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
BBH Core Select
BBH International Equity Fund
BBH Real Return Fund
BBH Broad Market Fund
(Exact name of Registrant as specified in charter)
140 BroadwayNew York, NY 10005
(Address of principal executive offices)
Charles H. Schreiber III, Principal Financial Officer,
BBH Trust, 140 Broadway, New York, NY 10005
Mailing address: 140 Broadway, New York, NY, 10005
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 593-7237
Date of fiscal year end: OCTOBER 31
Date of reporting period: OCTOBER 31, 2007
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. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
================================================================================
BROWN [LOGO]
BROTHERS
HARRIMAN
- ----------
Annual Report
OCTOBER 31, 2007
- ----------
BBH CORE SELECT
(Formerly, BBH Tax-Efficient Equity Fund)
================================================================================
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
BBH Core Select (the "Fund") rose 17.25%(1) net of fees during its fiscal year
ending October 31, 2007. During the same twelve month period, the S&P 500
Index(2) ("S&P 500") rose 14.56%.
We are pleased that the Fund outperformed the S&P 500 during its fiscal year
2007, but we encourage investors to focus more on long-term absolute performance
than short-term relative performance. The Fund's strategy is to invest in
established, cash generative companies that are leading providers of essential
products and services when they are trading in the public market at a discount
to our estimate of intrinsic value. During the Fund's fiscal year 2007, we have
sought to avoid the permanent loss of capital on each single investment that the
Fund makes, to achieve its goal of outperforming the S&P 500 during weak equity
markets, and to achieve strong absolute results over many years. The Fund's
17..25% increase during its fiscal year 2007 represented a substantial absolute
increase in investor wealth and followed an increase of 15.18% in fiscal 2006.
While we do not expect the Fund to continue compounding at mid-to-high-teen
rates, we believe that the portfolio is well positioned to achieve its dual
investment objectives of capital preservation and long-term capital growth.
From an individual security perspective, significant positive contributors
during the Fund's fiscal year 2007 included Berkshire Hathaway, Liberty Global,
Microsoft, AFLAC, and Nestle, all of which we view as core holdings for the Fund
and are good examples of market leading providers of essential products and
services. The Fund also owned two companies that were acquired by private equity
investors (First Data and Servicemaster) and four companies that benefited from
robust energy markets (Occidental Petroleum, Praxair, Suncor, and XTO Energy).
The Fund's three worst performing securities were Comcast, Amgen, and Freddie
Mac. In the case of Comcast and Amgen, although both companies suffered setbacks
in fiscal 2007, we continue to have confidence in their competitive positions,
management teams, and long term investment prospects. Unfortunately, we cannot
say the same about Freddie Mac. In November 2007, the Fund sold its Freddie Mac
shares and realized a permanent capital loss. The reason we sold Freddie Mac was
because we had become concerned about the company's balance sheet and the
potential for additional credit losses.
The Fund follows a "buy and own" approach. During the Fund's fiscal year 2007,
the Fund added three new businesses (Chubb, Comcast, and Intuit) while exiting
four investments (the two businesses that were acquired, First Data and
Servicemaster, and two companies that appreciated above our intrinsic value
estimates, Fiserv and Suncor). Turnover for the Fund was 18.49% during its
fiscal year 2007, which was quite low relative to most other actively managed
equity portfolios.
Our investment team engages in substantial original research and separately
analyzes each company's business, management, and valuation. The qualities we
look for in a business are (i) essential or "have-to-have" 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 also explicitly identify
key risks outside of management's control so that we can properly consider the
range of potential outcomes for each business. With respect to management, we
try to
2
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BBH CORE SELECT
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MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE (continued)
partner with managers who exhibit high levels of integrity, are excellent
operators, and allocate capital effectively. We seek managers who think like
owners rather than agents and many of our managers own substantial ownership
interests. Lastly, we calculate an intrinsic value estimate for companies that
meet our business and management criteria and invest when the public market
values such companies at a meaningful discount to our estimate. Companies are
sold when they appreciate above intrinsic value. We believe a discount to
intrinsic value reduces the likelihood of permanent capital loss, while
simultaneously increasing the potential for significant gains.
In summary, we are committed to rigorous fundamental analysis and a disciplined
investment process. We appreciate your continued investment in BBH Core Select.
----------
(1) Total returns for the reporting period, based on net asset value was
17.25%. Performance data quoted represents 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. Mutual Fund performance changes over time and current
performance may be lower or higher than what is stated. For current to the
most recent month end performance and after tax returns, contact the Fund
at 1-800-625-5759.
(2) The S&P 500 Index is an unmanaged capitalization-weighted index of 500
stocks designed to measure performance of the broad domestic economy
through changes in the aggregate market value of 500 stocks representing
all major industries. Investments cannot be made in an index.
FINANCIAL STATEMENT OCTOBER 31, 2007 3
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE (continued)
Growth of $10,000 Invested in BBH Core Select
The graph below illustrates the hypothetical investment of $10,000(1) in the
Fund from November 2, 1998 to October 31, 2007 as compared to the S&P 500.
[The following information was depicted as a line chart in the printed material]
Date Core Select* S&P 500
- ---- ------------ - -------
10/31/98 10,000.00 10,000.00
11/30/98 10,420.00 10,605.83
12/31/98 11,390.00 11,216.59
01/31/99 11,650.00 11,685.46
02/28/99 11,540.00 11,322.34
03/31/99 12,120.00 11,775.21
04/30/99 12,490.00 12,231.20
05/31/99 12,240.00 11,942.78
06/30/99 12,650.00 12,605.05
07/31/99 12,300.00 12,211.84
08/31/99 12,430.00 12,151.02
09/30/99 12,070.00 11,817.96
10/31/99 12,800.00 12,565.80
11/30/99 13,200.00 12,821.26
12/31/99 14,250.00 13,576.43
01/31/00 13,690.00 12,894.35
02/29/00 13,480.00 12,650.26
03/31/00 14,640.00 13,887.84
04/30/00 14,120.00 13,469.95
05/31/00 13,670.00 13,193.55
06/30/00 13,970.00 13,518.77
07/31/00 13,780.00 13,307.47
08/31/00 14,480.00 14,134.00
09/30/00 13,630.00 13,387.86
10/31/00 13,520.00 13,331.63
11/30/00 12,350.00 12,280.57
12/31/00 12,396.84 12,340.74
01/31/01 13,130.80 12,778.84
02/28/01 11,693.05 11,613.66
03/31/01 10,828.39 10,877.36
04/30/01 11,833.81 11,722.64
05/31/01 11,763.43 11,801.18
06/30/01 11,321.04 11,513.94
07/31/01 10,959.09 11,400.64
08/31/01 10,144.70 10,686.96
09/30/01 9,199.60 9,823.46
10/31/01 9,511.28 10,010.79
11/30/01 10,225.13 10,778.62
12/31/01 10,194.97 10,873.04
01/31/02 9,893.34 10,714.40
02/28/02 9,611.83 10,507.83
03/31/02 10,003.94 10,903.02
04/30/02 9,280.04 10,241.97
05/31/02 9,179.50 10,166.49
06/30/02 8,596.35 9,442.23
07/31/02 7,862.39 8,705.74
08/31/02 7,922.72 8,762.93
09/30/02 7,007.79 7,810.58
10/31/02 7,872.45 8,497.91
11/30/02 8,355.05 8,998.44
12/31/02 7,762.87 8,469.33
01/31/03 7,460.82 8,247.43
02/28/03 7,329.93 8,123.72
03/31/03 7,470.89 8,202.52
04/30/03 8,165.62 8,878.41
05/31/03 8,558.29 9,346.30
06/30/03 8,628.77 9,465.93
07/31/03 8,689.18 9,632.53
08/31/03 8,769.73 9,820.37
09/30/03 8,679.11 9,716.27
10/31/03 9,001.31 10,266.21
11/30/03 8,940.90 10,356.55
12/31/03 9,341.76 10,882.67
01/31/04 9,452.98 11,082.91
02/29/04 9,645.07 11,236.96
03/31/04 9,412.53 11,067.28
04/30/04 9,301.32 10,893.53
05/31/04 9,180.00 11,042.77
06/30/04 9,321.54 11,257.00
07/31/04 9,129.45 10,884.39
08/31/04 9,230.55 10,927.93
09/30/04 9,331.65 11,045.95
10/31/04 9,402.42 11,214.95
11/30/04 9,725.95 11,647.85
12/31/04 10,015.86 12,043.88
01/31/05 9,700.64 11,750.01
02/28/05 10,015.86 11,996.76
03/31/05 9,792.16 11,784.41
04/30/05 9,558.29 11,560.51
05/31/05 10,026.03 11,928.13
06/30/05 10,158.22 11,944.83
07/31/05 10,585.29 12,389.18
08/31/05 10,575.12 12,276.44
09/30/05 10,758.16 12,375.88
10/31/05 10,371.76 12,169.20
11/30/05 10,737.82 12,629.20
12/31/05 10,817.03 12,632.99
01/31/06 11,173.19 12,967.76
02/28/06 11,112.14 13,002.77
03/31/06 11,305.48 13,165.31
04/30/06 11,336.01 13,341.72
05/31/06 11,101.96 12,957.48
06/30/06 11,061.26 12,975.62
07/31/06 11,020.55 13,056.07
08/31/06 11,274.95 13,366.81
09/30/06 11,529.35 13,711.67
10/31/06 11,885.51 14,158.67
11/30/06 12,139.91 14,427.68
12/31/06 12,198.85 14,629.67
01/31/07 12,352.10 14,850.58
02/28/07 12,014.94 14,559.51
03/31/07 12,362.31 14,722.57
04/30/07 12,934.46 15,374.78
05/31/07 13,332.91 15,911.36
06/30/07 13,312.48 15,647.24
07/31/07 13,046.84 15,162.17
08/31/07 13,149.01 15,389.60
09/30/07 13,496.38 15,965.18
10/31/07 14,007.22 16,219.02
*net of fees and expenses
Performance data quoted represents past performance which is no guarantee of
future results. Investment return and principle value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Mutual 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 current to the most recent month end performance and after tax
returns, contact the Fund at 1-800-625-5759.
----------
1 The Fund's performance assumes the reinvestment of all dividends and
distributions. The indices have been adjusted to reflect reinvestment of
dividends on securities. The indices are 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 indices
are unmanaged.
4
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BBH CORE SELECT
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of BBH Trust and Shareholders
of BBH Core Select:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of BBH Core Select (a series of BBH Trust) (the
"Fund") as of October 31, 2007, and 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, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned at October 31, 2007, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of BBH
Core Select as of October 31, 2007, 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.
Deloitte & Touche LLP
Boston, Massachusetts
December 27, 2007
FINANCIAL STATEMENT OCTOBER 31, 2007 5
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
PORTFOLIO ALLOCATION
October 31, 2007 (unaudited)
SECTOR DIVERSIFICATION
Percent of
U.S. $ Value Net Assets
- ------------ ----------
Consumer Discretionary ..................... $ 17,615,882 14.4%
Consumer Staples ............................. 26,709,592 21.9
Energy ....................................... 7,237,002 5.9
Financials ................................... 21,614,728 17.7
Health Care .................................. 7,272,788 5.9
Industrials .................................. 5,410,283 4.4
Information Technology ..................... 20,261,385 16.6
Materials .................................... 5,235,650 4.3
Short-Term Investment ...................... 10,086,648 8.3
Cash and Other Assets In
Excess of Liabilities ...................... 765,845 0.6
- ------------ -----
NET ASSETS ................................... $122,209,803 100.0%
========== =====
All data as of October 31, 2007. The Fund's sector breakdown is expressed as a
percentage of net assets and may vary over time.
The accompanying notes are an integral part of these financial statements.
6
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BBH CORE SELECT
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2007
Shares Value
- --------- -----------
COMMON STOCKS (91.1%)
CONSUMER DISCRETIONARY (14.4%)
80,275 Bed, Bath & Beyond, Inc.(1).......................... $ 2,724,533
255,225 Comcast Corp. (Class A)(1)........................... 5,372,486
200,075 Liberty Global, Inc. (Series C)(1)................... 7,338,751
52,800 Viacom, Inc. (Class B)(1)............................ 2,180,112
- -----------
Total Consumer Discretionary......................... 17,615,882
- -----------
CONSUMER STAPLES (21.9%)
97,150 Cadbury Schweppes, Plc. ADR.......................... 5,172,266
42,400 Coca-Cola Co......................................... 2,618,624
71,940 Costco Wholesale Corp................................ 4,838,684
53,125 Nestle SA ADR........................................ 6,124,696
33,475 PepsiCo, Inc......................................... 2,467,777
121,379 Wal-Mart Stores, Inc................................. 5,487,545
-----------
Total Consumer Staples............................... 26,709,592
-----------
ENERGY (5.9%)
66,475 Occidental Petroleum Corp............................ 4,590,099
39,875 XTO Energy, Inc...................................... 2,646,903
- -----------
Total Energy......................................... 7, 237,002
-----------
FINANCIALS (17.7%)
82,875 AFLAC, Inc........................................... 5,202,893
65 Berkshire Hathaway, Inc. (Class A)1.................. 8,612,500
102,675 Chubb Corp........................................... 5,477,711
44,450 Freddie Mac.......................................... 2,321,624
-----------
Total Financials..................................... 21,614,728
-----------
HEALTH CARE (5.9%)
46,375 Amgen, Inc.(1)....................................... 2,694,851
86,100 Novartis AG ADR...................................... 4,577,937
-----------
Total Health Care.................................... 7,272,788
-----------
INDUSTRIALS (4.4%)
148,675 Waste Management, Inc................................ 5,410,283
-----------
Total Industrials.................................... 5,410,283
-----------
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 7
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BBH CORE SELECT
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
OCTOBER 31, 2007
Shares Value
--------- -----------
COMMON STOCKS (continued)
INFORMATION TECHNOLOGY (16.6%)
185,590 Dell, Inc.(1)....................................... $ 5,679,054
116,925 Intuit, Inc.(1)..................................... 3,761,477
136,838 Microsoft Corp...................................... 5,037,007
262,425 Western Union Co.................................... 5,783,847
- ------------
Total Information Technology........................ 20,261,385
- ------------
MATERIALS (4.3%)
61,250 Praxair, Inc........................................ 5,235,650
- ------------
Total Materials..................................... 5,235,650
------------
TOTAL COMMON STOCKS
(Identified cost $91,504,186)... 111,357,310
------------
Principal
Amount
---------
SHORT-TERM INVESTMENT (8.3%)
$10,100,000 U.S. Treasury Bills 3.428% 11/15/07................. 10,086,648
------------
TOTAL SHORT-TERM INVESTMENT
(Identified cost $10,086,575) 10,086,648
------------
TOTAL INVESTMENTS (Identified cost $101,590,761)(2)... 99.4% $121,443,958
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........ 0.6 765,845
----- ------------
NET ASSETS ......................................... 100.0% $122,209,803
===== =========
----------
(1) Non-income producing security.
(2) The aggregate cost for federal income tax purposes is $101,609,046, the
aggregate gross unrealized appreciation is $22,448,801, and the aggregate
gross unrealized depreciation is $2,613,889, resulting in net unrealized
appreciation of $19,834,912.
ADR - American Depositary Receipt.
The accompanying notes are an integral part of these financial statements.
8
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BBH CORE SELECT
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2007
ASSETS:
Investments in securities, at value
(identified cost $101,590,761) $121,443,958
Receivables for:
Investments sold ............................................. 2,687,874
Capital stock sold ........................................... 89,828
------------
Total Assets ............................................... 124,221,660
=========
LIABILITIES:
Due to Brown Brothers Harriman ................................. 118,280
Payables for:
Investments purchased ........................................ 1,261,586
Capital stock redeemed ....................................... 393,773
Investment advisory fees ..................................... 123,572
Shareholder servicing fees ................................... 47,528
Administrative fees .......................................... 28,517
Professional fees ............................................ 18,282
Custody and accounting fees .................................. 12,000
Board of Trustees' fees ...................................... 819
Accrued expenses and other liabilities ....................... 7,500
------------
Total Liabilities .......................................... 2,011,857
------------
NET ASSETS ........................................................ $122,209,803
=========
Net Assets Consist of:
Par value ...................................................... $ 8,914
Paid-in capital ................................................ 102,654,929
Undistributed net investment income ............................ 148,693
Accumulated net realized loss on investments ................... (455,930)
Net unrealized appreciation on investments ..................... 19,853,197
- ------------
Net Assets ........................................................ $122,209,803
=========
NET ASSET VALUE AND OFFERING PRICE PER CLASS N SHARE
($122,209,803 / 8,914,156 shares outstanding) .................. $13.71
======
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 9
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended October 31, 2007
NET INVESTMENT INCOME:
Income:
Dividends and other income (net of withholding tax $26,551) $ 1,044,587
Interest .................................................... 289,112
Other income ................................................ 781
-----------
Total Income .............................................. 1,334,480
-----------
Expenses:
Investment advisory fees .................................... 643,706
Shareholder servicing fees .................................. 247,579
Administrative fees ......................................... 148,547
Custody and accounting fees ................................. 52,055
Professional fees ........................................... 20,551
Board of Trustees' fees ..................................... 13,337
Miscellaneous expenses ...................................... 52,521
- -----------
Total Expenses ............................................ 1,178,296
Expense offset arrangement ................................ (26,964)
- -----------
Net Expenses .............................................. 1,151,332
- -----------
Net Investment Income ......................................... 183,148
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain on investments .............................. 5,592,528
Net change in unrealized appreciation on investments .......... 10,551,809
- -----------
Net Realized and Unrealized Gain ............................ 16,144,337
-----------
Net Increase in Net Assets Resulting from Operations .......... $ 16,327,485
========
The accompanying notes are an integral part of these financial statements.
10
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BBH CORE SELECT
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STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Years Ended October, 31
-------------------------------
2007 2006
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income ................................ $ 183,148 $ 335,861
Net realized gain on investments ..................... 5,592,528 4,424,368
Net change in unrealized appreciation on
investments ........................................ 10,551,809 5,591,321
------------ ------------
Net increase in net assets resulting from operations 16,327,485 10,351,550
------------ ------------
Dividends and distributions to Class N shareholders
declared from net investment income: ................. (350,622) (48,978)
------------ ------------
Capital stock transactions:
Net proceeds from sales of capital stock ............. 6,694,371 27,811,128
Net asset value of capital stock issued to
shareholders
for reinvestment of distributions .................. 36,137 41,362
Net cost of capital stock redeemed ................... (23,479,800) (17,154,390)
------------ - -----------
Net increase in net assets resulting from
capital stock transactions ....................... 23,250,708 10,698,100
----------- - ------------
Total increase in net assets ....................... 39,227,571 21,000,672
NET ASSETS:
Beginning of year ...................................... 2,982,232 61,981,560
------------ ------------
End of year (including undistributed net investment
income of $148,693 and $316,167, respectively) ... $122,209,803 $ 82,982,232
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 11
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a Class N share outstanding throughout
each year
<TABLE>
<CAPTION>
For the years ended October 31,
------------------------------------------------------------------
2007 2006 2005 2004 2003
------- ------- ------- ------- - -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ...... $11.74 $10.20 $9.30 $8.94 $7.79
------- ------- ------- ------- - -------
Income from investment operations:
Net investment income ................. 0.02 0.04 0.05 0.02 0.04
Net realized and unrealized gain ...... 2.00 1.51 0.91 0.38 1.12
- ------- ------- ------- ------- - -------
Total income from investment
operations ........................ 2.02 1.55 0.96 0.40 1.16
------- ------- ------- ------- - -------
Less dividends and distributions:
From net investment income ............ (0.05) (0.01) (0.06) (0.04) (0.01)
------- ------- ------- ------- -------
Net asset value, end of year ............ $13.71 $11.74 $10.20 $9.30 $8.94
===== ===== ===== ===== ====
Total return ............................ 17.25% 15.18% 10.31% 4.46% 14.34%
Ratios/Supplemental data:
Net assets, end of year (in millions) $122 $83 $62 $48 $47
Expenses as a percentage of
average net assets .................. 1.16%1 1.19%1 1.22%1,2 1.20%2 1.20%2
Ratio of net investment income to
average net assets .................. 0.18% 0.45% 0.47% 0.23% 0.42%
Portfolio turnover rate ............... 18% 53% 59% 57% 44%
</TABLE>
----------
(1) For the years ended October 31, 2007, 2006 and 2005, the fund's expenses
were reduced through an expense offset arrangement with the fund's
custodian, had the arrangement not been in place, the actual expense ratio
of the fund would have been 1.19%, 1.24% and 1.27%, respectively.
(2) Had the expense reimbursement agreement, which terminated on December 31,
2004, not been in place, the ratio of expenses to average net assets would
have been as follows:
N/A N/A 1.24% 1.32% 1.36%
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
October 31, 2007
1. Organization and Significant Accounting Policies. BBH Core Select (the
"Fund") (formerly BBH Tax-Efficient Equity Fund) is a separate,
diversified series of BBH Trust (the "Trust"), which is registered under
the Investment Company Act of 1940, as amended 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 November 2, 1998. On February 20, 2001, the Trustees
reclassified the Fund's outstanding shares as "Class N", and established a
new class of shares designated as "Class I". As of October 31, 2007, there
were no Class I shares outstanding. At October 31, 2007, there were seven
series of the Trust.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, which
require management to make certain estimates and assumptions at the date
of the financial statements and are based, in part, on the following
accounting policies. Actual results could differ from those estimates.
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) unlisted securities 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 Trust's Board of Trustees; (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 this is determined not to represent fair value by the Trust's
Board of Trustees.
B. Accounting for Investments and Income. Security transactions are
accounted for on the trade date. Realized gains and losses on
security transactions are determined on the identified cost method.
Dividend income and other distributions 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. Distributions received on securities that
represent a return of capital or a capital gain are recorded as a
reduction of cost of investments and/or as a realized gain. Interest
income is accrued daily. Investment income is recorded net of
foreign taxes withheld where recovery of such tax is uncertain.
C. Securities Lending. The Fund may lend its portfolio securities to
broker-dealers, qualified banks and certain institutional investors.
The loans are secured by collateral in an amount equal to at least
the market value at all times of the loaned securities plus any
accrued interest and dividends. During the time the securities are
on loan, the Fund will continue to receive the interest and
dividends or amounts equivalent thereto, on the loaned securities
while receiving a fee from the borrower or earning interest on the
investment of the cash collateral. Loans are subject to termination
at the option of the borrower or the Fund. Upon termination of the
loan, the borrower will return to the lender securities identical to
the loaned securities. The Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan of its
securities and may share the interest earned on the collateral with
the borrower. The Fund bears the risk of delay in recovery of, or
even loss of rights in, the securities loaned should the borrower of
the securities fail financially. There were no securities on loan as
of October 31, 2007.
FINANCIAL STATEMENT OCTOBER 31, 2007 13
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BBH CORE SELECT
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
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 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 accounting principles generally accepted in the
United States of America, the basis on which these financial
statements are prepared. Accordingly, the amount of net investment
income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return due to
certain book-to-tax 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 on 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.
E. Dividends and Distributions to Shareholders. Dividends and
distributions to shareholders, if any, are paid annually and are
recorded on the ex-dividend date. The tax character of distributions
paid during the fiscal years ended October 31, 2007 and 2006,
respectively, were as follows:
Distribution paid from:
- --------------------------------------------------------------------------------
Net Total Total
Ordinary long term taxable Tax return distributions
Income capital gain distributions of capital paid
- ------- ------------ ------------- ---------- -------------
2007: $350,622 -- $350,622 -- $350,622
2006: 48,978 -- 48,978 -- 48,978
As of October 31, 2007 and 2006, respectively, the components of
accumulated earnings/(deficit) on a tax basis were as follows:
Components of accumulated earnings/(deficit):
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Undistributed Undistributed Accumulated Unrealized accumulated
ordinary long-term Accumulated capital and appreciation/ earnings/
income capital gains earnings other losses (depreciation) (deficit)
- ------------- - -------------- - ----------- - ------------- -------------- -----------
<C> <C> <C> <C> <C> <C> <C>
2007: $148,693 -- $148,693 $ (437,645) $19,834,912 $19,545,960
2006: 316,167 - -- 316,167 (6,039,537) 9,292,467 3,569,097
</TABLE>
The Fund had a net capital loss carryforward of approximately $437,645
which expires as follows:
Expiration
date Amount
- ---------- --------
10/31/2011 $347,756
10/31/2012 89,889
--------
$437,645
=====
14
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BBH CORE SELECT
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
Total distributions paid may differ from the Statement 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, such gains will not be distributed.
F. Accounting Developments. In June 2006, Financial Accounting
Standards Board Interpretation No. 48, Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement 109 (FIN 48) was
issued and is effective for fiscal years beginning after December
15, 2006. FIN 48 sets forth a threshold for financial statement
recognition, measurement and disclosure of a tax position taken or
expected to be taken on a tax return. While not expected to have a
material impact on the Fund's financial statements, management will
be evaluating the impact, if any, the adoption of FIN 48 will have
on the Funds' net assets and results of operations.
In September 2006, Statement of Financial Accounting Standards No.
157, Fair Value Measurements (SFAS 157), was issued and is effective
for fiscal years beginning after November 15, 2007. SFAS 157 defines
fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. Management is
currently evaluating the implication of SFAS 157. At this time its
impact on the Fund's financial statements has not yet been
determined.
2. Transactions with Affiliates.
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")
provides investment advice, portfolio management and administrative
services to the Fund. BBH receives a combined fee from the Fund for
advisory and administrative services calculated daily and paid monthly at
an annual rate equivalent to 0.80% of the Fund's average daily net assets.
Prior to June 12, 2007 under a separate agreement that covered only
advisory fees, BBH received a fee from the Fund calculated daily and paid
monthly at an annual rate of 0.65% of the Fund's average daily net assets
and Brown Brothers Harriman Trust Company, LLC ("BBHTC"), the Fund's
administrator, under a separate agreement that covered only administrative
services, received a fee from the Fund calculated daily and paid monthly
at an annual rate equivalent to 0.15% of the Fund's average daily net
assets. BBH has a sub-administration services agreement with Federated
Services Company ("FSC") for which FSC receives compensation paid by BBH.
For the year ended October 31, 2007, the Fund incurred $792,253 for
advisory and administrative services.
Shareholder Servicing Fees. The Trust has a shareholder servicing
agreement with BBH for which BBH receives a fee from the Fund calculated
daily and paid monthly at an annual rate of 0.25% of Class N shares'
average daily net assets. For the year ended October 31, 2007, the Fund
incurred $247,579 for shareholder servicing services.
FINANCIAL STATEMENT OCTOBER 31, 2007 15
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
Custody and Accounting Fees. BBH acts as a custodian and shall receive a
custody and accounting fee from the Fund calculated daily and paid
monthly. BBH holds all cash and investments and calculates the daily net
asset value. The custody fee is a transaction based fee with an annual
minimum of $30,000, and the accounting fee is calculated at 0.04% per
annum on the first $100 million of net assets, 0.02% per annum on the next
$400 million of net assets and 0.01% per annum on all net assets over $500
million. For the year ended October 31, 2007, the Fund incurred $52,055
for custody and accounting services. These fees were reduced by $26,964 as
a result of an expense offset arrangement with the Fund's custodian. 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 overdraft. As of October 31, 2007 the Fund
had $118,280 outstanding under such arrangements. The total interest paid
by the Fund for the year ended October 31, 2007 was $499.
Securities Lending Fees. The Trust has a security lending agreement with
BBH for which BBH receives a fee from the Fund for each security loaned.
For the year ended October 31, 2007, the Fund incurred no security lending
fees.
Board of Trustees' Fees. Each Trustee receives an annual fee as well as
reimbursement for reasonable out-of-pocket expenses from the Fund. For the
year ended October 31, 2007, the Fund incurred $13,337 for these fees.
3. Investment Transactions. For the year ended October 31, 2007, the cost of
purchases and the proceeds of sales of investment securities other than
short-term investments were $40,800,893 and $16,960,437, respectively.
4. Capital Stock. BBH Fund, Inc. was permitted to issue 2,500,000,000 shares
of capital stock, par value $.001 per share, of which 277,777,778 shares
were classified as Class N shares of the Fund and 277,777,778 shares were
classified as Class I shares of the Fund. There have been no transactions
in Class I shares of capital stock as of October 31, 2007. The Trust
offers unlimited shares without par value. Transactions in Class N shares
of capital stock were as follows:
Shares
-----------------------------------
For the For the
year ended year ended
October 31, 2007 October 31, 2006
---------------- ----------------
Capital stock sold .......................... 3,718,102 2,550,601
Capital stock issued in connection with
reinvestment of distributions ............ 3,021 3,844
Capital stock redeemed ...................... (1,876,256) (1,562,704)
---------- ----------
Net increase ................................ 1,844,867 991,741
======= ======
16
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
SUPPLEMENTAL PROXY INFORMATION
OCTOBER 31, 2007
Supplemental Proxy Information. A Special Meeting of BBH Fund, Inc. (the
"Corporation") was held on May 23, 2007. On April 5, 2007, the record date for
shareholders voting at the meeting, there were 108,931,295 total outstanding
shares of the Corporation and 7,798,384 total outstanding shares of the Fund.
The following item was considered by shareholders of the Corporation and the
result of their voting is listed below. Unless otherwise noted the matter was
approved.
Proposals:
(1) To elect two Trustees of the Funds;
Samuel F. Pryor IV
Shares voted affirmatively........ 89,470,872
Shares voted negatively........... 283,884
Shares abstaining...................... 19,777
H. Whitney Wagner
Shares voted affirmatively........ 89,474,508
Shares voted negatively........... 280,248
Shares abstaining...................... 19,777
The following items were considered by Fund shareholders and the results of
their voting are listed below. Unless otherwise noted, each matter was approved.
(2) To approve a new combined investment advisory and administrative services
agreement for the Fund with the current investment adviser of the Fund;
Shares voted affirmatively........ 7,021,979
Shares voted negatively........... 27,913
Shares abstaining...................... 0
(3) To approve changes to the Fund's fundamental investment policies in order
to modernize its investment restrictions and increase its investment
flexibility:
(a) To amend the Fund's fundamental investment policy regarding
diversification;
Shares voted affirmatively...... 7,021,979
Shares voted negatively......... 9,210
Shares abstaining.................... 18,703
(b) To amend the Fund's fundamental investment policy regarding
concentration;
Shares voted affirmatively...... 7,021,979
Shares voted negatively......... 9,210
Shares abstaining.................... 18,703
(c) To amend the Fund's fundamental investment policy regarding
underwriting;
Shares voted affirmatively...... 7,025,175
Shares voted negatively......... 9,210
Shares abstaining.................... 15,507
FINANCIAL STATEMENT OCTOBER 31, 2007 17
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
SUPPLEMENTAL PROXY INFORMATION (CONTINUED)
OCTOBER 31, 2007
(d) To amend the Fund's fundamental investment policy regarding
investing in commodities;
Shares voted affirmatively...... 7,025,175
Shares voted negatively......... 9,210
Shares abstaining.................... 15,507
(e) To amend the Fund's fundamental investment policy regarding
investing in real estate;
Shares voted affirmatively...... 7,025,175
Shares voted negatively......... 24,717
Shares abstaining.................... 0
(f) To amend the Fund's fundamental investment policy regarding
borrowing money and issuing senior securities;
Shares voted affirmatively...... 7,025,175
Shares voted negatively......... 9,210
Shares abstaining.................... 15,507
(g) To amend the Fund's fundamental investment policy regarding lending;
Shares voted affirmatively...... 7,025,175
Shares voted negatively......... 9,210
Shares abstaining.................... 15,507
(h) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding selling short;
Shares voted affirmatively...... 7,025,175
Shares voted negatively......... 9,210
Shares abstaining.................... 15,507
(i) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding illiquid securities;
Shares voted affirmatively...... 7,040,682
Shares voted negatively......... 9,210
Shares abstaining.................... 0
(j) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding investing in securities of other
investment companies;
Shares voted affirmatively...... 7,040,682
Shares voted negatively......... 9,210
Shares abstaining.................... 0
(k) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding purchases on margin;
Shares voted affirmatively...... 7,040,682
Shares voted negatively......... 9,210
Shares abstaining.................... 0
18
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
SUPPLEMENTAL PROXY INFORMATION (CONTINUED)
OCTOBER 31, 2007
(l) To amend, and to make non-fundamental, the Fund's fundamental
investment policy on restricted securities;
Shares voted affirmatively...... 7,025,175
Shares voted negatively......... 9,210
Shares abstaining.................... 15,507
(4) To approve the proposed Reorganization Agreement, pursuant to which each
series of BBH Fund, Inc. would be reorganized as separate series of BBH
Trust, (the "New BBH Trust"), a newly formed Delaware statutory trust.
Shares voted affirmatively...... 7,025,175
Shares voted negatively......... 9,210
Shares abstaining..................... 15,507
FINANCIAL STATEMENT OCTOBER 31, 2007 19
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES
October 31, 2007
EXAMPLE
As a shareholder of BBH Core Select, you may incur two types of costs: (1)
transaction costs on purchase payments, reinvested dividends, 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, 2007 to October 31, 2007).
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.
20
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES (continued)
October 31, 2007
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.
Expenses Paid
Beginning Ending During Period
Account Value Account Value May 1, 2007 to
Class N May 1, 2007 October 31, 2007 October 31, 2007(1)
------------- ---------------- -------------------
Actual ........................ $1,000 $1,082.90 5.93
Hypothetical(2) ........ $1,000 $1,019.51 5.75
----------
(1) Expenses are equal to the Fund's annualized expense ratio of 1.13% for
Class N shares, multiplied by the average account value over the period,
multiplied by 184/365 (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 is subtracted from
the assumed return before expenses.
FINANCIAL STATEMENT OCTOBER 31, 2007 21
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
DISCLOSURE OF ADVISOR SELECTION
October 31, 2007 (unaudited)
Approval of Investment Advisory/Administrative Services Agreement
At a meeting held on December 11, 2006, the Board of Trustees (the "Board") of
the Trust unanimously approved a new Combined Investment Advisory/Administrative
Services Agreement ("Combined Agreement"). The Board determined that the terms
of the Combined Agreement will be substantially identical to those of the
current advisory and administration agreements of the Funds, noting that the
most significant difference in the Combined Agreement is a single fee for both
advisory and administrative services. The following is a summary of the factors
the Board took into consideration in making its determination to approve the new
Combined Agreement.
Nature, Extent and Quality of Services Provided by Brown Brothers Harriman & Co.
("BBH")
The Board noted that, under the Combined Agreement in respect of each
Fund, BBH, subject to the supervision of the Board, will be responsible for
providing a continuous investment program and making purchases and sales of
portfolio securities consistent with the Funds' investment objective and
policies. Under the Combined Agreement, BBH also provides administrative
services to each Fund.
The Board considered the scope and quality of services to be provided by BBH
under the Combined Agreement and noted that the scope of services provided had
expanded over time, primarily, as a result of regulatory developments. The Board
noted that, for example, BBH is responsible for maintaining and monitoring its
own and, to varying degrees, the Funds' compliance program, and these compliance
programs have recently been refined and enhanced in light of new regulatory
requirements. The Board considered the quality of the investment research and
administrative capabilities of BBH and the other resources it has dedicated to
performing services for the Funds. The Board concluded that, overall, they were
satisfied with the nature, extent and quality of services expected to be
provided to each of the Funds under the Combined Agreement.
Costs of Services Provided and Profitability to BBH
At the request of the Board, BBH provided information concerning the
profitability of BBH's current investment company advisory and other fees. The
Board also reviewed BBH's profitability data for each Fund, which also included
the effect of revenue generated by the shareholder servicing, administration,
custody and other fees paid by the Fund. The Board discussed the difficulty of
making comparisons of profitability because comparative information is not
generally publicly available and is affected by numerous factors, including the
structure of the service provider, the types of funds it manages and
administers, its business mix, numerous assumptions regarding allocations and
the entity's capital structure and cost of capital. In considering profitability
information, the Board considered the effect of fall-out benefits on BBH's
expenses, as well as the "revenue sharing" arrangements BBH has entered into
with certain entities that distribute shares of the Funds. The Board focused on
profitability of BBH's relationships with the Funds before taxes and
distribution expenses. The Board concluded that it was satisfied that BBH's
level of profitability from its relationship with each Fund was not excessive.
22
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
DISCLOSURE OF ADVISOR SELECTION (continued)
October 31, 2007 (unaudited)
Fall-Out Benefits
The Board considered that BBH does not allocate the Funds' portfolio
transactions for third party research, although it did benefit from proprietary
research received from brokers that execute the Funds' purchases and sales of
securities. The Board recognized that the aggregate amount of commissions
generated by Fund transactions was unlikely to result in the Funds receiving
from full service broker dealers substantial discounts on commission rates.. The
Board received and reviewed information concerning BBH's policies with respect
to allocating portfolio brokerage.
The Board also considered that BBH receives shareholder servicing fees from
certain funds, and is the Funds' administrator, custodian and securities lending
agent. The Board noted that BBH retained no portion of the 12b-1 fees paid by
any Fund that operated with a Rule 12b-1 plan. The Board recognized that BBH's
profitability would be somewhat lower if it did not receive proprietary research
for commissions or, if it did not receive the other benefits described above.
The Board recognized that most Fund shareholders were also BBH clients, and that
substantial assets are invested in the Funds as a result of an overall
investment management program for the shareholder. The Board noted that the
Funds also derive reputational and other benefits from their association with
BBH and their use of the BBH name, which is licensed to the Funds by BBH.. Thus,
the Board did not believe that BBH revenues associated with its clients should
be fairly regarded as "fallout" benefit from the Funds.
Economies of Scale
The Board noted that the Funds' combined fee schedules, other than the fee
schedule for BBH Money Market Fund, do not contain breakpoints. As a result, if
assets increase, the fee rates would not be reduced for these Funds on the
incremental assets. With respect to the BBH Money Market Fund, the breakpoint
will be reviewed every three (3) years by the Board, and may be adjusted upwards
to take into account the effects of inflation or such other basis as may be
appropriate, subject to the approval of shareholders to the extent required by
the 1940 Act.
There may be other economies of scale because many expenses did not rise (and
fall) proportionally to increases (and decreases) in total net assets. The Board
noted that BBH had priced its services in recognition of the fact that it was
largely its own clients who were shareholders and, accordingly, sought to assure
that the cost of these services and total expenses for each Fund were fair and
reasonable. In addition, the Board noted that over the years BBH had supported
certain Funds through fee waivers and expense reimbursements. Based on
information they had been provided over many years, the Board observed that in
the mutual fund industry as a whole, as well as among funds similar to the
Funds, there appeared to be no uniformity or pattern in the fees and asset
levels at which breakpoints (if any) apply. In light of the Funds' current size
and expense structure, the Board concluded that it was unnecessary at this time
to consider breakpoints with respect to the Funds, other than for the BBH Money
Market Fund.
FINANCIAL STATEMENT OCTOBER 31, 2007 23
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
DISCLOSURE OF ADVISOR SELECTION (continued)
October 31, 2007 (unaudited)
Investment Results
The Board considered the investment results of each of the Funds as compared to
investment companies with its peers and with one or more selected securities
indices. In addition to the information received by the Board for the meeting
held on October 2, 2006, the Board received detailed performance information for
each Fund at each regular Board meeting during the year. At the meeting held on
October 2, 2006, the Board reviewed information showing performance of each Fund
compared to its peers over the prior 1-, 3-, and 5- year periods and compared
the performance information to one or more securities indices over comparable
periods.
Combined Fee Rate
The Board considered the fee rate to be paid by each Fund to BBH The Board
recognized that it is difficult to make comparisons of these fee rates, and the
combined advisory and administration fees, because there are variations in the
services that are included in the fees paid by other funds.
The Board considered the depth and range of services provided under the Combined
Agreement. For example, in addition to a continuous investment program, BBH
provides, among other things, officers (including the Funds' Chief Compliance
Officer and officers to provide required certifications) and administrative
services, such as shareholder communications, and tax compliance, with the
attendant costs and exposure to liability. BBH also coordinates the provision of
services to the Funds by nonaffiliated service providers.
The following factors specific to BBH Core Select also were noted and considered
by the Board in deciding to approve the Combined Agreement:
The Board reviewed the comparative performance of BBH Core Select versus the
Standard's and Poor's 500 Index (the "Index"). The Board viewed favorably
management's decision to implement a new portfolio construction methodology in
the second quarter of 2004, a methodology which puts greater emphasis on
fundamental valuation considerations and less emphasis on tracking error to a
broad market index such as the Index. The Board also reviewed favorably BBH's
decision to have a Partner and Managing Director of the firm be the co-managers
of BBH Core Select beginning in the fourth quarter of 2005. The Board also
appreciated that the strategy of long-term, low turnover investing in cash
generative companies at prices that have a margin of safety to intrinsic value
should provide the shareholders with long-term appreciation at a relatively
modest level of risk. The Board recognized that divergence from the benchmark
was to be expected because of the manager's clearly defined fundamental
investment style with very little concern for tracking error to the broad
market. The Board spent considerable time in reviewing BBH Core Select's
investments and confirming that those investments were consistent with the new
investment methodology. They concurred that the new portfolio construction
methodology and its implementation will need to be judged over a three to five
year timeframe. The Board also noted BBH Core Select's expense ratio was in line
with many funds of similar size and investment mandate. Taking into account all
of the
24
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
DISCLOSURE OF ADVISOR SELECTION (continued)
October 31, 2007 (unaudited)
factors considered, the Board concluded that BBH Core Select's recent investment
results and its total expense ratio were acceptable and that they retained
confidence in the manager to achieve BBH Core Select's investment objective.
Conflicts of Interest
As a general matter, certain conflicts of interest may arise in connection with
a portfolio manager's management of a Fund's investments, on the one hand, and
the investments of other accounts for which the portfolio manager is
responsible, on the other. For example, it is possible that the various accounts
managed could have different investment strategies that, at times, might
conflict with one another to the possible detriment of the Fund. Alternatively,
to the extent that the same investment opportunities might be desirable for more
than one account, possible conflicts could arise in determining how to allocate
them. Other potential conflicts might include conflicts created by specific
portfolio manager compensation arrangements, and conflicts relating to selection
of brokers or dealers to execute Fund portfolio trades and/or specific uses of
commissions from Fund portfolio trades (for example, research, or "soft
dollars").
BBH has adopted and implemented policies and procedures, including brokerage and
trade allocation policies and procedures, which it believes address the
conflicts associated with managing multiple accounts for multiple clients. In
addition, BBH monitors a variety of areas, including compliance with account
investment guidelines, the inclusion only of securities approved for purchase by
the BBH's Fixed Income Credit Committee, and compliance with the BBH's Code of
Ethics. Finally, BBH has structured the portfolio managers' compensation in a
manner, and the Funds have adopted policies and procedures, reasonably designed
to safeguard a Fund from being negatively affected as a result of any such
potential conflicts.
FINANCIAL STATEMENT OCTOBER 31, 2007 25
<PAGE>
BBH CORE SELECT
--------------------------------------------------------------------------------
ADDITIONAL FEDERAL TAX INFORMATION (unaudited)
The amount of qualified interest income (QII) dividends paid by the BBH Core
Select (the "Fund") for the year ended October 31, 2007 was $51,568.
Under Section 854(b)(2) of the Internal Revenue Code (the "Code"), the Fund
designates up to a maximum of $1,071,138 as qualified dividends for purposes of
the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
October 31, 2007. In January 2008, shareholders will receive Form 1099-DIV which
will include their share of qualified dividends distributed during the calendar
year 2007. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their individual income tax
returns.
100% of the ordinary income dividends paid by the Fund during the year ended
October 31, 2007 qualifies for the dividends received deduction available to
corporate shareholders.
26
<PAGE>
TRUSTEES AND OFFICERS OF BBH CORE SELECT
--------------------------------------------------------------------------------
(unaudited)
Information pertaining to the Trustees of the BBH Trust (the "Trust") and
executive officers of the Trust is set forth below. Part B to the Registration
Statement of the BBH Core Select includes additional information about the
Fund's Trustees and is available upon request without charge by contacting the
Fund at 1-800-625-5759.
<TABLE>
<CAPTION>
Term of Number of
Office Funds in
and Fund Other
Position(s) Length Complex Directorships
Name, Birth Date Held with of Time Principal Occupation(s) Overseen by Held by
and Address Trust Served# During Past 5 Years Trustee^ Trustee
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joseph V. Shields Jr. Chairman of Since Managing Director, Chairman and 7 None
Birth Date: the Board and 2007 Chief Executive Officer of Shields &
March 17, 1938 Trustee Company (member of New York Stock
Shields & Company Exchange); Chairman of Capital
140 Broadway Management Associates, Inc.
New York, NY 10005 (registered investment adviser);
Director of Flower Foods, Inc. (New
York Stock Exchange listed company).
Eugene P. Beard Trustee Since Chairman & CEO of Westport Asset 7 Director of Old
Birth Date: 2007 Fund, Inc. Westbury Funds
March 17, 1935 (7 Funds)
800 Connecticut Ave.,
3 East
Norwalk, CT 06854
David P. Feldman Trustee Since Director of Jeffrey Co. (1992 to 7 Director of
Birth Date: 2007 present); Director of QMED (1999 to Dreyfus
November 16, 1939 May 2007). Mutual Funds
C/O BBH & Co. (59 Funds)
140 Broadway
New York, NY 10005
Alan G. Lowy Trustee Since Private Investor. 7 None
Birth Date: 2007
April 17, 1939
4111 Clear
Valley Drive
Encino, CA 91436
Arthur D. Miltenberger Trustee Since Retired; Trustee, R.K. Mellon Family 7 None
Birth Date: 2007 Trust (1981 to June 2003); Director of
November 8, 1938 Aerostructures Corporation (aircraft
503 Darlington Road manufacturer) (1996 to July 2003).
Ligonier, PA 15658
</TABLE>
FINANCIAL STATEMENT OCTOBER 31, 2007 27
<PAGE>
TRUSTEES AND OFFICERS OF BBH CORE SELECT
--------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Term of Number of
Office Funds in
and Fund Other
Position(s) Length Complex Directorships
Name, Birth Date Held with of Time Principal Occupation(s) Overseen by Held by
and Address Trust Served# During Past 5 Years Trustee^ Trustee
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Samuel F. Pryor, IV Trustee Since Private Investor. 7 None
Birth Date: 2007
June 12, 1955
130 East 67th Street
New York, NY 10021
H. Whitney Wagner Trustee Since President, Clear Brook Advisors, a 7 None
Birth Date: 2007 registered investment advisor.
March 3, 1956
Clear Brook Advisors
75 Rockefeller Plaza,
14th Floor
New York, NY 10019
Officers
John A. Nielsen President and Since President and Principal Executive N/A N/A
Birth Date: Principal 2007 Officer of the Trust; He joined Brown
July 15, 1943 Executive Brothers Harriman & Co. ("BBH") in
140 Broadway Officer 1968 and has been a Partner of the
New York, NY 10005 firm since 1987.
Charles H. Schreiber Treasurer, Since Treasurer, Principal Financial Officer N/A N/A
Birth Date: Principal 2007 and Anti-Money Laundering Officer of
December 10, 1957 Financial the Trust; Senior Vice President of
140 Broadway Officer, Anti- BBH since September 2001; Joined
New York, NY 10005 Money BBH in 1999.
Laundering
Officer
Mark B. Nixon Assistant Since Assistant Secretary and Assistant N/A N/A
Birth Date: Secretary, 2007 Treasurer of the Trust; Vice President
January 14, 1963 Assistant of BBH (since October 2006);
140 Broadway Treasurer Accounting Manager, Reserve Funds
New York, NY 10005 (August 2005-September 2006);
Assistant Controller, Reserve Funds
(February 2005-August 2005); Private
Consultant (December 2001-February
2005).
Beth Haddock Chief Since Chief Compliance Officer of the Trust N/A N/A
Birth Date: Compliance 2007 (September 2007-present); Chief
December 10, 1965 Officer Compliance Officer for the
140 Broadway FINRA/NYSE and SEC compliance
New York, NY 10005 programs and Associate Compliance
Director for the global compliance
program (April 2005-present); Deputy
General Counsel of AXA Advisors/
AXA Financial (November 1997-April
2005)
</TABLE>
28
<PAGE>
TRUSTEES AND OFFICERS OF BBH CORE SELECT
--------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Term of Number of
Office Funds in
and Fund Other
Position(s) Length Complex Directorships
Name, Birth Date Held with of Time Principal Occupation(s) Overseen by Held by
and Address Trust Served# During Past 5 Years Trustee^ Trustee
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gail C. Jones Secretary Since Secretary of the Trust; Counsel, N/A N/A
Birth Date: 2007 ReedSmith, LLP (since October 2002);
October 26, 1953 Corporate Counsel (January 1997 to
1001 Liberty Avenue September 2002) and Vice President
Pittsburgh, PA (January 1999 to September 2002) of
15222-3779 Federated Services Company.
Judith J. Mackin Vice President Since Vice President of the Trust; Vice N/A N/A
Birth Date: 2007 President (since November 1997) of
May 30, 1960 Federated Services Company.
1001 Liberty Avenue,
Pittsburgh, PA
15222-3779
John C. Smith Assistant Since Assistant Treasurer of the Trust; Vice N/A N/A
Birth Date: Treasurer 2007 President (since 2004); Assistant Vice
August 2, 1965 President (since September 2001);
50 Milk Street Associate (September 2000 to August
Boston, MA 02109 2001); and Senior Analyst (June 1999
to August 2000) of BBH & Co.
</TABLE>
----------
# Each Trustee of the Trust holds office until he or she attains the age of
70 (72, in the case of Trustees who were elected as such before January 1,
2000), or until he or she sooner dies, resigns or is removed from office
in accordance with the provisions of the Trust's Declaration of Trust. 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).
Each Trustee previously served on the Board of Trustees of the Predecessor
Funds.
^ The Fund Complex consists of the Trust, which has seven series and each is
counted as one "Fund" for purposes of this table.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 29
<PAGE>
INVESTMENT ADVISER AND ADMINISTRATOR
BROWN BROTHERS HARRIMAN
140 BROADWAY
NEW YORK, NY 10005
DISTRIBUTOR
EDGEWOOD SERVICES, INC.
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
SHAREHOLDER SERVICING AGENT
BROWN BROTHERS HARRIMAN
140 BROADWAY
NEW YORK, NY 10005
(800) 625-5759
To obtain information or make shareholder inquiries:
By telephone: Call 1-800-575-1265
By E-mail send your request to: bbhfunds@bbh.com
On the internet: www.bbhfunds.com
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. Such offering is made only by the prospectus, which includes details as to
offering price and other material information.
The Fund files with the SEC a complete schedule of its portfolio holdings, as of
the close of the first and third quarters of its fiscal year, on "Form N-Q."
Information on Form N-Q is available without charge and upon request by calling
the Funds at the toll-free number listed above. A text only version can be
viewed online or downloaded from the SEC's website at http://www.sec.gov; and
may be reviewed and copied at the SEC's Public Reference Room in Washington, DC
(call 1-800-SEC-0330 for information on the operation of the Public Reference
Room). You may also access this information from the BBH website at BBH.com by
clicking on "BBH Mutual Funds" and selecting "Online Documents/Holdings
Information."
A copy of the Fund's Proxy Voting Policy is available upon request by calling
the toll-free number listed above. A text-only version of the policy can be
viewed online or downloaded from the SEC at www.sec.gov.
BROWN [LOGO]
BROTHERS
HARRIMAN
================================================================================
BROWN [LOGO]
BROTHERS
HARRIMAN
Annual Report
OCTOBER 31, 2007
BBH INTERNATIONAL EQUITY FUND
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For the 12-month period ended October 31, 2007, the BBH International Equity
Fund Class N Shares returned 21.01%(1) net of fees, while the Class I Shares
returned 21.28%(1). The Fund's benchmark, MSCI Europe, Australasia Far East
Index(2) (the "EAFE"), returned 24.91% over the same period. The Fund continues
to employ two sub-advisors who are monitored by BBH. One manager, Mondrian
Investment Partners ("Mondrian"), employs a value strategy while the other,
Walter Scott & Partners ("Walter Scott"), employs a growth strategy.. New assets
continue to be equally allocated between both managers.
The performance of the Fund's portfolio managed by Mondrian has been roughly in
line with the EAFE during the reporting period, while the performance of the
Fund's portfolio managed by Walter Scott has been hurt by an overweight position
in Japan. Walter Scott continued to find attractively valued companies with
above average growth rates in Japan and greater Asia believing that recent
European performance has been driven by unsustainable M&A activity. Mondrian
also maintained a modest underweight in Europe finding value in Australian
businesses, where management maintained an overweight position.
Both managers continued to employ benchmark agnostic strategies focused on
absolute real rates of return. They invest in quality businesses with clear
plans for the future, competitive positions among peers and strong management
teams dedicated to increasing shareholder value. This investment process allowed
the Fund to be defensively positioned as volatility in global markets continued
to increase.
----------
(1) Performance data quoted represents 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. Mutual Fund performance changes over time and current
performance may be lower or higher than what is stated. For current to the
most recent month end performance and after tax returns, contact the Fund
at 1-800-625-5759.
(2) MSCI Europe, Australasia and Far East Index (EAFE): An unmanaged market
capitalization-weight equity index comprising 20 of 48 countries in the
MSCI universe and representing the developed world outside of North
America. Each MSCI country index is created separately, then aggregated,
without change, into regional MSCI indices. EAFE performance data is
calculated in U.S. dollars and in local currency.
2
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE (continued)
Growth of $10,000 Invested in BBH International Equity Fund
The graph below illustrates the hypothetical investment of $10,000(1) in the
Class N Shares of the Fund over the ten years ended to October 31, 2007 as
compared to the EAFE.
[The following information was depicted as a line chart in the printed material]
Total Return for the Period Ended October 31, 2007
--------------------------------------------------------------------------
Five Years Ten Years
One Year (Annualized) (Annualized)
-------------------------------------------------------------------------
Class N 21.01% 19.64% 8.40%(2)
-------------------------------------------------------------------------
Class I 21.28% 19.93% 8.72%
-------------------------------------------------------------------------
International
Date Equity Fund* MSCI-EAFE
-------- - ------------- -----------
10/31/97 10,000.00 10,000.00
11/30/97 10,010.62 9,898.06
12/31/97 10,120.70 9,984.39
01/31/98 10,452.70 10,441.02
02/28/98 10,945.35 11,110.97
03/31/98 11,534.38 11,453.09
04/30/98 11,770.00 11,543.75
05/31/98 11,962.77 11,487.72
06/30/98 12,059.16 11,574.69
07/31/98 12,487.55 11,692.03
08/31/98 10,731.15 10,243.52
09/30/98 10,399.15 9,929.47
10/31/98 10,806.12 10,964.52
11/30/98 11,609.35 11,526.25
12/31/98 11,757.03 11,980.96
01/31/99 11,842.92 11,945.58
02/28/99 11,799.98 11,660.89
03/31/99 12,411.99 12,147.63
04/30/99 12,798.52 12,639.84
05/31/99 12,422.72 11,988.90
06/30/99 13,131.37 12,456.32
07/31/99 13,507.16 12,826.56
08/31/99 13,517.90 12,873.40
09/30/99 13,678.95 13,003.42
10/31/99 14,001.06 13,491.05
11/30/99 14,870.76 13,959.19
12/31/99 17,064.94 15,212.73
01/31/00 16,244.30 14,246.72
02/29/00 16,930.04 14,629.95
03/31/00 17,458.41 15,197.60
04/30/00 16,649.00 14,398.20
05/31/00 16,244.30 14,046.89
06/30/00 17,008.74 14,596.12
07/31/00 16,165.61 13,984.54
08/31/00 16,233.06 14,106.21
09/30/00 15,502.34 13,419.24
10/31/00 14,940.26 13,102.54
11/30/00 14,344.45 12,611.20
12/31/00 14,724.20 13,058.89
01/31/01 14,644.55 13,052.36
02/28/01 13,472.53 12,073.44
03/31/01 12,573.60 11,268.14
04/30/01 13,495.28 12,051.27
05/31/01 13,006.00 11,625.86
06/30/01 12,516.71 11,150.37
07/31/01 12,050.17 10,947.43
08/31/01 11,629.16 10,670.46
09/30/01 10,195.43 9,589.54
10/31/01 10,616.44 9,835.04
11/30/01 10,991.94 10,197.95
12/31/01 11,048.84 10,258.12
01/31/02 10,434.38 9,713.41
02/28/02 10,457.14 9,781.40
03/31/02 10,912.29 10,310.58
04/30/02 10,957.81 10,378.63
05/31/02 11,037.46 10,510.44
06/30/02 10,707.47 10,092.12
07/31/02 9,728.89 9,096.03
08/31/02 9,694.76 9,075.11
09/30/02 8,693.42 8,100.44
10/31/02 9,137.20 8,535.43
11/30/02 9,478.56 8,922.94
12/31/02 9,138.67 8,623.13
01/31/03 8,773.58 8,263.55
02/28/03 8,591.03 8,074.31
03/31/03 8,476.94 7,916.06
04/30/03 9,013.17 8,691.83
05/31/03 9,446.71 9,218.55
06/30/03 9,549.40 9,441.64
07/31/03 9,766.17 9,670.13
08/31/03 9,868.85 9,903.18
09/30/03 10,017.17 10,208.20
10/31/03 10,587.62 10,844.17
11/30/03 10,827.21 11,084.91
12/31/03 11,604.38 11,950.64
01/31/04 11,869.42 12,119.15
02/29/04 12,111.42 12,399.10
03/31/04 12,318.85 12,468.53
04/30/04 11,950.09 12,186.74
05/31/04 11,938.56 12,228.18
06/30/04 12,261.23 12,495.98
07/31/04 12,099.90 12,089.86
08/31/04 12,076.85 12,143.05
09/30/04 12,272.75 12,459.99
10/31/04 12,641.51 12,884.87
11/30/04 13,263.79 13,764.91
12/31/04 13,785.24 14,369.19
01/31/05 13,483.29 14,104.80
02/28/05 14,063.96 14,714.12
03/31/05 13,773.62 14,344.80
04/30/05 13,483.29 14,007.70
05/31/05 13,494.90 14,014.70
06/30/05 13,657.49 14,201.09
07/31/05 14,017.51 14,637.07
08/31/05 14,505.27 15,007.39
09/30/05 15,144.02 15,675.21
10/31/05 14,621.41 15,217.50
11/30/05 14,923.36 15,590.33
12/31/05 15,673.65 16,315.28
01/31/06 16,604.65 17,317.04
02/28/06 16,510.37 17,278.94
03/31/06 16,946.40 17,849.14
04/30/06 17,794.90 18,702.33
05/31/06 17,099.60 17,976.68
06/30/06 17,123.17 17,974.88
07/31/06 17,429.58 18,152.84
08/31/06 17,794.90 18,652.04
09/30/06 17,877.39 18,681.88
10/31/06 18,454.84 19,409
11/30/06 18,926.23 19,988
12/31/06 19,405.65 20,617
01/31/07 19,345.20 20,757
02/28/07 19,454.02 20,925
03/31/07 19,937.65 21,458
04/30/07 20,457.55 22,411
05/31/07 20,917.00 22,806
06/30/07 20,965.36 22,833
07/31/07 20,469.64 22,497
08/31/07 20,590.55 22,146.44
09/30/07 21,485.26 23,331.27
10/31/07 22,404.16 24,248.19
*net of fees and expenses
Performance 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. Mutual 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 current to the most recent month end performance and after tax
returns, contact the Fund at 1-800-625-5759.
----------
(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.
(2) The BBH International Equity Fund commenced operations on June 6, 1997.
Performance prior to June 6, 1997 is that of the BBH International Equity
Portfolio. Adjusted to assume that all charges, expenses and fees of the
Class N shares and the Portfolio which are presently in effect were
deducted during such periods, as permitted by applicable SEC staff
interpretations. The Class N shares' performance from June 6, 1997
(commencement of operations) to October 31, 2007 was 7.45%.
FINANCIAL STATEMENT OCTOBER 31, 2007
3
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of BBH Trust and Shareholders
of BBH International Equity Fund:
We have audited the accompanying statement of assets and liabilities including
the portfolio of investments, of BBH International Equity Fund (a series of BBH
Trust) (the "Fund"), as of October 31, 2007, and 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, and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at October 31, 2007, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of BBH
International Equity Fund as of October 31, 2007, 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.
Deloitte & Touche LLP
Boston, Massachusetts
December 27, 2007
4
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
PORTFOLIO ALLOCATION
October 31, 2007 (unaudited)
COUNTRY DIVERSIFICATION
PERCENT OF
U.S. $ VALUE NET ASSETS
- ------------- ----------
Australia ....................................... $ 62,333,505 8.4%
Belgium ......................................... 9,008,412 1.2
Finland ......................................... 8,279,173 1.1
France .......................................... 81,569,055 11.0
Germany ......................................... 20,103,899 2.7
Hong Kong ....................................... 55,491,092 7.4
Italy ........................................... 18,866,865 2.5
Japan ........................................... 195,733,399 26.3
Netherlands ..................................... 25,040,545 3.4
New Zealand ..................................... 3,186,703 0.4
Singapore ....................................... 13,555,622 1.8
South Africa .................................... 5,192,083 0.7
Spain ........................................... 36,316,566 4.9
Sweden .......................................... 8,843,472 1.2
Switzerland ..................................... 26,396,265 3.5
Taiwan .......................................... 7,840,178 1.1
United Kingdom .................................. 149,151,771 20.0
Short-Term Investments .......................... 27,556,942 3.7
Liabilities in Excess of Other Assets ......... (9,734,187) (1.3)
------------- ------
NET ASSETS .................................... $ 744,731,360 100.0%
========== ====
All data as of October 31, 2007. The Fund's country 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 STATEMENT OCTOBER 31, 2007
5
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
PORTFOLIO ALLOCATION
October 31, 2007 (unaudited)
SECTOR DIVERSIFICATION
PERCENT OF
U.S. $ VALUE NET ASSETS
- ------------- - ----------
Consumer Discretionary .......................... $ 57,506,840 7.7%
Consumer Staples ................................ 93,866,830 12.6
Diversified Operations .......................... 15,927,202 2.1
Electronics ..................................... 3,687,775 0.5
Energy .......................................... 92,613,260 12.4
Finance ......................................... 159,080,054 21.4
Health Care ..................................... 74,610,644 10.0
Industrials ..................................... 57,538,303 7.7
Information Technology .......................... 20,687,448 2.8
Materials ....................................... 30,132,820 4.1
Media ........................................... 4,961,722 0.7
Telecommunication Services .................... 70,267,819 9.4
Utilities ....................................... 46,027,888 6.2
Short-Term Investments .......................... 27,556,942 3.7
Liabilities in Excess of Other Assets ........... (9,734,187) (1.3)
- ------------ -----
NET ASSETS ...................................... $744,731,360 100.0%
========= =====
All data as of October 31, 2007. 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.
6
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2007
Shares Value
- ------ - ------------
COMMON STOCKS (97.6%)
AUSTRALIA (8.4%)
CONSUMER STAPLES
1,471,721 Foster's Group, Ltd................................ $ 8,742,459
-----------
ENERGY
305,226 Woodside Petroleum, Ltd............................ 14,849,192
- -----------
FINANCE
370,000 Lend Lease Corp., Ltd.............................. 6,903,184
296,095 National Australia Bank, Ltd....................... 11,920,725
- -----------
18,823,909
-----------
INDUSTRIALS
107,312 Wesfarmers, Ltd.(1)................................ 4,408,638
-----------
MATERIALS
600,435 Amcor, Ltd......................................... 3,922,659
- -----------
TELECOMMUNICATION SERVICES
2,656,887 Telstra Corp....................................... 11,586,648
- -----------
Total Australia.................................... 62,333,505
- -----------
BELGIUM (1.2%)
FINANCE
280,942 Fortis............................................. 9,006,786
112,376 Fortis(2).......................................... 1,626
- -----------
Total Belgium...................................... 9,008,412
- -----------
FINLAND (1.1%)
MATERIALS
210,045 UPM-Kymmene Oyj.................................... 4,709,281
-----------
TELECOMMUNICATION SERVICES
90,000 Nokia Oyj.......................................... 3,569,892
- -----------
Total Finland...................................... 8,279,173
- -----------
FRANCE (11.0%)
CONSUMER DISCRETIONARY
72,325 Renault SA......................................... 12,183,345
- -----------
CONSUMER STAPLES
85,485 Carrefour SA....................................... 6,162,760
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 7
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
OCTOBER 31, 2007
Shares Value
- ------ - ------------
COMMON STOCKS (continued)
FRANCE (continued)
CONSUMER STAPLES (continued)
62,000 L'Oreal SA......................................... $ 8,149,652
- -----------
14,312,412
- -----------
DIVERSIFIED OPERATIONS
58,000 LVMH Moet Hennessy Louis Vuitton SA................ 7,479,725
- -----------
ENERGY
144,504 Total SA........................................... 11,646,863
- -----------
FINANCE
49,367 Societe Generale................................... 8,311,027
- -----------
HEALTH CARE
110,000 Essilor International SA........................... 7,028,699
- -----------
INDUSTRIALS
66,327 Compagnie de Saint-Gobain.......................... 7,156,608
- -----------
MEDIA
179,000 Societe Television Francaise....................... 4,961,722
- -----------
TELECOMMUNICATION SERVICES
229,796 France Telecom SA.................................. 8,488,654
- -----------
Total France....................................... 81,569,055
- -----------
GERMANY (2.7%)
TELECOMMUNICATION SERVICES
363,808 Deutsche Telekom AG................................ 7,460,165
- -----------
UTILITIES
92,562 RWE AG............................................. 12,643,734
- -----------
Total Germany...................................... 20,103,899
- -----------
HONG KONG (7.4%)
DIVERSIFIED OPERATIONS
670,000 Hutchison Whampoa, Ltd............................. 8,447,477
- -----------
ENERGY
7,330,000 CNOOC, Ltd......................................... 15,993,596
-----------
FINANCE
948,000 Wharf Holdings, Ltd................................ 5,751,079
- -----------
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
OCTOBER 31, 2007
Shares Value
- ------ - ------------
COMMON STOCKS (continued)
HONG KONG (continued)
TELECOMMUNICATION SERVICES
360,000 China Mobile, Ltd.................................. $ 7,571,250
-----------
UTILITIES
820,000 CLP Holdings, Ltd.................................. 5,566,856
2,772,000 Hong Kong & China Gas Co........................... 7,457,103
912,500 Hong Kong Electric Holdings........................ 4,703,731
-----------
17,727,690
-----------
Total Hong Kong.................................... 55,491,092
- -----------
ITALY (2.5%)
FINANCE
1,483,949 Intesa Sanpaolo SpA................................ 11,757,780
267,316 UniCredito Italiano SpA............................ 2,295,581
558,990 UniCredito Italiano SpA............................ 4,813,504
-----------
Total Italy........................................ 18,866,865
- -----------
JAPAN (26.3%)
CONSUMER DISCRETIONARY
138,000 Denso Corp......................................... 5,580,650
144,000 Honda Motor Co., Ltd............................... 5,399,933
118,000 Toyota Motor Corp.................................. 6,745,720
-----------
17,726,303
- -----------
CONSUMER STAPLES
197,500 Hoya Corp.......................................... 7,182,994
169,000 Ito En, Ltd.1...................................... 3,566,205
291,000 Kao Corp........................................... 8,352,890
29,900 Seven & I Holdings Co., Ltd........................ 770,344
43,000 Shimamura Co., Ltd................................. 4,183,008
- -----------
24,055,441
- -----------
FINANCE
113,000 Aeon Mall Co., Ltd................................. 2,930,443
135,000 Daito Trust Construction Co., Ltd.................. 6,257,623
342,600 Millea Holdings, Inc............................... 13,503,183
220,000 Mitsubishi Estate Co., Ltd......................... 6,578,085
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 9
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
OCTOBER 31, 2007
Shares Value
- ------ - -------------
COMMON STOCKS (continued)
JAPAN (continued)
FINANCE (continued)
550,000 Mitsubishi UFJ Financial Group, Inc................ $ 5,482,618
- -------------
34,751,952
- -------------
HEALTH CARE
255,800 Astellas Pharma, Inc............................... 11,313,626
152,000 Eisai Co., Ltd..................................... 6,380,256
227,400 Takeda Pharmaceutical Co., Ltd..................... 14,203,369
- -------------
31,897,251
-------------
INDUSTRIALS
173,000 Advantest Corp..................................... 4,975,451
140,000 Daikin Industries, Ltd............................. 7,034,421
72,000 Fanuc, Ltd......................................... 7,886,152
35,600 Hirose Electric Co., Ltd........................... 4,259,825
30,450 Keyence Corp....................................... 7,016,827
65,000 Murata Manufacturing Co., Ltd...................... 3,942,245
137,000 Secom Co., Ltd..................................... 7,036,281
764 West Japan Railway Co.............................. 3,821,855
- -------------
45,973,057
- -------------
INFORMATION TECHNOLOGY
299,300 Canon, Inc......................................... 15,133,518
63,500 Rohm Co., Ltd...................................... 5,553,930
�� -------------
20,687,448
- -------------
MATERIALS
202,200 Nitto Denko Corp................................... 9,869,668
91,000 Shin-Etsu Chemical Co., Ltd........................ 5,833,167
- -------------
15,702,835
- -------------
TELECOMMUNICATION SERVICES
652 KDDI Corp.......................................... 4,939,112
- -------------
Total Japan........................................ 195,733,399
- -------------
NETHERLANDS (3.4%)
CONSUMER DISCRETIONARY
383,110 Reed Elsevier NV................................... 7,426,146
- -------------
CONSUMER STAPLES
134,000 Heineken Holding NV................................ 7,942,999
- -------------
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
OCTOBER 31, 2007
Shares Value
- ------ ------------
COMMON STOCKS (CONTINUED)
NETHERLANDS (CONTINUED)
FINANCE
214,560 ING Groep NV....................................... $ 9,671,400
- -----------
Total Netherlands.................................. 25,040,545
- -----------
NEW ZEALAND (0.4%)
TELECOMMUNICATION SERVICES
951,924 Telecom Corp. of New Zealand, Ltd.(1).............. 3,186,703
- -----------
Total New Zealand.................................. 3,186,703
- -----------
SINGAPORE (1.8%)
FINANCE
450,000 DBS Group Holdings, Ltd............................ 7,023,620
90,000 Jardine Matheson Holdings, Ltd..................... 2,754,871
588,200 Oversea-Chinese Banking Corp., Ltd................. 3,777,131
-----------
Total Singapore.................................... 13,555,622
- -----------
SOUTH AFRICA (0.7%)
ENERGY
101,037 Sasol, Ltd......................................... 5,192,083
- -----------
Total South Africa................................. 5,192,083
- -----------
SPAIN (4.9%)
CONSUMER DISCRETIONARY
54,000 Inditex SA......................................... 4,030,237
- -----------
FINANCE
472,245 Banco Santander Central Hispano SA................. 10,308,756
-----------
TELECOMMUNICATION SERVICES
423,448 Telefonica SA...................................... 14,002,129
-----------
UTILITIES
495,604 Iberdrola SA....................................... 7,975,444
- -----------
Total Spain........................................ 36,316,566
- -----------
SWEDEN (1.2%)
CONSUMER DISCRETIONARY
53,000 Hennes & Mauritz AB (B shares)..................... 3,532,609
- -----------
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 11
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
OCTOBER 31, 2007
Shares Value
- ------ - ------------
COMMON STOCKS (continued)
SWEDEN (continued)
TELECOMMUNICATION SERVICES
1,770,000 Telefonaktiebolaget LM Ericsson (B shares)......... $ 5,310,863
- -----------
Total Sweden....................................... 8,843,472
-----------
SWITZERLAND (3.5%)
CONSUMER STAPLES
17,100 Nestle SA.......................................... 7,897,771
- -----------
HEALTH CARE
347,521 Novartis AG........................................ 18,498,494
-----------
Total Switzerland.................................. 26,396,265
- -----------
TAIWAN (1.1%)
ELECTRONICS
346,270 Taiwan Semiconductor Manufacturing Co., Ltd. ADR... 3,687,775
- -----------
TELECOMMUNICATION SERVICES
216,271 Chunghwa Telecom Co., Ltd. ADR..................... 4,152,403
- -----------
Total Taiwan....................................... 7,840,178
- -----------
UNITED KINGDOM (20.0%)
CONSUMER DISCRETIONARY
514,499 Compass Group, Plc................................. 3,710,940
518,905 GKN, Plc........................................... 3,965,941
1,200,000 Kingfisher, Plc.................................... 4,931,319
-----------
12,608,200
-----------
CONSUMER STAPLES
87,000 Reckitt Benckiser Plc.............................. 5,050,209
770,000 Tesco, Plc......................................... 7,824,634
330,963 Unilever, Plc...................................... 11,200,500
1,110,000 WM Morrison Supermarkets, Plc...................... 6,840,405
-----------
30,915,748
-----------
ENERGY
1,059,415 BG Group, Plc...................................... 19,590,711
1,248,907 BP, Plc............................................ 16,222,120
208,581 Royal Dutch Shell, Plc............................. 9,118,695
-----------
44,931,526
- -----------
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
OCTOBER 31, 2007
Shares Value
- ------ - ------------
COMMON STOCKS (continued)
UNITED KINGDOM (continued)
FINANCE
210,391 Aviva, Plc......................................... $ 3,313,742
511,610 HBOS, Plc.......................................... 9,317,005
805,676 Lloyds TSB Group, Plc.............................. 9,157,323
764,789 Royal Bank of Scotland Group, Plc.................. 8,242,962
------------
30,031,032
- ------------
HEALTH CARE
667,042 GlaxoSmithKline, Plc............................... 17,186,200
- ------------
MATERIALS
62,000 Rio Tinto, Plc..................................... 5,798,045
- ------------
UTILITIES
1,000,000 Centrica, Plc...................................... 7,681,020
------------
Total United Kingdom............................... 149,151,771
�� - ------------
TOTAL COMMON STOCKS (Identified cost $497,994,598). 726,908,605
------------
Principal
Amount
---------
SHORT-TERM INVESTMENTS (3.7%)
$9,956,942 Brown Brothers Investment Trust Securities
Lending Fund(3).................................. 9,956,942
17,600,000 HSBC Bank USA 4.625%, 11/01/07 17,600,000
- -----------
TOTAL SHORT-TERM INVESTMENTS
(Identified cost $27,556,942) ..................... 27,556,942
- -----------
TOTAL INVESTMENTS (Identified cost $525,551,540)(4)....... 101.3% $754,465,547
LIABILITIES IN EXCESS OF OTHER ASSETS..................... (1.3) (9,734,187)
----- - -----------
NET ASSETS ............................................. 100.0% $744,731,360
===== ===========
----------
(1) Security, or a portion thereof, on loan.
(2) Non-income producing security.
(3) Brown Brothers Harriman & Co., acts as agent for the securities lending
program.
(4) The aggregate cost for federal income tax purposes is $529,789,704, the
aggregate gross unrealized appreciation is $234,704,044, and the aggregate
gross unrealized depreciation is $10,028,201, resulting in net unrealized
appreciation of $224,675,843.
ADR - American Depositary Receipt.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 13
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
OCTOBER 31, 2007
A summary of obligations under open forward foreign currency exchange contracts
outstanding at October 31, 2007 is as follows:
Unrealized
Notional Market Appreciation/
Description Value Value (Depreciation)
----------- ------------ ------------ --------------
Sell Contract
GBP British Pound settling 01/31/08 (11,454,000) (23,717,527) $(225,258)
=========
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2007
ASSETS:
Investments in securities,
at value (identified cost $525,551,540)................... 754,465,547
Foreign currency, at value (identified cost $6)................ 6
Receivables for:
Capital stock sold........................................... 3,158,270
Dividends and other receivables ............................... 1,710,681
- ------------
Total Assets............................................... 759,334,504
==========
LIABILITIES:
Due to Brown Brothers Harriman................................. 1,086,568
Payable upon return of securities loaned....................... 9,956,942
Payables for:
Capital stock redeemed....................................... 1,182,297
Investment advisory fees..................................... 771,848
Investments purchased........................................ 682,762
Shareholder servicing fees................................... 278,049
Unrealized depreciation of forward foreign
exchange currency contracts................................ 225,258
Administrative fees.......................................... 178,119
Custody and accounting fees ................................... 67,600
Professional fees............................................ 60,932
Board of Trustees' fees...................................... 9,773
Accrued expenses and other liabilities....................... 102,996
- ------------
Total Liabilities.......................................... 14,603,144
------------
NET ASSETS ...................................................... $744,731,360
===========
Net Assets Consist of:
Par value ....................................................... $ 40,189
Paid-in capital................................................ 477,390,871
Undistributed net investment income............................ 7,361,552
Accumulated net realized gain on investments and
foreign exchange transactions................................ 31,240,651
Net unrealized appreciation on investments and
foreign currency translations................................ 228,698,097
- ------------
Net Assets ...................................................... $744,731,360
===========
NET ASSET VALUE AND OFFERING PRICE PER SHARE
CLASS N SHARES
($699,713,452 / 37,766,537 shares outstanding)................. $18.53
======
CLASS I SHARES
($45,017,908 / 2,422,189 shares outstanding)................... $18.59
======
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 15
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended October 31, 2007
NET INVESTMENT INCOME:
Income:
Dividends and other income (net of foreign withholding
taxes of $1,369,382)...................................... $ 16,906,063
Interest and other income................................... 629,263
Securities lending income................................... 606,514
�� - ------------
Total Income.............................................. 18,141,840
------------
Expenses:
Investment advisory fees.................................... 4,202,541
Shareholder servicing fees.................................. 508,591
Administrative fees......................................... 969,817
Custody and accounting fees .................................. 425,005
Professional fees........................................... 104,298
Board of Trustees' fees..................................... 69,264
Miscellaneous expenses...................................... 176,306
- ------------
Total Expenses............................................ 7,455,822
Expense offset arrangement................................ (23,433)
- ------------
Net Expenses.............................................. 7,432,389
- ------------
Net Investment Income......................................... 10,709,451
- ------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain on investments ............................... 32,684,414
Net realized loss on foreign exchange transactions............ (1,562,682)
------------
Net realized gain on investments and
foreign exchange transactions ............................. 31,121,732
Net change in unrealized appreciation on investments and
foreign currency translations............................... 83,442,888
- ------------
Net Realized and Unrealized Gain............................ 114,564,620
- ------------
Net Increase in Net Assets Resulting from Operations.......... $125,274,071
==========
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended October 31,
-------------------------------
2007 2006
------------ ------------
INCREASE IN NET ASSETS:
Operations:
Net investment income......................... $ 10,709,451 $ 8,716,371
Net realized gain on investments and foreign
exchange transactions....................... 31,121,732 15,555,811
Net change in unrealized appreciation on
investments and foreign
currency translations....................... 83,442,888 87,430,410
- ------------ - ------------
Net increase in net assets resulting
from operations............................ 125,274,071 111,702,592
- ------------ - -----------
Dividends and distributions declared:
From net investment income:
Class N ........................................ (8,234,635) (5,726,229)
Class I ........................................ (723,263) (610,520)
From net realized gains:
Class N ........................................ (5,732,846) --
Class I ........................................ (440,337) --
- ------------ ------------
Total dividends and
distributions declared.................... (15,131,081) (6,336,749)
------------ ------------
Capital stock transactions:
Net proceeds from sales of capital stock...... 125,535,007 133,213,687
Net asset value of capital stock issued
to shareholders for reinvestment of
dividends and distributions 325,815 4,128,239
Net cost of capital stock redeemed............ (54,902,468) (69,153,240)
- ------------ - ------------
Net increase in net assets resulting from
capital stock transactions................ 70,958,354 68,188,686
------------ ------------
Total increase in net assets................ 181,101,344 173,554,529
NET ASSETS:
Beginning of year............................... 563,630,016 390,075,487
------------ ------------
End of year (including undistributed
net investment income of $7,361,552
and $7,142,093, respectively)................. $744,731,360 $563,630,016
========== ==========
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 17
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a Class N share
outstanding throughout each year
<TABLE>
<CAPTION>
For the years ended October 31,
- -------------------------------------------------------------
2007 2006 2005 2004 2003
------- - ------- ------- - ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ...... $ 15.71 $ 12.59 $ 10.96 $ 9.28 $ 8.03
�� ------- - ------- ------- ------- - -------
Income from investment operations:
Net investment income1.. ................ 0.28 0.25 0.18 0.14 0.08
Net realized and unrealized gain ........ 2.95 3.07 1.54 1.64 1.19
- ------- ------- - ------- ------- -------
Total income from investment
operations .......................... 3.23 3.32 1.72 1.78 1.27
------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income .............. (0.24) (0.20) (0.09) (0.10) (0.02)
From net realized gains. ................ (0.17) -- -- -- --
------- ------- ------- ------- -------
Total distributions ................... (0.41) (0.20) (0.09) (0.10) (0.02)
------- ------- ------- ------- -------
Net asset value, end of year .............. $ 18.53 $ 15.71 $ 12.59 $ 10.96 $ 9.28
======= ======= ======= ====== ======
Total return .............................. 21.01% 26.62% 15.77% 19.29% 15.87%
Ratios/Supplemental data:
Net assets, end of year (in millions) . $ 700 $ 524 $ 356 $ 211 $ 98
Ratio of expenses to average net assets 1.17%2 1.11%2 1.23% 1.30% 1.28%
Ratio of net investment income to
average net assets .................... 1.64% 1.76% 1.49% 1.34% 0.98%
Portfolio turnover rate. ................ 16% 10% 5% 81% 74%
</TABLE>
-------------------------
(1) Calculated using average shares outstanding for the year.
(2) The ratio of expenses to average net assets for the years ended October
31, 2007 and 2006 reflect fees reduced as a result of an expense offset
arrangement with the Fund's custodian. Had this arrangement not been in
place, this ratio would have been 1.17% and 1.17%, respectively.
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected per share data and ratios for a Class I share
outstanding throughout each year
<TABLE>
<CAPTION>
For the years ended October 31,
--------------------------------------------------------
2007 2006 2005 2004 2003
------ ------ - ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......... $15.76 $12.62 $10.98 $ 9.30 8.03
------ ------ - ------ - ------ ------
Income from investment operations:
Net investment income1.. .................. 0.32 0.29 0.21 0.14 0.11
Net realized and unrealized gain .......... 2.96 3.07 1.54 1.66 1.18
------ ------ - ------ ------ ------
Total income from investment
operations ............................ 3.28 3.36 1.75 1.80 1.29
------ ------ - ------ ------ ------
Less dividends and distributions:
From net investment income ................ (0.28) (0.22) (0.11) (0.12) (0.02)
From net realized gains. .................. (0.17) -- -- -- --
------ ------ - ------ ------ ------
Total distributions ..................... (0.45) (0.22) (0.11) (0.12) (0.02)
------ ------ ------ ------ ------
Net asset value, end of year ................ $18.59 $15.76 $12.62 $10.98 $ 9.30
====== ====== ====== ====== =====
Total return ................................ 21.28% 26.98% 16.05% 19.54% 16.18%
Ratios/Supplemental data:
Net assets, end of year (in millions) ..... $ 45 $ 40 $ 34 $ 27 $ 58
Ratio of expenses to average net assets 0.91%2 0.87%2 0.98% 1.05% 1.05%
Ratio of net investment income to
average net assets ...................... 1.87% 2.02% 1.73% 1.33% 1.34%
Portfolio turnover rate. .................. 16% 10% 5% 81% 74%
</TABLE>
-------------------------
(1) Calculated using average shares outstanding for the year.
(2) The ratio of expenses to average net assets for the years ended October
31, 2007 and 2006 reflect fees reduced as a result of an expense offset
arrangement with the Fund's custodian. Had this arrangement not been in
place, this ratio would have been 0.91% and 0.94%, respectively.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 19
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
October 31, 2007
1. Organization and Significant Accounting Policies. BBH International Equity
Fund (the "Fund") is a separate diversified series of BBH Trust (the
"Trust"), which is registered under the Investment Company Act of 1940, as
amended 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. On February
20, 2001, the Trustees reclassified the Fund's outstanding shares as
"Class N," and established a new class of shares designated as "Class I".
Class I commenced operations on October 30, 2002. Class N and Class I
shares have different operating expenses. Neither Class N shares nor Class
I shares convert to any other class of the Fund. At October 31, 2007,
there were seven series of the Trust.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, which
require management to make certain estimates and assumptions at the date
of the financial statements and are based, in part, on the following
accounting policies. Actual results could differ from those estimates.
A. Valuation of Investments. The BBH International Equity Fund employs
a pricing vendor (ITG Inc.) that uses a fair valuation model to
establish daily valuations of portfolio securities. The model looks
at each security in the portfolio and determines daily valuations of
portfolio securities. The model looks at each security in the
portfolio and determines the correlation between the security and a
set of market factors, such as the price of ADRs, futures,
exchange-traded funds, and the U.S. market as measured by the 1000
largest domestic stocks. The model evaluates the security's beta
compared to these factors to determine which factor should be used
in determining its fair value. The model analyzes data for the past
90 days for each factor. The model then determines the difference
between the price of the factor at the local market close versus the
price at 4 p.m. Eastern Time to calculate a percentage by which the
closing price should be adjusted to reflect its fair value. If ITG
is unable to price a security, the security will be priced in
accordance with the Manual Pricing Procedures.
B. Accounting for Investments and Income. Security transactions are
accounted for on the trade date. Realized gains and losses on
security transactions are determined on the identified cost method.
Dividend income and other distributions 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. Distributions received on securities that
represent a return of capital or a capital gain are recorded as a
reduction of cost of investments and/or as a realized gain. Interest
income is accrued daily. Investment income is recorded net of
foreign taxes withheld where recovery of such tax is uncertain.
C. 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 hedge
the U.S. dollar value of portfolio 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 currency exchange rates supplied by a quotation service.
Information regarding forward foreign currency exchange Contracts is
included at the end of the Portfolio of Investments.
20
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
D. 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 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. 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 fiscal year
end, arising from changes in the exchange rate.
E. Restricted Securities. The Fund may invest in securities that are
subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be
difficult.
F. Securities Lending. The Fund may lend its portfolio securities to
broker-dealers, qualified banks and certain institutional investors.
The loans are secured by collateral in an amount equal to at least
the market value at all times of the loaned securities plus any
accrued interest and dividends. During the time the securities are
on loan, the Fund will continue to receive the interest and
dividends or amounts equivalent thereto, on the loaned securities
while receiving a fee from the borrower or earning interest on the
investment of the cash collateral. Loans are subject to termination
at the option of the borrower or the Fund. Upon termination of the
loan, the borrower will return to the lender securities identical to
the loaned securities. The Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan of its
securities and may share the interest earned on the collateral with
the borrower. The Fund bears the risk of delay in recovery of, or
even loss of rights in, the securities loaned should the borrower of
the securities fail financially. Information regarding securities
lending is included at the end of the Portfolio of Investments.
G. Federal Income Taxes. It is the Trustees policy to comply with the
requirements of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute 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 accounting principles generally accepted in the
United States of America, the basis on which these financial
statements are prepared. Accordingly, the amount of net investment
income and net realized gain reported on 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 and the recognition of unrealized gains or losses on
open forward foreign currency exchange contracts and passive foreign
investment companies at year end. 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.
FINANCIAL STATEMENT OCTOBER 31, 2007 21
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
Permanent differences are reclassified on 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.
H. Dividends and Distributions to Shareholders. Dividends and
distributions to shareholders, if any, are generally declared and
paid annually and are recorded on the ex-dividend date. The tax
character of distributions paid during the fiscal years ended
October 31, 2007 and 2006, respectively, were as follows:
Distribution paid from:
- --------------------------------------------------------------------------------
Net Total Total
Ordinary long-term taxable Tax return distributions
income capital gain distributions of capital paid
---------- - ------------- - ------------- - ---------- -----------
2007: $8,957,898 $6,173,183 $15,131,081 -- $15,131,081
2006: 6,336,749 -- 6,336,749 -- 6,336,749
As of October 31, 2007 and 2006, respectively, the components of
accumulated earnings/(deficit) on a tax basis were as follows:
Components of accumulated earnings/(deficit):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Undistributed Undistributed Accumulated Unrealized accumulated
ordinary long-term Accumulated capital and appreciation/ earnings/
income capital gains earnings other losses (depreciation) (deficit)
----------- - ------------- - ------------ ------------ - -------------- - ------------
<S> <C> <C> <C> <C> <C>
2007: $14,994,642 $27,620,467 $42,615,109 -- $224,685,191 $267,300,300
2006: 8,612,204 6,171,571 14,783,775 - -- 142,373,535 157,157,310
</TABLE>
Total distributions paid may differ from the Statement 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, PFICs marked to market and forward
currency marked to market.
I. Accounting Developments. In June 2006, Financial Accounting
Standards Board Interpretation No. 48, Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement 109 (FIN 48) was
issued and is effective for fiscal years beginning after December
15, 2006. FIN 48 sets forth a threshold for financial statement
recognition, measurement and disclosure of a tax position taken or
expected to be taken on a tax return. While not expected to have a
material impact on the Fund's financial statements, management will
be evaluating the impact, if any, the adoption of FIN 48 will have
on the Funds' net assets and results of operations.
22
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
In September 2006, Statement of Financial Accounting Standards No.
157, Fair Value Measurements (SFAS 157), was issued and is effective
for fiscal years beginning after November 15, 2007. SFAS 157 defines
fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. Management is
currently evaluating the implication of SFAS 157. At this time its
impact on the Fund's financial statements has not yet been
determined.
2. Transactions with Affiliates.
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")
provides investment advice, portfolio management and administrative
services to the Fund. BBH receives a combined fee from the Fund for
advisory and administrative services calculated daily and paid monthly at
an annual rate equivalent to 0.80% of the Fund's average daily net assets.
Prior to June 12, 2007, under a separate agreement that covered only
advisory fees, BBH received a fee from the Fund calculated daily and paid
monthly at an annual rate of 0.65% of the Fund's average daily net assets
and Brown Brothers Harriman Trust Company, LLC ("BBHTC"), the Fund's
administrator, under a separate agreement that covered only administrative
services, received a fee from the Fund calculated daily and paid monthly
at an annual rate equivalent to 0.15% of the Fund's average daily net
assets. BBH has a sub-advisory agreement with Walter Scott & Partners
Limited ("Walter Scott"), and Mondrian Investment Partners Limited
("Mondrian"), for which Walter Scott and Mondrian receive compensation
paid by BBH. BBH has a sub-administration services agreement with
Federated Services Company ("FSC") for which FSC receives compensation
paid by BBH. For the year ended October 31, 2007, the Fund incurred
$5,172,358 for advisory and administrative services.
Shareholder Servicing Fees. The Trustee has a shareholder servicing
agreement with BBH for which BBH receives a fee from the Fund calculated
daily and paid monthly at an annual rate of 0.25% of Class N shares'
average daily net assets. For the year ended October 31, 2007, the Fund
incurred $1,508,591 for shareholder servicing services.
Custody and Accounting Fees. BBH acts as a custodian and shall receive a
custody and accounting fee from the Fund calculated daily and paid
monthly. BBH holds all cash and investments and calculates the daily net
asset value. The custody fee is a transaction based fee with an annual
minimum of $30,000, and the accounting fee is calculated at 0.04% per
annum on the first $100 million of net assets, 0.02% per annum on the next
$400 million of net assets and 0.01% per annum on all net assets over $500
million. For the year ended October 31, 2007, the Fund incurred $425,005
for custody and accounting services. These fees were reduced by $23,433 as
a result of an expense offset arrangement with the Fund's custodian. 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 overdraft. As of October 31, 2007 the Fund
had $1,086,568 outstanding under such arrangements. The total interest
paid by the Fund for the year ended October 31, 2007 was $8,428.
Securities Lending Fees. The Trust has a security lending agreement with
BBH for which BBH receives a fee from the Fund for each security loaned.
For the year ended October 31, 2007, the Fund paid $27,268 to BBH for
security lending services.
Board of Trustees' Fees. Each Trustee receives an annual fee as well as
reimbursement for reasonable out-of-pocket expenses from the Fund. For the
year ended October 31, 2007, the Fund incurred $69,264 for these fees.
FINANCIAL STATEMENT OCTOBER 31, 2007 23
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
3. Investment Transactions. For the year ended October 31, 2007, the cost of
purchases and the proceeds of sales of investment securities other than
short-term investments were $160,341,295 and $103,901,361, respectively.
There were no purchases or sales of U.S. government obligations during the
period.
4. Securities on Loan. As of October 31, 2007, the Fund had securities on
loan with an aggregate market value of $9,472,314. The Fund received
$9,956,942 in cash as collateral for securities on loan which was used to
purchase highly liquid short-term investments in accordance with the
Fund's security lending procedures.
5. Capital Stock. BBH Fund, Inc. was permitted to issue 2,500,000,000 shares
of capital stock, par value $.001 per share, of which 277,777,778 shares
were classified as Class N shares of the Fund and 277,777,778 shares were
classified as Class I shares of the Fund. The Trust offers unlimited
shares without par value. Transactions in shares of capital stock were as
follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
- ------------------------------------ -----------------------------------
For the For the For the For the
year ended year ended year ended year ended
October 31, 2007 October 31, 2006 October 31, 2007 October 31, 2006
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Class N
Capital stock sold .......... 7,488,347 8,890,682 $ 124,535,007 $ 124,803,674
Capital stock issued in
connection with
reinvestment of dividends 20,453 262,778 325,815 4,128,239
Capital stock redeemed ...... (3,073,266) (4,075,747) (51,902,267) (57,703,226)
------------- ------------- ------------- -------------
Net increase ................ 4,435,534 5,077,713 $ 72,958,555 $ 71,228,687
========= ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
SHARES AMOUNT
------------------------------------ -----------------------------------
For the For the For the For the
year ended year ended year ended year ended
October 31, 2007 October 31, 2006 October 31, 2007 October 31, 2006
- ---------------- - ---------------- - ---------------- - -----------------
<S> <C> <C> <C> <C>
Class I
Capital stock sold .......... 63,172 611,641 $ 1,000,000 $ 8,410,013
Capital stock issued in
connection with
reinvestment of dividends -- - -- - -- --
Capital stock redeemed ...... (171,080) (811,953) (3,000,201) (11,450,014)
------------- - ------------- - ------------- -------------
Net decrease ................ (107,908) (200,312) $ (2,000,201) $ (3,040,001)
======== ========= ======== =========
</TABLE>
24
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
Supplemental Proxy Information
October 31, 2007
Supplemental Proxy Information. A Special Meeting of BBH Fund, Inc. (the
"Corporation") was held on May 23, 2007. On April 5, 2007, the record date for
shareholders voting at the meeting, there were 108,931,295 total outstanding
shares of the Corporation and 39,137,115 total outstanding shares of the Fund.
The following item was considered by shareholders of the Corporation and the
result of their voting is listed below. Unless otherwise noted the matter was
approved.
Proposals:
(1) To elect two Trustees of the Funds;
Samuel F. Pryor IV
Shares voted affirmatively........ 89,470,872
Shares voted negatively........... 283,884
Shares abstaining................. 19,777
H. Whitney Wagner
Shares voted affirmatively........ 89,474,508
Shares voted negatively........... 280,248
Shares abstaining................. 19,777
The following items were considered by Fund shareholders and the results of
their voting are listed below. Unless otherwise noted, each matter was approved.
(2) To approve a new combined investment advisory and administrative services
agreement for the Fund with the current investment adviser of the Fund;
Shares voted affirmatively........ 38,219,249
Shares voted negatively........... 57,348
Shares abstaining................. 32,608
(3) To approve changes to the Fund's fundamental investment policies in order
to modernize its investment restrictions and increase its investment
flexibility:
(a) To amend the Fund's fundamental investment policy regarding
diversification;
Shares voted affirmatively........ NA
Shares voted negatively........... NA
Shares abstaining................. NA
(b) To amend the Fund's fundamental investment policy regarding
concentration;
Shares voted affirmatively........ 38,167,406
Shares voted negatively........... 82,714
Shares abstaining................. 59,085
(c) To amend the Fund's fundamental investment policy regarding
underwriting;
Shares voted affirmatively........ 38,167,511
Shares voted negatively........... 82,609
Shares abstaining................. 59,085
FINANCIAL STATEMENT OCTOBER 31, 2007 25
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
SUPPLEMENTAL PROXY INFORMATION (continued)
October 31, 2007
(d) To amend the Fund's fundamental investment policy regarding
investing in commodities;
Shares voted affirmatively........ 38,148,850
Shares voted negatively........... 103,023
Shares abstaining................. 57,331
(e) To amend the Fund's fundamental investment policy regarding
investing in real estate;
Shares voted affirmatively........ 38,153,676
Shares voted negatively........... 98,092
Shares abstaining................. 57,436
(f) To amend the Fund's fundamental investment policy regarding
borrowing money and issuing senior securities;
Shares voted affirmatively........ 38,139,873
Shares voted negatively........... 112,000
Shares abstaining................. 57,331
(g) To amend the Fund's fundamental investment policy regarding lending;
Shares voted affirmatively........ 38,148,850
Shares voted negatively........... 103,023
Shares abstaining................. 57,331
(h) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding selling short;
Shares voted affirmatively........ 38,148,745
Shares voted negatively........... 103,128
Shares abstaining................. 57,331
(i) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding illiquid securities;
Shares voted affirmatively........ 38,148,745
Shares voted negatively........... 103,023
Shares abstaining................. 57,436
(j) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding investing in securities of other
investment companies;
Shares voted affirmatively........ 38,148,850
Shares voted negatively........... 103,023
Shares abstaining................. 57,331
(k) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding purchases on margin;
Shares voted affirmatively........ 38,148,745
Shares voted negatively........... 103,023
Shares abstaining................. 57,436
26
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
SUPPLEMENTAL PROXY INFORMATION (continued)
October 31, 2007
(l) To amend, and to make non-fundamental, the Fund's fundamental
investment policy on restricted securities;
Shares voted affirmatively........ 38,169,160
Shares voted negatively........... 82,609
Shares abstaining................. 57,436
(4) To approve the proposed Reorganization Agreement, pursuant to which each
series of BBH Fund, Inc. would be reorganized as separate series of BBH
Trust, (the "New BBH Trust"), a newly formed Delaware statutory trust.
Shares voted affirmatively........ 38,179,745
Shares voted negatively........... 76,340
Shares abstaining................. 53,120
FINANCIAL STATEMENT OCTOBER 31, 2007 27
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES
October 31, 2007
EXAMPLE
As a shareholder of BBH International Equity Fund (the "Fund"), you may incur
two types of costs: (1) transaction costs on purchase payments, reinvested
dividends, 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, 2007 to October 31, 2007).
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
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES (continued)
October 31, 2007
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.
Expenses Paid
Beginning Ending During Period
Account Value Account Value May 1, 2007
Class N May 1, 2007 October 31, 2007 to October 31, 2007(1)
------------- ---------------- ----------------------
Actual............ $1,000 $1,095.20 $6.23
Hypothetical(2)... $1,000 $1,019.26 $6.01
Expenses Paid
Beginning Ending During Period
Account Value Account Value May 1, 2007
Class I May 1, 2007 October 31, 2007 to October 31, 2007(1)
------------- ---------------- ----------------------
Actual............ $1,000 $1,096.80 $4.92
Hypothetical(2)... $1,000 $1,020.52 $4.74
-------------------------
(1) Expenses are equal to the Fund's annualized expense ratio of 1.18% and
0.93% for Class N and I shares, respectively, multiplied by the average
account value over the period, multiplied by 184/365 (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 STATEMENT OCTOBER 31, 2007 29
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
DISCLOSURE OF ADVISOR SELECTION
October 31, 2007 (unaudited)
Approval of Investment Advisory/Administrative Services Agreement
At a meeting held on December 11, 2006, the Board of Trustees (the "Board") of
the Trust unanimously approved a new Combined Investment Advisory/Administrative
Services Agreement ("Combined Agreement"). The Board determined that the terms
of the Combined Agreement will be substantially identical to those of the
current advisory and administration agreements of the Funds, noting that the
most significant difference in the Combined Agreement is a single fee for both
advisory and administrative services. The following is a summary of the factors
the Board took into consideration in making its determination to approve the new
Combined Agreement.
Nature, Extent and Quality of Services Provided by Brown Brothers Harriman & Co.
("BBH")
The Board noted that, under the Combined Agreement in respect of each Fund, BBH,
subject to the supervision of the Board, will be responsible for providing a
continuous investment program and making purchases and sales of portfolio
securities consistent with the Funds' investment objective and policies. In
addition, subject to the supervision of the Board, BBH is permitted to supervise
one or more sub-advisers and evaluate holdings and performance results on a
continuous basis for BBH International Equity Fund. Under the Combined
Agreement, BBH also provides administrative services to each Fund.
The Board considered the scope and quality of services to be provided by BBH
under the Combined Agreement and noted that the scope of services provided
had expanded over time, primarily, as a result of regulatory developments.
The Board noted that, for example, BBH is responsible for maintaining and
monitoring its own and, to varying degrees, the Funds' compliance program,
and these compliance programs have recently been refined and enhanced in
light of new regulatory requirements. The Board considered the quality of the
investment research and administrative capabilities of BBH and the other
resources it has dedicated to performing services for the Funds. The Board
concluded that, overall, they were satisfied with the nature, extent and
quality of services expected to be provided to each of the Funds under the
Combined Agreement.
Subject to the supervision of the Board, BBH oversees the sub-advisers and
evaluates their results. BBH reviews portfolio performance, characteristics,
departures of key personnel of the sub-advisers and any other relevant topics.
BBH also analyzes and monitors economic trends and monetary policy on a
continuous basis. The holdings of the BBH International Equity Fund and the
allocation of assets to the sub-advisers are regularly reviewed with the
objective of enhancing the total rate of return over a full market cycle and
dampening return volatility.
Costs of Services Provided and Profitability to BBH
At the request of the Board, BBH provided information concerning the
profitability of BBH's current investment company advisory and other fees. The
Board also reviewed BBH's profitability data for each Fund, which also included
the effect of revenue generated by the shareholder servicing, administration,
custody and other fees paid by the Fund. The Board discussed the difficulty of
making comparisons of
30
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
DISCLOSURE OF ADVISOR SELECTION (continued)
October 31, 2007 (unaudited)
profitability because comparative information is not generally publicly
available and is affected by numerous factors, including the structure of the
service provider, the types of funds it manages and administers, its business
mix, numerous assumptions regarding allocations and the entity's capital
structure and cost of capital. In considering profitability information, the
Board considered the effect of fall-out benefits on BBH's expenses, as well as
the "revenue sharing" arrangements BBH has entered into with certain entities
that distribute shares of the Funds. The Board focused on profitability of BBH's
relationships with the Funds before taxes and distribution expenses. The Board
concluded that it was satisfied that BBH's level of profitability from its
relationship with each Fund was not excessive.
Fall-Out Benefits
The Board considered that BBH does not allocate the Funds' portfolio
transactions for third party research, although it did benefit from proprietary
research received from brokers that execute the Funds' purchases and sales of
securities. The Board recognized that the aggregate amount of commissions
generated by Fund transactions was unlikely to result in the Funds receiving
from full service broker dealers substantial discounts on commission rates.. The
Board received and reviewed information concerning BBH's policies with respect
to allocating portfolio brokerage.
The Board also considered that BBH receives shareholder servicing fees from
certain funds, and is the Funds' administrator, custodian and securities
lending agent. The Board noted that BBH retained no portion of the 12b-1 fees
paid by any Fund that operated with a Rule 12b-1 plan. The Board recognized that
BBH's profitability would be somewhat lower if it did not receive proprietary
research for commissions or, if it did not receive the other benefits described
above.
The Board recognized that most Fund shareholderswere also BBH clients, and that
substantial assets are invested in the Funds as a result of an overall investment
management program for the shareholder. The Board noted that the Funds also
derive reputational and other benefits from their association with BBH and
their use of the BBH name, which is licensed to the Funds by BBH. Thus, the
Board did not believe that BBH revenues associated with its clients should be
fairly regarded as "fallout" benefit from the Funds.
Economies of Scale
The Board noted that the Funds' combined fee schedules, other than the fee
schedule for BBH Money Market Fund, do not contain breakpoints. As a result, if
assets increase, the fee rates would not be reduced for these Funds on the
incremental assets. With respect to the BBH Money Market Fund, the breakpoint
will be reviewed every three (3) years by the Board, and may be adjusted upwards
to take into account the effects of inflation or such other basis as may be
appropriate, subject to the approval of shareholders to the extent required by
the 1940 Act.
FINANCIAL STATEMENT OCTOBER 31, 2007 31
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
DISCLOSURE OF ADVISOR SELECTION (continued)
October 31, 2007 (unaudited)
There may be other economies of scale because many expenses did not rise (and
fall) proportionally to increases (and decreases) in total net assets. The Board
noted that BBH had priced its services in recognition of the fact that it was
largely its own clients who were shareholders and, accordingly, sought to assure
that the cost of these services and total expenses for each Fund were fair and
reasonable. In addition, the Board noted that over the years BBH had supported
certain Funds through fee waivers and expense reimbursements. Based on
information they had been provided over many years, the Board observed that in
the mutual fund industry as a whole, as well as among funds similar to the
Funds, there appeared to be no uniformity or pattern in the fees and asset
levels at which breakpoints (if any) apply. In light of the Funds' current size
and expense structure, the Board concluded that it was unnecessary at this time
to consider breakpoints with respect to the Funds, other than for the BBH Money
Market Fund.
Investment Results
The Board considered the investment results of each of the Funds as compared to
investment companies with its peers and with one or more selected securities
indices. In addition to the information received by the Board for the meeting
held on October 2, 2006, the Board received detailed performance information for
each Fund at each regular Board meeting during the year. At the meeting held on
October 2, 2006, the Board reviewed information showing performance of each Fund
compared to its peers over the prior 1-, 3-, and 5- year periods and compared
the performance information to one or more securities indices over comparable
periods.
Combined Fee Rate
The Board considered the fee rate to be paid by each Fund to BBH. The Board
recognized that it is difficult to make comparisons of these fee rates, and the
combined advisory and administration fees, because there are variations in the
services that are included in the fees paid by other funds.
The Board considered the depth and range of services provided under the Combined
Agreement. For example, in addition to a continuous investment program, BBH
provides, among other things, officers (including the Funds' Chief Compliance
Officer and officers to provide required certifications) and administrative
services, such as shareholder communications, and tax compliance, with the
attendant costs and exposure to liability. BBH also coordinates the provision of
services to the Funds by nonaffiliated service providers.
The following factors specific to the BBH International Equity Fund also were
noted and considered by the Board in deciding to approve the Combined Agreement:
The Board reviewed the performance of the BBH International Equity Fund's Class
N shares and Class I shares versus the MSCI Europe, Australasia and Far East
Index (the "Index") The Board considered the performance of the BBH
International Equity Fund and each sub-advisor since adopting a multi-manager
approach and employing two sub-advisors in January 2004. The Board recognized
that divergence from
32
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
DISCLOSURE OF ADVISOR SELECTION (continued)
October 31, 2007 (unaudited)
the Index, particularly during periods of significant market movements, was to
be expected because each of the sub-advisers has a clearly defined fundamental
investment style with only modest concern for tracking error to the Index. The
Board reviewed the overall investments of the Fund and concluded that the
portfolio was broadly diversified in terms of country exposure, sector exposure
and specific company risk. The Board noted that the performance of both share
classes before all expenses was better than the Index since January 31, 2004,
but observed that on an after-fee basis the Fund had trailed the Index. The
Board also noted the expense ratio for both share classes were in line with many
funds of similar size and investment mandate. Taking into account these
comparisons and the other factors considered, the Board concluded that the BBH
International Equity Fund's recent investment results and its total expense
ratio had been satisfactory.
Conflicts of Interest
As a general matter, certain conflicts of interest may arise in connection with
a portfolio manager's management of a Fund's investments, on the one hand, and
the investments of other accounts for which the portfolio manager is
responsible, on the other. For example, it is possible that the various accounts
managed could have different investment strategies that, at times, might
conflict with one another to the possible detriment of the Fund. Alternatively,
to the extent that the same investment opportunities might be desirable for more
than one account, possible conflicts could arise in determining how to allocate
them. Other potential conflicts might include conflicts created by specific
portfolio manager compensation arrangements, and conflicts relating to selection
of brokers or dealers to execute Fund portfolio trades and/or specific uses of
commissions from Fund portfolio trades (for example, research, or "soft
dollars").
BBH has adopted and implemented policies and procedures, including brokerage and
trade allocation policies and procedures, which it believes address the
conflicts associated with managing multiple accounts for multiple clients. In
addition, BBH monitors a variety of areas, including compliance with account
investment guidelines, the inclusion only of securities approved for purchase by
the BBH's Fixed Income Credit Committee, and compliance with the BBH's Code of
Ethics. Finally, BBH has structured the portfolio managers' compensation in a
manner, and the Funds have adopted policies and procedures, reasonably designed
to safeguard a Fund from being negatively affected as a result of any such
potential conflicts.
FINANCIAL STATEMENT OCTOBER 31, 2007 33
<PAGE>
BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
ADDITIONAL FEDERAL TAX INFORMATION (unaudited)
The Fund hereby designates $6,173,183 as an approximate amount of capital gain
dividend for the purpose of the dividends paid deduction.
The amount of qualified interest income (QII) dividends paid by the BBH
International Equity Fund (the "Fund") for the year ended October 31, 2007 was
$4,533.
Under Section 854(b)(2) of the Internal Revenue Code (the "Code"), the Fund
designates up to a maximum of $18,275,445 as qualified dividends for purposes of
the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
October 31, 2007. In January 2008, shareholders will receive Form 1099-DIV which
will include their share of qualified dividends distributed during the calendar
year 2007. Shareholders are advised to check with their tax advisors 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 countries or possessions of the United States are as follows:
Foreign Foreign Tax
Source Income Credit Total
------------- ------------
$18,275,445 $521,758
34
<PAGE>
TRUSTEES AND OFFICERS OF BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
(unaudited)
Information pertaining to the Trustees of the BBH Trust (the "Trust") and
executive officers of the Trust is set forth below. Part B to the Registration
Statement of the BBH International Equity Fund includes additional information
about the Fund's Trustees and is available upon request without charge by
contacting the Fund at 1-800-625-5759.
<TABLE>
<CAPTION>
Term of Number of
Office Funds in
and Fund Other
Position(s) Length Complex Directorships
Name, Birth Date Held with of Time Principal Occupation(s) Overseen by Held by
and Address Trust Served# During Past 5 Years Trustee^ Trustee
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joseph V. Shields Jr. Chairman of Since 2007 Managing Director, Chairman and 7 None
Birth Date: the Board and Chief Executive Officer of Shields
March 17, 1938 Trustee & Company (member of New York
Shields & Company Stock Exchange); Chairman of
140 Broadway Capital Management Associates, Inc.
New York, NY 10005 (registered investment adviser);
Director of Flower Foods, Inc. (New
York Stock Exchange listed company).
Eugene P. Beard Trustee Since 2007 Chairman & CEO of Westport Asset 7 Director of
Birth Date: Fund, Inc. Old Westbury
March 17, 1935 Funds
800 Connecticut Ave., (7 Funds)
3 East
Norwalk, CT 06854
David P. Feldman Trustee Since 2007 Director of Jeffrey Co. (1992 to 7 Director of
Birth Date: present); Director of QMED (1999 to Dreyfus
November 16, 1939 May 2007). Mutual Funds
C/O BBH & Co. (59 Funds)
140 Broadway
New York, NY 10005
Alan G. Lowy Trustee Since 2007 Private Investor. 7 None
Birth Date:
April 17, 1939
4111 Clear Valley Drive
Encino, CA 91436
Arthur D. Miltenberger Trustee Since 2007 Retired; Trustee, R.K. Mellon 7 None
Birth Date: Family Trust (1981 to June 2003);
November 8, 1938 Director of Aerostructures
503 Darlington Road Corporation (aircraft manufacturer)
Ligonier, PA 15658 (1996 to July 2003).
</TABLE>
FINANCIAL STATEMENT OCTOBER 31, 2007 35
<PAGE>
TRUSTEES AND OFFICERS OF BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Term of Number of
Office Funds in
and Fund Other
Position(s) Length Complex Directorships
Name, Birth Date Held with of Time Principal Occupation(s) Overseen by Held by
and Address Trust Served# During Past 5 Years Trustee^ Trustee
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------<S> <C> <C> <C> <C> <C>
Samuel F. Pryor, IV Trustee Since 2007 Private Investor. 7 NoneBirth Date:
June 12, 1955
130 East 67th Street
New York, NY 10021
H. Whitney Wagner Trustee Since 2007 President, Clear Brook Advisors, a 7 None
Birth Date: registered investment advisor.
March 3, 1956
Clear Brook Advisors
75 Rockefeller Plaza, 14th Floor
New York, NY 10019
Officers
John A. Nielsen President and Since 2007 President and Principal Executive N/A N/A
Birth Date: Principal Officer of the Trust; He joined
July 15, 1943 Executive Brown Brothers Harriman & Co.
140 Broadway Officer ("BBH") in 1968 and has been a
New York, NY 10005 Partner of the firm since 1987.
Charles H. Schreiber Treasurer, Since 2007 Treasurer, Principal Financial N/A N/A
Birth Date: Principal Officer and Anti-Money Laundering
December 10, 1957 Financial Officer of the Trust; Senior Vice
140 Broadway Officer, President of BBH since September
New York, NY 10005 Anti-Money 2001; Joined BBH in 1999.
Laundering
Officer
Mark B. Nixon Assistant Since 2007 Assistant Secretary and Assistant N/A N/A
Birth Date: Secretary, Treasurer of the Trust; Vice
January 14, 1963 Assistant President of BBH (since October
140 Broadway Treasurer 2006); Accounting Manager, Reserve
New York, NY 10005 Funds (August 2005-September 2006);
Assistant Controller, Reserve Funds
(February 2005-August 2005);
Private Consultant (December 2001-
February 2005).
</TABLE>
36
<PAGE>
TRUSTEES AND OFFICERS OF BBH INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Term of Number of
Office Funds in
and Fund Other
Position(s) Length Complex Directorships
Name, Birth Date Held with of Time Principal Occupation(s) Overseen by Held by
and Address Trust Served# During Past 5 Years Trustee^ Trustee
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------<S> <C> <C> <C> <C> <C>
Beth Haddock Chief Since 2007 Chief Compliance Officer of the N/A N/A
Birth Date: Compliance Trust (September 2007-present);
December 10, 1965 Officer Chief Compliance Officer for the
140 Broadway FINRA/NYSE and SEC compliance
New York, NY 10005 programs and Associate Compliance
Director for the global compliance
program (April 2005-present);
Deputy General Counsel of AXA
Advisors/ AXA Financial (November
1997-April 2005)
Gail C. Jones Secretary Since 2007 Secretary of the Trust; Counsel, N/A N/A
Birth Date: ReedSmith, LLP (since October
October 26, 1953 2002); Corporate Counsel (January
1001 Liberty Avenue 1997 to September 2002) and Vice
Pittsburgh, PA President (January 1999 to
15222-3779 September 2002) of Federated
Services Company.
Judith J. Mackin Vice President Since 2007 Vice President of the Trust; Vice N/A N/A
Birth Date: President (since November 1997) of
May 30, 1960 Federated Services Company.
1001 Liberty Avenue,
Pittsburgh, PA
15222-3779
John C. Smith Assistant Since 2007 Assistant Treasurer of the Trust; N/A N/A
Birth Date: Treasurer Vice President (since 2004);
August 2, 1965 Assistant Vice President (since
50 Milk Street September 2001); Associate
Boston, MA 02109 (September 2000 to August 2001);
and Senior Analyst (June 1999 to
August 2000) of BBH & Co.
</TABLE>
-------------------------
# Each Trustee of the Trust holds office until he or she attains the age of
70 (72, in the case of Trustees who were elected as such before January 1,
2000), or until he or she sooner dies, resigns or is removed from office
in accordance with the provisions of the Trust's Declaration of Trust. 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).
Each Trustee previously served on the Board of Trustees of the Predecessor
Funds.
^ The Fund Complex consists of the Trust, which has seven series and each is
counted as one "Fund" for purposes of this table.
FINANCIAL STATEMENT OCTOBER 31, 2007 37
<PAGE>
INVESTMENT ADVISER AND ADMINISTRATOR
BROWN BROTHERS HARRIMAN
140 BROADWAY
NEW YORK, NY 10005
DISTRIBUTOR
EDGEWOOD SERVICES, INC.
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
SHAREHOLDER SERVICING AGENT
BROWN BROTHERS HARRIMAN
140 BROADWAY
NEW YORK, NY 10005
(800) 625-5759
To obtain information or make shareholder inquiries:
By telephone: Call 1-800-575-1265
By E-mail send your request to: bbhfunds@bbh.com
On the internet: www.bbhfunds.com
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. Such offering is made only by the prospectus, which includes details as to
offering price and other material information.
The Fund files with the SEC a complete schedule of its portfolio holdings, as of
the close of the first and third quarters of its fiscal year, on "Form N-Q."
Information on Form N-Q is available without charge and upon request by calling
the Funds at the toll-free number listed above. A text only version can be
viewed online or downloaded from the SEC's website at http://www.sec.gov; and
may be reviewed and copied at the SEC's Public Reference Room in Washington, DC
(call 1-800-SEC-0330 for information on the operation of the Public Reference
Room). You may also access this information from the BBH website at BBH.com by
clicking on "BBH Mutual Funds" and selecting "Online Documents/Holdings
Information."
A copy of the Fund's Proxy Voting Policy is available upon request by calling
the toll-free number listed above. A text-only version of the policy can be
viewed online or downloaded from the SEC at www.sec.gov.
BROWN [LOGO]
BROTHERS
HARRIMAN
================================================================================
BROWN [LOGO]
BROTHERS
HARRIMAN
----------
Annual Report
OCTOBER 31, 2007
----------
BBH REAL RETURN FUND
(Formerly, BBH Inflation-Indexed Securities Fund)
================================================================================
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For the 12-month period ended October 31, 2007, the BBH Real Return Fund Class
I-Shares returned 1.53%(1), while the N-Shares returned 1.30%(1). The Fund's
benchmark, the Citigroup Inflation-Linked Securities Index(2) ("CILS"), returned
6.30% over the same period. The largest detractors from performance were the
Fund's bulleted yield curve posture throughout the period as well as positions
in nominal bonds during the spring.
Fixed income markets rallied significantly over the past 12-month period ending
October 31, 2007, as problems associated with sub-prime lending permeated the
marketplace and led to a "flight-to-quality" rally and eventually 100 basis
points of Federal Reserve easing. As is customary during these market
conditions, shorter maturity yields fell further than those for longer
maturities as the yield curve regained a more normal upward sloping shape.
Treasuries were the best performing sector over the period as general risk
premiums widened substantially, lowering the relative performance of the Fund.
Hardest hit were direct sub-prime obligations and financial sector corporate
bonds. In addition, high quality asset backed securities also failed to keep
pace with Treasuries.
----------
(1) Performance data quoted represents 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. Mutual Fund performance changes over time and current
performance may be lower or higher than what is stated. For current to the
most recent month end performance and after tax returns, contact the Fund
at 1-800-625-5759.
(2) The CILS measures the return of debentures with fixed-rate coupon payments
that adjust for inflation as measured by the Consumer Price Index. The
index employs a minimum maturity of one year and a minimum amount
outstanding of USD 1 billion for both entry and exit. The index is
unmanaged, and investments cannot be made in an index.
2
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE (continued)
Growth of $10,000 Invested in BBH Real Return Fund
The graph below illustrates the hypothetical investment of $10,000(1) in the
Class N shares of the Fund over the ten years ended October 31, 2007 as compared
to the CILS and the 3-year Treasury.
[The following information was depicted as a line chart in the printed material]
Total Return for the Period Ended October 31, 2007
---------------------------------------------------------
Five Years Ten Years
One Year (Annualized) (Annualized)
-----------------------------------------------------------------------
Class N 1.30% 4.73% 6.49%
-----------------------------------------------------------------------
Class I 1.53% 4.98% 6.80%
-----------------------------------------------------------------------
Date Real Return Fund* CILS 3yr Treas
---- ----------------- ---- ---------
10/31/97 10,000.00 10,000 10,000
11/30/97 10,042.06 10,053 10,019
12/31/97 9,950.63 10,007 10,099
01/31/98 10,025.20 10,058 10,235
02/28/98 10,025.20 10,049 10,217
03/31/98 10,032.68 10,043 10,252
04/30/98 10,134.72 10,080 10,293
05/31/98 10,172.46 10,145 10,353
06/30/98 10,215.79 10,174 10,409
07/31/98 10,249.52 10,221 10,465
08/31/98 10,274.65 10,238 10,706
09/30/98 10,465.45 10,458 10,869
10/31/98 10,498.44 10,476 10,909
11/30/98 10,467.60 10,470 10,872
12/31/98 10,415.54 10,400 10,884
01/31/99 10,555.60 10,525 10,946
02/28/99 10,463.15 10,452 10,802
03/31/99 10,489.95 10,456 10,884
04/30/99 10,561.71 10,515 10,917
05/31/99 10,629.21 10,596 10,859
06/30/99 10,651.85 10,595 10,896
07/31/99 10,663.32 10,594 10,916
08/31/99 10,672.47 10,615 10,940
09/30/99 10,718.42 10,652 11,016
10/31/99 10,753.13 10,674 11,030
11/30/99 10,834.42 10,741 11,051
12/31/99 10,776.03 10,649 11,039
01/31/00 10,823.32 10,710 11,004
02/29/00 10,906.12 10,813 11,090
03/31/00 11,273.29 11,124 11,191
04/30/00 11,427.78 11,264 11,198
05/31/00 11,392.19 11,233 11,238
06/30/00 11,537.36 11,375 11,388
07/31/00 11,610.27 11,469 11,467
08/31/00 11,695.82 11,554 11,574
09/30/00 11,769.50 11,622 11,675
10/31/00 11,917.34 11,760 11,752
11/30/00 12,090.90 11,927 11,912
12/31/00 12,213.23 12,043 12,107
01/31/01 12,451.42 12,309 12,264
02/28/01 12,677.63 12,513 12,375
03/31/01 12,766.11 12,630 12,504
04/30/01 12,867.46 12,703 12,471
05/31/01 13,020.59 12,853 12,535
06/30/01 13,020.36 12,839 12,584
07/31/01 13,214.00 13,042 12,805
08/31/01 13,252.91 �� 13,070 12,918
09/30/01 13,343.96 13,158 13,204
10/31/01 13,685.41 13,480 13,408
11/30/01 13,371.58 13,124 13,286
12/31/01 13,241.28 12,997 13,222
01/31/02 13,279.35 13,046 13,287
02/28/02 13,478.54 13,262 13,394
03/31/02 13,387.98 13,181 13,191
04/30/02 13,705.96 13,539 13,416
05/31/02 13,913.96 13,755 13,523
06/30/02 14,101.32 13,954 13,674
07/31/02 14,345.73 14,195 13,951
08/31/02 14,902.14 14,712 14,126
09/30/02 15,313.94 15,087 14,369
10/31/02 14,886.10 14,688 14,369
11/30/02 14,869.60 14,683 14,240
12/31/02 15,393.14 15,187 14,491
01/31/03 15,520.13 15,280 14,463
02/28/03 16,086.04 15,814 14,627
03/31/03 15,831.49 15,598 14,641
04/30/03 15,756.64 15,570 14,685
05/31/03 16,499.49 16,310 14,883
06/30/03 16,350.97 16,140 14,880
07/31/03 15,574.41 15,405 14,657
08/31/03 15,823.50 15,688 14,646
09/30/03 16,358.05 16,222 14,922
10/31/03 16,382.77 16,282 14,794
11/30/03 16,339.16 16,290 14,760
12/31/03 16,508.48 16,459 14,885
01/31/04 16,689.72 16,655 14,937
02/29/04 17,067.32 17,030 15,058
03/31/04 17,337.61 17,307 15,158
04/30/04 16,537.13 16,470 14,855
05/31/04 16,793.81 16,763 14,818
06/30/04 16,808.13 16,771 14,837
07/31/04 17,010.90 16,927 14,921
08/31/04 17,442.86 17,364 15,093
09/30/04 17,464.82 17,395 15,079
10/31/04 17,640.78 17,426 15,147
11/30/04 17,578.96 17,378 15,011
12/31/04 17,882.38 17,692 15,072
01/31/05 17,908.27 17,694 15,042
02/28/05 17,812.25 17,620 14,964
03/31/05 17,828.19 17,639 14,938
04/30/05 18,169.47 17,971 15,073
05/31/05 18,298.99 18,100 15,147
06/30/05 18,373.25 18,176 15,184
07/31/05 18,029.67 17,805 15,076
08/31/05 18,427.09 18,202 15,199
09/30/05 18,415.97 18,170 15,107
10/31/05 18,169.48 17,948 15,070
11/30/05 18,199.70 17,975 15,131
12/31/05 18,413.14 18,198 15,204
01/31/06 18,430.38 18,198 15,213
02/28/06 18,395.90 18,205 15,197
03/31/06 17,982.12 17,783 15,191
04/30/06 17,935.94 17,783 15,231
05/31/06 17,923.87 17,827 15,229
06/30/06 18,000.85 17,873 15,251
07/31/06 18,273.55 18,159 15,399
08/31/06 18,575.44 18,486 15,539
09/30/06 18,575.00 18,518 15,632
10/31/06 18,427.96 18,492 15,691
11/30/06 18,695.29 18,717 15,787
12/31/06 18,267.56 18,276 15,749
01/31/07 18,303.21 18,298 15,763
02/28/07 18,677.47 18,691 15,937
03/31/07 18,707.21 18,725 16,005
04/30/07 18,750.56 18,863 16,064
05/31/07 18,499.10 18,612 15,986
06/30/07 18,351.54 18,579 16,040
07/31/07 18,473.53 19,010 16,250
08/31/07 18,444.60 19,171 16,470
09/30/07 18,666.15 19,428 16,593
10/31/07 18,758.47 19,658 16,679
*net of fees and expenses
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. Mutual 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 current to the most recent month end performance and after tax
returns, contact the Fund at 1-800-625-5759.
----------
(1) The Fund's performance assumes the reinvestment of all dividends and
distributions. The CILS has been adjusted to reflect reinvestment of
dividends on securities in the index. The CILS is not adjusted to reflect
sales, expenses or other fees that the Securities and Exchange Commission
requires to be reflected in the Fund's performance.
FINANCIAL STATEMENT OCTOBER 31, 2007
3
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of the BBH Trust and Shareholders
of BBH Real Return Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of BBH Real Return Fund (a series of the BBH
Trust) (the "Fund") as of October 31, 2007, and the related statements of
operations and cash flows for the year then ended, the statements of changes in
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. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned at October 31, 2007, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
BBH Real Return Fund as of October 31, 2007, the results of its operations and
cash flows 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.
Deloitte & Touche LLP
Boston, Massachusetts
December 27, 2007
4
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
PORTFOLIO ALLOCATION
October 31, 2007 (unaudited)
BREAKDOWN BY SECURITY TYPE
PERCENT OF
U.S. $ VALUE NET ASSETS
------------ ----------
Asset Backed Securities............................... $ 16,787,693 6.0%
Corporate Bonds....................................... 37,638,335 13.6
Foreign Government Bonds.............................. 5,550,126 2.0
Municipal Bonds....................................... 6,097,301 2.2
U.S. Treasury Notes and Bonds......................... 273,263,072 98.4
Liabilities in Excess of Cash and Other Assets........ (61,551,682) (22.2)
------------ - -----
NET ASSETS............................................ $277,784,845 100.0%
========== ====
All data as of October 31, 2007. 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 STATEMENT OCTOBER 31, 2007
5
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal
Amount Value
- --------- - ------------
<C> <S> <C>
U.S. TREASURY NOTES AND BONDS (98.4%)
$ 29,710,091 1.625%, 01/15/2015(1)....................................... $ 28,837,357
9,333,752 1.875%, 07/15/2013(1)....................................... 9,306,768
10,550,339 1.875%, 07/15/2015(1)....................................... 10,416,814
7,761,497 2.000%, 04/15/2012(1)....................................... 7,780,295
22,061 2.000%, 07/15/2014(1)....................................... 22,053
7,175,786 2.000%, 01/15/2016(1)....................................... 7,119,729
23,653,905 2.000%, 01/15/2026(1)....................................... 22,846,639
15,604,185 2.375%, 01/15/2017(1)....................................... 15,936,991
29,886,598 2.375%, 01/15/2025(1)....................................... 30,517,026
21,042,710 2.375%, 01/15/2027(1)....................................... 21,585,212
28,538,849 2.500%, 07/15/2016(1)....................................... 29,475,265
75,201,329 3.500%, 01/15/2011(1)....................................... 79,149,399
2,979,307 3.875%, 01/15/2009(1),(2)................................... 3,058,443
5,615,490 3.875%, 04/15/2029(1)....................................... 7,211,081
------------
Total U.S. Treasury Notes and Bonds
(Identified cost $265,501,110).............................. 273,263,072
- ------------
ASSET BACKED SECURITIES (6.0%)
2,900,000 Advanta Business Card Master Trust 2005-C1 5.508%,
08/22/2011(3)............................................ 2,891,213
2,660,000 Advanta Business Card Master Trust 2006-C1 5.478%,
10/20/2014(3)............................................ 2,585,789
3,900,000 Capital One Multi-Asset Execution Trust 2003-3C 6.902%,
07/15/2016(3)............................................ 4,055,893
491,925 Chase Funding Mortgage Loan Asset-Backed Certificates
2004-1 5.753%, 07/25/2033(3)............................. 261,306
2,108,785 Credit-Based Asset Servicing and Securitization CBO, Ltd.
6.069%, 06/25/2032(3),(4)................................ 2,093,538
1,327,925 Greenpoint Mortgage Funding Trust 2006-HE1 5.280%,
03/12/2037(3)............................................ 1,226,339
3,750,000 MBNA Credit Card Master Note Trust 2005-C1 5.062%,
10/15/2012(3)............................................ 3,673,615
- ------------
Total Asset Backed Securities
(Identified cost $17,226,479)............................... 16,787,693
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal
Amount Value
- --------- ------------
<C> ���� <S> <C>
CORPORATE BONDS (13.6%)
AUTOMOTIVE ((1).7%)
$ 2,500,000 Daimler Financial North America LLC 4.875%, 06/15/2010..... $ 2,486,562
2,360,000 Toyota Motor Credit Corp. 4.610%, 02/05/2016(3)............ 2,269,801
- ------------
4,756,363
- ------------
AIRLINES (0.1%)
150,000 Continental Airlines, Inc. 6.903%, 04/19/2022.............. 141,000
------------
BEVERAGES (0.1%)
150,000 Constellation Brands, Inc. 7.250%, 05/15/2017(4)........... 149,625
157,000 Coors Brewing Co. 6.375%, 05/15/2012....................... 164,806
- ------------
314,431
- ------------
COMMERCIAL SERVICES (0.1%)
150,000 Corrections Corp. of America 6.250%, 03/15/201(3).......... 149,070
- ------------
ENTERTAINMENT (0.5%)
EUR1,000,000 Carnival, Plc. 4.250%, 11/27/2013.......................... 1,381,445
$ 150,000 Royal Caribbean Cruises, Ltd. 6.875%, 12/01/2013........... 148,623
- ------------
1,530,068
- ------------
FINANCE (4.8%)
150,000 E*Trade Financial Corp. 8.000%, 06/15/2011................. 142,500
380,000 ICICI Bank, Ltd. 6.625%, 10/03/2012(4)..................... 382,974
2,500,000 iStar Financial, Inc. 6.034%, 09/15/2009(3)................ 2,409,297
2,000,000 Merrill Lynch & Co., Inc. 3.518%, 03/02/2009(3)............ 1,962,720
250,000 Midori, Ltd. 7.993%, 10/24/2012(3),(4)..................... 249,975
500,000 Redwood Capital IX, Ltd. 7.643%, 01/09/2008(3),(4)......... 500,500
9,157,000 SLM Corp. 4.480%, 01/31/2014(3)............................ 7,230,459
360,000 Vita Capital, Ltd. 6.631%, 01/01/2010(3),(4)............... 359,248
- ------------
13,237,673
------------
FOOD (0.2%)
570,000 Kraft Foods, Inc. 6.500%, 08/11/2017....................... 598,072
- ------------
FOREST PRODUCTS & PAPER (0.2%)
608,000 International Paper Co. 5.850%, 10/30/2012................. 617,429
- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007
7
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal
Amount Value
- --------- - ------------
<C> <S> <C>
CORPORATE BONDS (continued)
INDUSTRIALS (0.5%)
$ 1,250,000 Embraer Overseas, Ltd. 6.375%, 01/24/2017.................. $ 1,221,875
150,000 Manitowoc Co., Inc. 7.125%, 11/01/2013..................... 149,250
- ------------
1,371,125
- ------------
INSURANCE (0.7%)
1,978,000 Allstate Life Global Funding Trust 3.410%, 03/01/2010(3)... 1,883,550
- ------------
LODGING (0.1%)
150,000 Boyd Gaming Corp. 6.750%, 04/15/2014....................... 147,188
150,000 MGM Mirage 6.000%, 10/01/2009.............................. 149,625
- ------------
296,813
- ------------
MEDIA (1.2%)
150,000 Charter Communications Operating LLC 8.000%, 04/30/2012(4). 148,875
2,500,000 COX Communications, Inc. 7.125%, 10/01/2012................ 2,660,290
555,000 Time Warner Cable, Inc. 5.850%, 05/01/2017(4).............. 550,263
------------
3,359,428
------------
OIL & GAS (0.5%)
150,000 El Paso Corp. 6.875%, 06/15/2014........................... 150,268
1,250,000 GAZ Capital 6.212%, 11/22/2016(4).......................... 1,232,500
------------
1,382,768
------------
TELECOMMUNICATIONS (2.9%)
150,000 Qwest Communications International, Inc. 7.250%, 02/15/2011 151,500
2,500,000 Sprint Capital Corp. 7.625%, 01/30/2011.................... 2,640,675
2,500,000 Telecom Italia Capital SA 6.200%, 07/18/2011............... 2,573,495
2,500,000 Time Warner, Inc. 6.875%, 05/01/2012....................... 2,634,875
- ------------
8,000,545
- ------------
Total Corporate Bonds
(Identified cost $39,604,826).............................. 37,638,335
- ------------
MUNICIPAL BONDS (2.2%)
2,120,000 California State 5.000%, 06/01/2037........................ 2,147,284
1,400,000 Los Angeles County, California, Public Works Financing
Authority Lease Revenue 5.000%, 09/01/2033................. 1,444,240
2,425,000 Texas State 5.000%, 04/01/2037............................. 2,505,777
- ------------
Total Municipal Bonds
(Identified cost $5,952,220)............................... 6,097,301
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- - ------------
<C> <S> <C>
FOREIGN GOVERNMENT BONDS (2.0%)
BRL 41,000 Brazil Notas do Tesouro Nacional (Serie B) 6.000%, 05/15/2015. $ 379,947
$ 530,000 Colombia Government International Bond 7.375%, 01/27/2017..... 584,855
250,000 Indonesia Government International Bond 8.500%, 10/12/2035(4). 304,688
450,000 Mexico Government International Bond 6.375%, 01/16/2013....... 478,575
150,000 Oriental Republic of Uruguay 7.625%, 03/21/2036............... 167,625
400,000 Philippine Government International Bond 9.875%, 01/15/2019 .... 520,000
100,000 Republic of Ghana 8.500%, 10/04/2017(4)....................... 102,500
2,673,000 Russian Federation 7.500%, 03/31/2030(4)...................... 3,011,936
- ------------
Total Foreign Government Bonds
(Identified cost $5,473,493).................................. 5,550,126
------------
TOTAL INVESTMENTS (Identified cost $333,758,128)(5)........... 122.2% $339,336,527
LIABILITIES IN EXCESS OF OTHER ASSETS......................... (22.2) (61,551,682)
----- ------------
NET ASSETS ................................................. 100.0% $277,784,845
===== =========
</TABLE>
----------
(1) Inflation Protected Security.
(2) Security held as collateral on futures contracts.
(3) Variable rate instrument. Interest rates change on specific dates (such as
coupon or interest payment date). The yield shown represents the October
31, 2007 coupon or interest rate.
(4) Securities exempt from registration under Rule 144A of the Security Act of
1933. These securities may be resold. Certain conditions for public sale
may exist. In transactions exempt from registration, normally to qualified
institutional buyers. Total market value of 144A securities owned at
October 31, 2007 was $9,086,622 or 3.27% of net assets.
(5) The aggregate cost for federal income tax purposes is $335,198,438, the
aggregate gross unrealized appreciation is $7,775,239 and the aggregate
��gross unrealized depreciation is $3,637,150, resulting in net unrealized
appreciation of $4,138,089. Securities with an aggregate market value of
$70,206,078 have been segregated with primary dealers of U.S. Government
Obligations as designated by the Federal Reserve Bank of New York in
association with reverse repurchase agreements:
<TABLE>
<CAPTION>
Repurchase
Counter-Party Rate Date Security Value
------------- ---- ---- -------- -----
<S> <C> <C> <C> <C>
Barclays 4.65% 11/02/2007 U.S. Treasury Notes TIPS 2.500%, 07/15/2016 $26,324,828
Barclays 4.68% 11/09/2007 U.S. Treasury Notes TIPS 3.500%, 01/15/2011 $43,881,250
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 9
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars unless otherwise noted)
A summary of obligations under open forward foreign currency exchange
contracts outstanding at October 31, 2007 is as follows:
Unrealized
Notional Market Appreciation/
Description Value Value (Depreciation)
----------- ----- ----- --------------
Buy Contracts:
GBP British Pound settling 11/30/07 753,400 1,563,482 $18,794
Swedish Krona settling 11/30/07 10,497,000 1,651,287 6,711
Sell Contracts:
Euro settling 11/30/07 (949,300) ( 1,373,947) (5,902)
-------
$19,603
=======
A summary of obligations under open futures contracts at October 31, 2007
is as follows:
Unrealized
Expiration Base Contract Appreciation/
Position Date Contracts Note/Bond Value (Depreciation)
-------- ---- --------- --------- ----- --------------
Short 12/2007 (277) U.S. Long Bond $(31,188,469) $(298,096)
Short 12/2007 (888) U.S. 5 Yr Treasury Note $(95,321,250) (450,092)
- ---------
$(748,188)
=========
As of October 31, 2007, the Fund had segregated sufficient cash and/or
securities to cover the initial margin requirements on open futures
contracts.
At October 31, 2007, the Fund had the following open swap agreements:
<TABLE>
<CAPTION>
Amount Due
Notional from (to) Broker
Amount Description at Value
------ - ----------- --------
<S> <C> <C> <C>
GBP 13,600,000 Agreement with JP Morgan terminating 08/03/12 to
pay a fixed rate of 6.055% interest and receive
the 6 months LIBOR paid semi-annually. $ (522,599)
JPY 933,600,000 Agreement with JP Morgan terminating 03/13/12 to
receive a fixed rate of 1.295% interest and pay
the 6 months Yen LIBOR paid semi-annually. 18,626
SEK 109,260,000 Agreement with Goldman Sachs terminating
03/13/12 to receive a fixed rate of 4.1175%
interest and pay the 3 months STIBOR paid
quarterly. (414,030)
CHF 5,200,000 Agreement with Goldman Sachs terminating
08/07/12 to receive a fixed rate of 3.348%
interest and pay the 6 months LIBOR paid
semi-annually. 45,748
CHF 7,280,000 Agreement with Goldman Sachs terminating
10/05/12 to receive a fixed rate of 3.1525%
interest and pay the 6 months LIBOR paid
semi-annually. 9,419
NZD 6,300,000 Agreement with JP Morgan terminating 08/07/12 to
pay a fixed rate of 8.070% interest and receive
the 3 months Bank Bill rate paid quarterly. 24,679
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars unless otherwise noted)
<TABLE>
<CAPTION>
Amount Due
Notional from (to) Broker
Amount Description at Value
------ - ----------- --------
<S> <C> <C> <C>
23,080,000 Agreement with JP Morgan terminating 08/21/10 to
receive a fixed rate of 4.8875% interest and pay
the 3 months LIBOR paid quarterly. $ 156,944
4,300,000 Agreement with JP Morgan to receive 0.370%
interest in exchange for providing protection
against default on a bond from Lehman Brothers
Holdings, Inc. (109,337)
105,000,000 Agreement with Lehman Brothers terminating
10/19/11 to receive a fixed rate of 5.176%
interest and pay the 3 months LIBOR paid
quarterly. 1,669,500
8,000,000 Agreement with Goldman Sachs terminating
06/20/14 to pay 2.120% interest in exchange for
receiving 7 years protection against default on
a bond from SLMA Corporation. 62,245
5,000,000 Agreement with Goldman Sachs terminating 08/04/16 to
receive a fixed rate of 3.017% interest and pay the
United Kingdom Retail Price
Index. (247,857)
34,500,000 Agreement with JP Morgan to receive 0.350%
interest in exchange for providing protection
against default on an index of 125 North
American Investment Grade Corporate Entities. (407,443)
7,000,000 Agreement with JP Morgan to pay 0.500% interest
in exchange for receiving protection against
default on a bond from Waste Management, Inc. (67,857)
4,300,000 Agreement with JP Morgan to receive 0.280%
interest in exchange for providing protection
against default on a bond from Morgan Stanley. (67,938)
850,000 Agreement with Lehman Brothers to pay 0.510%
interest in exchange for receiving protection
against default on a bond from Century Tel., Inc. (3,005)
850,000 Agreement with Lehman Brothers to pay 0.560%
interest in exchange for receiving protection
against default on a bond from Murphy Oil
Corporation. (632)
850,000 Agreement with Lehman Brothers to pay 0.370%
interest in exchange for receiving protection
against default on a bond from Marriot
International, Inc. (2,378)
4,300,000 Agreement with Lehman Brothers to receive 0.390%
interest in exchange for providing protection
against default on a bond issued by Bear Stearns
Companies, Inc. (108,062)
4,300,000 Agreement with Goldman Sachs to receive 1.545%
interest in exchange for providing protection
against default on a bond issued by Bear Stearns
Companies, Inc. (81,766)
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 11
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars unless otherwise noted)
<TABLE>
<CAPTION>
Amount Due
Notional from (to) Broker
Amount Description at Value
------ - ----------- --------
<S> <C> <C> <C>
30,000,000 Agreement with JP Morgan terminating 02/01/08 to
receive the Lehman CMBS AAA 8.5+ Year Component Index
or pay the Lehman CMBS AAA 8.5+ Year Component Index
based on the change in the index from the previous
Index Fixing Date to the current Index Fixing Date. $ (300,258)
1,500,000 Agreement with Lehman Brothers terminating
12/20/12 to pay 0.490% interest and receive
protection against default on a bond issued by
Whirlpool Corporation. 672
5,350,000 Agreement with Lehman Brothers to pay 0.155%
interest in exchange for receiving protection
against default on a bond issued by Citigroup, Inc. 73,715
5,350,000 Agreement with Lehman Brothers to pay 0.160%
interest in exchange for receiving protection
against default on a bond issued by Wachovia
Corporation. 76,949
4,300,000 Agreement with Lehman Brothers to receive 0.640%
interest in exchange for providing protection
against default on a bond issued by Countrywide
Financial Corp. (494,521)
4,300,000 Agreement with Lehman Brothers to receive 0.280%
interest in exchange for providing protection
against default on a bond issued by Goldman
Sachs Group, Inc. (46,758)
5,350,000 Agreement with Lehman Brothers to pay 0.160%
interest in exchange for receiving protection
against default on a bond issued by Bank of
America Corporation. 46,140
5,350,000 Agreement with Lehman Brothers to pay 0.165%
interest in exchange for receiving protection
against default on a bond issued by American
�� Express Company. 48,480
-----------
$ (641,324)
========
LIBOR - - London Interbank Offered Rate
STIBOR - - Stockholm Interbank Offered Rate
</TABLE>
As of October 31, 2007, the Fund had segregated sufficient cash to cover any
accrued but unpaid net amounts owed to a swap counterparty.
Currency Abbreviations:
BRL - - Brazilian Real
CHF - - Swiss Franc
EUR - - Euro
GBP - - British Pound
JPY - - Japanese Yen
NZD - New Zealand Dollar
SEK - - Swedish Krona
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2007
ASSETS:
Investments in securities, at value
(identified cost $333,758,128) ........................... $ 339,336,527
Cash ....................................................... 172,256
Foreign currency at value (identified cost $1,401) ......... 835
Segregated cash ............................................ 6,261,464
Receivables for:
Investments sold ......................................... 2,332,102
Interest and other receivables ........................... 2,664,545
Unrealized appreciation of forward
foreign exchange currency contracts .................... 25,505
Capital stock sold ....................................... 43,709
- -------------
Total Assets ........................................... 350,836,943
- -------------
LIABILITIES:
Reverse repurchase agreements, at fair value ............... 70,206,078
Payables for:
Investments purchased .................................... 304,978
Unrealized depreciation of forward foreign
exchange currency contract ............................. 5,902
Capital stock redeemed ................................... 681,437
Variation margin on futures contracts .................... 752,518
Swap Agreements .......................................... 641,324
Investment advisory fees ................................. 129,689
Shareholder servicing fees ............................... 91,767
Swap premium payable ..................................... 61,632
Administrative fees ...................................... 51,875
Professional fees ........................................ 37,492
Board of Trustees' fees .................................. 1,955
Dividends payable ........................................ 281
Custody and accounting fees .............................. 40,137
Accrued expenses and other liabilities ................... 35,033
-------------
Total Liabilities ...................................... 73,052,098
- -------------
NET ASSETS .................................................... $ 277,784,845
==========
Net Assets Consist of:
Par value .................................................. $ 27,309
Paid-in capital ............................................ 310,361,428
Undistributed net investment income ........................ 548,620
Accumulated net realized loss on investments,
foreign exchange transactions
and futures contracts .................................... (37,941,204)
Net unrealized appreciation on investments,
foreign currency translations
and futures contracts .................................... 4,788,692
- -------------
Net Assets .................................................... $ 277,784,845
==========
CLASS N SHARES NET ASSET VALUE
($199,412,622 / 19,628,081 shares outstanding) ............. $10.16
=====
CLASS I SHARES NET ASSET VALUE
($78,372,224 / 7,680,864 shares outstanding) ............... $10.20
=====
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 13
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended October 31, 2007
NET INVESTMENT INCOME:
Income:
Interest and other income (net of
withholding taxes of $54,939) ............................ $ 14,962,007
------------
Total Income ............................................. 14,962,007
- ------------
Expenses:
Investment advisory fees ................................... 922,318
Shareholder servicing fees ................................. 664,915
Administrative fees ........................................ 368,927
Custody and accounting fees ................................ 410,727
Professional fees .......................................... 33,491
Board of Trustees' fees .................................... 54,151
Distribution fees .......................................... 8,367
Miscellaneous expenses ..................................... 342,120
------------
Total Expenses ........................................... 2,805,016
Expense offset arrangement ............................... (25,403)
- ------------
Net Expenses ............................................. 2,779,613
------------
Net Investment Income ........................................ 12,182,394
- ------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss on investments,
futures contracts and swap agreements ...................... (11,228,543)
Net realized gain on foreign exchange transactions ........... 372,110
- ------------
Net realized loss .......................................... (10,856,433)
- ------------
Net change in unrealized appreciation on investments
and futures contracts ...................................... 2,338,112
Net change in unrealized appreciation on foreign currency
translations ............................................... 473,717
- ------------
Net change in unrealized appreciation ...................... 2,811,829
- ------------
Net Realized and Unrealized Loss ......................... (8,044,604)
- ------------
Net Increase in Net Assets Resulting
from Operations ............................................ $ 4,137,790
=========
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
2007 2006
- -------------- --------------
INCREASE IN NET ASSETS:
Operations:
Net investment income ....................... $ 12,182,394 $ 27,824,113
Net realized loss on investments,
foreign exchange transactions,
futures contracts and swap agreements ..... (10,856,433) (24,821,985)
Net change in unrealized appreciation
on investments, foreign currency
translations and futures contracts ........ 2,811,829 6,010,214
------------- -------------
Net increase in net assets resulting
from operations ........................... 4,137,790 9,012,342
------------- -------------
Dividends and distributions declared:
From net investment income:
Class N ..................................... (8,170,933) (20,521,653)
Class I ..................................... (3,702,005) (5,398,134)
Class A ..................................... (2,183) (426,749)
From net realized gains
Class N ..................................... -- (13,272,455)
Class I ..................................... -- (2,627,706)
Class A ..................................... - -- (256,379)
------------- -------------
Total dividends and distributions
declared ................................ (11,875,121) (42,503,076)
------------- - -------------
Capital stock transactions:
Net proceeds from sales of capital stock .... 37,895,788 109,930,850
Net asset value of capital stock
issued to shareholders for reinvestment
of dividends and distributions ............ 9,269,309 38,146,957
Net cost of capital stock redeemed .......... (245,269,850) (226,179,019)
- ------------- -------------
Net decrease in net assets resulting from
capital stock transactions .............. 198,104,753) (78,101,212)
- ------------- -------------
Total decrease in net assets .............. (205,842,084) (111,591,946)
NET ASSETS:
Beginning of year ............................. 483,626,929 595,218,875
- ------------- -------------
End of year (including undistributed
net investment income of $548,620
and $711,516, respectively) ................. $ 277,784,845 $ 483,626,929
========= =========
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 15
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS(1)
For the year ended October 31, 2007
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net increase in net assets from operations .................. $ 4,137,790
Adjustments:
Purchase of portfolio investments ........................... (1,158,364,811)
Sales of portfolio investments .............................. 1,319,654,781
Sales of short-term investment securities, net .............. 24,300,000
Decrease in foreign currency at value ....................... 16,153
Decrease in receivable for swap agreements .................. 556,943
Decrease in interest and other receivables .................. 746,055
Increase in segregated cash ................................. (6,261,464)
Decrease in appreciation of forward foreign
exchange currency contracts .............................. 19,958,999
Decrease in depreciation of forward foreign
exchange currency contracts .............................. (20,070,106)
Decrease in variation margin payable ........................ (270,502)
Increase in swap premium payable ............................ 61,632
Increase in payable for swap agreements ..................... 641,324
Decrease in accrued expenses and other liabilities .......... (23,188)
Net realized loss on investments, futures contracts
and swap agreements ...................................... 11,228,543
Net realized gain on foreign exchange transactions .......... (372,110)
Net change in unrealized depreciation of investments
and foreign currency denominated assets
and liabilities .......................................... (2,811,829)
Accretion of bond discount and amortization
of bond premium .......................................... (325,340)
Effect of exchange rate on cash ............................. 12,815,181
- ---------------
Net increase in cash from operating activities .............. 205,618,051
---------------
Financing Activities:(2)
Proceeds from shares sold ................................... 37,947,357
Payment on shares redeemed .................................. (245,706,541)
Increase in reverse repo .................................... 4,312,328
Cash dividends paid ......................................... (2,605,857)
�� - ---------------
Net decrease in cash from financing activities .............. (206,052,713)
---------------
Net decrease in cash ........................................ (434,662)
- ---------------
Cash at the beginning of the period: ........................ $ 606,918
---------------
Cash at end of period ....................................... $ 172,256
=========
----------
(1) This statement of cash flows is presented as the Fund's investment in
reverse repurchase agreements is 13.50% of average net assets for the year
ended October 31, 2007. Reverse repurchase agreements constitute debt in
accordance with accounting principles generally accepted in the United
States of America. For discussion of reverse repurchase agreements, see
footnote D on page 20.
(2) Non-cash financing activities included herein consist of reinvestment of
distributions of $9,269,309.
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a Class N share outstanding throughout
each year
<TABLE>
<CAPTION>
For the years ended October 31,
-----------------------------------------------------------
2007 2006 2005 2004 2003
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................. $10.39 $11.00 $11.32 $11.32 $10.89
------ ------ ------ ------ ------
Income from investment operations:
Net investment income(1)........................ 0.32 0.52 0.46 0.38 0.35
Net realized and unrealized gain (loss) .......... (0.19) (0.31) (0.14) 0.45 0.71
- ------ ------ ------ ------ ------
Total income from investment operations 0.13 0.21 0.32 0.83 1.06
------ ------ ------ ------ ------
Less dividends and distributions:
From net investment income ....................... (0.36) (0.52) (0.45) (0.40) (0.33)
From net realized gains. ......................... -- (0.30) (0.19) (0.43) (0.30)
------ ------ ------ ------ ------
Total dividends and distributions. (0.36) (0.82) (0.64) (0.83) (0.63)
------ ------ ------ ------ ------
Net asset value, end of year ....................... $10.16 $10.39 $11.00 $11.32 $11.32
====== ====== ====== ====== ======
Total return ....................................... 1.30% 1.91% 2.91% 7.77% 10.05%
Ratios/Supplemental data:
Net assets, end of year (in millions) ............ $200 $357 $489 $373 $380
Expenses as a percentage of average net assets ... 0.83%(2) 0.71%(2) 0.71%(2) 0.72%(2) 0.67%(2),(3)
Ratio of net investment income to
average net assets ............................. 3.16% 4.97% 4.10% 3.43% 3.43%
Portfolio turnover rate. ......................... 268% 496%(4) 572% 553% 393%
<CAPTION>
----------
<C> <C>
(1) Calculated using average shares outstanding for the year.
(2) The ratio of expenses to average net assets for the years ended October 31, 2007, 2006, 2005, 2004 and
2003 reflect fees reduced as a result of an expense offset arrangement with the Fund's custodian. Had this
arrangement not been in place, this ratio would have been 0.84%, 0.71%, 0.71%, 0.72% and 0.67%,
respectively.
(3) Had the expense payment agreement which terminated on July 31, 2003 not been in place, the ratio of expenses to
average net assets would have been as follows: N/A N/A N/A N/A 0.72%
(4) Prior year amount has been restated to align disclosure with current year presentation.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 17
<PAGE>
--------------------------------------------------------------------------------
BBH REAL RETURN FUND
FINANCIAL HIGHLIGHTS (continued)
Selected per share data and ratios for a Class I share outstanding throughout
each year
<TABLE>
<CAPTION>
For the years ended October 31,
-----------------------------------------------------------
2007 2006 2005 2004 2003
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .................. $10.42 $11.03 $11.33 $11.34 $10..90
------ ------ ------ ------ ------
Income from investment operations:
Net investment income(1) .......................... 0.39 0.56 0.49 0.43 0.38
Net realized and unrealized gain (loss) ........... (0.24) (0.34) (0.12) 0.41 0.72
- ------ ------ ------ ------ ------
Total income (loss) from investment operations 0.15 0.22 0.37 0.84 1.10
------ ------ ------ ------ ------
Less dividends and distributions:
From net investment income ........................ (0.37) (0.53) (0.48) (0.42) (0.36)
From net realized gains ........................... - -- (0.30) (0.19) (0.43) (0.30)
------ ------ ------ ------ ------
Total dividends and distributions.............. (0.37) (0.83) (0.67) (0.85) (0.66)
------ ------ ------ ------ ------
Net asset value, end of year ........................ $10.20 $10.42 $11.03 $11.33 $11.34
====== ===== ==== ===== =====
Total return ........................................ 1.53% 2.11% 3.30% 7.99% 10.27%
Ratios/Supplemental data:
Net assets, end of year (in millions) ............. $78 $120 $96 $83 $55
Expenses as a percentage of average
net assets ...................................... 0.58%(2) ...46%(2) 0.46%(2) 0.47%(2) 0.42%(2),(3)
Ratio of net investment income to
average net assets .............................. 3.76% 5.36% 4.33% 3.78% 3.16%
Portfolio turnover rate ........................... 268% 496%(4) 572% 553% 393%
<CAPTION>
----------
<C> <C>
(1) Calculated using average shares outstanding for the year.
(2) The ratio of expenses to average net assets for the years ended October 31, 2007, 2006, 2005, 2004 and
2003 reflect fees reduced as a result of an expense offset arrangement with the Fund's custodian. Had this
arrangement not been in place, this ratio would have been 0.59%. 0.45%, 0.46%, 0.46%, and 0.42%,
respectively.
(3) Had the expense payment agreement which terminated on July 31, 2003 not been in place, the ratio of expenses
to average net assets would have been as follows: N/A N/A N/A N/A 0.47%
(4) Prior year amount has been restated to align disclosure with current year
presentation.
The accompanying notes are an integral part of these financial statements.
</TABLE>
18
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
October 31, 2007
1. Organization and Significant Accounting Policies. BBH Real Return Fund
(the "Fund") (formerly BBH Inflation-Indexed Fund) is a separate,
diversified series of BBH Trust (the "Trust"), which is registered under
the Investment Company Act of 1940, as amended 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 July 23, 1992. On February 20, 2001, the Trustees
reclassified the Fund's outstanding shares as "Class N", and established a
new class of shares designated as "Class I". Class I commenced operations
on August 16, 2001. Class N and Class I have different operating expenses.
Class N and Class I shares do not convert to any other class of the Fund.
All shares of Class A were redeemed on April 2, 2007 and the Class was
closed. At October 31, 2007, there were seven series of the Trust.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, which
require management to make certain estimates and assumptions at the date
of the financial statements and are based, in part, on the following
accounting policies. Actual results could differ from those estimates.
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 Trustees. 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.
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 Trust's Board of Trustees. 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 this is determined not to represent fair value by the
Trustees.
B. Accounting for Investments and Income. Investment transactions are
accounted for on the trade date. Realized gains and losses, if any,
from investment transactions are determined on the basis of
identified cost. Interest income is accrued daily and consists of
interest accrued, discount earned (including both original issue and
market discount) and premium amortization on the investments of the
Fund. Investment income is recorded net of 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 interest has
become doubtful based on constantly applied procedures. A debt
obligation is removed from non-accrual status when the issuer
resumes interest payments or when collectibility of interest is
reasonably assured.
FINANCIAL STATEMENT OCTOBER 31, 2007 19
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
C. Repurchase Agreements. The Fund may enter into repurchase agreements
with primary dealers of U.S. Government Obligations as designated by
the Federal Reserve Bank of New York. 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 exceeds the sale price, reflecting
the Fund's return on the transaction or effectively the interest
rate paid by the dealer to the Fund. This return is unrelated to the
interest 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 or sub-custodian will monitor the value of the
underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price. Repurchase
agreements are subject to credit risks. At October 31, 2007, the
Fund had no open repurchase agreements.
D. Reverse Repurchase Agreements: The Fund may enter into reverse
repurchase agreements with primary dealers of U.S. Government
Obligations as designated by the Federal Reserve Bank of New York.
Interest on the value of reverse repurchase agreements issued and
outstanding is based upon competitive market rates at the time of
issuance. At the time the Fund enters into a reverse repurchase
agreement, it establishes and maintains a segregated account with
the lender containing liquid high grade securities having a value
not less than the repurchase price, including accrued interest, of
the reverse repurchase agreement. Information regarding reverse
repurchase agreements is included in the Portfolio of Investments.
Reverse repurchase agreements constitute debt. For the year ended
October 31, 2007, the ratio of the Fund's average debt outstanding
(including reverse repurchase agreements) to average net assets was
13.67%.
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 or to hedge
the U.S. dollar value of portfolio securities denominated in a
particular currency. The Fund has to hedge the U.S. dollar value of
portfolio securities denominated in a particular currency. 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 currency exchange rates supplied by a
quotation service. Information regarding forward currency exchange
contracts is included at the end of the Portfolio of Investments.
F. Swap Agreements. The Fund may enter into swap agreements. A swap is
an exchange of cash payments based on a notional principal amount
between the Fund and another party which is based on a specific
financial index. These transactions are entered into in an attempt
to obtain a particular return when it is considered desirable to do
so, possibly at a lower cost to the Fund than if the Fund had
invested directly in an instrument that yielded that desired return.
Cash payments are exchanged at specified intervals and recorded in
the Statement of Operations as realized gains and losses. The
expected income or expense is recorded on an accrual basis. The
value of the swap is adjusted daily and the change in value is
recorded as unrealized appreciation or depreciation. Risks may arise
upon entering into these agreements from the potential inability of
counter parties to meet the terms of their contract and from
unanticipated changes in the value of the financial index on which
the swap agreement is based. Risks
20
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
may exceed amounts recognized on the Statement of Assets and
Liabilities. The Fund may use swaps for both hedging and non-hedging
purposes. For hedging purposes, the Fund may use swaps to reduce its
exposure to interest and foreign exchange rate fluctuations. For
non-hedging purposes, the Fund may use swaps to take a position on
anticipated changes in the underlying financial index. Information
regarding swap agreements is included at the end of the Portfolio of
Investments.
G. Financial Futures Contracts. The Fund may enter into open futures
contracts in order to 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 which 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.
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. Futures contracts held by the Fund are valued daily at
the official settlement price of the exchange on which it is traded.
Information regarding futures contracts is included at the end of
the Portfolio of Investments.
H. Rule 144A Securities. The Fund may purchase securities that are not
registered under the 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 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. 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.
I. Inflation-Adjusted Debt Securities. The Fund generally invests in
inflation-adjusted debt securities issued by the U.S. Treasury. The
Fund may also invest in inflation-adjusted debt securities issued by
U.S. Government agencies and instrumentalities other than the U.S.
Treasury and by other entities such as U.S. and foreign corporations
and foreign governments. The principal value of these debt
securities is adjusted by references to changes in the Consumer
Price Index or another general price wage index. These debt
securities typically pay a fixed rate of interest, but this fixed
rate is applied to the inflation-adjusted principal amount. The
principal paid at maturity of the debt security is typically equal
to the inflation-adjusted principal amount, or the security's
original par value, whichever is greater. Other types
inflation-adjusted securities may use other methods to adjust for
other measures of inflation.
J. Securities Lending. The Fund may lend its portfolio securities to
broker-dealers, qualified banks and certain institutional investors.
The loans are secured by collateral in an amount equal to at least
the market value at all times of the loaned securities plus any
accrued interest and dividends. During the time the securities are
on loan, the Fund will continue to receive the interest and
dividends or amounts equivalent thereto, on the loaned securities
while receiving a fee from the borrower or earning interest on the
investment of the cash collateral. Loans are subject to termination
at the option of the borrower or the Fund. Upon termination of the
loan, the borrower will return to the
FINANCIAL STATEMENT OCTOBER 31, 2007 21
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
lender securities identical to the loaned securities. The Fund may
pay reasonable finders', administrative and custodial fees in
connection with a loan of its securities and may share the interest
earned on the collateral with the borrower. The Fund bears the risk
of delay in recovery of, or even loss of rights in, the securities
loaned should the borrower of the securities fail financially. There
were no securities on loan as of October 31, 2007.
K. 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 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 accounting principles generally accepted in the
United States of America, the basis on which these financial
statements are prepared.
Accordingly, the amount of net investment income and net realized
gain reported on these financial statements may differ from that
reported on the Fund's tax return due to certain book-to-tax
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 investment income or net realized gains. These
distributions do not constitute a return of capital. Permanent
differences are reclassified on 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.
L. Dividends and Distributions to Shareholders. Dividends to
shareholders from net investment income are declared and paid
monthly and are recorded on the ex-dividend date. Distributions from
net capital gains, if any, are generally paid and declared annually
and are recorded on the ex-dividend date. The tax character of
distributions paid during the fiscal years ended October 31, 2007
and 2006, respectively, were as follows:
Distribution paid from:
- --------------------------------------------------------------------------------
Net Total Total
Ordinary long term taxable Tax return distributions
income capital gain distributions of capital paid
-------- ------------ ------------- - ---------- - -------------
2007: $11,875,121 $ -- $11,875,121 -- $11,875,121
2006: 34,781,656 7,721,420 42,503,076 -- 42,503,076
As of October 31, 2007 and 2006, respectively, the components of
accumulated earnings/(deficit) on a tax basis were as follows:
Components of accumulated earnings/(deficit):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Undistributed Undistributed Accumulated Unrealized accumulated
ordinary long-term Accumulated capital and appreciation/ earnings/
income capital gains earnings other losses (depreciation) (deficit)
- ------------- -------------- ----------- ------------- - -------------- - -----------
<C> <C> <C> <C> <C> <C> <C>
2007: $ 16,823 -- $ 16,823 $(37,249,081) $4,138,089 $(33,094,169)
2006: 620,012 -- 620,012 (26,897,710) 1,041,491 (25,236,207)
</TABLE>
22
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
The Fund had a net capital loss carryforward of approximately
$37,249,081 which expires as follows:
Expiration date Amount
--------------- -----------
10/31/2014 $26,897,710
10/31/2015 10,351,371
-----------
$37,249,081
=========
Total distributions paid may differ from the Statement 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, forward currency contracts marked
to market and futures marked to market.
To the extent future capital gains are offset by capital loss
carryforwards, such gains will not be distributed.
M. Accounting Developments. In June 2006, Financial Accounting
Standards Board Interpretation No. 48, Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement 109 (FIN 48) was
issued and is effective for fiscal years beginning after December
15, 2006. FIN 48 sets forth a threshold for financial statement
recognition, measurement and disclosure of a tax position taken or
expected to be taken on a tax return. While not expected to have a
material impact on the Fund's financial statements, management will
be evaluating the impact, if any, the adoption of FIN 48 will have
on the Funds' net assets and results of operations.
In September 2006, Statement of Financial Accounting Standards No.
157, Fair Value Measurements (SFAS 157), was issued and is effective
for fiscal years beginning after November 15, 2007. SFAS 157 defines
fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. Management is
currently evaluating the implication of SFAS 157. At this time its
impact on the Fund's financial statements has not yet been
determined.
2. Transactions with Affiliates.
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")
provides investment advice, and portfolio management and administrative
services to the Fund. BBH receives a combined fee from the Fund for
advisory and administrative services calculated daily and paid monthly at
an annual rate equivalent to 0.35% of the fund's average daily net assets.
Prior to June 12, 2007, under a separate agreement that covered only
advisory fees, BBH received a fee from the Fund calculated daily and paid
monthly at an annual rate of 0.25% of the Fund's average daily net assets
and Brown Brothers Harriman Trust Company, LLC ("BBHTC"), the Fund's
administrator, under a separate agreement that covered only administrative
services, received a fee from the Fund calculated daily and paid monthly
at an annual rate equivalent to 0.10% of the Fund's average daily net
assets. BBH has a sub-administration services agreement with Federated
Services Company ("FSC") for which FSC receives compensation paid by BBH.
For the year ended October 31, 2007, the Fund incurred $1,291,245 for
advisory and administrative services.
FINANCIAL STATEMENT OCTOBER 31, 2007 23
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
Shareholder Servicing Fees. The Trust has a shareholder servicing
agreement with BBH for which BBH receives a fee from the Fund calculated
daily and paid monthly at an annual rate of 0.25% of Class N shares' and
Class A shares' average daily net assets. For the year ended October 31,
2007, the Fund incurred $664,915 for shareholder servicing fees.
Custody and Accounting Fees. BBH acts as a custodian and shall receive a
custody and accounting fee from the Fund calculated daily and paid
monthly. BBH holds all cash and investments and calculates the daily net
asset value. The custody fee is a transaction based fee with an annual
minimum of $30,000, and the accounting fee is calculated at 0.04% per
annum on the first $100 million of net assets, 0.02% per annum on the next
$400 million of net assets and 0.01% per annum on all net assets over $500
million. For the year ended October 31, 2007, the Fund incurred $410,727
for custody and accounting services. These fees were reduced by $25,403 as
a result of an expense offset arrangement with the Fund's custodian. 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 overdraft. The total interest paid by the
Fund for the year ended October 31, 2007 was $136,216.
Securities Lending Fees. The Trust has a security lending agreement with
BBH for which BBH receives a fee from the Fund for each security loaned.
For the year ended October 31, 2007, the Fund paid no fees to BBH for
security lending services.
Board of Trustees' Fees. Each Trustee receives an annual fee as well as
reimbursement for reasonable out-of-pocket expenses from the Fund. For the
year ended October 31, 2007, the Fund incurred $54,151 for these fees.
3. Distribution Plan. The Fund has adopted a distribution plan effective
November 8, 2002, pursuant to Rule 12b-1 under the Investment Company Act
of 1940, under which the Fund may pay selected financial intermediaries a
fee calculated daily and paid monthly at an annual rate equivalent to
0.30% of Class A shares' average daily net assets. For the year ended
October 31, 2007, the Fund incurred $8,365 for distribution fees. All
shares of Class A redeemed on April 2, 2007 and the Class was closed
For the year ended October 31, 2007, the Fund paid no front-end sales
loads from the sales of Class A shares were retained by Lincoln Financial
Advisors Corp., an affiliated broker-dealer of the Fund.
4. Investment Transactions. For the year ended October 31, 2007, the cost of
purchases and the proceeds of sales of investment securities other than
short-term investments were $1,151,003,936 and $1,321,986,883,
respectively.
24
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
5. Capital Stock. BBH Fund, Inc. was permitted to issue 2,500,000,000 shares
of capital stock, par value $.001 per share, of which 277,777,778 shares
were classified as Class N shares of the Fund, 277,777,778 shares were
classified as Class I shares of the Fund and 277,777,777 shares were
classified as Class A shares of the Fund. The Trust offers unlimited
shares without par value. Transactions in shares of capital stock were as
follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
For the years ended October 31, For the years ended October 31,
- ------------------------------- -------------------------------
2007 2006 2007 2006
----------- - ----------- - ------------- -------------
<S> <C> <C> <C> <C>
Class N
Capital stock sold .............. 2,888,008 6,288,489 $ 29,493,130 $ 66,929,780
Capital stock issued
in connection with
re-investment
of dividends ................... 660,807 3,053,382 6,701,988 32,308,931
Capital stock redeemed .......... (18,326,328) (19,387,653) (188,584,152) (203,551,461)
----------- ----------- - ------------- -------------
Net decrease .................... (14,777,513) (10,045,782) $(152,389,034) $(104,312,750)
======== ======== ========== ==========
Class I
Capital stock sold .............. 805,791 3,997,872 $ 8,303,256 $ 41,931,489
Capital stock issued
in connection
with re-investment
of dividends ................... 252,185 492,954 2,565,493 5,217,311
Capital stock redeemed .......... (4,835,255) (1,760,812) (49,614,918) (18,390,572)
----------- ----------- ------------- -------------
Net increase (decrease) (3,777,279) 2,730,014 $ (38,746,169) $ 28,758,228
======== ======== ========== =========
Class A
Capital stock sold .............. 9,721 101,141 $ 99,402 $ 1,069,581
Capital stock issued
in connection
with re-investment
of dividends ................... 174 58,627 1,828 620,715
Capital stock redeemed .......... (675,171) (402,225) (7,070,780) (4,236,986)
- ----------- ----------- ------------- -------------
Net decrease .................... (665,276) (242,457) $ (6,969,550) $ (2,546,690)
======= ======= ========= ==========
</TABLE>
FINANCIAL STATEMENT OCTOBER 31, 2007 25
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
SUPPLEMENTAL PROXY INFORMATION
October 31, 2007
Supplemental Proxy Information. A Special Meeting of BBH Fund, Inc. (the
"Corporation") was held on May 23, 2007. On April 5, 2007, the record date for
shareholders voting at the meeting, there were 108,931,295 total outstanding
shares of the Corporation and 36,000,688 total outstanding shares of the Fund.
The following item was considered by shareholders of the Corporation and the
result of their voting is listed below. Unless otherwise noted the matter was
approved.
Proposals:
(1) To elect two Trustees of the Funds;
Samuel F. Pryor IV
Shares voted affirmatively........... 89,470,872
Shares voted negatively.............. 283,884
Shares abstaining.................... 19,777
H. Whitney Wagner
Shares voted affirmatively........... 89,474,508
Shares voted negatively.............. 280,248
Shares abstaining.................... 19,777
The following items were considered by Fund shareholders and the results of
their voting are listed below. Unless otherwise noted, each matter was approved.
(2) To approve a new combined investment advisory and administrative services
agreement for the Fund with the current investment adviser of the Fund;
Shares voted affirmatively........... 15,619,816
Shares voted negatively.............. 338,776
Shares abstaining.................... 189,962
(3) To approve changes to the Fund's fundamental investment policies in order
to modernize its investment restrictions and increase its investment
flexibility:
(a) To amend the Fund's fundamental investment policy regarding
diversification;
Shares voted affirmatively..... 15,592,195
Shares voted negatively........ 373,692
Shares abstaining.............. 182,667
(b) To amend the Fund's fundamental investment policy regarding
concentration;
Shares voted affirmatively..... 15,572,613
Shares voted negatively........ 392,937
Shares abstaining.............. 183,004
26
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
SUPPLEMENTAL PROXY INFORMATION (continued)
October 31, 2007
(c) To amend the Fund's fundamental investment policy regarding
underwriting;
Shares voted affirmatively..... 15,631,524
Shares voted negatively........ 305,557
Shares abstaining.............. �� 211,473
(d) To amend the Fund's fundamental investment policy regarding
investing in commodities;
Shares voted affirmatively..... 15,409,201
Shares voted negatively........ 392,347
Shares abstaining.............. 347,006
(e) To amend the Fund's fundamental investment policy regarding
investing in real estate;
Shares voted affirmatively..... 15,473,070
Shares voted negatively........ 335,641
Shares abstaining.............. 339,843
(f) To amend the Fund's fundamental investment policy regarding
borrowing money and issuing senior securities;
Shares voted affirmatively..... 15,584,403
Shares voted negatively........ 362,182
Shares abstaining.............. 201,969
(g) To amend the Fund's fundamental investment policy regarding lending;
Shares voted affirmatively..... 15,596,310
Shares voted negatively........ 353,733
Shares abstaining.............. 198,511
(h) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding selling short;
Shares voted affirmatively..... 15,353,015
Shares voted negatively........ 587,442
Shares abstaining.............. 208,097
(i) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding illiquid securities;
Shares voted affirmatively..... 15,466,042
Shares voted negatively........ 476,624
Shares abstaining.............. 205,888
(j) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding investing in securities of other
investment companies;
Shares voted affirmatively..... 15,549,002
Shares voted negatively........ 396,762
Shares abstaining.............. 202,790
FINANCIAL STATEMENT OCTOBER 31, 2007 27
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
SUPPLEMENTAL PROXY INFORMATION (continued)
October 31, 2007
(k) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding purchases on margin;
Shares voted affirmatively..... 15,467,827
Shares voted negatively........ 471,750
Shares abstaining.............. 208,977
(l) To amend, and to make non-fundamental, the Fund's fundamental
investment policy on restricted securities;
Shares voted affirmatively..... 15,441,697
Shares voted negatively........ 503,202
Shares abstaining.............. 203,655
(4) To approve the proposed Reorganization Agreement, pursuant to which each
series of BBH Fund, Inc. would be reorganized as separate series of BBH
Trust, (the "New BBH Trust"), a newly formed Delaware statutory trust.
Shares voted affirmatively........... 15,649,809
Shares voted negatively.............. 296,117
Shares abstaining.................... 202,628
28
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES
October 31, 2007
EXAMPLE
As a shareholder of BBH Real Return Fund (the "Fund"), you may incur two types
of costs: (1) transaction costs including sales charges (loads) on purchase
payments, reinvested dividends, 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, 2007 to October 31, 2007).
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 STATEMENT OCTOBER 31, 2007 29
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES (continued)
October 31, 2007
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period
Account Value Account Value May 1, 2007 to
Class N May 1, 2007 October 31, 2007 October 31, 2007(1)
- ----------- - ---------------- -------------------
Actual.............. $1,000 $1,000.40 $4.64
Hypothetical(2)..... $1,000 $1,020.57 $4.69
Expenses Paid
Beginning Ending During Period
Account Value Account Value May 1, 2007 to
Class I May 1, 2007 October 31, 2007 October 31, 2007(1)
- ----------- - ---------------- -------------------
Actual.............. $1,000 $1,001.30 $3.38
Hypothetical(2)..... $1,000 $1,021.83 $3.41
----------
(1) Expenses are equal to the Fund's annualized expense ratio of 0.92% and
0.67% for Class N and I shares, respectively, multiplied by the average
account value over the period, multiplied by 184/365 (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.
30
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
ADDITIONAL FEDERAL TAX INFORMATION
The qualified interest income (QII) percentage for the year ended October 31,
2007 was 86.55%
In January 2008, the Fund will report on Form 1099 the tax status of all
distributions made during the calendar year 2007. Shareholders should use the
information on Form 1099 for their income tax returns.
FINANCIAL STATEMENT OCTOBER 31, 2007 31
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
DISCLOSURE OF ADVISOR SELECTION
October 31, 2007 (unaudited)
Approval of Investment Advisory/Administrative Services Agreement
At a meeting held on December 11, 2006, the Board of Trustees (the "Board") of
the Trust unanimously approved a new Combined Investment Advisory/Administrative
Services Agreement ("Combined Agreement"). The Board determined that the terms
of the Combined Agreement will be substantially identical to those of the
current advisory and administration agreements of the Funds, noting that the
most significant difference in the Combined Agreement is a single fee for both
advisory and administrative services. The following is a summary of the factors
the Board took into consideration in making its determination to approve the new
Combined Agreement.
Nature, Extent and Quality of Services Provided by Brown Brothers Harriman & Co.
("BBH")
The Board noted that, under the Combined Agreement in respect of each Fund, BBH,
subject to the supervision of the Board, will be responsible for providing a
continuous investment program and making purchases and sales of portfolio
securities consistent with the Funds' investment objective and policies. Under
the Combined Agreement, BBH also provides administrative services to each Fund.
The Board considered the scope and quality of services to be provided by BBH
under the Combined Agreement and noted that the scope of services provided had
expanded over time, primarily, as a result of regulatory developments. The Board
noted that, for example, BBH is responsible for maintaining and monitoring its
own and, to varying degrees, the Funds' compliance program, and these compliance
programs have recently been refined and enhanced in light of new regulatory
requirements. The Board considered the quality of the investment research and
administrative capabilities of BBH and the other resources it has dedicated to
performing services for the Funds. The Board concluded that, overall, they were
satisfied with the nature, extent and quality of services expected to be
provided to each of the Funds under the Combined Agreement.
Costs of Services Provided and Profitability to BBH
At the request of the Board, BBH provided information concerning the
profitability of BBH's current investment company advisory and other fees. The
Board also reviewed BBH's profitability data for each Fund, which also included
the effect of revenue generated by the shareholder servicing, administration,
custody and other fees paid by the Fund. The Board discussed the difficulty of
making comparisons of profitability because comparative information is not
generally publicly available and is affected by numerous factors, including the
structure of the service provider, the types of funds it manages and
administers, its business mix, numerous assumptions regarding allocations and
the entity's capital structure and cost of capital. In considering profitability
information, the Board considered the effect of fall-out benefits on BBH's
expenses, as well as the "revenue sharing" arrangements BBH has entered into
with certain entities that distribute shares of the Funds. The Board focused on
profitability of BBH's relationships with the Funds before taxes and
distribution expenses. The Board concluded that it was satisfied that BBH's
level of profitability from its relationship with each Fund was not excessive.
32
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
DISCLOSURE OF ADVISOR SELECTION (continued)
October 31, 2007 (unaudited)
Fall-Out Benefits
The Board considered that BBH does not allocate the Funds' portfolio
transactions for third party research, although it did benefit from proprietary
research received from brokers that execute the Funds' purchases and sales of
securities. The Board recognized that the aggregate amount of commissions
generated by Fund transactions was unlikely to result in the Funds receiving
from full service broker dealers substantial discounts on commission rates.. The
Board received and reviewed information concerning BBH's policies with respect
to allocating portfolio brokerage.
The Board also considered that BBH receives shareholder servicing fees from
certain funds, and is the Funds' administrator, custodian and securities lending
agent. The Board noted that BBH retained no portion of the 12b-1 fees paid by
any Fund that operated with a Rule 12b-1 plan. The Board recognized that BBH's
profitability would be somewhat lower if it did not receive proprietary research
for commissions or, if it did not receive the other benefits described above.
The Board recognized that most Fund shareholders were also BBH clients, and that
substantial assets are invested in the Funds as a result of an overall
investment management program for the shareholder. The Board noted that the
Funds also derive reputational and other benefits from their association with
BBH and their use of the BBH name, which is licensed to the Funds by BBH.. Thus,
the Board did not believe that BBH revenues associated with its clients should
be fairly regarded as "fallout" benefit from the Funds.
Economies of Scale
The Board noted that the Funds' combined fee schedules, other than the fee
schedule for BBH Money Market Fund, do not contain breakpoints. As a result, if
assets increase, the fee rates would not be reduced for these Funds on the
incremental assets. With respect to the BBH Money Market Fund, the breakpoint
will be reviewed every three (3) years by the Board, and may be adjusted upwards
to take into account the effects of inflation or such other basis as may be
appropriate, subject to the approval of shareholders to the extent required by
the 1940 Act.
There may be other economies of scale because many expenses did not rise (and
fall) proportionally to increases (and decreases) in total net assets. The Board
noted that BBH had priced its services in recognition of the fact that it was
largely its own clients who were shareholders and, accordingly, sought to assure
that the cost of these services and total expenses for each Fund were fair and
reasonable. In addition, the Board noted that over the years BBH had supported
certain Funds through fee waivers and expense reimbursements. Based on
information they had been provided over many years, the Board observed that in
the mutual fund industry as a whole, as well as among funds similar to the
Funds, there appeared to be no uniformity or pattern in the fees and asset
levels at which breakpoints (if any) apply. In light of the Funds' current size
and expense structure, the Board concluded that it was unnecessary at this time
to consider breakpoints with respect to the Funds, other than for the BBH Money
Market Fund.
FINANCIAL STATEMENT OCTOBER 31, 2007 33
<PAGE>
BBH REAL RETURN FUND
DISCLOSURE OF ADVISOR SELECTION (continued)
October 31, 2007 (unaudited)
Investment Results
The Board considered the investment results of each of the Funds as compared to
investment companies with its peers and with one or more selected securities
indices. In addition to the information received by the Board for the meeting
held on October 2, 2006, the Board received detailed performance information for
each Fund at each regular Board meeting during the year. At the meeting held on
October 2, 2006, the Board reviewed information showing performance of each Fund
compared to its peers over the prior 1-, 3-, and 5- year periods and compared
the performance information to one or more securities indices over comparable
periods.
Combined Fee Rate
The Board considered the fee rate to be paid by each Fund to BBH. The Board
recognized that it is difficult to make comparisons of these fee rates, and the
combined advisory and administration fees, because there are variations in the
services that are included in the fees paid by other funds.
The Board considered the depth and range of services provided under the Combined
Agreement. For example, in addition to a continuous investment program, BBH
provides, among other things, officers (including the Funds' Chief Compliance
Officer and officers to provide required certifications) and administrative
services, such as shareholder communications, and tax compliance, with the
attendant costs and exposure to liability. BBH also coordinates the provision of
services to the Funds by nonaffiliated service providers.
The following factors specific to the BBH Real Return Fund also were noted and
considered by the Board in deciding to approve the Combined Agreement:
The Board reviewed the information showing performance of the BBH Real Return
Fund's Class N shares and Class I shares compared to the Citibank
Inflation-Linked Securities Index. Over all the relevant periods, the classes of
the BBH Real Return Fund on a pre-fee basis outperformed the benchmark by a
meaningful amount but on an after-fee basis generally underperformed the
benchmark by a modest amount. The Board viewed this performance with favor and
noted the benchmark has no fees. The Board also noted the expense ratio for all
share classes were in line with or lower than many funds of similar size and
investment mandate. Taking into account these comparisons and the other factors
considered, the Board concluded that the BBH Real Return Fund's investment
results over time and its total expense ratio had been satisfactory.
Conflicts of Interest
As a general matter, certain conflicts of interest may arise in connection with
a portfolio manager's management of a Fund's investments, on the one hand, and
the investments of other accounts for which the portfolio manager is
responsible, on the other. For example, it is possible that the various accounts
managed could have different investment strategies that, at times, might
conflict with one another to the possible detriment of the Fund. Alternatively,
to the extent that the same investment opportunities might
34
<PAGE>
BBH REAL RETURN FUND
--------------------------------------------------------------------------------
DISCLOSURE OF ADVISOR SELECTION (continued)
October 31, 2007 (unaudited)
be desirable for more than one account, possible conflicts could arise in
determining how to allocate them. Other potential conflicts might include
conflicts created by specific portfolio manager compensation arrangements, and
conflicts relating to selection of brokers or dealers to execute Fund portfolio
trades and/or specific uses of commissions from Fund portfolio trades (for
example, research, or "soft dollars").
BBH has adopted and implemented policies and procedures, including brokerage and
trade allocation policies and procedures, which it believes address the
conflicts associated with managing multiple accounts for multiple clients. In
addition, BBH monitors a variety of areas, including compliance with account
investment guidelines, the inclusion only of securities approved for purchase by
the BBH's Fixed Income Credit Committee, and compliance with the BBH's Code of
Ethics. Finally, BBH has structured the portfolio managers' compensation in a
manner, and the Funds have adopted policies and procedures, reasonably designed
to safeguard a Fund from being negatively affected as a result of any such
potential conflicts.
FINANCIAL STATEMENT OCTOBER 31, 2007 35
<PAGE>
TRUSTEES AND OFFICERS OF BBH REAL RETURN FUND
--------------------------------------------------------------------------------
(unaudited)
Information pertaining to the Trustees of the BBH Trust (the "Trust") and
executive officers of the Trust is set forth below. Part B to the Registration
Statement of the BBH Real Return Fund includes additional information about the
Fund's Trustees and is available upon request without charge by contacting the
Fund at 1-800-625-5759.
<TABLE>
<CAPTION>
Term of Number of
Office Funds in
and Fund Other
Position(s) Length Complex Directorships
Name, Birth Date Held with of Time Principal Occupation(s) Overseen by Held by
and Address Trust Served# During Past 5 Years Trustee^ Trustee
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joseph V. Shields Jr. Chairman of Since Managing Director, Chairman and 7 None
Birth Date: the Board and 2007 Chief Executive Officer of Shields &
March 17, 1938 Trustee Company (member of New York Stock
Shields & Company Exchange); Chairman of Capital
140 Broadway Management Associates, Inc.
New York, NY 10005 (registered investment adviser);
Director of Flower Foods, Inc. (New
York Stock Exchange listed company).
Eugene P. Beard Trustee Since Chairman & CEO of Westport Asset 7 Director of Old
Birth Date: 2007 Fund, Inc. �� Westbury Funds
March 17, 1935 (7 Funds)
800 Connecticut Ave.,
3 East
Norwalk, CT 06854
David P. Feldman Trustee Since Director of Jeffrey Co. (1992 to 7 Director of
Birth Date: 2007 present); Director of QMED (1999 Dreyfus Mutual
November 16, 1939 to May 2007). Funds (59 Funds)
C/O BBH & Co.
140 Broadway
New York, NY 10005
Alan G. Lowy Trustee Since Private Investor. 7 None
Birth Date: 2007
April 17, 1939
4111 Clear Valley Drive
Encino, CA 91436
Arthur D. Miltenberger Trustee Since Retired; Trustee, R.K. Mellon 7 None
Birth Date: 2007 Family Trust (1981 to June
November 8, 1938 2003); Director of
503 Darlington Road Aerostructures Corporation
Ligonier, PA 15658 (aircraft manufacturer) (1996 to
July 2003).
</TABLE>
36
<PAGE>
DIRECTORS AND OFFICERS OF BBH REAL RETURN FUND
--------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Term of Number of
Office Funds in
and Fund Other
Position(s) Length Complex Directorships
Name, Birth Date Held with of Time Principal Occupation(s) Overseen by Held by
and Address Trust Served# During Past 5 Years Trustee^ Trustee
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Samuel F. Pryor, IV Trustee Since 2007 Private Investor. 7 None
Birth Date:
June 12, 1955
130 East 67th Street
New York, NY 10021
H. Whitney Wagner Trustee Since 2007 President, Clear Brook Advisors, a 7 None
Birth Date: registered investment advisor.
March 3, 1956
Clear Brook Advisors
75 Rockefeller Plaza, 14th Floor
New York, NY 10019
Officers
John A. Nielsen President and Since 2007 President and Principal Executive N/A N/A
Birth Date: Principal �� Officer of the Trust; He joined
July 15, 1943 Executive Brown Brothers Harriman & Co.
140 Broadway Officer ("BBH") in 1968 and has been a
New York, NY 10005 Partner of the firm since 1987.
Charles H. Schreiber Treasurer, Since 2007 Treasurer, Principal Financial N/A N/A
Birth Date: Principal Officer and Anti-Money Laundering
December 10, 1957 Financial Officer of the Trust; Senior Vice
140 Broadway Officer, President of BBH since September
New York, NY 10005 Anti-Money 2001; Joined BBH in 1999.
Laundering
Officer
Mark B. Nixon Assistant Since 2007 Assistant Secretary and Assistant N/A N/A
Birth Date: Secretary, Treasurer of the Trust; Vice
January 14, 1963 Assistant President of BBH (since October
140 Broadway Treasurer 2006); Accounting Manager, Reserve
New York, NY 10005 Funds (August 2005-September 2006);
Assistant Controller, Reserve Funds
(February 2005-August 2005);
Private Consultant (December 2001-
February 2005).
</TABLE>FINANCIAL STATEMENT OCTOBER 31, 2007 37
<PAGE>
DIRECTORS AND OFFICERS OF BBH REAL RETURN FUND
--------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Term of Number of
Office Funds in
and Fund Other
Position(s) Length Complex Directorships
Name, Birth Date Held with of Time Principal Occupation(s) Overseen by Held by
and Address Trust Served# During Past 5 Years Trustee^ Trustee
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------<S> <C> <C> <C> <C> <C>
Beth Haddock Chief Since 2007 Chief Compliance Officer of the N/A N/A
Birth Date: Compliance Trust (September 2007-present);
December 10, 1965 Officer Chief Compliance Officer for the
140 Broadway FINRA/NYSE and SEC compliance
New York, NY 10005 programs and Associate Compliance
Director for the global compliance
program (April 2005-present);
Deputy General Counsel of AXA
Advisors/ AXA Financial (November
1997-April 2005)
Gail C. Jones Secretary Since 2007 Secretary of the Trust; Counsel, N/A N/A
Birth Date: ReedSmith, LLP (since October
October 26, 1953 2002); Corporate Counsel (January
1001 Liberty Avenue 1997 to September 2002) and Vice
Pittsburgh, PA President (January 1999 to
15222-3779 September 2002) of Federated
Services Company.
Judith J. Mackin Vice President Since 2007 Vice President of the Trust; Vice N/A N/A
Birth Date: President (since November 1997) of
May 30, 1960 Federated Services Company.
1001 Liberty Avenue,
Pittsburgh, PA
15222-3779
John C. Smith Assistant Since 2007 Assistant Treasurer of the Trust; N/A N/A
Birth Date: Treasurer Vice President (since 2004);
August 2, 1965 Assistant Vice President (since
50 Milk Street September 2001); Associate
Boston, MA 02109 (September 2000 to August 2001);
and Senior Analyst (June 1999 to
August 2000) of BBH & Co.
</TABLE># Each Trustee of the Trust holds office until he or she attains the age of
70 (72, in the case of Trustees who were elected as such before January 1,
2000), or until he or she sooner dies, resigns or is removed from office
in accordance with the provisions of the Trust's Declaration of Trust. 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).
Each Trustee previously served on the Board of Trustees of the Predecessor
Funds.
^ The Fund Complex consists of the Trust, which has seven series and each is
counted as one "Fund" for purposes of this table.
38
<PAGE>
INVESTMENT ADVISER AND ADMINISTRATOR
BROWN BROTHERS HARRIMAN
140 BROADWAY
NEW YORK, NY 10005
DISTRIBUTOR
EDGEWOOD SERVICES, INC.
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
SHAREHOLDER SERVICING AGENT
BROWN BROTHERS HARRIMAN
140 BROADWAY
NEW YORK, NY 10005
(800) 625-5759
To obtain information or make shareholder inquiries:
By telephone: Call 1-800-575-1265
By E-mail send your request to: bbhfunds@bbh.com
On the internet: www.bbhfunds.com
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. Such offering is made only by the prospectus, which includes details as to
offering price and other material information.
The Fund files with the SEC a complete schedule of its portfolio holdings, as of
the close of the first and third quarters of its fiscal year, on "Form N-Q."
Information on Form N-Q is available without charge and upon request by calling
the Funds at the toll-free number listed above. A text only version can be
viewed online or downloaded from the SEC's website at http://www.sec.gov; and
may be reviewed and copied at the SEC's Public Reference Room in Washington, DC
(call 1-800-SEC-0330 for information on the operation of the Public Reference
Room). You may also access this information from the BBH website at BBH.com by
clicking on "BBH Mutual Funds" and selecting "Online Documents/Holdings
Information."
A copy of the Fund's Proxy Voting Policy is available upon request by calling
the toll-free number listed above. A text-only version of the policy can be
viewed online or downloaded from the SEC at www.sec.gov.
BROWN [LOGO]
BROTHERS
HARRIMAN
================================================================================
BROWN [LOGO]
BROTHERS
HARRIMAN
Annual Report
OCTOBER 31, 2007
----------
BBH BROAD MARKET FUND
(Formerly, BBH Broad Market Fixed Income Fund)
================================================================================
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For the 12-month period ended October 31, 2007, the BBH Broad Market Fund I
Shares returned 2.58%(1), while the N-Shares returned 2.42%(1) net of fees. The
Fund's benchmark, the Lehman Brothers Aggregate Bond Index(2) ("LBAG Index"),
returned 5.38% over the same period.
Fixed income markets rallied significantly over the past 12-month period ending
October 31, 2007, as problems associated with sub-prime lending permeated the
marketplace and led to a "flight-to-quality" rally and eventually 100 basis
points of Federal Reserve easing. As is customary during these market
conditions, shorter maturity yields fell further than those for longer
maturities as the yield curve regained a more normal upward sloping shape.
Treasuries were the best performing sector over the period as general risk
premiums widened substantially, lowering the relative performance of the Fund.
Hardest hit were direct sub-prime obligations and financial sector corporate
bonds. In addition, high quality asset backed securities also failed to keep
pace with Treasuries.
----------
(1) Performance data quoted represents 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. Mutual Fund performance changes over time and current
performance may be lower or higher than what is stated. For current to the
most recent month end performance and after tax returns, contact the Fund
at 1-800-625-5759.
(2) The LBAG Index is comprised of the Lehman Brothers Government/Corporate
Bond Index, Mortgage-Backed Securities Index and Asset-Backed Securities
Index, including securities that are investment-grade quality or better,
have at least one year to maturity, and have an outstanding par value of
at least $100 million. The index is unmanaged, and investments cannot be
made in an index.
2
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE (continued)
Growth of $10,000 Invested in BBH Broad Market Fund
The graph below illustrates the hypothetical investment of $10,000(1) in the
Class N shares of the Fund from July 20, 2000 to October 31, 2007 as compared to
the LBAG Index.
[The following information was depicted as a line chart in the printed material]
Date Broad Market Fund* LBAG Index
- ---- ------------------ ----------
07/20/00 10,000.00 10,000
07/31/00 10,006.55 10,012
08/31/00 10,124.27 10,156
09/30/00 10,193.42 10,219
10/31/00 10,263.69 10,286
11/30/00 10,427.35 10,455
12/31/00 10,631.59 10,648
01/31/01 10,791.77 10,822
02/28/01 10,910.02 10,916
03/31/01 10,964.13 10,970
04/30/01 10,920.76 10,924
05/31/01 10,986.12 10,990
06/30/01 11,029.63 11,031
07/31/01 11,259.54 11,279
08/31/01 11,380.31 11,408
09/30/01 11,413.46 11,541
10/31/01 11,624.21 11,782
11/30/01 11,524.06 11,619
12/31/01 11,457.15 11,545
01/31/02 11,535.87 11,638
02/28/02 11,615.04 11,751
03/31/02 11,467.38 11,556
04/30/02 11,695.64 11,780
05/31/02 11,775.91 11,881
06/30/02 11,775.91 11,984
07/31/02 11,810.51 12,129
08/31/02 12,029.74 12,334
09/30/02 12,145.56 12,534
10/31/02 11,902.03 12,476
11/30/02 12,053.48 12,472
12/31/02 12,305.63 12,730
01/31/03 12,393.27 12,742
02/28/03 12,579.92 12,918
03/31/03 12,604.73 12,907
04/30/03 12,823.99 13,015
05/31/03 13,042.09 13,257
06/30/03 13,080.07 13,230
07/31/03 12,697.45 12,786
08/31/03 12,745.54 12,870
09/30/03 13,112.00 13,211
10/31/03 13,012.21 13,115
11/30/03 13,057.75 13,146
12/31/03 13,203.53 13,280
01/31/04 13,296.14 13,388
02/29/04 13,435.07 13,532
03/31/04 13,543.49 13,634
04/30/04 13,211.30 13,279
05/31/04 �� 13,143.06 13,226
06/30/04 13,201.46 13,302
07/31/04 13,324.66 13,433
08/31/04 13,598.79 13,690
09/30/04 13,652.83 13,727
10/31/04 13,763.10 13,842
11/30/04 13,663.88 13731.39
12/31/04 13,786.20 13857.72
01/31/05 13,864.75 13945.02
02/28/05 13,826.57 13,863
03/31/05 13,729.29 13,792
04/30/05 13,910.74 13,978
05/31/05 14,051.19 14,129
06/30/05 14,140.82 14,207
07/31/05 14,034.74 14,078
08/31/05 14,201.14 14,258
09/30/05 14,086.41 14,072
10/31/05 13,967.81 13,961
11/30/05 14,016.24 14,023
12/31/05 14,152.72 14,156
01/31/06 14,165.55 14,156
02/28/06 14,221.02 14,203
03/31/06 14,071.63 14,063
04/30/06 14,019.36 14,038
05/31/06 13,999.22 14,023
06/30/06 14,028.97 14,052
07/31/06 14,199.80 14,242
08/31/06 14,398.20 14,460
09/30/06 14,525.99 14,587
10/31/06 14,557.92 14,683
11/30/06 14,761.27 14,854
12/31/06 14,705.16 14,767
01/31/07 14,737.73 14,762
02/28/07 14,919.15 14,989
03/31/07 14,949.57 14,989
04/30/07 15,016.23 15,070
05/31/07 14,905.54 14,955
06/30/07 14,788.30 14,910
07/31/07 14,743.20 15,034
08/31/07 14,769.61 15,219
09/30/07 14,895.51 15,335
10/31/07 14,969.81 15,473
*net of fees and expenses
Performance data quoted represents past performance which is no guarantee of
future results. Investment return and principle value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Mutual 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 current to the most recent month end performance and after tax
returns, contact the Fund at 1-800-625-5759.
(1) The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBAG Index has been adjusted to reflect reinvestment of
dividends on securities in the index. The LBAG 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.
(2) The BBH Broad Market Fund commenced operations on December 22, 2000.
Performance prior to December 22, 2000 is that of the BBH Broad Market
Fixed Income Portfolio adjusted to assume that all charges, expenses and
fees of the Class N shares and the Portfolio which are presently in effect
were deducted during such periods, as permitted by applicable SEC staff
interpretations. The Class N shares' performance from December 22, 2000
(commencement of operations) to October 31, 2007 was 5.19%.
FINANCIAL STATEMENT OCTOBER 31, 2007 3
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of BBH Trust and Shareholders
of BBH Broad Market Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of BBH Broad Market Fund (a series of BBH Trust)
(the "Fund") as of October 31, 2007, and 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, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at October 31, 2007, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of BBH
Broad Market Fund as of October 31, 2007, 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.
Deloitte & Touche LLP
Boston, Massachusetts
December 27, 2007
4
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO ALLOCATION
October 31, 2007 (unaudited)
BREAKDOWN BY SECURITY TYPE
Percent of
U.S. $ Value Net Assets
Asset Backed Securities.......................... $ 53,826,330 18.6%
Collateralized Mortgage Backed Securities........ 14,336,254 5.0
Corporate Bonds.................................. 101,688,012 35.2
Foreign Government Bonds......................... 6,479,604 2.3
Municipal Bonds.................................. 12,097,146 4.2
U.S. Government Agency Obligations............... 78,074,537 27.0
U.S. Treasury Notes and Bonds.................... 11,176,089 3.9
Commercial Paper................................. 26,599,239 9.2
Liabilities in Excess of Cash and Other Assets... (15,571,429) (5.4)
- ------------ -----
NET ASSETS....................................... $288,705,782 100.0%
=========== =====
All data as of October 31, 2007. 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 STATEMENT OCTOBER 31, 2007 5
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal Maturity Interest
Amount Date Rate Value
--------- -------- -------- -----
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES (18.6%)
$ 2,220,000 Advanta Business Card Master
Trust 2005-C1(1) ......................... 08/22/11 5.508% $ 2,213,273
1,370,000 Advanta Business Card Master
Trust 2006-C1(1).......................... 10/20/14 5.478 1,331,778
650,000 Advanta Business Card Master
Trust 2007-D1A(1),(2)..................... 01/22/13 6.398 636,738
2,500,000 Banc of America Securities Auto
Trust 2006-G1 ........................... 12/20/10 5.170 2,512,986
850,000 Capital One Auto Finance
Trust 2005-BSS ........................... 12/15/10 4.480 846,907
1,085,657 Capital One Auto Finance
Trust 2006-A ............................... 11/15/10 5.330 1,086,786
1,030,000 Capital One Multi-Asset Execution
Trust 2003-B5 ........................... 08/15/13 4.790 1,018,016
1,500,000 Capital One Multi-Asset Execution
Trust 2003-C4 ........................... 08/15/13 6.000 1,509,612
3,000,000 Capital One Multi-Asset Execution
Trust 2006-A7(1).......................... 03/17/14 5.121 2,977,792
2,180,000 Carmax Auto Owner Trust 2007-2.............. 11/15/12 5.270 2,198,589
372,267 Chase Funding Mortgage Loan
Asset-Backed Certificates 2004-1(1)....... 07/25/33 5.753 197,745
2,500,000 Chase Issuance Trust 2005-A5(1)............. 02/15/12 5.111 2,493,271
1,250,000 CIT Equipment Collateral 2005-EF1(1)........ 09/20/10 5.038 1,245,098
1,020,000 Citibank Credit Card Issuance
Trust 2002-C2 ........................... 02/18/14 6.950 1,045,470
1,010,000 Citibank Credit Card Issuance
Trust 2005-C1 ........................... 03/24/17 5.500 956,340
1,390,000 Citibank Credit Card Issuance
Trust 2006-A4 ........................... 05/10/13 5.450 1,412,807
164,052 Countrywide Asset-Backed
Certificates 2004-S1...................... 03/25/20 3.872 159,130
90,418 Countrywide Asset-Backed
Certificates 2004-13(1)................... 02/25/31 3.989 89,839
85,079 Countrywide Home Equity Loan
Trust 2004-N(1) .......................... 02/15/34 5.371 83,354
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal Maturity Interest
Amount Date Rate Value
--------- -------- -------- -----
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES (continued)
$ 172,542 Countrywide Home Equity Loan
Trust 2004-O(1)............................ 02/15/34 5.371% $ 169,816
109,831 Countrywide Home Equity Loan
Trust 2004-Q(1) ............................ 12/15/33 5.391 107,604
906,778 Credit-Based Asset Servicing and
Securitization CBO, Ltd.(2)............... 06/25/32 6.080 900,222
273,982 Credit-Based Asset Servicing and
Securitization LLC 2003-CB3................ 12/25/32 2.879 232,616
308,633 Credit-Based Asset Servicing and
Securitization LLC 2006-CB3(1)............ 03/25/36 4.933 307,788
1,325,000 Daimler Chrysler Auto
Trust 2006-C .............................. 07/08/10 5.020 1,326,494
663,963 Greenpoint Mortgage Funding
Trust 2006-HE1(1).......................... 03/12/37 5.280 613,170
369,208 GS Auto Loan Trust 2005-1................... 05/17/10 4.450 368,023
1,160,944 Household Automotive
Trust 2006-1 ............................... 06/17/11 5.430 1,165,243
1,956,002 Hyundai Auto Receivables
Trust 2004-A ............................... 08/15/11 3.460 1,939,005
297,332 Marriott Vacation Club Owner
Trust 2006-2A(2).......................... 10/20/28 5.362 298,797
2,160,000 MBNA Credit Card Master Note
Trust 2000-L ............................... 04/15/10 6.500 2,161,089
2,800,000 MBNA Credit Card Master Note
Trust 2005-A1 ........................... 09/15/10 4.200 2,790,439
2,000,000 MBNA Credit Card Master Note
Trust 2006-C3(1)........................... 10/15/13 4.942 1,942,167
488,862 Navistar Financial Corp. Owner
Trust 2004-A ............................... 03/15/11 2.590 485,043
1,400,000 Nissan Auto Receivables Owner
Trust 2006-B 11/15/11 5..220 1,411,208
683,462 Residential Asset Securities
Corp. 2006-EMX4(1)........................ 06/25/36 4.913 679,800
1,969,474 SLM Student Loan Trust 2005-9(1)............ 01/25/19 5.134 1,969,591
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 7
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal Maturity Interest
Amount Date Rate Value
--------- -------- -------- -----
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES (continued)
$ 612,980 Triad Auto Receivables
Owner Trust 2004-A........................ 09/13/10 2.500% $ 606,281
2,400,000 UPFC Auto Receivables
Trust 2006-A ............................... 05/15/12 5.490 2,415,481
5,900,000 USAA Auto Owner Trust 2005-1 ............... 11/15/11 4.130 5,861,189
1,110,000 Washington Mutual Master Note
Trust 2006-M1A(1),(2)..................... 08/15/13 5.181 1,083,182
979,182 Wells Fargo Financial Auto Owner
Trust 2005-A ............................... 01/15/10 4.090 976,551
-----------
Total Asset Backed Securities
(Identified cost $54,123,596) 53,826,330
===========
COLLATERALIZED MORTGAGE
BACKED SECURITIES (5.0%)
1,350,000 Bear Stearns Commercial Mortgage
Securities 2006-PW11(1)................... 03/11/39 5.576 1,358,721
910,000 Bear Stearns Commercial Mortgage
Securities 2006-PW14...................... 12/11/38 5.201 882,019
1,500,000 Bear Stearns Commercial Mortgage
Securities 2006-T22(1).................... 04/12/38 5.632 1,512,941
2,300,000 Credit Suisse Mortgage Capital
Certificates 2006-C5...................... 12/15/39 5.311 2,244,422
1,730,000 JP Morgan Chase Commercial Mortgage
Securities Corp. 2006-CB17................ 12/12/43 5.429 1,703,844
2,100,000 Merrill Lynch Mortgage
Trust 2006-C1(1).......................... 05/12/39 5.797 2,125,242
825,457 Morgan Stanley Capital I 2006-HQ8 .......... 03/12/44 5.124 823,783
1,400,000 Morgan Stanley Capital I 2006-T21 .......... 10/12/52 5.090 1,394,986
65,469 Residential Asset Mortgage
Products, Inc. 2004-R37................... 07/25/28 4.450 65,178
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal Maturity Interest
Amount Date Rate Value
--------- -------- -------- -----
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE
BACKED SECURITIES (continued)
$ 2,200,000 Wachovia Bank Commercial Mortgage
Trust 2006-C25(1)......................... 05/15/43 5.684% $ 2,225,118
-----------
Total Collateralized
Mortgage Backed Securities
(Identified cost $14,446,744) ................ 14,336,254
-----------
CORPORATE BONDS (35.2%)
AGRICULTURE (0.3%)
210,000 Altria Group, Inc .......................... 07/01/08 7.650 214,249
550,000 Reynolds American, Inc ..................... 07/15/15 7.300 580,694
-----------
794,943
-----------
AIRLINES (0.1%)
325,000 Continental Airlines, Inc................... 04/19/22 6.903 305,500
-----------
AUTO MANUFACTURERS (0.7%)
1,090,000 DaimlerChrysler NA Holding Corp............. 01/15/08 4.750 1,088,462
845,000 DaimlerChrysler NA Holding Corp............. 06/15/10 4.875 840,458
100,000 DaimlerChrysler NA Holding Corp............. 11/15/13 6.500 105,047
-----------
2,033,967
-----------
BANKING (0.4%)
600,000 Korea Development Bank...................... 03/02/09 3.875 589,051
585,000 Popular North America, Inc.................. 10/01/08 3.875 576,536
-----------
1,165,587
-----------
BEVERAGES (1.6%)
325,000 Cerveceria Nacional Dominicana(2)........... 03/27/14 8.000 335,562
1,000,000 Cia Brasileira de Bebidas................... 09/15/13 8.750 1,146,300
325,000 Constellation Brands, Inc.(2)............... 05/15/17 7.250 324,187
31,000 Coors Brewing Co............................ 05/15/12 6.375 32,541
1,470,000 Diageo Finance BV........................... 04/01/13 5.500 1,459,985
1,275,000 Molson Coors Capital Finance ULC............ 09/22/10 4.850 1,266,187
-----------
4,564,762
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 9
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal Maturity Interest
Amount Date Rate Value
--------- -------- -------- -----
<S> <C> <C> <C> <C>
CORPORATE BONDS (continued)
COMMERCIAL SERVICES (0.4%)
$ 325,000 Corrections Corp. of America................ 03/15/13 6.250% $ 322,985
980,000 Western Union Co............................ 11/17/11 5.400 980,329
----------
1,303,314
----------
COSMETICS / PERSONAL CARE (0.6%)
435,000 Estee Lauder Cos., Inc...................... 05/15/17 5.550 431,189
1,275,000 Procter & Gamble Co......................... 03/05/37 5.550 1,251,353
----------
1,682,542
----------
DIVERSIFIED FINANCIAL SERVICES (12.1%)
965,000 Associates Corp. of North America........... 11/01/08 6.250 975,695
1,125,000 AXA Financial, Inc.......................... 08/01/10 7.750 1,201,493
890,000 Bear Stearns Co., Inc....................... 08/15/11 5.500 884,558
1,470,000 Bear Stearns Co., Inc....................... 02/01/12 5.350 1,444,742
650,000 Bear Stearns Co., Inc....................... 01/22/17 5.550 607,694
250,000 Calabash Re, Ltd.(1),(2).................... 01/08/10 14.094 258,400
250,000 Capital One Bank............................ 06/15/09 5.000 248,340
775,000 Cascadia, Ltd.(1),(2)....................... 06/13/08 8.849 775,233
935,000 CIT Group, Inc.............................. 02/01/10 4.250 903,486
1,525,000 CIT Group, Inc.............................. 07/28/11 5.800 1,497,057
800,000 Countrywide Home Loans, Inc................. 12/19/07 4.250 790,519
2,540,000 Countrywide Home Loans, Inc................. 09/15/09 4.125 2,219,978
325,000 E*Trade Financial Corp...................... 06/15/11 8.000 308,750
250,000 East Lane Re, Ltd.(1),(2)................... 05/06/11 11.356 255,875
500,000 Fhu-Jin, Ltd.(1),(2)........................ 08/10/11 9.260 510,245
1,415,000 FIA Card Services NA........................ 06/15/12 6.625 1,493,003
1,575,000 General Electric Capital Corp............... 03/04/08 4.125 1,570,818
2,195,000 Goldman Sachs Group, Inc.................... 01/15/12 6.600 2,299,620
2,460,000 HSBC Finance Corp........................... 11/27/12 6.375 2,555,323
2,425,000 International Lease Finance Corp............ 09/01/10 4.875 2,411,912
970,000 Lehman Brothers Holdings, Inc............... 02/06/12 5.250 956,940
250,000 Longpoint Re, Ltd.(1),(2)................... 05/08/10 10.944 256,650
215,000 Lukoil International Finance BV(2).......... 06/07/17 6.356 206,938
2,400,000 Merrill Lynch & Co., Inc.................... 07/25/11 5.770 2,426,606
250,000 Midori, Ltd.(1),(2)......................... 10/24/12 7.993 249,975
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal Maturity Interest
Amount Date Rate Value
--------- -------- -------- -----
<S> <C> <C> <C> <C>
CORPORATE BONDS (continued)
DIVERSIFIED FINANCIAL SERVICES (continued)
$ 1,920,000 Morgan Stanley.............................. 04/01/14 4.750% $ 1,818,605
250,000 Mystic Re, Ltd.(1),(2)...................... 12/05/08 11.841 254,025
500,000 Redwood Capital IX, Ltd.(1),(2)............. 01/09/08 11.993 501,450
250,000 Spinnaker Capital, Ltd.(1),(2).............. 06/20/08 10.088 254,675
500,000 Successor Euro Wind, Ltd.(1),(2)............ 12/06/08 11.448 505,150
2,285,000 Textron Financial Corp...................... 02/03/11 5.125 2,281,929
320,000 Travelers Cos., Inc......................... 06/15/12 5.375 321,661
1,115,000 Unilever Capital Corp....................... 11/01/10 7.125 1,188,965
640,000 Vita Capital, Ltd.(1),(2)................... 01/01/10 6.631 638,662
-----------
35,074,972
-----------
ENTERTAINMENT (0.6%)
EUR 1,000,000 Carnival, Plc............................... 11/27/13 4.250 1,381,445
$ 325,000 Royal Caribbean Cruises, Ltd................ 12/01/13 6.875 322,017
-----------
1,703,462
-----------
FINANCE (2.0%)
760,000 Capital One Financial Corp.................. 02/21/12 4.800 724,297
710,000 ICICI Bank, Ltd.(2)......................... 10/03/12 6.625 715,557
750,000 iStar Financial, Inc.(1).................... 09/15/09 6.034 722,789
4,615,000 SLM Corp.(1)................................ 01/31/14 4.480 3,644,050
-----------
5,806,693
-----------
FOOD (1.0%)
680,000 ConAgra Foods, Inc.......................... 09/15/11 6.750 713,971
270,000 Hershey Co.................................. 09/01/11 5.300 272,417
610,000 Kraft Foods, Inc............................ 08/11/17 6.500 640,043
1,270,000 Safeway, Inc................................ 11/01/08 4.125 1,263,499
-----------
2,889,930
-----------
FOREST PRODUCTS & PAPER (0.2%)
600,000 AbitibiBowater, Inc.(1)..................... 03/15/10 8.694 549,000
127,000 International Paper Co...................... 10/30/12 5.850 128,970
-----------
677,970
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 11
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal Maturity Interest
Amount Date Rate Value
--------- -------- -------- -----
<S> <C> <C> <C> <C>
CORPORATE BONDS (continued)
GAS (0.2%)
$ 660,000 Sempra Energy .............................. 02/01/13 6.000% $ 671,417
----------
HEALTHCARE PRODUCTS (0.3%)
940,000 Amgen, Inc.(2).............................. 06/01/17 5.850 938,588
----------
HEALTHCARE SERVICES (0.5%)
355,000 UnitedHealth Group, Inc.(2)................. 06/15/17 6.000 362,774
960,000 WellPoint, Inc.............................. 06/15/17 5.875 967,281
----------
1,330,055
----------
HOUSEHOLD PRODUCTS/WARES (0.5%)
605,000 Fortune Brands, Inc......................... 01/15/11 5.125 602,080
790,000 Kimberly-Clark Corp......................... 08/01/17 6.125 831,634
----------
1,433,714
----------
INDUSTRIALS (1.2%)
1,000,000 Allied Waste North America, Inc............. 05/15/16 7.125 1,010,000
600,000 Embraer Overseas, Ltd....................... 01/24/17 6.375 586,500
415,000 Honeywell International, Inc................ 03/15/16 5.400 414,418
325,000 Manitowoc Co., Inc.......................... 11/01/13 7.125 �� 323,375
1,090,000 Masco Corp.................................. 10/03/16 6.125 1,082,704
----------
3,416,997
----------
INFORMATION TECHNOLOGY (0.2%)
530,000 International Business
Machines Corp. ........................... 09/14/17 5.700 537,943
----------
INSURANCE (1.3%)
480,000 Commerce Group, Inc......................... 12/09/13 5.950 478,738
700,000 Everest Reinsurance Holdings, Inc........... 10/15/14 5.400 690,686
480,000 Hartford Financial Services Group, Inc. .... 10/15/16 5.500 475,202
1,240,000 MetLife, Inc................................ 12/01/11 6.125 1,282,990
760,000 XL Capital, Ltd............................. 09/15/14 5.250 718,157
----------
3,645,773
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal Maturity Interest
Amount Date Rate Value
--------- -------- -------- -----
<S> <C> <C> <C> <C>
CORPORATE BONDS (continued)
LODGING (0.3%)
$ 325,000 Boyd Gaming Corp............................ 04/15/14 6.750% $ 318,906
450,000 MGM Mirage.................................. 10/01/09 6.000 448,875
----------
767,781
----------
MEDIA (1.6%)
325,000 Charter Communications
Operating LLC(2).......................... 04/30/12 8.000 322,563
1,240,000 Comcast Corp................................ 03/15/11 5.500 1,247,379
850,000 COX Communications, Inc..................... 10/01/12 7.125 904,499
335,000 Time Warner Cable, Inc.(2).................. 05/01/17 5.850 332,140
1,830,000 Time Warner, Inc............................ 04/15/11 6.750 1,904,185
----------
4,710,766
----------
OIL & GAS (1.7%)
325,000 El Paso Corp................................ 06/15/14 6.875 325,581
600,000 GAZ Capital(2).............................. 11/22/16 6.212 591,600
1,250,000 Halliburton Co.............................. 10/15/10 5.500 1,270,115
885,000 Marathon Oil Corp........................... 10/01/17 6.000 899,457
1,250,000 Pemex Project Funding Master Trust.......... 02/01/09 7.875 1,293,125
625,000 Petronas Capital, Ltd.(2)................... 05/22/12 7.000 671,533
----------
5,051,411
----------
PHARMACEUTICALS (1.5%)
2,400,000 Eli Lilly & Co.............................. 03/15/17 5.200 2,366,654
745,000 Schering-Plough Corp........................ 09/15/17 6.000 757,742
1,110,000 WYETH........................................ 03/15/11 6.950 1,175,281
----------
4,299,677
----------
REAL ESTATE (0.2%)
680,000 Brookfield Asset Management, Inc............ 06/15/12 7.125 726,921
----------
REITS (0.4%)
650,000 Simon Property Group LP..................... 06/15/08 7.000 658,002
455,000 Simon Property Group LP..................... 09/01/11 5.600 456,084
----------
1,114,086
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 13
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal Maturity Interest
Amount Date Rate Value
--------- -------- -------- -----
<S> <C> <C> <C> <C>
CORPORATE BONDS (continued)
RETAIL (0.1%)
$ 315,000 Lowe's Cos, Inc............................. 10/15/16 5.400% $ 309,076
-----------
SAVINGS & LOANS (0.4%)
1,100,000 Washington Mutual, Inc...................... 01/15/09 4.000 1,077,676
-----------
SEMICONDUCTORS (0.2%)
525,000 National Semiconductor Corp................. 06/15/12 6.150 535,276
-----------
TELECOMMUNICATIONS (3.8%)
345,000 America Movil SAB de CV Series L............ 03/01/09 4.125 341,274
555,000 AT&T, Inc................................... 09/15/09 4.125 546,684
1,500,000 AT&T, Inc................................... 03/15/11 6.250 1,551,990
400,000 AT&T, Inc................................... 09/15/14 5.100 392,742
1,300,000 Deutsche Telekom International
Finance BV ................................. 06/15/10 8.000 1,393,959
600,000 Digicel, Ltd.(2)............................ 09/01/12 9.250 615,000
355,000 France Telecom SA........................... 03/01/11 7.750 383,244
305,000 GTE California, Inc......................... 05/01/08 7.000 307,722
1,025,000 GTE California, Inc......................... 01/15/09 5.500 1,030,494
575,000 KT Corp.(2)................................. 07/15/15 4.875 546,456
96,000 Motorola, Inc............................... 11/15/10 7.625 102,473
1,120,000 New Cingular Wireless Services, Inc. 03/01/11 7.875 1,213,333
325,000 Qwest Communications
International, Inc........................ 02/15/11 7.250 328,250
1,100,000 Sprint Capital Corp......................... 01/30/11 7.625 1,161,897
480,000 Telecom Italia Capital SA................... 01/15/10 4.000 469,052
510,000 Verizon Communications, Inc................. 04/01/17 5.500 510,008
-----------
10,894,578
-----------
TRANSPORTATION (0.2%)
535,000 MISC Capital Ltd.(2)........................ 07/01/09 5.000 534,166
-----------
UTILITIES (0.6%)
455,000 Dominion Resources, Inc..................... 12/15/10 4.750 450,976
650,000 EDP Finance BV(2)........................... 11/02/12 5.375 645,876
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal Maturity Interest
Amount Date Rate Value
--------- -------- -------- -----
<S> <C> <C> <C> <C>
CORPORATE BONDS (continued)
UTILITIES (continued)
$ 580,000 Midamerican Energy Co....................... 07/15/12 5.650% $ 591,617
------------
1,688,469
------------
Total Corporate Bonds
(Identified cost $102,074,941).............. 101,688,012
------------
FOREIGN GOVERNMENT BONDS (2.3%)
EGP 5,700,000 Arab Republic of Egypt(2)................... 07/18/12 8.750 1,064,069
BRL 79,000 Brazil Notas do Tesouro
Nacional (Serie B)........................ 05/15/15 6.000 732,093
$ 850,000 Colombia Government International Bond ..... 01/27/17 7.375 937,975
400,000 Indonesia Government International Bond .... 10/12/35 8.500 486,492
480,000 Mexico Government
International Bond.......................... 01/16/13 6.375 510,480
250,000 Oriental Republic of Uruguay................ 03/21/36 7.625 279,375
560,000 Philippine Government
International Bond.......................... 01/15/19 9.875 728,000
175,000 Republic of Ghana(2)........................ 10/04/17 8.500 179,375
1,386,000 Russian Government International
Bond(2)................................... 03/31/30 7.500 1,561,745
------------
Total Foreign Government Bonds
(Identified cost $6,247,149)................ 6,479,604
------------
MUNICIPAL BONDS (4.2%)
2,450,000 California State............................ 06/01/37 5.000 2,481,532
2,000,000 Indiana Municipal Power Agency and
Power Supply System Revenue............... 01/01/37 5.000 2,057,600
1,620,000 Los Angeles County, California,
Public Works Financing Authority
Lease Revenue ........................... 09/01/33 5.000 1,671,192
1,650,000 Massachusetts State Health &
Educational Facilities Authority.......... 10/01/37 5.000 1,675,707
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 15
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal Maturity Interest
Amount Date Rate Value
--------- -------- -------- -----
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (continued)
$ 1,310,000 Mississippi Development Bank
Special Obligation........................ 07/01/12 5.240% $ 1,317,847
2,800,000 Texas State................................. 04/01/37 5.000 2,893,268
- -----------
Total Municipal Bonds
(Identified cost $11,950,077)...... 12,097,146
-----------
U.S. GOVERNMENT AGENCY
OBLIGATIONS (27.0%)
47,747 Federal Home Loan Mortgage Corp........... 08/15/13 4.000 47,454
147,708 Federal Home Loan Mortgage Corp........... 08/15/13 4.500 147,134
175,000 Federal Home Loan Mortgage Corp........... 05/15/28 5.500 176,473
180,000 Federal Home Loan Mortgage Corp........... 01/15/29 5.500 180,334
105,000 Federal Home Loan Mortgage Corp...........10/15/34 5.500 104,100
250,000 Federal National Mortgage Assoc............. 05/01/08 3.720 248,392
55,635 Federal National Mortgage Assoc............. 04/01/17 6.500 57,138
159,333 Federal National Mortgage Assoc............. 03/01/20 4.500 154,178
142,120 Federal National Mortgage Assoc............. 10/25/21 6.000 145,818
6 ,949 Federal National Mortgage Assoc............. 12/01/28 7.500 7,376
4,316 Federal National Mortgage Assoc............. 04/01/29 7.500 4,581
5,034 Federal National Mortgage Assoc............. 04/01/29 7.500 5,343
15,925 Federal National Mortgage Assoc............. 12/01/30 7.500 16,893
973,384 Federal National Mortgage Assoc............. 01/25/31 6.000 974,884
270,000 Federal National Mortgage Assoc............. 03/25/31 5.500 269,437
220,681 Federal National Mortgage Assoc............. 07/01/32 7.000 230,893
121,611 Federal National Mortgage Assoc............. 10/01/33 6.000 122,954
67,504 Federal National Mortgage Assoc............. 11/25/33 5.500 67,281
128,272 Federal National Mortgage Assoc............. 03/01/34 4.500 119,818
581,382 Federal National Mortgage Assoc.(1).........07/01/36 5.733 587,808
1,016,028 Federal National Mortgage Assoc.(1).........09/01/36 5.821 1,025,592
3,745,516 ��Federal National Mortgage Assoc............. 12/01/36 6.000 3,773,809
1,380,349 Federal National Mortgage Assoc.(1).........01/01/37 5.520 1,392,858
9,300,155 Federal National Mortgage Assoc............. 07/01/37 6.000 9,369,290
8,329,828 Federal National Mortgage Assoc............. 07/01/37 6.500 8,526,084
8,557,849 Federal National Mortgage Assoc............. 08/01/37 6.000 8,621,466
99,966 Federal National Mortgage Assoc............. 02/25/44 5.950 100,266
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal Maturity Interest
Amount Date Rate Value
--------- -------- -------- -----
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS (continued)
$ 6,000,000 Federal National Mortgage Assoc.
(TBA 30YR) ................................. 11/01/37 5.000 $ 5,758,128
13,850,000 Federal National Mortgage Assoc.
(TBA 30YR) ................................. 11/01/37 5.500 13,646,571
10,300,000 Federal National Mortgage Assoc.
(TBA 30YR) ................................. 11/01/37 6.500 10,541,411
1,619,707 FHLMC Non Gold Guaranteed(1)................04/01/36 5.405 1,632,571
349,728 FHLMC Non Gold Guaranteed(1)................12/01/36 5.409 350,600
655,071 FHLMC Non Gold Guaranteed(1)................01/01/37 5.505 658,568
1,077,904 FHLMC Non Gold Guaranteed(1)................02/01/37 5.486 1,083,049
542,017 Freddie Mac Gold Pool....................... 05/01/19 4.000 512,107
1,797,552 Freddie Mac Gold Pool....................... 05/01/19 4.000 1,698,357
1,029,050 Freddie Mac Gold Pool....................... 12/01/19 4.000 972,263
3,008,531 Freddie Mac Gold Pool....................... 02/01/20 4.000 2,842,511
1,459,364 Freddie Mac Gold Pool....................... 10/01/34 5.500 1,440,555
174,112 Freddie Mac Gold Pool....................... 11/01/35 5.000 167,276
132,924 Freddie Mac Gold Pool....................... 12/01/35 5.000 127,705
99,870 Freddie Mac Gold Pool....................... 12/01/35 5.000 95,949
68,584 General National Mortgage Assoc.(1)........08/20/29 5.625 69,262
-----------
Total U.S. Government Agency Obligations
(Identified cost $77,910,237)...... 78,074,537
-----------
U.S. TREASURY NOTES AND BONDS (3.9%)
3,955,000 U.S. Treasury Bonds(3)...................... 02/15/31 5.375 4,284,997
3,680,000 U.S. Treasury Bonds......................... 02/15/36 4.500 3,532,800
1,567,987 United States Treasury Inflation
Indexed Bonds ........................... 01/15/15 1.625 1,521,928
1,491,180 United States Treasury Inflation
Indexed Bonds ........................... 04/15/28 3.625 1,836,364
- -----------
Total U.S. Treasury Notes and Bonds
(Identified cost $10,995,183)............... 11,176,089
- -----------
COMMERCIAL PAPER (9.2%)
1,870,000 Avon Capital Corp........................... 11/08/07 4.864 1,868,237
1,742,000 Black & Decker Corp......................... 11/01/07 5.001 1,742,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 17
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Principal Maturity Interest
Amount Date Rate Value
--------- -------- -------- -----
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (continued)
$ 5,000,000 ConocoPhillips.............................. 11/01/07 4.871 $ 5,000,000
1,000,000 Delmarva Power & Light Co................... 11/05/07 5.004 999,444
2,700,000 Deutsche Bank Financial LLC................. 11/01/07 4.771 2,700,000
5,000,000 Dresdner US Finance, Inc.................... 11/01/07 4.771 5,000,000
1,500,000 Gannett Co., Inc............................ 11/05/07 5.004 1,499,167
2,500,000 Home Depot, Inc............................. 11/01/07 5.054 2,500,000
1,000,000 PPL Energy Supply LLC....................... 11/05/07 5.004 999,444
2,000,000 Rio Tinto, Ltd.............................. 11/01/07 5.057 2,000,000
2,300,000 Unicredit Italiano Bank (Ireland) Plc. ..... 11/27/07 5.530 2,290,947
------------
Total Commercial Paper
(Identified cost $26,599,239)............... 26,599,239
------------
TOTAL INVESTMENTS (Identified cost $304,347,166)(4).................... 105.4% $304,277,211
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS ................. (5.4) (15,571,429)
- ----- ------------
NET ASSETS ............................................................. 100.0% $288,705,782
===== ==========
</TABLE>
(1) Variable rate instrument. Interest rates change on specific dates (such as
coupon or interest payment date). The yield shown represents the October
31, 2007 coupon or interest rate.
(2) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. Total market
value of 144A securities owned at October 31, 2007 was $17,327,408, or
6.0% of net assets.
(3) Security held as collateral on futures contracts.
(4) The aggregate cost for federal income tax purposes is $304,484,826, the
aggregate gross unrealized appreciation is $2,165,322, and the aggregate
gross unrealized depreciation is $2,372,937, resulting in net unrealized
depreciation of $207,615.
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars)
A summary of obligations under open forward foreign currency exchange contracts
outstanding at October 31, 2007 is as follows:
Unrealized
Notional Market Appreciation/
Description Value Value (Depreciation)
----------- - -------- - ------ --------------
Buy Contracts:
Australian Dollar settling 11/30/07 2,370,600 2,193,251 $ 14,276
Brazilian Real settling 11/30/07 5,364,100 3,069,761 58,759
Canadian Dollar settling 11/30/07 1,173,300 1,235,343 14,376
Canadian Dollar settling 11/30/07 788,200 829,879 (6,931)
China Renminbi settling 03/13/08 18,876,000 2,565,549 (3,488)
Euro settling 11/30/07 1,461,700 2,115,557 10,435
GBP British Pound settling 11/30/07 2,335,100 4,845,883 42,199
Hungarian Forinth settling 11/30/07 153,868,000 883,740 1,823
Indonesian Rupiah settling 11/30/07 7,817,983,400 857,376 (1,460)
Japanese Yen settling 11/30/07 142,117,300 1,236,844 (5,985)
New Zealand Dollar settling 11/30/07 2,545,300 1,949,258 (1,335)
Norwegian Krone settling 11/30/07 8,559,400 1,587,441 (6,212)
Swedish Krona settling 11/30/07 28,937,300 4,552,137 18,300
Swiss Franc settling 11/30/07 2,535,800 2,191,835 10,849
Sell Contracts:
Canadian Dollar settling 11/30/07 (2,398,800) (2,525,645) (16,483)
Czech Koruna settling 11/30/07 (18,012,600) (969,389) (5,890)
Euro settling 11/30/07 (2,725,900) (3,945,268) (18,231)
GBP British Pound settling 11/30/07 (1,132,800) (2,350,827) (20,300)
Japanese Yen settling 11/30/07 (191,758,400) (1,668,869) 8,030
Norwegian Krone settling 11/30/07 (6,410,000) (1,188,809) 3,606
New Zealand Dollar settling 11/30/07 (2,018,000) (1,545,438) 734
Swedish Krona settling 11/30/07 (19,335,800) (3,041,721) (13,347)
Swiss Franc settling 11/30/07 (2,092,100) (1,808,320) (10,344)
Taiwan Dollar settling 11/30/07 (28,367,800) (877,255) 733
- --------
$ 74,114
======
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 19
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars unless otherwise noted)
A summary of obligations under open futures contracts at October 31, 2007 is as
follows:
<TABLE>
<CAPTION>
Unrealized
Expiration Appreciation/
Position Date Contracts Note/Bond Value Depreciation
-------- ---------- --------- --------- ----- -------------
<S> <C> <C> <C> <C> <C>
Long 06/2009 285 90 Day Euro $ 68,086,500 $ 219,250
Long 09/2009 285 90 Day Euro $ 68,015,250 $ 213,750
Long 12/2007 110 U.S. 10 Yr Treasury Notes $ 12,101,719 $ 94,532
Short 12/2007 (1,315) U..S. 5 Yr Treasury Note $(141,157,031) $(582,938)
Short 12/2007 (117) U.S. Treasury Bonds $ (13,173,469) $(277,875)
---------
$(333,281)
=========
</TABLE>
As of October 31, 2007, the Fund had segregated sufficient cash and/or
securities to cover the initial margin requirements on open futures contracts.
At October 31, 2007, the Fund had the following open swap agreements:
<TABLE>
<CAPTION>
Amount Due
Notional from (to) Broker
Amount Description at Value
------------ ----------- ----------------
<S> <C> <C> <C>
GBP 11,200,000 Agreement with JP Morgan terminating 08/03/12 to pay
a fixed rate of 6.055% interest and receive the 6 months
LIBOR paid semi-annually. $ (430,375)
JPY 586,800,000 Agreement with JP Morgan terminating 03/13/12 to receive
a fixed rate of 1.295% interest and pay the 6 months Yen
LIBOR paid semi-annually. 11,707
SEK 73,600,000 Agreement with Goldman Sachs terminating 03/13/12 to
receive a fixed rate of 4.1175% interest and pay the
3 months STIBOR paid quarterly. (278,900)
CHF 4,300,000 Agreement with Goldman Sachs terminating 08/07/12 to
receive a fixed rate of 3.348% interest and pay the
6 months LIBOR paid semi annually. 37,830
CHF 6,850,000 Agreement with Goldman Sachs terminating 10/05/12 to
receive a fixed rate of 3.1525% interest and pay the
6 months LIBOR paid semi-annually. 8,862
NZD 5,200,000 Agreement with JP Morgan terminating 08/07/12 to pay
a fixed rate of 8.070% interest and receive the 3 months
Bank Bill paid quarterly. 20,370
25,000,000 Agreement with Morgan Stanley terminating 03/14/11 to
receive a fixed rate of 5.254% interest and pay the
3 months LIBOR paid quarterly. 440,000
30,000,000 Agreement with Citigroup terminating 05/11/11 to receive
a fixed rate of 5.488% interest and pay the 3 months
LIBOR paid quarterly. 786,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars unless otherwise noted)
<TABLE>
<CAPTION>
Amount Due
Notional from (to) Broker
Amount Description at Value
------------ ----------- ----------------
<S> <C> <C> <C>
5,000,000 Agreement with Goldman Sachs terminating 08/22/2016 to
receive a fixed rate of 3.095% interest and pay the
United Kingdom Retail Price Index. $ (180,955)
25,000,000 Agreement with JP Morgan terminating 02/01/08 to receive
the Lehman CMBS AAA 8.5+ Year Component Index or pay the
Lehman CMBS AAA 8.5+ Year Component Index based on the
change in the index from the previous Index Fixing Date
to the current Index Fixing Date. (250,215)
15,000,000 Agreement with Lehman Brothers terminating 09/20/17 to
receive a fixed rate of 2.725% interest and pay Lehman US
TIPS Index Return. 25,607
26,500,000 Agreement with JP Morgan to receive 0.350% interest in
exchange for providing protection against default on an
index of 125 North American Investment Grade Corporate
Entities.. (312,964)
750,000 Agreement with JP Morgan to receive 1.850% interest in
exchange for providing protection against default on a
government bond from the Republic of Argentina. (50,085)
2,600,000 Agreement with JP Morgan to receive 0.370% interest in
exchange for providing protection against default on a
bond issued by Lehman Brothers Holdings, Inc. (66,111)
25,000,000 Agreement with Goldman Sachs terminating 09/11/2011 to
receive a fixed rate of 5.205% interest and pay the
3 months LIBOR paid quarterly. 410,000
2,800,000 Agreement with Lehman Brothers terminating 12/20/12
to pay 0.490% interest and receive protection against
default on a bond issued by Whirlpool Corporation. 1,255
13,000,000 Agreement with Goldman Sachs to pay 3.250% interest in
exchange for receiving protection against the default of
an index of the bonds of 100 non investment grade entities
based in North America. 307,433
1,500,000 Agreement with JP Morgan to pay 0.690% interest in
exchange for receiving protection against default on a
government bond from the Federative Republic of
Brazil. 4,408
2,600,000 Agreement with Goldman Sachs to pay 2.030% interest in
exchange for receiving protection against default on a
bond from SLM Corporation. 32,384
25,000,000 Agreement with JP Morgan terminating 8/21/10 to receive
a fixed rate of 4.8875% interest and pay the 3 months
LIBOR BBA paid quarterly. 170,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 21
<PAGE>
BBH BROAD MARKET FUND
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars unless otherwise noted)
<TABLE>
<CAPTION>
Amount Due
Notional from (to) Broker
Amount Description at Value
------------ ----------- ----------------
<S> <C> <C> <C>
1,300,000 Agreement with Goldman Sachs terminating 06/20/14 to pay
3.080% interest in exchange for receiving 7 yr
protection against default on a bond from SLMA
Corporation. $ (54,694)
5,000,000 Agreement with JP Morgan to pay 0.500% interest in
exchange for receiving protection against default on a
bond from Waste Management, Inc. (48,469)
40,000,000 Agreement with JP Morgan terminating 05/18/09 to receive
a fixed rate of 5.140% interest and pay the 3 months
LIBOR BBA paid quarterly. 308,000
33,000,000 Agreement with JP Morgan terminating 08/31/12 to receive
a fixed rate of 5.020% interest and pay the 3 months
LIBOR BBA paid quarterly. 303,600
2,800,000 Agreement with Lehman Brothers to pay 1.520% interest in
exchange for providing protection against the default of
a bond issued by the Bear Stearns Companies, Inc. (61,290)
15,000,000 Agreement with JP Morgan terminating 05/16/12 to receive
a fixed rate of 5.0875% interest and pay the 3 months
LIBOR paid quarterly. 189,000
13,000,000 Agreement with Lehman Brothers to receive 3.250%
interest in exchange for providing protection against
the default of an index of the bonds of 100 non
investment grade entities based in North America. (453,683)
32,000,000 Agreement with JP Morgan terminating 05/18/12 to receive
a fixed rate of 5.101% interest and pay the 3 months
LIBOR paid quarterly. 412,800
700,000 Agreement with JP Morgan to receive 0.280% interest in
exchange for providing protection against default on a
bond from Morgan Stanley. (11,060)
650,000 Agreement with Lehman Brothers to pay 1.750% interest in
exchange for receiving protection against default on a
bond issued by Owens-Illinois. (20,036)
650,000 Agreement with Lehman Brothers to pay 0.510% interest in
exchange for receiving protection against default on a
bond from Century Tel, Inc. (2,298)
650,000 Agreement with Lehman Brothers to pay 0.560% interest in
exchange for receiving protection against default on a
bond from Murphy Oil Corporation. (483)
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued)
October 31, 2007
(expressed in U.S. dollars unless otherwise noted)
<TABLE>
<CAPTION>
Amount Due
Notional from (to) Broker
Amount Description at Value
------------ ----------- ----------------
<S> <C> <C> <C>
650,000 Agreement with Lehman Brothers to pay 0.370% interest in
exchange for receiving protection against default on a
bond from Marriot International, Inc. $ (1,819)
3,650,000 Agreement with Lehman Brothers to pay 0.155% interest in
exchange for receiving protection against default on a
bond issued by Citigroup, Inc. 50,292
3,650,000 Agreement with Lehman Brothers to pay 0.165% interest in
exchange for receiving protection against default on a
bond issued by American Express Company. 33,075
3,650,000 Agreement with Lehman Brothers to pay 0.160% interest in
exchange for receiving protection against default on a
bond issued by Wachovia Corporation. 52,498
1,600,000 Agreement with Lehman Brothers to receive 0.640%
interest in exchange for providing protection against
default on a bond issued by Countrywide Financial
Corp. (184,008)
2,600,000 Agreement with Lehman Brothers to receive 0.280%
interest in exchange for providing protection against
default on a bond issued by Goldman Sachs Group,
Inc. (28,272)
3,650,000 Agreement with Lehman Brothers to pay 0.160% interest in
exchange for receiving protection against default on a bond
issued by Bank of America Corporation. 31,479
----------
$1,200,883
==========
LIBOR - - London Interbank Offered Rate
STIBOR - - Stockholm Interbank Offered Rate
</TABLE>
As of October 31, 2007, the Fund had segregated sufficient cash to cover any
accrued but unpaid net amounts owed to a swap counterparty.
Currency Abbreviations:
BRL - Brazilian Real
CHF - Swiss Franc
EGP - Egyptian Pound
EUR - Euro
GBP - British Pound
JPY - Japanese Yen
NZD - New Zealand Dollar
SEK - Swedish Krona
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 23
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2007
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $304,347,166) ................................... $304,277,211
Cash ............................................................... 1,305,482
Segregated cash................................................... 5,398,014
Receivables for:
Capital stock sold.............................................. 5,485,000
Interest and other receivables.................................. 3,893,846
Investments sold................................................ 1,766,627
Swap agreements................................................. 1,200,883
Unrealized appreciation of forward foreign exchange
currency contracts ............................................. 184,120
Swap premium received........................................... 98,909
------------
Total Assets.................................................. 323,610,092
------------
LIABILITIES:
Due to Brown Brothers Harriman (identified cost $9,463)........... 9,855
Payables for:
Investments purchased........................................... 33,425,051
Variation margin on futures contracts........................... 552,532
Capital stock redeemed.......................................... 418,401
Unrealized depreciation of forward foreign
exchange currency contracts................................... 110,006
Investment advisory fees........................................ 91,171
Administrative fees............................................. 45,586
Shareholder servicing fees...................................... 41,325
Custody and accounting fees..................................... 38,526
Professional fees............................................... 30,489
Dividend distributions.......................................... 12,901
Board of Trustees' fees......................................... 4,247
Accrued expenses and other liabilities.......................... 124,220
------------
Total Liabilities............................................. 34,904,310
------------
NET ASSETS ......................................................... $288,705,782
============
Net Assets Consist of:
Par value .......................................................... $ 29,097
Paid-in capital................................................... 297,014,408
Undistributed net investment income............................... 938,997
Accumulated net realized loss on investments and
futures contracts ................................................ (10,575,859)
Net unrealized appreciation on investments and foreign
currency translations ............................................ 1,299,139
------------
Net Assets ............................................................ $288,705,782
============
NET ASSET VALUE AND OFFERING PRICE PER SHARE
CLASS N SHARES NET ASSET VALUE
($167,517,159 / 16,880,636 shares outstanding).................... $9.92
=====
CLASS I SHARES NET ASSET VALUE
($121,188,623 / 12,216,705 shares outstanding).................... $9.92
=====
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended October 31, 2007
NET INVESTMENT INCOME:
Income:
Interest and other income (net of withholding taxes
of $46,501)............................................... $13,614,290
Securities lending income................................... 1,969
-----------
Total Income.............................................. 13,616,259
-----------
EXPENSES:
Investment advisory fees...................................... 520,335
Administrative fees........................................... 260,168
Shareholder servicing fees.................................... 234,116
Custody and accounting fees................................... 232,087
Professional fees............................................. 36,368
Board of Trustees' fees....................................... 29,316
Miscellaneous expenses........................................ 133,838
-----------
Total Expenses.............................................. 1,446,228
Expense offset arrangement.................................. (15,517)
-----------
Net Expenses................................................ 1,430,711
-----------
Net Investment Income......................................... 12,185,548
-----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss on investments, futures contracts and
swap agreements .............................................. (5,053,855)
Net change in unrealized depreciation on investments and
foreign currency translations............................... (361,679)
-----------
Net Realized and Unrealized Loss.............................. (5,415,534)
-----------
Net Increase in Net Assets Resulting from Operations............. $ 6,770,014
===========
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 25
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31,
-------------------------------
2007 2006
------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ................................... $ 12,185,548 $ 11,967,371
Net realized loss on investments, futures
contracts and swap agreements ........................... (5,053,855) (5,694,292)
Net change in unrealized appreciation (depreciation) on
investments and foreign currency translations.. ....... (361,679) 4,454,640
------------- -------------
Net increase in net assets resulting from operations .... 6,770,014 10,727,719
------------- -------------
Dividends and distributions declared:
From net investment income:
Class N ................................................. (6,668,697) (6,782,672)
Class I ................................................. (4,657,983) (4,787,636)
From net realized gains
Class N ................................................. -- (1,150,107)
Class I ................................................. -- (767,109)
------------- -------------
Total dividends and distributions declared ............ (11,326,680) (13,487,524)
------------- -------------
Capital stock transactions:
Net proceeds from sales of capital stock ................ 85,260,256 42,339,515
Net asset value of capital stock issued to shareholders
for reinvestment of dividends and distributions ....... 395,914 6,856,683
Net cost of capital stock redeemed ...................... (33,205,938) (48,899,732)
------------- -------------
Net increase in net assets resulting from
capital stock transactions .......................... 52,450,232 296,466
------------- -------------
Total increase (decrease) in net assets ...................... 47,893,566 (2,463,339)
NET ASSETS:
Beginning of year ......................................... 240,812,216 243,275,555
------------- -------------
End of year (including undistributed net investment
income of $938,997 and $566,109, respectively) ........ $ 288,705,782 $ 240,812,216
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a Class N share outstanding throughout
each year
<TABLE>
<CAPTION>
For the years ended October 31,
--------------------------------------------------------------
2007 2006 2005 2004 2003
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year ........................ $10.10 $10.19 $10.57 $10.57 $10.25
------ ------ ------ ------ ------
Income from investment
operations:
Net investment income(1). ...... 0.46 0.48 0.42 0.43 0.59
Net realized and unrealized
gain (loss) .................. (0.21) (0.03) (0..27) 0.17 0.33
------ ------ ------ ------ ------
Total income from investment
operations ................. 0.25 0.45 0.15 0.60 0.92
------ ------ ------ ------ ------
Less dividends and distributions:
From net investment income ..... (0.43) (0.46) (0.41) (0.44) (0.60)
From net realized gains ........ -- (0.08) (0.12) (0.16) --
------ ------ ------ ------ ------
Total dividends and
distributions .............. (0.43) (0.54) (0.53) (0.60) (0.60)
------ ------ ------ ------ ------
Net asset value, end of year .... $ 9.92 $10.10 $10.19 $10.57 $10.57
====== ====== ====== ====== ======
Total return ...................... 2.42% 4.64% 1.49% 5.77% 9.33%
Ratios/Supplemental data:
Net assets, end of year
(in millions) ................ $ 168 $ 147 $ 149 $ 110 $ 115
Expenses as a percentage of
average net assets ........... 0.61%(2) 0.55%(2) 0.57%(2) 0.55%(3) 0.55%(3)
Ratio of net investment income
to average net assets ........ 4.62% 4.75% 4.06% 4.14% 5.55%
Portfolio turnover rate ........... 275% 325% 211% 210% 249%(4)
</TABLE>
----------
(1) Calculated using average shares outstanding for the year.
(2) The ratio of expenses to average net assets for the years ended October
31, 2007, 2006 and 2005 reflect fees reduced as a result of an expense
offset arrangement with the Fund's custodian. Had this arrangement not
been in place, this ratio would have been 0.62%, 0.56% and 0.58%,
respectively.
(3) Had the expense payment agreement, which terminated on December 31, 2004,
not been in place, the ratio of expenses to average net assets would have
been as follows:
N/A N/A N/A 0.61% 0.62%
(4) Portfolio turnover rate is a weighted average of the Fund's portfolio
turnover and that of the Broad Market Fund (the "Portfolio") in which the
Fund invested through December 3, 2002.
The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENT OCTOBER 31, 2007 27
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected per share data and ratios for a Class I share outstanding throughout
each period
<TABLE>
<CAPTION>
For the period from
December 3, 2002
For the years ended October 31, (commencement of
---------------------------------------------- operations) to
2007 2006 2005 2004 October 31, 2003
------- ------- ------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ............................... $ 10.10 $ 10.19 $ 10.57 $ 10.57 $ 10.22
------- ------- ------- ------- -------
Income from investment operations:
Net investment income(1) ............ 0.48 0.50 0.44 0.46 0.53
Net realized and unrealized
gain (loss) ....................... (0.20) (0.04) (0.27) 0.15 0.34
------- ------- ------- ------- -------
Total income from investment
operations ........................ 0.28 0.46 0.17 0.61 0.87
------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income......... (0.46) (0.47) (0.43) (0.45) (0.52)
From net realized gains ............. -- (0.08) (0.12) (0.16) --
------- ------- ------- ------- -------
Total dividends and distributions (0.46) (0.55) (0.55) (0.61) (0.52)
------- ------- ------- ------- -------
Net asset value, end of period ...... $ 9.92 $ 10.10 $ 10.19 $ 10.57 $ 10.57
======= ======= ======= ======= =======
Total return ........................ 2.58% 4.79% 1.64% 5.91% 9.48%
Ratios/Supplemental Data:
Net assets, end of period
(in millions) ..................... $ 121 $ 94 $ 94 $ 91 $ 87
Expenses as a percentage of average
net assets ........................ 0.46%(2) 0.40%(2) 0.42%(2) 0.40%(4) 0.40%(3),(4)
Ratio of net investment income to
average net assets ................ 4.78% 4.92% 4.21% 4.36% 5.42%(3)
Portfolio turnover rate ............. 275% 325% 211% 210% 249%(3),(5)
</TABLE>
----------
(1) Calculated using average shares outstanding for the year.
(2) The ratio of expenses to average net assets for the year ended October 31,
2007, 2006 and 2005 reflect fees reduced as a result of an expense offset
arrangement with the Fund's custodian. Had this arrangement not been in
place, this ratio would have been 0.47%, 0.41%, and 0.44%, respectively.
(3) Annualized.
(4) Had the expense payment agreement, which terminated on December 31, 2004,
not been in place, the ratio of expenses to average net assets would have
been as follows:
N/A N/A N/A 0.45% 0.46%(3)
(5) Portfolio turnover rate is a weighted average of the Fund's portfolio
turnover and that of the Portfolio in which the Fund invested through
December 3, 2002.
The accompanying notes are an integral part of these financial statements.
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
October 31, 2007
1. Organization and Significant Accounting Policies. BBH Broad Market Fund
(the "Fund") (formerly BBH Broad Market Fixed Income Fund) is a separate
diversified series of BBH Trust (the "Trust"), which is registered under
the Investment Company Act of 1940, as amended 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 December 22, 2000. On August 6, 2002, the Trustees
reclassified the Fund's outstanding shares as "Class N", and established a
new class of shares designated as "Class I". Class I commenced on December
3, 2002. Class N and Class I shares have different operating expenses.
Neither Class N shares nor Class I shares convert to any other class of
the Fund. At October 31, 2007, there were seven series of the Trust.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, which
require management to make certain estimates and assumptions at the date
of the financial statements and are based, in part, on the following
accounting policies. Actual results could differ from those estimates.
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 Trustees. 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.
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 Trustees. 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 this is determined not to
represent fair value by the Trustees.
B. Accounting for Investments and Income. Investment transactions are
accounted for on the trade date. Realized gains and losses, if any,
from investment transactions are determined on the basis of
identified cost. Interest income is accrued daily and consists of
interest accrued, discount earned (including both original issue and
market discount) and premium amortization on the investments of the
Fund. Investment income is recorded net of 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 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 collectibility of interest is
reasonably assured.
C. Repurchase Agreements. The Fund may enter into repurchase agreements
with primary dealers of U.S. Government Obligations as designated by
the Federal Reserve Bank of New York. Repurchase agreements are
transactions in which the Fund buys a security from a dealer or bank
and agrees to
FINANCIAL STATEMENT OCTOBER 31, 2007 29
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
sell the security back at a mutually agreed upon time and price. The
repurchase price exceeds the sale price, reflecting the Fund's
return on the transaction or effectively the interest rate paid by
the dealer to the Fund. This return is unrelated to the interest
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 or sub-custodian will monitor the value of the
underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price. Repurchase
agreements are subject to credit risks. At October 31, 2007, the
Fund had no open repurchase agreements.
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 hedge
the U.S. dollar value of Fund 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 currency
exchange rates supplied by a quotation service. Information
regarding forward foreign exchange contracts is included at the end
of the Portfolio of Investments.
E. Swap Agreements. The Fund may enter into swap agreements. A swap is
an exchange of cash payments based on a notional principal amount
between the Fund and another party which is based on a specific
financial index. These transactions are entered into in an attempt
to obtain a particular return when it is considered desirable to do
so, possibly at a lower cost to the Fund than if the Fund had
invested directly in an instrument that yielded that desired return.
Cash payments are exchanged at specified intervals and recorded in
the Statement of Operations as realized gains and losses. The
expected income or expense is recorded on an accrual basis. The
value of the swap is adjusted daily and the change in value is
recorded as unrealized appreciation or depreciation. Risks may arise
upon entering into these agreements from the potential inability of
counter parties to meet the terms of their contract and from
unanticipated changes in the value of the financial index on which
the swap agreement is based. Risks may exceed amounts recognized on
the Statement of Assets and Liabilities. The Fund may use swaps for
both hedging and non-hedging purposes. For hedging purposes, the
Fund may use swaps to reduce its exposure to interest and foreign
exchange rate fluctuations. For non-hedging purposes, the Fund may
use swaps to take a position on anticipated changes in the
underlying financial index. Information regarding swap agreements is
included at the end of the Portfolio of Investments.
F. Financial Futures Contracts. The Fund may enter into open futures
contracts in order to 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 which 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.
Trading in futures contracts involves, to varying degrees, risk of
loss in excess of any futures variation margin reflected in the
Statement of Assets
30
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
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. Futures contracts
held by the Fund are valued daily at the official settlement price
of the exchange on which it is traded. Information regarding
financial futures contracts is included at the end of the Portfolio
of Investments.
G. Rule 144A Securities. The Fund may purchase securities that are not
registered under the 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 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. 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.
H. Securities Lending. The Fund may lend its portfolio securities to
broker-dealers, qualified banks and certain institutional investors.
The loans are secured by collateral in an amount equal to at least
the market value at all times of the loaned securities plus any
accrued interest and dividends. During the time the securities are
on loan, the Fund will continue to receive the interest and
dividends or amounts equivalent thereto, on the loaned securities
while receiving a fee from the borrower or earning interest on the
investment of the cash collateral. Loans are subject to termination
at the option of the borrower or the Fund. Upon termination of the
loan, the borrower will return to the lender securities identical to
the loaned securities. The Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan of its
securities and may share the interest earned on the collateral with
the borrower. The Fund bears the risk of delay in recovery of, or
even loss of rights in, the securities loaned should the borrower of
the securities fail financially. At October 31, 2007, the Fund had
no open securities lending.
I. Federal Income Taxes. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code (the "Code") applicable to
regulated investment companies and to distribute 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 accounting principles generally accepted in the
United States of America, the basis on which these financial
statements are prepared. Accordingly, the amount of net investment
income and net realized gain reported on 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 on 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.
FINANCIAL STATEMENT OCTOBER 31, 2007 31
<PAGE>
BBH BROAD MARKET FUND
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
J. Dividends and Distributions to Shareholders. Dividends to
shareholders are generally declared and paid monthly 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 tax character of distributions
paid during the fiscal years ended October 31, 2007 and 2006,
respectively, were as follows:
<TABLE>
<CAPTION>
Distribution paid from:
---------------------------------------------------------------------------------------
Net Total Total
Ordinary Long term taxable Tax return distributions
Income capital gain distributions of capital paid
-------- ------------ ------------- ---------- -------------
<C> <C> <C> <C> <C> <C>
2007: $11,326,680 $ -- $11,326,680 -- $11,326,680
2006: 12,915,003 572,521 13,487,524 -- 13,487,524
</TABLE>
As of October 31, 2007 and 2006, respectively, the components of
accumulated earnings/(deficit) on a tax basis were as follows:
<TABLE>
<CAPTION>
Components of accumulated earnings/(deficit):
---------------------------------------------------------------------------------------------------
Total
Undistributed Undistributed Accumulated Unrealized accumulated
ordinary long-term Accumulated capital and appreciation/ earnings/
income capital gains earnings other losses (depreciation) (deficit)
------------- ------------- ----------- ------------ -------------- -------------
<C> <C> <C> <C> <C> <C> <C>
2007: $436,155 -- $436,155 $(10,771,480) $(207,615) $(10,542,940)
2006: 530,515 -- 530,515 (5,783,575) 1,612,752 (3,640,308)
</TABLE>
Total distributions paid differ from the Statement 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, forward currency contracts
marked to market and futures marked to market.
The Fund had a net capital loss carryforward of approximately
$10,771,480 which expires as follows:
Expiration Date Amount
--------------- -----------
10/31/2014 $ 5,375,549
10/31/2015 5,395,931
-----------
$10,771,480
===========
To the extent future capital gains are offset by capital loss
carryforwards, such gains will not be distributed.
K. Accounting Developments. In June 2006, Financial Accounting
Standards Board Interpretation No. 48, Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement 109 (FIN 48) was
issued and is effective for fiscal years beginning after December
15, 2006. FIN 48 sets forth a threshold for financial statement
recognition, measurement and disclosure of a tax position taken
32
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
or expected to be taken on a tax return. While not expected to have
a material impact on the Fund's financial statements, management
will be evaluating the impact, if any, the adoption of FIN 48 will
have on the Funds' net assets and results of operations.
In September 2006, Statement of Financial Accounting Standards No.
157, Fair Value Measurements (SFAS 157), was issued and is effective
for fiscal years beginning after November 15, 2007. SFAS 157 defines
fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. Management is
currently evaluating the implication of SFAS 157. At this time its
impact on the Fund's financial statements has not yet been
determined.
2. Transactions with Affiliates.
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")
provides investment advice, and portfolio management and administrative
services to the Fund. BBH receives a combined fee from the Fund for
advisory and administrative services calculated daily and paid monthly at
an annual rate equivalent to 0.30% of the fund's average daily net assets.
Prior to June 12, 2007 under a separate agreement that covered only
advisory fees, BBH received a fee from the Fund calculated daily and paid
monthly at an annual rate of 0.20% of the Fund's average daily net assets
and Brown Brothers Harriman Trust Company, LLC ("BBHTC"), the Fund's
administrator, under a separate agreement that covered only administrative
services, received a fee from the Fund calculated daily and paid monthly
at an annual rate equivalent to 0.10% of the Fund's average daily net
assets. BBH has a sub-administration services agreement with Federated
Services Company ("FSC") for which FSC receives compensation paid by BBH.
For the year ended October 31, 2007, the Fund incurred $780,503 for
advisory and administrative services.
Shareholder Servicing Fees. The Trust has a shareholder servicing
agreement with BBH. BBH receives a fee from the Fund for such services
calculated daily and paid monthly at an annual rate of 0.15% of Class N
shares' average daily net assets. For the year ended October 31, 2007, the
Fund incurred $234,116 for shareholder servicing services.
Custody and Accounting Fees. BBH acts as a custodian and receive a custody
and accounting fee from the Fund calculated daily and paid monthly. BBH
holds all cash and investments and calculates the daily net asset value.
The custody fee is a transaction based fee with an annual minimum of
$30,000, and the accounting fee is calculated at 0.04% per annum on the
first $100 million of net assets, 0.02% per annum on the next $400 million
of net assets and 0.01% per annum on all net assets over $500 million. For
the year ended October 31, 2007, the Fund incurred $232,087 for custody
and accounting services. These fees for the Fund were reduced by $15,517
as a result of an expense offset arrangement with the Fund's custodian. 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 overdraft. As of October 31, 2007 the Fund
had $9,865 outstanding under such arrangements. The total interest paid by
the Fund for the year ended October 31, 2007 was $13,005.
Securities Lending Fees. The Trust has a security lending agreement with
BBH for which BBH receives a fee from the Fund for each security loaned.
For the year ended October 31, 2007, the Fund paid $104 to BBH for
security lending services.
FINANCIAL STATEMENT OCTOBER 31, 2007 33
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
October 31, 2007
Board of Trustees' Fees. Each Trustee receives an annual fee as well as
reimbursement for reasonable out-of-pocket expenses from the Fund. For the
year ended October 31, 2007, the Fund incurred $29,316 for these fees.
3. Investment Transactions. For the year ended October 31, 2007, the cost of
purchases and the proceeds of sales of investment securities other than
short-term investments were $753,645,178 and $669,171,601, respectively.
4. Securities on Loan. As of October 31, 2007, the Fund had no securities on
loan.
5. Capital Stock. BBH Fund, Inc. was permitted to issue 2,500,000,000 shares
of capital stock, par value $.001 per share, of which 277,777,778 shares
were classified as Class N shares of the Fund and 277,777,778 were
classified as Class I shares of the Fund. The Trust offers unlimited
shares without par value. Transactions in shares of capital stock were as
follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
For the years ended October 31, For the years ended October 31,
------------------------------- -------------------------------
2007 2006 2007 2006
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Class N
Capital stock sold .......... 4,662,728 2,691,831 $46,611,159 $27,155,668
Capital stock issued in
connection with
reinvestment of
dividends ................. 37,982 343,925 380,499 3,454,818
Capital stock redeemed..... (2,351,936) (3,167,700) (23,516,924) (31,750,476)
------------ ------------ ------------ ------------
Net increase (decrease))... 2,348,774 (131,944) $23,474,734 $(1,139,990)
============ ============ ============ ============
Class I
Capital stock sold .......... 3,880,649 1,487,919 $38,649,097 $15,183,847
Capital stock issued in
connection with
reinvestment of
dividends ................. 1,548 338,884 15,415 3,401,865
Capital stock redeemed..... (977,038) (1,727,757) (9,689,014) (17,149,256)
------------ ------------ ------------ ------------
Net increase ................ 2,905,159 99,046 $28,975,498 $1,436,456
============ ============ ============ ============
</TABLE>
34
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
SUPPLEMENTAL PROXY INFORMATION
October 31, 2007
Supplemental Proxy Information. A Special Meeting of BBH Fund, Inc. (the
"Corporation") was held on May 23, 2007. On April 5, 2007, the record date for
shareholders voting at the meeting, there were 108,931,295 total outstanding
shares of the Corporation and 25,995,107 total outstanding shares of the Fund.
The following item was considered by shareholders of the Corporation and the
result of their voting is listed below. Unless otherwise noted the matter was
approved.
Proposals:
(1) To elect two Trustees of the Funds;
Samuel F. Pryor IV
Shares voted affirmatively................. 89,470,872
Shares voted negatively.................... 283,884
Shares abstaining.......................... 19,777
H. Whitney Wagner
Shares voted affirmatively................. 89,474,508
Shares voted negatively.................... 280,248
Shares abstaining.......................... 19,777
The following items were considered by Fund shareholders and the results of
their voting are listed below. Unless otherwise noted, each matter was approved.
(2) To approve a new combined investment advisory and administrative services
agreement for the Fund with the current investment adviser of the Fund;
Shares voted affirmatively................. 23,994,621
Shares voted negatively.................... 17,178
Shares abstaining.......................... 0
(3) To approve changes to the Fund's fundamental investment policies in order
to modernize its investment restrictions and increase its investment
flexibility:
(a) To amend the Fund's fundamental investment policy regarding
diversification;
Shares voted affirmatively........ 23,994,621
Shares voted negatively........... 17,178
Shares abstaining................. 0
(b) To amend the Fund's fundamental investment policy regarding
concentration;
Shares voted affirmatively........ 23,994,621
Shares voted negatively........... 17,178
Shares abstaining................. 0
FINANCIAL STATEMENT OCTOBER 31, 2007 35
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
SUPPLEMENTAL PROXY INFORMATION (continued)
October 31, 2007
(c) To amend the Fund's fundamental investment policy regarding
underwriting;
Shares voted affirmatively........ 23,994,621
Shares voted negatively........... 17,178
Shares abstaining................. 0
(d) To amend the Fund's fundamental investment policy regarding
investing in commodities;
Shares voted affirmatively........ 23,994,621
Shares voted negatively........... 17,178
Shares abstaining................. 0
(e) To amend the Fund's fundamental investment policy regarding
investing in real estate;
Shares voted affirmatively........ 23,994,621
Shares voted negatively........... 17,178
Shares abstaining................. 0
(f) To amend the Fund's fundamental investment policy regarding
borrowing money and issuing senior securities;
Shares voted affirmatively........ 23,994,621
Shares voted negatively........... 17,178
Shares abstaining................. 0
(g) To amend the Fund's fundamental investment policy regarding lending;
Shares voted affirmatively........ 23,994,621
Shares voted negatively........... 17,178
Shares abstaining................. 0
(h) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding selling short;
Shares voted affirmatively........ 24,011,799
Shares voted negatively........... 0
Shares abstaining................. 0
(i) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding illiquid securities;
Shares voted affirmatively........ 23,994,621
Shares voted negatively........... 17,178
Shares abstaining................. 0
(j) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding investing in ��securities of other
investment companies;
Shares voted affirmatively........ 23,994,621
Shares voted negatively........... 17,178
Shares abstaining................. 0
36
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
SUPPLEMENTAL PROXY INFORMATION (continued)
October 31, 2007
(k) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding purchases on margin;
Shares voted affirmatively........ 23,946,680
Shares voted negatively........... 65,119
Shares abstaining................. 0
(4) To approve the proposed Reorganization Agreement, pursuant to which each
series of BBH Fund, Inc. would be reorganized as separate series of BBH
Trust, (the "New BBH Trust"), a newly formed Delaware statutory trust.
Shares voted affirmatively............. 23,994,621
Shares voted negatively................ 17,178
Shares abstaining...................... 0
FINANCIAL STATEMENT OCTOBER 31, 2007 37
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES
October 31, 2007
EXAMPLE
As a shareholder of BBH Broad Market Fund (the "Fund"), you may incur two types
of costs: (1) transaction costs on purchase payments, reinvested dividends, 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, 2007 to October 31, 2007).
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.
38
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES (continued)
October 31, 2007
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.
Expenses Paid
Beginning Ending During Period
Account Value Account Value May 1, 2007 to
May 1, 2007 October 31, 2007 October 31, 2007(1)
------------- ---------------- -------------------
Class N
Actual.................. $1,000 $ 690.00 $2.85
Hypothetical(2)......... $1,000 $1,021.47 $3.36
Expenses Paid
Beginning Ending During Period
Account Value Account Value May 1, 2007 to
May 1, 2007 October 31, 2007 October 31, 2007(1)
------------- ---------------- -------------------
Class I
Actual.................. $1,000 $ 710.00 $2.24
Hypothetical(2)......... $1,000 $1,022.22 $2.61
----------
(1) Expenses are equal to the Fund's annualized expense ratio of 0.67% and
0.52% for Class N and I shares, respectively, multiplied by the average
account value over the period, multiplied by 184/365 (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 STATEMENT OCTOBER 31, 2007 39
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
ADDITIONAL FEDERAL TAX INFORMATION
The qualified investment income (QII) percentage for the year ended October 31,
2007 was 83.51%
In January 2008, shareholders will receive on Form 1099-DIV which will include
their share of qualified dividends during the calendar year 2007. Shareholders
are advised to check with their tax advisors for information on the treatment of
these amounts on their individual income tax returns.
40
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
DISCLOSURE OF ADVISOR SELECTION
OCTOBER 31, 2007 (UNAUDITED)
Approval of Investment Advisory/Administrative Services Agreement
At a meeting held on December 11, 2006, the Board of Trustees (the "Board") of
the Trust unanimously approved a new Combined Investment Advisory/Administrative
Services Agreement ("Combined Agreement"). The Board determined that the terms
of the Combined Agreement will be substantially identical to those of the
current advisory and administration agreements of the Funds, noting that the
most significant difference in the Combined Agreement is a single fee for both
advisory and administrative services. The following is a summary of the factors
the Board took into consideration in making its determination to approve the new
Combined Agreement.
Nature, Extent and Quality of Services Provided by Brown Brothers Harriman & Co.
("BBH")
The Board noted that, under the Combined Agreement in respect of each Fund, BBH,
subject to the supervision of the Board, will be responsible for providing a
continuous investment program and making purchases and sales of portfolio
securities consistent with the Funds' investment objective and policies. Under
the Combined Agreement, BBH also provides administrative services to each Fund.
The Board considered the scope and quality of services to be provided by BBH
under the Combined Agreement and noted that the scope of services provided had
expanded over time, primarily, as a result of regulatory developments. The Board
noted that, for example, BBH is responsible for maintaining and monitoring its
own and, to varying degrees, the Funds' compliance program, and these compliance
programs have recently been refined and enhanced in light of new regulatory
requirements. The Board considered the quality of the investment research and
administrative capabilities of BBH and the other resources it has dedicated to
performing services for the Funds. The Board concluded that, overall, they were
satisfied with the nature, extent and quality of services expected to be
provided to each of the Funds under the Combined Agreement.
Costs of Services Provided and Profitability to BBH
At the request of the Board, BBH provided information concerning the
profitability of BBH's current investment company advisory and other fees. The
Board also reviewed BBH's profitability data for each Fund, which also included
the effect of revenue generated by the shareholder servicing, administration,
custody and other fees paid by the Fund. The Board discussed the difficulty of
making comparisons of profitability because comparative information is not
generally publicly available and is affected by numerous factors, including the
structure of the service provider, the types of funds it manages and
administers, its business mix, numerous assumptions regarding allocations and
the entity's capital structure and cost of capital. In considering profitability
information, the Board considered the effect of fall-out benefits on BBH's
expenses, as well as the "revenue sharing" arrangements BBH has entered into
with certain entities that distribute shares of the Funds. The Board focused on
profitability of BBH's relationships with the Funds before taxes and
distribution expenses. The Board concluded that it was satisfied that BBH's
level of profitability from its relationship with each Fund was not excessive.
FINANCIAL STATEMENT OCTOBER 31, 2007 41
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
DISCLOSURE OF ADVISOR SELECTION (continued)
October 31, 2007 (unaudited)
Fall-Out Benefits
The Board considered that BBH does not allocate the Funds' portfolio
transactions for third party research, although it did benefit from proprietary
research received from brokers that execute the Funds' purchases and sales of
securities. The Board recognized that the aggregate amount of commissions
generated by Fund transactions was unlikely to result in the Funds receiving
from full service broker dealers substantial discounts on commission rates.. The
Board received and reviewed information concerning BBH's policies with respect
to allocating portfolio brokerage.
The Board also considered that BBH receives shareholder servicing fees from
certain funds, and is the Funds' administrator, custodian and securities lending
agent. The Board noted that BBH retained no portion of the 12b-1 fees paid by
any Fund that operated with a Rule 12b-1 plan. The Board recognized that BBH's
profitability would be somewhat lower if it did not receive proprietary research
for commissions or, if it did not receive the other benefits described above.
The Board recognized that most Fund shareholders were also BBH clients, and that
substantial assets are invested in the Funds as a result of an overall
investment management program for the shareholder. The Board noted that the
Funds also derive reputational and other benefits from their association with
BBH and their use of the BBH name, which is licensed to the Funds by BBH.. Thus,
the Board did not believe that BBH revenues associated with its clients should
be fairly regarded as "fallout" benefit from the Funds.
Economies of Scale
The Board noted that the Funds' combined fee schedules, other than the fee
schedule for BBH Money Market Fund, do not contain breakpoints. As a result, if
assets increase, the fee rates would not be reduced for these Funds on the
incremental assets. With respect to the BBH Money Market Fund, the breakpoint
will be reviewed every three (3) years by the Board, and may be adjusted upwards
to take into account the effects of inflation or such other basis as may be
appropriate, subject to the approval of shareholders to the extent required by
the 1940 Act.
There may be other economies of scale because many expenses did not rise (and
fall) proportionally to increases (and decreases) in total net assets. The Board
noted that BBH had priced its services in recognition of the fact that it was
largely its own clients who were shareholders and, accordingly, sought to assure
that the cost of these services and total expenses for each Fund were fair and
reasonable. In addition, the Board noted that over the years BBH had supported
certain Funds through fee waivers and expense reimbursements. Based on
information they had been provided over many years, the Board observed that in
the mutual fund industry as a whole, as well as among funds similar to the
Funds, there
42
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
DISCLOSURE OF ADVISOR SELECTION (continued)
October 31, 2007 (unaudited)
appeared to be no uniformity or pattern in the fees and asset levels at which
breakpoints (if any) apply. In light of the Funds' current size and expense
structure, the Board concluded that it was unnecessary at this time to consider
breakpoints with respect to the Funds, other than for the BBH Money Market Fund.
Investment Results
The Board considered the investment results of each of the Funds as compared to
investment companies with its peers and with one or more selected securities
indices. In addition to the information received by the Board for the meeting
held on October 2, 2006, the Board received detailed performance information for
each Fund at each regular Board meeting during the year. At the meeting held on
October 2, 2006, the Board reviewed information showing performance of each Fund
compared to its peers over the prior 1-, 3-, and 5- year periods and compared
the performance information to one or more securities indices over comparable
periods.
Combined Fee Rate
The Board considered the fee rate to be paid by each Fund to BBH The Board
recognized that it is difficult to make comparisons of these fee rates, and the
combined advisory and administration fees, because there are variations in the
services that are included in the fees paid by other funds.
The Board considered the depth and range of services provided under the Combined
Agreement. For example, in addition to a continuous investment program, BBH
provides, among other things, officers (including the Funds' Chief Compliance
Officer and officers to provide required certifications) and administrative
services, such as shareholder communications, and tax compliance, with the
attendant costs and exposure to liability. BBH also coordinates the provision of
services to the Funds by nonaffiliated service providers.
The following factors specific to the BBH Broad Market Fund also were noted and
considered by the Board in deciding to approve the Combined Agreement:
The Board reviewed the information showing performance of the BBH Broad Market
Fund's Class N shares and Class I shares compared to the Lehman Aggregate Index.
Both classes of the BBH Broad Market Fund on a pre-fee basis outperformed the
benchmark over all relevant periods and on an after-fee basis performed roughly
in line with or modestly exceeded the benchmark over all relevant periods. The
Board viewed with favor this performance and noted the benchmark has no fees.
The Board also noted the expense ratio for both share classes were in line with
or lower than many funds of similar size and investment mandate. Taking into
account these comparisons and the other factors considered, the Board concluded
that the BBH Broad Market Fund's investment results over time and its total
expense ratio had been satisfactory.
FINANCIAL STATEMENT OCTOBER 31, 2007 43
<PAGE>
BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
DISCLOSURE OF ADVISOR SELECTION (continued)
October 31, 2007 (unaudited)
Conflicts of Interest
As a general matter, certain conflicts of interest may arise in connection with
a portfolio manager's management of a Fund's investments, on the one hand, and
the investments of other accounts for which the portfolio manager is
responsible, on the other. For example, it is possible that the various accounts
managed could have different investment strategies that, at times, might
conflict with one another to the possible detriment of the Fund. Alternatively,
to the extent that the same investment opportunities might be desirable for more
than one account, possible conflicts could arise in determining how to allocate
them. Other potential conflicts might include conflicts created by specific
portfolio manager compensation arrangements, and conflicts relating to selection
of brokers or dealers to execute Fund portfolio trades and/or specific uses of
commissions from Fund portfolio trades (for example, research, or "soft
dollars").
BBH has adopted and implemented policies and procedures, including brokerage and
trade allocation policies and procedures, which it believes address the
conflicts associated with managing multiple accounts for multiple clients. In
addition, BBH monitors a variety of areas, including compliance with account
investment guidelines, the inclusion only of securities approved for purchase by
the BBH's Fixed Income Credit Committee, and compliance with the BBH's Code of
Ethics. Finally, BBH has structured the portfolio managers' compensation in a
manner, and the Funds have adopted policies and procedures, reasonably designed
to safeguard a Fund from being negatively affected as a result of any such
potential conflicts.
44
<PAGE>
TRUSTEES AND OFFICERS OF BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
(unaudited)
Information pertaining to the Trustees of the BBH Trust (the "Trust") and
executive officers of the Trust is set forth below. Part B to the Registration
Statement of the BBH Broad Market Fund includes additional information about the
Fund's Trustees and is available upon request without charge by contacting the
Fund at 1-800-625-5759.
<TABLE>
<CAPTION>
Term of Number of
Office Funds in
and Fund Other
Position(s) Length Complex Directorships
Name, Birth Date Held with of Time Principal Occupation(s) Overseen by Held by
and Address Trust Served# During Past 5 Years Trustee^ Trustee
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joseph V. Shields Jr. Chairman of Since Managing Director, Chairman and 7 None
Birth Date: the Board and 2007 Chief Executive Officer of Shields
March 17, 1938 Trustee & Company (member of New York
Shields & Company Stock Exchange); Chairman of
140 Broadway Capital Management Associates,
New York, NY 10005 Inc. (registered investment
adviser); Director of Flower
Foods, Inc. (New York Stock
Exchange listed company).
Eugene P. Beard Trustee Since Chairman & CEO of Westport Asset 7 Director of Old
Birth Date: 2007 Fund, Inc. Westbury
March 17, 1935 Funds
800 Connecticut (7 Funds)
Ave., 3 East
Norwalk, CT 06854
David P. Feldman Trustee Since Director of Jeffrey Co. (1992 to 7 Director of
Birth Date: 2007 present); Director of QMED (1999 Dreyfus
November 16, 1939 to May 2007). Mutual Funds
C/O BBH & Co. (59 Funds)
140 Broadway
New York, NY 10005
Alan G. Lowy Trustee Since Private Investor. 7 None
Birth Date: 2007
April 17, 1939
4111 Clear Valley
Drive
Encino, CA 91436
Arthur D. Miltenberger Trustee Since Retired; Trustee, R.K. Mellon 7 None
Birth Date: 2007 Family Trust (1981 to June 2003);
November 8, 1938 Director of Aerostructures
503 Darlington Road Corporation (aircraft
Ligonier, PA 15658 manufacturer) (1996 to July 2003).
</TABLE>
FINANCIAL STATEMENT OCTOBER 31, 2007 45
<PAGE>
TRUSTEES AND OFFICERS OF BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Term of Number of
Office Funds in
and Fund Other
Position(s) Length Complex Directorships
Name, Birth Date Held with of Time Principal Occupation(s) Overseen by Held by
and Address Trust Served# During Past 5 Years Trustee^ Trustee
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Samuel F. Pryor, IV Trustee Since Private Investor. 7 None
Birth Date: 2007
June 12, 1955
130 East 67th Street
New York, NY 10021
H. Whitney Wagner Trustee Since President, Clear Brook Advisors, a 7 None
Birth Date: 2007 registered investment advisor.
March 3, 1956
Clear Brook Advisors
75 Rockefeller Plaza,
14th Floor
New York, NY 10019
Officers
John A. Nielsen President and Since President and Principal Executive N/A N/A
Birth Date: Principal 2007 Officer of the Trust; He joined
July 15, 1943 Executive Brown Brothers Harriman & Co.
140 Broadway Officer ("BBH") in 1968 and has been a
New York, NY 10005 Partner of the firm since 1987.
Charles H. Schreiber Treasurer, Since Treasurer, Principal Financial N/A N/A
Birth Date: Principal 2007 Officer and Anti-Money Laundering
December 10, 1957 Financial Officer of the Trust; Senior Vice
140 Broadway Officer, Anti- President of BBH since September
New York, NY 10005 Money 2001; Joined BBH in 1999.
Laundering
Officer
Mark B. Nixon Assistant Since Assistant Secretary and Assistant N/A N/A
Birth Date: Secretary, 2007 Treasurer of the Trust; Vice
January 14, 1963 Assistant President of BBH (since October
140 Broadway Treasurer 2006); Accounting Manager, Reserve
New York, NY 10005 Funds (August 2005-September
2006); Assistant Controller,
Reserve Funds (February
2005-August 2005); Private
Consultant (December 2001-February
2005).
</TABLE>
46
<PAGE>
TRUSTEES AND OFFICERS OF BBH BROAD MARKET FUND
--------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Term of Number of
Office Funds in
and Fund Other
Position(s) Length Complex Directorships
Name, Birth Date Held with of Time Principal Occupation(s) Overseen by Held by
and Address Trust Served# During Past 5 Years Trustee^ Trustee
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beth Haddock Chief Since Chief Compliance Officer of the N/A N/A
Birth Date: Compliance 2007 Trust (September 2007-present);
December 10, 1965 Officer Chief Compliance Officer for the
140 Broadway FINRA/NYSE and SEC compliance
New York, NY 10005 programs and Associate Compliance
Director for the global compliance
program (April 2005-present);
Deputy General Counsel of AXA
Advisors/ AXA Financial (November
1997-April 2005)
Gail C. Jones Secretary Since Secretary of the Trust; Counsel, N/A N/A
Birth Date: 2007 ReedSmith, LLP (since October
October 26, 1953 2002); Corporate Counsel (January
1001 Liberty Avenue 1997 to September 2002) and Vice
Pittsburgh, PA President (January 1999 to
15222-3779 September 2002) of Federated
Services Company.
Judith J. Mackin Vice Since Vice President of the Trust; Vice N/A N/A
Birth Date: President 2007 President (since November 1997) of
May 30, 1960 Federated Services Company.
1001 Liberty Avenue,
Pittsburgh, PA
15222-3779
John C. Smith Assistant Since Assistant Treasurer of the Trust; N/A N/A
Birth Date: Treasurer 2007 Vice President (since 2004);
August 2, 1965 Assistant Vice President (since
50 Milk Street September 2001); Associate
Boston, MA 02109 (September 2000 to August 2001);
and Senior Analyst (June 1999 to
August 2000) of BBH & Co.
</TABLE>
----------
# Each Trustee of the Trust holds office until he or she attains the age of
70 (72, in the case of Trustees who were elected as such before January 1,
2000), or until he or she sooner dies, resigns or is removed from office
in accordance with the provisions of the Trust's Declaration of Trust. 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).
Each Trustee previously served on the Board of Trustees of the Predecessor
Funds.
^ The Fund Complex consists of the Trust, which has seven series and each is
counted as one "Fund" for purposes of this table.
FINANCIAL STATEMENT OCTOBER 31, 2007 47
<PAGE>
================================================================================
INVESTMENT ADVISER AND ADMINISTRATOR
BROWN BROTHERS HARRIMAN
140 BROADWAY
NEW YORK, NY 10005
DISTRIBUTOR
EDGEWOOD SERVICES, INC.
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
SHAREHOLDER SERVICING AGENT
BROWN BROTHERS HARRIMAN
140 BROADWAY
NEW YORK, NY 10005
(800) 625-5759
To obtain information or make shareholder inquiries:
By telephone: Call 1-800-575-1265
By E-mail send your request to: bbhfunds@bbh.com
On the internet: www.bbhfunds.com
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. Such offering is made only by the prospectus, which includes details as to
offering price and other material information.
The Fund files with the SEC a complete schedule of its portfolio holdings, as of
the close of the first and third quarters of its fiscal year, on "Form N-Q."
Information on Form N-Q is available without charge and upon request by calling
the Funds at the toll-free number listed above. A text only version can be
viewed online or downloaded from the SEC's website at http://www.sec.gov; and
may be reviewed and copied at the SEC's Public Reference Room in Washington, DC
(call 1-800-SEC-0330 for information on the operation of the Public Reference
Room). You may also access this information from the BBH website at BBH.com by
clicking on "BBH Mutual Funds" and selecting "Online Documents/Holdings
Information."
A copy of the Fund's Proxy Voting Policy is available upon request by calling
the toll-free number listed above. A text-only version of the policy can be
viewed online or downloaded from the SEC at www.sec.gov.
BROWN [LOGO]
BROTHERS
HARRIMAN
================================================================================
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics
that applies to the Registrant's principal
executive officer, principal financial officer,
principal accounting officer or controller or
persons performing similar functions.
(b) No answer required.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) Not applicable.
(2) Not applicable.
(3) A copy of the code of ethics referenced
in Item 2(a) of this Form N-CSR is available
and can be mailed, free of charge, to
anyone by calling (800) 575-1265.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant's Board of Trustees
has designated two members of the audit
committee as financial experts.
(2) The following Trustees have been designated
as audit committee financial experts by the
Board of Trustees who are “independent” for purposes
of this Item 3 of Form N-CSR: audit committee
members Arthur D. Miltenberger and David P. Feldman
are the designated audit committee financial
experts.
(3) Not applicable.
(b) No answer required.
(c) No answer required.
(d) No answer required.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Disclosure of the aggregate fees billed for each
of the last two fiscal years for professional services
rendered for the audit of the annual financial
statements or services that are normally provided
with statutory and regulatory filings or engagements
for those fiscal years. 2007: $87,300, 2006: $88,600
(b) Audit-Related Fees 2007: $0, 2006: $5,000
(c) Tax Fees - Tax Compliance 2007: $20,500 , 2006: $16,000,
(d) All Other Fees - - Security Counts 2007:$20,400, 2006: $19,200
AIMR 2007:$0, 2006: $20,000
Activity Based Costing Review
2007:$0
2006: $902,424
(e) 1.) AUDIT COMMITTEE PRE-APPROVAL POLICIES ANDPROCEDURES
Audit services provided by the Funds' auditors
The ("Auditors") on behalf of the Funds shall be
pre-approved of the entire audit committee.
Non-audit services provided by the Auditors on behalf
of the Funds shall be pre-approved by the Audit
Committee, except that such services may be pre-approved
solely by the chairman of the Audit Committee if the fee
for such services does not exceed $5,000 per Fund.
Non-audit services performed by the Auditors on
behalf of BBH&Co. and that requires pre-approval
shall be pre-approved by the Audit Committee,
except that such services may be pre-approved
solely by the chairman of the Audit Committee
if the fees for such services do not exceed
$15,000.
(f) If greater than 50 percent, disclosure of the
percentage of hours expended on principal
accountant's engagement to audit the registrant's
financial statements for the most recent fiscal
year that were attributed to work performed by
persons other than the principle accountants'
full-time, permanent employees. None
(g) Disclosure of non-audit fees billed
by the registrant's accountant to the
registrant and rendered to the registrant's
investment adviser, and any entity controlling,
controlled by, or under common control, with
the adviser that provides ongoing services
to the registrant for each of the last two
fiscal years of the registrant. 0
NOTE: For the purposes of item g, we are
considering the following entities as
controlling, controlled by, or under
common control, with the adviser that
provides ongoing services to the
registrant:
BBH Trust Company (Cayman) Limited
BBH International Equity Fund Cayman
BBH USEquity Fund Cayman
New WorldInvestment Trust
World Investment Trust
GlobalEquity Investment Trust
American Investment Trust
Brown Brothers Harriman and Co.
Brown Brothers Harriman Trust Company, LLC
Brown Brothers Harriman Infomediary, LLC
h) Disclosure of whether the registrant's audit
committee of the board of directors has considered
whether the provision of the non-audit services that
were rendered to the registrant's investment adviser
and any entity controlling, controlled by, or under
common control, with the adviser that provides ongoing
services to the registrant that were not approved pursuant
to (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principle accountant's independence.
The audit committee of the board of directors
has considered whether the provision of the
non-audit services that were rendered to the
registrant's investment adviser and any entity
controlling, controlled by, or under common
control, with the adviser that provides ongoing
services to the registrant that were not approved
pursuant to (c)(7)(ii) of Rule 2-01 of Regulation
S-X is compatible with maintaining the principle
accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) Not applicable.
(b) Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
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.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the
Registrant's disclosure controls and
procedures as conducted within 90
days of the filing date of this Form
N-CSR, the Registrant's principal
financial officer and principal executive
officer have concluded that those
disclosure controls and procedures
provide reasonable assurance that
the material information required to be
disclosed by the Registrant on this
report is recorded, processed,
summarized and reported within the
time periods specified in the Securities
and Exchange Commission's rules and forms.
(b) There were no significant changes in
the Registrant's internal controls or
in other factors that occurred during
the second fiscal quarter of the period
covered by this report
that has materially affected, or is
reasonably likely to materially affect,
the Registrant’s internal control over
financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2) A separate certification for each principal
executive officer and principal financial
officer of the Registrant as required by
Rule 30a-2(a) under the Act (17 CFR 270.30a-2)
is filed as Exhibit 12(a) (2).
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/ John A. Nielsen
------------------------------
John A. Nielsen, President
(Principal Executive Officer)
Date: 01/07/08
------------------
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/ Charles H. Schreiber III
---------------------------
Charles H. Schreiber III, Treasurer
(Principal Financial Officer)
Date: 01/07/08
------------------
- Print name and title of each signing officer
under his or her signature.
EXHIBIT 12(a) (1)
A copy of the code of ethics is available and can
be mailed, free of charge, to anyone by calling
(800) 575-1265.
EXHIBIT 12(a) (2)
SECTION 302 CERTIFICATION OF PRINCIPLE EXECUTIVE OFFICER.
I, John Nielsen, certify that:
1. I have reviewed this report on Form N-CSR of BBH Trust on behalf of: BBH Core Select, BBH International Equity Fund, BBH Real Return Fund, and BBH Broad Market Fund, ("Registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have:
a.) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
d.) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
a.) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and
b.) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.
Date: 01/07/08
/S/ John A. Nielsen
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John A. Nielsen
President - - Principal Executive Officer
EXHIBIT 12(a) (2)
SECTION 302 CERTIFICATION OF PRINCIPLE FINANCIAL OFFICER.
I, Charles H. Schreiber III, certify that:
1. I have reviewed this report on Form N-CSR of BBH Trust on behalf of: BBH Core Select, BBH International Equity Fund, BBH Real Return Fund, and BBH Broad Market Fund, ("Registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have:
a.) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
b.) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.)evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
d.) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
a.) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and
b.) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.
Date: 01/07/08
/S/ Charles H. Schreiber III
==========================
Charles H. Schreiber III
Treasurer - - Principal Financial Officer
SECTION 906 CERTIFICATIONS
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. (section) 1350, and accompanies the report
on Form N-CSR for the fiscal year ended October 31, 2007 of the BBH Trust (the “Registrant”).
Pursuant to 18 U.S.C.ss. 1350, the undersigned officers of the Registrant, hereby certify, to the best of our knowledge, that the Registrant's Report on Form N-CSR for the period ended October 31, 2007 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date: 01/07/08
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/S/ John A. Nielsen
=======================
John A. Nielsen
President - - Principal Executive Officer
Date: 01/07/08
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/S/ Charles H. Schreiber III
=======================
Charles H. Schreiber III
Treasurer - - Principal Financial Officer
This certification is being furnished solely pursuant
to 18 U.S.C.ss. 1350 and is not being filed as part
of the Report or as a separate disclosure document.