that can
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 19 |
BBH U.S. GOVERNMENT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
be changed at any time at the sole discretion of BBH. For the year ended October 31, 2020, the Regular Shares of the Fund incurred $30,378 in shareholder servicing fees.
E.Custody and Fund Accounting Fees. BBH acts as a custodian and fund accountant and receives custody and fund accounting fees from the Fund calculated daily and paid monthly. BBH holds all of the Fund’s cash and investments and calculates the Fund’s daily net asset value. The custody fee is an asset and transaction based fee. The fund accounting fee is an asset based fee calculated at 0.004% per annum of average daily net assets. For the year ended October 31, 2020, the Fund incurred $251,375 in custody and fund accounting fees. As per agreement with the Fund’s custodian, the Fund receives interest income on cash balances held by the custodian at the BBH Base Rate. The BBH Base Rate is defined as BBH’s effective trading rate in local money markets on each day. The total interest earned by the Fund under the agreement for the year ended October 31, 2020 was $159,099. This amount is included in “Interest income” in the Statement of Operations. In the event that the Fund is overdrawn, under the custody agreement with BBH, BBH will make overnight loans to the Fund to cover overdrafts. Pursuant to their agreement, the Fund will pay the Federal Funds overnight investment rate on the day of the overdraft. The total interest incurred by the Fund for the year ended October 31, 2020 was $25,177. This amount is included in the “Custody and fund accounting fees” in the Statement of Operations.
F.Board of Trustees’ Fees. Each Trustee who is not an “interested person” as defined under the 1940 Act (referred to here as an “Independent Trustee”) receives an annual fee as well as reimbursement for reasonable out-of-pocket expenses from the Fund. For the year ended October 31, 2020, the Fund incurred $58,399 in Independent Trustee compensation and expense reimbursements.
G.Officers of the Trust. Officers of the Trust are also employees of BBH. Officers are paid no fees by the Trust for their services to the Trust.
20
BBH U.S. GOVERNMENT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
4.Shares of Beneficial Interest. The Trust is permitted to issue an unlimited number of Regular Shares and Institutional Shares of beneficial interest, at no par value. Transactions in Regular Shares and Institutional Shares were as follows:
For the year ended October 31, 2020 | For the period ended October 31, 2019 | |||||||||||||||
Shares | Dollars | Shares | Dollars | |||||||||||||
Regular Shares | ||||||||||||||||
Shares sold | 315,424,689 | $ | 315,424,689 | 93,758,560 | $ | 93,758,560 | ||||||||||
Shares issued in connection with reinvestments of dividends | 126,888 | 126,888 | 203,806 | 203,806 | ||||||||||||
Shares redeemed | (325,258,417 | ) | (325,258,417 | ) | (84,994,901 | ) | (84,994,901 | ) | ||||||||
Net increase (decrease) | (9,706,840 | ) | $ | (9,706,840 | ) | 8,967,465 | $ | 8,967,465 | ||||||||
Institutional Shares | ||||||||||||||||
Shares sold | 8,347,970,492 | $ | 8,347,970,492 | 2,466,327,388 | $ | 2,466,327,388 | ||||||||||
Shares issued in connection with reinvestments of dividends | 33,137 | 33,137 | 41,847 | 41,847 | ||||||||||||
Shares redeemed | (6,913,098,617 | ) | (6,913,098,617 | ) | (2,552,763,686 | ) | (2,552,763,686 | ) | ||||||||
Net increase (decrease) | 1,434,905,012 | $ | 1,434,905,012 | (86,394,451 | ) | $ | (86,394,451 | ) |
5. Principal Risk Factors and Indemnifications.
A. Principal Risk Factors. Investing in the Fund may involve certain risks, as discussed in the Fund’s prospectus, including but not limited to, those described below:
Investments in the Fund are neither insured nor guaranteed by the U.S. Government. Shares of the Fund are not deposits or obligations of, or guaranteed by, BBH or any other bank, and the shares are neither insured nor guaranteed by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other federal, state or other governmental agency. BBH has no legal obligation to provide financial support to the Fund and you should not expect that BBH as the Fund’s sponsor will provide financial support to the Fund at any time. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. Please refer to the Fund’s prospectus for a complete description of the principal risks of investing in the Fund.
The divergence of the Fund’s amortized cost price per share from its market based net asset value per share may result in the Fund’s inability to maintain a stable $1.00 NAV, resulting in material dilution or other unfair results to shareholders (stable NAV risk). In the normal course of business the Fund invests in securities and enters into transactions where risks exist due to failure of an issuer, guarantor or counterparty to a transaction to perform (credit risk) or changes in interest rates (interest rate risk). The value of securities held by the Fund may fall due to changing political, regulatory, economic and
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 21 |
BBH U.S. GOVERNMENT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
social developments, or market conditions. Natural disasters, the spread of infectious illness and other public health emergencies, recession, terrorism and other unforeseeable events may lead to increased market volatility and may have adverse effects on world economies and markets generally (market risk). The Fund is subject to the risk that the securities selected by the investment adviser may underperform (management risk). Even though the Fund’s investments in repurchase agreements are collateralized at all times, there is some risk to the Fund if the other party to the agreement should default on its obligations (repurchase agreement risk). The Fund’s investments in certain U.S. government agency securities may not be backed by the U.S. Treasury and may be supported only by the credit of the issuer (U.S. government agency securities risk). The Fund’s shareholders may be adversely impacted by asset allocation decisions made by the Fund’s investment adviser whose discretionary clients make up a large percentage of the Fund’s shareholders (shareholder concentration risk). The Fund’s exposure to these risks with respect to these financial assets held by the Fund is reflected in their value as recorded in the Fund’s Statement of Assets and Liabilities. The U.S. Securities and Exchange Commission (the “SEC”) and other regulators may adopt additional money market fund regulations in the future, which may impact the operation and performance of the Fund (Regulatory Risk). The absence of an active market for the Fund’s variable and floating rate securities could make it difficult for the Fund to dispose of them if the issuer defaults (Variable and Floating Rate Instrument Risk).
Please refer to the Fund’s prospectus for a complete description of the principal risks of investing in the Fund.
B. Indemnifications. Under the Trust’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Fund, and shareholders are indemnified against personal liability for the obligations of the Trust. Additionally, in the normal course of business, the Fund enters into agreements with service providers that may contain indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
6. Money Market Regulation. Money market funds are required to comply with SEC regulations and governing rules for money market funds. Government money market funds, such as BBH U.S. Government Money Market Fund, are permitted to continue to transact fund shares at a NAV calculated using the amortized cost valuation method. The Fund’s Board of Trustees has determined not to impose any liquidity-based redemption fees or redemption gates on the Fund as permitted by the SEC amendments. As a government money market fund, the Fund must invest 99.5% or more of its total assets in cash, government securities, and/or repurchase agreements that are collateralized fully by cash or government securities.
22
BBH U.S. GOVERNMENT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2020
7. Recent Pronouncements.
A. ASU 2017-08. In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU 2017-08”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU 2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU 2017-08 is effective for years, and interim periods within those years, beginning after December 15, 2018. The application of ASU 2017-08 did not have significant impact on the Fund's financial statements.
8. Significant Events. In the beginning of 2020, there was an outbreak of the novel corona virus (COVID 19) which has impacted the financial markets and the global economy as a whole. The outbreak of COVID 19 is still ongoing and the magnitude and impact on the financial markets is highly uncertain and cannot be predicted. The effect of this impact may adversely impact the future carrying value of investments and results of operations of the Fund.
There are no other significant events to report as they relate to the Fund.
9.Subsequent Events. Management has evaluated events and transactions that have occurred since October 31, 2020 through the date the financial statements were issued and determined that there were none that would require recognition or additional disclosure in the financial statements.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 23 |
BBH U.S. GOVERNMENT MONEY MARKET FUND
DISCLOSURE OF FUND EXPENSES
October 31, 2020 (unaudited)
EXAMPLE
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested distributions, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management 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 an investment of $1,000 invested at the beginning of the period and held for the entire period (May 1, 2020 to October 31, 2020).
ACTUAL EXPENSES
The first line of the table below provides information about actual account values and actual expenses. You may use 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 the Period” to estimate the expenses you paid on your account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year 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 during the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% Hypothetical Example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
24
BBH U.S. GOVERNMENT MONEY MARKET FUND
DISCLOSURE OF FUND EXPENSES (continued)
October 31, 2020 (unaudited)
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 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. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period May 1, 2020 to October 31, 20201 | ||||||||||
Regular Shares | ||||||||||||
Actual | $1,000 | $1,000 | $0.90 | |||||||||
Hypothetical2 | $1,000 | $1,024 | $0.92 |
Beginning Account Value May 1, 2020 | Ending Account Value October 31, 2020 | Expenses Paid During Period May 1, 2020 to October 31, 20201 | ||||||||||
Institutional Shares | ||||||||||||
Actual | $1,000 | $1,000 | $0.75 | |||||||||
Hypothetical2 | $1,000 | $1,024 | $0.76 |
________________
1 | Expenses are equal to the Fund’s annualized net expense ratio of 0.18% and 0.15% for Regular and Institutional Shares, respectively, multiplied by 184/366 (to reflect the one half-year period). |
2 | Assumes a return of 5% before expenses. For the purpose of the calculation, the applicable annualized expense ratio for each class of shares is subtracted from the assumed return before expenses. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 25 |
BBH U.S. GOVERNMENT MONEY MARKET FUND
CONFLICTS OF INTEREST
October 31, 2020 (unaudited)
Conflict of Interest
BBH, including the Investment Adviser, provides discretionary and non-discretionary investment management services and products to corporations, institutions and individual investors throughout the world. As a result, in the ordinary course of its businesses, BBH, including the Investment Adviser, may engage in activities in which its interests or the interests of its clients may conflict with or be adverse to the interests of the Funds. In addition, certain of such clients (including the Funds) utilize the services of BBH for which they will pay to BBH customary fees and expenses that will not be shared with the Funds.
The Investment Adviser and the Sub-Adviser have adopted and implemented policies and procedures that seek to manage conflicts of interest. Pursuant to such policies and procedures, the Investment Adviser and the Sub-Adviser monitor a variety of areas, including compliance with fund investment guidelines, the investment in only those securities that have been approved for purchase, and compliance with their respective Code of Ethics.
The Trust also manages these conflicts of interest. For example, the Trust has designated a chief compliance officer (“CCO”) and has adopted and implemented policies and procedures designed to manage the conflicts identified below and other conflicts that may arise in the course of the Funds’ operations in such a way as to safeguard the Funds from being negatively affected as a result of any such potential conflicts. From time to time, the Trustees receive reports from the Investment Adviser, the Sub-Adviser and the Trust’s CCO on areas of potential conflict.
Investors should carefully review the following, which describes potential and actual conflicts of interest that BBH, the Investment Adviser and Sub-Adviser can face in the operation of their respective investment management services. This section is not, and is not intended to be, a complete enumeration or explanation of all of the potential conflicts of interest that may arise. The Investment Adviser, the Sub-Adviser and the Funds have adopted policies and procedures reasonably designed to appropriately prevent, limit or mitigate the conflicts of interest described below. Additional information about potential conflicts of interest regarding the Investment Adviser is set forth in the Investment Adviser’s Form ADV. A copy of Part 1 and Part 2A of the Investment Adviser’s Form ADV is available on the SEC’s website (www.adviserinfo.sec.gov). In addition, many of the activities that create these conflicts of interest are limited and/or prohibited by law, unless an exception is available.
Other Clients and Allocation of Investment Opportunities. BBH, the Investment Adviser, and the Sub-Adviser manage funds and accounts of clients other than the Funds (“Other Clients”). In general, BBH, the Investment Adviser, and the Sub-Adviser face conflicts of interest when they render investment advisory services to different clients and, from time to time, provide dissimilar investment advice to different clients. Investment decisions will not necessarily be made in parallel among the Funds and Other Clients. Investments made by the Funds do not, and are not intended to, replicate the investments, or the investment methods and strategies, of Other Clients. Accordingly, such Other Clients’ accounts may produce results that are materially different from those experienced by the Funds. Certain other conflicts of interest may arise in connection with a portfolio manager’s management of the Funds’ investments, on the one hand, and the investments of other funds or accounts for which the portfolio manager is responsible, on the other. For example, it is possible that the various funds or accounts managed by the Investment Adviser or Sub-Adviser
26
BBH U.S. GOVERNMENT MONEY MARKET FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
could have different investment strategies that, at times, might conflict with one another to the possible detriment of the Funds. From time to time, the Investment Adviser and Sub-Adviser, sponsor and with other investment pools and accounts which engage in the same or similar businesses as the Funds using the same or similar investment strategies. To the extent that the same investment opportunities might be desirable for more than one account or fund, possible conflicts could arise in determining how to allocate them because the Investment Adviser or Sub-Adviser may have an incentive to allocate investment opportunities to certain accounts or funds. However, BBH and the Sub-adviser have implemented policies and procedures designed to ensure that information relevant to investment decisions is disseminated promptly within its portfolio management teams and investment opportunities are allocated equitably among different clients. The policies and procedures require, among other things, objective allocation for limited investment opportunities, and documentation and review of justifications for any decisions to make investments only for select accounts or in a manner disproportionate to the size of the account. Nevertheless, access to investment opportunities may be allocated differently among accounts due to the particular characteristics of an account, such as size of the account, cash position, tax status, risk tolerance and investment restrictions or for other reasons.
Actual or potential conflicts of interest may also arise when a portfolio manager has management responsibilities to multiple accounts or funds, resulting in unequal commitment of time and attention to the portfolio management of the funds or accounts.
Affiliated Service Providers. Other potential conflicts might include conflicts between the Funds and its affiliated and unaffiliated service providers (e.g. conflicting duties of loyalty). In addition to providing investment management services through the SID, BBH provides administrative, custody, shareholder servicing and fund accounting services to the Funds. BBH may have conflicting duties of loyalty while servicing the Funds and/or opportunities to further its own interest to the detriment of the Funds. For example, in negotiating fee arrangements with affiliated service providers, BBH may have an incentive to agree to higher fees than it would in the case of unaffiliated providers. BBH acting in its capacity as the Funds’ administrator is the primary valuation agent of the Funds. BBH values securities and assets in the Funds according to the Funds’ valuation policies. Because the Investment Adviser’s advisory and administrative fees are calculated by reference to the Funds’ net assets, BBH and its affiliates may have an incentive to seek to overvalue certain assets.
Aggregation. Potential conflicts of interest also arise with the aggregation of trade orders. Purchases and sales of securities for the Funds may be aggregated with orders for other client accounts managed by the Sub-Adviser. The Sub-Adviser, however, is not required to aggregate orders if portfolio management decisions for different accounts are made separately, or if it is determined that aggregating is not practicable, or in cases involving client direction. Prevailing trading activity frequently may make impossible the receipt of the same price or execution on the entire volume of securities purchased or sold. When this occurs, the various prices may be averaged, and the Funds will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to the disadvantage of the Funds. In addition, under certain circumstances, the Funds will not be charged the same commission or commission equivalent rates in connection with an aggregated order.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 27 |
BBH U.S. GOVERNMENT MONEY MARKET FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
Cross Trades. Under certain circumstances, the Investment Adviser and/or the Sub-adviser, on behalf of the Funds, may seek to buy from or sell securities to another fund or account advised by BBH, the Investment Adviser or the Sub-adviser. Subject to applicable law and regulation, BBH, the Investment Adviser or the Sub-adviser may (but is not required to) effect purchases and sales between BBH, the Investment Adviser or the Sub-adviser’s clients (“cross trades”), including the Funds, if BBH, the Investment Adviser or the Sub-adviser believe such transactions are appropriate based on each party’s investment objectives and guidelines. There may be potential conflicts of interest or regulatory issues relating to these transactions which could limit the Investment Adviser or the Sub-adviser’s decision to engage in these transactions for the Funds. BBH, the Investment Adviser and/or the Sub-adviser may have a potentially conflicting division of loyalties and responsibilities to the parties in such transactions.
Soft Dollars. The Investment Adviser may direct brokerage transactions and/or payment of a portion of client commissions (“soft dollars”) to specific brokers or dealers or other providers to pay for research or other appropriate services which provide, in the Investment Adviser’s view, appropriate assistance in the investment decision-making process (including with respect to futures, fixed price offerings and over-the-counter transactions). The use of a broker that provides research and securities transaction services may result in a higher commission than that offered by a broker who does not provide such services. The Investment Adviser will determine in good faith whether the amount of commission is reasonable in relation to the value of research and services provided and whether the services provide lawful and appropriate assistance in its investment decision-making responsibilities.
Research or other services obtained in this manner may be used in servicing any or all of the Funds and other accounts managed by the Investment Adviser, including in connection with accounts that do not pay commissions to the broker related to the research or other service arrangements. Such products and services may disproportionately benefit other client accounts relative to the Funds based on the amount of brokerage commissions paid by the Funds and such other accounts. To the extent that the Sub-Adviser uses soft dollars, it will not have to pay for those products and services itself.
BBH may receive research that is bundled with the trade execution, clearing, and/or settlement services provided by a particular broker-dealer. To the extent that the Sub-Adviser receives research on this basis, many of the same conflicts related to traditional soft dollars may exist. For example, the research effectively will be paid by client commissions that also will be used to pay for the execution, clearing, and settlement services provided by the broker-dealer and will not be paid by the Sub-Adviser.
Arrangements regarding compensation and delegation of responsibility may create conflicts relating to selection of brokers or dealers to execute Fund portfolio trades and/or specific uses of commissions from Fund portfolio trades, administration of investment advice and valuation of securities.
Investments in BBH Funds. From time to time BBH may invest a portion of the assets of its discretionary investment advisory clients in the Funds. That investment by BBH on behalf of its discretionary investment advisory clients in the Funds may be significant at times.
28
BBH U.S. GOVERNMENT MONEY MARKET FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
Increasing a Fund’s assets may enhance investment flexibility and diversification and may contribute to economies of scale that tend to reduce the Funds’ expense ratio. In selecting the Funds for its discretionary investment advisory clients, BBH may limit its selection to funds managed by BBH or the Investment Adviser. BBH may not consider or canvass the universe of unaffiliated investment companies available, even though there may be unaffiliated investment companies that may be more appropriate or that have superior performance. BBH, the Investment Adviser and their affiliates providing services to the Funds benefit from additional fees when the Funds is included as an investment by a discretionary investment advisory client.
BBH reserves the right to redeem at any time some or all of the shares of the Funds acquired for its discretionary investment advisory clients’ accounts. A large redemption of shares of the Funds by BBH on behalf of its discretionary investment advisory clients could significantly reduce the asset size of the Funds, which might have an adverse effect on the Funds’ investment flexibility, portfolio diversification and expense ratio.
Valuation. When market quotations are not readily available, or are believed by BBH to be unreliable, the Funds’ investments will be valued at fair value by BBH pursuant to procedures adopted by the Funds’ Board of Trustees. When determining an asset’s “fair value”, BBH seeks to determine the price that a Fund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. The price generally may not be determined based on what the Funds might reasonably expect to receive for selling an asset at a later time or if it holds the asset to maturity. While fair value determinations will be based upon all available factors that BBH deems relevant at the time of the determination and may be based on analytical values determined by BBH using proprietary or third-party valuation models, fair value represents only a good faith approximation of the value of a security. The fair value of one or more securities may not, in retrospect, be the price at which those assets could have been sold during the period in which the particular fair values were used in determining the Funds’ net asset value. As a result, the Funds’ sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued by BBH (pursuant to Board-adopted procedures) at fair value, may have the effect of diluting or increasing the economic interest of existing shareholders.
Referral Arrangements. BBH may enter into advisory and/or referral arrangements with third parties. Such arrangements may include compensation paid by BBH to the third party. BBH may pay a solicitation fee for referrals and/or advisory or incentive fees. BBH may benefit from increased amounts of assets under management.
Personal Trading. BBH, including the Investment Adviser, and any of their respective partners, principals, directors, officers, employees, affiliates or agents, face conflicts of interest when transacting in securities for their own accounts because they could benefit by trading in the same securities as the Funds, which could have an adverse effect on the Funds. However, the Investment Adviser has implemented policies and procedures concerning personal trading by BBH Partners and employees. The policy and procedures are intended to prevent BBH Partners and employees from trading in the same securities as the Funds. However, BBH, including the Investment Adviser, has implemented policies and procedures concerning personal
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 29 |
BBH U.S. GOVERNMENT MONEY MARKET FUND
CONFLICTS OF INTEREST (continued)
October 31, 2020 (unaudited)
trading by BBH Partners and employees. The policies and procedures are intended to prevent BBH Partners and employees with access to Fund material non-public information from trading in the same securities as the Funds.
Gifts and Entertainment. From time to time, employees of BBH, including the Investment Adviser, and any of their respective partners, principals, directors, officers, employees, affiliates or agents, may receive gifts and/or entertainment from clients, intermediaries, or service providers to the Funds or BBH, including the Investment Adviser, which could have the appearance of affecting or may potentially affect the judgment of the employees, or the manner in which they conduct business. The Investment Adviser has implemented policies and procedures concerning gifts and entertainment to mitigate any impact on the judgment of BBH Partners and employees. BBH, including the Investment Adviser, has implemented policies and procedures concerning gifts and entertainment to mitigate any impact on the judgment of BBH Partners and employees.
30
BBH U.S. GOVERNMENT MONEY MARKET FUND
ADDITIONAL FEDERAL TAX INFORMATION
October 31, 2020 (unaudited)
In January 2021, the Fund will report on Form 1099 the tax status of all distributions made during the calendar year 2020. Shareholders should use the information on Form 1099 for their income tax returns.
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 31 |
TRUSTEES AND OFFICERS OF BBH U.S. GOVERNMENT MONEY MARKET FUND
(unaudited)
Information pertaining to the Trustees and executive officers of BBH Trust is set forth below. The mailing address for each Trustee is c/o BBH Trust, 140 Broadway, New York, NY 10005.
Name and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee^ | Other Public Company or Investment Company Directorships held by Trustee During Past 5 Years | |||||
Independent Trustees | ||||||||||
H. Whitney Wagner Birth Year: 1956 | Chairman of the Board and Trustee | Chairman Since 2014; Trustee Since 2007 and 2006-2007 with the Predecessor Trust | President, Clear Brook Advisors, a registered investment adviser. | 7 | None. | |||||
Andrew S. Frazier Birth Year: 1948 | Trustee | Since 2010 | Retired. | 7 | Director of Western World Insurance Group, Inc. | |||||
Mark M. Collins Birth Year: 1956 | Trustee | Since 2011 | Partner of Brown Investment Advisory Incorporated, a registered investment adviser. | 7 | Chairman of Dillon Trust Company. | |||||
John M. Tesoro Birth Year: 1952 | Trustee | Since 2014 | Retired. | 7 | Trustee, Bridge Builder Trust (8 Funds), Director, Teton Advisers, Inc. (a registered investment adviser). | |||||
Joan A. Binstock Birth Year: 1954 | Trustee | Since 2019 | Partner, Chief Financial and Operations Officer, Lord Abbett & Co. LLC (1999-2018); Lovell Minnick Partners, Senior Adviser (2018-present). | 7 | None. |
32
TRUSTEES AND OFFICERS OF BBH U.S. GOVERNMENT MONEY MARKET FUND
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | Number of Portfolios in Fund Complex Overseen by Trustee^ | Other Public Company or Investment Company Directorships held by Trustee During Past 5 Years | |||||
Interested Trustees | ||||||||||
Susan C. Livingston+ 50 Post Office Square Boston, MA 02110 Birth Year: 1957 | Trustee | Since 2011 | Partner (since 1998) and Senior Client Advocate (since 2010) for BBH&Co. | 7 | None. | |||||
John A. Gehret+ 140 Broadway New York, NY 10005 Birth Year: 1959 | Trustee | Since 2011 | Limited Partner of BBH&Co. (2012-present). | 7 | None. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 33 |
TRUSTEES AND OFFICERS OF BBH U.S. GOVERNMENT MONEY MARKET FUND
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | |||
Officers | ||||||
Jean-Pierre Paquin 140 Broadway New York, NY 10005 Birth Year: 1973 | President and Principal Executive Officer | Since 2016 | Partner of BBH&Co. since 2015; joined BBH&Co. in 1996. | |||
Daniel Greifenkamp 140 Broadway New York, NY 10005 Birth Year: 1969 | Vice President | Since 2016 | Managing Director of BBH&Co. since 2014; joined BBH&Co. in 2011. | |||
Charles H. Schreiber 140 Broadway New York, NY 10005 Birth Year: 1957 | Treasurer and Principal Financial Officer | Since 2007 2006-2007 with the Predecessor Trust | Senior Vice President of BBH&Co. since 2001; joined BBH&Co. in 1999. | |||
Paul F. Gallagher 140 Broadway New York, NY 10005 Birth Year: 1959 | Chief Compliance Officer (“CCO”) | Since 2015 | Senior Vice President of BBH&Co. since 2015. | |||
Keith M. Kelley 140 Broadway New York, NY 10005 Birth Year: 1983 | Anti-Money Laundering Officer (“AMLO”) | Since 2016 | Vice President of BBH&Co. since February 2016; joined BBH&Co. in 2016; Director, Legal and Compliance, Morgan Stanley Smith Barney LLC (2014- February 2016). |
34
TRUSTEES AND OFFICERS OF BBH U.S. GOVERNMENT MONEY MARKET FUND
(unaudited)
Name, Address and Birth Year | Position(s) Held with the Trust | Term of Office and Length of Time Served# | Principal Occupation(s) During Past 5 Years | |||
Suzan M. Barron 50 Post Office Square Boston, MA 02110 Birth Year: 1964 | Secretary | Since 2009 | Senior Vice President and Senior Investor Services Counsel, BBH&Co. since 2005. | |||
Crystal Cheung 140 Broadway New York, NY 10005 Birth Year: 1974 | Assistant Treasurer | Since 2018 | Assistant Vice President of BBH&Co. since 2016; joined BBH&Co. 2014. | |||
Brian J. Carroll 50 Post Office Square Boston, MA 02110 Birth Year: 1985 | Assistant Secretary | Since 2018 | Associate and Investor Services Assistant Counsel of BBH&Co. since 2017; joined BBH&Co. 2014. |
________________
# | All officers of the Trust hold office for one year and until their respective successors are chosen and qualified (subject to the ability of the Trustees to remove any officer in accordance with the Trust’s By-laws). Mr. Wagner previously served on the Board of Trustees of the Predecessor Trust. |
+ | Ms. Livingston and Mr. Gehret are “interested persons” of the Trust as defined in the 1940 Act because of their positions as Partner and Limited Partner of BBH&Co., respectively. |
^ | The Fund Complex consists of the Trust, which has seven series, and each is counted as one “Portfolio” for purposes of this table. |
FINANCIAL STATEMENTS OCTOBER 31, 2020 | 35 |
Administrator Brown Brothers Harriman & Co. 140 Broadway New York, NY 10005
Distributor ALPS Distributors, Inc. 1290 Broadway, Suite 1100 Denver, CO 80203
Shareholder Servicing Agent Brown Brothers Harriman & Co. 140 Broadway New York, NY 10005 1-800-575-1265 | Investment Adviser Brown Brothers Harriman Mutual Fund Advisory Department 140 Broadway New York, NY 10005 |
To obtain information or make shareholder inquiries:
By telephone: | Call 1-800-575-1265 bbhfunds@bbh.com www.bbhfunds.com |
By E-mail send your request to: | |
On the internet: |
This report is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of the Fund.
For more complete information, visit www.bbhfunds.com for a prospectus. You should consider the Fund’s investment objectives, risks, charges and expenses carefully before you invest. Information about these and other important subjects is in the Fund’s prospectus, which you should read carefully before investing.
Holdings and allocations are subject to change. Fund holdings should not be relied on in making investment decisions and should not be construed as research or investment advice regarding particular securities. Current and future holdings are subject to risk.
The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available electronically on the SEC’s website (sec.gov). For a complete list of a fund’s portfolio holdings, view the most recent holdings listing, semi-annual report, or annual report on the Fund’s web site at http://www.bbhfunds.com.
A summary of the Fund’s Proxy Voting Policy that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund’s portfolio, as well as a record of how the Fund voted any such proxies during the most recent 12-month period ended June 30, is available, without charge, upon request by calling the toll-free number listed above. This information is also available on the SEC’s website at www.sec.gov.
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
Item 2. Code of Ethics. | |
As of the period ended October 31, 2020 (the “Reporting Period”), the Registrant has adopted a code of ethics that applies to the Registrant’s principal executive officer and principal financial officer, principal accounting officer or controller or persons performing similar functions. During the Reporting Period, there have been no changes to, amendments to or waivers from, any provision of the code of ethics. A copy of this code of ethics can be obtained upon request, free of charge, by calling (800) 575 - 1265. |
Item 3. Audit Committee Financial Expert. | |
The Board of Trustees of the Registrant has determined that Andrew S. Frazier, John M. Tesoro, Mark M. Collins and Joan A. Binstock possess the attributes identified in Instruction (b) of Item 3 to Form N-CSR to each qualify as an “audit committee financial expert,” and has designated Andrew S. Frazier, John M. Tesoro, Mark M. Collins and Joan A. Binstock as the Registrant’s audit committee financial experts. Messrs. Andrew S. Frazier, John M. Tesoro, Mark M. Collins and Ms. Joan A. Binstock are “independent” Trustees pursuant to paragraph (a)(2) of Item 3 to Form N-CSR. |
Item 4. Principal Accountant Fees and Services. | |
(a) | Audit Fees The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the Registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $331,000 for 2020 and $375,000 for 2019 |
(b) | Audit Related Fees The aggregate fees billed in each of the last two fiscal years for assurance and related services rendered to the Registrant by the principal accountant that are reasonably related to the performance of the audit of the Registrant’s financial statements and are not reported under paragraph (a) of this Item were $0 for 2020 and $0 for 2019. |
(c) | Tax Fees The aggregate fees billed in each of the last two fiscal years for professional services rendered to the Registrant by the principal accountant for tax compliance, tax advice and tax planning were $54,442 for 2020 and $41,704 for 2019. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local entity tax planning, advice and assistance regarding statutory, regulatory or administrative developments, and (iii) tax advice regarding tax qualification. |
(d) | All Other Fees The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item were $28,333 for 2020 and $42,000 for 2019. The other services provided to the Registrant consisted of examinations pursuant to Rule 17f-2 of the Investment Company Act of 1940, as amended and filings of Form N-17f-2 “Certificate of Accounting of Securities and Similar Investments in the Custody of Management Investment Companies” with the U.S. Securities and Exchange Commission (“17f-2 Services”) in addition to audit services, tax services and 17f-2 Services provided to other series of the Registrant. |
(e)(1) | Pursuant to the Registrant’s Audit Committee Charter that has been adopted by the audit committee, the audit committee shall approve all audit and permissible non-audit services to be provided to the Registrant and all permissible non-audit services to be provided to its investment adviser or any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant if the engagement relates directly to the operations and financial reporting of the Registrant. The audit committee has delegated to its Chairman the approval of such services subject to reports to the full audit committee at its next subsequent meeting. |
(e)(2) | The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, with respect to: Audit-Related Fees were 0%; Tax Fees were 0%; and Other Fees were 0%. |
(f) | Not applicable. |
(g) | The aggregate non-audit fees billed by the Registrant’s accountant for services rendered to the Registrant, and rendered to the Registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant for each of the last two fiscal years of the Registrant were $1,904,181 for 2020 and $1,659,137 for 2019. |
(h) | The Registrant’s audit committee has considered whether the provision of non-audit services that were rendered to the Registrant’s investment adviser (not including any subadviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. |
Item 5. Audit Committee of Listed Registrants. | |
Not Applicable |
Item 6. Investments. | |
(a) | A Schedule of Investments in securities of unaffiliated issuers as of the close of the Reporting Period is included as part of the report to shareholders filed under Item 1 of this Form N-CSR. |
(b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. | |
Not applicable. |
Item 8. Portfolio Managers of Closed-End Management Investment Companies. | |
Not applicable. |
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. | |
Not applicable. |
Item 10. Submission of Matters to a Vote of Security Holders. | |
Not applicable. |
Item 11. Controls and Procedures. |
(a) | The Registrant’s principal executive and financial officers have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective, as of a date within 90 days of the filing date of this Form N-CSR, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). |
(b) | There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the Registrant’s second fiscal quarter of the period covered by this Form N-CSR, that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies. | |
Not applicable. |
Item 13. Exhibits. | |
(a)(1) | Not applicable. |
(a)(2) | Certifications required by Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibit 13(a)(2) to this Form N-CSR. |
(a)(3) | Not applicable. |
(a)(4) | Not applicable. |
(b) | Certifications required by Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are furnished as Exhibit 13(b) to this Form N-CSR. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
(Registrant) BBH Trust | |
By: (Signature and Title) | |
| |
/s/ Jean-Pierre Paquin | |
Jean-Pierre Paquin | |
Title: President (Principal Executive Officer) | |
Date: January 11, 2021 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| |
By: (Signature and Title) | |
| |
/s/ Jean-Pierre Paquin | |
Jean-Pierre Paquin | |
Title: President (Principal Executive Officer) | |
Date: January 11, 2021 |
By: (Signature and Title) | |
| |
/s/ Charles H. Schreiber | |
Charles H. Schreiber | |
Title: Treasurer (Principal Financial Officer) | |
Date: January 11, 2021 |