FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: (811-22708)
Brown Advisory Funds
(Exact name of Registrant as specified in charter)
901 South Bond Street Suite 400
Baltimore, MD 21231
(Address of principal executive offices) (Zip code)
David M. Churchill
Principal Executive Officer
Brown Advisory Funds
901 South Bond Street Suite 400
Baltimore, MD 21231
(Name and address of agent for service)
(410) 537-5400
Registrant's telephone number, including area code
Date of fiscal year end: June 30
Date of reporting period: December 31, 2016
Item 1. Reports to Stockholders.
SEMI-ANNUAL REPORT
December 31, 2016
Brown Advisory Growth Equity Fund
Brown Advisory Flexible Equity Fund
Brown Advisory Equity Income Fund
Brown Advisory Sustainable Growth Fund
Brown Advisory Small-Cap Growth Fund
Brown Advisory Small-Cap Fundamental Value Fund
Brown Advisory Global Leaders Fund
Brown Advisory Intermediate Income Fund
Brown Advisory Total Return Fund
Brown Advisory Strategic Bond Fund
Brown Advisory Maryland Bond Fund
Brown Advisory Tax Exempt Bond Fund
Brown Advisory Mortgage Securities Fund
Brown Advisory – WMC Strategic European Equity Fund
Brown Advisory – WMC Japan Alpha Opportunities Fund
Brown Advisory – Somerset Emerging Markets Fund
Brown Advisory Emerging Markets Small-Cap Fund
The views in the report contained herein were those of the Funds’ investment adviser, Brown Advisory LLC, or, for the sub-advised funds, of the respective sub-adviser, as of December 31, 2016 and may not reflect their views on the date this report is first published or anytime thereafter. This report may contain discussions about certain investments both held and not held in the portfolio as of December 31, 2016. All current and future holdings are subject to risk and are subject to change. While these views are intended to assist shareholders in understanding their investment in each Fund, they do not constitute investment advice, are not a guarantee of future performance and are not intended as an offer or solicitation with respect to the purchase or sale of any security. Performance figures include the reinvestment of dividend and capital gain distributions.
The Global Industry Classification Standard (GICS®) was developed by and is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Administrator, U.S. Bancorp Fund Services, LLC.
TOPIX Index Values and TOPIX Marks are subject to the proprietary rights owned by the Tokyo Stock Exchange, Inc.
TABLE OF CONTENTS
| Brown Advisory Growth Equity Fund |
| | A Message to our Shareholders, December 31, 2016 | | 1 |
| | Schedule of Investments, December 31, 2016 | | 3 |
| Brown Advisory Flexible Equity Fund |
| | A Message to our Shareholders, December 31, 2016 | | 4 |
| | Schedule of Investments, December 31, 2016 | | 6 |
| Brown Advisory Equity Income Fund |
| | A Message to our Shareholders, December 31, 2016 | | 7 |
| | Schedule of Investments, December 31, 2016 | | 9 |
| Brown Advisory Sustainable Growth Fund |
| | A Message to our Shareholders, December 31, 2016 | | 10 |
| | Schedule of Investments, December 31, 2016 | | 12 |
| Brown Advisory Small-Cap Growth Fund |
| | A Message to our Shareholders, December 31, 2016 | | 13 |
| | Schedule of Investments, December 31, 2016 | | 15 |
| Brown Advisory Small-Cap Fundamental Value Fund |
| | A Message to our Shareholders, December 31, 2016 | | 17 |
| | Schedule of Investments, December 31, 2016 | | 19 |
| Brown Advisory Global Leaders Fund |
| | A Message to our Shareholders, December 31, 2016 | | 20 |
| | Schedule of Investments, December 31, 2016 | | 22 |
| Brown Advisory Intermediate Income Fund |
| | A Message to our Shareholders, December 31, 2016 | | 23 |
| | Schedule of Investments, December 31, 2016 | | 24 |
| Brown Advisory Total Return Fund |
| | A Message to our Shareholders, December 31, 2016 | | 27 |
| | Schedule of Investments, December 31, 2016 | | 28 |
| Brown Advisory Strategic Bond Fund |
| | A Message to our Shareholders, December 31, 2016 | | 32 |
| | Schedule of Investments, December 31, 2016 | | 34 |
| Brown Advisory Maryland Bond Fund |
| | A Message to our Shareholders, December 31, 2016 | | 38 |
| | Schedule of Investments, December 31, 2016 | | 39 |
| Brown Advisory Tax Exempt Bond Fund |
| | A Message to our Shareholders, December 31, 2016 | | 41 |
| | Schedule of Investments, December 31, 2016 | | 42 |
| Brown Advisory Mortgage Securities Fund |
| | A Message to our Shareholders, December 31, 2016 | | 45 |
| | Schedule of Investments, December 31, 2016 | | 46 |
| Brown Advisory – WMC Strategic European Equity Fund |
| | A Message to our Shareholders, December 31, 2016 | | 54 |
| | Schedule of Investments, December 31, 2016 | | 56 |
| Brown Advisory – WMC Japan Alpha Opportunities Fund |
| | A Message to our Shareholders, December 31, 2016 | | 58 |
| | Schedule of Investments, December 31, 2016 | | 60 |
| Brown Advisory – Somerset Emerging Markets Fund |
| | A Message to our Shareholders, December 31, 2016 | | 63 |
| | Schedule of Investments, December 31, 2016 | | 65 |
| Brown Advisory Emerging Markets Small-Cap Fund |
| | A Message to our Shareholders, December 31, 2016 | | 67 |
| | Schedule of Investments, December 31, 2016 | | 69 |
| Statements of Assets and Liabilities | | 71 |
| Statements of Operations | | 76 |
| Statements of Changes in Net Assets | | 81 |
| Financial Highlights | | 90 |
| Notes to Financial Statements | | 130 |
| Additional Information | | 148 |
GLOSSARY OF TERMS
Alpha refers to the abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like the capital asset pricing model (CAPM).
Bloomberg Barclays 1-10 Year Blended Municipal Bond Index is a market index of high quality, domestic fixed income securities with maturities of less than 10 years.
Bloomberg Barclays Intermediate US Aggregate Bond Index represents domestic taxable investment-grade bonds with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities with average maturities and durations in the intermediate range. This index represents a sector of the Bloomberg Barclays US Aggregate Bond Index.
Bloomberg Barclays Mortgage Backed Securities Index is a market value-weighted index which covers the mortgage-backed securities component of the Bloomberg Barclays US Aggregate Bond Index. The index is composed of agency mortgage-backed passthrough securities of the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac) with a minimum $150 million par amount outstanding and a weighted-average maturity of at least 1 year. The index includes reinvestment of income.
Bloomberg Barclays US Aggregate Bond Index is a broad-based benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS, ABS and CMBS.
Bloomberg Barclays US Corporate High Yield Index measures the US Dollar denominated, high-yield, fixed-rate corporate bond market.
Basis point(s) (bps) is a unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security. 1% is equal to 100 basis points.
Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
Book value is the net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities.
CAPEX, or capital expenditures, are funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. It is often used to undertake new projects or investments by the firm. This type of outlay is also made by companies to maintain or increase the scope of their operations.
Cash flow measures the cash generating capability of a company by adding non-cash charges (e.g. depreciation) and interest expense to pretax income.
Correlation is a statistical measurement of how two securities move in relation to each other.
Dividend Yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock.
Downside Capture is a statistical measure of a fund’s performance in down markets. For example, a fund with downside capture of 90% would only have declined 90% as much as the related index during the same down market period.
Duration is a measure of the sensitivity of the price of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices.
Earnings growth is a measure of growth in a company’s net income over a specific period, often one year. The term can apply to actual data from previous periods or estimated data for future periods.
Earnings per share (EPS) is calculated by taking the total earnings divided by the number of shares outstanding.
Earnings Yield is the earnings per share for the most recent 12-month period divided by the current market price per share. The earnings yield shows the percentage of each dollar invested in the stock that was earned by the company.
EBITDA is the Earnings Before Interest, Taxes, Depreciation and Amortization. An approximate measure of a company’s operating cash flow based on data from the company’s income statement.
Enterprise Value (EV) is a measure of a company’s value, often used as an alternative to straightforward market capitalization. Enterprise Value is calculated as market capitalization plus debt, minority interest and preferred shares, minus total cash and cash equivalents.
Forward price to earnings ratio uses forecasted earnings, rather than current earnings, to calculate the price to earnings ratio.
Free Cash Flow is the operating cash flows (net income plus amortization and depreciation) minus capital expenditures and dividends. Free cash flow is the amount of cash that a company has left over after it has paid all of its expenses, including investments.
Gross Domestic Product (GDP) is the monetary value of all the goods and services produced by an economy over a specified period. It includes consumption, government purchases, investments, and exports minus imports.
MSCI All Country World Index ex-U.S. is a market capitalization weighted index designed to provide a broad measure of stock performance throughout the world, with the exception of U.S.-based companies.
MSCI Emerging Markets Asia Small-Cap Index captures small-cap representation across 8 Emerging Markets countries.
MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.
GLOSSARY OF TERMS
MSCI Emerging Markets Small-Cap Index is a free float-adjusted market capitalization index that is designed to measure small cap equity market performance in the global emerging markets.
MSCI Europe Index is an index that captures large and mid cap representation across 15 developed market countries in Europe.
Price to Book Value Ratio (P/B) is ratio used to compare a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share.
Price to earnings ratio (P/E) is a common tool for comparing the prices of different common stocks and is calculated by dividing the current market price of a stock by the earnings per share.
Return of Capital (ROC) is a return from an investment that is not considered income. The return of capital is when some or all of the money an investor has in an investment is paid back to him or her, thus decreasing the value of the investment.
Return on Capital Employed (ROCE) is a financial ratio that measures a company’s profitability and the efficiency with which its capital is employed. Return on Capital Employed (ROCE) is calculated as: ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed.
Return on Equity (ROE) is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.
Return on Invested Capital (ROIC) is a calculation used to assess a company’s efficiency at allocating the capital under its control to profitable investments. ROIC is typically calculated by taking a company’s net income, subtracting dividends the company paid out and dividing that amount by the company’s total capital.
Russell Global Large Cap Index measures the performance of the largest securities in the Russell Global Index, based on market capitalization.
Russell 1000® Growth Index measures the performance of the large-cap growth segment of the of the U.S. equity universe. It includes those Russell 1000® companies with higher price to book value ratios and higher forecasted growth values.
Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000® companies with lower price to book value ratios and lower expected growth values.
Russell 2000® Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000® companies with higher price to book value ratios and higher forecasted growth values.
Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index.
Russell 2000® Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000® companies with lower price to book value ratios and lower forecasted growth values.
Russell 3000® Index measures the performance of the 3,000 largest U.S. companies representing approximately 98% of the investable U.S. equity market.
S&P 500 Index (“S&P 500”) is a market-value weighted index representing the performance of 500 widely held, publicly traded large capitalization stocks.
Tier 1 Capital Ratio is a comparison between a banking firm’s core equity capital and total risk-weighted assets. A firm’s core equity capital is known as its Tier 1 capital and is the measure of a bank’s financial strength based on the sum of its equity capital and disclosed reserves, and sometimes non-redeemable, non-cumulative preferred stock. A firm’s risk-weighted assets include all assets that the firm holds that are systematically weighted for credit risk. Central banks typically develop the weighting scale for different asset classes, such as cash and coins, which have zero risk, versus a letter or credit, which carries more risk.
TOPIX Total Return U.S. Dollar Hedged Index is a market capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange, hedged to eliminate the impact of the change in value between the US Dollar and Japanese Yen. The unhedged version of this index, known as the TOPIX Total Return Index, does not eliminate the change in value between the US Dollar and Japanese Yen.
Turnover refers to a fund buying or selling securities. (The fund “turns over” its portfolio.) A fund pays transaction costs, such as commissions, when it buys and sells securities. Additionally, a higher turnover rate may result in higher taxes when the fund shares are held in a taxable account.
Yield Curve is a line that plots the yields of securities having equal credit quality but different maturity dates.
Yield Spread is the difference between yields on differing securities, calculated by deducting the yield of one security from another.
The broad based market indexes referenced in the following management commentaries are considered representative of their indicated market, the indexes are unmanaged and do not reflect the deduction of fees, such as, investment management and fund accounting fees, or taxes associated with a mutual fund. Investors cannot invest directly in an index.
Brown Advisory Growth Equity FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
During the six months ended December 31, 2016, the Brown Advisory Growth Equity Fund Investor Shares (the “Fund”) decreased 1.45% in value. During the same period, the Russell 1000 Growth Index, the Fund’s benchmark, increased 5.64%.
The six months ended December 31, 2016 was challenging for the Growth Equity Fund. Though we believe the Fund is well positioned for long-term growth, our performance struggled during two significant sector rotation episodes which caused considerable volatility in both absolute and relative returns. The first saw worldwide markets roiled on the heels of the Brexit vote in which the UK voted to leave the European Union. Given our growth philosophy, our portfolio was not positioned toward the low-volatility, high-dividend-yielding stocks that subsequently drove the benchmark’s performance. As the initial shock from the Brexit vote began to wear off, investors returned to fundamentally analyzing stocks and the gap in relative performance began to shrink. In early November, the results of the U.S. presidential election ushered in the second episode. The portfolio’s underperformance was primarily concentrated in a handful of companies whose stock prices underperformed including TripAdvisor, FleetCor, DexCom and Alexion Pharmaceuticals. We remain invested with high conviction in these companies, as we believe these companies’ business models support our investment thesis.
For the period, consumer discretionary was the worst performing sector. Weakness in online travel company TripAdvisor was the primary detractor. The company has faced near-term growth headwinds from the slower-than-expected transition to its Instant Booking (“IB”) platform. The IB platform, launched in the fourth quarter of 2015, represents the company’s evolution into an end-to-end platform for users to begin their travel research, book their trip, use features at the destination and submit feedback when they return. We believe this platform will help TripAdvisor capture substantially more of the economics in the online travel value chain and will close the monetization gap compared with its peers. In doing so, we believe the company has the potential to more than double revenue over the medium term as the IB offering achieves greater adoption from online consumers. In our view, the market has become too pessimistic and focused on the company’s near-term results.
Health care stocks were also a source of portfolio underperformance. Election-year rhetoric injected a new level of volatility into biotech and pharmaceutical stocks, which impacted Alexion. Additionally, in December the company launched an internal investigation into potential improper sales practices of its flagship drug, Soliris, which weighed heavily on the stock. The stock rebounded after the investigation found no significant issues. Still, the uncertainty posed a meaningful drag on stock performance during the period. Looking past the recent uncertainty, the outlook for Alexion’s underlying business model improved thanks to its plan to diversify the company with two approved drugs coming to market. Also, the competitive landscape for Soliris brightened when its closest competitor failed in a clinical trial. We started a new position in DexCom, which is the market leader in continuous glucose monitoring (CGM) devices used to manage diabetes. Due to recent advances in accuracy, we believe the CGM market could grow at double-digit rates for the next several years as patients increasingly migrate away from the current finger-stick method of drawing blood. CGM is a much safer method to manage diabetes and it leads to fewer hospitalizations, reducing overall health care costs. As we started building our position, the stock fell when Medtronic announced a new version of its competing device. While expected, the announcement came earlier than anticipated and the market overreacted to the perceived competitive threat. We believe the market is growing quickly enough to support multiple players and we view DexCom as the leader in terms of the accuracy and functionality of its technology.
Four of the top five contributors came from the technology sector this period. Cloud-based enterprise software company NetSuite was acquired by Oracle in the period and Amphenol, a long-term holding which sells highly engineered connectors into industrial end markets, executed well despite a less-than-favorable macro backdrop.
We are confident the Fund has the potential to recover from recent underperformance, as evidenced by periods of recovery we already experienced over the full calendar year. When we take a big-picture view and assess the plight of classic growth stocks, we see markets turning out of favor in much the same way as during the late 1990s. Following the burst of the tech bubble, the portfolio recovered very quickly in subsequent quarters and the following years. We believe the portfolio today has the same potential for a rebound.
Sincerely,
Kenneth M. Stuzin, CFA
Portfolio Manager
Brown Advisory Growth Equity FundA Message to Our Shareholders
December 31, 2016
Past performance is not a guarantee of future results.
Mutual fund investing involves risk. Principal loss is possible. Investments in medium capitalization companies generally carry greater risk than is customarily associated with larger companies for various reasons such as narrower markets, limited financial resources and less liquid stock. The value of the Fund’s investments in REITs may change in response to changes in the real estate market such as declines in the value of real estate, lack of available capital or financing opportunities, and increases in property taxes or operating costs. Investments in foreign securities entail certain risks not associated with investments in domestic securities, such as volatility of currency exchange rates, and in some cases, political and economic instability and relatively illiquid markets. These risks are greater for investments in emerging markets. The Fund may invest in ETFs, which may trade at a discount to the aggregate value of the underlying securities and although expense ratios for ETFs are generally low, frequent trading of ETFs by the Fund can generate brokerage expenses.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory Growth Equity FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Shares | | Security Description | | Value $ | |
| | |
| Common Stocks — 96.2% | |
| | |
| Consumer Discretionary — 17.9% | |
| | | 101,351 | | Amazon.com, Inc.* | | | 76,000,074 | |
| | | 290,731 | | FleetCor Technologies, Inc.* | | | 41,144,251 | |
| | | 1,624,712 | | Genpact, Ltd.* | | | 39,545,490 | |
| | | 1,321,220 | | Starbucks Corp. | | | 73,354,135 | |
| | | 915,703 | | TripAdvisor, Inc.* | | | 42,461,148 | |
| | | 442,224 | | Under Armour, Inc. — Class A* | | | 12,846,607 | |
| | | 916,152 | | Under Armour, Inc. — Class C* | | | 23,059,546 | |
| | | | | | | | 308,411,251 | |
| Consumer Staples — 9.9% | |
| | | 423,505 | | Costco Wholesale Corp. | | | 67,807,386 | |
| | | 729,133 | | Estee Lauder Companies, Inc. | | | 55,771,383 | |
| | | 654,708 | | Mead Johnson Nutrition Co. | | | 46,327,138 | |
| | | | | | | | 169,905,907 | |
| Health Care — 15.0% | |
| | | 436,288 | | Alexion Pharmaceuticals, Inc.* | | | 53,379,837 | |
| | | 837,398 | | Danaher Corp. | | | 65,183,060 | |
| | | 619,181 | | DaVita, Inc.* | | | 39,751,420 | |
| | | 659,092 | | DexCom, Inc.* | | | 39,347,792 | |
| | | 94,774 | | Intuitive Surgical, Inc.* | | | 60,102,828 | |
| | | | | | | | 257,764,937 | |
| Industrials — 10.0% | |
| | | 451,094 | | A.O. Smith Corp. | | | 21,359,301 | |
| | | 899,457 | | Fortive Corp. | | | 48,237,879 | |
| | | 312,035 | | Roper Technologies, Inc. | | | 57,127,368 | |
| | | 549,253 | | Wabtec Corp. | | | 45,598,984 | |
| | | | | | | | 172,323,532 | |
| Information Technology — 36.8% | |
| | | 555,043 | | Adobe Systems, Inc.* | | | 57,141,677 | |
| | | 674,719 | | Akamai Technologies, Inc.* | | | 44,990,263 | |
| | | 30,804 | | Alphabet, Inc. — Class A* | | | 24,410,630 | |
| | | 69,816 | | Alphabet, Inc. — Class C* | | | 53,885,385 | |
| | | 973,489 | | Amphenol Corp. | | | 65,418,461 | |
| | | 347,911 | | ANSYS, Inc.* | | | 32,178,288 | |
| | | 849,946 | | Cognizant Technology Solutions Corp.* | | | 47,622,474 | |
| | | 635,708 | | Facebook, Inc.* | | | 73,138,205 | |
| | | 605,184 | | NXP Semiconductors NV* | | | 59,314,084 | |
| | | 1,278,611 | | PayPal Holdings, Inc.* | | | 50,466,776 | |
| | | 700,858 | | salesforce.com, Inc.* | | | 47,980,739 | |
| | | 992,489 | | Visa, Inc. | | | 77,433,992 | |
| | | | | | | | 633,980,974 | |
| Materials — 3.8% | |
| | | 553,906 | | Ecolab, Inc. | | | 64,928,861 | |
| Telecommunication Services — 2.8% | |
| | | 472,579 | | SBA Communications Corp.* | | | 48,798,508 | |
| Total Common Stocks (Cost $1,199,150,994) | | | 1,656,113,970 | |
| | | | | | | | | |
| Short-Term Investments — 2.5% | |
| | |
| Money Market Funds — 2.5% | |
| | | 43,650,546 | | Cash Account Trust — Government | | | | |
| | | | | & Agency Securities Portfolio — | | | | |
| | | | | Institutional Shares, 0.45%# | | | 43,650,546 | |
| Total Short-Term Investments (Cost $43,650,546) | | | 43,650,546 | |
| Total Investments — 98.7% (Cost $1,242,801,540) | | | 1,699,764,516 | |
| Other Assets in Excess of Liabilities — 1.3% | | | 23,146,702 | |
| NET ASSETS — 100.0% | | $ | 1,722,911,218 | |
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| | | | |
| Information Technology | | | 36.8 | % |
| Consumer Discretionary | | | 17.9 | % |
| Health Care | | | 15.0 | % |
| Industrials | | | 10.0 | % |
| Consumer Staples | | | 9.9 | % |
| Materials | | | 3.8 | % |
| Telecommunication Services | | | 2.8 | % |
| Money Market Funds | | | 2.5 | % |
| Other Assets and Liabilities | | | 1.3 | % |
| | | | 100.0 | % |
| * | Non-Income Producing |
| # | Annualized seven-day yield as of December 31, 2016. |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Flexible Equity FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
During the six months ended December 31, 2016, the Brown Advisory Flexible Equity Fund Investor Shares (the “Fund”) outperformed its benchmark, the S&P 500® Index (the “Index”), increasing 11.47% in value. The S&P 500 Index rose 7.82% during the same period.
In our June 30, 2016 Annual Report to shareholders, we discussed how a narrow focus in the market contributed to our underperformance in recent periods. The sharp rebound in our performance spotlights how the narrowness eased somewhat. Stock sectors with high dividend yields, such as utilities, telecommunications, real estate investment trusts (REITs) and consumer staples, gave up ground after advancing in previous periods. Our investment approach is not especially focused on yields, so we were considerably less exposed to high dividend-yielding sectors than the index.
The surprise result of the U.S. elections with Donald Trump winning the Presidency and Republicans holding a majority in both houses of Congress has both stimulated and roiled investment markets since November 8. We view the new administration as being simultaneously pro-economic growth (lower taxes), pro-business (lower regulatory burden) and also pro-labor (trade protection). This unusual combination of expectations fits well with the most unpredictable president-elect in memory. The U.S. election result following the previous Brexit vote confirms the shifting relative balance among the forces of globalism, nationalism, localism and individualism.
There are many possible changes that could happen in the next few years. Before the new administration takes office, investors are mostly projecting first-order effects of any potential change. After assuming office, we may see better the reality of an ecosystem where one can never change only one thing – each action or potential action creates reactions and further changes rippling through the system. In investment markets, prices change quickly with each iteration. Longer term, our baseline assumption for the U.S. system is economic and social progress over time where innovation, competition and democratic elections every few years tend to foster what works and inhibit what does not. We believe this system works, even if unevenly and less than perfectly at times.
Financial holdings Charles Schwab, JPMorgan Chase and Regions Financial Corp. were among the top contributors to performance in the period. We believe most U.S. financial companies will benefit from higher interest rates, reduced regulation and lower corporate taxes – assuming the new administration can deliver on campaigned issues. The action of potential faster economic growth creates the reaction of interest rates moving higher. Both faster economic growth and higher interest rates have the potential to be beneficial and if proposals lessening regulation and corporate taxes pass, there may possibly be an extraordinary effect on financials. Interest rates moving substantially higher, however, could limit overall equity market valuations which at some point naturally limits our enthusiasm for financials.
Additional large contributors to the Fund’s results were auto retailer CarMax and industrial equipment rental company United Rentals. CarMax posted good business results and its share price recovered from prior lows. United Rentals also rebounded from a prior low in response to the recovery in oil prices and the prospect of higher economic growth.
The biggest detractor to returns was Teva Pharmaceutical, a branded and proprietary pharmaceuticals manufacturer. Several issues impacted the share price of Teva Pharmaceutical including concerns that patent protection will end earlier than anticipated for Copaxone, one of its key products, and the unexpected departure of the head of their global generics business. The efficiencies to be gained in its merger with Actavis, further diversification in its product line, the potential for its drugs under development and its low valuation serve as the basis for our investment thesis.
The increase in interest rates impacted the valuation of wireless infrastructure REIT Crown Castle International Corp. The Federal Reserve increased the Federal Funds rate by 25 basis points in December; long-term rates have moved higher since the election.
Home improvement retailer Lowe’s reported slightly lower-than-expected earnings growth. We consider Lowe’s a solid long-term investment, especially given the recovery in housing investment and home improvement. Heightened drug pricing scrutiny pushed down the price of shares of pharmacy benefit manager Express Scripts and other health care companies. New holding Chipotle Mexican Grill, a fast casual restaurant operator, declined when quarterly results fell short of investor expectations.
We added two new holdings and eliminated one since our June Annual Report to shareholders.
Our investment in Chipotle Mexican Grill came roughly a year after highly publicized food-borne illness outbreaks at some of its stores caused a steep drop in sales across the chain. The share price declined meaningfully from its prior high presenting a bargain opportunity. We expect the share price will recover to prior levels as store-level results improve. Company management has been
Brown Advisory Flexible Equity FundA Message to Our Shareholders
December 31, 2016
keenly focused on overhauling its food handling and preparation procedures over the past year and we believe customers are beginning to revisit to stores. Before the incidents, Chipotle enjoyed the best unit economics of any restaurant chain and we believe it can return to near those levels as customers come back. Chipotle also has excellent store expansion potential with roughly 2,000 stores in the U.S. and potential for several thousand more locations in the U.S. and beyond.
We also initiated an investment in Facebook, the leading social media company. The company provides free content to 1.5 billion users, which it monetizes through advertising. As the most connected social media platform, Facebook has meaningful network and scale advantages and is extending its reach beyond social. Given these advantages, we see the possibility that user and advertising rates may double during the next five years, creating meaningful long-term upside in company earnings. It would be very hard to displace Facebook from its leading position in social media, which is at the core of its excellent business economics.
We sold our investment in Canadian Pacific Railways, which was a successful investment over the past four years. Our investment thesis was based in part on the skilled management of CEO Hunter Harrison, who recently announced his retirement. Valuation and recent declines in railroad traffic were also factors in our decision to sell Canadian Pacific.
Though we are sometimes asked how we are positioning our portfolio for various events or environments in the market, economy or world, positioning for scenarios is generally not how we invest. Rather, we search for investment bargains, particularly among long-term attractive businesses with shareholder-oriented management. These businesses typically have competitive advantages producing better-than-average economic results, management that allocates capital well and capacity to adjust to changes in the world – these businesses tend to grow in value over time. Bargains in the stocks of these businesses can arise for many reasons, but are often due to short-term investor perceptions, temporary business challenges that could improve, or as yet undiscovered or unrecognized opportunities and changes for the better. We are optimistic about the long-term outlook for equities of good companies purchased at reasonable prices and our ability to find them.
Sincerely,
R. Hutchings Vernon, CFA
Portfolio Manager
Past performance is not a guarantee of future results.
Mutual fund investing involves risk. Principal loss is possible. The Flexible Equity Fund may invest in securities of foreign issuers. Investments in such securities entail certain risks not associated with investments in domestic securities, such as volatility of currency exchange rates, and in some cases, political and economic instability and relatively illiquid markets. These risks are greater for investments in emerging markets. The value of the Fund’s investments in REITs may change in response to changes in the real estate market such as declines in the value of real estate, lack of available capital or financing opportunities, and increases in property taxes or operating costs. The Fund may invest in ETFs, which may trade at a discount to the aggregate value of the underlying securities and although expense ratios for ETFs are generally low, frequent trading of ETFs by the Fund can generate brokerage expenses. Investments in smaller and medium-sized companies generally carry greater risk than is customarily associated with larger companies for various reasons such as narrower markets, limited financial resources and less liquid stock. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory Flexible Equity FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Shares | | Security Description | | Value $ | |
| | |
| Common Stocks — 94.0% | |
| | |
| Consumer Discretionary — 17.4% | |
| | | 54,798 | | Best Buy Co., Inc. | | | 2,338,231 | |
| | | 254,881 | | CarMax, Inc.* | | | 16,411,787 | |
| | | 17,453 | | Chipotle Mexican Grill, Inc.* | | | 6,585,366 | |
| | | 166,647 | | Lowe’s Companies, Inc. | | | 11,851,935 | |
| | | 9,433 | | Priceline Group, Inc.* | | | 13,829,344 | |
| | | 87,254 | | TJX Companies, Inc. | | | 6,555,393 | |
| | | 97,997 | | Walt Disney Co. | | | 10,213,247 | |
| | | | | | | | 67,785,303 | |
| Consumer Staples — 1.3% | |
| | | 48,941 | | PepsiCo, Inc. | | | 5,120,697 | |
| Energy — 4.8% | |
| | | 552,347 | | Kinder Morgan, Inc. | | | 11,439,106 | |
| | | 102,574 | | Occidental Petroleum Corp. | | | 7,306,346 | |
| | | | | | | | 18,745,452 | |
| Financials — 23.2% | |
| | | 84,840 | | Ameriprise Financial, Inc. | | | 9,412,150 | |
| | | 310,302 | | Bank of America Corp. | | | 6,857,674 | |
| | | 126,558 | | Berkshire Hathaway, Inc.* | | | 20,626,423 | |
| | | 329,737 | | Charles Schwab Corp. | | | 13,014,719 | |
| | | 137,163 | | JPMorgan Chase & Co. | | | 11,835,795 | |
| | | 510,553 | | Regions Financial Corp. | | | 7,331,541 | |
| | | 68,565 | | T. Rowe Price Group, Inc. | | | 5,160,202 | |
| | | 288,622 | | Wells Fargo & Co. | | | 15,905,959 | |
| | | | | | | | 90,144,463 | |
| Health Care — 11.1% | |
| | | 61,052 | | Aetna, Inc. | | | 7,571,058 | |
| | | 28,871 | | Anthem, Inc. | | | 4,150,784 | |
| | | 107,818 | | Edwards Lifesciences Corp.* | | | 10,102,547 | |
| | | 119,368 | | Express Scripts Holding Co.* | | | 8,211,325 | |
| | | 69,253 | | Merck & Co., Inc. | | | 4,076,924 | |
| | | 246,126 | | Teva Pharmaceutical Industries, Ltd. ADR | | | 8,922,067 | |
| | | | | | | | 43,034,705 | |
| Industrials — 6.8% | |
| | | 128,461 | | Canadian National Railway Co. | | | 8,658,271 | |
| | | 35,675 | | General Dynamics Corp. | | | 6,159,646 | |
| | | 47,950 | | United Rentals, Inc.* | | | 5,062,561 | |
| | | 59,486 | | United Technologies Corp. | | | 6,520,855 | |
| | | | | | | | 26,401,333 | |
| Information Technology — 29.4% | |
| | | 65,768 | | Accenture PLC | | | 7,703,406 | |
| | | 6,260 | | Alphabet, Inc. — Class A* | | | 4,960,737 | |
| | | 16,332 | | Alphabet, Inc. — Class C* | | | 12,605,364 | |
| | | 96,453 | | Apple, Inc. | | | 11,171,186 | |
| | | 187,219 | | eBay, Inc.* | | | 5,558,532 | |
| | | 57,753 | | Facebook, Inc.* | | | 6,644,483 | |
| | | 136,092 | | MasterCard, Inc. | | | 14,051,499 | |
| | | 173,341 | | Microsoft Corp. | | | 10,771,410 | |
| | | 137,924 | | PayPal Holdings, Inc.* | | | 5,443,860 | |
| | | 135,307 | | QUALCOMM, Inc. | | | 8,822,016 | |
| | | 240,778 | | Visa, Inc. | | | 18,785,500 | |
| | | 196,519 | | Yahoo, Inc.* | | | 7,599,390 | |
| | | | | | | | 114,117,383 | |
| Total Common Stocks (Cost $276,236,046) | | | 365,349,336 | |
| | |
| Real Estate Investment Trusts — 1.7% | |
| | | 76,302 | | Crown Castle International Corp. | | | 6,620,725 | |
| Total Real Estate Investment Trusts (Cost $5,671,213) | | | 6,620,725 | |
| | |
| Warrants — 0.1% | |
| | | 20,000 | | Wells Fargo & Co.*, Exercise | | | | |
| | | | | price $33.90 expires 10/28/2018 | | | 426,600 | |
| Total Warrants (Cost $221,299) | | | 426,600 | |
| | |
| Short-Term Investments — 4.0% | |
| | |
| Money Market Funds — 4.0% | |
| | | 12,849,594 | | Cash Account Trust — Government | | | | |
| | | | | & Agency Securities Portfolio — | | | | |
| | | | | Institutional Shares, 0.45%# | | | 15,473,111 | |
| Total Short-Term Investments (Cost $15,473,111) | | | 15,473,111 | |
| Total Investments — 99.8% (Cost $297,601,669) | | | 387,869,772 | |
| Other Assets in Excess of Liabilities — 0.2% | | | 911,714 | |
| NET ASSETS — 100.0% | | $ | 388,781,486 | |
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| | | | |
| Information Technology | | | 29.4 | % |
| Financials | | | 23.2 | % |
| Consumer Discretionary | | | 17.4 | % |
| Health Care | | | 11.1 | % |
| Industrials | | | 6.8 | % |
| Energy | | | 4.8 | % |
| Money Market Funds | | | 4.0 | % |
| Real Estate Investment Trusts | | | 1.7 | % |
| Consumer Staples | | | 1.3 | % |
| Warrants | | | 0.1 | % |
| Other Assets and Liabilities | | | 0.2 | % |
| | | | 100.0 | % |
ADR — American Depositary Receipt
| * | Non-Income Producing |
| # | Annualized seven-day yield as of December 31, 2016. |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Equity Income FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
During the six months ended December 31, 2016, the Brown Advisory Equity Income Fund Investor Shares (the “Fund”) increased 3.70% in value. During the same period, the S&P 500 Index, the Fund’s benchmark, increased 7.82%.
The S&P 500 Index was virtually flat leading up to the U.S. presidential election in November; however, share prices rose sharply in the days prior to and after the election. Investor sentiment shifted to hope that the incoming administration’s proposed policies will generate positive economic growth, reduce corporate taxes, and ease business-level regulatory scrutiny. Generally investors believe these elements will combine to produce a better environment for corporate profit growth in the U.S., and the subsequent rise in share prices reflected this rosy expectation.
On a sector basis, financials benefitted most from the positive shift in investor sentiment and led the benchmark higher with a dramatic 29% gain. The Fund’s financial holdings participated in the share price rally, but only JPMorgan Chase was able to exceed the benchmark’s performance. As a major money center bank, JPMorgan Chase stands to benefit from any future increases in interest rates, decreases in corporate taxes, and loosening of banking-related regulations. Other holdings failed to advance as sharply, most notably the Fund’s positions in insurance-related companies, leading to overall underperformance of the sector relative to the benchmark.
The industrial sector was also a strong performer during the period, benefitting from the brighter outlook for earnings growth and for the economy. A meaningful drop in the share price of Nielsen Holdings after lower-than-expected near-term earnings was a particular drag in the Fund’s industrial sector performance relative to the benchmark and led to relative underperformance for the sector as a whole. The outlook for Nielsen’s media audience measurement business, however, remains bright as the company is rolling out new products to better track and analyze mobile and digital viewership.
Information technology was the Fund’s best performing sector during the period and outperformed the benchmark’s performance. Dividend growth has been a hallmark of the Fund’s information technology holdings, and Microsoft, Automated Data Processing, and Accenture all raised their dividends meaningfully during the period. The information technology sector represents the Fund’s largest current sector weighting, partly because of the attractive outlook for sustained dividend increases during the next several years.
Additionally, the Fund benefitted from having no exposure to the telecommunication services and utilities sectors, which both declined in value over the period. In contrast to the information technology sector, future earnings and dividend growth prospects do not look attractive relative to current valuations in those two sectors.
During the period, the Fund added consumer discretionary holdings Home Depot and Lowe’s Companies. Behind increasing U.S. home prices and home expenditure budgets, both companies were attractively priced relative to their long-term earnings outlook and dividend growth. We also added cell tower operator American Tower on the basis of the company’s numerous positive investment attributes which include a durable and proven business model, steady cash flow and the potential for dividend growth. The company is committed to increasing its dividend payout to investors, which we believe will produce a high dividend growth rate during the next several years. There were no deletions to the portfolio during the period, so the overall level of cash dropped with the additions of Home Depot, Lowe’s, and American Tower.
A year ago, the economic and corporate earnings growth outlook was more muted, which set the stage for the stock market’s strong performance in 2016 as investor sentiment shifted from skepticism to optimism. Since forecasting such short-term sentiment shifts in investor attitudes is notoriously difficult, if not impossible, we believe the more profitable course is to focus on the discrete, business-level drivers that can lead to earnings growth and long-term shareholder value creation for stocks. Strong corporate earnings could help sustain and grow the cash that companies can pay out in dividends to shareowners. This orientation toward earnings and dividend stability—regardless of the economic and political environment – is the main element underpinning the Fund’s objective of seeking to build what we believe to be the best possible portfolio of investments that offer competitive yields with a strong potential for future growth at reasonable valuations.
Sincerely,
Brian Graney, CFA
Portfolio Manager
Brown Advisory Equity Income FundA Message to Our Shareholders
December 31, 2016
Past performance does not guarantee future results.
Mutual fund investing involves risk. Principal loss is possible. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in smaller and medium capitalization companies generally carry greater risk than is customarily associated with larger companies for various reasons such as narrower markets, limited financial resources and less liquid stock. The value of the Fund’s investments in REITs and Real Estate may change in response to changes in the real estate market such as declines in the value of real estate, lack of available capital or financing opportunities, and increases in property taxes or operating costs. The Fund may invest in ETFs, which may trade at a discount to the aggregate value of the underlying securities and although expense ratios for ETFs are generally low, frequent trading of ETFs by the Fund can generate brokerage expenses. Investments in foreign securities entail certain risks not associated with investments in domestic securities, such as volatility of currency exchange rates, and in some cases, political and economic instability and relatively illiquid markets. Investing in Master Limited Partnerships (“MLPs”) entails risk related to fluctuations in energy prices, decreases in supply of or demand for energy commodities, unique tax consequences due to the partnership structure and various other risks. Privately Placement issued securities are restricted securities that are not publicly traded. Delay or difficulty in selling such securities may result in a loss to the Fund.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory Equity Income FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Shares | | Security Description | | Value $ | |
| | |
| Common Stocks — 89.5% | |
| | |
| Consumer Discretionary — 11.0% | |
| | | 32,280 | | Best Buy Co., Inc. | | | 1,377,388 | |
| | | 8,978 | | Home Depot, Inc. | | | 1,203,770 | |
| | | 16,240 | | Lowe’s Companies, Inc. | | | 1,154,989 | |
| | | 28,448 | | McDonald’s Corp. | | | 3,462,690 | |
| | | 35,425 | | Target Corp. | | | 2,558,748 | |
| | | 48,148 | | V.F. Corp. | | | 2,568,696 | |
| | | | | | | | 12,326,281 | |
| Consumer Staples — 13.8% | |
| | | 85,860 | | Altria Group, Inc. | | | 5,805,853 | |
| | | 70,020 | | Coca-Cola Co. | | | 2,903,029 | |
| | | 43,173 | | Philip Morris International, Inc. | | | 3,949,898 | |
| | | 68,248 | | Unilever NV ADR | | | 2,802,263 | |
| | | | | | | | 15,461,043 | |
| Energy — 4.6% | |
| | | 59,384 | | Kinder Morgan, Inc. | | | 1,229,843 | |
| | | 31,250 | | Occidental Petroleum Corp. | | | 2,225,937 | |
| | | 50,464 | | Suncor Energy, Inc. | | | 1,649,668 | |
| | | | | | | | 5,105,448 | |
| Financials — 15.7% | |
| | | 24,131 | | Ameriprise Financial, Inc. | | | 2,677,093 | |
| | | 34,538 | | Cincinnati Financial Corp. | | | 2,616,254 | |
| | | 20,672 | | Erie Indemnity Co. | | | 2,324,566 | |
| | | 42,658 | | JPMorgan Chase & Co. | | | 3,680,959 | |
| | | 36,025 | | OneBeacon Insurance Group, Ltd. | | | 578,201 | |
| | | 63,816 | | Wells Fargo & Co. | | | 3,516,900 | |
| | | 17,183 | | Willis Towers Watson PLC | | | 2,101,137 | |
| | | | | | | | 17,495,110 | |
| Health Care — 11.4% | |
| | | 50,206 | | AbbVie, Inc. | | | 3,143,900 | |
| | | 26,104 | | Johnson & Johnson | | | 3,007,442 | |
| | | 38,913 | | Merck & Co., Inc. | | | 2,290,808 | |
| | | 39,771 | | Novartis AG ADR | | | 2,896,920 | |
| | | 39,342 | | Teva Pharmaceutical Industries, Ltd. ADR | | | 1,426,147 | |
| | | | | | | | 12,765,217 | |
| Industrials — 12.9% | |
| | | 11,008 | | General Dynamics Corp. | | | 1,900,641 | |
| | | 98,783 | | General Electric Co. | | | 3,121,543 | |
| | | 66,389 | | Healthcare Services Group, Inc. | | | 2,600,457 | |
| | | 63,702 | | Nielsen Holdings PLC | | | 2,672,299 | |
| | | 19,728 | | PACCAR, Inc. | | | 1,260,619 | |
| | | 26,132 | | United Technologies Corp. | | | 2,864,590 | |
| | | | | | | | 14,420,149 | |
| Information Technology — 18.9% | |
| | | 22,301 | | Accenture PLC | | | 2,612,116 | |
| | | 31,679 | | Apple, Inc. | | | 3,669,062 | |
| | | 36,054 | | Automatic Data Processing, Inc. | | | 3,705,630 | |
| | | 115,280 | | Cisco Systems, Inc. | | | 3,483,761 | |
| | | 79,341 | | Microsoft Corp. | | | 4,930,250 | |
| | | 41,343 | | QUALCOMM, Inc. | | | 2,695,564 | |
| | | | | | | | 21,096,383 | |
| Materials — 1.2% | |
| | | 11,036 | | Praxair, Inc. | | | 1,293,309 | |
| Total Common Stocks (Cost $69,840,069) | | | 99,962,940 | |
| | |
| Preferred Stocks — 2.1% | |
| | | 94,323 | | Public Storage, Inc. — Series S, 5.90% | | | 2,327,892 | |
| Total Preferred Stocks (Cost $2,256,044) | | | 2,327,892 | |
| | |
| Real Estate Investment Trusts — 5.7% | |
| | | 4,020 | | American Tower Corp. | | | 424,834 | |
| | | 52,437 | | W.P. Carey, Inc. | | | 3,098,502 | |
| | | 94,266 | | Weyerhaeuser Co. | | | 2,836,464 | |
| Total Real Estate Investment Trusts (Cost $5,874,476) | | | 6,359,800 | |
| | |
| Short-Term Investments — 2.5% | |
| | |
| Money Market Funds — 2.5% | |
| | | 2,796,489 | | Cash Account Trust — Government | | | | |
| | | | | & Agency Securities Portfolio — | | | | |
| | | | | Institutional Shares, 0.45%# | | | 2,796,489 | |
| Total Short-Term Investments (Cost $2,796,489) | | | 2,796,489 | |
| Total Investments — 99.8% (Cost $80,767,078) | | | 111,447,121 | |
| Other Assets in Excess of Liabilities — 0.2% | | | 236,331 | |
| NET ASSETS — 100.0% | | $ | 111,683,452 | |
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| | | | |
| Information Technology | | | 18.9 | % |
| Financials | | | 15.7 | % |
| Consumer Staples | | | 13.8 | % |
| Industrials | | | 12.9 | % |
| Health Care | | | 11.4 | % |
| Consumer Discretionary | | | 11.0 | % |
| Real Estate Investment Trusts | | | 5.7 | % |
| Energy | | | 4.6 | % |
| Money Market Funds | | | 2.5 | % |
| Preferred Stocks | | | 2.1 | % |
| Materials | | | 1.2 | % |
| Other Assets and Liabilities | | | 0.2 | % |
| | | | 100.0 | % |
ADR — American Depositary Receipt
| # | Annualized seven-day yield as of December 31, 2016. |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Sustainable Growth FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
During the six months ended December 31, 2016, the Brown Advisory Sustainable Growth Fund Advisor Shares (the “Fund”) increased 3.58% in value. During the same period, the Russell 1000 Growth Index, the Fund’s benchmark, increased 5.64%.
The Fund’s relative underperformance was primarily due to weakness in information technology and consumer discretionary. Our underweight in financials was also a contributing factor. Similar to past periods, the performance over the past six months is not the result of any macro risk factor or one-time event that our portfolio was positioned for or against. As our clients have come to expect, our stock selection drives performance. The most recent performance, though disappointing relative to our benchmark, is no different.
The Fund retreated from earlier gains marked by the acquisition of three of our portfolio companies: Softbank completed the acquisition of ARM Holdings, Danone announced its intention to purchase Whitewave, and Qualcomm seeks regulatory approval of its bid for NXP Semiconductors (NXPI). In all three cases, the management teams of the acquiring companies were attracted to the target company’s strong fundamentals and sustainability drivers – ARM Holdings’ energy efficient chip designs, Whitewave’s natural and organic, clean-labeled foods, and NXPI Semiconductors’ enhanced auto efficiency and safety.
ARM Holdings and Whitewave were two of our best performing stocks in the period given the large premiums paid by the acquirers. Also among our best performers were IDEXX Laboratories and United Health. IDEXX’s successful transition to a direct-sales model and the company’s innovative product pipeline helped propel strong organic growth. UnitedHealth is a recent addition from earlier in calendar year 2016, and the full position we took is already paying off. The proprietary data and analytical capabilities of its Optum business demonstrably improve patient outcomes. Despite difficult and unpredictable operating environments for insurers, Optum offers a compelling customer value proposition and thus a durable competitive advantage for UnitedHealth.
Two of our other healthcare names, in contrast, were among our largest detractors to performance. Bristol-Myers Squibb Company (BMY) missed its primary endpoint in its first-line lung cancer trial (CheckMate-026) for Opdivo. BMY’s failure means Merck is now firmly in the lead in immuno-oncology and it may open up room for new entrants. The news violated our investment thesis in BMY as we expected it to remain the leader in the immuno-oncology market. We exited our position during the period. Cerner’s core end-market, digital medical record technology, is slowing due to saturation. While the company has done an admirable job diversifying its revenue base, competition within these new markets is extremely intense. We do not believe Cerner will be able to offset the slowdown in its medical records business thus we exited the stock.
Overall, the take-out of three of our companies drove an unusually high degree of turnover in the Fund, and in total we added seven positions and exited seven positions. The new names include: Ball Corporation, Edwards Lifesciences, TreeHouse Foods, Microsoft Corporation, Tyler Technologies, and Healthcare Services Group. Finally, Fortive, a spin-off from Danaher, is the seventh addition. Fortive has two primary platforms – professional instrumentation and industrial technology. We are bullish on the management team and the corporate culture given the long tenure within Danaher – a company we hold in high regard – and we elected to retain our position in Fortive.
Ball Corporation is one of the world’s leading, global suppliers of metal packaging to the beverage, food and household products industries. Metal packaging is the most recycled packaging in the world – aluminum and steel are indefinitely recyclable. Furthermore, Ball has a long track-record of sustainability in its operations.
Edwards Lifesciences is the world’s leading manufacturer of heart valve systems and repair products used to replace or repair a patient’s diseased heart valve. Edwards’ transcatheter aortic valve replacement (TAVR) reduces hospital stays and readmission rates relative to open heart surgery which is a strong sustainability driver.
TreeHouse Foods is the nation’s largest private label food and beverage manufacturer. The company recently acquired ConAgra’s Private Brands business thereby doubling the size of the business. We are attracted to its fast-growing organic and natural foods categories which are contributing positively to TreeHouse’s overall growth.
Microsoft is a leading developer of software and hardware services. The company’s public cloud platform, Azure, is more energy efficient relative to hosting infrastructure in-house. Microsoft has been operating as a carbon neutral company since 2012 after instituting an internal carbon fee.
Brown Advisory Sustainable Growth FundA Message to Our Shareholders
December 31, 2016
Tyler Technologies is a leading provider of integrated software solutions to local government offices throughout the country. Tyler’s sustainability driver is its ability to make local governments more efficient and less wasteful. For instance, a number of Tyler’s solutions simplify the filing and management of court documents and move transactions online thereby eliminating paper waste.
Healthcare Services Group provides operating management expertise to the housekeeping, laundry linen and facility management departments of the health care industry. It is the industry leader with a long runway ahead for growth. Given management’s expertise, Healthcare Services Group has a long history of improving the environmental outcomes of the facilities it serves.
We eliminated Alexion given the unexpected departure of the CEO and the CFO. We eliminated Cerner and Canadian National given we anticipate slower future growth rates. We redeployed the proceeds, in part, into Microsoft, Ball, Tyler and Edwards Lifesciences – companies that we believe have strong fundamental characteristics and sustainability drivers.
While our relative underperformance this period was disappointing, we are not myopic regarding short-term performance –whether good or bad. We are not surprised that some of our holdings are coveted by acquirers but far from targeting take-out candidates, we maintain our disciplined process of discerning high quality names poised for steady success even in uncertain operating environments. After all, sustainable growth requires management teams to be resilient against many challenges – including constraints on the natural environment and resources. Our deep sustainability research helps us identify the companies that have been making the right long-term investments, for many years now, toward their own long-term sustainability and growth.
While we enter calendar year 2017 with considerable macroeconomic and political uncertainty, we will maintain focus on our disciplined, repeatable formula for stock selection which we believe has the potential to provide attractive long-term returns.
Sincerely,
Karina Funk, CFA
Portfolio Manager
David Powell, CFA
Portfolio Manager
Past performance is not a guarantee of future results.
Mutual fund investing involves risk. Principal loss is possible. The Fund’s investment focus on environmental factors could cause it to make or avoid investments that could result in the Fund underperforming similar funds that do not have an environmental focus. Investments in smaller and medium-sized capitalization companies generally carry greater risk than is customarily associated with larger companies for various reasons such as narrower markets, limited financial resources and less liquid stock. Investments in foreign securities entail certain risks not associated with investments in domestic securities, such as volatility of currency exchange rates, and in some cases, political and economic instability and relatively illiquid markets. These risks are greater for investments in emerging markets. The value of the Fund’s investments in REITS may change in response to changes in the real estate market such as declines in the value of real estate, lack of available capital or financing opportunities, and increases in property taxes or operating costs.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory Sustainable Growth FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Shares | | Security Description | | Value $ | |
| | |
| Common Stocks — 92.2% | |
| | |
| Consumer Discretionary — 10.7% | |
| | | 21,969 | | Amazon.com, Inc.* | | | 16,473,894 | |
| | | 108,198 | | Nike, Inc. | | | 5,499,704 | |
| | | 141,949 | | Starbucks Corp. | | | 7,881,009 | |
| | | 107,485 | | TJX Companies, Inc. | | | 8,075,348 | |
| | | | | | | | 37,929,955 | |
| Consumer Staples — 1.7% | |
| | | 82,681 | | TreeHouse Foods, Inc.* | | | 5,968,741 | |
| Health Care — 17.7% | |
| | | 165,479 | | Danaher Corp. | | | 12,880,885 | |
| | | 88,386 | | Edwards Lifesciences Corp.* | | | 8,281,768 | |
| | | 61,409 | | IDEXX Laboratories, Inc.* | | | 7,201,434 | |
| | | 20,566 | | Mettler-Toledo International, Inc.* | | | 8,608,105 | |
| | | 83,125 | | Thermo Fisher Scientific, Inc. | | | 11,728,938 | |
| | | 89,059 | | UnitedHealth Group, Inc. | | | 14,253,002 | |
| | | | | | | | 62,954,132 | |
| Industrials — 23.0% | |
| | | 215,560 | | A.O. Smith Corp. | | | 10,206,766 | |
| | | 40,395 | | Acuity Brands, Inc. | | | 9,325,590 | |
| | | 147,408 | | Fortive Corp. | | | 7,905,491 | |
| | | 230,561 | | Healthcare Services Group, Inc. | | | 9,031,074 | |
| | | 176,068 | | Hexcel Corp. | | | 9,056,938 | |
| | | 90,109 | | J.B. Hunt Transport Services, Inc. | | | 8,746,880 | |
| | | 67,991 | | Middleby Corp.* | | | 8,757,921 | |
| | | 127,682 | | Verisk Analytics, Inc.* | | | 10,363,948 | |
| | | 99,998 | | Wabtec Corp. | | | 8,301,834 | |
| | | | | | | | 81,696,442 | |
| Information Technology — 33.5% | |
| | | 127,800 | | Adobe Systems, Inc.* | | | 13,157,010 | |
| | | 100,162 | | Akamai Technologies, Inc.* | | | 6,678,802 | |
| | | 19,791 | | Alphabet, Inc. — Class A* | | | 15,683,378 | |
| | | 2,487 | | Alphabet, Inc. — Class C* | | | 1,919,516 | |
| | | 113,991 | | Facebook, Inc.* | | | 13,114,665 | |
| | | 90,524 | | Intuit, Inc. | | | 10,374,956 | |
| | | 237,057 | | Microsoft Corp. | | | 14,730,722 | |
| | | 77,904 | | NXP Semiconductors NV* | | | 7,635,371 | |
| | | 135,005 | | Red Hat, Inc.* | | | 9,409,848 | |
| | | 76,775 | | salesforce.com, Inc.* | | | 5,256,017 | |
| | | 37,003 | | Tyler Technologies, Inc.* | | | 5,282,918 | |
| | | 200,677 | | Visa, Inc. | | | 15,656,820 | |
| | | | | | | | 118,900,023 | |
| Materials — 5.6% | |
| | | 129,953 | | Ball Corp. | | | 9,755,572 | |
| | | 85,161 | | Ecolab, Inc. | | | 9,982,572 | |
| | | | | | | | 19,738,144 | |
| Total Common Stocks (Cost $242,176,294) | | | 327,187,437 | |
| | |
| Real Estate Investment Trusts — 3.7% | |
| | | 122,958 | | American Tower Corp. | | | 12,994,201 | |
| Total Real Estate Investment Trusts (Cost $11,695,266) | | | 12,994,201 | |
| | | | | | | | | |
| Short-Term Investments — 3.8% | |
| | |
| Money Market Funds — 3.8% | |
| | | 13,353,192 | | Cash Account Trust — Government | | | | |
| | | | | & Agency Securities Portfolio — | | | | |
| | | | | Institutional Shares, 0.45%# | | | 13,353,192 | |
| Total Short-Term Investments (Cost $13,353,192) | | | 13,353,192 | |
| Total Investments — 99.7% (Cost $267,224,752) | | | 353,534,830 | |
| Other Assets in Excess of Liabilities — 0.3% | | | 1,127,211 | |
| NET ASSETS — 100.0% | | $ | 354,662,041 | |
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| | | | |
| Information Technology | | | 33.5 | % |
| Industrials | | | 23.0 | % |
| Health Care | | | 17.7 | % |
| Consumer Discretionary | | | 10.7 | % |
| Materials | | | 5.6 | % |
| Money Market Funds | | | 3.8 | % |
| Real Estate Investment Trusts | | | 3.7 | % |
| Consumer Staples | | | 1.7 | % |
| Other Assets and Liabilities | | | 0.3 | % |
| | | | 100.0 | % |
| * | Non-Income Producing |
| # | Annualized seven-day yield as of December 31, 2016. |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Small-Cap Growth FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
During the six months ended December 31, 2016, the Brown Advisory Small-Cap Growth Fund Investor Shares (the “Fund”) increased 6.75% in value. During the same period, the Russell 2000 Growth Index, the Fund’s benchmark, increased 13.12%.
The portfolio performed well for the first four months of this period largely due to stock-specific performance. In the wake of the U.S. presidential election, however, the last two months of 2016 were a very challenging period for the Fund and erased our relative gains, leading to underperformance for the time period. While several stocks certainly detracted from results, the dominant factor impacting the portfolio was the political “regime change” and subsequent shift in sentiment driven by speculation about the incoming Trump administration.
The small-cap market appears to be fairly valued, assuming economic growth materializes in the same manner as the market is projecting and corporate tax relief passes. It may be fully valued if some of the potential positives mentioned earlier fail to materialize. We are encouraged by an apparent improvement in small-cap earnings growth and an emerging relative opportunity in our favored “compounders.”
Three of our top-five contributors during the period were in information technology. Cavium, the largest contributor to performance, was up on second quarter earnings. Interactive Intelligence (ININ), another top contributor, was up after the September announcement that Genesys agreed to acquire the company in an all-cash deal for $60.50 per share. The deal represented a 36% premium to ININ’s stock price on July 28, 2016, the trading day prior to media reports that ININ had hired an advisory firm to explore strategic alternatives. MACOM Technology, ESCO technologies, and IDEXX Laboratories were additional contributors.
There was no apparent theme to the detractors for the trailing six months. Liberty TripAdvisor, which represents the majority voting control stake of TripAdvisor, was the largest detractor during the period. The company is undergoing a business model transition we believe has the potential to be incredibly positive in the upcoming years; however, the transition has taken longer than our original expectations. We still believe our investment thesis remains sound and view 2017 as a pivotal year in verifying the underlying value drivers we see in the holding. The second largest detractor, Diplomat Pharmacy, declined on the surprising news that a once insignificant – and thus undisclosed – fee charged by pharmacy benefit managers had suddenly ballooned into a massive short-term and intermediate-term hit to cash flow. Absent this dramatic fee change, we believe the financial results were largely in-line with embedded expectations. TreeHouse Foods shares declined based on tempered expectations around its acquisition of ConAgra’s Private Brands business.
Reflecting a healthy pipeline of ideas driven by a productive team effort, we added a number of new holdings during the last six months. The recent additions replaced companies eliminated due to M&A activity, those which were lower conviction in our original investment thesis, or those who reached our long-term price objectives.
Our investment philosophy has not changed and we are pleased with the historical evidence of its effectiveness. We practice a bottom-up, long-term, disciplined approach to finding, owning and closely monitoring a diverse collection of companies whose businesses have the potential to compound from small- to mid- to large-cap status. In order to raise the probability of our companies making this journey, we seek businesses that possess what we call “3G” characteristics: durable growth, sound governance and scalable go-to-market strategies. The byproduct of this approach is a quality-focused portfolio seeking high active share versus our benchmark. We seek to match or exceed benchmark performance during robust market periods through well-timed and appropriately weighted individual investments, while attempting to mitigate downside risk through careful portfolio construction. We acknowledge that with the additional capital flowing into small-cap indices and ETFs since the end of the Great Recession, this philosophy appears to be producing modestly higher short-run variance versus our benchmark; however, we still believe we are on the right path to producing attractive risk-adjusted absolute and relative returns over a full market cycle. Our team will continue to work hard in seeking to position the portfolio to weather whatever we face on the road ahead.
Sincerely,
Christopher A. Berrier
Portfolio Manager
Brown Advisory Small-Cap Growth FundA Message to Our Shareholders
December 31, 2016
Past performance is not a guarantee of future results.
Mutual fund investing involves risk. Principal loss is possible. Investments in smaller companies generally carry greater risk than is customarily associated with larger companies for various reasons such as narrower markets, limited financial resources and less liquid stock. The value of the Fund’s investments in REITs may change in response to changes in the real estate market such as declines in the value of real estate, lack of available capital or financing opportunities, and increases in property taxes or operating costs. The Fund may invest in ETFs, which may trade at a discount to the aggregate value of the underlying securities and although expense ratios for ETFs are generally low, frequent trading of ETFs by the Fund can generate brokerage expenses. Earnings growth is not representative of the fund’s future performance. Diversification does not assure a profit, nor does it protect against a loss in a declining market. Investments in foreign securities entail certain risks not associated with investments in domestic securities, such as volatility of currency exchange rates, and in some cases, political and economic instability and relatively illiquid markets. These risks are greater for investments in emerging markets. Privately Placement issued securities are restricted securities that are not publicly traded. Delay or difficulty in selling such securities may result in a loss to the Fund.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory Small-Cap Growth FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Shares | | Security Description | | Value $ | |
| | |
| Common Stocks — 92.8% | |
| | |
| Consumer Discretionary — 20.4% | |
| | | 319,085 | | Black Diamond, Inc.* | | | 1,707,105 | |
| | | 167,820 | | Bright Horizons Family Solutions, Inc.* | | | 11,750,756 | |
| | | 317,471 | | Carrols Restaurant Group, Inc.* | | | 4,841,433 | |
| | | 134,836 | | Core-Mark Holding Co., Inc. | | | 5,807,386 | |
| | | 101,837 | | Cotiviti Holdings, Inc.* | | | 3,503,193 | |
| | | 124,237 | | DigitalGlobe, Inc.* | | | 3,559,390 | |
| | | 27,084 | | Expedia, Inc. | | | 3,068,076 | |
| | | 344,322 | | Genpact, Ltd.* | | | 8,380,798 | |
| | | 229,814 | | Liberty Media Corp.* | | | 7,204,669 | |
| | | 831,676 | | Liberty TripAdvisor Holdings, Inc.* | | | 12,516,724 | |
| | | 89,961 | | Liberty Ventures* | | | 3,316,862 | |
| | | 279,643 | | Lindblad Expeditions Holdings, Inc.* | | | 2,642,626 | |
| | | 92,926 | | MakeMyTrip, Ltd.* | | | 2,062,957 | |
| | | 96,194 | | Papa John’s International, Inc. | | | 8,232,283 | |
| | | 38,688 | | PriceSmart, Inc. | | | 3,230,448 | |
| | | 118,131 | | SiteOne Landscape Supply, Inc.* | | | 4,102,690 | |
| | | | | | | | 85,927,396 | |
| Consumer Staples — 1.5% | |
| | | 87,616 | | TreeHouse Foods, Inc.* | | | 6,324,999 | |
| Financials — 3.9% | |
| | | 213,813 | | ConnectOne Bancorp, Inc. | | | 5,548,447 | |
| | | 133,613 | | Envestnet, Inc.* | | | 4,709,858 | |
| | | 85,687 | | Prosperity Bancshares, Inc. | | | 6,150,613 | |
| | | | | | | | 16,408,918 | |
| Health Care — 13.6% | |
| | | 77,013 | | Acceleron Pharma, Inc.* | | | 1,965,372 | |
| | | 26,462 | | Agios Pharmaceuticals, Inc.* | | | 1,104,259 | |
| | | 107,269 | | Alder Biopharmaceuticals, Inc.* | | | 2,231,195 | |
| | | 94,730 | | BeiGene, Ltd. ADR* | | | 2,876,003 | |
| | | 61,443 | | Catalent, Inc.* | | | 1,656,503 | |
| | | 145,046 | | Charles River Laboratories International, Inc.* | | | 11,051,055 | |
| | | 67,911 | | Coherus BioSciences, Inc.* | | | 1,911,695 | |
| | | 104,914 | | Diplomat Pharmacy, Inc.* | | | 1,321,916 | |
| | | 42,099 | | Henry Schein, Inc.* | | | 6,386,839 | |
| | | 71,248 | | IDEXX Laboratories, Inc.* | | | 8,355,253 | |
| | | 6,859 | | Incyte Corp.* | | | 687,752 | |
| | | 16,123 | | Laboratory Corp. of America Holdings* | | | 2,069,871 | |
| | | 104,773 | | Medidata Solutions, Inc.* | | | 5,204,075 | |
| | | 81,999 | | Neurocrine Biosciences, Inc.* | | | 3,173,361 | |
| | | 172,827 | | Novadaq Technologies, Inc.* | | | 1,225,343 | |
| | | 114,017 | | Teladoc, Inc.* | | | 1,881,281 | |
| | | 60,042 | | Ultragenyx Pharmaceutical, Inc.* | | | 4,221,553 | |
| | | | | | | | 57,323,326 | |
| Industrials — 19.3% | |
| | | 152,808 | | ESCO Technologies, Inc. | | | 8,656,573 | |
| | | 182,409 | | Healthcare Services Group, Inc. | | | 7,144,961 | |
| | | 121,372 | | HEICO Corp. | | | 9,363,850 | |
| | | 197,268 | | Hexcel Corp. | | | 10,147,466 | |
| | | 70,669 | | IDEX Corp. | | | 6,364,450 | |
| | | 78,517 | | KEYW Holding Corp.* | | | 925,715 | |
| | | 213,137 | | Knight Transportation, Inc. | | | 7,044,178 | |
| | | 64,408 | | WageWorks, Inc.* | | | 4,669,580 | |
| | | 226,212 | | Waste Connections, Inc. | | | 17,778,001 | |
| | | 134,545 | | Woodward, Inc. | | | 9,290,332 | |
| | | | | | | | 81,385,106 | |
| Information Technology — 29.3% | |
| | | 127,958 | | 2U, Inc.* | | | 3,857,934 | |
| | | 122,569 | | Aspen Technology, Inc.* | | | 6,702,073 | |
| | | 122,563 | | Blackbaud, Inc. | | | 7,844,032 | |
| | | 148,873 | | Broadridge Financial Solutions, Inc. | | | 9,870,280 | |
| | | 301,490 | | BroadSoft, Inc.* | | | 12,436,463 | |
| | | 168,071 | | Cavium, Inc.* | | | 10,494,353 | |
| | | 104,554 | | CoreLogic, Inc.* | | | 3,850,724 | |
| | | 9,066 | | CoStar Group, Inc.* | | | 1,708,850 | |
| | | 72,022 | | Electronics For Imaging, Inc.* | | | 3,158,885 | |
| | | 53,892 | | Fair Isaac Corp. | | | 6,425,004 | |
| | | 36,472 | | Global Payments, Inc. | | | 2,531,522 | |
| | | 85,449 | | Guidewire Software, Inc.* | | | 4,215,199 | |
| | | 211,008 | | MACOM Technology Solutions Holdings, Inc.* | | | 9,765,450 | |
| | | 123,542 | | MAXIMUS, Inc. | | | 6,892,408 | |
| | | 135,701 | | Mimecast, Ltd.* | | | 2,429,048 | |
| | | 155,929 | | Monotype Imaging Holdings, Inc. | | | 3,095,191 | |
| | | 13,856 | | Nutanix, Inc.* | | | 368,015 | |
| | | 40,035 | | Paylocity Holding Corp.* | | | 1,201,450 | |
| | | 24,786 | | Pegasystems, Inc. | | | 892,296 | |
| | | 31,616 | | Proofpoint, Inc.* | | | 2,233,670 | |
| | | 92,206 | | SPS Commerce, Inc.* | | | 6,444,277 | |
| | | 145,712 | | Synchronoss Technologies, Inc.* | | | 5,580,770 | |
| | | 43,352 | | Ultimate Software Group, Inc.* | | | 7,905,237 | |
| | | 35,581 | | WEX, Inc.* | | | 3,970,840 | |
| | | | | | | | 123,873,971 | |
| Telecommunication Services — 4.8% | |
| | | 373,004 | | Cogent Communications Holdings, Inc. | | | 15,423,716 | |
| | | 781,338 | | Global Eagle Entertainment, Inc.* | | | 5,047,443 | |
| | | | | | | | 20,471,159 | |
| Total Common Stocks (Cost $304,409,796) | | | 391,714,875 | |
| | |
| Contingent Value Rights — 0.0% | |
| | | 118,191 | | Dyax Corp.*†` | | | 131,192 | |
| Total Contingent Value Rights (Cost $131,192) | | | 131,192 | |
| | |
| Private Placements — 0.6% | |
| | | 18,800 | | Greenspring Global Partners IV-B, L.P*†^ | | | 2,618,235 | |
| | | 82,769 | | Greenspring Global Partners V-B, L.P.*†~ | | | 125,441 | |
| Total Private Placements (Cost $417,713) | | | 2,743,676 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Small-Cap Growth FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Shares | | Security Description | | Value $ | |
| | |
| Short-Term Investments — 7.7% | |
| | |
| Money Market Funds — 7.7% | |
| | | 32,356,817 | | Cash Account Trust — Government | | | |
| | | | | & Agency Securities Portfolio — | | | |
| | | | | Institutional Shares, 0.45%# | | | 32,356,817 | |
| Total Short-Term Investments (Cost $32,356,817) | | | 32,356,817 | |
| Total Investments — 101.1% (Cost $337,315,518) | | | 426,946,560 | |
| Liabilities in Excess of Other Assets — (1.1)% | | | (4,755,048 | ) |
| NET ASSETS — 100.0% | | $ | 422,191,512 | |
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| | | | |
| Information Technology | | | 29.3 | % |
| Consumer Discretionary | | | 20.4 | % |
| Industrials | | | 19.3 | % |
| Health Care | | | 13.6 | % |
| Money Market Funds | | | 7.7 | % |
| Telecommunication Services | | | 4.8 | % |
| Financials | | | 3.9 | % |
| Consumer Staples | | | 1.5 | % |
| Private Placements | | | 0.6 | % |
| Contingent Value Rights | | | 0.0 | % |
| Other Assets and Liabilities | | | (1.1 | )% |
| | | | 100.0 | % |
| ^ | Security is exempt from registration under Regulation D of the Securities Act of 1933. Security is fair valued under the supervision of the Board of Trustees and was acquired from February 2008 to August 2016 as part of a $2,000,000 capital commitment. At December 31, 2016, $1,880,000 of the capital commitment has been fulfilled by the Fund. |
| ~ | Security is exempt from registration under Regulation D of the Securities Act of 1933. Security is fair valued under the supervision of the Board of Trustees and was acquired from October 2012 to July 2016 as part of a $100,000 capital commitment. At December 31, 2016, $82,000 of the capital commitment has been fulfilled by the Fund. |
| † | These securities may not be sold by the Fund and are considered illiquid. At December 31, 2016 the total market value of securities considered illiquid was $2,874,868 or 0.7% of net assets. |
| ` | Security is fair valued under supervision of the Board of Trustees |
| ADR — American Depositary Receipt |
| * | Non-Income Producing |
| # | Annualized seven-day yield as of December 31, 2016. |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Small-Cap Fundamental Value FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
During the six months ended December 31, 2016, the Brown Advisory Small-Cap Fundamental Value Fund Investor Shares (the “Fund”) increased 16.50% in value. During the same period, the Russell 2000 Value Index (“the Index”), the Fund’s benchmark, increased 24.19%.
The Fund had a strong six months on an absolute basis, but trailed its benchmark. Given the rapid rise in the market, we were pleased to participate as meaningfully in the rally as we did. As the markets fell during October, we outperformed on a relative basis; however, as the Index made its major move upward in November post-election, the Fund experienced the bulk of its underperformance for the period.
Synovus Financial was the Fund’s largest contributor to performance during the six-month period. Synovus saw strength as the financial services sector, specifically banks, strongly outperformed the broader indices post-election. Large inflows into the sector from investors speculating that banks would benefit from rising rates drove outperformance following an otherwise uneventful year from a fundamental perspective. Virtus, another top performer, announced the repurchase of nearly 23% of its outstanding shares from Bank of Montreal, which had sponsored Virtus’ initial spin-off transaction. This buyback was in addition to the tender offer earlier in the year and its ongoing repurchase plan. The transaction price was at a discount to the then-current market price and funded by existing cash – a highly accretive transaction. Lastly, EchoStar outperformed due to the anticipation of four satellite launches taking place from the fourth quarter of 2016 through the first half of 2017. The EchoStar 19 satellite, which provides additional capacity to allow the firm to expand its consumer broadband subscriber base, launched successfully December 18.
The largest detractor from performance was Murphy USA whose decline stemmed from two factors: (i) weaker-than-expected third quarter results driven by Louisiana flooding and supply disruptions along the Colonial Pipeline, and (ii) post-election concerns about what a Trump presidency will mean for Renewable Identification Number (RIN) pricing. While we believe the first to be transient in nature, RINs have been an unexpected outsized contributor to Murphy’s EBITDA. We remain confident in the company’s core operations and have underwritten our investment based on lower future RIN contribution than we have seen to date.
Forest City (FCE) was a detractor in the period due to an unexpected third quarter impairment charge from their Pacific Park development project. The market’s rotation out of REITs and other interest rate-sensitive stocks exacerbated the challenge. The impairment on the project, a multi-stage residential development adjacent to the Barclays Center in Brooklyn, NY, was due to a revised project timeline and the emergence of competing new supply over recent quarters. This charge takes the carrying value of Pacific Park on FCE’s books to zero for accounting purposes; we believe the project will ultimately prove to be value-creating. After the third quarter results, the company announced the collapsing of the A/B share class structure – set to take place in 2017. We believe this positive corporate governance step will serve as a new lever to reduce the steep discount to NAV at which FCE continues to trade. As such, we continue to see a path to meaningful value creation from the current price and added to our position in the quarter.
The Fund added eight companies during the six-month period, including: Nexstar Broadcasting Group, Xenia Hotels & Resorts, and Continental Building Products. Nexstar is one of the largest local broadcasting companies in the U.S. With its acquisition of Media General – expected to close in January 2017 – Nexstar will own more than 150 TV stations in 100 markets and related digital properties. The company is diversifying away from local advertising revenues with almost half of EBITDA now generated from other sources, largely carriage fees and digital advertising. With high free cash flow conversion and declining leverage, we believe Nexstar should be generating excess cash flow within 18 months of the Media General transaction and potentially much sooner than that if the company generates proceeds from the spectrum auction. With the stock trading at seven-times EBITDA, we believe the valuation is attractive.
Xenia Hotels & Resorts is a lodging REIT that owns a portfolio of 46 hotels across 17 states, operated mostly by large independent management companies such as Marriott, Kimpton and Hilton. For over a year, Xenia’s stock has been hit by concerns of broader RevPAR (revenue per available room) deceleration in the U.S., and specifically its outsized (11%) exposure to the Houston market. As such, Xenia now trades at what we think is a near-trough multiple. At current prices, we believe we are paying an attractive price for the company and getting its Houston assets essentially for free. Further, the company has a strong track record of capital allocation, having sold some hotel assets for attractive multiples and using proceeds to repurchase stock at a discount to NAV. We believe their low leverage, management’s capital allocation track record, and the steep disconnect between intrinsic value and stock price all protect our downside.
Continental Building Products (CPBX) is a leading producer of gypsum wallboard and complementary finishing products in the United States and Canada. The company is a top-five player nationally (10% share); however, wallboard’s high “weight to value” ratio forces the industry to operate more at the local level. CBPX is a market leader east of the Mississippi with an estimated 30-35% in some key major metropolitan markets. Its former parent company, Lafarge, built the business through acquisitions and greenfield expansion, spending over $575m in capital expenditures over its 17 years of ownership before selling it to private equity
Brown Advisory Small-Cap Fundamental Value FundA Message to Our Shareholders
December 31, 2016
in 2013. That capital spend has left CBPX with some of the newest and most cost-efficient capacity in the industry that requires very little in terms of sustaining capital expenditures (2% of sales) going forward. With EBITDA margins near 30%, we expect free cash flow conversion to remain high for the foreseeable future. The stock has traded at a discount to the rest of the building products group and has had a 10% free cash flow yield. Following second quarter results, CBPX refinanced its $275 million senior secured term loan, lowering its interest rate and pushing the maturity out to 2023. We believe that with net debt / EBITDA now below two-times, minimal capital expenditure needs for the foreseeable future, and very little appetite for M&A, the vast majority of free cash flow should be returned to shareholders through buybacks going forward.
Over the six-month period, there were six deletions from the Fund, including: Diamond Resorts, Electro Rent, and Patriot National due to M&A transactions. Diamond Resorts was acquired by affiliates of private equity firm Apollo Global Management for $2.2 billion. Announced June 29 at a takeout price of $30.25, the deal represented a 26% premium over the prior day’s close and a 58% premium over the closing price on February 24, 2016 – the day prior to Diamond Resort’s announcement that it was exploring strategic alternatives. The transaction was structured as a tender offer and was completed on September 2, 2016. Electro Rent agreed to be purchased by private equity firm Platinum Equity for $13.12 per share. Following that announcement, Electro Rent was approached by a third party with a counter bid, causing Platinum to raise their offer to $15.50 – the ultimate selling price in August. Patriot National announced that it had received an enhanced offer from Ebix following a $9.50 per share offer announced in June. We took advantage of strength to finish exiting the position.
We also eliminated Liberty Global Plc Lilac Group (LiLAC) because of the distribution of the parent company Liberty Global’s interest in the Cable & Wireless Communications acquisition. Following this distribution, LiLAC market capitalization was well above our target range and, more critically, the pro forma leverage exceeded our comfort level. We eliminated our remaining position in RigNet because of growing concerns about the new management team’s strategy to diversify into other adjacent businesses such as marine, mining, and government communications. Historically, these adjacent markets are much more competitive and have significantly lower margin and return profiles than offshore energy. We believe this strategy involves a substantial amount of execution risk and therefore we decided to exit our remaining stake. Finally, we exited Destination Maternity after the company accepted a stock-for-stock buyout offer from Orchestra Prémaman S.A, a French-based retailer of children’s and maternity apparel. In addition to Orchestra’s stock being highly illiquid, we saw an increasing risk to Destination Maternity’s declining fundamentals and an unclear capital allocation strategy from Orchestra Prémaman.
2016 was a tumultuous year. The year started with extreme pessimism and fear among investors, but ended with unbridled optimism. This year, just like in years past, we will continue to do what we believe will work over the long run: find underappreciated companies that have generated consistent cash flows and that trade at what we believe to be attractive valuations.
Sincerely,
J. David Schuster
Portfolio Manager
Past performance is not a guarantee of future results.
Investments in smaller companies generally carry greater risk than is customarily associated with larger companies for various reasons such as narrower markets, limited financial resources and less liquid stock. The value of the Fund’s investments in REITs may change in response to changes in the real estate market such as declines in the value of real estate, lack of available capital or financing opportunities, and increases in property taxes or operating costs. The Fund may invest in ETFs, which may trade at a discount to the aggregate value of the underlying securities and although expense ratios for ETFs are generally low, frequent trading of ETFs by the Fund can generate brokerage expenses. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in foreign securities entail certain risks not associated with investments in domestic securities, such as volatility of currency exchange rates, and in some cases, political and economic instability and relatively illiquid markets. These risks are greater for investments in emerging markets. The risks of investments in derivatives, including options, futures contracts and options on futures contracts include imperfect correlation between the value of these instruments and the underlying assets; risks of default by the other party to the derivative transactions; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions; and risks that the derivative transactions may not be liquid. Private Placement issued securities are restricted securities that are not publicly traded. Delay or difficulty in selling such securities may result in a loss to the Fund. Earnings growth is not a measure of the Fund’s future performance.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory Small-Cap Fundamental Value FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Shares | | Security Description | | Value $ | |
| | |
| Common Stocks — 86.1% | |
| | |
| Consumer Discretionary — 15.5% | |
| | | 74,221 | | Carriage Services, Inc. | | | 2,125,689 | |
| | | 183,492 | | Cato Corp. | | | 5,519,439 | |
| | | 659,043 | | Core-Mark Holding Co., Inc. | | | 28,384,982 | |
| | | 264,534 | | Culp, Inc. | | | 9,827,438 | |
| | | 1,983,244 | | Denny’s Corp.* | | | 25,445,021 | |
| | | 596,349 | | DigitalGlobe, Inc.* | | | 17,085,399 | |
| | | 154,439 | | Liberty Ventures* | | | 5,694,166 | |
| | | 126,157 | | Loral Space & Communications, Inc.* | | | 5,178,745 | |
| | | 515,307 | | Murphy USA, Inc.* | | | 31,675,921 | |
| | | 403,683 | | Nexstar Broadcasting Group, Inc. | | | 25,553,134 | |
| | | 2,154,503 | | Regis Corp.*† | | | 31,283,384 | |
| | | | | | | | 187,773,318 | |
| Consumer Staples — 1.5% | |
| | | 122,328 | | Casey’s General Stores, Inc. | | | 14,542,353 | |
| | | 82,571 | | MGP Ingredients, Inc. | | | 4,126,898 | |
| | | | | | | | 18,669,251 | |
| Energy — 2.1% | |
| | | 253,831 | | Green Plains Partners L.P. | | | 5,025,854 | |
| | | 1,398,624 | | Par Pacific Holdings, Inc.* | | | 20,335,993 | |
| | | | | | | | 25,361,847 | |
| Financials — 33.2% | |
| | | 2,365,519 | | American Capital, Ltd.* | | | 42,390,100 | |
| | | 350,164 | | Assurant, Inc. | | | 32,516,229 | |
| | | 811,953 | | Capital Bank Financial Corp. | | | 31,869,155 | |
| | | 159,315 | | Farmers Capital Bank Corp. | | | 6,699,196 | |
| | | 342,522 | | Maiden Holdings, Ltd. | | | 5,977,009 | |
| | | 816,540 | | McGrath RentCorp † | | | 32,000,203 | |
| | | 400,856 | | Medley Management, Inc.† | | | 3,968,474 | |
| | | 622,344 | | National General Holdings Corp. | | | 15,552,377 | |
| | | 1,813,514 | | NorthStar Asset Management Group, Inc. | | | 27,057,629 | |
| | | 614,699 | | OceanFirst Financial Corp. | | | 18,459,411 | |
| | | 192,667 | | Oritani Financial Corp. | | | 3,612,506 | |
| | | 354,751 | | Pacific Premier Bancorp, Inc.* | | | 12,540,448 | |
| | | 493,900 | | Primerica, Inc. | | | 34,153,185 | |
| | | 356,281 | | Renasant Corp. | | | 15,042,184 | |
| | | 1,191,170 | | Synovus Financial Corp. | | | 48,933,264 | |
| | | 1,174,350 | | TFS Financial Corp. | | | 22,359,624 | |
| | | 250,773 | | TriState Capital Holdings, Inc.* | | | 5,542,083 | |
| | | 302,762 | | Triumph Bancorp, Inc.*† | | | 7,917,226 | |
| | | 298,717 | | Virtus Investment Partners, Inc. | | | 35,263,542 | |
| | | | | | | | 401,853,845 | |
| Health Care — 3.0% | |
| | | 171,259 | | Addus HomeCare Corp.* | | | 6,002,628 | |
| | | 596,349 | | Air Methods Corp.* | | | 18,993,716 | |
| | | 285,942 | | Providence Service Corp.* | | | 10,880,093 | |
| | | | | | | | 35,876,437 | |
| Industrials — 10.4% | |
| | | 1,110,127 | | Albany International Corp.† | | | 51,398,880 | |
| | | 651,397 | | Continental Building Products, Inc.* | | | 15,047,271 | |
| | | 396,037 | | EnPro Industries, Inc. | | | 26,677,052 | |
| | | 711,032 | | Federal Signal Corp. | | | 11,099,209 | |
| | | 355,205 | | Kadant, Inc.† | | | 21,738,546 | |
| | | | | | | | 125,960,958 | |
| Information Technology — 10.3% | |
| | | 348,635 | | Broadridge Financial Solutions, Inc. | | | 23,114,500 | |
| | | 980,154 | | CTS Corp.† | | | 21,955,450 | |
| | | 106,272 | | DST Systems, Inc. | | | 11,387,045 | |
| | | 854,767 | | EchoStar Corp.* | | | 43,926,476 | |
| | | 215,603 | | KMG Chemicals, Inc. | | | 8,384,801 | |
| | | 290,529 | | MAXIMUS, Inc. | | | 16,208,613 | |
| | | | | | | | 124,976,885 | |
| Materials — 6.6% | |
| | | 324,708 | | Clearwater Paper Corp.* | | | 21,284,609 | |
| | | 373,672 | | Deltic Timber Corp.† | | | 28,798,901 | |
| | | 342,519 | | Neenah Paper, Inc. | | | 29,182,619 | |
| | | | | | | | 79,266,129 | |
| Telecommunication Services — 3.1% | |
| | | 426,619 | | ATN International, Inc. | | | 34,184,981 | |
| | | 128,444 | | Hawaiian Telcom HoldCo, Inc.*† | | | 3,182,842 | |
| | | | | | | | 37,367,823 | |
| Utilities — 0.4% | |
| | | 447,682 | | Star Gas Partners L.P. † | | | 4,817,058 | |
| Total Common Stocks (Cost $762,403,170) | | | 1,041,923,551 | |
| | |
| Real Estate Investment Trusts — 9.1% | |
| | | 1,785,990 | | Forest City Realty Trust, Inc. | | | 37,220,032 | |
| | | 3,336,498 | | MFA Financial, Inc. | | | 25,457,480 | |
| | | 1,922,080 | | Northstar Realty Finance Corp. | | | 29,119,512 | |
| | | 970,979 | | Xenia Hotels & Resorts, Inc. | | | 18,856,412 | |
| Total Real Estate Investment Trusts (Cost $99,949,881) | | | 110,653,436 | |
| | |
| Short-Term Investments — 4.0% | |
| | |
| Money Market Funds — 4.0% | |
| | | 48,019,276 | | Cash Account Trust — Government | | | | |
| | | | | & Agency Securities Portfolio — | | | | |
| | | | | Institutional Shares, 0.45%# | | | 48,019,276 | |
| Total Short-Term Investments (Cost $48,019,276) | | | 48,019,276 | |
| Total Investments — 99.2% (Cost $910,372,327) | | | 1,200,596,263 | |
| Other Assets in Excess of Liabilities — 0.8% | | | 10,199,330 | |
| NET ASSETS — 100.0% | | $ | 1,210,795,593 | |
PORTFOLIO HOLDINGS
| % of Net Assets | | | |
| | | | |
| Financials | | | 33.2 | % |
| Consumer Discretionary | | | 15.5 | % |
| Industrials | | | 10.4 | % |
| Information Technology | | | 10.3 | % |
| Real Estate Investment Trusts | | | 9.1 | % |
| Materials | | | 6.6 | % |
| Money Market Funds | | | 4.0 | % |
| Telecommunication Services | | | 3.1 | % |
| Health Care | | | 3.0 | % |
| Energy | | | 2.1 | % |
| Consumer Staples | | | 1.5 | % |
| Utilities | | | 0.4 | % |
| Other Assets and Liabilities | | | 0.8 | % |
| | | | 100.0 | % |
| * | Non-Income Producing |
| † | All or a portion of this security is considered illiquid. At December 31, 2016 the total market value of securities considered illiquid was $44,491,918 or 3.7% of net assets. |
| # | Annualized seven-day yield as of December 31, 2016. |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Global Leaders FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
During the six months ended December 31, 2016, the Brown Advisory Global Leaders Fund (the “Fund”) increased 1.12% in value. During the same period, the Russell Global Large Cap Index, the Fund’s benchmark, increased 6.70%.
For the six months ended December 31, 2016, the results of the US presidential election defined equity market performance. Investors rapidly shrugged off negative perceptions surrounding the new administration’s economic policies in the days following the election prompting strong gains in global indices. This positive price action accompanied a violent sector rotation as expectations of higher U.S. economic growth and interest rates heightened investor appetite for value stocks at the expense of the companies with perceived growth and, crucially for the strategy, quality characteristics. When economic reflation makes growth – albeit of lower quality - easier to find, growth itself becomes less valuable as does the need for quality. This materially impacted the Fund’s performance in the period as expectations the U.S. would lead a global revival took hold post-election. Against this backdrop, the Fund’s overweight position in consumer staples became the largest detractor from performance during the period. Elsewhere the Fund’s underweight position to financials, specifically developed world banks, contributed to underperformance as investors priced in expectations of rising interest rates and ameliorating regulatory pressures. Donald Trump’s victory coincided with the bursting of the bond-proxy bubble which had been a major driver of equity market performance in previous periods. Accordingly, the Fund’s lack of exposure to real estate, telecom and utility companies contributed positively as investors repriced assets previously overbought due to their supposed bond-like qualities.
Given the aforementioned sector and style rotation into financials, JPMorgan Chase and Charles Schwab were the two largest contributors to performance during the period. Elsewhere, meaningful contribution came from NXP Semiconductors after Qualcomm’s purchase bid sent NXP shares higher. While we view the deal as creating a global leader in semiconductor solutions and appreciate the industrial logic of the deal, we would have preferred a higher takeout price from Qualcomm. Sector rotation away from consumer staples also contributed to Unilever and Estee Lauder underperforming during the period. In both instances, weak third quarter results also compounded share price weakness. We continue to view both companies’ margin improvement potential and brand portfolios as attractive with opportunities for long-term growth. We expect demand for western consumer products in emerging markets and the global growing middle class’s appetite for affordable luxury cosmetics to endure regardless of the U.S. administration.
The Global Leaders team’s research efforts continued to bear fruit during the period with four new additions to the Fund. We were attracted to Schindler’s cash generative business model and see significant opportunity for margin improvement that is not currently reflected in analyst expectations. Elsewhere, intensive analysis of Microsoft’s cloud offering resulted in a new investment in the company. Engine maker Safran was another new addition in the period. This French company has an unrivaled position in narrow-body jet engines and we see considerable long-term cash flow growth as they deliver the new LEAP power plant and maintain the existing CFM-56 engine fleet. Finally, following a research trip to Japan we initiated a new position in catering equipment manufacturer Hoshizaki late in the period. The company is best known in the U.S. for its award-winning icemakers and it is the global leader by revenue with the ambition to be the leader by profits globally.
Opposite the additions, we exited six positions during the period. Novo Nordisk saw growth slow in its core diabetes franchise for the first time since 1995. Despite first-class science and an interesting pipeline, we believe both regulation and supply-side changes put the company at risk of failing to yield a sufficient return on its R&D investments. Supply-side concerns also prompted the sale of Novozymes and United Internet. Novozyme rival DuPont’s increasing aggression is set to undermine its ability to monetize its innovation spending and increasing competition. Meanwhile, market saturation and deflationary pressures in the German telecom market contributed to the sale of United Internet. Elsewhere, opportunity cost was the main driver for exiting Fuji Heavy, Alexion and Apple.
The Fund seeks to invest in market-leading companies from across the globe that deliver an exceptional customer outcome. We believe companies that combine a superior outcome for their customers with strong leadership can generate high and sustainable returns on invested capital (RoIC) which can lead to attractive shareholder returns. We believe that the essence of business is not to just make a profit, it is to serve your customers; making money is the outcome. The most successful businesses serve their customers in some unique way and their customers are glad to be doing business with them. This “win-win” for both customers and shareholders is not easily achieved. We focus on the long-term and look for franchises that we believe can compound excess economic profit at above-market growth rates for extended periods of time. Another way to think about this is that we invest for
Brown Advisory Global Leaders FundA Message to Our Shareholders
December 31, 2016
the long-term in high-quality companies that have delivered superior customer outcomes. For the majority of the second half of 2016, investors were preoccupied with the possible ramifications of a Donald Trump presidency. Although the strategy lagged its benchmark in the period, we continue to see value in a number of our core positions, such as Alphabet, Visa and Estee Lauder – which underperformed on the back of sector rotation. These companies all share great customer outcomes with industry-leading positions that we believe will enable them to compound their excess economics over time and we feel confident in the long-term. As Warren Buffet reminds us:
“Time is the friend of the wonderful business, the enemy of the mediocre.”
Sincerely,
Michael Dillon
Lead Portfolio Manager
Bertie Thomson
Portfolio Manager
Past performance is not a guarantee of future results.
Mutual fund investing involves risk. Principal loss is possible. The Fund invests in small and medium capitalization companies which carry greater risk than is associated with larger companies for various reasons, such as narrower markets, limited financial resources and less liquid stock. The value of the Fund’s investments in REITs may change in response to changes in the real estate market such as declines in the value of real estate, lack of available capital or financing opportunities, and increases in property taxes or operating costs. The Fund may invest in ETFs, which may trade at a discount to the aggregate value of the underlying securities and although expense ratios for ETFs are generally low, frequent trading of ETFs by the Fund can generate brokerage expenses. Investments in foreign securities entail certain risks not associated with investments in domestic securities, such as volatility of currency exchange rates, and in some cases, political and economic instability and relatively illiquid markets. These risks are greater for investments in emerging markets. Private Placement issued securities are restricted securities that are not publicly traded. Delay or difficulty in selling such securities may result in a loss to the Fund.
Diversification does not assure a profit or protect against loss in a declining market.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory Global Leaders FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Shares | | Security Description | | Value $ | |
| | |
| Common Stocks — 97.8% | |
| | |
| China — 3.1% | |
| | | 165,534 | | AIA Group, Ltd. | | | 927,295 | |
| | | | | | | | | |
| France — 3.1% | |
| | | 12,874 | | Safran SA | | | 925,951 | |
| | | | | | | | | |
| Germany — 3.1% | |
| | | 8,759 | | Henkel AG & Co. KGaA | | | 911,582 | |
| | | | | | | | | |
| India — 4.2% | |
| | | 35,350 | | HDFC Bank, Ltd. | | | 689,369 | |
| | | 58,370 | | Sun Pharmaceutical Industries, Ltd. | | | 540,430 | |
| | | | | | | | 1,229,799 | |
| Indonesia — 1.6% | |
| | | 545,500 | | Bank Rakyat Indonesia Persero | | | 471,156 | |
| | | | | | | | | |
| Japan — 1.0% | |
| | | 3,880 | | Hoshizaki Corp. | | | 307,176 | |
| | | | | | | | | |
| Sweden — 1.7% | |
| | | 18,170 | | Atlas Copco AB | | | 493,996 | |
| | | | | | | | | |
| Switzerland — 3.1% | |
| | | 5,312 | | Schindler Holding AG | | | 927,202 | |
| | | | | | | | | |
| Taiwan — 3.9% | |
| | | 39,707 | | Taiwan Semiconductor | | | | |
| | | | | Manufacturing Co., Ltd. ADR | | | 1,141,577 | |
| | | | | | | | | |
| United Kingdom — 4.0% | |
| | | 27,006 | | Unilever PLC | | | 1,092,126 | |
| | | 2,148 | | Unilever PLC ADR | | | 87,424 | |
| | | | | | | | 1,179,550 | |
| United States — 69.0% | |
| | |
| Consumer Discretionary — 11.7% | |
| | | 11,295 | | NIKE, Inc. | | | 574,125 | |
| | | 609 | | Priceline Group, Inc.* | | | 892,831 | |
| | | 18,038 | | Starbucks Corp. | | | 1,001,470 | |
| | | 13,118 | | TJX Companies, Inc. | | | 985,555 | |
| | | | | | | | 3,453,981 | |
| Consumer Staples — 5.3% | |
| | | 9,754 | | Brown-Forman Corp. | | | 438,150 | |
| | | 14,821 | | Estee Lauder Companies, Inc. | | | 1,133,657 | |
| | | | | | | | 1,571,807 | |
| Financials — 8.6% | |
| | | 22,044 | | Charles Schwab Corp. | | | 870,077 | |
| | | 12,532 | | JPMorgan Chase & Co. | | | 1,081,387 | |
| | | 6,086 | | Moody’s Corp. | | | 573,727 | |
| | | | | | | | 2,525,191 | |
| Health Care — 5.5% | |
| | | 5,095 | | Cigna Corp. | | | 679,622 | |
| | | 9,919 | | Edwards Lifesciences Corp.* | | | 929,410 | |
| | | | | | | | 1,609,032 | |
| Industrials — 5.2% | |
| | | 4,967 | | 3M Co. | | | 886,957 | |
| | | 7,832 | | Verisk Analytics, Inc.* | | | 635,723 | |
| | | | | | | | 1,522,680 | |
| Information Technology — 26.8% | |
| | | 1,702 | | Alphabet, Inc.* | | | 1,313,637 | |
| | | 17,033 | | Cognizant Technology Solutions Corp.* | | | 954,359 | |
| | | 6,853 | | Facebook, Inc.* | | | 788,438 | |
| | | 11,545 | | MasterCard, Inc. | | | 1,192,021 | |
| | | 17,271 | | Microsoft Corp. | | | 1,073,220 | |
| | | 7,638 | | NXP Semiconductors NV* | | | 748,600 | |
| | | 15,158 | | PayPal Holdings, Inc.* | | | 598,286 | |
| | | 15,851 | | Visa, Inc. | | | 1,236,695 | |
| | | | | | | | 7,905,256 | |
| Materials — 5.9% | |
| | | 7,495 | | Ecolab, Inc. | | | 878,564 | |
| | | 3,140 | | Sherwin-Williams Co. | | | 843,844 | |
| | | | | | | | 1,722,408 | |
| Total United States | | | 20,310,355 | |
| Total Common Stocks (Cost $27,013,311) | | | 28,825,639 | |
| | |
| Short-Term Investments — 1.1% | |
| | |
| Money Market Funds — 1.1% | |
| | | 336,562 | | Cash Account Trust — Government | | | | |
| | | | | & Agency Securities Portfolio — | | | | |
| | | | | Institutional Shares, 0.45%# | | | 336,562 | |
| Total Short-Term Investments (Cost $336,562) | | | 336,562 | |
| Total Investments — 98.9% (Cost $27,349,873) | | | 29,162,201 | |
| Other Assets in Excess of Liabilities — 1.1% | | | 332,990 | |
| NET ASSETS — 100.0% | | $ | 29,495,191 | |
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| | | | |
| Information Technology | | | 30.7 | % |
| Financials | | | 15.6 | % |
| Industrials | | | 13.1 | % |
| Consumer Discretionary | | | 12.8 | % |
| Consumer Staples | | | 12.4 | % |
| Health Care | | | 7.3 | % |
| Materials | | | 5.9 | % |
| Money Market Funds | | | 1.1 | % |
| Other Assets and Liabilities | | | 1.1 | % |
| | | | 100.0 | % |
ADR — American Depositary Receipt
| * | Non-Income Producing |
| # | Annualized seven-day yield as of December 31, 2016. |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Intermediate Income FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
For the six months ended December 31, 2016, the Brown Advisory Intermediate Income Fund Investor Shares (the “Fund”) declined 1.28%, slightly better than the Fund’s benchmark, the Bloomberg Barclays Intermediate US Aggregate Bond Index (“the Index”), which fell 1.74%
The Fund aims to generate performance primarily through individual security analysis, supported by a detailed and disciplined credit process focused on downside protection.
Credit selection was the primary contributor over this period. The corporate bonds within the Fund returned a positive 0.28% versus -1.02% for the Index. Our slight overweight to this sector was also a benefit to performance. In total, corporates contributed 0.31% to relative return.
As with most bond funds, rising interest rates adversely impacted results for the period. The portfolio’s duration was in line with the Index and had almost no impact on relative return. Given our perceived strength in bottom-up bond selection, our duration profile will often be a byproduct of security selection and not a target toward which we aim.
Among our stronger performing individual selections were FMC Technologies (+6.6%), Regency Energy Partners (+6%) Micron Technology (+4.6%), and Morgan Stanley (+4%). Some of these were either bought at opportune prices during the period or sold when valuations became stretched.
Mortgage bond selection was a mild negative, subtracting 0.08% from relative return. Our process focuses on prepayment analysis to identify bonds that will repay principal more slowly and generate more interest over the life of the bond. The sudden lurch higher in rates caused some of these bonds to look less attractive and thus decline in price. Over time, even at higher rate levels, we believe investors are better off owning bonds that repay at a slower pace and hence we are comfortable waiting out this period of high volatility.
Looking forward, we cannot know definitively where interest rates may be headed; however we believe a disciplined and consistent process can lead to attractive income generation over time. Eventually, higher rates will benefit investors as, over time, reinvestment has the potential to increase the portfolio yield. In the meantime, we believe our bottom-up focus will continue to serve our clients well and we will continue to focus on the core stability that our investors expect from our Fund.
Sincerely,
Paul D. Corbin
Portfolio Manager
Thomas D.D. Graff, CFA
Portfolio Manager
Past performance is not a guarantee of future results.
Mutual fund investing involves risk. Principal loss is possible. The Fund is subject to interest rate risk which is the risk that debt securities in the Fund’s portfolio will decline in value because of increases in market interest rates. Investments in Asset Backed and Mortgage Backed Securities include additional risks that investors should be aware of such as credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments. Investments in debt securities typically decrease in value when interest rates rise. The risk is usually greater for longer-term debt securities. Inflation-indexed bonds see the principal value of the security increased as the Consumer Price Index increases. Should the Consumer Price Index decline, those securities should be adversely impacted. Diversification does not assure a profit, nor does it protect against a loss in a declining market.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory Intermediate Income FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Corporate Bonds & Notes — 28.1% | |
| | | 1,520,000 | | 21st Century Fox America, Inc. | | | 3.00 | % | 09/15/2022 | | | 1,514,823 | |
| | | 1,200,000 | | Activision Blizzard, Inc.^ | | | 6.13 | % | 09/15/2023 | | | 1,313,465 | |
| | | 1,525,000 | | American Express Credit Corp.# | | | 1.40 | % | 08/15/2019 | | | 1,528,390 | |
| | | 1,465,000 | | American Tower Corp. | | | 3.13 | % | 01/15/2027 | | | 1,354,555 | |
| | | 1,362,000 | | Analog Devices, Inc. | | | 3.90 | % | 12/15/2025 | | | 1,398,187 | |
| | | 1,470,000 | | AstraZeneca PLC | | | 1.95 | % | 09/18/2019 | | | 1,472,641 | |
| | | 1,465,000 | | AutoZone, Inc. | | | 3.13 | % | 04/21/2026 | | | 1,412,611 | |
| | | 1,330,000 | | Barnabas Health, Inc. | | | 4.00 | % | 07/01/2028 | | | 1,309,910 | |
| | | 1,463,000 | | BB&T Corp.# | | | 1.60 | % | 01/15/2020 | | | 1,468,656 | |
| | | 1,370,000 | | Boston Properties L.P. | | | 4.13 | % | 05/15/2021 | | | 1,448,912 | |
| | | 1,525,000 | | Campbell Soup Co. | | | 2.50 | % | 08/02/2022 | | | 1,509,090 | |
| | | 1,425,000 | | Canadian Natural Resources, Ltd. | | | 5.90 | % | 02/01/2018 | | | 1,483,756 | |
| | | 1,521,000 | | CC Holdings GS V LLC/Crown Castle GS III Corp. | | | 3.85 | % | 04/15/2023 | | | 1,547,830 | |
| | | 1,375,000 | | Clorox Co. | | | 3.05 | % | 09/15/2022 | | | 1,395,967 | |
| | | 1,445,000 | | E*TRADE Financial Corp. | | | 5.38 | % | 11/15/2022 | | | 1,529,443 | |
| | | 1,500,000 | | Education Realty Operating Partnership L.P. | | | 4.60 | % | 12/01/2024 | | | 1,497,598 | |
| | | 1,350,000 | | Fidelity National Information Services, Inc. | | | 5.00 | % | 10/15/2025 | | | 1,472,903 | |
| | | 1,650,000 | | FMC Technologies, Inc. | | | 3.45 | % | 10/01/2022 | | | 1,652,846 | |
| | | 1,495,000 | | Healthcare Trust of America Holdings L.P. | | | 3.38 | % | 07/15/2021 | | | 1,507,123 | |
| | | 1,445,000 | | HollyFrontier Corp. | | | 5.88 | % | 04/01/2026 | | | 1,479,228 | |
| | | 1,435,000 | | Janus Capital Group, Inc. | | | 4.88 | % | 08/01/2025 | | | 1,481,203 | |
| | | 1,490,000 | | JB Hunt Transport Services, Inc. | | | 2.40 | % | 03/15/2019 | | | 1,494,965 | |
| | | 1,000,000 | | Micron Technology, Inc.^ | | | 7.50 | % | 09/15/2023 | | | 1,110,000 | |
| | | 1,565,000 | | Providence Health & Services Obligated Group # | | | 1.80 | % | 10/01/2017 | | | 1,568,263 | |
| | | 1,400,000 | | Reliance Steel & Aluminum Co. | | | 4.50 | % | 04/15/2023 | | | 1,410,363 | |
| | | 2,275,000 | | Royal Bank of Canada # | | | 1.47 | % | 03/06/2020 | | | 2,270,764 | |
| | | 1,460,000 | | Verizon Communications, Inc. | | | 3.65 | % | 09/14/2018 | | | 1,508,824 | |
| Total Corporate Bonds & Notes (Cost $40,164,288) | | | | | | | | 40,142,316 | |
| | |
| Mortgage Backed Securities — 15.8% | |
| | | 3,050 | | FHLMC PC, Pool# C00210 | | | 8.00 | % | 01/01/2023 | | | 3,458 | |
| | | 356,428 | | FHLMC PC, Pool# 1B0889 # | | | 2.77 | % | 05/01/2033 | | | 375,574 | |
| | | 93,999 | | FHLMC PC, Pool# 1J0203 # | | | 2.28 | % | 04/01/2035 | | | 99,724 | |
| | | 2,233,284 | | FHLMC PC, Pool# Q2-5749 | | | 4.00 | % | 04/01/2044 | | | 2,346,151 | |
| | | 1,379,644 | | FHLMC PC, Pool# Q4-2019 | | | 3.00 | % | 07/01/2046 | | | 1,371,813 | |
| | | 101,727 | | FHLMC REMIC, Series 2782 | | | 4.00 | % | 11/15/2033 | | | 104,102 | |
| | | 1,600,000 | | FHMS, Series K-042 | | | 2.67 | % | 12/25/2024 | | | 1,593,495 | |
| | | 1,525,000 | | FHMS, Series K-046 | | | 3.21 | % | 03/25/2025 | | | 1,571,407 | |
| | | 700,000 | | FHMS, Series K-047 # | | | 3.33 | % | 05/25/2025 | | | 727,109 | |
| | | 1,550,000 | | FHMS, Series K-048 # | | | 3.28 | % | 06/25/2025 | | | 1,604,896 | |
| | | 17,582 | | FNMA, Pool# 539082 | | | 7.00 | % | 08/01/2028 | | | 17,752 | |
| | | 8,741 | | FNMA, Pool# 625536 | | | 6.00 | % | 01/01/2032 | | | 9,901 | |
| | | 39,643 | | FNMA, Pool# 628837 | | | 6.50 | % | 03/01/2032 | | | 44,886 | |
| | | 137,473 | | FNMA, Pool# 663238 | | | 5.50 | % | 09/01/2032 | | | 153,232 | |
| | | 13,119 | | FNMA, Pool# 741373 # | | | 2.78 | % | 12/01/2033 | | | 13,624 | |
| | | 36,640 | | FNMA, Pool# 744805 # | | | 2.77 | % | 11/01/2033 | | | 37,303 | |
| | | 67,139 | | FNMA, Pool# 764342 # | | | 2.40 | % | 02/01/2034 | | | 69,428 | |
| | | 37,565 | | FNMA, Pool# 848817 | | | 5.00 | % | 01/01/2036 | | | 40,931 | |
| | | 2,302,071 | | FNMA, Pool# AB9339 | | | 3.00 | % | 05/01/2043 | | | 2,302,135 | |
| | | 1,371,656 | | FNMA, Pool# AL8256 | | | 3.00 | % | 03/01/2046 | | | 1,371,694 | |
| | | 846,113 | | FNMA, Pool# AS1474 | | | 4.50 | % | 01/01/2044 | | | 910,432 | |
| | | 776,679 | | FNMA, Pool# AV7911 | | | 4.50 | % | 01/01/2044 | | | 836,342 | |
| | | 4,364,476 | | FNMA, Pool# AY3879 | | | 3.50 | % | 11/01/2045 | | | 4,478,355 | |
| | | 1,977,834 | | FNMA, Pool# AY3880 | | | 4.00 | % | 11/01/2045 | | | 2,081,763 | |
| | | 1,951,792 | | FNMA REMIC Trust, Series 2013-115~ | | | 3.00 | % | 04/25/2031 | | | 267,017 | |
| | | 18,376 | | GNMA, Pool# 487110 | | | 6.50 | % | 04/15/2029 | | | 21,101 | |
| | | 6,350 | | GNMA, Pool# 571166 | | | 7.00 | % | 08/15/2031 | | | 6,540 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Intermediate Income FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Par | | | | | | | | | |
| | Value/Shares | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Mortgage Backed Securities — (Continued) | |
| | | 28,023 | | GNMA, Pool# 781186 | | | 9.00 | % | 06/15/2030 | | | 31,373 | |
| | | 1,816 | | GNMA, Pool# 781450 | | | 5.00 | % | 06/15/2017 | | | 1,843 | |
| Total Mortgage Backed Securities (Cost $22,641,665) | | | | | | | | 22,493,381 | |
| | |
| Municipal Bonds — 9.9% | |
| | | 670,000 | | District of Columbia, Series 2010F | | | 4.71 | % | 12/01/2022 | | | 743,747 | |
| | | 1,495,000 | | Florida Hurricane Catastrophe Fund | | | 2.11 | % | 07/01/2018 | | | 1,510,443 | |
| | | 1,000,000 | | Illinois, State of | | | 2.30 | % | 06/15/2019 | | | 1,011,230 | |
| | | 2,000,000 | | Miami-Dade Florida Aviation | | | 2.37 | % | 10/01/2023 | | | 1,915,800 | |
| | | 1,500,000 | | Minneapolis/St Paul Housing & Redevelopment Authority # | | | 0.68 | % | 08/15/2025 | | | 1,500,000 | |
| | | 500,000 | | New Hampshire Health and Education Facilities Authority Act # | | | 0.75 | % | 07/01/2033 | | | 500,000 | |
| | | 1,500,000 | | New York City Water & Sewer System # | | | 0.75 | % | 06/15/2048 | | | 1,500,000 | |
| | | 1,250,000 | | North Texas Tollway Authority | | | 8.91 | % | 02/01/2030 | | | 1,459,850 | |
| | | 2,750,000 | | Port Authority New York & New Jersey | | | 5.31 | % | 12/01/2019 | | | 3,017,162 | |
| | | 1,000,000 | | Triborough Bridge & Tunnel Authority # | | | 0.70 | % | 01/01/2032 | | | 1,000,000 | |
| Total Municipal Bonds (Cost $13,993,300) | | | | | | | | 14,158,232 | |
| | |
| Asset Backed Securities — 8.4% | |
| | | 840,788 | | AmeriCredit Automobile Receivables Trust, Series 2016-4 A-1 | | | 0.78 | % | 10/10/2017 | | | 840,795 | |
| | | 114,038 | | AmeriCredit Automobile Receivables Trust, Series 2012-4 C | | | 1.93 | % | 08/08/2018 | | | 114,045 | |
| | | 557,495 | | AmeriCredit Automobile Receivables Trust, Series 2016-1 A-2-A # | | | 1.52 | % | 06/10/2019 | | | 558,143 | |
| | | 700,000 | | AmeriCredit Automobile Receivables Trust, Series 2015-4 C | | | 1.70 | % | 07/08/2020 | | | 702,272 | |
| | | 875,000 | | AmeriCredit Automobile Receivables Trust, Series 2015-3 B | | | 2.08 | % | 09/08/2020 | | | 878,108 | |
| | | 61,198 | | Capital Auto Receivables Asset Trust, Series 2014-1 | | | 1.32 | % | 06/20/2018 | | | 61,202 | |
| | | 1,500,000 | | Madison Park Funding XVII, Ltd., Series 2015-17A #^ | | | 2.88 | % | 07/21/2027 | | | 1,500,091 | |
| | | 1,500,000 | | Octagon Investment Partners 24, Ltd., Series A-2 #^ | | | 2.86 | % | 05/21/2027 | | | 1,500,076 | |
| | | 1,500,000 | | Octagon Investment Partners XXII, Ltd., Series B-2 #^ | | | 3.18 | % | 11/25/2025 | | | 1,500,322 | |
| | | 203,398 | | Oscar U.S. Funding Trust IV, Series 2016-4 #^ | | | 2.24 | % | 07/15/2020 | | | 204,709 | |
| | | 125,000 | | Oscar U.S. Funding Trust V, Series 2016-5 #^ | | | 1.94 | % | 11/15/2019 | | | 125,272 | |
| | | 1,500,000 | | OZLM XIII, Ltd.#^ | | | 2.99 | % | 07/30/2027 | | | 1,505,753 | |
| | | 1,000,000 | | Santander Drive Auto Receivables Trust, Series 2015-4 | | | 1.58 | % | 09/16/2019 | | | 1,001,049 | |
| | | 1,500,000 | | Stewart Park CLO, Ltd., Series 2015-1 #^ | | | 2.88 | % | 04/15/2026 | | | 1,501,576 | |
| Total Asset Backed Securities (Cost $11,964,212) | | | | | | | | 11,993,413 | |
| U.S. Treasury Notes — 16.8% | |
| | | 1,465,000 | | United States Treasury Note | | | 0.88 | % | 01/31/2017 | | | 1,465,601 | |
| | | 1,470,000 | | United States Treasury Note | | | 0.75 | % | 10/31/2017 | | | 1,468,880 | |
| | | 8,700,000 | | United States Treasury Note | | | 1.38 | % | 02/29/2020 | | | 8,660,067 | |
| | | 10,210,000 | | United States Treasury Note | | | 1.88 | % | 08/31/2022 | | | 10,092,942 | |
| | | 2,500,000 | | United States Treasury Note | | | 1.63 | % | 05/15/2026 | | | 2,331,690 | |
| Total U.S. Treasury Notes (Cost $24,494,467) | | | | | | | | 24,019,180 | |
| | | | | | | | | | | | | | |
| Affiliated Mutual Funds (Note 3) — 17.8% | | | | | | | | | |
| | | 2,589,098 | | Brown Advisory Mortgage Securities Fund — Institutional Shares | | | | | | | | 25,450,830 | |
| Total Affiliated Mutual Funds (Cost $26,238,441) | | | | | | | | 25,450,830 | |
| | |
| Short-Term Investments — 2.8% | |
| | |
| Money Market Funds — 2.8% | |
| | | 3,952,738 | | First American Treasury Obligations Fund — Class Z, 0.39%* | | | | | | | | 3,952,738 | |
| Total Short Term investments (Cost $3,952,738) | | | | | | | | 3,952,738 | |
| Total Investments — 99.6% (Cost $143,449,111) | | | | | | | | 142,210,090 | |
| Other Assets in Excess of Liabilities — 0.4% | | | 562,532 | |
| NET ASSETS — 100.0% | | $ | 142,772,622 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Intermediate Income FundSchedule of Investments
December 31, 2016 (Unaudited)
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| | | | |
| Corporate Bonds & Notes | | | 28.1 | % |
| Affiliated Mutual Funds | | | 17.8 | % |
| U.S. Treasury Notes | | | 16.8 | % |
| Mortgage Backed Securities | | | 15.8 | % |
| Municipal Bonds | | | 9.9 | % |
| Asset Backed Securities | | | 8.4 | % |
| Money Market Funds | | | 2.8 | % |
| Other Assets and Liabilities | | | 0.4 | % |
| | | | 100.0 | % |
| # | Variable rate security. Rate disclosed is as of December 31, 2016. |
| ^ | 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. At December 31, 2016, the value of these securities amounted to $10,261,264 or 7.2% of net assets. |
| ~ | Interest Only Security |
| * | Annualized seven-day yield as of December 31, 2016. |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Total Return FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
During the six months ended December 31, 2016, the Brown Advisory Total Return Fund Institutional Shares (the “Fund”) was down 1.86%, modestly ahead of the -2.53% return for the Bloomberg Barclays US Aggregate Bond Index (the “Index”), the Fund’s benchmark.
The Fund aims to generate performance primarily through individual security analysis, supported by a detailed and disciplined credit process focused on downside protection. Duration and sector weightings are set mainly by an analysis of the intermediate-term risk/reward as opposed to any particular macro forecast.
On an absolute basis, rising interest rates resulted in negative results for the period. The duration of the portfolio was in-line with the benchmark; thus having almost no impact on relative return. This stance is one we will take more often than not, as we believe our strengths lie in bottom-up bond selection.
To that end, credit selection was the biggest positive contributor to performance over this period with corporate bonds within the Fund returning 1.29% vs. -1.48% for the Index. We had a slight overweight to this sector, which was also a benefit. In total, corporates contributed 0.72% to relative return.
Among our stronger performing individual selections were Micron Technology (+13.6%), Cornerstone Chemicals (+10.8%), Brookfield Residential (+8.7%), Interface Security (+7.9%) and FMC Technology (+6.0%).
Selection in mortgage-backed securities was a mild negative, with these bonds subtracting 0.27% from relative return. Our process focuses on bonds that will repay principal more slowly and therefore return more in interest over the life of the bond. The sudden lurch higher in rates caused some of these bonds to look less attractive. Over time, even at higher rate levels, we believe investors are better off with bonds that repay at a slower pace and we are happy to wait out this period of high volatility.
Looking forward, we cannot know where interest rates may go; however we believe a disciplined and consistent process can lead to attractive income generation over time. Eventually it should be to investors’ benefit for rates to be higher as, over time, reinvestment has the potential to cause the portfolio yield to go up. In the meantime, we believe our bottom-up focus will continue to serve our clients well.
Sincerely,
Thomas D.D. Graff, CFA
Portfolio Manager
Past performance is not a guarantee of future results.
Mutual fund investing involves risk. Principal loss is possible. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in Asset-Backed and Mortgage-Backed securities include additional risks that investor should be aware of including credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments. Investments in lower rated and non-rated securities present a great risk of loss to principal and interest than higher rated securities. In addition, the fund is susceptible to risks from investments in derivatives, U.S. Government securities, and changes in interest rates. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the Federal Alternative minimum tax for certain investors.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory Total Return FundSchedule of Investments
December 31, 2016 (Unaudited)
Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Corporate Bonds & Notes — 34.6% | |
| | 725,000 | | Activision Blizzard, Inc.^ | | | 6.13 | % | 09/15/2023 | | | 793,552 | |
| | 975,000 | | American Tower Corp. | | | 3.13 | % | 01/15/2027 | | | 901,496 | |
| | 870,000 | | Analog Devices, Inc. | | | 3.90 | % | 12/15/2025 | | | 893,115 | |
| | 895,000 | | AstraZeneca PLC | | | 3.38 | % | 11/16/2025 | | | 889,831 | |
| | 935,000 | | AutoZone, Inc. | | | 3.13 | % | 04/21/2026 | | | 901,564 | |
| | 870,000 | | AvalonBay Communities, Inc. | | | 2.95 | % | 05/11/2026 | | | 831,512 | |
| | 875,000 | | Boston Properties L.P. | | | 3.80 | % | 02/01/2024 | | | 888,757 | |
| | 316,000 | | Brookfield Residential Properties, Inc.^ | | | 6.13 | % | 07/01/2022 | | | 319,160 | |
| | 900,000 | | Campbell Soup Co. | | | 2.50 | % | 08/02/2022 | | | 890,610 | |
| | 860,000 | | Canadian Natural Resources, Ltd. | | | 5.90 | % | 02/01/2018 | | | 895,460 | |
| | 910,000 | | Capital One Financial Corp.# | | | 5.55 | % | 12/29/2049 | | | 923,650 | |
| | 774,000 | | Carrols Restaurant Group, Inc. | | | 8.00 | % | 05/01/2022 | | | 837,855 | |
| | 870,000 | | CC Holdings GS V LLC/Crown Castle GS III Corp. | | | 3.85 | % | 04/15/2023 | | | 885,347 | |
| | 865,000 | | Clorox Co. | | | 3.05 | % | 09/15/2022 | | | 878,190 | |
| | 870,000 | | CommScope Holding Technologies Finance LLC^ | | | 6.00 | % | 06/15/2025 | | | 926,550 | |
| | 500,000 | | Cornerstone Chemical Co.^ | | | 9.38 | % | 03/15/2018 | | | 503,750 | |
| | 430,000 | | Dana, Inc. | | | 6.00 | % | 09/15/2023 | | | 450,962 | |
| | 600,000 | | Dollar Tree, Inc. | | | 5.25 | % | 03/01/2020 | | | 618,750 | |
| | 845,000 | | E*TRADE Financial Corp. | | | 5.38 | % | 11/15/2022 | | | 894,380 | |
| | 900,000 | | Education Realty Operating Partnership L.P. | | | 4.60 | % | 12/01/2024 | | | 898,559 | |
| | 815,000 | | Fidelity National Information Services, Inc. | | | 5.00 | % | 10/15/2025 | | | 889,197 | |
| | 900,000 | | FMC Technologies, Inc. | | | 3.45 | % | 10/01/2022 | | | 901,553 | |
| | 885,000 | | Healthcare Trust of America Holdings L.P. | | | 3.38 | % | 07/15/2021 | | | 892,176 | |
| | 890,000 | | HollyFrontier Corp. | | | 5.88 | % | 04/01/2026 | | | 911,081 | |
| | 300,000 | | INEOS Group Holdings S.A.^ | | | 5.88 | % | 02/15/2019 | | | 306,900 | |
| | 250,000 | | Interface Security Systems Holdings, Inc. | | | 9.25 | % | 01/15/2018 | | | 249,688 | |
| | 870,000 | | Janus Capital Group, Inc. | | | 4.88 | % | 08/01/2025 | | | 898,011 | |
| | 790,000 | | JB Hunt Transport Services, Inc. | | | 2.40 | % | 03/15/2019 | | | 792,632 | |
| | 860,000 | | Lamar Media Corp. | | | 5.75 | % | 02/01/2026 | | | 908,375 | |
| | 890,000 | | Mallinckrodt International Finance S.A.^ | | | 5.75 | % | 08/01/2022 | | | 861,075 | |
| | 465,000 | | Meritor, Inc. | | | 6.25 | % | 02/15/2024 | | | 458,025 | |
| | 940,000 | | Micron Technology, Inc. | | | 5.88 | % | 02/15/2022 | | | 983,475 | |
| | 500,000 | | Mohegan Tribal Gaming Authority^ | | | 7.88 | % | 10/15/2024 | | | 511,875 | |
| | 865,000 | | NOVA Chemicals Corp.^ | | | 5.25 | % | 08/01/2023 | | | 876,894 | |
| | 150,000 | | Novelis Corp.^ | | | 6.25 | % | 08/15/2024 | | | 159,375 | |
| | 450,000 | | Novelis Corp.^ | | | 5.88 | % | 09/30/2026 | | | 455,625 | |
| | 435,000 | | Outfront Media Capital LLC | | | 5.88 | % | 03/15/2025 | | | 457,294 | |
| | 850,000 | | Reliance Steel & Aluminum Co. | | | 4.50 | % | 04/15/2023 | | | 856,292 | |
| | 440,000 | | SESI LLC | | | 6.38 | % | 05/01/2019 | | | 442,200 | |
| | 549,000 | | Springs Industries, Inc. | | | 6.25 | % | 06/01/2021 | | | 570,960 | |
| | 800,000 | | Synovus Financial Corp.# | | | 5.75 | % | 12/15/2025 | | | 836,000 | |
| | 875,000 | | Verisk Analytics, Inc. | | | 4.00 | % | 06/15/2025 | | | 888,826 | |
| | 810,000 | | Verizon Communications, Inc. | | | 5.15 | % | 09/15/2023 | | | 896,931 | |
| | 425,000 | | Viking Cruises, Ltd.^ | | | 8.50 | % | 10/15/2022 | | | 442,531 | |
| Total Corporate Bonds & Notes (Cost $32,492,520) | | | 32,470,041 | |
| | |
| Mortgage Backed Securities — 34.6% | |
| | 400,000 | | BAMLL Commercial Mortgage Securities Trust, Series 2013-DSNY #^ | | | 1.75 | % | 09/15/2026 | | | 400,437 | |
| | 150,000 | | Cosmopolitan Hotel Trust, Series 2016-COSMO #^ | | | 3.35 | % | 11/15/2033 | | | 151,173 | |
| | 200,000 | | CSMC Trust, Series 2014-TIKI #^ | | | 1.60 | % | 09/15/2038 | | | 198,786 | |
| | 800,000 | | FHLMC Gold, 2.5%, Due TBA January | | | 2.50 | % | 01/15/2032 | | | 801,500 | |
| | 800,000 | | FHLMC Gold, 3.0%, Due TBA January | | | 3.00 | % | 01/15/2032 | | | 820,942 | |
| | 1,000,000 | | FHLMC Gold, 3.0%, Due TBA January | | | 3.00 | % | 01/15/2047 | | | 993,052 | |
| | 4,000,000 | | FHLMC Gold, 3.5%, Due TBA January | | | 3.50 | % | 01/15/2047 | | | 4,096,084 | |
| | 639,379 | | FHLMC PC, Pool# J3-2596 | | | 3.50 | % | 08/01/2030 | | | 669,274 | |
| | 777,267 | | FHLMC PC, Pool# G0-7289 | | | 3.00 | % | 11/01/2042 | | | 777,193 | |
| | 375,096 | | FHLMC PC, Pool# Q4-0104 | | | 4.00 | % | 04/01/2046 | | | 394,439 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Total Return FundSchedule of Investments
December 31, 2016 (Unaudited)
Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Mortgage Backed Securities — (Continued) | |
| | 3,482,108 | | FHLMC REMIC, Series 4094 ~ | | | 2.50 | % | 03/15/2027 | | | 257,375 | |
| | 804,124 | | FHLMC REMIC, Series 4107 ~ | | | 3.00 | % | 08/15/2027 | | | 187,666 | |
| | 2,264,310 | | FHLMC REMIC, Series 4143 ~ | | | 3.50 | % | 09/15/2042 | | | 278,516 | |
| | 3,000,000 | | FHLMC REMIC, Series 4495 | | | 2.50 | % | 07/15/2045 | | | 2,927,999 | |
| | 1,043,118 | | FHLMC REMIC, Series 4495 ~ | | | 3.50 | % | 07/15/2045 | | | 197,719 | |
| | 125,000 | | FHLMC SCRTT, Series 2016-1 #^ | | | 3.00 | % | 09/25/2055 | | | 116,535 | |
| | 3,488,752 | | FHMS, Series K-046 #~ | | | 0.38 | % | 03/25/2025 | | | 92,825 | |
| | 1,574,669 | | FHMS, Series K-055 #~ | | | 1.37 | % | 03/25/2026 | | | 154,950 | |
| | 828,868 | | FHMS, Series K-056 #~ | | | 1.27 | % | 05/25/2026 | | | 75,770 | |
| | 699,746 | | FHMS, Series K-057 #~ | | | 1.19 | % | 07/25/2026 | | | 61,640 | |
| | 682,115 | | FHMS, Series K-058 #~ | | | 0.93 | % | 08/25/2026 | | | 47,967 | |
| | 2,921,005 | | FHMS, Series K-059 #~ | | | 0.32 | % | 09/25/2026 | | | 74,722 | |
| | 560,000 | | FHMS, Series K-060 #~ | | | 1.89 | % | 12/25/2044 | | | 75,245 | |
| | 2,042,085 | | FHMS, Series K-721 #~ | | | 0.34 | % | 08/25/2022 | | | 33,576 | |
| | 2,223,929 | | FHMS, Series K-722 #~ | | | 1.31 | % | 03/25/2023 | | | 147,335 | |
| | 1,749,770 | | FHMS, Series K-723 #~ | | | 0.96 | % | 08/25/2023 | | | 91,061 | |
| | 536,789 | | FNMA, Pool# MA2515 | | | 3.50 | % | 01/01/2031 | | | 562,903 | |
| | 2,028,704 | | FNMA, Pool# AS2249 | | | 4.00 | % | 04/01/2039 | | | 2,136,662 | |
| | 640,740 | | FNMA, Pool# AL6768 | | | 6.00 | % | 05/01/2041 | | | 725,857 | |
| | 978,158 | | FNMA, Pool# AB9349 | | | 3.00 | % | 05/01/2043 | | | 978,186 | |
| | 704,371 | | FNMA, Pool# AU6230 | | | 5.00 | % | 09/01/2043 | | | 769,724 | |
| | 923,759 | | FNMA, Pool# AY0677 | | | 3.50 | % | 03/01/2045 | | | 950,765 | |
| | 619,457 | | FNMA, Pool# AZ8218 | | | 4.00 | % | 08/01/2045 | | | 652,048 | |
| | 359,141 | | FNMA, Pool# BC4621 | | | 4.00 | % | 03/01/2046 | | | 378,278 | |
| | 794,593 | | FNMA, Pool# BD2775 | | | 4.00 | % | 07/01/2046 | | | 839,387 | |
| | 794,846 | | FNMA, Pool# BD2778 | | | 4.50 | % | 07/01/2046 | | | 857,050 | |
| | 398,162 | | FNMA, Pool# BD7530 | | | 4.50 | % | 09/01/2046 | | | 430,192 | |
| | 797,900 | | FNMA, Pool# BD9335 | | | 4.50 | % | 10/01/2046 | | | 860,365 | |
| | 2,000,000 | | FNMA, 3.0%, Due TBA January | | | 3.00 | % | 01/15/2047 | | | 1,986,984 | |
| | 1,500,000 | | FNMA, 3.5%, Due TBA January | | | 3.50 | % | 01/15/2047 | | | 1,537,500 | |
| | 681,683 | | Freddie Mac STACR Debt Notes, Series 2014-DN2 # | | | 2.23 | % | 04/25/2024 | | | 687,466 | |
| | 750,000 | | Freddie Mac STACR Debt Notes, Series 2015-DNA3 # | | | 3.61 | % | 04/25/2028 | | | 771,980 | |
| | 560,000 | | Freddie Mac STACR Debt Notes, Series 2016-DNA2 # | | | 2.78 | % | 10/25/2028 | | | 567,283 | |
| | 300,000 | | FREMF Mortgage, Series 2016-K723 # | | | 3.58 | % | 10/25/2039 | | | 279,574 | |
| | 800,000 | | FREMF Mortgage, Series 2013-K712 #^ | | | 3.36 | % | 05/25/2045 | | | 812,957 | |
| | 400,000 | | FREMF Mortgage, Series 2012-K19 #^ | | | 4.17 | % | 05/25/2045 | | | 417,454 | |
| | 239,340 | | FREMF Mortgage, Series 2013-KF02 #^ | | | 3.53 | % | 12/25/2045 | | | 240,548 | |
| | 1,363,155 | | GNMA REMIC Trust, Series 2014-45 #~ | | | 0.78 | % | 07/16/2054 | | | 68,171 | |
| | 1,052,146 | | GNMA REMIC Trust, Series 2014-135 #~ | | | 0.86 | % | 01/16/2056 | | | 58,724 | |
| | 1,123,669 | | GNMA REMIC Trust, Series 2015-172 #~ | | | 0.98 | % | 03/16/2057 | | | 80,510 | |
| | 1,462,178 | | GNMA REMIC Trust, Series 2016-40 #~ | | | 0.82 | % | 07/16/2057 | | | 96,393 | |
| | 1,163,397 | | GNMA REMIC Trust, Series 2016-56 #~ | | | 1.01 | % | 11/16/2057 | | | 93,094 | |
| | 616,869 | | GNMA REMIC Trust, Series 2016-127 #~ | | | 0.96 | % | 05/16/2058 | | | 49,264 | |
| | 1,311,141 | | GNMA REMIC Trust, Series 2016-98 #~ | | | 0.98 | % | 05/16/2058 | | | 102,558 | |
| | 1,201,668 | | GNMA REMIC Trust, Series 2016-110 #~ | | | 1.05 | % | 05/16/2058 | | | 97,328 | |
| | 200,000 | | JPMCC, Series 2016-ASH #^ | | | 2.20 | % | 10/15/2034 | | | 200,257 | |
| Total Mortgage Backed Securities (Cost $32,548,849) | | | 32,413,243 | |
| | | | | | | | | | | | | |
| Asset Backed Securities — 25.0% | |
| | 145,558 | | Aircraft Certificate Owner Trust, Series 2003 ^ | | | 7.00 | % | 09/20/2022 | | | 153,746 | |
| | 150,000 | | American Credit Acceptance Receivables Trust, Series 2015-1 C ^ | | | 4.29 | % | 04/12/2021 | | | 152,674 | |
| | 175,000 | | American Credit Acceptance Receivables Trust, Series 2014-1 D ^ | | | 5.20 | % | 04/12/2021 | | | 177,156 | |
| | 400,000 | | Babson CLO, Ltd. 2013-I, Series 2013-I #^ | | | 4.38 | % | 04/20/2025 | | | 399,743 | |
| | 220,000 | | Capital Auto Receivables Asset Trust, Series 2014-1 B | | | 2.22 | % | 01/22/2019 | | | 221,182 | |
| | 85,033 | | Continental Airlines Trust, Series 2000 A-1 | | | 8.05 | % | 05/01/2022 | | | 94,599 | |
| | 117,383 | | CPS Auto Trust, Series 2016-D ^ | | | 1.50 | % | 06/15/2020 | | | 117,294 | |
| | 85,000 | | DT Auto Owner Trust, Series 2016-1 ^ | | | 2.79 | % | 05/15/2020 | | | 85,527 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Total Return FundSchedule of Investments
December 31, 2016 (Unaudited)
Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Asset Backed Securities — (Continued) | |
| | 133,190 | | Exeter Automobiles Receivables Trust, Series 2014-1 ^ | | | 2.42 | % | 01/15/2019 | | | 133,306 | |
| | 245,250 | | Exeter Automobiles Receivables Trust 2016-3, Series 2016-3 ^ | | | 1.84 | % | 11/16/2020 | | | 244,965 | |
| | 500,000 | | Finn Square CLO, Ltd., Series 2012-1AC#^ | | | 4.46 | % | 12/24/2023 | | | 499,641 | |
| | 1,500,000 | | Highbridge Loan Management, Series 4a-2014 A2a #^ | | | 2.94 | % | 07/28/2025 | | | 1,500,170 | |
| | 800,000 | | Highbridge Loan Management, Series 7a-2015 C #^ | | | 4.29 | % | 11/15/2026 | | | 807,029 | |
| | 1,000,000 | | Highbridge Loan Management, Series 6a-2015 C #^ | | | 3.95 | % | 05/05/2027 | | | 1,002,324 | |
| | 75,131 | | Hilton Grand Vacations Trust, Series 2013-A ^ | | | 2.28 | % | 01/25/2026 | | | 74,545 | |
| | 810,000 | | Madison Park Funding XVII, Ltd., Series 2015-17A #^ | | | 2.88 | % | 07/21/2027 | | | 810,049 | |
| | 500,000 | | Madison Park Funding XVII, Ltd., Series 2015-17A #^ | | | 3.53 | % | 07/21/2027 | | | 500,123 | |
| | 86,951 | | MVW Owner Trust, Series 2013-1 ^ | | | 2.15 | % | 04/22/2030 | | | 86,165 | |
| | 94,591 | | MVW Owner Trust, Series 2016-1 ^ | | | 2.25 | % | 12/20/2033 | | | 92,802 | |
| | 750,000 | | Octagon Investment Partners 24, Ltd., Series A-2 #^ | | | 2.86 | % | 05/21/2027 | | | 750,038 | |
| | 1,000,000 | | Octagon Investment Partners XXII, Ltd., Series B-2 #^ | | | 3.18 | % | 11/25/2025 | | | 1,000,215 | |
| | 1,000,000 | | Octagon Investment Partners XXII, Ltd., Series C-1 #^ | | | 4.13 | % | 11/25/2025 | | | 1,000,379 | |
| | 118,983 | | Orange Lake Timeshare Trust, Series 2016-A ^ | | | 2.61 | % | 03/08/2029 | | | 117,369 | |
| | 406,795 | | Oscar U.S. Funding Trust IV, Series 2016-4 #^ | | | 2.24 | % | 07/15/2020 | | | 409,419 | |
| | 50,000 | | Oscar U.S. Funding Trust V, Series 2016-5 #^ | | | 1.94 | % | 11/15/2019 | | | 50,109 | |
| | 1,000,000 | | OZLM Funding IV, Ltd., Series 2013-4 #^ | | | 2.63 | % | 07/22/2025 | | | 998,045 | |
| | 750,000 | | OZLM IX, Ltd., Series 2014-9A B #^ | | | 4.18 | % | 01/20/2027 | | | 750,277 | |
| | 1,000,000 | | OZLM XIII, Ltd., Series 2015-13A A2 #^ | | | 2.99 | % | 07/30/2027 | | | 1,003,835 | |
| | 600,000 | | Prestige Auto Receivables Trust, Series 2014-1 B ^ | | | 1.91 | % | 04/15/2020 | | | 601,424 | |
| | 664,066 | | Santander Drive Auto Receivables Trust, Series 2016-3 | | | 0.80 | % | 10/16/2017 | | | 663,778 | |
| | 1,414,222 | | Santander Drive Auto Receivables Trust, Series 2013-A ^ | | | 3.12 | % | 10/15/2019 | | | 1,423,639 | |
| | 800,000 | | Santander Drive Auto Receivables Trust, Series 2015-1 | | | 1.97 | % | 11/15/2019 | | | 801,761 | |
| | 530,000 | | Santander Drive Auto Receivables Trust, Series 2016-1 | | | 2.47 | % | 12/15/2020 | | | 533,871 | |
| | 68,856 | | Sierra Timeshare Receivables Funding LLC, Series 2014-1 A ^ | | | 2.07 | % | 03/20/2030 | | | 68,409 | |
| | 88,312 | | Sierra Timeshare Receivables Funding LLC, Series 2014-3 A ^ | | | 2.30 | % | 10/20/2031 | | | 88,196 | |
| | 88,403 | | Sierra Timeshare Receivables Funding LLC, Series 2015-2 A ^ | | | 2.43 | % | 06/20/2032 | | | 88,341 | |
| | 88,777 | | Sierra Timeshare Receivables Funding LLC, Series 2015-3 A ^ | | | 2.58 | % | 09/20/2032 | | | 88,428 | |
| | 185,027 | | Sierra Timeshare Receivables Funding LLC, Series 2016-2 A ^ | | | 2.33 | % | 07/20/2033 | | | 181,881 | |
| | 137,284 | | Sierra Timeshare Receivables Funding LLC, Series 2016-3 A ^ | | | 2.43 | % | 10/20/2033 | | | 135,098 | |
| | 1,000,000 | | Stewart Park CLO, Ltd., Series 2015-1 #^ | | | 2.88 | % | 04/15/2026 | | | 1,001,051 | |
| | 1,000,000 | | Stewart Park CLO, Ltd., Series 2015-1 #^ | | | 3.78 | % | 04/15/2026 | | | 1,002,737 | |
| | 111,021 | | SVO VOI Mortgage LLC, Series 2012-A ^ | | | 2.00 | % | 09/20/2029 | | | 109,104 | |
| | 1,000,000 | | Symphony CLO XIV, Ltd., Series 2014-14A B1 #^ | | | 2.93 | % | 07/14/2026 | | | 1,000,625 | |
| | 350,000 | | TCF Auto Receivables Owner Trust, Series 2016-PT1 A ^ | | | 1.93 | % | 06/15/2022 | | | 349,758 | |
| | 80,174 | | US Airways Pass Through Trust, Series 1999-1 A | | | 8.36 | % | 07/20/2020 | | | 82,680 | |
| | 375,000 | | Verizon Owner Trust, Series 2016-1 ^ | | | 1.42 | % | 01/20/2021 | | | 372,859 | |
| | 750,000 | | Voya CLO, Ltd., Series 2013-1 #^ | | | 4.38 | % | 04/15/2024 | | | 749,390 | |
| | 105,825 | | VSE VOI Mortgage LLC, Series 2016-A ^ | | | 2.54 | % | 07/20/2033 | | | 104,730 | |
| | 100,000 | | Westlake Automobile Receivables Trust, Series 2015-1 C^ | | | 2.29 | % | 11/16/2020 | | | 100,284 | |
| | 175,000 | | Westlake Automobile Receivables Trust, Series 2016-1 C^ | | | 3.29 | % | 09/15/2021 | | | 176,852 | |
| | 100,000 | | Westlake Automobile Receivables Trust, Series 2016-2 B^ | | | 2.30 | % | 11/15/2019 | | | 100,118 | |
| | 175,000 | | Westlake Automobile Receivables Trust, Series 2016-3 B^ | | | 2.07 | % | 12/15/2021 | | | 174,314 | |
| | 175,000 | | Westlake Automobile Receivables Trust, Series 2016-3 C^ | | | 2.46 | % | 01/18/2022 | | | 173,739 | |
| Total Asset Backed Securities (Cost $23,338,832) | | | 23,405,793 | |
| | | | | | | | | | | | | |
| U.S. Treasury Notes — 6.6% | |
| | 6,150,000 | | United States Treasury Note† | | | 0.88 | % | 01/31/2017 | | | 6,152,522 | |
| Total U.S. Treasury Notes (Cost $6,151,211) | | | 6,152,522 | |
| | | | | | | | | | | | | |
| Municipal Bonds — 2.7% | | | | | | | | | |
| | 230,000 | | American Municipal Power, Inc. | | | 6.05 | % | 02/15/2043 | | | 272,888 | |
| | 1,200,000 | | Health Care Authority for Baptist Health | | | 5.50 | % | 11/15/2043 | | | 1,301,220 | |
| | 800,000 | | North Texas Tollway Authority | | | 8.91 | % | 02/01/2030 | | | 938,312 | |
| Total Municipal Bonds (Cost $2,497,086) | | | | | | | | 2,512,420 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Total Return FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Shares | | Security Description | | Value $ | |
| | |
| Preferred Stocks — 0.9% | |
| | | 35,850 | | Regency Centers Corp. — Series 6, 6.63% | | | 899,835 | |
| Total Preferred Stocks (Cost $903,420) | | | 899,835 | |
| | |
| Short-Term Investments — 4.9% | |
| | |
| Money Market Funds — 4.9% | |
| | | 4,609,354 | | First American Treasury Obligations Fund — Class Z, 0.39%* | | | 4,609,354 | |
| Total Short-Term Investments (Cost $4,609,354) | | | 4,609,354 | |
| Total Investments — 109.3% (Cost $102,541,272) | | | 102,463,208 | |
| Liabilities in Excess of Other Assets — (9.3)% | | | (8,748,921 | ) |
| NET ASSETS — 100.0% | | $ | 93,714,287 | |
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| | | | |
| Corporate Bonds & Notes | | | 34.6 | % |
| Mortgage Backed Securities | | | 34.6 | % |
| Asset Backed Securities | | | 25.0 | % |
| U.S. Treasury Notes | | | 6.6 | % |
| Money Market Funds | | | 4.9 | % |
| Municipal Bonds | | | 2.7 | % |
| Preferred Stocks | | | 0.9 | % |
| Other Assets and Liabilities | | | (9.3 | )% |
| | | | 100.0 | % |
| # | Variable rate security. Rate disclosed is as of December 31, 2016. |
| ^ | 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. At December 31, 2016, the value of these securities amounted to $29,703,356 or 31.7% of net assets. |
| ~ | Interest Only Security |
| † | A portion of this security is pledged as collateral in connection with open futures contracts. |
| * | Annualized seven-day yield as of December 31, 2016. |
Futures Contracts — Long (Note 7)
| | | | | | | Notional | | | Notional | | | Unrealized Appreciation | |
Issue | | Contracts | | Expiration Date | | Amount | | | Value | | | (Depreciation) | |
| U.S. Treasury 5-Year Note Futures March 2017 | | | 22 | | 03/31/2017 | | $ | 2,597,649 | | | $ | 2,588,609 | | | $ | (9,040 | ) |
| U.S. Treasury Long Bond Futures March 2017 | | | 20 | | 03/22/2017 | | | 2,995,213 | | | | 3,013,125 | | | | 17,912 | |
| U.S. Treasury 10-Year Ultra Bond Futures March 2017 | | | 35 | | 03/22/2017 | | | 4,714,503 | | | | 4,692,188 | | | | (22,315 | ) |
| U.S. Treasury Ultra Bond Futures March 2017 | | | 49 | | 03/22/2017 | | | 7,924,074 | | | | 7,852,250 | | | | (71,824 | ) |
| | | | | | | | $ | 18,231,439 | | | $ | 18,146,172 | | | $ | (85,267 | ) |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Strategic Bond FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
The Brown Advisory Strategic Bond Fund Investor Shares (the “Fund”) gained 1.89% in the six months ended December 31, 2016. The Fund’s benchmark, the Bloomberg Barclays Intermediate US Aggregate Bond Index, fell 1.74% during that time.
The Fund’s objective is to achieve capital appreciation and income with a low correlation to interest rates. We primarily achieve this by taking corporate credit risk. To mitigate the risk of impairment, we employ bottom-up credit selection to evaluate investment ideas. We use rigorous underwriting standards and deep fundamental analysis to identify, assess, and price a bond’s default risk. This process guides our capital allocation to sectors offering the best risk-adjusted return.
The Fund attempts to mitigate interest rate risk, operating with a duration of roughly between 1-2 over the course of the past year – less than half that of our benchmark. We do not attempt to generate meaningful alpha by betting on the direction of interest rates. Instead, we aim to keep our sensitivity to interest rates low by buying shorter-dated bonds, using hedges such as Treasury futures, and purchasing floating rate instruments. Our floating rate exposure reached as high as 57% of the portfolio from the end of June through most of the September quarter, but reduced this level in the December quarter due to relative value. We ended 2016 with roughly 40% floating rate exposure.
We ended the period with just over 80% of the Fund allocated to structured products, primarily investment-grade tranches of CLOs, agency-backed specified mortgage pools (including mortgage futures), and A-rated subprime auto ABS. These sectors continue to be instrumental in helping us improve the overall rating of the portfolio, reduce duration, and provide diversification. Despite the increased use of structured products, we still anticipate the bulk of our alpha will be driven from investments in corporate debt instruments. Our high yield exposure ended the year at roughly 15%. Despite sub-investment grade bond yields coming down meaningfully from February highs, we have been able to find select opportunities. That said, a 15% exposure to high yield is below what we consider a neutral exposure and we have not increased it further due to poor relative value.
Our best-performing sectors were high yield bonds, which contributed 55 basis points to performance, and CLOs, which contributed 130 basis points. These were offset by declines in rate-sensitive municipal bonds. All other sectors generated modestly positive returns during the period. Higher beta high yield names were the best performers among our corporate bond investments, including Micron, Cornerstone Chemicals, and Interface Securities.
We remain focused on maximizing risk-adjusted returns in a low rate environment characterized by compressed credit spreads. As investor compensation for adding incremental default risk from owning lower-rated corporate bonds is well below average, we are concentrating on issues with stable or improving cash flows that we expect to perform through an entire business cycle. Today, higher credit quality investments possess greater relative value and we seek to avoid value traps in buying them. We believe our disciplined credit process will continue to add value whether credit spreads are widening or tightening. This will be a key driver of outperformance going forward.
Sincerely,
Robert H. Snyder
Portfolio Manager
Thomas D.D. Graff, CFA
Portfolio Manager
Brown Advisory Strategic Bond FundA Message to Our Shareholders
December 31, 2016
Past performance is not a guarantee of future results.
Mutual fund investing involves risk. Principal loss is possible. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Municipal securities are subject to adverse political or economic factors, including changes in the tax law. Inflation-indexed bonds see the principal value of the security increased as the Consumer Price Index increases. Should the Consumer Price Index decline, those securities should be adversely impacted. A non-diversified fund may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, non-diversified Fund is more exposed to individual stock volatility than a diversified fund. The fund may make short sales of securities, which involve the risk that losses in a security may exceed the original amount invested in that security. The risks of investments in derivatives, including options on futures contracts and options on futures contracts include imperfect correlation between the value of these instruments and the underlying assets; risks of default by the other party to the derivative transactions; risks that the transactions may result in losses that partially or completely offset gains in portfolio positions; and risks that the derivative transactions may not be liquid. Income from tax-exempt securities may be subject to state and local taxes and a portion of income may be subject to the federal alternative minimum tax for certain investors. Bond ratings are grades given to bonds that indicate their credit quality as determined by a private independent rating service such as Standard & Poor’s. The firm evaluates a bond issuer’s financial strength, or its ability to pay a bond’s principal and interest in a timely fashion. Ratings are expressed as letters ranging from ‘AAA’, which is the highest grade, to ‘D’, which is the lowest grade. In limited situations when the rating agency has not issued a formal rating, the Adviser will classify the security as non-rated.
Diversification does not assure a profit or protect against loss in a declining market.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory Strategic Bond FundSchedule of Investments
December 31, 2016 (Unaudited)
Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Asset Backed Securities — 45.0% | |
| | 73,972 | | Aircraft Certificate Owner Trust, Series 2003^ | | | 7.00 | % | 09/20/2022 | | | 78,133 | |
| | 175,000 | | American Credit Acceptance Receivables Trust, Series 2014-1 D^ | | | 5.20 | % | 04/12/2021 | | | 177,156 | |
| | 96,260 | | American Credit Acceptance Receivables Trust, Series 2014-2 C^ | | | 3.59 | % | 03/10/2020 | | | 96,897 | |
| | 150,000 | | American Credit Acceptance Receivables Trust, Series 2015-1 C^ | | | 4.29 | % | 04/12/2021 | | | 152,674 | |
| | 280,000 | | AmeriCredit Automobile Receivables Trust, Series 2013-2 E^ | | | 3.41 | % | 10/08/2020 | | | 282,594 | |
| | 25,000 | | AmeriCredit Automobile Receivables Trust, Series 2013-3 C | | | 2.38 | % | 06/10/2019 | | | 25,102 | |
| | 125,000 | | AmeriCredit Automobile Receivables Trust, Series 2013-4 C | | | 2.72 | % | 09/09/2019 | | | 125,846 | |
| | 104,000 | | AmeriCredit Automobile Receivables Trust, Series 2014-2 B | | | 1.60 | % | 07/08/2019 | | | 104,111 | |
| | 205,000 | | AmeriCredit Automobile Receivables Trust, Series 2014-2 C | | | 2.18 | % | 06/08/2020 | | | 206,333 | |
| | 555,000 | | AmeriCredit Automobile Receivables Trust, Series 2015-2 C | | | 2.40 | % | 01/08/2021 | | | 559,883 | |
| | 500,000 | | Babson CLO, Ltd., Series 2013-I#^ | | | 4.38 | % | 04/20/2025 | | | 499,678 | |
| | 400,000 | | Capital Auto Receivables Asset Trust, Series 2014-1 B | | | 2.22 | % | 01/22/2019 | | | 402,149 | |
| | 85,033 | | Continental Airlines Pass Through Trust, Series 2000-1 A | | | 8.05 | % | 05/01/2022 | | | 94,599 | |
| | 82,548 | | CPS Auto Receivables Trust, Series 2014-B^ | | | 1.11 | % | 11/15/2018 | | | 82,480 | |
| | 84,201 | | CPS Auto Receivables Trust, Series 2014-C^ | | | 1.31 | % | 02/15/2019 | | | 84,180 | |
| | 93,906 | | CPS Auto Receivables Trust, Series 2016-D^ | | | 1.50 | % | 06/15/2020 | | | 93,836 | |
| | 129,000 | | Dell Equipment Finance Trust, Series 2015-1^ | | | 1.30 | % | 03/23/2020 | | | 129,036 | |
| | 134,545 | | DT Auto Owner Trust, Series 2015-2^ | | | 1.88 | % | 05/15/2019 | | | 134,565 | |
| | 130,000 | | DT Auto Owner Trust, Series 2015-3^ | | | 2.46 | % | 11/15/2019 | | | 130,490 | |
| | 85,000 | | DT Auto Owner Trust, Series 2016-1^ | | | 2.79 | % | 05/15/2020 | | | 85,527 | |
| | 98,560 | | Exeter Automobiles Receivables Trust, Series 2014-1^ | | | 2.42 | % | 01/15/2019 | | | 98,647 | |
| | 122,625 | | Exeter Automobiles Receivables Trust, Series 2016-3^ | | | 1.84 | % | 11/16/2020 | | | 122,483 | |
| | 500,000 | | Finn Square CLO, Ltd.#^ | | | 4.46 | % | 12/24/2023 | | | 499,641 | |
| | 87,857 | | Flagship Credit Auto Trust, Series 2016-3^ | | | 1.61 | % | 12/16/2019 | | | 87,898 | |
| | 1,500,000 | | Highbridge Loan Management, Series 4a-2014 A2a#^ | | | 2.94 | % | 07/28/2025 | | | 1,500,170 | |
| | 1,000,000 | | Highbridge Loan Management, Series 7a-2015#^ | | | 4.66 | % | 11/15/2026 | | | 967,616 | |
| | 2,000,000 | | Highbridge Loan Management, Series 6a-2015 C#^ | | | 3.95 | % | 05/05/2027 | | | 2,004,648 | |
| | 825,000 | | Madison Park Funding XVII, Ltd., Series 2015-17A#^ | | | 2.88 | % | 07/21/2027 | | | 825,050 | |
| | 500,000 | | Madison Park Funding XVII, Ltd., Series 2015-17A#^ | | | 3.53 | % | 07/21/2027 | | | 500,123 | |
| | 94,591 | | MVW Owner Trust, Series 2016-1^ | | | 2.25 | % | 12/20/2033 | | | 92,802 | |
| | 750,000 | | Octagon Investment Partners 24, Ltd., Series A-2#^ | | | 2.86 | % | 05/21/2027 | | | 750,038 | |
| | 1,000,000 | | Octagon Investment Partners XXII, Ltd., Series B-2#^ | | | 3.18 | % | 11/25/2025 | | | 1,000,215 | |
| | 1,000,000 | | Octagon Investment Partners XXII, Ltd., Series C-1#^ | | | 4.13 | % | 11/25/2025 | | | 1,000,380 | |
| | 118,983 | | Orange Lake Timeshare Trust, Series 2016-A^ | | | 2.61 | % | 03/08/2029 | | | 117,369 | |
| | 50,000 | | Oscar U.S. Funding Trust V, Series 2016-5#^ | | | 1.94 | % | 11/15/2019 | | | 50,109 | |
| | 1,000,000 | | OZLM Funding IV, Ltd., Series 2013-4#^ | | | 2.63 | % | 07/22/2025 | | | 998,045 | |
| | 750,000 | | OZLM IX, Ltd., Series 2014-9A B#^ | | | 4.18 | % | 01/20/2027 | | | 750,277 | |
| | 1,000,000 | | OZLM XIII, Ltd.#^ | | | 2.99 | % | 07/30/2027 | | | 1,003,835 | |
| | 200,000 | | Prestige Auto Receivables Trust, Series 2014-1 B^ | | | 1.91 | % | 04/15/2020 | | | 200,475 | |
| | 203,093 | | Prestige Auto Receivables Trust, Series 2015-1 A-3^ | | | 1.53 | % | 02/15/2021 | | | 203,207 | |
| | 250,000 | | Santander Drive Auto Receivables Trust, Series 2015-1 | | | 1.97 | % | 11/15/2019 | | | 250,550 | |
| | 261,000 | | Santander Drive Auto Receivables Trust, Series 2015-4 | | | 2.26 | % | 06/15/2020 | | | 262,568 | |
| | 400,000 | | Santander Drive Auto Receivables Trust, Series 2016-1 | | | 2.47 | % | 12/15/2020 | | | 402,921 | |
| | 212,965 | | Santander Drive Auto Receivables Trust, Series 2013-4 | | | 3.25 | % | 01/15/2020 | | | 214,367 | |
| | 231,743 | | Santander Drive Auto Receivables Trust, Series 2013-5 | | | 2.25 | % | 06/17/2019 | | | 232,521 | |
| | 200,323 | | Santander Drive Auto Receivables Trust, Series 2014-1 | | | 2.36 | % | 04/15/2020 | | | 201,191 | |
| | 44,034 | | Santander Drive Auto Receivables Trust, Series 2014-5 | | | 1.76 | % | 09/16/2019 | | | 44,088 | |
| | 219,978 | | Sierra Timeshare Receivables Funding LLC, Series 2014-3 A^ | | | 2.30 | % | 10/20/2031 | | | 219,688 | |
| | 88,403 | | Sierra Timeshare Receivables Funding LLC, Series 2015-2 A^ | | | 2.43 | % | 06/20/2032 | | | 88,341 | |
| | 88,777 | | Sierra Timeshare Receivables Funding LLC, Series 2015-3 A^ | | | 2.58 | % | 09/20/2032 | | | 88,428 | |
| | 92,513 | | Sierra Timeshare Receivables Funding LLC, Series 2016-2 A^ | | | 2.33 | % | 07/20/2033 | | | 90,940 | |
| | 137,284 | | Sierra Timeshare Receivables Funding LLC, Series 2016-3 A^ | | | 2.43 | % | 10/20/2033 | | | 135,098 | |
| | 1,000,000 | | Stewart Park CLO, Ltd., Series 2015-1#^ | | | 2.88 | % | 04/15/2026 | | | 1,001,051 | |
| | 1,000,000 | | Stewart Park CLO, Ltd., Series 2015-1#^ | | | 3.78 | % | 04/15/2026 | | | 1,002,737 | |
| | 111,021 | | SVO Mortgage LLC, Series 2012-A^ | | | 2.00 | % | 09/20/2029 | | | 109,105 | |
| | 1,500,000 | | Symphony CLO XIV, Ltd.#^ | | | 2.93 | % | 07/14/2026 | | | 1,500,938 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Strategic Bond FundSchedule of Investments
December 31, 2016 (Unaudited)
Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Asset Backed Securities — (Continued) | |
| | 350,000 | | TCF Auto Receivables Owner Trust, Series 2016-PT1 A^ | | | 1.93 | % | 06/15/2022 | | | 349,758 | |
| | 80,174 | | US Airways Pass Through Trust, Series 1999-1 A | | | 8.36 | % | 07/20/2020 | | | 82,680 | |
| | 375,000 | | Verizon Owner Trust, Series 2016-1^ | | | 1.42 | % | 01/20/2021 | | | 372,859 | |
| | 500,000 | | Voya CLO, Ltd., Series 2013-1#^ | | | 4.38 | % | 04/15/2024 | | | 499,593 | |
| | 1,000,000 | | Voya CLO, Ltd., Series 2015-1#^ | | | 2.73 | % | 04/18/2027 | | | 1,000,101 | |
| | 1,000,000 | | Voya CLO, Ltd., Series 2015-1#^ | | | 3.63 | % | 04/18/2027 | | | 1,000,217 | |
| | 1,000,000 | | Voya CLO, Ltd., Series 2016-3#^ | | | 4.67 | % | 10/18/2027 | | | 982,301 | |
| | 105,825 | | VSE VOI Mortgage LLC, Series 2016-A^ | | | 2.54 | % | 07/20/2033 | | | 104,730 | |
| | 100,000 | | Westlake Automobile Receivables Trust, Series 2015-1 C^ | | | 2.29 | % | 11/16/2020 | | | 100,284 | |
| | 148,000 | | Westlake Automobile Receivables Trust, Series 2015-3 B^ | | | 2.21 | % | 05/17/2021 | | | 148,264 | |
| | 175,000 | | Westlake Automobile Receivables Trust, Series 2016-1 C^ | | | 3.29 | % | 09/15/2021 | | | 176,852 | |
| | 100,000 | | Westlake Automobile Receivables Trust, Series 2016-2 B^ | | | 2.30 | % | 11/15/2019 | | | 100,118 | |
| | 75,000 | | Westlake Automobile Receivables Trust, Series 2016-3 B^ | | | 2.07 | % | 12/15/2021 | | | 74,706 | |
| | 75,000 | | Westlake Automobile Receivables Trust, Series 2016-3 C^ | | | 2.46 | % | 01/18/2022 | | | 74,459 | |
| Total Asset Backed Securities (Cost $27,132,434) | | | | | | | | 27,229,751 | |
| | |
| Mortgage Backed Securities — 36.5% | |
| | 200,000 | | BAMLL Commercial Mortgage Securities Trust, Series 2013-DSNY#^ | | | 1.75 | % | 09/15/2026 | | | 200,219 | |
| | 100,000 | | Cosmopolitan Hotel Trust, Series 2016-COSMO#^ | | | 3.35 | % | 11/15/2033 | | | 100,782 | |
| | 200,000 | | CSMC Trust, Series 2014-TIKI#^ | | | 1.60 | % | 09/15/2038 | | | 198,786 | |
| | 804,123 | | FHLMC REMIC, Series 4107† | | | 3.00 | % | 08/15/2027 | | | 187,665 | |
| | 2,264,309 | | FHLMC REMIC, Series 4143† | | | 3.50 | % | 09/15/2042 | | | 278,516 | |
| | 1,189,520 | | FHLMC REMIC, Series 4495† | | | 3.50 | % | 07/15/2045 | | | 225,469 | |
| | 125,000 | | FHLMC SCRTT, Series 2016-1#^ | | | 3.00 | % | 09/25/2055 | | | 116,535 | |
| | 3,488,752 | | FHMS, Series K-046#† | | | 0.38 | % | 03/25/2025 | | | 92,825 | |
| | 811,193 | | FHMS, Series K-055#† | | | 1.37 | % | 03/25/2026 | | | 79,823 | |
| | 1,647,749 | | FHMS, Series K-056#† | | | 1.27 | % | 05/25/2026 | | | 150,628 | |
| | 699,746 | | FHMS, Series K-057#† | | | 1.19 | % | 07/25/2026 | | | 61,640 | |
| | 682,115 | | FHMS, Series K-058#† | | | 0.93 | % | 08/25/2026 | | | 47,967 | |
| | 2,921,005 | | FHMS, Series K-059#† | | | 0.32 | % | 09/25/2026 | | | 74,722 | |
| | 560,000 | | FHMS, Series K-060#† | | | 1.89 | % | 12/25/2044 | | | 75,245 | |
| | 2,042,085 | | FHMS, Series K-721#† | | | 0.34 | % | 08/25/2022 | | | 33,576 | |
| | 1,111,965 | | FHMS, Series K-722#† | | | 1.31 | % | 03/25/2023 | | | 73,812 | |
| | 1,749,770 | | FHMS, Series K-723#† | | | 0.96 | % | 08/25/2023 | | | 91,061 | |
| | 57,975 | | FNMA, Pool# 785732 | | | 5.50 | % | 11/01/2019 | | | 59,851 | |
| | 704,371 | | FNMA, Pool# AU6230 | | | 5.00 | % | 09/01/2043 | | | 769,724 | |
| | 7,500,000 | | FNMA, 2.5%, Due TBA January | | | 2.50 | % | 01/15/2032 | | | 7,512,451 | |
| | 7,500,000 | | FNMA, 3.0%, Due TBA January | | | 3.00 | % | 01/15/2032 | | | 7,696,875 | |
| | 63,176 | | Freddie Mac STACR Debt Notes, Series 2014-DN1# | | | 1.58 | % | 02/26/2024 | | | 63,201 | |
| | 700,000 | | Freddie Mac STACR Debt Notes, Series 2015-DNA1# | | | 2.61 | % | 10/25/2027 | | | 710,297 | |
| | 47,192 | | Freddie Mac STACR Debt Notes, Series 2015-DNA3# | | | 1.94 | % | 04/25/2028 | | | 47,215 | |
| | 1,000,000 | | Freddie Mac STACR Debt Notes, Series 2015-DNA3# | | | 3.61 | % | 04/25/2028 | | | 1,029,306 | |
| | 500,000 | | Freddie Mac STACR Debt Notes, Series 2016-DNA1# | | | 3.66 | % | 07/25/2028 | | | 514,947 | |
| | 280,000 | | Freddie Mac STACR Debt Notes, Series 2016-DNA2# | | | 2.78 | % | 10/25/2028 | | | 283,641 | |
| | 200,000 | | FREMF Mortgage Trust, Series 2016-K723# | | | 3.58 | % | 10/25/2039 | | | 186,383 | |
| | 400,000 | | FREMF Mortgage Trust, Series 2013-K712#^ | | | 3.36 | % | 05/25/2045 | | | 406,478 | |
| | 159,560 | | FREMF Mortgage Trust, Series 2013-KF02#^ | | | 3.53 | % | 12/25/2045 | | | 160,365 | |
| | 695,093 | | GNMA REMIC Trust, Series 2014-45#† | | | 0.78 | % | 07/16/2054 | | | 34,761 | |
| | 526,073 | | GNMA REMIC Trust, Series 2014-135#† | | | 0.86 | % | 01/16/2056 | | | 29,362 | |
| | 561,834 | | GNMA REMIC Trust, Series 2015-172#† | | | 0.98 | % | 03/16/2057 | | | 40,255 | |
| | 731,089 | | GNMA REMIC Trust, Series 2016-40#† | | | 0.82 | % | 07/16/2057 | | | 48,196 | |
| | 579,381 | | GNMA REMIC Trust, Series 2016-56#† | | | 1.01 | % | 11/16/2057 | | | 46,362 | |
| | 616,869 | | GNMA REMIC Trust, Series 2016-127#† | | | 0.96 | % | 05/16/2058 | | | 49,264 | |
| | 655,571 | | GNMA REMIC Trust, Series 2016-98#† | | | 0.98 | % | 05/16/2058 | | | 51,279 | |
| | 624,867 | | GNMA REMIC Trust, Series 2016-110# | | | 1.05 | % | 05/16/2058 | | | 50,611 | |
| | 200,000 | | JPMCC, Series 2016-ASH#^ | | | 2.20 | % | 10/15/2034 | | | 200,257 | |
| Total Mortgage Backed Securities (Cost $22,087,626) | | | | | | | | 22,080,352 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Strategic Bond FundSchedule of Investments
December 31, 2016 (Unaudited)
| Par | | | | | | | | | |
Value/Shares | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Corporate Bonds & Notes — 18.6% | |
| | 140,000 | | 21st Century Fox America, Inc. | | | 3.00 | % | 09/15/2022 | | | 139,523 | |
| | 250,000 | | Activision Blizzard, Inc.^ | | | 6.13 | % | 09/15/2023 | | | 273,638 | |
| | 300,000 | | American Tower Corp. | | | 3.40 | % | 02/15/2019 | | | 306,740 | |
| | 310,000 | | Analog Devices, Inc. | | | 3.90 | % | 12/15/2025 | | | 318,236 | |
| | 134,000 | | Brookfield Residential Properties, Inc.^ | | | 6.13 | % | 07/01/2022 | | | 135,340 | |
| | 50,000 | | Canadian Natural Resources, Ltd. | | | 5.90 | % | 02/01/2018 | | | 52,062 | |
| | 300,000 | | Capital One Financial Corp.# | | | 5.55 | % | 12/29/2049 | | | 304,500 | |
| | 300,000 | | Carrols Restaurant Group, Inc. | | | 8.00 | % | 05/01/2022 | | | 324,750 | |
| | 200,000 | | Clorox Co. | | | 3.05 | % | 09/15/2022 | | | 203,050 | |
| | 200,000 | | CommScope Technologies Finance LLC^ | | | 6.00 | % | 06/15/2025 | | | 213,000 | |
| | 500,000 | | Cornerstone Chemical Co.^ | | | 9.38 | % | 03/15/2018 | | | 503,750 | |
| | 220,000 | | Crown Castle International Corp. | | | 4.88 | % | 04/15/2022 | | | 234,806 | |
| | 300,000 | | Dana, Inc. | | | 6.00 | % | 09/15/2023 | | | 314,625 | |
| | 650,000 | | Dollar Tree, Inc. | | | 5.75 | % | 03/01/2023 | | | 691,483 | |
| | 150,000 | | E*TRADE Financial Corp. | | | 5.38 | % | 11/15/2022 | | | 158,766 | |
| | 500,000 | | Ecolab, Inc. | | | 2.00 | % | 01/14/2019 | | | 500,631 | |
| | 300,000 | | Education Realty Operating Partnership L.P. | | | 4.60 | % | 12/01/2024 | | | 299,520 | |
| | 100,000 | | Fidelity National Information Services, Inc. | | | 5.00 | % | 10/15/2025 | | | 109,104 | |
| | 370,000 | | FMC Technologies, Inc. | | | 3.45 | % | 10/01/2022 | | | 370,638 | |
| | 470,000 | | HollyFrontier Corp. | | | 5.88 | % | 04/01/2026 | | | 481,133 | |
| | 200,000 | | INEOS Group Holdings S.A.^ | | | 5.88 | % | 02/15/2019 | | | 204,600 | |
| | 100,000 | | Interface Master Holdings, Inc.^ | | | 12.50 | % | 08/01/2018 | | | 95,500 | |
| | 250,000 | | Interface Security Systems Holdings, Inc. | | | 9.25 | % | 01/15/2018 | | | 249,687 | |
| | 100,000 | | Kraton Polymers LLC^ | | | 10.50 | % | 04/15/2023 | | | 113,250 | |
| | 550,000 | | Lamar Media Corp. | | | 5.75 | % | 02/01/2026 | | | 580,937 | |
| | 185,000 | | Mallinckrodt International Finance S.A.^ | | | 5.75 | % | 08/01/2022 | | | 178,988 | |
| | 25,000 | | Martin Marietta Materials, Inc. | | | 4.25 | % | 07/02/2024 | | | 25,440 | |
| | 300,000 | | Meritor, Inc. | | | 6.25 | % | 02/15/2024 | | | 295,500 | |
| | 150,000 | | Micron Technology, Inc. | | | 5.88 | % | 02/15/2022 | | | 156,938 | |
| | 500,000 | | Micron Technology, Inc.^ | | | 7.50 | % | 09/15/2023 | | | 555,000 | |
| | 125,000 | | Mohegan Tribal Gaming Authority^ | | | 7.88 | % | 10/15/2024 | | | 127,969 | |
| | 375,000 | | NOVA Chemicals Corp.^ | | | 5.25 | % | 08/01/2023 | | | 380,156 | |
| | 100,000 | | Novelis Corp.^ | | | 6.25 | % | 08/15/2024 | | | 106,250 | |
| | 75,000 | | Novelis Corp.^ | | | 5.88 | % | 09/30/2026 | | | 75,938 | |
| | 165,000 | | Outfront Media Capital LLC | | | 5.88 | % | 03/15/2025 | | | 173,456 | |
| | 300,000 | | Reliance Steel & Aluminum Co. | | | 4.50 | % | 04/15/2023 | | | 302,221 | |
| | 500,000 | | SESI LLC | | | 6.38 | % | 05/01/2019 | | | 502,500 | |
| | 98,000 | | Springs Industries, Inc. | | | 6.25 | % | 06/01/2021 | | | 101,920 | |
| | 300,000 | | Synovus Financial Corp.# | | | 5.75 | % | 12/15/2025 | | | 313,500 | |
| | 100,000 | | United Rentals North America, Inc. | | | 4.63 | % | 07/15/2023 | | | 102,375 | |
| | 210,000 | | Verisk Analytics, Inc. | | | 4.00 | % | 06/15/2025 | | | 213,318 | |
| | 240,000 | | Verizon Communications, Inc. | | | 5.15 | % | 09/15/2023 | | | 265,757 | |
| | 150,000 | | Versum Materials, Inc.^ | | | 5.50 | % | 09/30/2024 | | | 153,750 | |
| | 50,000 | | Viking Cruises, Ltd.^ | | | 8.50 | % | 10/15/2022 | | | 52,063 | |
| Total Corporate Bonds & Notes (Cost $11,202,736) | | | | | | | | 11,262,308 | |
| | |
| Municipal Bonds — 2.2% | |
| | 225,000 | | North Texas Tollway Authority | | | 8.91 | % | 02/01/2030 | | | 262,773 | |
| | 750,000 | | Washington State Housing Finance Commission^ | | | 4.00 | % | 01/01/2024 | | | 732,570 | |
| | 370,000 | | Yamhill County Hospital Authority | | | 3.50 | % | 11/15/2020 | | | 364,924 | |
| Total Municipal Bonds (Cost $1,390,211) | | | | | | | | 1,360,267 | |
| | |
| Preferred Stocks — 0.2% | |
| | 2,400 | | AGNC Investment Corp. — Series B, 7.75% | | | | | | | | 60,024 | |
| | 2,975 | | Regency Centers Corp. — Series 6, 6.63% | | | | | | | | 74,673 | |
| Total Preferred Stocks (Cost $136,160) | | | | | | | | 134,697 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Strategic Bond FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Par | | | | | |
| | Value/Shares | | Security Description | | Value $ | |
| | |
| Mutual Funds — 1.9% | |
| | | 8,000 | | BlackRock Massachusetts Tax-Exempt Trust | | | 113,600 | |
| | | 17,204 | | BlackRock MuniYield Michigan Quality Fund | | | 233,802 | |
| | | 5,000 | | Invesco Pennsylvania Value Municipal Income Trust | | | 60,800 | |
| | | 9,600 | | Nuveen Massachusetts Quality Municipal Income Fund | | | 126,144 | |
| | | 9,184 | | Nuveen Michigan Quality Municipal Income Fund | | | 122,515 | |
| | | 8,063 | | Nuveen Pennsylvania Quality Municipal Income Fund | | | 105,464 | |
| | | 11,341 | | PIMCO California Municipal Income Fund III | | | 128,607 | |
| | | 11,168 | | PIMCO New York Municipal Income Fund II | | | 133,793 | |
| | | 12,940 | | PIMCO New York Municipal Income Fund III | | | 129,917 | |
| Total Mutual Funds (Cost $1,223,885) | | | 1,154,642 | |
| | | | | | | | | |
| Exchange Traded Funds — 4.9% | |
| | | 34,200 | | iShares iBoxx $ High Yield Corporate Bond ETF | | | 2,960,010 | |
| Total Exchange Traded Funds (Cost $2,935,802) | | | 2,960,010 | |
| | | | | | | | | |
| Short-Term Investments — 18.6% | |
| | |
| Money Market Funds — 18.4% | |
| | | 11,143,833 | | First American Treasury Obligations Fund — Class Z, 0.39%* | | | 11,143,833 | |
| | |
| U.S. Treasury Bills — 0.2% | |
| | | 100,000 | | United States Treasury Bill~ | | | 99,948 | |
| Total Short-Term Investments (Cost $11,243,781) | | | 11,243,781 | |
| Total Investments — 127.9% (Cost $77,352,635) | | | 77,425,808 | |
| Liabilities in Excess of Other Assets — (27.9)% | | | (16,871,702 | ) |
| NET ASSETS — 100.0% | | $ | 60,554,106 | |
| | | | | | | | | |
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| | | | |
| Asset Backed Securities | | | 45.0 | % |
| Mortgage Backed Securities | | | 36.5 | % |
| Corporate Bonds & Notes | | | 18.6 | % |
| Money Market Funds | | | 18.4 | % |
| Exchange Traded Funds | | | 4.9 | % |
| Municipal Bonds | | | 2.2 | % |
| Mutual Funds | | | 1.9 | % |
| Preferred Stocks | | | 0.2 | % |
| U.S. Treasury Bills | | | 0.2 | % |
| Other Assets and Liabilities | | | (27.9 | )% |
| | | | 100.0 | % |
| # | Variable rate security. Rate disclosed is as of December 31, 2016. |
| ^ | 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. At December 31, 2016, the value of these securities amounted to $29,306,026, or 48.4% of net assets. |
| † | Interest Only Security |
| * | Annualized seven-day yield as of December 31, 2016. |
| ~ | This security is pledged as collateral in connection with open futures contracts. |
Futures Contracts — Short (Note 7)
| | | | | | | Notional | | | Notional | | | Unrealized Appreciation | |
Issue | | Contracts | | Expiration Date | | Amount | | | Value | | | (Depreciation) | |
| U.S. Treasury 5-Year Note Futures March 2017 | | | (97) | | 03/31/2017 | | $ | (11,417,361 | ) | | $ | (11,413,415 | ) | | $ | 3,946 | |
| | | | | | | | $ | (11,417,361 | ) | | $ | (11,413,415 | ) | | $ | 3,946 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Maryland Bond FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
During the six months ended December 31, 2016, the Brown Advisory Maryland Bond Fund (the “Fund”) was down 3.08%. During the same period, the Bloomberg Barclays 1-10 Year Blended Municipal Bond Index, the Fund’s benchmark, was down 2.72%.
Municipal bond yields basically moved one direction during the second half of 2016: up. Even before the election, the highest rated 10-year municipal yields had risen from 1.36% on June 30 to 1.73% by November 8. The rise only accelerated as Donald Trump’s election victory and the Republican sweep in Congress fueled optimism about economic growth. These municipal yields traded as high as 2.56% before ending the year at 2.35%, roughly 100 basis points higher than where they started the period.
Municipal credit spreads also widened dramatically during the period as a confluence of negative technical factors weighed on the market. 2016 marked a record year for primary issuance of municipal debt as issuers rushed to lock-in low cost of capital. As new issue supply reached its crescendo just before the election, investor demand seemed to suddenly evaporate as the surprising outcome drove many investors to the sidelines. The temporary supply/demand imbalance, combined with fiscal policy uncertainty, caused some investors to shed risk. This translated to low investment grade municipal revenue bond spreads widening by roughly 100 basis points on top of the 100 basis point move in rates. This caused these revenue bonds to reach yield levels not seen since 2013.
We want to emphasize our belief that this general credit spread underperformance was driven by technical factors, rather than fundamental credit deterioration in any of our holdings. The Fund aims to generate performance primarily though individual security analysis and income generation, rather than through duration decisions. During periods of heightened volatility, when general municipal credit spreads move dramatically wider, our focus on credit sensitive sectors can lead to temporary periods of underperformance. It is our long-term approach to credit selection, grounded in bottom-up fundamental research, that provides us with the confidence to use market volatility as an opportunity, not as a distraction.
Looking forward, we cannot know where interest rates may go. We believe, however, that a disciplined and consistent process can lead to attractive income generation over time. We believe our bottom-up fundamental selection process has the potential to serve our investors well.
Sincerely,
Stephen M. Shutz, CFA
Portfolio Manager
Past performance is not a guarantee of future results.
Mutual fund investing involves risk. Principal loss is possible. The Fund is non-diversified which means it may invest a large percentage of its assets in the securities of fewer issuers. Investment in a limited number of issuers exposes the Fund to greater market risk than if its assets were diversified among a greater number of issuers. The Fund is also subject to interest rate risk which is the risk that debt securities in the Fund’s portfolio will decline in value because of an increase in market interest rates. Municipal securities are subject to adverse political or economic factors, including changes in the tax law. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal alternative minimum tax for certain investors.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory Maryland Bond FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Municipal Bonds — 98.1% | |
| | |
| General Obligation Bonds — 39.9% | |
| | | 2,225,000 | | Anne Arundel County Maryland | | | 5.00 | % | 04/01/2022 | | | 2,581,823 | |
| | | 575,000 | | Baltimore County Maryland | | | 5.00 | % | 11/01/2017 | | | 594,469 | |
| | | 3,000,000 | | Baltimore County Maryland | | | 4.50 | % | 09/01/2020 | | | 3,313,260 | |
| | | 1,305,000 | | Baltimore Maryland | | | 5.00 | % | 10/15/2018 | | | 1,393,753 | |
| | | 775,000 | | Cecil County Maryland | | | 4.00 | % | 02/01/2018 | | | 799,955 | |
| | | 1,390,000 | | Charles County Maryland | | | 5.00 | % | 11/01/2019 | | | 1,528,472 | |
| | | 1,970,000 | | Charles County Maryland | | | 5.00 | % | 11/01/2021 | | | 2,267,844 | |
| | | 1,145,000 | | Easton, Town of Maryland | | | 4.00 | % | 02/01/2020 | | | 1,229,192 | |
| | | 1,145,000 | | Easton, Town of Maryland | | | 4.00 | % | 02/01/2021 | | | 1,248,187 | |
| | | 1,000,000 | | Frederick Maryland | | | 5.00 | % | 09/01/2017 | | | 1,027,580 | |
| | | 1,120,000 | | Maryland National Capital Park & Planning Commission | | | 5.00 | % | 01/15/2019 | | | 1,205,120 | |
| | | 1,085,000 | | Maryland National Capital Park & Planning Commission | | | 5.00 | % | 01/15/2020 | | | 1,198,990 | |
| | | 715,000 | | Maryland State | | | 5.25 | % | 03/01/2017 | | | 720,420 | |
| | | 835,000 | | Maryland State | | | 5.25 | % | 08/15/2017 | | | 857,704 | |
| | | 1,000,000 | | Maryland State | | | 4.50 | % | 08/01/2019 | | | 1,079,820 | |
| | | 3,145,000 | | Maryland State | | | 5.00 | % | 08/01/2023 | | | 3,736,040 | |
| | | 1,945,000 | | Maryland State | | | 5.00 | % | 08/01/2023 | | | 2,257,698 | |
| | | 5,000,000 | | Montgomery County Maryland | | | 5.00 | % | 11/01/2023 | | | 5,950,800 | |
| | | 5,000,000 | | Montgomery County Maryland | | | 5.00 | % | 12/01/2024 | | | 5,952,850 | |
| | | 3,320,000 | | Prince George’s County Maryland | | | 5.00 | % | 09/15/2026 | | | 3,760,431 | |
| | | 1,380,000 | | Talbot County Maryland | | | 5.00 | % | 12/15/2018 | | | 1,480,740 | |
| | | 1,270,000 | | Talbot County Maryland | | | 5.00 | % | 12/15/2019 | | | 1,398,524 | |
| | | 1,645,000 | | Washington Suburban Sanitary Commission | | | 5.00 | % | 06/01/2023 | | | 1,949,177 | |
| | | 1,940,000 | | Wicomico County Maryland | | | 4.00 | % | 11/01/2019 | | | 2,076,169 | |
| | | 1,985,000 | | Wicomico County Maryland | | | 4.00 | % | 11/01/2020 | | | 2,156,345 | |
| | | 2,225,000 | | Worcester County Maryland | | | 5.00 | % | 03/01/2023 | | | 2,616,044 | |
| | | | | | | | | | | | | 54,381,407 | |
| Revenue Bonds — 58.2% | |
| | | 520,000 | | Baltimore Maryland | | | 5.00 | % | 06/15/2030 | | | 569,020 | |
| | | 670,000 | | Baltimore Maryland | | | 5.00 | % | 06/15/2033 | | | 724,491 | |
| | | 1,550,000 | | Franklin County Ohio | | | 5.00 | % | 11/15/2034 | | | 1,675,503 | |
| | | 2,375,000 | | Frederick County Maryland | | | 5.50 | % | 07/01/2040 | | | 2,447,034 | |
| | | 1,000,000 | | Harris County Cultural Education Facilities Finance Corp. | | | 5.00 | % | 01/01/2037 | | | 1,044,340 | |
| | | 4,800,000 | | Houston Texas Airport System | | | 5.00 | % | 07/15/2020 | | | 5,017,440 | |
| | | 2,000,000 | | Lancaster County Hospital Authority | | | 5.00 | % | 07/01/2035 | | | 2,135,520 | |
| | | 1,000,000 | | Maryland Community Development Administration Housing | | | 3.25 | % | 03/01/2036 | | | 951,800 | |
| | | 1,185,000 | | Maryland Economic Development Corp. | | | 5.25 | % | 07/01/2024 | | | 1,206,994 | |
| | | 1,025,000 | | Maryland Economic Development Corp.# | | | 2.55 | % | 12/01/2025 | | | 1,017,845 | |
| | | 700,000 | | Maryland Economic Development Corp. | | | 5.00 | % | 06/01/2027 | | | 752,416 | |
| | | 400,000 | | Maryland Economic Development Corp. | | | 5.00 | % | 07/01/2027 | | | 432,920 | |
| | | 850,000 | | Maryland Economic Development Corp. | | | 5.00 | % | 07/01/2031 | | | 911,038 | |
| | | 2,300,000 | | Maryland Economic Development Corp. | | | 5.75 | % | 06/01/2035 | | | 2,478,802 | |
| | | 2,500,000 | | Maryland Industrial Development Financing Authority Series B # | | | 0.95 | % | 09/01/2040 | | | 2,496,850 | |
| | | 500,000 | | Maryland State Department of Transportation | | | 4.00 | % | 05/15/2020 | | | 505,890 | |
| | | 1,000,000 | | Maryland State Department of Transportation | | | 5.00 | % | 12/15/2020 | | | 1,128,580 | |
| | | 1,055,000 | | Maryland State Department of Transportation | | | 4.00 | % | 05/15/2022 | | | 1,165,796 | |
| | | 215,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 07/01/2018 | | | 218,973 | |
| | | 260,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 07/01/2018 | | | 274,152 | |
| | | 35,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 07/01/2018 | | | 35,723 | |
| | | 1,000,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 07/01/2023 | | | 1,123,530 | |
| | | 500,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 08/15/2023 | | | 584,025 | |
| | | 500,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 07/01/2024 | | | 559,255 | |
| | | 465,000 | | Maryland State Health & Higher Educational Facilities | | | 5.50 | % | 07/01/2024 | | | 489,050 | |
| | | 1,250,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 07/01/2025 | | | 1,451,475 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Maryland Bond FundSchedule of Investments
December 31, 2016 (Unaudited)
| Par | | | | | | | | | |
Value/Shares | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Municipal Bonds — (Continued) | |
| | |
| Revenue Bonds — (Continued) | |
| | 1,500,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 07/01/2025 | | | 1,727,355 | |
| | 1,000,000 | | Maryland State Health & Higher Educational Facilities | | | 6.00 | % | 07/01/2025 | | | 1,143,150 | |
| | 420,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 07/01/2026 | | | 494,357 | |
| | 1,605,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 07/01/2028 | | | 1,844,803 | |
| | 100,000 | | Maryland State Health & Higher Educational Facilities | | | 4.00 | % | 10/01/2030 | | | 105,662 | |
| | 1,130,000 | | Maryland State Health & Higher Educational Facilities | | | 6.25 | % | 07/01/2031 | | | 1,281,567 | |
| | 300,000 | | Maryland State Health & Higher Educational Facilities | | | 4.00 | % | 10/01/2031 | | | 315,510 | |
| | 1,070,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 07/01/2032 | | | 1,202,873 | |
| | 250,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 06/01/2033 | | | 273,975 | |
| | 1,250,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 08/15/2033 | | | 1,388,088 | |
| | 250,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 07/01/2034 | | | 262,772 | |
| | 200,000 | | Maryland State Health & Higher Educational Facilities | | | 4.50 | % | 07/01/2035 | | | 200,650 | |
| | 430,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 06/01/2036 | | | 465,918 | |
| | 3,400,000 | | Maryland State Health & Higher Educational Facilities | | | 5.00 | % | 05/15/2040 | | | 3,665,370 | |
| | 1,015,000 | | Maryland State Health & Higher Educational Facilities | | | 4.75 | % | 07/01/2047 | | | 1,025,373 | |
| | 4,255,000 | | Maryland State Transportation Authority | | | 5.00 | % | 03/01/2022 | | | 4,816,362 | |
| | 1,000,000 | | Maryland State Transportation Authority | | | 5.00 | % | 06/01/2022 | | | 1,128,350 | |
| | 9,000,000 | | Maryland State Transportation Authority | | | 5.00 | % | 07/01/2036 | | | 9,405,360 | |
| | 2,525,000 | | Maryland Water Quality Financing Administration | | | 5.00 | % | 03/01/2020 | | | 2,795,024 | |
| | 1,975,000 | | Montgomery County Housing Opportunities Commission | | | 2.95 | % | 01/01/2034 | | | 1,796,322 | |
| | 1,750,000 | | New Hope Cultural Education Facilities Finance Corp. | | | 5.00 | % | 07/01/2025 | | | 1,912,610 | |
| | 1,185,000 | | New Hope Cultural Education Facilities Finance Corp. | | | 5.75 | % | 07/01/2051 | | | 1,249,737 | |
| | 2,000,000 | | Newport News Economic Development Authority | | | 5.00 | % | 12/01/2031 | | | 2,097,140 | |
| | 2,000,000 | | North Carolina Medical Care Commission | | | 5.00 | % | 10/01/2031 | | | 2,046,360 | |
| | 1,005,000 | | Prince William County Industrial Development Authority | | | 5.00 | % | 01/01/2023 | | | 1,084,003 | |
| | 1,000,000 | | University System of Maryland | | | 5.00 | % | 04/01/2018 | | | 1,049,530 | |
| | 3,280,000 | | Washington State Housing Finance Commission^ | | | 4.00 | % | 01/01/2026 | | | 3,153,818 | |
| | | | | | | | | | | | 79,330,501 | |
| Total Municipal Bonds (Cost $135,224,157) | | | | | | | | 133,711,908 | |
| | | | | | | | | | | | | |
| Short-Term Investments — 1.4% | |
| | |
| Money Market Funds — 1.4% | |
| | 2,003,754 | | First American Treasury Obligations Fund — Class Z, 0.39%* | | | | | | | | 2,003,754 | |
| Total Short-Term Investments (Cost $2,003,754) | | | | | | | | 2,003,754 | |
| Total Investments — 99.5% (Cost $137,227,911) | | | | | | | | 135,715,662 | |
| Other Assets in Excess of Liabilities — 0.5% | | | | | | | | 613,824 | |
| NET ASSETS — 100.0% | | | | | | | $ | 136,329,486 | |
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| | | | |
| Revenue Bonds | | | 58.2 | % |
| General Obligation Bonds | | | 39.9 | % |
| Money Market Funds | | | 1.4 | % |
| Other Assets and Liabilities | | | 0.5 | % |
| | | | 100.0 | % |
| # | Variable rate security. Rate disclosed is as of December 31, 2016. |
| ^ | 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. At December 31, 2016, the value of these securities amounted to $3,153,818 or 2.3% of net assets. |
| * | Annualized seven-day yield as of December 31, 2016. |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Tax Exempt Bond FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
During the six months ended December 31, 2016, the Brown Advisory Tax Exempt Bond Fund (the “Fund”) was down 2.98%. During the same period, the Bloomberg Barclays 1-10 Year Blended Municipal Bond Index, the Fund’s benchmark, was down 2.72%.
Municipal bond yields basically moved one direction during the second half of 2016: up. Even before the election, the highest rated 10-year municipal yields had risen from 1.36% on June 30 to 1.73% by November 8. The rise only accelerated as Donald Trump’s election victory and the Republican sweep in Congress fueled optimism about economic growth. These municipal yields traded as high as 2.56% before ending the year at 2.35%, roughly 100 basis points higher than where they started the period.
Municipal credit spreads also widened dramatically during the period as a confluence of negative technical factors weighed on the market. 2016 marked a record year for primary issuance of municipal debt as issuers rushed to lock-in low cost of capital. As new issue supply reached its crescendo just before the election, investor demand seemed to suddenly evaporate as the surprising outcome drove many investors to the sidelines. The temporary supply/demand imbalance, combined with fiscal policy uncertainty, caused some investors to shed risk. This translated to low investment grade municipal revenue bond spreads widening by roughly 100 basis points on top of the 100 basis point move in rates. This caused these revenue bonds to reach yield levels not seen since 2013.
We want to emphasize our belief that this general credit spread underperformance was driven by technical factors, rather than fundamental credit deterioration in any of our holdings. The Fund aims to generate performance primarily through individual security analysis and income generation, rather than through duration decisions. During periods of heightened volatility, when general municipal credit spreads move dramatically wider, our focus on credit-sensitive sectors can lead to temporary periods of underperformance. Our long-term approach to credit selection, grounded in bottom-up fundamental research, provides us with the confidence to use market volatility as an opportunity, not as a distraction.
Looking forward, we cannot know where interest rates may go. We believe, however, that a disciplined and consistent process can lead to attractive income generation over time. We believe our bottom-up fundamental selection process has the potential to serve our investors well.
Sincerely,
Stephen M. Shutz, CFA
Portfolio Manager
Past performance is not a guarantee of future results.
Mutual fund investing involves risk. Principal loss is possible. The Fund is non-diversified which means it may invest a large percentage of its assets in the securities of fewer issuers. Concentration in a limited number of issuers exposes the Fund to greater market risk than if its assets were diversified among a greater number of issuers. The Fund is also subject to interest rate risk which is the risk that debt securities in the Fund’s portfolio will decline in value because of an increase in market interest rates. This risk is usually greater for longer-term debt securities. Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the Federal Alternative minimum tax for certain investors.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory Tax Exempt Bond FundSchedule of Investments
December 31, 2016 (Unaudited)
| | | | | | | | | | |
Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Municipal Bonds — 97.9% | |
| | |
| General Obligation Bonds — 11.1% | |
| | 2,000,000 | | Avondale Michigan School District | | | 5.00 | % | 05/01/2019 | | | 2,154,020 | |
| | 1,150,000 | | Clark County Nevada School District | | | 5.00 | % | 06/15/2025 | | | 1,204,038 | |
| | 1,320,000 | | Connecticut, State of | | | 5.00 | % | 10/15/2022 | | | 1,499,837 | |
| | 2,700,000 | | District of Columbia | | | 5.00 | % | 06/01/2022 | | | 2,744,334 | |
| | 2,006,240 | | Dover City Ohio School District | | | 2.25 | % | 05/04/2017 | | | 2,011,797 | |
| | 2,000,000 | | Illinois, State of | | | 5.00 | % | 11/01/2017 | | | 2,051,560 | |
| | 750,000 | | Jefferson County West Virginia Board of Education | | | 4.00 | % | 05/01/2017 | | | 757,252 | |
| | 1,500,000 | | New York City, New York# | | | 0.73 | % | 04/01/2036 | | | 1,500,000 | |
| | 3,880,000 | | Northside Texas Independent School District# | | | 1.75 | % | 06/01/2032 | | | 3,752,193 | |
| | 2,000,000 | | Northside Texas Independent School District# | | | 2.00 | % | 06/01/2046 | | | 2,000,260 | |
| | 1,000,000 | | Pennsylvania, Commonwealth of | | | 5.00 | % | 08/15/2022 | | | 1,141,340 | |
| | 6,000,000 | | Texas, State of | | | 5.00 | % | 08/01/2031 | | | 6,107,400 | |
| | | | | | | | | | | | 26,924,031 | |
| Revenue Bonds — 86.8% | |
| | 720,000 | | Dallas Love Field | | | 5.00 | % | 11/01/2022 | | | 815,825 | |
| | 1,500,000 | | Alabama 21st Century Authority | | | 5.00 | % | 06/01/2017 | | | 1,523,985 | |
| | 550,000 | | AltaPointe Health Systems, Inc. | | | 3.00 | % | 05/01/2019 | | | 556,820 | |
| | 565,000 | | AltaPointe Health Systems, Inc. | | | 3.00 | % | 05/01/2020 | | | 569,520 | |
| | 1,125,000 | | Arlington Texas Higher Education Finance Corp. | | | 5.00 | % | 02/15/2025 | | | 1,330,166 | |
| | 2,000,000 | | California State University | | | 4.50 | % | 11/01/2032 | | | 2,017,540 | |
| | 2,970,000 | | Central Texas Turnpike System | | | 5.00 | % | 08/15/2027 | | | 3,299,937 | |
| | 2,615,000 | | Chattanooga Tennessee Health Educational & Housing Facility Board | | | 5.25 | % | 01/01/2040 | | | 2,825,560 | |
| | 3,000,000 | | Chicago Midway International Airport | | | 5.00 | % | 01/01/2028 | | | 3,358,350 | |
| | 660,000 | | Chula Vista Municipal Financing Authority | | | 4.00 | % | 09/01/2018 | | | 683,826 | |
| | 855,000 | | Chula Vista Municipal Financing Authority | | | 4.00 | % | 09/01/2019 | | | 898,058 | |
| | 5,000,000 | | Clark County Nevada Department of Aviation | | | 5.00 | % | 07/01/2025 | | | 5,083,800 | |
| | 300,000 | | Colorado Health Facilities Authority, Series C | | | 5.00 | % | 12/01/2020 | | | 327,201 | |
| | 1,000,000 | | Colorado Health Facilities Authority | | | 5.00 | % | 06/01/2027 | | | 1,108,160 | |
| | 1,500,000 | | Colorado Health Facilities Authority | | | 5.00 | % | 12/01/2035 | | | 1,600,755 | |
| | 1,300,000 | | Colorado Health Facilities Authority, Series A | | | 5.00 | % | 12/01/2027 | | | 1,398,722 | |
| | 4,390,000 | | Cumberland County Pennsylvania Municipal Authority | | | 4.00 | % | 01/01/2033 | | | 4,425,954 | |
| | 2,000,000 | | Denver, City & County of Colorado | | | 5.00 | % | 11/15/2024 | | | 2,064,020 | |
| | 5,000,000 | | Denver, City & County of Colorado | | | 5.00 | % | 11/15/2030 | | | 5,130,200 | |
| | 2,750,000 | | Denver, City & County of Colorado | | | 5.25 | % | 10/01/2032 | | | 2,765,097 | |
| | 1,100,000 | | Denver Colorado Convention Center Hotel Authority | | | 5.00 | % | 12/01/2028 | | | 1,224,069 | |
| | 1,700,000 | | Educational Enhancement Funding Corp. | | | 5.00 | % | 06/01/2023 | | | 1,910,273 | |
| | 500,000 | | Florida Municipal Power Agency | | | 5.25 | % | 10/01/2023 | | | 533,025 | |
| | 3,355,000 | | Florida Municipal Power Agency | | | 5.00 | % | 10/01/2025 | | | 3,816,145 | |
| | 1,000,000 | | Harris County Texas Cultural Education Facilities Finance Corp. | | | 5.00 | % | 12/01/2035 | | | 1,095,210 | |
| | 955,000 | | Harris County-Houston Texas Sports Authority | | | 5.00 | % | 11/15/2028 | | | 1,087,965 | |
| | 1,760,000 | | Hawaii Department of Budget & Finance | | | 4.60 | % | 05/01/2026 | | | 1,735,606 | |
| | 4,000,000 | | Houston Texas Airport System | | | 5.00 | % | 07/15/2020 | | | 4,181,200 | |
| | 1,100,000 | | Houston Texas Airport System | | | 5.00 | % | 07/15/2020 | | | 1,148,939 | |
| | 5,000,000 | | Houston Texas Airport System | | | 5.00 | % | 07/01/2026 | | | 5,096,900 | |
| | 3,850,000 | | Houston Texas Airport System | | | 5.00 | % | 07/01/2029 | | | 4,023,789 | |
| | 500,000 | | Indiana Finance Authority | | | 5.13 | % | 03/01/2030 | | | 553,360 | |
| | 1,000,000 | | Indiana Finance Authority, Series A | | | 5.00 | % | 09/15/2025 | | | 1,125,650 | |
| | 1,750,000 | | Indiana Finance Authority, Series A | | | 5.00 | % | 09/15/2028 | | | 1,935,570 | |
| | 1,640,000 | | Kentucky State Property & Building Commission | | | 5.00 | % | 02/01/2021 | | | 1,825,353 | |
| | 205,000 | | Kentucky State Property & Building Commission | | | 5.50 | % | 11/01/2028 | | | 219,803 | |
| | 3,000,000 | | Lancaster County Pennsylvania Hospital Authority | | | 5.00 | % | 07/01/2035 | | | 3,203,280 | |
| | 2,280,000 | | Las Vegas Nevada Redevelopment Agency | | | 5.00 | % | 06/15/2028 | | | 2,592,132 | |
| | 4,750,000 | | Lees Summit Missouri Industrial Development Authority | | | 5.13 | % | 08/15/2032 | | | 4,794,602 | |
| | 2,000,000 | | Louisiana Public Facilities Authority | | | 3.50 | % | 06/01/2030 | | | 1,951,320 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Tax Exempt Bond FundSchedule of Investments
December 31, 2016 (Unaudited)
Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Municipal Bonds — (Continued) | |
| | |
| Revenue Bonds — (Continued) | |
| | 1,000,000 | | Louisiana Public Facilities Authority | | | 5.00 | % | 06/01/2036 | | | 1,094,040 | |
| | 1,500,000 | | Louisiana State Citizens Property Insurance Corp. | | | 5.00 | % | 06/01/2020 | | | 1,647,285 | |
| | 985,000 | | Lower Colorado River Authority | | | 5.50 | % | 05/15/2036 | | | 1,063,445 | |
| | 150,000 | | Massachusetts Health & Educational Facilities Authority | | | 5.00 | % | 10/01/2024 | | | 154,214 | |
| | 1,015,000 | | Massachusetts Health & Educational Facilities Authority | | | 5.50 | % | 06/01/2034 | | | 1,069,282 | |
| | 1,895,000 | | Miami Beach Florida Health Facilities | | | 5.00 | % | 11/15/2029 | | | 2,056,871 | |
| | 1,000,000 | | Miami-Dade County Florida Health Facilities Authority | | | 6.00 | % | 08/01/2046 | | | 1,119,880 | |
| | 1,165,000 | | Mississippi Development Bank | | | 5.50 | % | 10/01/2021 | | | 1,308,971 | |
| | 1,010,000 | | Mississippi Development Bank | | | 6.25 | % | 10/01/2026 | | | 1,151,451 | |
| | 1,505,000 | | Mississippi Development Bank | | | 6.50 | % | 10/01/2031 | | | 1,709,484 | |
| | 1,000,000 | | Mobile Alabama Industrial Development Board# | | | 1.63 | % | 07/15/2034 | | | 1,000,840 | |
| | 1,500,000 | | Montgomery County Pennsylvania Industrial Development Authority# | | | 2.55 | % | 06/01/2029 | | | 1,493,025 | |
| | 1,600,000 | | Mountain House Public Financing Authority | | | 5.00 | % | 12/01/2027 | | | 1,644,688 | |
| | 2,565,000 | | Mountain House Public Financing Authority | | | 5.00 | % | 12/01/2032 | | | 2,623,097 | |
| | 2,000,000 | | New Hope Cultural Education Facilities Corp. | | | 5.00 | % | 07/01/2024 | | | 2,186,440 | |
| | 1,000,000 | | New Hope Cultural Education Facilities Corp. | | | 5.00 | % | 04/01/2029 | | | 1,057,730 | |
| | 930,000 | | New Hope Cultural Education Facilities Corp. | | | 5.00 | % | 07/01/2031 | | | 942,639 | |
| | 1,000,000 | | New Hope Cultural Education Facilities Corp. | | | 5.25 | % | 07/01/2036 | | | 1,027,870 | |
| | 2,400,000 | | New Hope Cultural Education Facilities Corp. | | | 5.00 | % | 08/01/2039 | | | 2,451,984 | |
| | 1,250,000 | | New Hope Cultural Education Facilities Corp. | | | 5.50 | % | 07/01/2046 | | | 1,294,900 | |
| | 1,000,000 | | New Hope Cultural Education Facilities Corp. | | | 5.75 | % | 07/01/2051 | | | 1,054,630 | |
| | 3,955,000 | | New Jersey Educational Facilities Authority | | | 5.00 | % | 07/01/2023 | | | 4,510,717 | |
| | 2,375,000 | | New York City Industrial Development Agency | | | 5.00 | % | 01/01/2039 | | | 2,380,011 | |
| | 3,000,000 | | New York City Industrial Development Agency | | | 5.00 | % | 01/01/2046 | | | 3,006,330 | |
| | 7,500,000 | | New York City Transitional Finance Authority# | | | 0.74 | % | 11/01/2042 | | | 7,500,000 | |
| | 3,375,000 | | Newport News Virginia Economic Development Authority | | | 5.00 | % | 12/01/2031 | | | 3,538,924 | |
| | 1,760,000 | | Niagara County New York Tobacco Asset Securitization Corp. | | | 5.00 | % | 05/15/2024 | | | 2,017,330 | |
| | 2,000,000 | | North Carolina Medical Care Commission | | | 5.00 | % | 10/01/2031 | | | 2,046,360 | |
| | 1,000,000 | | Orange County California Sanitation District | | | 4.50 | % | 02/01/2030 | | | 1,003,200 | |
| | 1,250,000 | | Palm Beach County Florida Health Facilities | | | 5.00 | % | 12/01/2031 | | | 1,371,425 | |
| | 1,000,000 | | Park Creek Metropolitan District | | | 5.00 | % | 12/01/2022 | | | 1,121,530 | |
| | 1,000,000 | | Park Creek Metropolitan District | | | 5.00 | % | 12/01/2034 | | | 1,083,340 | |
| | 1,900,000 | | Pennsylvania Turnpike Commission | | | 5.00 | % | 12/01/2030 | | | 2,059,600 | |
| | 1,110,000 | | Prince William County Virginia Industrial Development Authority | | | 5.00 | % | 01/01/2025 | | | 1,194,427 | |
| | 1,420,000 | | Prince William County Virginia Industrial Development Authority | | | 5.00 | % | 01/01/2031 | | | 1,461,109 | |
| | 1,500,000 | | Public Finance Authority | | | 2.63 | % | 11/01/2025 | | | 1,434,705 | |
| | 755,000 | | Railsplitter Tobacco Settlement Authority | | | 5.00 | % | 06/01/2017 | | | 767,133 | |
| | 2,010,000 | | Railsplitter Tobacco Settlement Authority | | | 5.00 | % | 06/01/2018 | | | 2,109,515 | |
| | 5,000,000 | | San Jose California Airport | | | 5.00 | % | 03/01/2037 | | | 5,026,000 | |
| | 1,000,000 | | South Carolina Ports Authority | | | 5.00 | % | 07/01/2026 | | | 1,147,120 | |
| | 250,000 | | South Carolina Ports Authority | | | 5.00 | % | 07/01/2028 | | | 283,270 | |
| | 400,000 | | South Carolina Ports Authority | | | 5.00 | % | 07/01/2029 | | | 450,852 | |
| | 1,000,000 | | St. Louis County Missouri Industrial Development Authority | | | 5.00 | % | 11/15/2041 | | | 974,250 | |
| | 1,000,000 | | St. Louis Missouri Parking | | | 5.00 | % | 12/15/2021 | | | 1,124,180 | |
| | 1,125,000 | | Tarrant County Texas Cultural Education Facilities Finance Corp. | | | 5.00 | % | 11/15/2021 | | | 1,262,644 | |
| | 1,185,000 | | Tarrant County Texas Cultural Education Facilities Finance Corp. | | | 5.00 | % | 11/15/2022 | | | 1,348,945 | |
| | 5,000,000 | | Tobacco Settlement Authority | | | 5.00 | % | 06/01/2017 | | | 5,080,100 | |
| | 1,115,000 | | Tobacco Settlement Authority | | | 5.25 | % | 06/01/2032 | | | 1,230,235 | |
| | 2,000,000 | | Tobacco Settlement Financing Corp. | | | 5.00 | % | 06/01/2017 | | | 2,032,320 | |
| | 3,735,000 | | Tobacco Settlement Financing Corp. | | | 5.00 | % | 05/15/2019 | | | 3,968,101 | |
| | 1,000,000 | | Tulare California Public Financing Authority | | | 5.38 | % | 04/01/2035 | | | 1,043,910 | |
| | 820,000 | | Vigo, County of Indiana | | | 2.00 | % | 01/15/2017 | | | 820,344 | |
| | 830,000 | | Vigo, County of Indiana | | | 2.00 | % | 07/15/2017 | | | 833,677 | |
| | 2,000,000 | | Waco Texas Educational Finance Corp. | | | 5.00 | % | 03/01/2028 | | | 2,080,500 | |
| | 5,000,000 | | Washington Convention & Sports Authority | | | 5.00 | % | 10/01/2025 | | | 5,016,050 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Tax Exempt Bond FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Par | | | | | | | | | |
| | Value/Shares | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Municipal Bonds — (Continued) | |
| | |
| Revenue Bonds — (Continued) | |
| | | 1,000,000 | | Washington State Housing Finance Commission^ | | | 4.00 | % | 01/01/2026 | | | 961,530 | |
| | | 1,000,000 | | Washington State Housing Finance Commission | | | 5.63 | % | 01/01/2027 | | | 1,000,140 | |
| | | 2,655,000 | | Washington State Housing Finance Commission^ | | | 5.00 | % | 01/01/2031 | | | 2,712,242 | |
| | | 1,505,000 | | Washoe, County of Nevada | | | 5.00 | % | 02/01/2043 | | | 1,588,377 | |
| | | 1,500,000 | | Wayne County Michigan Airport | | | 5.00 | % | 12/01/2022 | | | 1,550,190 | |
| | | 970,000 | | Wayne County Michigan Airport | | | 5.75 | % | 12/01/2024 | | | 1,041,159 | |
| | | 2,500,000 | | Wayne County Michigan Airport | | | 4.50 | % | 12/01/2024 | | | 2,568,550 | |
| | | 2,115,000 | | Western Riverside Water & Wastewater Financing Authority | | | 5.00 | % | 09/01/2029 | | | 2,404,226 | |
| | | 1,610,000 | | Wisconsin Health & Educational Facilities Authority | | | 5.00 | % | 05/01/2027 | | | 1,765,011 | |
| | | 1,730,000 | | Wisconsin Health & Educational Facilities Authority | | | 5.00 | % | 08/15/2028 | | | 1,899,644 | |
| | | 650,000 | | Wisconsin Health & Educational Facilities Authority | | | 5.00 | % | 09/15/2037 | | | 676,442 | |
| | | 2,000,000 | | Wisconsin, State of | | | 5.75 | % | 05/01/2033 | | | 2,172,240 | |
| | | 400,000 | | Yamhill County Oregon Hospital Authority | | | 4.00 | % | 11/15/2026 | | | 390,032 | |
| | | 480,000 | | Yamhill County Oregon Hospital Authority | | | 5.00 | % | 11/15/2031 | | | 499,680 | |
| | | 460,000 | | Yamhill County Oregon Hospital Authority | | | 5.00 | % | 11/15/2036 | | | 471,804 | |
| | | 1,085,000 | | Yamhill County Oregon Hospital Authority | | | 5.00 | % | 11/15/2046 | | | 1,079,098 | |
| | | | | | | | | | | | | 210,098,972 | |
| Total Municipal Bonds (Cost $240,729,217) | | | | | | | | 237,023,003 | |
| | | | | | | | | | | | | | |
| Short-Term Investments — 0.8% | |
| | |
| Money Market Funds — 0.8% | |
| | | 1,920,837 | | First American Treasury Obligations Fund — Class Z, 0.39%* | | | | | | | | 1,920,837 | |
| Total Short-Term Investments (Cost $1,920,837) | | | | | | | | 1,920,837 | |
| Total Investments — 98.7% (Cost $242,650,054) | | | | | | | | 238,943,840 | |
| Other Assets in Excess of Liabilities — 1.3% | | | | | | | | 3,103,529 | |
| NET ASSETS — 100.0% | | | | | | | $ | 242,047,369 | |
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| Revenue Bonds | | | 86.8 | % |
| General Obligation Bonds | | | 11.1 | % |
| Money Market Funds | | | 0.8 | % |
| Other Assets and Liabilities | | | 1.3 | % |
| | | | 100.0 | % |
| # | Variable rate security. Rate disclosed is as of December 31, 2016. |
| ^ | 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. At December 31, 2016, the value of these securities amounted to $3,673,772 or 1.5% of net assets. |
| * | Annualized seven-day yield as of December 31, 2016. |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Mortgage Securities FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
During the six months ended December 31, 2016, the Brown Advisory Mortgage Securities Fund Institutional Shares (the “Fund”) was down 1.88%. This was somewhat behind the Fund’s benchmark, the Bloomberg Barclays Mortgage Backed Securities Index (the “Index”), which was down 1.39%.
The Fund’s investment process centers on prepayment analysis to identify mortgage-related bonds we believe will enjoy slower principal payment speeds. Over time, slower repayments result in more interest earned by investors which should, in turn, result in more total return.
Finding mortgage pools paying more slowly involves looking for loans where the borrower has a reduced incentive to refinance. This includes loans with smaller loan balances, lower equity, recent purchases, etc. During this period, the Fund’s holdings in mortgage pass-throughs were slower than a coupon-matched average of generic mortgage-backed securities every month. The Conditional Prepayment Rate (CPR) for our pools averaged 11.7 during the period vs. 20.0 for coupon-matched generics. Our positions have paid more slowly than the average mortgage of the same underlying rate each month for the last two years.
While in the long term, we strongly believe this is the best way to outperform in mortgages; whereas in the short term, interest rate fluctuations can dominate. In this case, our more creative pools came into this period more highly valued than other bonds. When rates rose meaningfully in the fourth quarter, this slightly reduced the premium our positions commanded vs. the average mortgage.
Even if rates stay this high, or go higher, we believe our prepayment analysis process should still provide us the opportunity for long-term Index outperformance. Even amid rising yields, the vast majority of mortgages are still trading above par, meaning slower repayment remains to investors’ advantage. The rising rates have also presented us the opportunity to buy new positions at more attractive prices.
We intend to stick to our core process of analyzing each loan and assessing the borrower’s incentives with the loan. We strongly believe in the long-term advantages of this approach.
Sincerely,
Thomas D.D. Graff, CFA
Portfolio Manager
Past performance is not a guarantee of future results.
Mutual fund investing involves risk. Principal loss is possible. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in Asset-Backed and Mortgage-Backed securities include additional risks that investor should be aware of including credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments. Certain fixed income securities held by the Fund may be difficult (or impossible) to sell at the time and at the price the Adviser would like. As a result, the Fund may have to hold these securities longer than it would like and may forego other investment opportunities. Issuers may experience an acceleration in prepayments of mortgage loans or other receivables backing the issuers’ fixed income securities when interest rates decline, which can shorten the maturity of the security, force the Fund to invest in securities with lower interest rates, and reduce the Fund’s return. Issuers may decrease prepayments of principal when interest rates increase, extending the maturity of a fixed income security and causing the value of the security to decline. Investing involves risk. Principal loss is possible. Investors should consult a tax professional for advice and information concerning the tax features of mortgage backed securities and fixed coupon bonds. Mortgage-backed securities (MBS) are bonds secured by a mortgage or collection of mortgages. Diversification does not assure a profit nor protect against loss in a declining market.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory Mortgage Securities FundSchedule of Investments
December 31, 2016 (Unaudited)
Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Mortgage Backed Securities — 109.6% | |
| | 1,900,000 | | BAMLL Commercial Mortgage Securities, Series 2013-DSNY#^ | | | 1.75 | % | 09/15/2026 | | | 1,902,076 | |
| | 1,000,000 | | Cosmopolitan Hotel Trust, Series 2016-COSMO#^ | | | 2.10 | % | 11/15/2033 | | | 1,006,318 | |
| | 250,000 | | Cosmopolitan Hotel Trust, Series 2016-COSMO#^ | | | 2.80 | % | 11/15/2033 | | | 251,611 | |
| | 250,000 | | Cosmopolitan Hotel Trust, Series 2016-COSMO#^ | | | 3.35 | % | 11/15/2033 | | | 251,956 | |
| | 1,600,000 | | CSMC Trust, Series 2014-TIKI#^ | | | 1.60 | % | 09/15/2038 | | | 1,590,289 | |
| | 86,418 | | Federal Home Loan Banks, Series MI-2017 | | | 4.78 | % | 01/25/2017 | | | 86,445 | |
| | 14,000,000 | | FHLMC Gold, 2.5%, Due TBA January | | | 2.50 | % | 01/15/2032 | | | 14,026,250 | |
| | 11,000,000 | | FHLMC Gold, 3.0%, Due TBA January | | | 3.00 | % | 01/15/2032 | | | 11,287,952 | |
| | 22,000,000 | | FHLMC Gold, 3.0%, Due TBA January | | | 3.00 | % | 01/15/2047 | | | 21,847,156 | |
| | 32 | | FHLMC PC, Pool# G1-1357 | | | 5.50 | % | 01/01/2018 | | | 32 | |
| | 326 | | FHLMC PC, Pool# E0-1488 | | | 5.00 | % | 10/01/2018 | | | 334 | |
| | 175 | | FHLMC PC, Pool# C9-0242 | | | 6.00 | % | 12/01/2018 | | | 197 | |
| | 6,281 | | FHLMC PC, Pool# G1-1778 | | | 5.50 | % | 10/01/2020 | | | 6,620 | |
| | 159 | | FHLMC PC, Pool# G1-1924 | | | 5.50 | % | 03/01/2021 | | | 168 | |
| | 542 | | FHLMC PC, Pool# C9-0428 | | | 6.00 | % | 03/01/2021 | | | 613 | |
| | 54 | | FHLMC PC, Pool# J0-1540 | | | 5.00 | % | 04/01/2021 | | | 56 | |
| | 612 | | FHLMC PC, Pool# G1-2110 | | | 5.50 | % | 06/01/2021 | | | 649 | |
| | 729 | | FHLMC PC, Pool# G1-2522 | | | 5.00 | % | 02/01/2022 | | | 774 | |
| | 1,242 | | FHLMC PC, Pool# G1-2600 | | | 5.50 | % | 03/01/2022 | | | 1,323 | |
| | 847 | | FHLMC PC, Pool# G1-2710 | | | 5.50 | % | 07/01/2022 | | | 908 | |
| | 42 | | FHLMC PC, Pool# 84-5640# | | | 2.66 | % | 08/01/2023 | | | 43 | |
| | 13,729 | | FHLMC PC, Pool# G1-3584 | | | 4.50 | % | 06/01/2024 | | | 14,540 | |
| | 29,361 | | FHLMC PC, Pool# J1-1196 | | | 4.50 | % | 11/01/2024 | | | 30,827 | |
| | 1,557,498 | | FHLMC PC, Pool# J3-2596 | | | 3.50 | % | 08/01/2030 | | | 1,630,320 | |
| | 1,109,697 | | FHLMC PC, Pool# J3-2643 | | | 3.50 | % | 09/01/2030 | | | 1,161,640 | |
| | 51 | | FHLMC PC, Pool# G0-1317 | | | 7.00 | % | 10/01/2031 | | | 57 | |
| | 5 | | FHLMC PC, Pool# C5-8701 | | | 7.00 | % | 10/01/2031 | | | 5 | |
| | 34 | | FHLMC PC, Pool# G0-1391 | | | 7.00 | % | 04/01/2032 | | | 40 | |
| | 166,526 | | FHLMC PC, Pool# 1B0889# | | | 2.77 | % | 05/01/2033 | | | 175,471 | |
| | 14,567 | | FHLMC PC, Pool# 1B-1275# | | | 3.17 | % | 10/01/2033 | | | 15,526 | |
| | 85,540 | | FHLMC PC, Pool# 1J0203# | | | 2.78 | % | 04/01/2035 | | | 90,749 | |
| | 806 | | FHLMC PC, Pool# A4-6671 | | | 5.00 | % | 08/01/2035 | | | 883 | |
| | 1,056 | | FHLMC PC, Pool# G0-8079 | | | 5.00 | % | 09/01/2035 | | | 1,150 | |
| | 8,464 | | FHLMC PC, Pool# 1B-3950# | | | 3.42 | % | 11/01/2035 | | | 8,490 | |
| | 2,058,173 | | FHLMC PC, Pool# K9-3365 | | | 3.50 | % | 11/01/2035 | | | 2,136,457 | |
| | 1,098,683 | | FHLMC PC, Pool# K9-3349 | | | 4.00 | % | 11/01/2035 | | | 1,168,225 | |
| | 66,309 | | FHLMC PC, Pool# 1L-1263# | | | 2.88 | % | 03/01/2036 | | | 70,021 | |
| | 6,553 | | FHLMC PC, Pool# 1J-1317# | | | 2.90 | % | 04/01/2036 | | | 6,956 | |
| | 3,175 | | FHLMC PC, Pool# 1G-2408# | | | 2.69 | % | 06/01/2036 | | | 3,374 | |
| | 10,259 | | FHLMC PC, Pool# 84-7625# | | | 2.60 | % | 07/01/2036 | | | 10,693 | |
| | 6,565 | | FHLMC PC, Pool# G0-2274 | | | 5.00 | % | 07/01/2036 | | | 7,178 | |
| | 337 | | FHLMC PC, Pool# A5-9220 | | | 5.00 | % | 04/01/2037 | | | 369 | |
| | 245,581 | | FHLMC PC, Pool# B3-1917 | | | 5.10 | % | 04/01/2037 | | | 268,155 | |
| | 256,073 | | FHLMC PC, Pool# B3-1976 | | | 5.10 | % | 05/01/2037 | | | 279,505 | |
| | 93,244 | | FHLMC PC, Pool# B3-1950 | | | 5.10 | % | 05/01/2037 | | | 101,859 | |
| | 187,963 | | FHLMC PC, Pool# B3-2000 | | | 5.10 | % | 06/01/2037 | | | 205,165 | |
| | 106,254 | | FHLMC PC, Pool# B3-2032 | | | 5.10 | % | 07/01/2037 | | | 115,986 | |
| | 204,449 | | FHLMC PC, Pool# U3-0471 | | | 5.10 | % | 07/01/2037 | �� | | 223,183 | |
| | 5,670 | | FHLMC PC, Pool# 1J-0573# | | | 3.22 | % | 08/01/2037 | | | 6,030 | |
| | 442,318 | | FHLMC PC, Pool# U3-0681 | | | 5.10 | % | 09/01/2037 | | | 484,787 | |
| | 84,858 | | FHLMC PC, Pool# U3-0606 | | | 5.10 | % | 09/01/2037 | | | 92,678 | |
| | 93,342 | | FHLMC PC, Pool# U3-0800 | | | 5.10 | % | 11/01/2037 | | | 101,885 | |
| | 4,329 | | FHLMC PC, Pool# 1B-4292# | | | 2.66 | % | 09/01/2038 | | | 4,497 | |
| | 125,344 | | FHLMC PC, Pool# U3-2470 | | | 5.10 | % | 11/01/2038 | | | 136,869 | |
| | 1,812,284 | | FHLMC PC, Pool# A8-4677 | | | 4.50 | % | 02/01/2039 | | | 1,951,742 | |
| | 132,066 | | FHLMC PC, Pool# A8-9112 | | | 4.50 | % | 10/01/2039 | | | 141,877 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Mortgage Securities FundSchedule of Investments
December 31, 2016 (Unaudited)
Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Mortgage Backed Securities — (Continued) | |
| | 266,155 | | FHLMC PC, Pool# Q0-3759 | | | 3.50 | % | 10/01/2041 | | | 274,052 | |
| | 3,454,520 | | FHLMC PC, Pool# G0-7289 | | | 3.00 | % | 11/01/2042 | | | 3,454,192 | |
| | 879,752 | | FHLMC PC, Pool# Q3-8585 | | | 4.00 | % | 10/01/2043 | | | 928,932 | |
| | 912,658 | | FHLMC PC, Pool# Q2-6108 | | | 5.00 | % | 05/01/2044 | | | 996,319 | |
| | 1,823,018 | | FHLMC PC, Pool# Q3-8701 | | | 4.00 | % | 02/01/2046 | | | 1,917,165 | |
| | 2,190,382 | | FHLMC PC, Pool# Q3-9216 | | | 4.00 | % | 03/01/2046 | | | 2,303,629 | |
| | 1,486,629 | | FHLMC PC, Pool# Q3-9840 | | | 3.50 | % | 04/01/2046 | | | 1,525,914 | |
| | 2,478,487 | | FHLMC PC, Pool# Q3-9868 | | | 4.00 | % | 04/01/2046 | | | 2,606,337 | |
| | 1,971,816 | | FHLMC PC, Pool# Q4-0104 | | | 4.00 | % | 04/01/2046 | | | 2,073,497 | |
| | 1,330,653 | | FHLMC PC, Pool# Q4-1122 | | | 4.50 | % | 04/01/2046 | | | 1,431,822 | |
| | 1,287,853 | | FHLMC PC, Pool# Q3-9870 | | | 4.50 | % | 04/01/2046 | | | 1,385,483 | |
| | 1,742,814 | | FHLMC PC, Pool# Q4-0481 | | | 3.50 | % | 05/01/2046 | | | 1,787,845 | |
| | 2,503,677 | | FHLMC PC, Pool# Q4-0444 | | | 4.00 | % | 05/01/2046 | | | 2,632,968 | |
| | 3,305,305 | | FHLMC PC, Pool# Q4-1006 | | | 3.50 | % | 06/01/2046 | | | 3,390,766 | |
| | 1,335,711 | | FHLMC PC, Pool# Q4-1628 | | | 3.50 | % | 07/01/2046 | | | 1,369,437 | |
| | 1,116,154 | | FHLMC PC, Pool# Q4-3432 | | | 4.00 | % | 07/01/2046 | | | 1,173,861 | |
| | 3,804,971 | | FHLMC PC, Pool# Q4-2947 | | | 3.50 | % | 09/01/2046 | | | 3,901,052 | |
| | 1,072,445 | | FHLMC PC, Pool# Q4-2915 | | | 3.50 | % | 09/01/2046 | | | 1,099,523 | |
| | 2,877,569 | | FHLMC PC, Pool# Q4-3619 | | | 3.50 | % | 10/01/2046 | | | 2,950,232 | |
| | 121,071 | | FHLMC REMIC, Series 3571 | | | 4.00 | % | 09/15/2024 | | | 127,415 | |
| | 323,598 | | FHLMC REMIC, Series 3878 | | | 3.00 | % | 04/15/2041 | | | 330,003 | |
| | 2,541,401 | | FHLMC REMIC, Series 4015~ | | | 4.00 | % | 11/15/2039 | | | 366,189 | |
| | 1,740,460 | | FHLMC REMIC, Series 4092~ | | | 3.00 | % | 09/15/2031 | | | 175,832 | |
| | 1,687,224 | | FHLMC REMIC, Series 4126~ | | | 3.50 | % | 05/15/2041 | | | 217,772 | |
| | 1,943,640 | | FHLMC REMIC, Series 4144 | | | 2.50 | % | 12/15/2042 | | | 1,710,829 | |
| | 2,292,400 | | FHLMC REMIC, Series 4153 | | | 2.50 | % | 01/15/2043 | | | 1,997,955 | |
| | 2,583,344 | | FHLMC REMIC, Series 4309~ | | | 3.00 | % | 08/15/2039 | | | 348,975 | |
| | 8,299,691 | | FHLMC REMIC, Series 4318~ | | | 2.50 | % | 08/15/2022 | | | 465,168 | |
| | 6,809,826 | | FHLMC REMIC, Series 4329~ | | | 2.50 | % | 01/15/2023 | | | 420,990 | |
| | 13,912,248 | | FHLMC REMIC, Series 4495 | | | 2.50 | % | 07/15/2045 | | | 13,578,351 | |
| | 4,994,220 | | FHLMC REMIC, Series 4495~ | | | 3.50 | % | 07/15/2045 | | | 946,635 | |
| | 750,000 | | FHLMC SCRTT, Series 2016-1#^ | | | 3.00 | % | 09/25/2055 | | | 699,212 | |
| | 27,910,019 | | FHMS, Series K-046#~ | | | 0.38 | % | 03/25/2025 | | | 742,599 | |
| | 7,157,585 | | FHMS, Series K-055#~ | | | 1.37 | % | 03/25/2026 | | | 704,320 | |
| | 7,672,225 | | FHMS, Series K-056#~ | | | 1.27 | % | 05/25/2026 | | | 701,350 | |
| | 6,747,552 | | FHMS, Series K-057#~ | | | 1.19 | % | 07/25/2026 | | | 594,382 | |
| | 5,456,917 | | FHMS, Series K-058#~ | | | 0.93 | % | 08/25/2026 | | | 383,736 | |
| | 23,368,042 | | FHMS, Series K-059#~ | | | 0.32 | % | 09/25/2026 | | | 597,776 | |
| | 2,624,393 | | FHMS, Series K-060#~ | | | 1.89 | % | 12/25/2044 | | | 352,629 | |
| | 16,296,831 | | FHMS, Series K-721#~ | | | 0.34 | % | 08/25/2022 | | | 267,949 | |
| | 10,563,663 | | FHMS, Series K-722#~ | | | 1.31 | % | 03/25/2023 | | | 701,216 | |
| | 16,497,829 | | FHMS, Series K-723#~ | | | 0.96 | % | 08/25/2023 | | | 858,577 | |
| | 35 | | FNMA, Pool# 555013 | | | 5.50 | % | 11/01/2017 | | | 35 | |
| | 84 | | FNMA, Pool# 725544 | | | 5.50 | % | 12/01/2017 | | | 84 | |
| | 5,332 | | FNMA, Pool# 763020 | | | 3.50 | % | 08/01/2018 | | | 5,556 | |
| | 19,395 | | FNMA, Pool# 744697 | | | 4.50 | % | 10/01/2018 | | | 19,942 | |
| | 4,839 | | FNMA, Pool# 725185 | | | 5.00 | % | 02/01/2019 | | | 4,988 | |
| | 15,885 | | FNMA, Pool# 803941# | | | 3.44 | % | 11/01/2019 | | | 16,085 | |
| | 6,534 | | FNMA, Pool# 255626 | | | 5.00 | % | 03/01/2020 | | | 6,832 | |
| | 47,355 | | FNMA, Pool# 970382 | | | 4.50 | % | 03/01/2023 | | | 49,625 | |
| | 676 | | FNMA, Pool# 303585 | | | 7.00 | % | 10/01/2025 | | | 747 | |
| | 874 | | FNMA, Pool# 303713 | | | 6.50 | % | 02/01/2026 | | | 989 | |
| | 1,543,166 | | FNMA, Pool# AS6915 | | | 3.50 | % | 09/01/2026 | | | 1,632,212 | |
| | 11,570 | | FNMA, Pool# 539082 | | | 7.00 | % | 08/01/2028 | | | 11,682 | |
| | 1,049,402 | | FNMA, Pool# AS5354 | | | 3.50 | % | 01/01/2030 | | | 1,094,393 | |
| | 1,002,048 | | FNMA, Pool# BC2004 | | | 3.00 | % | 05/01/2031 | | | 1,029,493 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Mortgage Securities FundSchedule of Investments
December 31, 2016 (Unaudited)
Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Mortgage Backed Securities — (Continued) | |
| | 2,682 | | FNMA, Pool# 592751 | | | 7.00 | % | 06/01/2031 | | | 2,816 | |
| | 7,867 | | FNMA, Pool# 625536 | | | 6.00 | % | 01/01/2032 | | | 8,911 | |
| | 37,166 | | FNMA, Pool# 628837 | | | 6.50 | % | 03/01/2032 | | | 42,081 | |
| | 573 | | FNMA, Pool# 555531 | | | 5.50 | % | 06/01/2033 | | | 642 | |
| | 695 | | FNMA, Pool# 555591 | | | 5.50 | % | 07/01/2033 | | | 779 | |
| | 37,588 | | FNMA, Pool# 748643# | | | 2.45 | % | 09/01/2033 | | | 39,200 | |
| | 752 | | FNMA, Pool# 555876 | | | 5.50 | % | 10/01/2033 | | | 850 | |
| | 54,581 | | FNMA, Pool# 744805# | | | 2.77 | % | 11/01/2033 | | | 55,568 | |
| | 33,398 | | FNMA, Pool# 741373# | | | 2.78 | % | 12/01/2033 | | | 34,682 | |
| | 80,321 | | FNMA, Pool# 764342# | | | 2.40 | % | 02/01/2034 | | | 83,059 | |
| | 2,255 | | FNMA, Pool# 725424 | | | 5.50 | % | 04/01/2034 | | | 2,530 | |
| | 1,015 | | FNMA, Pool# 735022 | | | 5.50 | % | 12/01/2034 | | | 1,135 | |
| | 29,953 | | FNMA, Pool# 796283 | | | 5.50 | % | 12/01/2034 | | | 33,332 | |
| | 8,655 | | FNMA, Pool# 735263# | | | 2.77 | % | 01/01/2035 | | | 9,081 | |
| | 2,653 | | FNMA, Pool# 821252# | | | 2.61 | % | 05/01/2035 | | | 2,777 | |
| | 829 | | FNMA, Pool# 255706 | | | 5.50 | % | 05/01/2035 | | | 921 | |
| | 61 | | FNMA, Pool# 735580 | | | 5.00 | % | 06/01/2035 | | | 66 | |
| | 160,478 | | FNMA, Pool# 836335# | | | 2.30 | % | 10/01/2035 | | | 160,713 | |
| | 119,955 | | FNMA, Pool# 836715# | | | 2.61 | % | 10/01/2035 | | | 120,346 | |
| | 6,829 | | FNMA, Pool# 851372# | | | 3.05 | % | 12/01/2035 | | | 7,208 | |
| | 1,098 | | FNMA, Pool# 256022 | | | 5.50 | % | 12/01/2035 | | | 1,227 | |
| | 110 | | FNMA, Pool# 849496 | | | 5.50 | % | 12/01/2035 | | | 122 | |
| | 12,706 | | FNMA, Pool# 848817 | | | 5.00 | % | 01/01/2036 | | | 13,844 | |
| | 756 | | FNMA, Pool# 845341 | | | 5.50 | % | 01/01/2036 | | | 846 | |
| | 1,311 | | FNMA, Pool# 256059 | | | 5.50 | % | 01/01/2036 | | | 1,466 | |
| | 2,550 | | FNMA, Pool# 880371# | | | 3.04 | % | 02/01/2036 | | | 2,697 | |
| | 49,879 | | FNMA, Pool# 865849# | | | 2.58 | % | 03/01/2036 | | | 51,708 | |
| | 4,507 | | FNMA, Pool# 891332# | | | 2.81 | % | 04/01/2036 | | | 4,733 | |
| | 2,888 | | FNMA, Pool# 745480# | | | 2.96 | % | 04/01/2036 | | | 3,030 | |
| | 85,858 | | FNMA, Pool# 882017# | | | 2.81 | % | 05/01/2036 | | | 89,338 | |
| | 3,036 | | FNMA, Pool# 901006# | | | 2.44 | % | 09/01/2036 | | | 3,223 | |
| | 8,492 | | FNMA, Pool# 902188# | | | 3.26 | % | 11/01/2036 | | | 8,943 | |
| | 162 | | FNMA, Pool# 905690 | | | 5.50 | % | 12/01/2036 | | | 180 | |
| | 88,513 | | FNMA, Pool# 888445# | | | 2.62 | % | 04/01/2037 | | | 95,047 | |
| | 10,959 | | FNMA, Pool# 888463# | | | 5.36 | % | 05/01/2037 | | | 11,085 | |
| | 320 | | FNMA, Pool# 960392 | | | 5.50 | % | 12/01/2037 | | | 356 | |
| | 5,191 | | FNMA, Pool# 933628# | | | 2.88 | % | 07/01/2038 | | | 5,407 | |
| | 3,787 | | FNMA, Pool# 965185# | | | 2.27 | % | 09/01/2038 | | | 3,980 | |
| | 4,733,643 | | FNMA, Pool# AS2249 | | | 4.00 | % | 04/01/2039 | | | 4,985,545 | |
| | 13,254 | | FNMA, Pool# AC4824# | | | 3.08 | % | 10/01/2039 | | | 13,960 | |
| | 8,165 | | FNMA, Pool# AH4794 | | | 5.00 | % | 02/01/2041 | | | 8,968 | |
| | 18,760 | | FNMA, Pool# AI1170 | | | 5.00 | % | 04/01/2041 | | | 20,492 | |
| | 3,483,567 | | FNMA, Pool# AL6768 | | | 6.00 | % | 05/01/2041 | | | 3,946,330 | |
| | 1,070,116 | | FNMA, Pool# AW7425 | | | 5.00 | % | 01/01/2042 | | | 1,166,698 | |
| | 514,615 | | FNMA, Pool# MA1065 | | | 4.00 | % | 05/01/2042 | | | 541,209 | |
| | 776,383 | | FNMA, Pool# AO7724 | | | 4.50 | % | 06/01/2042 | | | 838,207 | |
| | 14,272 | | FNMA, Pool# AR1150 | | | 3.00 | % | 01/01/2043 | | | 14,272 | |
| | 3,039,956 | | FNMA, Pool# AR6379 | | | 3.00 | % | 02/01/2043 | | | 3,036,588 | |
| | 1,431,178 | | FNMA, Pool# AB8711 | | | 3.00 | % | 03/01/2043 | | | 1,431,218 | |
| | 1,056,587 | | FNMA, Pool# BC1738 | | | 4.50 | % | 09/01/2043 | | | 1,143,397 | |
| | 1,630,513 | | FNMA, Pool# BD5926 | | | 3.50 | % | 08/01/2046 | | | 1,673,265 | |
| | 2,349,101 | | FNMA, Pool# AU6230 | | | 5.00 | % | 09/01/2043 | | | 2,567,056 | |
| | 927,271 | | FNMA, Pool# AV5309 | | | 4.00 | % | 12/01/2043 | | | 975,985 | |
| | 808,939 | | FNMA, Pool# AS1429 | | | 4.00 | % | 12/01/2043 | | | 852,595 | |
| | 633,359 | | FNMA, Pool# AV7739 | | | 4.00 | % | 01/01/2044 | | | 667,246 | |
| | 2,656,584 | | FNMA, Pool# BC1737 | | | 4.00 | % | 01/01/2044 | | | 2,798,809 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Mortgage Securities FundSchedule of Investments
December 31, 2016 (Unaudited)
Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Mortgage Backed Securities — (Continued) | |
| | 1,288,381 | | FNMA, Pool# AW0998 | | | 4.00 | % | 05/01/2044 | | | 1,358,038 | |
| | 1,175,379 | | FNMA, Pool# AW6485 | | | 4.00 | % | 06/01/2044 | | | 1,240,782 | |
| | 1,331,578 | | FNMA, Pool# AS2985 | | | 4.00 | % | 08/01/2044 | | | 1,404,624 | |
| | 1,117,671 | | FNMA, Pool# AY0382 | | | 4.00 | % | 11/01/2044 | | �� | 1,165,855 | |
| | 205,626 | | FNMA, Pool# AY1007 | | | 4.00 | % | 02/01/2045 | | | 216,445 | |
| | 1,557,062 | | FNMA, Pool# AY0677 | | | 3.50 | % | 03/01/2045 | | | 1,602,582 | |
| | 1,049,531 | | FNMA, Pool# AW9534 | | | 4.00 | % | 03/01/2045 | | | 1,107,689 | |
| | 1,829,818 | | FNMA, Pool# AZ2000 | | | 3.50 | % | 05/01/2045 | | | 1,883,332 | |
| | 973,780 | | FNMA, Pool# AZ4154 | | | 4.00 | % | 06/01/2045 | | | 1,029,362 | |
| | 686,359 | | FNMA, Pool# AZ8061 | | | 4.00 | % | 08/01/2045 | | | 722,588 | |
| | 3,569,610 | | FNMA, Pool# AZ7828 | | | 4.00 | % | 08/01/2045 | | | 3,757,199 | |
| | 2,400,372 | | FNMA, Pool# AZ8218 | | | 4.00 | % | 08/01/2045 | | | 2,526,662 | |
| | 290,345 | | FNMA, Pool# AZ1494 | | | 4.00 | % | 09/01/2045 | | | 305,960 | |
| | 1,732,985 | | FNMA, Pool# AZ7073 | | | 4.00 | % | 09/01/2045 | | | 1,826,608 | |
| | 310,504 | | FNMA, Pool# BA2936 | | | 4.00 | % | 10/01/2045 | | | 327,264 | |
| | 1,917,374 | | FNMA, Pool# BA6225 | | | 4.00 | % | 10/01/2045 | | | 2,036,139 | |
| | 1,748,381 | | FNMA, Pool# BA3674 | | | 4.50 | % | 10/01/2045 | | | 1,887,394 | |
| | 1,049,330 | | FNMA, Pool# AZ5035 | | | 4.50 | % | 10/01/2045 | | | 1,129,851 | |
| | 2,594,058 | | FNMA, Pool# AZ7081 | | | 3.50 | % | 11/01/2045 | | | 2,669,291 | |
| | 2,185,768 | | FNMA, Pool# BA5436 | | | 3.50 | % | 11/01/2045 | | | 2,245,272 | |
| | 1,257,553 | | FNMA, Pool# BC3849 | | | 4.00 | % | 11/01/2045 | | | 1,325,026 | |
| | 1,403,941 | | FNMA, Pool# BA5582 | | | 3.50 | % | 12/01/2045 | | | 1,440,713 | |
| | 555,880 | | FNMA, Pool# BA5579 | | | 3.50 | % | 12/01/2045 | | | 570,437 | |
| | 1,321,209 | | FNMA, Pool# BA5469 | | | 3.50 | % | 12/01/2045 | | | 1,358,527 | |
| | 1,362,480 | | FNMA, Pool# AZ5003 | | | 4.00 | % | 12/01/2045 | | | 1,434,177 | |
| | 1,715,989 | | FNMA, Pool# BA5583 | | | 3.50 | % | 01/01/2046 | | | 1,768,816 | |
| | 1,437,573 | | FNMA, Pool# BA5584 | | | 3.50 | % | 01/01/2046 | | | 1,479,277 | |
| | 1,595,485 | | FNMA, Pool# BA5587 | | | 4.00 | % | 01/01/2046 | | | 1,687,078 | |
| | 1,344,697 | | FNMA, Pool# BC2159 | | | 4.00 | % | 01/01/2046 | | | 1,417,660 | |
| | 2,042,131 | | FNMA, Pool# BA7237 | | | 4.00 | % | 01/01/2046 | | | 2,155,989 | |
| | 2,160,539 | | FNMA, Pool# BC3871 | | | 3.50 | % | 02/01/2046 | | | 2,217,179 | |
| | 2,970,883 | | FNMA, Pool# BC1230 | | | 3.50 | % | 02/01/2046 | | | 3,051,790 | |
| | 1,346,632 | | FNMA, Pool# BC1231 | | | 4.00 | % | 02/01/2046 | | | 1,424,364 | |
| | 1,084,073 | | FNMA, Pool# BA5510 | | | 4.00 | % | 02/01/2046 | | | 1,144,574 | |
| | 972,448 | | FNMA, Pool# BC7884 | | | 4.00 | % | 02/01/2046 | | | 1,024,141 | |
| | 1,083,989 | | FNMA, Pool# BC6366 | | | 4.50 | % | 02/01/2046 | | | 1,168,504 | |
| | 5,038,550 | | FNMA, Pool# AL8256 | | | 3.00 | % | 03/01/2046 | | | 5,038,690 | |
| | 2,427,078 | | FNMA, Pool# BC5066 | | | 3.50 | % | 03/01/2046 | | | 2,490,600 | |
| | 682,878 | | FNMA, Pool# BC3387 | | | 3.50 | % | 03/01/2046 | | | 701,126 | |
| | 2,400,353 | | FNMA, Pool# BC1236 | | | 3.50 | % | 03/01/2046 | | | 2,463,255 | |
| | 874,209 | | FNMA, Pool# BC2913 | | | 4.00 | % | 03/01/2046 | | | 920,252 | |
| | 999,957 | | FNMA, Pool# BC5323 | | | 4.00 | % | 03/01/2046 | | | 1,054,317 | |
| | 1,703,334 | | FNMA, Pool# BC4621 | | | 4.00 | % | 03/01/2046 | | | 1,794,098 | |
| | 998,499 | | FNMA, Pool# AZ0757 | | | 4.00 | % | 03/01/2046 | | | 1,051,140 | |
| | 1,821,000 | | FNMA, Pool# BC5599 | | | 4.00 | % | 03/01/2046 | | | 1,917,075 | |
| | 1,409,635 | | FNMA, Pool# BC6557 | | | 3.50 | % | 04/01/2046 | | | 1,446,587 | |
| | 1,081,484 | | FNMA, Pool# BC1240 | | | 3.50 | % | 04/01/2046 | | | 1,112,034 | |
| | 1,436,760 | | FNMA, Pool# BC7881 | | | 3.50 | % | 04/01/2046 | | | 1,474,382 | |
| | 2,312,150 | | FNMA, Pool# BC1241 | | | 3.50 | % | 04/01/2046 | | | 2,372,759 | |
| | 1,176,033 | | FNMA, Pool# BC6771 | | | 4.50 | % | 04/01/2046 | | | 1,266,285 | |
| | 1,580,408 | | FNMA, Pool# BC9451 | | | 3.50 | % | 05/01/2046 | | | 1,622,721 | |
| | 1,168,939 | | FNMA, Pool# BC9463 | | | 4.00 | % | 05/01/2046 | | | 1,232,640 | |
| | 2,207,922 | | FNMA, Pool# BC8680 | | | 4.50 | % | 05/01/2046 | | | 2,380,540 | |
| | 1,376,584 | | FNMA, Pool# BD1370 | | | 3.50 | % | 06/01/2046 | | | 1,413,474 | |
| | 3,453,501 | | FNMA, Pool# BD1382 | | | 4.00 | % | 06/01/2046 | | | 3,635,784 | |
| | 1,650,976 | | FNMA, Pool# BD1026 | | | 4.00 | % | 06/01/2046 | | | 1,738,118 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Mortgage Securities FundSchedule of Investments
December 31, 2016 (Unaudited)
Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Mortgage Backed Securities — (Continued) | |
| | 2,577,650 | | FNMA, Pool# BD2955 | | | 3.50 | % | 07/01/2046 | | | 2,646,728 | |
| | 1,037,644 | | FNMA, Pool# BD2775 | | | 4.00 | % | 07/01/2046 | | | 1,096,140 | |
| | 3,581,982 | | FNMA, Pool# BD2778 | | | 4.50 | % | 07/01/2046 | | | 3,862,305 | |
| | 2,017,106 | | FNMA, Pool# BD3951 | | | 3.00 | % | 08/01/2046 | | | 2,007,781 | |
| | 1,406,090 | | FNMA, Pool# BD5455 | | | 3.50 | % | 08/01/2046 | | | 1,443,825 | |
| | 1,913,232 | | FNMA, Pool# BD4899 | | | 4.50 | % | 08/01/2046 | | | 2,063,012 | |
| | 1,095,413 | | FNMA, Pool# BD7530 | | | 4.50 | % | 09/01/2046 | | | 1,183,535 | |
| | 1,085,132 | | FNMA, Pool# BD7779 | | | 4.00 | % | 08/01/2046 | | | 1,143,598 | |
| | 1,448,909 | | FNMA, Pool# BE0297 | | | 3.50 | % | 09/01/2046 | | | 1,487,791 | |
| | 1,170,977 | | FNMA, Pool# BD3965 | | | 3.50 | % | 09/01/2046 | | | 1,203,131 | |
| | 1,564,199 | | FNMA, Pool# BC7285 | | | 3.50 | % | 10/01/2046 | | | 1,605,694 | |
| | 7,120,802 | | FNMA, Pool# BE0334 | | | 3.50 | % | 10/01/2046 | | | 7,307,491 | |
| | 5,953,684 | | FNMA, Pool# BE1934 | | | 3.50 | % | 11/01/2046 | | | 6,109,779 | |
| | 1,830,293 | | FNMA, Pool# BE4515 | | | 4.50 | % | 12/01/2046 | | | 1,979,227 | |
| | 4,363,116 | | FNMA, Pool# BE4230 | | | 4.50 | % | 12/01/2046 | | | 4,718,147 | |
| | 2,519,169 | | FNMA, Pool# BD9335 | | | 4.50 | % | 10/01/2046 | | | 2,716,387 | |
| | 113,858 | | FNMA REMIC Trust, Series 2003-122 | | | 4.00 | % | 12/25/2018 | | | 115,890 | |
| | 60 | | FNMA REMIC Trust, Series 1990-105 | | | 6.50 | % | 09/25/2020 | | | 63 | |
| | 7,615 | | FNMA REMIC Trust, Series 2012-1 | | | 1.75 | % | 12/25/2021 | | | 7,647 | |
| | 74,823 | | FNMA REMIC Trust, Series 2011-18 | | | 4.00 | % | 10/25/2025 | | | 74,822 | |
| | 3,842,567 | | FNMA REMIC Trust, Series 2012-139~ | | | 2.50 | % | 12/25/2027 | | | 352,434 | |
| | 269,684 | | FNMA REMIC Trust, Series 2013-15~ | | | 3.00 | % | 03/25/2028 | | | 26,110 | |
| | 11,200,617 | | FNMA REMIC Trust, Series 2014-14~ | | | 3.00 | % | 04/25/2031 | | | 894,081 | |
| | 3,678,292 | | FNMA REMIC Trust, Series 2013-115~ | | | 3.00 | % | 04/25/2031 | | | 503,212 | |
| | 8,745,310 | | FNMA REMIC Trust, Series 2013-104~ | | | 3.00 | % | 08/25/2032 | | | 769,474 | |
| | 408,074 | | FNMA REMIC Trust, Series 2012-10# | | | 1.31 | % | 02/25/2042 | | | 408,873 | |
| | 1,843,934 | | FNMA REMIC Trust, Series 2013-34~ | | | 3.00 | % | 05/25/2042 | | | 286,974 | |
| | 1,514,662 | | FNMA REMIC Trust, Series 2012-99~ | | | 4.50 | % | 05/25/2042 | | | 269,476 | |
| | 15,599 | | FNMA REMIC Trust, Series 2003-W10 | | | 4.30 | % | 06/25/2043 | | | 16,384 | |
| | 5,257 | | FNMA REMIC Trust, Series 2003-W12 | | | 4.48 | % | 06/25/2043 | | | 5,549 | |
| | 31,540 | | FNMA REMIC Trust, Series 2003-W12 | | | 4.55 | % | 06/25/2043 | | | 33,871 | |
| | 17,550 | | FNMA REMIC Trust, Series 2003-W12 | | | 4.68 | % | 06/25/2043 | | | 18,659 | |
| | 20,475 | | FNMA REMIC Trust, Series 2003-W12 | | | 5.00 | % | 06/25/2043 | | | 21,940 | |
| | 1,451,793 | | FNMA REMIC Trust, Series 2015-40~ | | | 4.50 | % | 03/25/2045 | | | 320,509 | |
| | 14,500,000 | | FNMA, 2.5%, Due TBA January | | | 2.50 | % | 01/15/2032 | | | 14,524,072 | |
| | 11,000,000 | | FNMA, 3.0%, Due TBA January | | | 3.00 | % | 01/15/2032 | | | 11,288,750 | |
| | 25,000,000 | | FNMA, 3.0%, Due TBA January | | | 3.00 | % | 01/15/2047 | | | 24,837,298 | |
| | 5,754,464 | | Freddie Mac STACR Debt Notes, Series 2014-DN2# | | | 2.23 | % | 04/25/2024 | | | 5,803,286 | |
| | 2,694,697 | | Freddie Mac STACR Debt Notes, Series 2015-HQ2# | | | 1.68 | % | 05/27/2025 | | | 2,699,345 | |
| | 2,038,227 | | Freddie Mac STACR Debt Notes, Series 2015-DNA1# | | | 1.48 | % | 10/25/2027 | | | 2,039,754 | |
| | 1,400,000 | | FREMF Mortgage, Series 2016-K723# | | | 3.58 | % | 10/25/2039 | | | 1,304,679 | |
| | 900,000 | | FREMF Mortgage, Series 2011-K703#^ | | | 5.05 | % | 07/25/2044 | | | 931,778 | |
| | 2,896,068 | | FREMF Mortgage, Series 2013-K712#^ | | | 3.36 | % | 05/25/2045 | | | 2,942,973 | |
| | 2,790,963 | | FREMF Mortgage, Series 2012-K19#^ | | | 4.17 | % | 05/25/2045 | | | 2,912,746 | |
| | 5,000,000 | | FREMF Mortgage, Series 2012-K711#^ | | | 3.56 | % | 08/25/2045 | | | 5,093,399 | |
| | 600,000 | | FREMF Mortgage, Series 2013-K713#^ | | | 3.17 | % | 04/25/2046 | | | 605,248 | |
| | 7 | | GNMA, Pool# 781403X | | | 6.00 | % | 02/15/2017 | | | 7 | |
| | 3,585 | | GNMA, Pool# 595167X | | | 5.50 | % | 11/15/2017 | | | 3,620 | |
| | 2,275 | | GNMA, Pool# 552929X | | | 5.00 | % | 12/15/2017 | | | 2,303 | |
| | 817 | | GNMA, Pool# 607669X | | | 5.00 | % | 02/15/2018 | | | 831 | |
| | 2,738 | | GNMA, Pool# 594102X | | | 4.50 | % | 09/15/2018 | | | 2,798 | |
| | 7,829 | | GNMA, Pool# 780576X | | | 7.00 | % | 12/15/2022 | | | 8,719 | |
| | 33,669 | | GNMA, Pool# 723460X | | | 4.00 | % | 12/15/2024 | | | 35,200 | |
| | 1,250 | | GNMA, Pool# 780195X | | | 8.00 | % | 07/15/2025 | | | 1,424 | |
| | 12,404 | | GNMA, Pool# 487110 | | | 6.50 | % | 04/15/2029 | | | 14,243 | |
| | 334 | | GNMA, Pool# 536231X | | | 9.00 | % | 07/15/2030 | | | 336 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Mortgage Securities FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | | | | | | | | | | |
| Mortgage Backed Securities — (Continued) | | | | | | | |
| | | 5,029 | | GNMA, Pool# 571166 | | | 7.00 | % | 08/15/2031 | | | 5,179 | |
| | | 3,976 | | GNMA, Pool# 004017M | | | 6.00 | % | 08/20/2037 | | | 4,508 | |
| | | 3,527 | | GNMA, Pool# 565240X | | | 6.50 | % | 09/15/2037 | | | 4,033 | |
| | | 3,925 | | GNMA, Pool# 676322X | | | 7.00 | % | 09/15/2037 | | | 4,245 | |
| | | 10,203 | | GNMA, Pool# 646058X | | | 6.00 | % | 11/15/2037 | | | 11,576 | |
| | | 104,562 | | GNMA, Pool# 706295C | | | 5.10 | % | 12/20/2038 | | | 112,962 | |
| | | 108,983 | | GNMA, Pool# 706155C | | | 5.10 | % | 03/20/2039 | | | 117,724 | |
| | | 10,771 | | GNMA REMIC Trust, Series 201-03 | | | 3.00 | % | 01/16/2027 | | | 11,102 | |
| | | 1,240,097 | | GNMA REMIC Trust, Series 2013-168~ | | | 2.50 | % | 11/16/2028 | | | 110,681 | |
| | | 798 | | GNMA REMIC Trust, Series 2003-97 | | | 4.50 | % | 03/20/2033 | | | 825 | |
| | | 682,000 | | GNMA REMIC Trust, Series 2011-156 | | | 2.00 | % | 04/20/2040 | | | 551,915 | |
| | | 831,612 | | GNMA REMIC Trust, Series 2012-97 | | | 2.00 | % | 08/16/2042 | | | 704,312 | |
| | | 528,279 | | GNMA REMIC Trust, Series 2011-121# | | | 1.11 | % | 03/16/2043 | | | 523,522 | |
| | | 725,000 | | GNMA REMIC Trust, Series 2012-44 | | | 2.95 | % | 08/16/2043 | | | 723,495 | |
| | | 4,997,693 | | GNMA REMIC Trust, Series 2014-135#~ | | | 0.86 | % | 01/16/2056 | | | 278,938 | |
| | | 5,337,426 | | GNMA REMIC Trust, Series 2015-172#~ | | | 0.98 | % | 03/16/2057 | | | 382,421 | |
| | | 7,119,970 | | GNMA REMIC Trust, Series 2016-40#~ | | | 0.82 | % | 07/16/2057 | | | 469,378 | |
| | | 5,673,299 | | GNMA REMIC Trust, Series 2016-56#~ | | | 1.01 | % | 11/16/2057 | | | 453,973 | |
| | | 6,415,436 | | GNMA REMIC Trust, Series 2016-127#~ | | | 0.96 | % | 05/16/2058 | | | 512,344 | |
| | | 6,227,921 | | GNMA REMIC Trust, Series 2016-98#~ | | | 0.98 | % | 05/16/2058 | | | 487,150 | |
| | | 5,864,138 | | GNMA REMIC Trust, Series 2016-110#~ | | | 1.05 | % | 05/16/2058 | | | 474,960 | |
| | | 7,000,000 | | GNMA II, 3.0%, Due TBA January | | | 3.00 | % | 01/15/2047 | | | 7,088,183 | |
| | | 14,000,000 | | GNMA II, 3.5%, Due TBA January | | | 3.50 | % | 01/15/2047 | | | 14,554,258 | |
| | | 1,100,000 | | JPMCC, Series 2016-ASH#^ | | | 2.20 | % | 10/15/2034 | | | 1,101,414 | |
| Total Mortgage Backed Securities (Cost $405,709,685) | | | | | | | | 401,539,789 | |
| | | | | | | | | | | | | | |
| Asset Backed Securities — 12.7% | |
| | | 734,949 | | Aircraft Certificate Owner Trust, Series 2003^ | | | 7.00 | % | 09/20/2022 | | | 776,290 | |
| | | 338,000 | | American Credit Acceptance Receivables Trust, Series 2015-1 C^ | | | 4.29 | % | 04/12/2021 | | | 344,026 | |
| | | 650,000 | | American Credit Acceptance Receivables Trust, Series 2014-1 D^ | | | 5.20 | % | 04/12/2021 | | | 658,009 | |
| | | 64,022 | | AmeriCredit Automobile Receivables Trust, Series 2012-4 C | | | 1.93 | % | 08/08/2018 | | | 64,025 | |
| | | 22,223 | | AmeriCredit Automobile Receivables Trust, Series 2012-5 C | | | 1.69 | % | 11/08/2018 | | | 22,225 | |
| | | 199,560 | | AmeriCredit Automobile Receivables Trust, Series 2014-2 A-3 | | | 0.94 | % | 02/08/2019 | | | 199,401 | |
| | | 1,071,549 | | AmeriCredit Automobile Receivables Trust, Series 2016-1 A-2-A | | | 1.52 | % | 06/10/2019 | | | 1,072,795 | |
| | | 3,000,000 | | AmeriCredit Automobile Receivables Trust, Series 2013-5 C | | | 2.29 | % | 11/08/2019 | | | 3,013,370 | |
| | | 1,000,000 | | AmeriCredit Automobile Receivables Trust, Series 2013-4 C | | | 2.72 | % | 09/09/2019 | | | 1,006,767 | |
| | | 250,000 | | Anchorage Capital CLO, Ltd.#^ | | | 2.28 | % | 10/15/2026 | | | 250,143 | |
| | | 250,000 | | Ares XXXI CLO, Ltd., Series 2014-31#^ | | | 2.27 | % | 08/28/2025 | | | 250,018 | |
| | | 250,000 | | Atlas Senior Loan Fund VI, Ltd., Series A#^ | | | 2.22 | % | 10/15/2026 | | | 250,094 | |
| | | 220,000 | | Babson CLO, Ltd., Series 2014-I#^ | | | 2.37 | % | 07/20/2025 | | | 220,012 | |
| | | 84,787 | | Capital Auto Receivables Asset Trust, Series 2014-2 A-3 | | | 1.26 | % | 05/21/2018 | | | 84,796 | |
| | | 250,000 | | Carlyle Global Market Strategies CLO, Ltd., Series FLT#^ | | | 2.19 | % | 07/27/2026 | | | 250,069 | |
| | | 850,043 | | Continental Airlines Trust, Series 2000-1 A-1 | | | 8.05 | % | 05/01/2022 | | | 945,673 | |
| | | 727,774 | | CPS Auto Receivables Trust, Series 2016-D^ | | | 1.50 | % | 06/15/2020 | | | 727,225 | |
| | | 207,745 | | CPS Auto Receivables Trust, Series 2014-B^ | | | 1.11 | % | 11/15/2018 | | | 207,574 | |
| | | 798,584 | | Drive Auto Receivables Trust, Series 2016-C^ | | | 0.90 | % | 12/15/2017 | | | 798,592 | |
| | | 230,000 | | Dryden Senior Loan Fund, Series 2015-37#^ | | | 2.38 | % | 04/15/2027 | | | 230,573 | |
| | | 759,000 | | DT Auto Owner Trust, Series 2016-1^ | | | 2.79 | % | 05/15/2020 | | | 763,707 | |
| | | 683,871 | | Exeter Automobile Receivables Trust, Series 2015-2^ | | | 1.54 | % | 11/15/2019 | | | 684,054 | |
| | | 1,221,706 | | Exeter Automobile Receivables Trust, Series 2016-3^ | | | 1.84 | % | 11/16/2020 | | | 1,220,291 | |
| | | 1,500,000 | | Finn Square CLO, Ltd.#^ | | | 4.46 | % | 12/24/2023 | | | 1,498,925 | |
| | | 3,000,000 | | Highbridge Loan Management, Series 6a-2015 C#^ | | | 3.95 | % | 05/05/2027 | | | 3,006,972 | |
| | | 217,046 | | Hilton Grand Vacations Trust, Series 2013-A^ | | | 2.28 | % | 01/25/2026 | | | 215,351 | |
| | | 232,725 | | Hilton Grand Vacations Trust, Series 2014-A^ | | | 1.77 | % | 11/25/2026 | | | 228,504 | |
| | | 230,000 | | Limerock CLO II, Ltd., Series 2014-2#^ | | | 2.18 | % | 04/18/2026 | | | 230,228 | |
| | | 490,000 | | Limerock CLO III LLC, Series 2014-3#^ | | | 2.41 | % | 10/20/2026 | | | 490,017 | |
| | | 325,566 | | MMAF Equipment Finance LLC, Series 2012-A^ | | | 1.35 | % | 10/10/2018 | | | 325,540 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Mortgage Securities FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Par | | | | | | | | | |
| | Value/Shares | | Security Description | | Rate | | Maturity | | Value $ | |
| Asset Backed Securities — (Continued) | |
| | | 46,715 | | MMAF Equipment Finance LLC, Series 2013-A^ | | | 1.03 | % | 12/11/2017 | | | 46,712 | |
| | | 100,000 | | MMAF Equipment Finance LLC, Series 2013-A^ | | | 1.68 | % | 05/11/2020 | | | 100,118 | |
| | | 379,938 | | MMAF Equipment Finance LLC, Series 2015-A^ | | | 1.39 | % | 10/16/2019 | | | 379,364 | |
| | | 226,072 | | MVW Owner Trust, Series 2013-1^ | | | 2.15 | % | 04/22/2030 | | | 224,029 | |
| | | 756,732 | | MVW Owner Trust, Series 2016-1^ | | | 2.25 | % | 12/20/2033 | | | 742,414 | |
| | | 713,896 | | Orange Lake Timeshare Trust, Series 2016-A^ | | | 2.61 | % | 03/08/2029 | | | 704,212 | |
| | | 772,911 | | Oscar U.S. Funding Trust IV, Series 2016-4#^ | | | 2.24 | % | 07/15/2020 | | | 777,896 | |
| | | 325,000 | | Oscar U.S. Funding Trust V, Series 2016-5#^ | | | 1.94 | % | 11/15/2019 | | | 325,708 | |
| | | 330,727 | | Prestige Auto Receivables Trust, Series 2016-1 A-2^ | | | 1.78 | % | 04/15/2019 | | | 331,233 | |
| | | 2,200,000 | | Prestige Auto Receivables Trust, Series 2014-1 B^ | | | 1.91 | % | 04/15/2020 | | | 2,205,221 | |
| | | 760,000 | | Prestige Auto Receivables Trust, Series 2016-1 A-3^ | | | 1.99 | % | 06/15/2020 | | | 761,631 | |
| | | 254,000 | | Prestige Auto Receivables Trust, Series 2016-1 B^ | | | 2.98 | % | 11/16/2020 | | | 256,792 | |
| | | 285,000 | | Prestige Auto Receivables Trust, Series 2015-1 B^ | | | 2.04 | % | 04/15/2021 | | | 286,068 | |
| | | 350,260 | | Santander Drive Auto Receivables Trust, Series 2014-3 | | | 1.45 | % | 05/15/2019 | | | 350,280 | |
| | | 3,874,968 | | Santander Drive Auto Receivables Trust, Series 2013-A^ | | | 3.12 | % | 10/15/2019 | | | 3,900,772 | |
| | | 3,000,000 | | Santander Drive Auto Receivables Trust, Series 2015-1 | | | 1.97 | % | 11/15/2019 | | | 3,006,603 | |
| | | 90,660 | | Sierra Timeshare Receivables Funding Trust, Series 2014-1 A^ | | | 2.07 | % | 03/20/2030 | | | 90,071 | |
| | | 979,463 | | Sierra Timeshare Receivables Funding Trust, Series 2014-3 A^ | | | 2.30 | % | 10/20/2031 | | | 978,174 | |
| | | 636,779 | | Sierra Timeshare Receivables Funding Trust, Series 2015-1 A^ | | | 2.40 | % | 03/20/2032 | | | 633,998 | |
| | | 1,086,093 | | Sierra Timeshare Receivables Funding Trust, Series 2015-2 A^ | | | 2.43 | % | 06/20/2032 | | | 1,085,331 | |
| | | 837,037 | | Sierra Timeshare Receivables Funding Trust, Series 2015-3 A^ | | | 2.58 | % | 09/20/2032 | | | 833,752 | |
| | | 878,877 | | Sierra Timeshare Receivables Funding Trust, Series 2016-2 A^ | | | 2.33 | % | 07/20/2033 | | | 863,934 | |
| | | 1,327,076 | | Sierra Timeshare Receivables Funding Trust, Series 2016-3 A^ | | | 2.43 | % | 10/20/2033 | | | 1,305,943 | |
| | | 1,300,000 | | TCF Auto Receivables Owner Trust, Series 2016-PT1 A^ | | | 1.93 | % | 06/15/2022 | | | 1,299,101 | |
| | | 787,336 | | US Airways Pass Through Trust, Series 1999-1 A | | | 8.36 | % | 07/20/2020 | | | 811,940 | |
| | | 1,030,640 | | VSE VOI Mortgage LLC, Series 2016-A^ | | | 2.54 | % | 07/20/2033 | | | 1,019,980 | |
| | | 965,000 | | Westlake Auto Receivables Trust 2015-1, Series C ^ | | | 2.29 | % | 11/16/2020 | | | 967,745 | |
| | | 335,000 | | Westlake Auto Receivables Trust 2016-1, Series C^ | | | 3.29 | % | 09/15/2021 | | | 338,545 | |
| | | 416,000 | | Westlake Auto Receivables Trust 2016-2, Series B^ | | | 2.30 | % | 11/15/2019 | | | 416,491 | |
| | | 750,000 | | Westlake Auto Receivables Trust 2016-3, Series B^ | | | 2.07 | % | 12/15/2021 | | | 747,060 | |
| | | 750,000 | | Westlake Auto Receivables Trust 2016-3, Series C^ | | | 2.46 | % | 01/18/2022 | | | 744,594 | |
| Total Asset Backed Securities (Cost $46,530,907) | | | | | | | | 46,570,978 | |
| | | | | | | | | | | | | | |
| Local Government Housing Agency Bonds — 0.6% | |
| | | 1,685,000 | | Delaware State Housing Authority | | | 2.75 | % | 12/01/2041 | | | 1,663,651 | |
| | | 745,000 | | Missouri Housing Development Commission | | | 2.65 | % | 11/01/2040 | | | 735,174 | |
| Total Local Government Housing Agency Bonds (Cost $2,285,863) | | | | | | | | 2,398,825 | |
| | | | | | | | | | | | | | |
| Preferred Stocks — 0.1% | |
| | | 15,000 | | AGNC Investment Corp. — Series B, 7.75% | | | | | | | | 375,150 | |
| Total Preferred Stocks (Cost $383,294) | | | | | | | | 375,150 | |
| | | | | | | | | | | | | | |
| Short-Term Investments — 8.3% | |
| | |
| Money Market Funds — 8.3% | |
| | | 30,266,376 | | First American Treasury Obligations Fund — Class Z, 0.39%* | | | | | | | | 30,266,376 | |
| Total Short-Term Investments (Cost $30,266,376) | | | | | | | | 30,266,376 | |
| Total Investments — 131.3% (Cost $485,176,125) | | | | | | | | 481,151,118 | |
| Liabilities in Excess of Other Assets — (31.3)% | | | | | | | | (114,690,372 | ) |
| NET ASSETS — 100.0% | | | | | | | $ | 366,460,746 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Mortgage Securities FundSchedule of Investments
December 31, 2016 (Unaudited)
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| | | | |
| Mortgage Backed Securities | | | 109.6 | % |
| Asset Backed Securities | | | 12.7 | % |
| Money Market Funds | | | 8.3 | % |
| Local Government Housing Agency Bonds | | | 0.6 | % |
| Preferred Stocks | | | 0.1 | % |
| Other Assets and Liabilities | | | (31.3 | )% |
| | | | 100.0 | % |
| # | Variable rate security. Rate disclosed is as of December 31, 2016. |
| ^ | 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. At December 31, 2016, the value of these securities amounted to $55,282,123 or 15.1% of net assets. |
| ~ | Interest Only Security |
| * | Annualized seven-day yield as of December 31, 2016. |
Brown Advisory Mortgage Securities FundSchedule of Securities Sold Short
December 31, 2016 (Unaudited)
| | Par Value | | Security Description | | Rate | | Maturity | | Value $ | |
| | |
| Mortgage Backed Securities — (1.7)% | |
| | | 6,000,000 | | FNMA, 4.0%, Due TBA January | | | 4.00 | % | 01/15/2047 | | $ | (6,308,320 | ) |
| Total Mortgage Backed Securities (Proceeds $6,317,578) | | | | | | | $ | (6,308,320 | ) |
Percentages are stated as a percent of net assets.
The accompanying notes are an integral part of these financial statements.
Brown Advisory – WMC Strategic European Equity FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
During the six months ended December 31, 2016, the Brown Advisory - WMC Strategic European Equity Fund Institutional Shares (the “Fund”) returned 0.39%, underperforming the MSCI Europe Index, the Fund’s benchmark, which returned 4.98% during the same time.
We take a bottom-up approach to building the portfolio where we aim to identify companies we believe benefit from a structural growth advantage, are competitively well-positioned and attractively valued. This fundamental process leads us to hold certain sector over- and underweights.
The Fund’s underperformance was largely due to weak stock selection. Selection within the industrials, financials, and consumer discretionary sectors detracted most from relative performance. Positive selection within health care partially offset this negative performance. Sector allocation, a byproduct of the bottom-up stock selection process, also detracted from relative returns. The combination of the Fund’s underweight to financials and materials, along with an overweight to the consumer staples sector detracted most from relative returns. Lack of exposure to the utilities and telecommunication services sectors partially offset negative relative returns as those sectors performed poorly during the period.
Top detractors from relative returns included our positions in Heineken, Reckitt Benckiser, and Berendsen. Heineken, a global beverage producer and distributor, saw its stock pull back during the period as a result of the broader staples sell off and due to the company’s Mexican Peso exposure. We continue to like Heineken’s competitive position as one of the world’s largest global brewers with a sizeable emerging markets footprint, strong brand portfolio, and good track record of cost optimization. Reckitt Benckiser, the UK-based consumer health care and personal care provider, reported accelerated like-for-like sales growth, but reported flat sales due to currency headwinds. Berendsen, the provider of industrial laundry services for hotels, hospitals, and workwear in London and across the UK, underperformed during the period. The company issued a profit warning as a result of operational issues in the UK linen and workwear business. We believe this business segment has suffered from underinvestment under the old CEO as evidenced by the growth and margin trends over the last few years. The new CEO, however, is proactively addressing the problems outlined in their strategy update at the end of 2016. We view the issues in this segment as temporary rather than structural and used the sharp price decline to add to our position.
Top contributors to relative returns during the period included UBS, Atlas Copco, and Cie Financiere Richemont. The portfolio also benefited from not holding benchmark constituents Novo Nordisk, Roche, Novartis, and Nestle. UBS is a Swiss company offering private banking and wealth management services. Shares rose on the back of the financials rally during the fourth quarter of 2016. The bank is one of the most well-established franchises, and the strength of its brand we view as a competitive advantage in an industry that is characterized by high barriers to entry. Atlas Copco is a Swedish global industrials group producing compressors, as well as construction and mining equipment. The company has a strong balance sheet during a period when many peers are in poor financial positions. During the period, the stock benefited from strong organic revenue growth as well as cyclical tailwinds in the industrials sector. Cie Financiere Richemont, the Swiss luxury goods group which owns several of the world’s leading luxury goods companies (Cartier and Montblanc), outperformed during the period as sales increased during the period, which was in contrast to the sharp decline registered in the first six months of the year. This improvement was primarily driven by robust local sales and tourist purchases in the United Kingdom, as well as strong jewelry sales.
We believe that we are in an environment of low economic growth and low interest rates. Even as some regions begin tapering central bank activity or, in the case of the U.S., appear set for gradual rate hike, we believe central banks will likely remain accommodative. This translates into large amounts of financial assets seeking investment and returns. This environment, in combination with uncertainty around upcoming political events, will, in our view, result in continued volatility in the equity markets during 2017. While this on the surface may create unease among market participants, as stock pickers we welcome the investment opportunity volatility creates.
Brown Advisory – WMC Strategic European Equity FundA Message to Our Shareholders
December 31, 2016
Looking forward over the medium and longer term, we are tilting our portfolio to what we believe are higher quality names while sticking to our philosophy of picking companies with long-term structural growth drivers and a favorable competitive position trading at a discount relative to the market. We are finding the opportunity set attractive at the moment and continue to find what we believe to be compelling investment ideas.
Sincerely,
C. Dirk Enderlein, CFA
Portfolio Manager
Past performance is not a guarantee of future results.
Mutual fund investing involves risk. Principal loss is possible. Investments focused in a single geographic region may be exposed to greater risk than investments diversified among various geographies. Investments in foreign securities entail certain risks not associated with investments in domestic securities, such as volatility of currency exchange rates, and in some cases, political and economic instability and relatively illiquid markets. These risks are greater in emerging markets. Investments in smaller and medium capitalization companies generally carry greater risk than is customarily associated with larger companies for various reasons such as narrower markets, limited financial resources and less liquid stock. The Fund may invest in ETFs, which may trade at a discount to the aggregate value of the underlying securities and although expense ratios for ETFs are generally low, frequent trading of ETFs by the Fund can generate brokerage expenses. The value of investments in REITs may change in response to changes in the real estate market such as declines in the value of real estate, lack of available capital or financing opportunities, and increases in property taxes or operating costs. Derivatives involve risks different from, and in certain cases, greater than the risks presented by more traditional investments. Investors will indirectly bear the principal risks and its share of the fees and expenses of the Fund’s investment in other Investment Companies.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory – WMC Strategic European Equity FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Shares | | Security Description | | Value $ | |
| | |
| Common Stocks — 98.6% | |
| | |
| Belgium — 2.2% | |
| | | 331,365 | | UCB S.A. | | | 21,201,113 | |
| Denmark — 5.1% | |
| | | 747,651 | | DSV A/S | | | 33,203,370 | |
| | | 313,991 | | H. Lundbeck A/S* | | | 12,748,360 | |
| | | 310,544 | | Spar Nord Bank A/S | | | 3,557,267 | |
| | | | | | | | 49,508,997 | |
| Finland — 4.3% | |
| | | 672,625 | | Kone OYJ | | | 30,055,394 | |
| | | 256,596 | | Sampo OYJ | | | 11,470,559 | |
| | | | | | | | 41,525,953 | |
| France — 13.2% | |
| | | 741,206 | | Altran Technologies S.A. | | | 10,817,371 | |
| | | 71,473 | | BioMerieux S.A. | | | 10,667,786 | |
| | | 602,291 | | Elior Group S.A.* | | | 13,758,960 | |
| | | 649,411 | | Elis S.A.* | | | 11,581,003 | |
| | | 591,859 | | Legrand S.A. | | | 33,579,358 | |
| | | 106,342 | | L’Oreal S.A. | | | 19,382,523 | |
| | | 219,616 | | Pernod Ricard S.A. | | | 23,766,939 | |
| | | 189,969 | | Worldline S.A.* | | | 5,352,202 | |
| | | | | | | | 128,906,142 | |
| Germany — 7.7% | |
| | | 216,936 | | Beiersdorf AG | | | 18,376,245 | |
| | | 986,397 | | Infineon Technologies AG | | | 17,062,239 | |
| | | 230,538 | | Merck KGaA | | | 24,003,909 | |
| | | 411,474 | | United Internet AG | | | 16,056,788 | |
| | | | | | | | 75,499,181 | |
| Italy — 1.9% | |
| | | 175,209 | | DiaSorin S.p.A. | | | 10,374,435 | |
| | | 1,575,197 | | OVS S.p.A.* | | | 7,912,242 | |
| | | | | | | | 18,286,677 | |
| Netherlands — 6.0% | |
| | | 377,177 | | Heineken NV | | | 28,264,958 | |
| | | 736,526 | | Unilever NV | | | 30,255,737 | |
| | | | | | | | 58,520,695 | |
| Spain — 0.9% | |
| | | 176,011 | | Viscofan S.A. | | | 8,667,128 | |
| | | | | | | | | |
| Sweden — 9.7% | |
| | | 1,078,755 | | Assa Abloy AB | | | 19,960,885 | |
| | | 940,955 | | Atlas Copco AB | | | 28,545,346 | |
| | | 1,780,063 | | Cloetta AB* | | | 5,607,513 | |
| | | 1,712,718 | | Sandvik AB | | | 21,128,216 | |
| | | 962,458 | | Trelleborg AB | | | 18,899,834 | |
| | | | | | | | 94,141,794 | |
| Switzerland — 18.6% | |
| | | 1,735 | | BELIMO Holding AG | | | 5,246,777 | |
| | | 350,180 | | Cie Financiere Richemont S.A. | | | 23,143,590 | |
| | | 28,971 | | Daetwyler Holding AG | | | 3,935,452 | |
| | | 58,872 | | Geberit AG | | | 23,569,799 | |
| | | 13,688 | | INFICON Holding AG | | | 4,924,871 | |
| | | 751,393 | | Julius Baer Group, Ltd.* | | | 33,288,006 | |
| | | 112,400 | | Kuehne & Nagel International AG | | | 14,836,657 | |
| | | 3,748 | | LEM Holding S.A. | | | 3,502,177 | |
| | | 81,005 | | Schindler Holding AG | | | 14,266,056 | |
| | | 59,470 | | Tecan Group AG | | | 9,274,379 | |
| | | 102,795 | | Temenos Group AG* | | | 7,145,375 | |
| | | 2,459,885 | | UBS Group* | | | 38,461,436 | |
| | | | | | | | 181,594,575 | |
| United Kingdom — 29.0% | |
| | | 949,300 | | Berendsen PLC | | | 10,177,998 | |
| | | 8,776,505 | | Booker Group PLC | | | 18,971,353 | |
| | | 456,577 | | British American Tobacco PLC | | | 25,876,851 | |
| | | 1,471,857 | | Compass Group PLC | | | 27,202,374 | |
| | | 340,027 | | Diploma PLC | | | 4,362,475 | |
| | | 269,070 | | Dunelm Group PLC | | | 2,667,075 | |
| | | 579,385 | | Halma PLC | | | 6,410,055 | |
| | | 765,115 | | Hikma Pharmaceuticals PLC | | | 17,833,178 | |
| | | 976,488 | | Jardine Lloyd Thompson Group PLC | | | 11,847,778 | |
| | | 1,315,008 | | Prudential PLC | | | 26,244,401 | |
| | | 358,417 | | Reckitt Benckiser Group PLC | | | 30,360,964 | |
| | | 2,948,609 | | Saga PLC | | | 7,101,412 | |
| | | 1,338,487 | | Smith & Nephew PLC | | | 20,089,767 | |
| | | 732,855 | | Spectris PLC | | | 20,882,728 | |
| | | 243,111 | | Spirax-Sarco Engineering PLC | | | 12,511,642 | |
| | | 1,461,692 | | SSP Group PLC | | | 6,982,967 | |
| | | 511,901 | | SuperGroup PLC* | | | 10,376,120 | |
| | | 1,542,361 | | UBM PLC | | | 13,883,308 | |
| | | 436,926 | | WH Smith PLC | | | 8,371,908 | |
| | | | | | | | 282,154,354 | |
| Total Common Stocks (Cost $947,063,661) | | | 960,006,609 | |
| | |
| Preferred Stocks — 0.4% | |
| | |
| Germany — 0.4% | |
| | | 90,474 | | FUCHS PETROLUB SE | | | 3,789,908 | |
| Total Preferred Stocks (Cost $3,841,854) | | | 3,789,908 | |
| | | | | |
| Short-Term Investments — 0.2% | | | | |
| | |
| Money Market Funds — 0.2% | |
| | | 1,720,582 | | Cash Account Trust — Government | | | | |
| | | | | & Agency Securities Portfolio — | | | | |
| | | | | Institutional Shares, 0.45%# | | | 1,720,582 | |
| Total Short-Term Investments (Cost $1,720,582) | | | 1,720,582 | |
| Total Investments — 99.2% (Cost $952,626,097) | | | 965,517,099 | |
| Other Assets in Excess of Liabilities — 0.8% | | | 8,053,844 | |
| NET ASSETS — 100.0% | | $ | 973,570,943 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory – WMC Strategic European Equity FundSchedule of Investments
December 31, 2016 (Unaudited)
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| | | | |
| United Kingdom | | | 29.0 | % |
| Switzerland | | | 18.6 | % |
| France | | | 13.2 | % |
| Sweden | | | 9.7 | % |
| Germany | | | 8.1 | % |
| Netherlands | | | 6.0 | % |
| Denmark | | | 5.1 | % |
| Finland | | | 4.3 | % |
| Belgium | | | 2.2 | % |
| Italy | | | 1.9 | % |
| Spain | | | 0.9 | % |
| Money Market Funds | | | 0.2 | % |
| Other Assets and Liabilities | | | 0.8 | % |
| | | | 100.0 | % |
| * | Non-Income Producing |
| # | Annualized seven-day yield as of December 31, 2016. |
The accompanying notes are an integral part of these financial statements.
Brown Advisory – WMC Japan Alpha Opportunities FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
During the six months ended December 31, 2016, the Brown Advisory - WMC Japan Alpha Opportunities Fund Institutional Shares (the “Fund”) returned 9.63%. During the same period, the TOPIX Total Return Index, the Fund’s benchmark, returned 8.63%.
For the six months ended December 31, 2016, stock prices surged. At the start of the period, the Fund created further flexibility around currency hedging in the portfolio. Market events leading into the period, including the Bank of Japan’s (BOJ) decision to take on negative short-term interest rates and the Fed’s decision to keep rates steady, indicated more flexibility in currency hedging could provide value to the portfolio. In the first half of the period, BOJ announced a policy shift centered around yield-curve control and a commitment to over¬shoot inflation. Japan’s revised second-quarter GDP up to 0.2% from the preliminary estimate of 0% on higher capital expenditures and inventories. Japan’s wholesale prices, however, continued to fall. In the second half of the period, equity growth continued as the Yen weakened vs. the U.S. Dollar. The BOJ maintained its accommodative monetary policy as third-quarter GDP slowed from 1.8% to 1.3%.
Across Japan, beta and value were the best performing style factors, while momentum underperformed. The Fund benefited from both an overweight to beta and value, as well as an underweight to momentum.
For the six months ended December 31, 2016, returns were strongest in the information technology, consumer discretionary, and financials sectors. Holdings in the consumer staples, health care, and telecommunication services sectors only partially offset these returns.
From an individual stock perspective, top contributors included Fujitsu, MUFG, and T&D Holdings. Fujitsu, the largest IT service company in Japan, is going through an internal restructuring to focus on their higher margin IT services business line. The stock outperformed as the market began to appreciate these structural changes. MUFG, the diversified financial services firm, and T&D Holdings, the life insurance holding company, outperformed on the back of favorable macroeconomic conditions. Both companies are sensitive to currency movements and leveraged to a steeper yield curve. The BOJ’s accommodative monetary policies have been a tailwind for performance.
Top detractors included Softbank, Cocokara, and Ono Pharmaceutical. Softbank, the Japan-based telecommunication and Internet business provider, underperformed during the period held. The portfolio exited the position during the beginning of the period. Cocokara, the healthcare service provider, underperformed after the release of disappointing quarterly results and declining year over year sales. Ono Pharmaceutical, the Japanese biopharmaceutical company, detracted after their top cancer drug, Opdivo, failed to produce the expected results in its’ first trial.
Looking forward, we seek to continue having the Fund positioned towards value-oriented holdings. In addition to an improving macroeconomic backdrop, as we enter 2017 we are seeing early signs of improvement in corporate earnings and mounting evidence that corporate reforms in Japan are altering management behavior at an accelerating pace. We have seen acceleration in balance sheet management via share buybacks, dividend hikes, and the unwinding of cross-shareholdings.
During the period the portfolio used index futures and currency forwards. We used index futures to manage cash flows within the Fund; however, we do not believe this to be a material performance driver over time. In addition, at the beginning of the period the portfolio had open currency forwards contracts that were used to manage exposure to the Yen. At the end of the period, the portfolio had no remaining currency forward positions.
Sincerely,
Kent M. Stahl, CFA
Portfolio Manager
Gregg R. Thomas, CFA
Portfolio Manager
Brown Advisory – WMC Japan Alpha Opportunities FundA Message to Our Shareholders
December 31, 2016
Past performance is not a guarantee of future results.
Mutual fund investing involves risk. Principal loss is possible. Investments focused in a single geographic region may be exposed to greater risk than investments diversified among various geographies. Investments in foreign securities entail certain risks not associated with investments in domestic securities, such as volatility of currency exchange rates, and in some cases, political and economic instability and relatively illiquid markets. These risks are greater in emerging markets. Investments in smaller and medium capitalization companies generally carry greater risk than is customarily associated with larger companies for various reasons such as narrower markets, limited financial resources and less liquid stock. The Fund may invest in ETFs, which may trade at a discount to the aggregate value of the underlying securities and although expense ratios for ETFs are generally low, frequent trading of ETFs by the Fund can generate brokerage expenses. The value of investments in REITs may change in response to changes in the real estate market such as declines in the value of real estate, lack of available capital or financing opportunities, and increases in property taxes or operating costs. Derivatives involve risks different from, and in certain cases, greater than the risks presented by more traditional investments. Investors will indirectly bear the principal risks and its share of the fees and expenses of the Fund’s investment in other Investment Companies. Earnings growth is not representative of the fund’s future performance.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory – WMC Japan Alpha Opportunities FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Shares | | Security Description | | Value $ | |
| | |
| Common Stocks — 92.0% | |
| | |
| Japan — 92.0% | |
| | |
| Consumer Discretionary — 29.4% | |
| | | 76,700 | | Adastria Holdings Co., Ltd. | | | 1,984,483 | |
| | | 750,400 | | Aisan Industry Co., Ltd. | | | 6,409,394 | |
| | | 1,355,240 | | Alpine Electronics, Inc. | | | 17,583,471 | |
| | | 231,800 | | Avex Group Holdings, Inc. | | | 3,327,214 | |
| | | 37,000 | | BELC Co., Ltd. | | | 1,425,282 | |
| | | 150,100 | | Bellsystem24 Holdings, Inc. | | | 1,264,599 | |
| | | 255,800 | | Benesse Holdings, Inc. | | | 7,028,103 | |
| | | 381,800 | | DaikyoNishikawa Corp. | | | 4,895,829 | |
| | | 282,300 | | Daiwa House Industry Co., Ltd. | | | 7,698,428 | |
| | | 91,800 | | Descente, Ltd. | | | 1,054,471 | |
| | | 185,900 | | En-Japan, Inc. | | | 3,323,862 | |
| | | 320,400 | | Exedy Corp. | | | 8,999,377 | |
| | | 85,925 | | Fuji Heavy Industries, Ltd. | | | 3,500,963 | |
| | | 209,017 | | FUJIFILM Holdings Corp. | | | 7,914,597 | |
| | | 816,200 | | Funai Electric Co., Ltd. | | | 6,415,703 | |
| | | 188,100 | | Gendai Agency, Inc. | | | 889,361 | |
| | | 191,300 | | H.I.S. Co., Ltd. | | | 5,015,936 | |
| | | 180,500 | | H2O Retailing Corp. | | | 2,749,169 | |
| | | 733,800 | | Honda Motor Co., Ltd. | | | 21,423,522 | |
| | | 362,820 | | Honeys Co., Ltd. | | | 3,774,953 | |
| | | 166,400 | | IDOM, Inc. | | | 915,663 | |
| | | 172,000 | | Iida Group Holdings Co., Ltd. | | | 3,260,645 | |
| | | 441,700 | | ITOCHU Corp. | | | 5,848,445 | |
| | | 37,000 | | Itokuro, Inc.* | | | 944,225 | |
| | | 93,873 | | Joyful Honda Co., Ltd. | | | 2,520,304 | |
| | | 764,300 | | Keihin Corp. | | | 13,357,980 | |
| | | 385,600 | | Kuroda Electric Co., Ltd. | | | 7,605,688 | |
| | | 175,770 | | Kyoritsu Maintenance Co., Ltd. | | | 10,231,850 | |
| | | 57,205 | | Makita Corp. | | | 3,822,375 | |
| | | 2,530,010 | | Mitsubishi Motors Corp. | | | 14,382,128 | |
| | | 661,160 | | NGK Spark Plug Co., Ltd. | | | 14,654,446 | |
| | | 33,225 | | Nifco, Inc. | | | 1,750,603 | |
| | | 689,400 | | Nikon Corp. | | | 10,706,690 | |
| | | 76,780 | | Nintendo Co., Ltd. | | | 15,960,674 | |
| | | 1,120,080 | | Nippon Television Holdings, Inc. | | | 20,305,846 | |
| | | 47,900 | | Nishimatsuya Chain Co., Ltd. | | | 572,595 | |
| | | 501,575 | | Nissin Kogyo Co., Ltd. | | | 7,914,972 | |
| | | 220,100 | | PAL Group Holdings Co., Ltd. | | | 5,220,697 | |
| | | 94,233 | | PALTAC Corp. | | | 2,222,500 | |
| | | 639,118 | | Panasonic Corp. | | | 6,482,036 | |
| | | 3,807,300 | | Pioneer Corp.* | | | 7,658,341 | |
| | | 126,100 | | Proto Corp. | | | 1,444,621 | |
| | | 334,400 | | Relia, Inc. | | | 3,295,398 | |
| | | 108,268 | | Sanrio Co., Ltd. | | | 2,038,362 | |
| | | 2,449,000 | | Sanyo Shokai, Ltd. | | | 3,683,402 | |
| | | 310,173 | | Sega Sammy Holdings, Inc. | | | 4,609,182 | |
| | | 476,100 | | Sekisui House, Ltd. | | | 7,910,069 | |
| | | 27,706 | | Seria Co., Ltd. | | | 1,881,845 | |
| | | 721,120 | | Showa Corp. | | | 5,007,474 | |
| | | 316,075 | | Square Enix Holdings Co., Ltd. | | | 8,103,869 | |
| | | 87,038 | | Stanley Electric Co., Ltd. | | | 2,371,149 | |
| | | 188,815 | | Start Today Co., Ltd. | | | 3,252,584 | |
| | | 142,900 | | Suzuki Motor Corp. | | | 5,017,059 | |
| | | 232,987 | | TechnoPro Holdings, Inc. | | | 7,446,896 | |
| | | 73,300 | | Teijin, Ltd. | | | 1,481,078 | |
| | | 158,700 | | Temp Holdings Co., Ltd. | | | 2,454,252 | |
| | | 96,100 | | Tenma Corp. | | | 1,648,405 | |
| | | 555,100 | | Tokai Rika Co., Ltd. | | | 11,112,496 | |
| | | 1,121,000 | | Toray Industries, Inc. | | | 9,052,671 | |
| | | 26,683 | | Tosho Co., Ltd. | | | 1,225,976 | |
| | | 1,659,595 | | Toyo Tire & Rubber Co., Ltd. | | | 20,613,228 | |
| | | 400,500 | | Toyoda Gosei Co., Ltd. | | | 9,347,347 | |
| | | 50,964 | | Toyota Boshoku Corp. | | | 1,168,302 | |
| | | 79,310 | | Toyota Industries Corp. | | | 3,770,814 | |
| | | 176,400 | | Trusco Nakayama Corp. | | | 3,688,616 | |
| | | 55,600 | | TV Asahi Holdings Corp. | | | 1,095,443 | |
| | | 452,100 | | XEBIO Holdings Co., Ltd. | | | 6,970,278 | |
| | | 74,051 | | Yamaha Corp. | | | 2,258,006 | |
| | | 44,000 | | Yondoshi Holdings, Inc. | | | 927,966 | |
| | | | | | | | 405,894,208 | |
| Consumer Staples — 4.7% | |
| | | 21,600 | | Ain Holdings, Inc. | | | 1,427,638 | |
| | | 224,000 | | Cawachi, Ltd. | | | 5,581,298 | |
| | | 41,700 | | Ci:z Holdings Co., Ltd. | | | 1,171,591 | |
| | | 48,100 | | Cocokara Fine, Inc. | | | 1,764,323 | |
| | | 235,963 | | Ezaki Glico Co., Ltd. | | | 11,043,593 | |
| | | 450,800 | | Itoham Yonekyu Holdings, Inc.* | | | 4,170,167 | |
| | | 187,830 | | Kao Corp. | | | 8,890,912 | |
| | | 108,770 | | Kose Corp. | | | 9,017,923 | |
| | | 224,695 | | Lion Corp. | | | 3,683,060 | |
| | | 202,060 | | Matsumotokiyoshi Holdings Co., Ltd. | | | 9,940,539 | |
| | | 138,786 | | Morinaga & Co., Ltd. | | | 5,773,333 | |
| | | 46,286 | | Welcia Holdings Co., Ltd. | | | 2,817,226 | |
| | | | | | | | 65,281,603 | |
| Energy — 1.6% | |
| | | 1,371,400 | | Inpex Corp. | | | 13,708,255 | |
| | | 362,300 | | Japan Petroleum Exploration Co., Ltd. | | | 8,032,007 | |
| | | | | | | | 21,740,262 | |
| Financials — 13.3% | |
| | | 332,400 | | AEON Financial Service Co., Ltd. | | | 5,887,514 | |
| | | 967,541 | | Dai-ichi Life Holdings Co., Ltd. | | | 16,086,803 | |
| | | 673,500 | | Ichigo, Inc. | | | 2,487,409 | |
| | | 375,706 | | Japan Exchange Group, Inc. | | | 5,358,429 | |
| | | 173,771 | | Japan Post Insurance Co., Ltd.* | | | 3,716,516 | |
| | | 934,818 | | Matsui Securities Co., Ltd. | | | 8,039,398 | |
| | | 6,776,933 | | Mitsubishi UFJ Financial Group, Inc. | | | 41,795,544 | |
| | | 8,782,300 | | Mizuho Financial Group, Inc. | | | 15,760,144 | |
| | | 429,018 | | Nomura Holdings, Inc. | | | 2,536,425 | |
| | | 1,036,000 | | Oita Bank, Ltd. | | | 3,864,098 | |
| | | 2,756,000 | | Shinsei Bank, Ltd. | | | 4,611,733 | |
| | | 600,500 | | Sumitomo Mitsui Financial Group, Inc. | | | 22,868,825 | |
| | | 191,560 | | Sumitomo Mitsui Trust Holdings, Inc. | | | 6,853,770 | |
| | | 1,334,600 | | T&D Holdings, Inc. | | | 17,613,263 | |
| | | 769,600 | | Tochigi Bank, Ltd. | | | 3,775,819 | |
| | | 324,944 | | Tokio Marine Holdings, Inc. | | | 13,304,209 | |
| | | 123,323 | | Tokyo TY Financial Group, Inc. | | | 4,292,451 | |
| | | 148,600 | | Yamanashi Chuo Bank, Ltd. | | | 706,330 | |
| | | 140,900 | | Zenkoku Hosho Co., Ltd. | | | 4,516,740 | |
| | | | | | | | 184,075,420 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory – WMC Japan Alpha Opportunities FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Shares | | Security Description | | Value $ | |
| | |
| Health Care — 3.8% | |
| | | 89,900 | | Asahi Intecc Co., Ltd. | | | 3,633,729 | |
| | | 270,900 | | CMIC Holdings Co., Ltd. | | | 3,505,018 | |
| | | 171,700 | | Eisai Co., Ltd. | | | 9,839,681 | |
| | | 115,700 | | EPS Holdings, Inc. | | | 1,346,772 | |
| | | 130,000 | | Nippon Shinyaku Co., Ltd. | | | 6,398,654 | |
| | | 181,700 | | ONO Pharmaceutical Co., Ltd. | | | 3,960,084 | |
| | | 167,143 | | SMS Co., Ltd. | | | 3,696,123 | |
| | | 51,000 | | Suzuken Co., Ltd. | | | 1,665,790 | |
| | | 455,800 | | Takeda Pharmaceutical Co., Ltd. | | | 18,909,336 | |
| | | | | | | | 52,955,187 | |
| Industrials — 11.8% | |
| | | 320,860 | | Daifuku Co., Ltd. | | | 6,816,610 | |
| | | 43,200 | | Daiseki Co., Ltd. | | | 884,009 | |
| | | 207,800 | | DMG Mori Co., Ltd. | | | 2,516,433 | |
| | | 1,644,710 | | Hino Motors, Ltd. | | | 16,710,341 | |
| | | 400,100 | | Hisaka Works, Ltd. | | | 3,012,518 | |
| | | 318,000 | | Hitachi Metals, Ltd. | | | 4,281,367 | |
| | | 808,000 | | Hosiden Corp. | | | 6,527,006 | |
| | | 2,705,600 | | IHI Corp. | | | 7,007,233 | |
| | | 117,300 | | Jamco Corp. | | | 2,412,011 | |
| | | 63,400 | | Japan Airlines Co., Ltd. | | | 1,850,062 | |
| | | 579,260 | | Japan Aviation Electronics Industry, Ltd. | | | 8,133,675 | |
| | | 377,000 | | Japan Steel Works, Ltd. | | | 6,669,300 | |
| | | 221,200 | | JGC Corp. | | | 4,007,327 | |
| | | 164,004 | | Kandenko Co., Ltd. | | | 1,477,300 | |
| | | 1,166,718 | | Kawasaki Heavy Industries, Ltd. | | | 3,652,021 | |
| | | 224,000 | | Kyudenko Corp. | | | 6,002,825 | |
| | | 32,315 | | Mabuchi Motor Co., Ltd. | | | 1,679,219 | |
| | | 39,000 | | METAWATER Co., Ltd. | | | 922,134 | |
| | | 801,855 | | NGK Insulators, Ltd. | | | 15,521,399 | |
| | | 52,600 | | Nippon Densetsu Kogyo Co., Ltd. | | | 838,921 | |
| | | 1,871,933 | | Nippon Yusen KK | | | 3,466,609 | |
| | | 342,900 | | Sanwa Holdings Corp. | | | 3,261,314 | |
| | | 133,167 | | Shinmaywa Industries, Ltd. | | | 1,194,697 | |
| | | 56,738 | | SMC Corp. | | | 13,499,361 | |
| | | 1,275,730 | | Sumitomo Heavy Industries, Ltd. | | | 8,191,665 | |
| | | 211,100 | | Tadano, Ltd. | | | 2,653,687 | |
| | | 143,900 | | Tokyu Construction Co., Ltd. | | | 1,155,499 | |
| | | 2,320,000 | | Toshiba Machine Co., Ltd. | | | 9,277,077 | |
| | | 125,500 | | Toshiba Plant System & Services Corp. | | | 1,650,942 | |
| | | 29,630 | | TOTO, Ltd. | | | 1,170,343 | |
| | | 3,182,000 | | Toyo Engineering Corp.* | | | 8,473,158 | |
| | | 101,300 | | Tsubaki Nakashima Co., Ltd. | | | 1,470,855 | |
| | | 429,000 | | Ushio, Inc. | | | 5,456,331 | |
| | | 19,400 | | Zuiko Corp. | | | 685,287 | |
| | | | | | | | 162,528,536 | |
| Information Technology — 15.6% | |
| | | 70,006 | | Alpha Systems, Inc. | | | 1,114,655 | |
| | | 577,536 | | Alps Electric Co., Ltd. | | | 13,877,016 | |
| | | 83,061 | | Amano Corp. | | | 1,455,872 | |
| | | 460,200 | | Canon, Inc. | | | 12,960,234 | |
| | | 1,098,500 | | Citizen Watch Co., Ltd. | | | 6,549,383 | |
| | | 343,708 | | DeNA Co., Ltd. | | | 7,511,761 | |
| | | 18,200 | | Disco Corp. | | | 2,200,400 | |
| | | 325,566 | | Ferrotec Corp. | | | 4,217,281 | |
| | | 84,916 | | FreakOut Holdings, Inc.* | | | 2,462,971 | |
| | | 4,168,825 | | Fujitsu, Ltd. | | | 23,085,073 | |
| | | 88,137 | | GMO internet, Inc. | | | 1,121,344 | |
| | | 1,321,600 | | GREE, Inc. | | | 6,945,222 | |
| | | 278,607 | | Hitachi Maxell, Ltd. | | | 4,748,324 | |
| | | 8,000 | | Horiba, Ltd. | | | 369,461 | |
| | | 234,800 | | Melco Holdings, Inc. | | | 6,372,807 | |
| | | 102,500 | | Mimasu Semiconductor Industry Co., Ltd. | | | 1,450,080 | |
| | | 274,400 | | Miraial Co., Ltd. | | | 2,344,486 | |
| | | 264,846 | | Mitsubishi Electric Corp. | | | 3,683,786 | |
| | | 943,200 | | NET One Systems Co., Ltd. | | | 6,025,948 | |
| | | 868,625 | | Nexon Co., Ltd. | | | 12,552,662 | |
| | | 1,220,500 | | Nichicon Corp. | | | 10,627,050 | |
| | | 135,100 | | Nippon Ceramic Co., Ltd. | | | 2,308,323 | |
| | | 1,851,000 | | Nippon Chemi-Con Corp. | | | 4,022,994 | |
| | | 64,965 | | Otsuka Corp. | | | 3,030,245 | |
| | | 42,000 | | Outsourcing, Inc. | | | 1,306,518 | |
| | | 227,800 | | Rohm Co., Ltd. | | | 13,069,556 | |
| | | 16,700 | | SCREEN Holdings Co., Ltd. | | | 1,032,203 | |
| | | 489,275 | | SCSK Corp. | | | 17,073,332 | |
| | | 468,902 | | Shinkawa, Ltd.* | | | 3,264,755 | |
| | | 1,680,500 | | Shinko Electric Industries Co., Ltd. | | | 11,320,854 | |
| | | 76,701 | | SIIX Corp. | | | 2,584,015 | |
| | | 290,700 | | SUMCO Corp. | | | 3,737,339 | |
| | | 442,020 | | Taiyo Yuden Co., Ltd. | | | 5,287,841 | |
| | | 49,447 | | Tokyo Electron, Ltd. | | | 4,650,462 | |
| | | 260,800 | | Tokyo Seimitsu Co., Ltd. | | | 7,710,487 | |
| | | 35,500 | | W-Scope Corp.* | | | 531,938 | |
| | | 46,500 | | Yaskawa Electric Corp. | | | 720,980 | |
| | | 136,000 | | Yokogawa Electric Corp. | | | 1,963,481 | |
| | | | | | | | 215,291,139 | |
| Materials — 8.6% | |
| | | 356,200 | | Chubu Steel Plate Co., Ltd. | | | 1,858,500 | |
| | | 351,200 | | Daicel Corp. | | | 3,861,109 | |
| | | 629,000 | | Denka Co., Ltd. | | | 2,769,254 | |
| | | 127,660 | | DIC Corp. | | | 3,868,773 | |
| | | 187,740 | | JFE Holdings, Inc. | | | 2,839,084 | |
| | | 1,233,754 | | JSR Corp. | | | 19,419,720 | |
| | | 177,700 | | Kobe Steel, Ltd. | | | 1,689,605 | |
| | | 544,100 | | Kyoei Steel, Ltd. | | | 10,344,623 | |
| | | 814,000 | | Minebea Co., Ltd. | | | 7,595,612 | |
| | | 66,900 | | Mitsubishi Materials Corp. | | | 2,046,285 | |
| | | 905,179 | | Mitsui Chemicals, Inc. | | | 4,055,691 | |
| | | 47,300 | | Nakayama Steel Works, Ltd.* | | | 292,235 | |
| | | 524,300 | | Neturen Co., Ltd. | | | 4,027,267 | |
| | | 55,300 | | Nippon Shokubai Co., Ltd. | | | 3,443,923 | |
| | | 86,770 | | Nissan Chemical Industries, Ltd. | | | 2,892,372 | |
| | | 457,800 | | NOK Corp. | | | 9,259,290 | |
| | | 1,403,000 | | Pacific Metals Co., Ltd.* | | | 4,450,981 | |
| | | 401,353 | | Sanyo Special Steel Co., Ltd. | | | 1,892,982 | |
| | | 1,178,250 | | Sumitomo Chemical Co., Ltd. | | | 5,585,290 | |
| | | 684,300 | | Sumitomo Riko Co., Ltd. | | | 6,703,365 | |
| | | 819,000 | | Taiheiyo Cement Corp. | | | 2,582,018 | |
| | | 40,500 | | Tokyo Ohka Kogyo Co., Ltd. | | | 1,362,039 | |
| | | 1,173,100 | | Tokyo Steel Manufacturing Co., Ltd. | | | 8,953,131 | |
| | | 269,110 | | Yamato Kogyo Co., Ltd. | | | 7,505,309 | |
| | | | | | | | 119,298,458 | |
| | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory – WMC Japan Alpha Opportunities FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Shares | | Security Description | | Value $ | |
| | |
| Real Estate — 1.8% | |
| | | 327,600 | | Hulic Co., Ltd. | | | 2,906,599 | |
| | | 879,300 | | Kenedix, Inc. | | | 3,124,467 | |
| | | 1,236,080 | | Leopalace 21 Corp. | | | 6,827,404 | |
| | | 316,600 | | Sumitomo Real Estate Sales Co., Ltd. | | | 7,366,534 | |
| | | 875,500 | | Takara Leben Co., Ltd. | | | 5,085,772 | |
| | | | | | | | 25,310,776 | |
| Telecommunication Services — 1.2% | |
| | | 385,447 | | Nippon Telegraph & Telephone Corp. | | | 16,225,454 | |
| Utilities — 0.2% | |
| | | 42,100 | | eRex Co., Ltd. | | | 1,216,292 | |
| | | 68,281 | | Nippon Gas Co., Ltd. | | | 1,956,053 | |
| | | | | | | | 3,172,345 | |
| Total Common Stocks (Cost $1,126,289,992) | | | 1,271,773,388 | |
| | |
| Real Estate Investment Trusts — 0.1% | |
| | |
| Japan — 0.1% | |
| | | 204 | | Hoshino Resorts, Inc. | | | 1,064,470 | |
| Total Real Estate Investment Trusts (Cost $1,084,947) | | | 1,064,470 | |
| | |
| Exchange Traded Funds — 0.3% | |
| | |
| Japan — 0.3% | |
| | | 323,960 | | Nomura AM TOPIX ETF | | | 4,303,188 | |
| Total Exchange Traded Funds (Cost $4,205,701) | | | 4,303,188 | |
| | | | | | | | | |
| Short-Term Investments — 6.8% | |
| | |
| Money Market Funds — 6.8% | |
| | | 43,249,366 | | Cash Account Trust — Government | | | | |
| | | | | & Agency Securities Portfolio — | | | | |
| | | | | Institutional Shares, 0.45%# | | | 94,372,496 | |
| Total Short-Term Investments (Cost $94,372,496) | | | 94,372,496 | |
| Total Investments — 99.2% (Cost $1,225,953,136) | | | 1,371,513,542 | |
| Other Assets in Excess of Liabilities — 0.8% | | | 11,227,168 | |
| NET ASSETS — 100.0% | | $ | 1,382,740,710 | |
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| | | | |
| Consumer Discretionary | | | 29.4 | % |
| Information Technology | | | 15.6 | % |
| Financials | | | 13.3 | % |
| Industrials | | | 11.8 | % |
| Materials | | | 8.6 | % |
| Money Market Funds | | | 6.8 | % |
| Consumer Staples | | | 4.7 | % |
| Health Care | | | 3.8 | % |
| Real Estate | | | 1.8 | % |
| Energy | | | 1.6 | % |
| Telecommunication Services | | | 1.2 | % |
| Exchange Traded Funds | | | 0.3 | % |
| Utilities | | | 0.2 | % |
| Real Estate Investment Trusts | | | 0.1 | % |
| Other Assets and Liabilities | | | 0.8 | % |
| | | | 100.0 | % |
| * | Non-Income Producing |
| # | Annualized seven-day yield as of December 31, 2016. |
Futures Contracts — Long (Note 7)
| | | | | | | Notional | | | Notional | | | Unrealized Appreciation | |
Issue | | Contracts | | Expiration Date | | Amount | | | Value | | | (Depreciation) | |
| TOPIX Index Futures Contracts^ | | | 550 | | 03/09/2017 | | $ | 69,522,023 | | | $ | 71,435,294 | | | $ | 1,913,271 | |
| | | | | | | | $ | 69,522,023 | | | $ | 71,435,294 | | | $ | 1,913,271 | |
^ Contracts are denominated in Japanese Yen.
The accompanying notes are an integral part of these financial statements.
Brown Advisory – Somerset Emerging Markets FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
During the six months ended December 31, 2016, the Brown Advisory - Somerset Emerging Markets Fund Institutional Shares (the “Fund”) returned -0.99% while the Fund’s benchmark, the MSCI Emerging Markets Index, returned +4.49%.
For the six months ended December 31, 2016, the Fund’s overweight to telecommunications and consumer staples negatively affected absolute and relative performance. Some of the consumer staples names that detracted, like Ambev in Brazil, we purchased for the Fund in the preceding six-month period. We remain confident in the case for these names over the longer term. In terms of country effects, the Philippines was the principal detractor from absolute and relative performance. We have three positions in companies domiciled or primarily conducting business in the Philippines; PLDT Inc. was the worst performing, but also the smallest position size. PLDT suffered losses from non-core investments and also faces a change in the regulatory environment.
From an individual stock perspective, the most significant contributors to performance were SK Hynix and OTP Bank. SK Hynix was also the best performing stock on an absolute basis after having been a detractor in previous quarters. We retained our conviction that the market had mis-assessed its value, given a substantially more shallow DRAM memory and semiconductor cycle than in previous cycles. The primary detractors were Metro Bank in the Philippines and Turk Telekom in Turkey, which both suffered from political issues.
We made two buys and two sells during the second half of 2016, although trims and additions elevated turnover to around 13% on an NAV basis over the period. The Fund bought Greek Coca-Cola bottler Coca-Cola Hellenic, and Eurocash in Poland. Eurocash is a fast-moving consumer goods (FMCG) company which has used its local market knowledge and scale advantages to increase its market share since we began covering the company in 2006. It has advanced from the number six player in the market to the number two. The Fund sold Millicom and Turkish glass company Turk Sise Ve Cam. Turk Sise had performed well for the portfolio, but we sold our position partly to lock in long-term gains and partly in response to our concerns regarding the political risks in Turkey prior to the attempted coup there.
In terms of general outlook, China remains an outlier with structural financial problems, which create tail risk. Otherwise, the oil price collapse and earnings recession in emerging markets has mostly run its course for now. The Fund continues to carry opportunity cost risk in commodities and China, which remains a short-term, but narrowing, relative risk. The short-term feels uncertain, but the long-term is selectively positive. A few markets have already confirmed signs of a positive change in credit cycle and long-term direction; others are still on the tarmac, but preparing for takeoff. We are looking to further accumulate best-of-breed companies in areas with sustainable long-term growth alongside value-oriented turnaround stocks with prices not reflective of structural growth opportunities.
Overall, though our performance may have lagged in a strong rising market in the short-term, we believe that our more defensive stocks remain well-positioned to deliver attractive long-term returns.
Sincerely,
Edward Lam
Lead Portfolio Manager
Edward Robertson
Portfolio Manager
Brown Advisory – Somerset Emerging Markets FundA Message to Our Shareholders
December 31, 2016
Past performance is not a guarantee of future results.
Mutual fund investing involves risk. Principal loss is possible. The Fund may invest in ETFs, which may trade at a discount to the aggregate value of the underlying securities and although expense ratios for ETFs are generally low, frequent trading of ETFs by the Fund can generate brokerage expenses. The Fund may invest in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks are greater in emerging markets. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management, and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. The Fund invests in smaller and medium-sized companies which carry greater risk than is associated with larger companies for various reasons, such as narrower markets, limited financial resources and less liquid stock.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory – Somerset Emerging Markets FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Shares | | Security Description | | Value $ | |
| | |
| Common Stocks — 94.2% | |
| | |
| Brazil — 4.9% | |
| | | 1,752,400 | | Ambev S.A. | | | 8,813,948 | |
| | | 2,060,856 | | Porto Seguro S.A.† | | | 17,011,554 | |
| | | | | | | | 25,825,502 | |
| Chile — 4.3% | |
| | | 3,221,349 | | AFP Habitat S.A.† | | | 3,851,385 | |
| | | 8,604,446 | | Aguas Andinas S.A. | | | 4,479,921 | |
| | | 1,138,517 | | Cia Cervecerias Unidas S.A.† | | | 11,890,095 | |
| | | 1,399,468 | | Inversiones Aguas Metropolitanas S.A. | | | 2,018,567 | |
| | | | | | | | 22,239,968 | |
| China — 5.4% | |
| | | 612,000 | | China Mobile, Ltd. | | | 6,452,424 | |
| | | 9,914,216 | | CNOOC, Ltd. | | | 12,320,746 | |
| | | 1,324,500 | | Hengan International Group Co., Ltd. | | | 9,700,838 | |
| | | 69,100 | | Qinqin Foodstuffs Group Co., Ltd.* | | | 23,451 | |
| | | | | | | | 28,497,459 | |
| Hungary — 9.0% | |
| | | 243,561 | | MOL Hungarian Oil & Gas PLC | | | 17,078,662 | |
| | | 1,058,955 | | OTP Bank PLC† | | | 30,237,796 | |
| | | | | | | | 47,316,458 | |
| India — 8.2% | |
| | | 642,166 | | Axis Bank, Ltd. | | | 4,237,605 | |
| | | 1,759,880 | | HCL Technologies, Ltd. | | | 21,429,107 | |
| | | 96,815 | | Hero MotoCorp, Ltd. | | | 4,334,330 | |
| | | 2,642,281 | | Power Grid Corp. of India, Ltd. | | | 7,129,290 | |
| | | 211,978 | | Shriram Transport Finance Co., Ltd. | | | 2,659,254 | |
| | | 472,685 | | Wipro, Ltd. | | | 3,299,984 | |
| | | | | | | | 43,089,570 | |
| Indonesia — 2.8% | |
| | | 49,751,983 | | Telekomunikasi Indonesia | | | 14,636,653 | |
| | |
| Nigeria — 0.5% | |
| | | 133,260,060 | | Access Bank PLC† | | | 2,483,448 | |
| | |
| Philippines — 4.4% | |
| | | 14,964,680 | | Aboitiz Power Corp.† | | | 12,529,252 | |
| | | 6,370,197 | | Metropolitan Bank & Trust Co.† | | | 9,295,088 | |
| | | 39,390 | | PLDT, Inc. | | | 1,080,226 | |
| | | | | | | | 22,904,566 | |
| Poland — 5.1% | |
| | | 156,131 | | Bank Pekao S.A. | | | 4,688,091 | |
| | | 780,262 | | Eurocash S.A. | | | 7,331,666 | |
| | | 1,857,400 | | Powszechny Zaklad Ubezpieczen S.A. | | | 14,727,440 | |
| | | | | | | | 26,747,197 | |
| Portugal — 1.2% | |
| | | 403,599 | | Jeronimo Martins SGPS S.A. | | | 6,259,696 | |
| | | | | |
| South Africa — 6.3% | | | | |
| | | 861,892 | | Nampak, Ltd. | | | 1,159,715 | |
| | | 3,330,786 | | Sanlam, Ltd. | | | 15,235,789 | |
| | | 1,320,141 | | Shoprite Holdings, Ltd. | | | 16,499,417 | |
| | | | | | | | 32,894,921 | |
| South Korea — 18.7% | |
| | | 121,230 | | KT&G Corp. | | | 10,140,867 | |
| | | 10,193 | | NCSoft Corp. | | | 2,085,040 | |
| | | 839,940 | | Nexen Tire Corp.† | | | 9,041,431 | |
| | | 51,279 | | NongShim Co., Ltd. | | | 14,113,804 | |
| | | 9,898 | | Samsung Electronics Co., Ltd. | | | 14,731,323 | |
| | | 100,571 | | Samsung Fire & Marine Insurance Co., Ltd. | | | 22,346,508 | |
| | | 692,612 | | SK Hynix, Inc. | | | 25,485,414 | |
| | | | | | | | 97,944,387 | |
| Taiwan — 10.4% | |
| | | 708,000 | | eMemory Technology, Inc. | | | 8,608,349 | |
| | | 872,401 | | Formosa International Hotels Corp.† | | | 4,574,630 | |
| | | 12,631,000 | | Pou Chen Corp.† | | | 15,696,097 | |
| | | 1,223,000 | | President Chain Store Corp. | | | 8,742,290 | |
| | | 1,624,000 | | Taiwan Semiconductor | | | | |
| | | | | Manufacturing Co., Ltd | | | 9,096,440 | |
| | | 2,699,584 | | Win Semiconductors Corp. | | | 7,572,235 | |
| | | | | | | | 54,290,041 | |
| Turkey — 4.3% | |
| | | 2,031,441 | | Aksa Akrilik Kimya Sanayii† | | | 5,282,353 | |
| | | 2,639,776 | | Anadolu Hayat Emeklilik A/S† | | | 3,718,168 | |
| | | 196,051 | | AvivaSA Emeklilik ve Hayat S.A.† | | | 1,067,965 | |
| | | 8,444,076 | | Turk Telekomunikasyon A/S | | | 12,621,541 | |
| | | | | | | | 22,690,027 | |
| United Arab Emirates — 3.6% | |
| | | 855,491 | | First Gulf Bank | | | 2,992,000 | |
| | | 4,005,714 | | National Bank Abu Dhabi† | | | 10,891,829 | |
| | | 3,988,700 | | Union National Bank† | | | 4,930,354 | |
| | | | | | | | 18,814,183 | |
| United Kingdom — 5.1% | |
| | | 282,780 | | Coca-Cola HBC AG | | | 6,157,646 | |
| | | 2,555,650 | | HSBC Holdings PLC | | | 20,435,612 | |
| | | | | | | | 26,593,258 | |
| Total Common Stocks (Cost $501,310,620) | | | 493,227,334 | |
| | |
| Warrants — 0.0% | |
| | |
| Thailand — 0.0% | |
| | | 400,760 | | SAMART Corp. PCL, Exercise | | | | |
| | | | | price THB 45 expires 02/19/2018 | | | 6,939 | |
| Total Warrants (Cost $36,189) | | | 6,939 | |
| | | | | | | | | |
| Short-Term Investments — 5.1% | |
| | |
| Money Market Funds — 5.1% | |
| | | 26,717,549 | | Cash Account Trust — Government | | | | |
| | | | | & Agency Securities Portfolio — | | | | |
| | | | | Institutional Shares, 0.45%# | | | 26,717,549 | |
| Total Short-Term Investments (Cost $26,717,549) | | | 26,717,549 | |
| Total Investments — 99.3% (Cost $528,064,358) | | | 519,951,822 | |
| Other Assets in Excess of Liabilities — 0.7% | | | 3,441,274 | |
| NET ASSETS — 100.0% | | $ | 523,393,096 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory – Somerset Emerging Markets FundSchedule of Investments
December 31, 2016 (Unaudited)
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| | | | | |
| South Korea | | | 18.7 | % |
| Taiwan | | | 10.4 | % |
| Hungary | | | 9.0 | % |
| India | | | 8.2 | % |
| South Africa | | | 6.3 | % |
| China | | | 5.4 | % |
| Poland | | | 5.1 | % |
| Money Market Funds | | | 5.1 | % |
| United Kingdom | | | 5.1 | % |
| Brazil | | | 4.9 | % |
| Philippines | | | 4.4 | % |
| Turkey | | | 4.3 | % |
| Chile | | | 4.3 | % |
| United Arab Emirates | | | 3.6 | % |
| Indonesia | | | 2.8 | % |
| Portugal | | | 1.2 | % |
| Nigeria | | | 0.5 | % |
| Thailand | | | 0.0 | % |
| Other Assets and Liabilities | | | 0.7 | % |
| | | | 100.0 | % |
| † | All or a portion of this security is considered illiquid. At December 31, 2016, the total market value of securities considered illiquid was $54,862,663 or 10.5% of net assets. |
| * | Non-Income Producing |
| # | Annualized seven-day yield as of December 31, 2016. |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Emerging Markets Small-Cap FundA Message to Our Shareholders
December 31, 2016
Dear Shareholder:
During the six-month period ended December 31, 2016, the Brown Advisory Emerging Markets Small-Cap Fund Institutional Shares (the “Fund”) returned -10.68%. During the same period, the MSCI Emerging Markets Small-Cap Index, the Fund’s benchmark, returned 0.89%.
During the second half of 2016, positions in Korea and China weighed on the Fund’s performance. The Fund’s Korean positions, in particular those in consumer sectors, were heavily impacted by recent Korean political uncertainty and concerns that cross-country tensions with China would impact tourist spending. We view both concerns as being short-term in nature and maintain our conviction in the Fund’s positioning, noting the continued year-over-year growth of inbound Chinese tourist arrivals into Korea. Additionally the Fund’s underweight to China during the cyclical rally, which characterized much of 2016, detracted from performance. The Fund’s underweight to China stems from enduring concerns surrounding the health of Chinese companies and their ability to fund ongoing debt obligations. We reduced this underweight position towards the end of 2016 as we found opportunities in both the gaming and internet sectors.
From an individual stock perspective, the following names were key contributors.
| | • | Indian agrochemical company UPL Limited rose 16.8%, reporting increasing revenues and improving margins. Management reiterated its guidance of strong revenue growth and margin expansion, and also noted that recent global industry consolidation should provide new acquisition opportunities. |
| | • | Macau gaming and leisure facility operator MGM China gained 61.1% after a turnaround in gross gaming revenues and the market upgrading expectations for the sector. The sector experienced a significant turnaround following a period of 26 consecutive months of declining gambling revenue after China’s anti-corruption campaign. |
| | • | Indian television company Sun TV rose 34.4% on improved sentiment towards the pace of digitization and lower political opposition given a change of government leadership. |
The following names were key detractors. |
| | • | Korean cosmetics manufacturer Korea Kolmar fell 37.2% amid concerns that China’s opposition to Korea’s deployment of a missile defense system may hurt relations between the two nations and negatively impact inbound tourism to Korea. While the company did not meet third quarter earnings expectations due to one-off acquisition-related costs and a temporary increase in research and development costs, we see through the short-term negative sentiment and retain conviction in their ability to grow earnings and in growing Chinese demand for their products. |
| | • | Indian commercial vehicle finance provider Shriram Transport Finance was down 28.7%. This fall was in line with the industry following the surprise government implementation of demonetization. Given the country’s heavy reliance on cash, the market grew concerned that Shriram may experience an increase in bad debts given repayments are predominantly cash denominated. We are closely monitoring the situation and our engagements with senior management suggest there are early signs of a recovery from this event. |
| | • | Taiwanese automobile part manufacturer Hota Industrial Manufacturing fell 15.0%, experiencing a volatile six months. When announcing their first-half result, management indicated that the third and fourth quarters would see sales continue to reach record highs. The market increased its expectations driving a rally in the share price; however, third quarter results missed these expectations and the stock corrected. The below-consensus result was largely due to typhoons affecting operating hours, a strengthening Taiwan dollar and weaker-than-expected performance from non-core business units. We continue to hold conviction in this company and its long-term growth prospects. |
We expect Asia to continue on its growth path in 2017 with a stable macro backdrop of continued monetary easing and stable liquidity. Potential risks could emerge from external macro factors such as U.S. policies; however, our base case is for domestic growth to remain the key driver for Asian markets.
Consumption growth driven by services and innovation-related sectors is our core investment thesis for 2017. The rise of the middle class will be key to supporting this structural rebalance from industrials toward consumption-led growth. Our strategy is therefore to invest in what we believe to be the highest quality companies in Asia that we believe are set to benefit from this shift in the medium to long term.
Brown Advisory Emerging Markets Small-Cap FundA Message to Our Shareholders
December 31, 2016
We continue to favor companies with exposure to Asian domestic demand. We believe that our position in Gourmet Master has the potential to continue to benefit from increasing consumption trends and are hopeful that stocks such as MGM China, Autohome and Beijing Capital Airport will be key beneficiaries of continued Chinese consumption growth.
Sincerely,
Paul Chew, CFA
Portfolio Manager
Past performance is not a guarantee of future results.
Mutual fund investing involves risk. Principal loss is possible. The Fund may invest in foreign securities which involve political, economic and currency risks, greater volatility and differences in accounting methods. These risks are greater for investments in emerging markets. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management, and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Investments in small and medium capitalization companies generally carry greater risk than is customarily associated with larger companies for various reasons such as narrower markets, limited financial resources and less liquid stock. The Fund may invest in ETFs, which may trade at a discount to the aggregate value of the underlying securities and although expense ratios for ETFs are generally low, frequent trading of ETFs by the Fund can generate brokerage expenses. In addition, the fund is susceptible to risks from investments in derivatives, private placements, REITs, and its investments in other investment companies.
Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.
Definitions for terms and indices are provided in the Glossary of Terms.
Brown Advisory Emerging Markets Small-Cap FundSchedule of Investments
December 31, 2016 (Unaudited)
| | Shares | | Security Description | | Value $ | |
| | |
| Common Stocks — 96.0% | |
| | |
| China — 28.1% | |
| | | 227,600 | | Autohome, Inc. ADR* | | | 5,753,728 | |
| | | 149,583 | | Baozun, Inc. ADR* | | | 1,805,467 | |
| | | 3,962,000 | | Beijing Capital International Airport Co., Ltd. | | | 3,993,776 | |
| | | 49,000 | | China Lodging Group, Ltd. ADR* | | | 2,540,160 | |
| | | 1,692,000 | | China State Construction | | | | |
| | | | | International Holdings, Ltd. | | | 2,521,225 | |
| | | 2,048,000 | | CSPC Pharmaceutical Group, Ltd. | | | 2,180,667 | |
| | | 3,029,000 | | Great Wall Motor Co., Ltd.* | | | 2,809,800 | |
| | | 1,917,000 | | Haier Electronics Group Co., Ltd. | | | 3,007,315 | |
| | | 254,000 | | Hengan International Group Co., Ltd. | | | 1,860,334 | |
| | | 4,352,000 | | Lee & Man Paper Manufacturing, Ltd. | | | 3,355,769 | |
| | | 2,024,400 | | MGM China Holdings, Ltd. | | | 4,181,676 | |
| | | 76,800 | | SINA Corp.* | | | 4,668,672 | |
| | | 831,000 | | TravelSky Technology, Ltd. | | | 1,741,595 | |
| | | 3,643,000 | | Want Want China Holdings, Ltd. | | | 2,326,603 | |
| | | 3,449,000 | | WH Group, Ltd.* | | | 2,780,228 | |
| | | | | | | | 45,527,015 | |
| India — 15.5% | |
| | | 481,512 | | Aurobindo Pharma, Ltd.* | | | 4,736,864 | |
| | | 741,989 | | Crompton Greaves Consumer Electricals, Ltd.* | | | 1,595,052 | |
| | | 2,036,480 | | Dish TV India, Ltd.* | | | 2,530,985 | |
| | | 437,077 | | Indiabulls Housing Finance, Ltd. | | | 4,168,585 | |
| | | 339,139 | | Shriram Transport Finance Co., Ltd. | | | 4,254,482 | |
| | | 257,525 | | Sun TV Network, Ltd. | | | 1,862,262 | |
| | | 620,764 | | UPL, Ltd. | | | 5,901,621 | |
| | | | | | | | 25,049,851 | |
| Indonesia — 1.8% | |
| | | 5,080,400 | | Indofood Sukses Makmur TBK | | | 2,975,510 | |
| | |
| Malaysia — 1.2% | |
| | | 1,941,700 | | Westports Holdings Bhd. | | | 1,857,005 | |
| | | | | | | | | |
| Philippines — 2.6% | |
| | | 1,114,270 | | Robinsons Retail Holdings, Inc.† | | | 1,663,581 | |
| | | 683,240 | | Security Bank Corp. | | | 2,609,503 | |
| | | | | | | | 4,273,084 | |
| Singapore — 1.0% | |
| | | 487,200 | | SATS, Ltd. | | | 1,630,064 | |
| | | | | | | | | |
| South Korea — 26.3% | |
| | | 22,592 | | CJ Korea Express Corp.* | | | 3,345,884 | |
| | | 209,712 | | Grand Korea Leisure Co., Ltd. | | | 3,546,947 | |
| | | 580,679 | | Hanon Systems | | | 4,945,052 | |
| | | 57,286 | | Hyundai Department Store Co., Ltd. | | | 5,171,504 | |
| | | 116,957 | | Korea Kolmar Co., Ltd. | | | 6,364,746 | |
| | | 34,817 | | LG Innotek Co., Ltd. | | | 2,543,697 | |
| | | 294,892 | | LG Uplus Corp. | | | 2,794,956 | |
| | | 19,905 | | Loen Entertainment, Inc.* | | | 1,249,647 | |
| | | 6,600 | | Mando Corp. | | | 1,281,893 | |
| | | 10,255 | | Medy-Tox, Inc. | | | 3,017,989 | |
| | | 61,590 | | Modetour Network, Inc.† | | | 1,472,976 | |
| | | 3,443 | | Orion Corp. | | | 1,866,144 | |
| | | 32,315 | | S-1 Corp. | | | 2,346,581 | |
| | | 76,417 | | Samsung Card Co., Ltd. | | | 2,512,527 | |
| | | | | | | | 42,460,543 | |
| Taiwan — 14.9% | |
| | | 82,000 | | Cleanaway Co., Ltd. | | | 418,003 | |
| | | 1 | | CUB Elecparts, Inc. | | | 5 | |
| | | 420,000 | | Gourmet Master Co., Ltd.† | | | 3,189,984 | |
| | | 646,000 | | Hota Industrial Manufacturing Co., Ltd. | | | 2,488,642 | |
| | | 4,363,000 | | King Yuan Electronics Co., Ltd. | | | 3,400,295 | |
| | | 862,000 | | Merry Electronics Co. | | | 3,217,556 | |
| | | 2,177,000 | | Pou Chen Corp. | | | 2,705,281 | |
| | | 279,000 | | St. Shine Optical Co., Ltd. | | | 5,325,939 | |
| | | 1,954,000 | | Vanguard International Semiconductor Corp. | | | 3,385,844 | |
| | | | | | | | 24,131,549 | |
| Thailand — 4.6% | |
| | | 4,058,200 | | Bangkok Airways PCL | | | 2,568,944 | |
| | | 1,008,000 | | Central Plaza Hotel PCL | | | 1,116,849 | |
| | | 645,300 | | KrungThai Card PCL | | | 2,478,682 | |
| | | 1,365,121 | | Major Cineplex Group PCL | | | 1,246,359 | |
| | | | | | | | 7,410,834 | |
| Total Common Stocks (Cost $162,513,375) | | | 155,315,455 | |
| | | | | | | | | |
| Real Estate Investment Trusts — 1.1% | |
| | |
| Singapore — 1.1% | |
| | | 2,780,100 | | Mapletree Greater China Commercial Trust | | | 1,818,258 | |
| Total Real Estate Investment Trusts (Cost $1,857,429) | | | 1,818,258 | |
| | | | | | | | | |
| Mutual Funds — 1.2% | |
| | |
| Thailand — 1.2% | |
| | | 4,745,200 | | Digital Telecommunications | | | | |
| | | | | Infrastructure Fund | | | 1,855,283 | |
| Total Mutual Funds (Cost $1,695,838) | | | 1,855,283 | |
| | | | | | | | | |
| Short-Term Investments — 2.3% | |
| | |
| Money Market Funds — 2.3% | |
| | | 3,775,999 | | Cash Account Trust — Government | | | | |
| | | | | & Agency Securities Portfolio — | | | | |
| | | | | Institutional Shares, 0.45%# | | | 3,775,999 | |
| Total Short-Term Investments (Cost $3,775,999) | | | 3,775,999 | |
| Total Investments — 100.6% (Cost $169,842,641) | | | 162,764,995 | |
| Liabilities in Excess of Other Assets — (0.6)% | | | (997,733 | ) |
| NET ASSETS — 100.0% | | $ | 161,767,262 | |
The accompanying notes are an integral part of these financial statements.
Brown Advisory Emerging Markets Small-Cap FundSchedule of Investments
December 31, 2016 (Unaudited)
| PORTFOLIO HOLDINGS | | | |
| % of Net Assets | | | |
| | | | |
| China | | | 28.1 | % |
| South Korea | | | 26.3 | % |
| India | | | 15.5 | % |
| Taiwan | | | 14.9 | % |
| Thailand | | | 5.8 | % |
| Philippines | | | 2.6 | % |
| Money Market Funds | | | 2.3 | % |
| Singapore | | | 2.1 | % |
| Indonesia | | | 1.8 | % |
| Malaysia | | | 1.2 | % |
| Other Assets and Liabilities | | | (0.6 | )% |
| | | | 100.0 | % |
| † | All or a portion of this security is considered illiquid. At December 31, 2016, the total market value of securities considered illiquid was $632,900 or 0.4% of net assets. |
| ADR — American Depositary Receipt |
| * | Non-Income Producing |
| # | Annualized seven-day yield as of December 31, 2016. |
The accompanying notes are an integral part of these financial statements.
Statements of Assets and Liabilities
December 31, 2016 (Unaudited)
| | | BROWN | | | BROWN | | | BROWN | | | BROWN | |
| | | ADVISORY | | | ADVISORY | | | ADVISORY | | | ADVISORY | |
| | | GROWTH | | | FLEXIBLE | | | EQUITY | | | SUSTAINABLE | |
| | | EQUITY | | | EQUITY | | | INCOME | | | GROWTH | |
| | | FUND | | | FUND | | | FUND | | | FUND | |
| ASSETS | | | | | | | | | | | | |
| Investments: | | | | | | | | | | | | |
| Total investments, at cost | | $ | 1,242,801,540 | | | $ | 297,601,669 | | | $ | 80,767,078 | | | $ | 267,224,752 | |
| Net unrealized appreciation (depreciation) | | | 456,962,976 | | | | 90,268,103 | | | | 30,680,043 | | | | 86,310,078 | |
| Total investments, at market value | | | 1,699,764,516 | | | | 387,869,772 | | | | 111,447,121 | | | | 353,534,830 | |
| Cash | | | — | | | | 30,443 | | | | — | | | | — | |
| Receivables: | | | | | | | | | | | | | | | | |
| Investment securities sold | | | 28,650,594 | | | | 1,590,537 | | | | — | | | | 8,582,068 | |
| Fund shares sold | | | 1,769,534 | | | | 290,534 | | | | 899 | | | | 1,084,520 | |
| Interest and dividends | | | 777,764 | | | | 279,896 | | | | 323,559 | | | | 174,356 | |
| Prepaid expenses and other assets | | | 99,830 | | | | 54,573 | | | | 50,652 | | | | 48,240 | |
| Total Assets | | | 1,731,062,238 | | | | 390,115,755 | | | | 111,822,231 | | | | 363,424,014 | |
| LIABILITIES | | | | | | | | | | | | | | | | |
| Payables: | | | | | | | | | | | | | | | | |
| Investment securities purchased | | | 2,258,428 | | | | 820,953 | | | | — | | | | 8,234,972 | |
| Fund shares redeemed | | | 4,447,993 | | | | 200,945 | | | | 37,198 | | | | 136,867 | |
| Interest expense on line of credit (Note 8) | | | — | | | | — | | | | — | | | | 31 | |
| Accrued Liabilities: | | | | | | | | | | | | | | | | |
| Investment advisory fees | | | 914,858 | | | | 199,353 | | | | 58,341 | | | | 183,620 | |
| Service fees | | | 195,910 | | | | 43,250 | | | | 13,132 | | | | 26,761 | |
| Administration, accounting and transfer agent fees | | | 142,488 | | | | 28,309 | | | | 8,630 | | | | 25,482 | |
| Business management fees | | | 76,238 | | | | 16,613 | | | | 4,862 | | | | 15,302 | |
| Trustee fees | | | 27,403 | | | | 4,925 | | | | 1,627 | | | | 4,573 | |
| Distribution fees | | | 20,033 | | | | 5,018 | | | | 1,900 | | | | 121,997 | |
| Professional fees | | | 4,366 | | | | 8,252 | | | | 9,218 | | | | 8,465 | |
| Custody fees | | | 13,299 | | | | 3,494 | | | | 830 | | | | 2,072 | |
| Other liabilities | | | 50,004 | | | | 3,157 | | | | 3,041 | | | | 1,831 | |
| Total Liabilities | | | 8,151,020 | | | | 1,334,269 | | | | 138,779 | | | | 8,761,973 | |
| NET ASSETS | | $ | 1,722,911,218 | | | $ | 388,781,486 | | | $ | 111,683,452 | | | $ | 354,662,041 | |
| COMPONENTS OF NET ASSETS | | | | | | | | | | | | | | | | |
| Paid-in capital | | $ | 1,216,024,863 | | | $ | 302,146,701 | | | $ | 77,743,518 | | | $ | 272,043,246 | |
| Undistributed (Accumulated) net investment income (loss) | | | (7,600,429 | ) | | | 106,567 | | | | 110,987 | | | | (1,273,376 | ) |
| Accumulated net realized gain (loss) | | | 57,523,808 | | | | (3,739,885 | ) | | | 3,148,904 | | | | (2,417,907 | ) |
| Unrealized appreciation (depreciation) on investments | | | 456,962,976 | | | | 90,268,103 | | | | 30,680,043 | | | | 86,310,078 | |
| NET ASSETS | | $ | 1,722,911,218 | | | $ | 388,781,486 | | | $ | 111,683,452 | | | $ | 354,662,041 | |
| COMPUTATION OF NET ASSET VALUE | | | | | | | | | | | | | | | | |
| Institutional Shares: | | | | | | | | | | | | | | | | |
| Net assets | | $ | 245,614,656 | | | $ | 51,810,930 | | | $ | 11,137,103 | | | $ | 151,458,684 | |
| Shares outstanding (unlimited shares authorized) | | | 14,158,564 | | | | 3,083,534 | | | | 873,551 | | | | 9,153,010 | |
| Net asset value per share | | $ | 17.35 | | | $ | 16.80 | | | $ | 12.75 | | | $ | 16.55 | |
| Investor Shares: | | | | | | | | | | | | | | | | |
| Net assets | | $ | 1,450,332,702 | | | $ | 328,879,725 | | | $ | 97,482,417 | | | $ | 28,627,026 | |
| Shares outstanding (unlimited shares authorized) | | | 84,153,429 | | | | 19,595,926 | | | | 7,647,716 | | | | 1,743,493 | |
| Net asset value per share | | $ | 17.23 | | | $ | 16.78 | | | $ | 12.75 | | | $ | 16.42 | |
| Advisor Shares: | | | | | | | | | | | | | | | | |
| Net assets | | $ | 26,963,860 | | | $ | 8,090,831 | | | $ | 3,063,932 | | | $ | 174,576,331 | |
| Shares outstanding (unlimited shares authorized) | | | 1,633,013 | | | | 481,356 | | | | 240,743 | | | | 10,753,706 | |
| Net asset value per share | | $ | 16.51 | | | $ | 16.81 | | | $ | 12.73 | | | $ | 16.23 | |
| | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
Statements of Assets and Liabilities
December 31, 2016 (Unaudited)
| | | BROWN | | | BROWN | | | BROWN | | | BROWN | |
| | | ADVISORY | | | ADVISORY | | | ADVISORY | | | ADVISORY | |
| | | SMALL-CAP | | | SMALL-CAP | | | GLOBAL | | | INTERMEDIATE | |
| | | GROWTH | | | FUNDAMENTAL | | | LEADERS | | | INCOME | |
| | | FUND | | | VALUE FUND | | | FUND | | | FUND | |
| ASSETS | | | | | | | | | | | | |
| Investments: | | | | | | | | | | | | |
| Total investments – unaffiliated, at cost | | $ | 337,315,518 | | | $ | 910,372,327 | | | $ | 27,349,873 | | | $ | 117,210,670 | |
| Total investments – affiliated, at cost (Note 3) | | | — | | | | — | | | | — | | | | 26,238,441 | |
| Total cost of investments | | | 337,315,518 | | | | 910,372,327 | | | | 27,349,873 | | | | 143,449,111 | |
| Net unrealized appreciation (depreciation) – unaffiliated | | | 89,631,042 | | | | 290,223,936 | | | | 1,812,328 | | | | (451,410 | ) |
| Net unrealized appreciation (depreciation) – affiliated (Note 3) | | | — | | | | — | | | | — | | | | (787,611 | ) |
| Total unrealized appreciation (depreciation) | | | 89,631,042 | | | | 290,223,936 | | | | 1,812,328 | | | | (1,239,021 | ) |
| Total investments – unaffiliated, at market value | | | 426,946,560 | | | | 1,200,596,263 | | | | 29,162,201 | | | | 116,759,260 | |
| Total investments – affiliated, at market value (Note 3) | | | — | | | | — | | | | — | | | | 25,450,830 | |
| Total investments, at market value | | | 426,946,560 | | | | 1,200,596,263 | | | | 29,162,201 | | | | 142,210,090 | |
| Foreign currency (Cost of $—, $—, $163,060 and $—, respectively) | | | — | | | | — | | | | 147,727 | | | | — | |
| Receivables: | | | | | | | | | | | | | | | | |
| Investment securities sold | | | 326,148 | | | | — | | | | 176,145 | | | | 1,857 | |
| Fund shares sold | | | 1,533,709 | | | | 20,775,707 | | | | — | | | | 215,786 | |
| Interest and dividends | | | 130,649 | | | | 1,815,073 | | | | 14,725 | | | | 694,532 | |
| Prepaid expenses and other assets | | | 51,680 | | | | 70,000 | | | | 19,457 | | | | 29,952 | |
| Total Assets | | | 428,988,746 | | | | 1,223,257,043 | | | | 29,520,255 | | | | 143,152,217 | |
| LIABILITIES | | | | | | | | | | | | | | | | |
| Payables: | | | | | | | | | | | | | | | | |
| Investment securities purchased | | | 5,879,679 | | | | 8,759,013 | | | | — | | | | — | |
| Fund shares redeemed | | | 486,225 | | | | 2,532,027 | | | | 3 | | | | 306,269 | |
| Accrued Liabilities: | | | | | | | | | | | | | | | | |
| Investment advisory fees, net | | | 304,923 | | | | 856,617 | | | | 4,561 | | | | 30,136 | |
| Distribution fees | | | 17,017 | | | | 35,594 | | | | — | | | | 5,473 | |
| Service fees | | | 41,862 | | | | 115,973 | | | | 3,820 | | | | 6,104 | |
| Administration, accounting and transfer agent fees | | | 28,737 | | | | 81,473 | | | | 2,906 | | | | 12,363 | |
| Professional fees | | | 8,234 | | | | 5,492 | | | | 9,846 | | | | 9,483 | |
| Business management fees | | | 17,937 | | | | 50,389 | | | | 1,273 | | | | 6,104 | |
| Trustee fees | | | 3,367 | | | | 12,973 | | | | 356 | | | | 1,904 | |
| Custodian fees | | | 4,076 | | | | 6,401 | | | | 1,394 | | | | 992 | |
| Other liabilities | | | 5,177 | | | | 5,498 | | | | 905 | | | | 767 | |
| Total Liabilities | | | 6,797,234 | | | | 12,461,450 | | | | 25,064 | | | | 379,595 | |
| NET ASSETS | | $ | 422,191,512 | | | $ | 1,210,795,593 | | | $ | 29,495,191 | | | $ | 142,772,622 | |
| COMPONENTS OF NET ASSETS | | | | | | | | | | | | | | | | |
| Paid-in capital | | $ | 330,144,449 | | | $ | 928,263,061 | | | $ | 29,681,938 | | | $ | 144,287,116 | |
| Undistributed (Accumulated) net investment income (loss) | | | (1,610,957 | ) | | | 1,033,188 | | | | 8,230 | | | | (282,892 | ) |
| Accumulated net realized gain (loss) | | | 4,026,978 | | | | (8,724,592 | ) | | | (1,991,767 | ) | | | 7,419 | |
| Unrealized appreciation (depreciation) on investments | | | 89,631,042 | | | | 290,223,936 | | | | 1,812,328 | | | | (1,239,021 | ) |
| Unrealized appreciation (depreciation) on foreign currency/receivables | | | — | | | | — | | | | (15,538 | ) | | | — | |
| NET ASSETS | | $ | 422,191,512 | | | $ | 1,210,795,593 | | | $ | 29,495,191 | | | $ | 142,772,622 | |
| COMPUTATION OF NET ASSET VALUE | | | | | | | | | | | | | | | | |
| Institutional Shares: | | | | | | | | | | | | | | | | |
| Net assets | | $ | 95,123,053 | | | $ | 301,051,751 | | | $ | — | | | $ | — | |
| Shares outstanding (unlimited shares authorized) | | | 2,952,847 | | | | 11,401,798 | | | | — | | | | — | |
| Net asset value per share | | $ | 32.21 | | | $ | 26.40 | | | $ | — | | | $ | — | |
| Investor Shares: | | | | | | | | | | | | | | | | |
| Net assets | | $ | 291,835,854 | | | $ | 850,754,417 | | | $ | 29,495,191 | | | $ | 134,353,618 | |
| Shares outstanding (unlimited shares authorized) | | | 18,068,179 | | | | 32,233,472 | | | | 3,029,181 | | | | 12,750,383 | |
| Net asset value per share | | $ | 16.15 | | | $ | 26.39 | | | $ | 9.74 | | | $ | 10.54 | |
| Advisor Shares: | | | | | | | | | | | | | | | | |
| Net assets | | $ | 35,232,605 | | | $ | 58,989,425 | | | $ | — | | | $ | 8,419,004 | |
| Shares outstanding (unlimited shares authorized) | | | 2,276,573 | | | | 2,243,038 | | | | — | | | | 815,547 | |
| Net asset value per share | | $ | 15.48 | | | $ | 26.30 | | | $ | — | | | $ | 10.32 | |
The accompanying notes are an integral part of these financial statements.
Statements of Assets and Liabilities
December 31, 2016 (Unaudited)
| | | BROWN | | | BROWN | |
| | | ADVISORY | | | ADVISORY | |
| | | TOTAL | | | STRATEGIC | |
| | | RETURN | | | BOND | |
| | | FUND | | | FUND | |
| ASSETS | | | | | | |
| Investments: | | | | | | |
| Total investments, at cost | | $ | 102,541,272 | | | $ | 77,352,635 | |
| Net unrealized appreciation (depreciation) | | | (78,064 | ) | | | 73,173 | |
| Total investments, at market value | | | 102,463,208 | | | | 77,425,808 | |
| Deposit at broker | | | 773,661 | | | | 286,517 | |
| Gross unrealized appreciation – futures contracts (Note 7) | | | 17,912 | | | | 3,946 | |
| Receivables: | | | | | | | | |
| Fund shares sold | | | 209,701 | | | | 402,327 | |
| Interest and dividends | | | 683,503 | | | | 391,508 | |
| Prepaid expenses and other assets | | | 33,875 | | | | 32,508 | |
| Total Assets | | | 104,181,860 | | | | 78,542,614 | |
| LIABILITIES | | | | | | | | |
| Gross unrealized depreciation – futures contracts (Note 7) | | | 103,179 | | | | — | |
| Payables: | | | | | | | | |
| Investment securities purchased | | | 10,268,291 | | | | 17,947,240 | |
| Fund shares redeemed | | | 45,000 | | | | — | |
| Accrued Liabilities: | | | | | | | | |
| Investment advisory fees, net | | | 23,313 | | | | 15,934 | |
| Administration, accounting and transfer agent fees | | | 7,465 | | | | 4,056 | |
| Service fees | | | 145 | | | | 2,276 | |
| Business management fees | | | 3,885 | | | | 2,276 | |
| Custodian fees | | | 550 | | | | 198 | |
| Trustee fees | | | 1,066 | | | | 545 | |
| Professional fees | | | 9,586 | | | | 9,829 | |
| Distribution fees | | | — | | | | 510 | |
| Other liabilities | | | 5,093 | | | | 5,644 | |
| Total Liabilities | | | 10,467,573 | | | | 17,988,508 | |
| NET ASSETS | | $ | 93,714,287 | | | $ | 60,554,106 | |
| COMPONENTS OF NET ASSETS | | | | | | | | |
| Paid-in capital | | $ | 95,425,810 | | | $ | 63,794,896 | |
| Undistributed (Accumulated) net investment income (loss) | | | (35,231 | ) | | | (86,107 | ) |
| Accumulated net realized gain (loss) | | | (1,512,961 | ) | | | (3,231,802 | ) |
| Unrealized appreciation (depreciation) on investments | | | (78,064 | ) | | | 73,173 | |
| Unrealized appreciation (depreciation) on futures contracts (Note 7) | | | (85,267 | ) | | | 3,946 | |
| NET ASSETS | | $ | 93,714,287 | | | $ | 60,554,106 | |
| COMPUTATION OF NET ASSET VALUE | | | | | | | | |
| Institutional Shares: | | | | | | | | |
| Net assets | | $ | 90,763,975 | | | $ | — | |
| Shares outstanding (unlimited shares authorized) | | | 9,204,452 | | | | — | |
| Net asset value per share | | $ | 9.86 | | | $ | — | |
| Investor Shares: | | | | | | | | |
| Net assets | | $ | 2,950,312 | | | $ | 59,856,453 | |
| Shares outstanding (unlimited shares authorized) | | | 299,195 | | | | 6,283,806 | |
| Net asset value per share | | $ | 9.86 | | | $ | 9.53 | |
| Advisor Shares: | | | | | | | | |
| Net assets | | $ | — | | | $ | 697,653 | |
| Shares outstanding (unlimited shares authorized) | | | — | | | | 73,204 | |
| Net asset value per share | | $ | — | | | $ | 9.53 | |
The accompanying notes are an integral part of these financial statements.
Statements of Assets and Liabilities
December 31, 2016 (Unaudited)
| | | BROWN | | | BROWN | | | BROWN | |
| | | ADVISORY | | | ADVISORY | | | ADVISORY | |
| | | MARYLAND | | | TAX EXEMPT | | | MORTGAGE | |
| | | BOND | | | BOND | | | SECURITIES | |
| | | FUND | | | FUND | | | FUND | |
| ASSETS | | | | | | | | | |
| Investments: | | | | | | | | | |
| Total investments, at cost | | $ | 137,227,911 | | | $ | 242,650,054 | | | $ | 485,176,125 | |
| Net unrealized appreciation (depreciation) | | | (1,512,249 | ) | | | (3,706,214 | ) | | | (4,025,007 | ) |
| Total investments, at market value | | | 135,715,662 | | | | 238,943,840 | | | | 481,151,118 | |
| Deposit at broker | | | — | | | | — | | | | 3,150,000 | |
| Receivables: | | | | | | | | | | | | |
| Investment securities sold | | | — | | | | — | | | | 6,333,325 | |
| Fund shares sold | | | 1,180,441 | | | | 2,373,513 | | | | 468,964 | |
| Interest and dividends | | | 1,836,565 | | | | 2,846,838 | | | | 1,362,230 | |
| Prepaid expenses and other assets | | | 5,836 | | | | 20,429 | | | | 39,206 | |
| Total Assets | | | 138,738,504 | | | | 244,184,620 | | | | 492,504,843 | |
| LIABILITIES | | | | | | | | | | | | |
| Securities sold short, at market value | | | | | | | | | | | | |
| (Proceeds of $—, $— and $6,317,578, respectively) | | | — | | | | — | | | | 6,308,320 | |
| Payables: | | | | | | | | | | | | |
| Investment securities purchased | | | — | | | | 139,714 | | | | 119,572,119 | |
| Fund shares redeemed | | | 2,075,144 | | | | 1,380,692 | | | | — | |
| Distributions | | | 246,621 | | | | 498,162 | | | | — | |
| Accrued Liabilities: | | | | | | | | | | | | |
| Investment advisory fees, net | | | 42,778 | | | | 62,932 | | | | 93,336 | |
| Administration, accounting and transfer agent fees | | | 17,204 | | | | 21,555 | | | | 33,808 | |
| Service fees | | | 7,130 | | | | 10,489 | | | | 34 | |
| Business management fees | | | 7,130 | | | | 10,489 | | | | 15,556 | |
| Custodian fees | | | 986 | | | | 1,174 | | | | 3,561 | |
| Trustee fees | | | 2,218 | | | | 2,986 | | | | 5,174 | |
| Professional fees | | | 9,039 | | | | 9,000 | | | | 8,398 | |
| Other liabilities | | | 768 | | | | 58 | | | | 3,791 | |
| Total Liabilities | | | 2,409,018 | | | | 2,137,251 | | | | 126,044,097 | |
| NET ASSETS | | $ | 136,329,486 | | | $ | 242,047,369 | | | $ | 366,460,746 | |
| COMPONENTS OF NET ASSETS | | | | | | | | | | | | |
| Paid-in capital | | $ | 138,447,578 | | | $ | 247,673,710 | | | $ | 376,382,026 | |
| Undistributed (Accumulated) net investment income (loss) | | | 502 | | | | 172 | | | | (1,135,929 | ) |
| Accumulated net realized gain (loss) | | | (606,345 | ) | | | (1,920,299 | ) | | | (4,769,602 | ) |
| Unrealized appreciation (depreciation) on investments | | | (1,512,249 | ) | | | (3,706,214 | ) | | | (4,025,007 | ) |
| Unrealized appreciation (depreciation) on securities sold short | | | — | | | | — | | | | 9,258 | |
| NET ASSETS | | $ | 136,329,486 | | | $ | 242,047,369 | | | $ | 366,460,746 | |
| COMPUTATION OF NET ASSET VALUE | | | | | | | | | | | | |
| Institutional Shares: | | | | | | | | | | | | |
| Net assets | | $ | — | | | $ | — | | | $ | 365,620,199 | |
| Shares outstanding (unlimited shares authorized) | | | — | | | | — | | | | 37,208,949 | |
| Net asset value per share | | $ | — | | | $ | — | | | $ | 9.83 | |
| Investor Shares: | | | | | | | | | | | | |
| Net assets | | $ | 136,329,486 | | | $ | 242,047,369 | | | $ | 840,547 | |
| Shares outstanding (unlimited shares authorized) | | | 13,069,289 | | | | 24,651,105 | | | | 85,497 | |
| Net asset value per share | | $ | 10.43 | | | $ | 9.82 | | | $ | 9.83 | |
| Advisor Shares: | | | | | | | | | | | | |
| Net assets | | $ | — | | | $ | — | | | $ | — | |
| Shares outstanding (unlimited shares authorized) | | | — | | | | — | | | | — | |
| Net asset value per share | | $ | — | | | $ | — | | | $ | — | |
The accompanying notes are an integral part of these financial statements.
Statements of Assets and Liabilities
December 31, 2016 (Unaudited)
| | | BROWN | | | BROWN | | | BROWN | | | BROWN | |
| | | ADVISORY – | | | ADVISORY – | | | ADVISORY – | | | ADVISORY | |
| | | WMC | | | WMC | | | SOMERSET | | | EMERGING | |
| | | STRATEGIC | | | JAPAN ALPHA | | | EMERGING | | | MARKETS | |
| | | EUROPEAN | | | OPPORTUNITIES | | | MARKETS | | | SMALL-CAP | |
| | | EQUITY FUND | | | FUND | | | FUND | | | FUND | |
| ASSETS | | | | | | | | | | | | |
| Investments: | | | | | | | | | | | | |
| Total investments, at cost | | $ | 952,626,097 | | | $ | 1,225,953,136 | | | $ | 528,064,358 | | | $ | 169,842,641 | |
| Net unrealized appreciation (depreciation) | | | 12,891,002 | | | | 145,560,406 | | | | (8,112,536 | ) | | | (7,077,646 | ) |
| Total investments, at market value | | | 965,517,099 | | | | 1,371,513,542 | | | | 519,951,822 | | | | 162,764,995 | |
| Foreign currency (Cost of $294,181, $19, $16,850 and $—, respectively) | | | 295,376 | | | | 19 | | | | 17,029 | | | | — | |
| Deposit at broker | | | — | | | | 1,341,586 | | | | — | | | | — | |
| Gross unrealized appreciation on futures contracts (Note 7) | | | — | | | | 1,913,271 | (a) | | | — | | | | — | |
| Receivables: | | | | | | | | | | | | | | | | |
| Investment securities sold | | | 9,849,489 | | | | 10,140,945 | | | | — | | | | 2,120,932 | |
| Fund shares sold | | | 1,911,116 | | | | 9,025,433 | | | | 3,642,095 | | | | 1,274,663 | |
| Interest and dividends | | | 1,287,833 | | | | 1,569,551 | | | | 2,009,162 | | | | 374,415 | |
| Prepaid expenses and other assets | | | 136,997 | | | | 96,057 | | | | 88,194 | | | | 32,211 | |
| Total Assets | | | 978,997,910 | | | | 1,395,600,404 | | | | 525,708,302 | | | | 166,567,216 | |
| LIABILITIES | | | | | | | | | | | | | | | | |
| Gross unrealized depreciation on futures contracts (Note 7) | | | — | | | | — | | | | — | | | | — | |
| Payables: | | | | | | | | | | | | | | | | |
| Investment securities purchased | | | 894,401 | | | | 4,387,079 | | | | — | | | | — | |
| Fund shares redeemed | | | 3,563,425 | | | | 6,982,832 | | | | 1,724,193 | | | | 4,533,041 | |
| Interest expense on line of credit (Note 8) | | | — | | | | — | | | | — | | | | 1,075 | |
| Accrued Liabilities: | | | | | | | | | | | | | | | | |
| Investment advisory fees | | | 745,784 | | | | 1,190,518 | | | | 399,509 | | | | 191,449 | |
| Administration, accounting and transfer agent fees | | | 72,452 | | | | 95,537 | | | | 37,343 | | | | 15,518 | |
| Custodian fees | | | 60,801 | | | | 99,185 | | | | 91,066 | | | | 37,263 | |
| Business management fees | | | 41,432 | | | | 59,526 | | | | 22,195 | | | | 7,658 | |
| Distribution fees | | | 428 | | | | 381 | | | | 161 | | | | — | |
| Professional fees | | | 5,201 | | | | 1,310 | | | | 7,598 | | | | 9,102 | |
| Trustee fees | | | 14,253 | | | | 17,058 | | | | 6,610 | | | | 2,938 | |
| Service fees | | | 1,121 | | | | 269 | | | | 24,114 | | | | 468 | |
| Other liabilities | | | 27,669 | | | | 25,999 | | | | 2,417 | | | | 1,442 | |
| Total Liabilities | | | 5,426,967 | | | | 12,859,694 | | | | 2,315,206 | | | | 4,799,954 | |
| NET ASSETS | | $ | 973,570,943 | | | $ | 1,382,740,710 | | | $ | 523,393,096 | | | $ | 161,767,262 | |
| COMPONENTS OF NET ASSETS | | | | | | | | | | | | | | | | |
| Paid-in capital | | $ | 1,024,520,161 | | | $ | 1,618,210,187 | | | $ | 580,774,327 | | | $ | 210,144,445 | |
| Undistributed (Accumulated) net investment income (loss) | | | (671,156 | ) | | | (351,892,188 | ) | | | 218,968 | | | | (244,165 | ) |
| Accumulated net realized gain (loss) | | | (63,107,703 | ) | | | (31,043,359 | ) | | | (49,466,464 | ) | | | (41,052,701 | ) |
| Unrealized appreciation (depreciation) on investments | | | 12,891,002 | | | | 145,560,406 | | | | (8,112,536 | ) | | | (7,077,646 | ) |
| Unrealized appreciation (depreciation) on futures contracts | | | — | | | | 1,913,271 | | | | — | | | | — | |
| Unrealized appreciation (depreciation) on foreign currency/receivables | | | (61,361 | ) | | | (7,607 | ) | | | (21,199 | ) | | | (2,671 | ) |
| NET ASSETS | | $ | 973,570,943 | | | $ | 1,382,740,710 | | | $ | 523,393,096 | | | $ | 161,767,262 | |
| COMPUTATION OF NET ASSET VALUE | | | | | | | | | | | | | | | | |
| Institutional Shares: | | | | | | | | | | | | | | | | |
| Net assets | | $ | 964,305,855 | | | $ | 1,380,725,399 | | | $ | 331,610,660 | | | $ | 158,228,280 | |
| Shares outstanding (unlimited shares authorized) | | | 98,253,944 | | | | 142,669,216 | | | | 38,861,746 | | | | 19,305,416 | |
| Net asset value per share | | $ | 9.81 | | | $ | 9.68 | | | $ | 8.53 | | | $ | 8.20 | |
| Investor Shares: | | | | | | | | | | | | | | | | |
| Net assets | | $ | 8,647,061 | | | $ | 1,428,184 | | | $ | 191,574,939 | | | $ | 3,538,982 | |
| Shares outstanding (unlimited shares authorized) | | | 880,528 | | | | 148,017 | | | | 22,485,072 | | | | 433,208 | |
| Net asset value per share | | $ | 9.82 | | | $ | 9.65 | | | $ | 8.52 | | | $ | 8.17 | |
| Advisor Shares: | | | | | | | | | | | | | | | | |
| Net assets | | $ | 618,027 | | | $ | 587,127 | | | $ | 207,497 | | | $ | — | |
| Shares outstanding (unlimited shares authorized) | | | 63,241 | | | | 61,099 | | | | 24,232 | | | | — | |
| Net asset value per share | | $ | 9.77 | | | $ | 9.61 | | | $ | 8.56 | | | $ | — | |
(a) | Includes $156,556 of variation margin due to the Fund. |
The accompanying notes are an integral part of these financial statements.
Statements of Operations
For the Six Months Ended December 31, 2016 (Unaudited)
| | | BROWN | | | BROWN | | | BROWN | | | BROWN | |
| | | ADVISORY | | | ADVISORY | | | ADVISORY | | | ADVISORY | |
| | | GROWTH | | | FLEXIBLE | | | EQUITY | | | SUSTAINABLE | |
| | | EQUITY | | | EQUITY | | | INCOME | | | GROWTH | |
| | | FUND | | | FUND | | | FUND | | | FUND | |
| INVESTMENT INCOME | | | | | | | | | | | | |
| Dividend income | | $ | 4,060,344 | | | $ | 2,436,635 | | | $ | 1,692,900 | | | $ | 1,073,542 | |
| Less: foreign taxes withheld | | | — | | | | (34,640 | ) | | | (16,453 | ) | | | (3,830 | ) |
| Interest Income | | | 115,085 | | | | 23,152 | | | | 8,159 | | | | 24,861 | |
| Total investment income | | | 4,175,429 | | | | 2,425,147 | | | | 1,684,606 | | | | 1,094,573 | |
| EXPENSES | | | | | | | | | | | | | | | | |
| Investment advisory fees (Note 3) | | | 6,214,259 | | | | 1,054,464 | | | | 373,484 | | | | 1,110,410 | |
| Service fees – Investor Shares (Note 3) | | | 1,326,507 | | | | 236,110 | | | | 81,456 | | | | 21,838 | |
| Business management fees | | | 517,855 | | | | 87,872 | | | | 31,124 | | | | 92,534 | |
| Administration, accounting and transfer agent fees | | | 392,641 | | | | 66,134 | | | | 23,779 | | | | 70,696 | |
| Miscellaneous expenses | | | 163,350 | | | | 17,290 | | | | 8,874 | | | | 23,829 | |
| Professional fees | | | 64,562 | | | | 18,340 | | | | 13,321 | | | | 19,080 | |
| Trustee fees | | | 51,428 | | | | 8,513 | | | | 3,089 | | | | 9,487 | |
| Distribution fees – Advisor Shares (Note 3) | | | 41,530 | | | | 9,098 | | | | 3,817 | | | | 252,250 | |
| Custodian fees | | | 35,784 | | | | 6,964 | | | | 2,102 | | | | 6,713 | |
| Registration fees | | | 30,658 | | | | 40,672 | | | | 16,449 | | | | 28,457 | |
| Service fees – Advisor Shares (Note 3) | | | 24,918 | | | | 5,459 | | | | 2,290 | | | | 151,350 | |
| Insurance fees | | | 22,407 | | | | 3,429 | | | | 1,292 | | | | 3,331 | |
| Interest expense on line of credit (Note 8) | | | — | | | | — | | | | 1,042 | | | | 31 | |
| Total Expenses | | | 8,885,899 | | | | 1,554,345 | | | | 562,119 | | | | 1,790,006 | |
| NET INVESTMENT INCOME (LOSS) | | | (4,710,470 | ) | | | 870,802 | | | | 1,122,487 | | | | (695,433 | ) |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | | | | | | | | | | | | | | |
| Net realized gain (loss) on investments | | | 138,888,155 | | | | 6,613,146 | | | | 4,993,113 | | | | 8,977,598 | |
| Net change in unrealized appreciation (depreciation) on: | | | | | | | | | | | | | | | | |
| Investments | | | (153,756,289 | ) | | | 29,857,126 | | | | (1,896,339 | ) | | | 4,472,360 | |
| Foreign receivables | | | — | | | | 363 | | | | — | | | | — | |
| Net change in unrealized appreciation (depreciation) | | | (153,756,289 | ) | | | 29,857,489 | | | | (1,896,339 | ) | | | 4,472,360 | |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | (14,868,134 | ) | | | 36,470,635 | | | | 3,096,774 | | | | 13,449,958 | |
| INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | | $ | (19,578,604 | ) | | $ | 37,341,437 | | | $ | 4,219,261 | | | $ | 12,754,525 | |
The accompanying notes are an integral part of these financial statements.
Statements of Operations
For the Six Months Ended December 31, 2016 (Unaudited)
| | | BROWN | | | BROWN | | | BROWN | | | BROWN | |
| | | ADVISORY | | | ADVISORY | | | ADVISORY | | | ADVISORY | |
| | | SMALL-CAP | | | SMALL-CAP | | | GLOBAL | | | INTERMEDIATE | |
| | | GROWTH | | | FUNDAMENTAL | | | LEADERS | | | INCOME | |
| | | FUND | | | VALUE FUND | | | FUND | | | FUND | |
| INVESTMENT INCOME | | | | | | | | | | | | |
| Dividend income – unaffiliated | | $ | 831,763 | | | $ | 8,699,151 | | | $ | 136,954 | | | $ | — | |
| Dividend income – affiliated (Note 3) | | | — | | | | — | | | | — | | | | 298,921 | |
| Less: foreign taxes withheld | | | (9,535 | ) | | | — | | | | (3,165 | ) | | | — | |
| Interest Income | | | 62,336 | | | | 88,929 | | | | 2,779 | | | | 1,333,287 | |
| Total investment income | | | 884,564 | | | | 8,788,080 | | | | 136,568 | | | | 1,632,208 | |
| EXPENSES | | | | | | | | | | | | | | | | |
| Investment advisory fees (Note 3) | | | 1,551,572 | | | | 4,564,074 | | | | 98,138 | | | | 221,509 | |
| Service fees – Investor Shares (Note 3) | | | 218,264 | | | | 605,599 | | | | 22,647 | | | | 34,703 | |
| Business management fees | | | 91,269 | | | | 268,475 | | | | 7,549 | | | | 36,918 | |
| Administration, accounting and transfer agent fees | | | 69,729 | | | | 205,115 | | | | 7,358 | | | | 35,690 | |
| Distribution fees – Advisor Shares (Note 3) | | | 25,438 | | | | 70,029 | | | | — | | | | 11,074 | |
| Miscellaneous expenses | | | 21,058 | | | | 63,891 | | | | 8,211 | | | | 7,726 | |
| Registration fees | | | 19,811 | | | | 29,304 | | | | 12,363 | | | | 14,771 | |
| Professional fees | | | 18,356 | | | | 35,363 | | | | 10,747 | | | | 13,727 | |
| Service fees – Advisor Shares (Note 3) | | | 15,263 | | | | 42,017 | | | | — | | | | 2,215 | |
| Custodian fees | | | 10,346 | | | | 18,077 | | | | 13,345 | | | | 3,386 | |
| Trustee fees | | | 8,677 | | | | 25,339 | | | | 796 | | | | 3,677 | |
| Insurance fees | | | 2,909 | | | | 9,745 | | | | 229 | | | | 1,489 | |
| Total Expenses | | | 2,052,692 | | | | 5,937,028 | | | | 181,383 | | | | 386,885 | |
| Expenses waived by adviser – expense cap (Note 3) | | | — | | | | — | | | | (53,048 | ) | | | — | |
| Expenses waived by adviser – investments in affiliates (Note 3) | | | — | | | | — | | | | — | | | | (42,619 | ) |
| Net Expenses | | | 2,052,692 | | | | 5,937,028 | | | | 128,335 | | | | 344,266 | |
| NET INVESTMENT INCOME (LOSS) | | | (1,168,128 | ) | | | 2,851,052 | | | | 8,233 | | | | 1,287,942 | |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | | | | | | | | | | | | | | |
| Net realized gain (loss) on: | | | | | | | | | | | | | | | | |
| Investments – unaffiliated | | | 9,565,801 | | | | (5,393,653 | ) | | | (631,424 | ) | | | 767,501 | |
| Investments – affiliated (Note 3) | | | — | | | | — | | | | — | | | | 28,260 | |
| Capital gain distribution from other RIC – affiliated (Note 3) | | | — | | | | — | | | | — | | | | 179,892 | |
| Net realized gain (loss) | | | 9,565,801 | | | | (5,393,653 | ) | | | (631,424 | ) | | | 975,653 | |
| Net change in unrealized appreciation (depreciation) on: | | | | | | | | | | | | | | | | |
| Investments – unaffiliated | | | 11,456,384 | | | | 169,545,890 | | | | 857,095 | | | | (3,249,718 | ) |
| Investments – affiliated (Note 3) | | | — | | | | — | | | | — | | | | (974,114 | ) |
| Foreign currency/receivables | | | — | | | | — | | | | (14,516 | ) | | | — | |
| Net change in unrealized appreciation (depreciation) | | | 11,456,384 | | | | 169,545,890 | | | | 842,579 | | | | (4,223,832 | ) |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | 21,022,185 | | | | 164,152,237 | | | | 211,155 | | | | (3,248,179 | ) |
| INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | | $ | 19,854,057 | | | $ | 167,003,289 | | | $ | 219,388 | | | $ | (1,960,237 | ) |
The accompanying notes are an integral part of these financial statements.
Statements of Operations
For the Six Months Ended December 31, 2016 (Unaudited)
| | | BROWN | | | BROWN | |
| | | ADVISORY | | | ADVISORY | |
| | | TOTAL | | | STRATEGIC | |
| | | RETURN | | | BOND | |
| | | FUND | | | FUND | |
| INVESTMENT INCOME | | | | | | |
| Dividend income | | $ | 14,844 | | | $ | 48,551 | |
| Interest Income | | | 1,278,074 | | | | 646,282 | |
| Total investment income | | | 1,292,918 | | | | 694,833 | |
| EXPENSES | | | | | | | | |
| Investment advisory fees (Note 3) | | | 137,195 | | | | 87,374 | |
| Administration, accounting and transfer agent fees | | | 29,063 | | | | 19,153 | |
| Business management fees | | | 22,866 | | | | 10,922 | |
| Registration fees | | | 14,349 | | | | 13,712 | |
| Professional fees | | | 12,207 | | | | 11,029 | |
| Miscellaneous expenses | | | 8,164 | | | | 7,350 | |
| Custody fees | | | 2,630 | | | | 1,633 | |
| Trustee fees | | | 2,306 | | | | 1,055 | |
| Service fees – Investor Shares (Note 3) | | | 924 | | | | 10,711 | |
| Insurance fees | | | 800 | | | | 405 | |
| Service fees – Advisor Shares (Note 3) | | | — | | | | 211 | |
| Distribution fees – Advisor Shares (Note 3) | | | — | | | | 1,058 | |
| Total Expenses | | | 230,504 | | | | 164,613 | |
| Expenses waived by adviser – expense cap (Note 3) | | | — | | | | (10,651 | ) |
| Net Expenses | | | 230,504 | | | | 153,962 | |
| NET INVESTMENT INCOME (LOSS) | | | 1,062,414 | | | | 540,871 | |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | | | | | | |
| Net realized gain (loss) on: | | | | | | | | |
| Investments | | | 118,423 | | | | (89,059 | ) |
| Capital gain distribution from other RIC | | | 28 | | | | 884 | |
| Futures contracts (Note 7) | | | (897,383 | ) | | | 80,861 | |
| Net realized gain (loss) | | | (778,932 | ) | | | (7,314 | ) |
| Net change in unrealized appreciation (depreciation) on: | | | | | | | | |
| Investments | | | (1,180,881 | ) | | | 47,740 | |
| Futures contracts (Note 7) | | | (819,210 | ) | | | 182,256 | |
| Net change in unrealized appreciation (depreciation) | | | (2,000,091 | ) | | | 229,996 | |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | (2,779,023 | ) | | | 222,682 | |
| INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | | $ | (1,716,609 | ) | | $ | 763,553 | |
The accompanying notes are an integral part of these financial statements.
Statements of Operations
For the Six Months Ended December 31, 2016 (Unaudited)
| | | BROWN | | | BROWN | | | BROWN | |
| | | ADVISORY | | | ADVISORY | | | ADVISORY | |
| | | MARYLAND | | | TAX EXEMPT | | | MORTGAGE | |
| | | BOND | | | BOND | | | SECURITIES | |
| | | FUND | | | FUND | | | FUND | |
| INVESTMENT INCOME | | | | | | | | | |
| Dividend income | | $ | — | | | $ | — | | | $ | 7,266 | |
| Interest Income | | | 2,433,882 | | | | 3,880,113 | | | | 3,976,027 | |
| Total investment income | | | 2,433,882 | | | | 3,880,113 | | | | 3,983,293 | |
| EXPENSES | | | | | | | | | | | | |
| Investment advisory fees (Note 3) | | | 276,120 | | | | 367,626 | | | | 590,521 | |
| Service fees – Investor Shares (Note 3) | | | 46,020 | | | | 61,271 | | | | 277 | |
| Business management fees | | | 46,020 | | | | 61,271 | | | | 98,420 | |
| Administration, accounting and transfer agent fees | | | 45,541 | | | | 59,653 | | | | 110,077 | |
| Professional fees | | | 14,280 | | | | 16,043 | | | | 19,839 | |
| Miscellaneous expenses | | | 8,583 | | | | 9,771 | | | | 18,980 | |
| Trustee fees | | | 4,610 | | | | 6,199 | | | | 10,528 | |
| Custody fees | | | 2,670 | | | | 3,824 | | | | 13,338 | |
| Registration fees | | | 2,205 | | | | 11,116 | | | | 14,672 | |
| Insurance fees | | | 1,786 | | | | 2,255 | | | | 3,739 | |
| Total Expenses | | | 447,835 | | | | 599,029 | | | | 880,391 | |
| NET INVESTMENT INCOME (LOSS) | | | 1,986,047 | | | | 3,281,084 | | | | 3,102,902 | |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | | | | | | | | | | |
| Net realized gain (loss) on: | | | | | | | | | | | | |
| Investments | | | (304,903 | ) | | | (842,037 | ) | | | (3,198,478 | ) |
| Capital gain distribution from other RIC | | | 49 | | | | 4 | | | | 182 | |
| Securities sold short | | | — | | | | — | | | | (53,203 | ) |
| Net realized gain (loss) | | | (304,854 | ) | | | (842,033 | ) | | | (3,251,499 | ) |
| Net change in unrealized appreciation (depreciation) on: | | | | | | | | | | | | |
| Investments | | | (7,577,256 | ) | | | (9,931,844 | ) | | | (7,744,243 | ) |
| Securities sold short | | | — | | | | — | | | | 67,565 | |
| Net change in unrealized appreciation (depreciation) | | | (7,577,256 | ) | | | (9,931,844 | ) | | | (7,676,678 | ) |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | (7,882,110 | ) | | | (10,773,877 | ) | | | (10,928,177 | ) |
| INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | | $ | (5,896,063 | ) | | $ | (7,492,793 | ) | | $ | (7,825,275 | ) |
The accompanying notes are an integral part of these financial statements.
Statements of Operations
For the Six Months Ended December 31, 2016 (Unaudited)
| | | BROWN | | | BROWN | | | BROWN | | | BROWN | |
| | | ADVISORY – | | | ADVISORY – | | | ADVISORY – | | | ADVISORY | |
| | | WMC | | | WMC | | | SOMERSET | | | EMERGING | |
| | | STRATEGIC | | | JAPAN ALPHA | | | EMERGING | | | MARKETS | |
| | | EUROPEAN | | | OPPORTUNITIES | | | MARKETS | | | SMALL-CAP | |
| | | EQUITY FUND | | | FUND | | | FUND | | | FUND | |
| INVESTMENT INCOME | | | | | | | | | | | | |
| Dividend income | | $ | 5,543,239 | | | $ | 16,857,886 | | | $ | 6,539,217 | | | $ | 2,129,264 | |
| Less: foreign taxes withheld | | | (451,027 | ) | | | (1,685,345 | ) | | | (899,929 | ) | | | (254,300 | ) |
| Interest Income | | | 12,618 | | | | 91,129 | | | | 30,132 | | | | 17,877 | |
| Total investment income | | | 5,104,830 | | | | 15,263,670 | | | | 5,669,420 | | | | 1,892,841 | |
| EXPENSES | | | | | | | | | | | | | | | | |
| Investment advisory fees (Note 3) | | | 4,791,304 | | | | 8,025,539 | | | | 2,431,376 | | | | 1,334,648 | |
| Business management fees | | | 266,184 | | | | 401,277 | | | | 135,076 | | | | 53,386 | |
| Miscellaneous expenses | | | 206,006 | | | | 100,793 | | | | 29,804 | | | | 18,089 | |
| Administration, accounting and transfer agent fees | | | 203,364 | | | | 306,576 | | | | 103,596 | | | | 45,174 | |
| Custodian fees | | | 164,502 | | | | 238,216 | | | | 348,109 | | | | 139,900 | |
| Registration fees | | | 58,905 | | | | 21,519 | | | | 43,659 | | | | 15,728 | |
| Professional fees | | | 35,976 | | | | 47,023 | | | | 23,199 | | | | 15,414 | |
| Trustee fees | | | 27,647 | | | | 36,506 | | | | 14,036 | | | | 5,852 | |
| Insurance fees | | | 10,894 | | | | 1,696 | | | | 4,882 | | | | 2,121 | |
| Service fees – Investor Shares (Note 3) | | | 8,925 | | | | 1,116 | | | | 150,382 | | | | 3,907 | |
| Distribution fees – Advisor Shares (Note 3) | | | 924 | | | | 788 | | | | 334 | | | | — | |
| Service fees – Advisor Shares (Note 3) | | | 554 | | | | 473 | | | | 200 | | | | — | |
| Interest expense on line of credit (Note 8) | | | 80 | | | | 22,173 | | | | — | | | | 1,200 | |
| Total Expenses | | | 5,775,265 | | | | 9,203,695 | | | | 3,284,653 | | | | 1,635,419 | |
| NET INVESTMENT INCOME (LOSS) | | | (670,435 | ) | | | 6,059,975 | | | | 2,384,767 | | | | 257,422 | |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | | | | | | | | | | | | | | |
| Net realized gain (loss) on: | | | | | | | | | | | | | | | | |
| Investments | | | (11,960,636 | ) | | | 86,354,797 | | | | (19,510,467 | ) | | | (2,821,553 | ) |
| Forward foreign currency contracts (Note 6) | | | — | | | | (11,565,713 | ) | | | — | | | | — | |
| Futures contracts (Note 7) | | | — | | | | 7,191,414 | | | | — | | | | — | |
| Net realized gain (loss) | | | (11,960,636 | ) | | | 81,980,498 | | | | (19,510,467 | ) | | | (2,821,553 | ) |
| Net change in unrealized appreciation (depreciation) on: | | | | | | | | | | | | | | | | |
| Investments | | | 18,108,238 | | | | 89,677,905 | | | | 11,668,335 | | | | (19,237,211 | ) |
| Forward foreign currency contracts (Note 6) | | | — | | | | (10,962,063 | ) | | | — | | | | — | |
| Futures contracts (Note 7) | | | — | | | | 1,913,271 | | | | — | | | | — | |
| Foreign currency/receivables | | | 32,640 | | | | (478,430 | ) | | | 20,288 | | | | (3,825 | ) |
| Net change in unrealized appreciation (depreciation) | | | 18,140,878 | | | | 80,150,683 | | | | 11,688,623 | | | | (19,241,036 | ) |
| NET REALIZED AND UNREALIZED GAIN (LOSS) | | | 6,180,242 | | | | 162,131,181 | | | | (7,821,844 | ) | | | (22,062,589 | ) |
| INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | | $ | 5,509,807 | | | $ | 168,191,156 | | | $ | (5,437,077 | ) | | $ | (21,805,167 | ) |
The accompanying notes are an integral part of these financial statements.
Statements of Changes in Net Assets
| | | BROWN ADVISORY | | | BROWN ADVISORY | |
| | | GROWTH EQUITY FUND | | | FLEXIBLE EQUITY FUND | |
| | | Six Months Ended | | | Fiscal | | | Six Months Ended | | | Fiscal | |
| | | December 31, | | | Year Ended | | | December 31, | | | Year Ended | |
| | | 2016 | | | June 30, | | | 2016 | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | (Unaudited) | | | 2016 | |
| OPERATIONS | |
| Net investment income (loss) | | $ | (4,710,470 | ) | | $ | (5,874,397 | ) | | $ | 870,802 | | | $ | 1,712,215 | |
| Net realized gain (loss) | | | 138,888,155 | | | | 124,211,432 | | | | 6,613,146 | | | | (9,574,851 | ) |
| Net change in unrealized appreciation (depreciation) | | | (153,756,289 | ) | | | (111,591,843 | ) | | | 29,857,48 | | | | (2,732,202 | ) |
| Increase (Decrease) in Net Assets from Operations | | | (19,578,604 | ) | | | 6,745,192 | | | | 37,341,43 | | | | (10,594,838 | ) |
| DISTRIBUTIONS TO SHAREHOLDERS FROM | |
| Net investment income – Institutional Shares | | | — | | | | — | | | | (296,958 | ) | | | (118,078 | ) |
| Net investment income – Investor Shares | | | — | | | | — | | | | (1,264,674 | ) | | | (1,585,339 | ) |
| Net investment income – Advisor Shares | | | — | | | | — | | | | (11,536 | ) | | | (24,797 | ) |
| Net realized gain – Institutional Shares | | | (21,177,151 | ) | | | (16,080,264 | ) | | | — | | | | — | |
| Net realized gain – Investor Shares | | | (123,869,945 | ) | | | (130,457,394 | ) | | | — | | | | — | |
| Net realized gain – Advisor Shares | | | (2,370,151 | ) | | | (2,441,644 | ) | | | — | | | | — | |
| Total Distributions to Shareholders | | | (147,417,247 | ) | | | (148,979,302 | ) | | | (1,573,168 | ) | | | (1,728,214 | ) |
| CAPITAL SHARE TRANSACTIONS | |
| Sale of shares – Institutional Shares | | | 43,360,356 | | | | 44,809,830 | | | | 35,920,803 | | | | 23,904,540 | |
| Sale of shares – Investor Shares | | | 95,573,579 | | | | 276,195,465 | | | | 14,832,140 | | | | 124,130,337 | |
| Sale of shares – Advisor Shares | | | 1,568,917 | | | | 3,660,338 | | | | 307,736 | | | | 995,241 | |
| Reinvestment of distributions – Institutional Shares | | | 17,528,304 | | | | 13,324,395 | | | | 116,213 | | | | 7 | |
| Reinvestment of distributions – Investor Shares | | | 116,009,978 | | | | 117,886,614 | | | | 330,268 | | | | 528,062 | |
| Reinvestment of distributions – Advisor Shares | | | 2,309,631 | | | | 2,377,708 | | | | 10,376 | | | | 22,944 | |
| Redemption of shares – Institutional Shares | | | (43,468,442 | ) | | | (49,170,983 | ) | | | (12,379,792 | ) | | | (3,463,636 | ) |
| Redemption of shares – Investor Shares | | | (538,927,870 | ) | | | (495,565,323 | ) | | | (66,345,173 | ) | | | (75,680,003 | ) |
| Redemption of shares – Advisor Shares | | | (7,465,250 | ) | | | (14,878,919 | ) | | | (1,151,943 | ) | | | (4,826,465 | ) |
| Redemption fees – Institutional Shares | | | 6 | | | | — | | | | 386 | | | | — | |
| Redemption fees – Investor Shares | | | 263 | | | | 2,208 | | | | 898 | | | | 64 | |
| Redemption fees – Advisor Shares | | | 651 | | | | 7 | | | | — | | | | 198 | |
| Shares issued in connection with the acquisition of | | | | | | | | | | | | | | | | |
| the Brown Advisory Value Equity Fund (Note 9): | | | | | | | | | | | | | | | | |
| Institutional Shares | | | N/A | | | | N/A | | | | 1,202,936 | | | | N/A | |
| Investor Shares | | | N/A | | | | N/A | | | | 41,538,801 | | | | N/A | |
| Advisor Shares | | | N/A | | | | N/A | | | | 992,710 | | | | N/A | |
| Increase (Decrease) from Capital Share Transactions | | | (313,509,877 | ) | | | (101,358,660 | ) | | | 15,376,359 | | | | 65,611,289 | |
| Increase (Decrease) in Net Assets | | | (480,505,728 | ) | | | (243,592,770 | ) | | | 51,144,628 | | | | 53,288,237 | |
| NET ASSETS | |
| Beginning of period | | | 2,203,416,946 | | | | 2,447,009,716 | | | | 337,636,858 | | | | 284,348,621 | |
| End of period | | $ | 1,722,911,218 | | | $ | 2,203,416,946 | | | $ | 388,781,486 | | | $ | 337,636,858 | |
| Undistributed (Accumulated) net investment income (loss) | | $ | (7,600,429 | ) | | $ | (2,889,959 | ) | | $ | 106,567 | | | $ | 808,933 | |
| SHARE TRANSACTIONS | |
| Sale of shares – Institutional Shares | | | 2,214,626 | | | | 2,313,362 | | | | 2,219,149 | | | | 1,546,649 | |
| Sale of shares – Investor Shares | | | 4,982,180 | | | | 14,288,981 | | | | 911,245 | | | | 8,303,092 | |
| Sale of shares – Advisor Shares | | | 84,386 | | | | 193,783 | | | | 18,624 | | | | 65,238 | |
| Reinvestment of distributions – Institutional Shares | | | 998,195 | | | | 691,458 | | | | 7,005 | | | | — | |
| Reinvestment of distributions – Investor Shares | | | 6,651,948 | | | | 6,143,127 | | | | 19,920 | | | | 33,720 | |
| Reinvestment of distributions – Advisor Shares | | | 138,218 | | | | 128,525 | | | | 625 | | | | 1,464 | |
| Redemption of shares – Institutional Shares | | | (2,290,597 | ) | | | (2,512,389 | ) | | | (799,958 | ) | | | (228,251 | ) |
| Redemption of shares – Investor Shares | | | (28,017,170 | ) | | | (25,683,769 | ) | | | (4,108,640 | ) | | | (4,974,758 | ) |
| Redemption of shares – Advisor Shares | | | (404,328 | ) | | | (782,405 | ) | | | (71,758 | ) | | | (319,551 | ) |
| Shares issued in connection with the acquisition of | | | | | | | | | | | | | | | | |
| the Brown Advisory Value Equity Fund (Note 9): | | | | | | | | | | | | | | | | |
| Institutional Shares | | | N/A | | | | N/A | | | | 72,612 | | | | N/A | |
| Investor Shares | | | N/A | | | | N/A | | | | 2,509,981 | | | | N/A | |
| Advisor Shares | | | N/A | | | | N/A | | | | 59,882 | | | | N/A | |
| Increase (Decrease) in shares outstanding | | | (15,642,542 | ) | | | (5,219,327 | ) | | | 838,687 | | | | 4,427,603 | |
The accompanying notes are an integral part of these financial statements.
Statements of Changes in Net Assets
| | | BROWN ADVISORY | | | BROWN ADVISORY | |
| | | EQUITY INCOME FUND | | | SUSTAINABLE GROWTH FUND | |
| | | Six Months Ended | | | Fiscal | | | Six Months Ended | | | Fiscal | |
| | | December 31, | | | Year Ended | | | December 31, | | | Year Ended | |
| | | 2016 | | | June 30, | | | 2016 | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | (Unaudited) | | | 2016 | |
| OPERATIONS | |
| Net investment income (loss) | | $ | 1,122,487 | | | $ | 3,368,205 | | | $ | (695,433 | ) | | $ | (1,102,504 | ) |
| Net realized gain (loss) | | | 4,993,113 | | | | 1,228,571 | | | | 8,977,598 | | | | 3,885,315 | |
| Net change in unrealized appreciation (depreciation) | | | (1,896,339 | ) | | | (6,886,953 | ) | | | 4,472,360 | | | | 15,334,723 | |
| Increase (Decrease) in Net Assets from Operations | | | 4,219,261 | | | | (2,290,177 | ) | | | 12,754,525 | | | | 18,117,534 | |
| DISTRIBUTIONS TO SHAREHOLDERS FROM | |
| Net investment income: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (96,012 | ) | | | (365,732 | ) | | | — | | | | — | |
| Investor Shares | | | (931,046 | ) | | | (2,950,606 | ) | | | — | | | | — | |
| Advisor Shares | | | (23,042 | ) | | | (53,866 | ) | | | — | | | | — | |
| Net realized gain: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (408,109 | ) | | | (188,209 | ) | | | (1,045,872 | ) | | | (3,716,752 | ) |
| Investor Shares | | | (3,601,920 | ) | | | (1,567,845 | ) | | | (198,697 | ) | | | (732,739 | ) |
| Advisor Shares | | | (110,477 | ) | | | (29,616 | ) | | | (1,263,054 | ) | | | (9,527,402 | ) |
| Total Distributions to Shareholders | | | (5,170,606 | ) | | | (5,155,874 | ) | | | (2,507,623 | ) | | | (13,976,893 | ) |
| CAPITAL SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 11,392,987 | | | | 1,263,000 | | | | 35,685,948 | | | | 65,254,532 | |
| Investor Shares | | | 3,409,566 | | | | 10,269,026 | | | | 11,946,809 | | | | 20,556,459 | |
| Advisor Shares | | | 1,640 | | | | 77,650 | | | | 18,547,608 | | | | 103,143,267 | |
| Reinvestment of distributions: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 393,844 | | | | 436,376 | | | | 743,538 | | | | 2,354,247 | |
| Investor Shares | | | 2,092,100 | | | | 1,429,730 | | | | 175,109 | | | | 538,649 | |
| Advisor Shares | | | 125,971 | | | | 72,240 | | | | 1,188,453 | | | | 8,931,717 | |
| Redemption of shares | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (14,384,408 | ) | | | (5,375,406 | ) | | | (10,234,412 | ) | | | (16,564,900 | ) |
| Investor Shares | | | (19,317,305 | ) | | | (75,816,836 | ) | | | (9,992,404 | ) | | | (7,069,856 | ) |
| Advisor Shares | | | (15,422 | ) | | | (257,266 | ) | | | (53,057,071 | ) | | | (48,279,652 | ) |
| Redemption fees | | | | | | | | | | | | | | | | |
| Institutional Shares | | | — | | | | — | | | | 63 | | | | 1 | |
| Investor Shares | | | — | | | | — | | | | 338 | | | | 341 | |
| Advisor Shares | | | 1 | | | | — | | | | 195 | | | | 885 | |
| Increase (Decrease) from Capital Share Transactions | | | (16,301,026 | ) | | | (67,901,486 | ) | | | (4,995,826 | ) | | | 128,865,690 | |
| Increase (Decrease) in Net Assets | | | (17,252,371 | ) | | | (75,347,537 | ) | | | 5,251,076 | | | | 133,006,331 | |
| NET ASSETS | |
| Beginning of period | | | 128,935,823 | | | | 204,283,360 | | | | 349,410,965 | | | | 216,404,634 | |
| End of period | | $ | 111,683,452 | | | $ | 128,935,823 | | | $ | 354,662,041 | | | $ | 349,410,965 | |
| Undistributed (Accumulated) net investment income (loss) | | $ | 110,987 | | | $ | 38,600 | | | $ | (1,273,376 | ) | | $ | (577,943 | ) |
| SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 883,936 | | | | 102,693 | | | | 2,121,215 | | | | 4,184,096 | |
| Investor Shares | | | 261,685 | | | | 828,449 | | | | 717,963 | | | | 1,304,030 | |
| Advisor Shares | | | 124 | | | | 6,691 | | | | 1,135,956 | | | | 6,520,698 | |
| Reinvestment of distributions: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 30,458 | | | | 35,362 | | | | 44,075 | | | | 150,527 | |
| Investor Shares | | | 161,889 | | | | 116,203 | | | | 10,461 | | | | 34,640 | |
| Advisor Shares | | | 9,764 | | | | 5,856 | | | | 71,766 | | | | 579,605 | |
| Redemption of shares: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (1,116,516 | ) | | | (442,768 | ) | | | (613,052 | ) | | | (1,054,388 | ) |
| Investor Shares | | | (1,493,521 | ) | | | (6,165,587 | ) | | | (595,600 | ) | | | (445,762 | ) |
| Advisor Shares | | | (1,193 | ) | | | (20,572 | ) | | | (3,236,381 | ) | | | (3,184,241 | ) |
| Increase (Decrease) in shares outstanding | | | (1,263,374 | ) | | | (5,533,673 | ) | | | (343,597 | ) | | | 8,089,205 | |
The accompanying notes are an integral part of these financial statements.
Statements of Changes in Net Assets
| | | BROWN ADVISORY | | | BROWN ADVISORY SMALL-CAP | |
| | | SMALL-CAP GROWTH FUND | | | FUNDAMENTAL VALUE FUND | |
| | | Six Months Ended | | | Fiscal | | | Six Months Ended | | | Fiscal | |
| | | December 31, | | | Year Ended | | | December 31, | | | Year Ended | |
| | | 2016 | | | June 30, | | | 2016 | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | (Unaudited) | | | 2016 | |
| OPERATIONS | |
| Net investment income (loss) | | $ | (1,168,128 | ) | | $ | (1,621,898 | ) | | $ | 2,851,052 | | | $ | 3,844,002 | |
| Net realized gain (loss) | | | 9,565,801 | | | | 24,884,563 | | | | (5,393,653 | ) | | | 5,583,924 | |
| Net change in unrealized appreciation (depreciation) | | | 11,456,384 | | | | (17,671,772 | ) | | | 169,545,890 | | | | (13,233,109 | ) |
| Increase (Decrease) in Net Assets from Operations | | | 19,854,057 | | | | 5,590,893 | | | | 167,003,289 | | | | (3,805,183 | ) |
| DISTRIBUTIONS TO SHAREHOLDERS FROM | |
| Net investment income: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | — | | | | — | | | | (988,540 | ) | | | (484,047 | ) |
| Investor Shares | | | — | | | | — | | | | (1,873,774 | ) | | | (2,277,048 | ) |
| Advisor Shares | | | — | | | | — | | | | — | | | | (35,541 | ) |
| Net realized gain: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (3,125,896 | ) | | | (1,946,062 | ) | | | (334,931 | ) | | | (2,038,801 | ) |
| Investor Shares | | | (9,911,936 | ) | | | (37,656,440 | ) | | | (1,026,309 | ) | | | (14,082,090 | ) |
| Advisor Shares | | | (1,153,765 | ) | | | (819,956 | ) | | | (71,853 | ) | | | (1,069,503 | ) |
| Total Distributions to Shareholders | | | (14,191,597 | ) | | | (40,422,458 | ) | | | (4,295,407 | ) | | | (19,987,030 | ) |
| CAPITAL SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 84,406,784 | | | | 5,588,177 | | | | 123,008,154 | | | | 89,252,983 | |
| Investor Shares | | | 37,389,582 | | | | 44,867,427 | | | | 76,997,251 | | | | 221,245,590 | |
| Advisor Shares | | | 29,094,413 | | | | 6,143,111 | | | | 2,879,990 | | | | 11,524,532 | |
| Reinvestment of distributions: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 2,803,928 | | | | 1,258,905 | | | | 1,028,123 | | | | 1,826,895 | |
| Investor Shares | | | 6,192,098 | | | | 22,013,906 | | | | 1,463,959 | | | | 9,736,248 | |
| Advisor Shares | | | 804,864 | | | | 565,945 | | | | 70,862 | | | | 1,084,680 | |
| Redemption of shares | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (7,117,661 | ) | | | (1,279,143 | ) | | | (13,788,587 | ) | | | (13,343,881 | ) |
| Investor Shares | | | (28,228,360 | ) | | | (27,986,757 | ) | | | (121,904,765 | ) | | | (180,251,556 | ) |
| Advisor Shares | | | (3,948,311 | ) | | | (2,823,963 | ) | | | (5,302,357 | ) | | | (16,232,721 | ) |
| Redemption fees | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 239 | | | | — | | | | 20 | | | | 1,477 | |
| Investor Shares | | | — | | | | 292 | | | | 52 | | | | 1,354 | |
| Advisor Shares | | | 393 | | | | 292 | | | | 1 | | | | 1,252 | |
| Increase (Decrease) from Capital Share Transactions | | | 121,397,969 | | | | 48,348,192 | | | | 64,452,703 | | | | 124,846,853 | |
| Increase (Decrease) in Net Assets | | | 127,060,429 | | | | 13,516,627 | | | | 227,160,585 | | | | 101,054,640 | |
| NET ASSETS | |
| Beginning of period | | | 295,131,083 | | | | 281,614,456 | | | | 983,635,008 | | | | 882,580,368 | |
| End of period | | $ | 422,191,512 | | | $ | 295,131,083 | | | $ | 1,210,795,593 | | | $ | 983,635,008 | |
| Undistributed (Accumulated) net investment income (loss) | | $ | (1,610,957 | ) | | $ | (442,829 | ) | | $ | 1,033,188 | | | $ | 1,044,450 | |
| SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 2,534,552 | | | | 188,309 | | | | 5,066,687 | | | | 4,171,224 | |
| Investor Shares | | | 2,249,183 | | | | 2,937,441 | | | | 3,192,293 | | | | 10,130,767 | |
| Advisor Shares | | | 1,827,942 | | | | 431,751 | | | | 120,028 | | | | 533,241 | |
| Reinvestment of distributions: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 85,695 | | | | 41,977 | | | | 38,734 | | | | 83,739 | |
| Investor Shares | | | 377,337 | | | | 1,461,747 | | | | 55,176 | | | | 447,800 | |
| Advisor Shares | | | 51,200 | | | | 39,112 | | | | 2,683 | | | | 50,227 | |
| Redemption of shares: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (213,620 | ) | | | (41,639 | ) | | | (570,745 | ) | | | (606,792 | ) |
| Investor Shares | | | (1,706,960 | ) | | | (1,792,684 | ) | | | (5,096,356 | ) | | | (8,207,223 | ) |
| Advisor Shares | | | (248,860 | ) | | | (190,374 | ) | | | (217,195 | ) | | | (740,720 | ) |
| Increase (Decrease) in shares outstanding | | | 4,956,469 | | | | 3,075,640 | | | | 2,591,305 | | | | 5,862,263 | |
The accompanying notes are an integral part of these financial statements.
Statements of Changes in Net Assets
| | | BROWN ADVISORY | | | BROWN ADVISORY | |
| | | GLOBAL LEADERS FUND | | | INTERMEDIATE INCOME FUND | |
| | | Six Months Ended | | | Fiscal | | | Six Months Ended | | | Fiscal | |
| | | December 31, | | | Year Ended | | | December 31, | | | Year Ended | |
| | | 2016 | | | June 30, | | | 2016 | | | June 30, | |
| | | (Unaudited) | | | | 2016* | | | (Unaudited) | | | | 2016 | |
| OPERATIONS | |
| Net investment income (loss) | | $ | 8,233 | | | $ | 82,066 | | | $ | 1,287,942 | | | $ | 2,896,397 | |
| Net realized gain (loss) | | | (631,424 | ) | | | (1,102,079 | ) | | | 975,653 | | | | (699,518 | ) |
| Net change in unrealized appreciation (depreciation) | | | 842,579 | | | | 699,600 | | | | (4,223,832 | ) | | | 3,708,589 | |
| Increase (Decrease) in Net Assets from Operations | | | 219,388 | | | | (320,413 | ) | | | (1,960,237 | ) | | | 5,905,468 | |
| DISTRIBUTIONS TO SHAREHOLDERS FROM | |
| Net investment income: | | | | | | | | | | | | | | | | |
| Investor Shares | | | (53,915 | ) | | | — | | | | (1,322,119 | ) | | | (2,820,398 | ) |
| Advisor Shares | | | — | | | | — | | | | (74,830 | ) | | | (160,893 | ) |
| Net realized gain: | | | | | | | | | | | | | | | | |
| Investor Shares | | | — | | | | — | | | | — | | | | (773,069 | ) |
| Advisor Shares | | | — | | | | — | | | | — | | | | (49,905 | ) |
| Total Distributions to Shareholders | | | (53,915 | ) | | | — | | | | (1,396,949 | ) | | | (3,804,265 | ) |
| CAPITAL SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | | | | | | | | | |
| Investor Shares | | | 4,637,789 | | | | 17,814,152 | | | | 11,788,873 | | | | 29,525,581 | |
| Advisor Shares | | | — | | | | — | | | | 200 | | | | 44,413 | |
| Reinvestment of distributions: | | | | | | | | | | | | | | | | |
| Investor Shares | | | 27,050 | | | | — | | | | 334,940 | | | | 1,248,100 | |
| Advisor Shares | | | — | | | | — | | | | 45,889 | | | | 130,783 | |
| Redemption of shares | | | | | | | | | | | | | | | | |
| Investor Shares | | | (1,702,512 | ) | | | (1,161,378 | ) | | | (12,514,504 | ) | | | (34,857,866 | ) |
| Advisor Shares | | | — | | | | — | | | | (398,012 | ) | | | (933,155 | ) |
| Redemption fees | | | | | | | | | | | | | | | | |
| Investor Shares | | | — | | | | — | | | | — | | | | 3 | |
| Advisor Shares | | | — | | | | — | | | | — | | | | — | |
| Shares issued in connection with the acquisition of | | | | | | | | | | | | | | | | |
| the Brown Advisory Opportunity Fund: | | | | | | | | | | | | | | | | |
| Investor Shares | | | N/A | | | | 10,035,030 | | | | N/A | | | | N/A | |
| Increase (Decrease) from Capital Share Transactions | | | 2,962,327 | | | | 26,687,804 | | | | (742,614 | ) | | | (4,842,141 | ) |
| Increase (Decrease) in Net Assets | | | 3,127,800 | | | | 26,367,391 | | | | (4,099,800 | ) | | | (2,740,938 | ) |
| NET ASSETS | | | | | | | | | | | | | | | | |
| Beginning of period | | | 26,367,391 | | | | — | | | | 146,872,422 | | | | 149,613,360 | |
| End of period | | $ | 29,495,191 | | | $ | 26,367,391 | | | $ | 142,772,622 | | | $ | 146,872,422 | |
| Undistributed (Accumulated) net investment income (loss) | | $ | 8,230 | | | $ | 53,912 | | | $ | (282,892 | ) | | $ | (173,885 | ) |
| SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | | | | | | | | | |
| Investor Shares | | | 467,049 | | | | 1,856,363 | | | | 1,100,142 | | | | 2,775,238 | |
| Advisor Shares | | | — | | | | — | | | | 19 | | | | 4,256 | |
| Reinvestment of distributions: | | | | | | | | | | | | | | | | |
| Investor Shares | | | 2,772 | | | | — | | | | 31,315 | | | | 117,748 | |
| Advisor Shares | | | — | | | | — | | | | 4,379 | | | | 12,566 | |
| Redemption of shares: | | | | | | | | | | | | | | | | |
| Investor Shares | | | (171,660 | ) | | | (119,736 | ) | | | (1,173,742 | ) | | | (3,273,682 | ) |
| Advisor Shares | | | — | | | | — | | | | (38,279 | ) | | | (89,510 | ) |
| Shares issued in connection with the acquisition of | | | | | | | | | | | | | | | | |
| the Brown Advisory Opportunity Fund: | | | | | | | | | | | | | | | | |
| Investor Shares | | | N/A | | | | 994,393 | | | | N/A | | | | N/A | |
| Increase (Decrease) in shares outstanding | | | 298,161 | | | | 2,731,020 | | | | (76,166 | ) | | | (455,384 | ) |
| * | Commenced operations on July 1, 2015. The information presented is for the period from July 1, 2015 (end of day) to June 30, 2016. |
The accompanying notes are an integral part of these financial statements.
Statements of Changes in Net Assets
| | | BROWN ADVISORY | | | BROWN ADVISORY | |
| | | TOTAL RETURN FUND | | | STRATEGIC BOND FUND | |
| | | Six Months Ended | | | Fiscal | | | Six Months Ended | | | Fiscal | |
| | | December 31, | | | Year Ended | | | December 31, | | | Year Ended | |
| | | 2016 | | | June 30, | | | 2016 | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | (Unaudited) | | | 2016 | |
| OPERATIONS | |
| Net investment income (loss) | | $ | 1,062,414 | | | $ | 2,053,474 | | | $ | 540,871 | | | $ | 1,521,593 | |
| Net realized gain (loss) | | | (778,932 | ) | | | 516,458 | | | | (7,314 | ) | | | (1,923,589 | ) |
| Net change in unrealized appreciation (depreciation) | | | (2,000,091 | ) | | | 2,495,983 | | | | 229,996 | | | | 683,014 | |
| Increase (Decrease) in Net Assets from Operations | | | (1,716,609 | ) | | | 5,065,915 | | | | 763,553 | | | | 281,018 | |
| DISTRIBUTIONS TO SHAREHOLDERS FROM | |
| Net investment income: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (1,053,045 | ) | | | (2,128,088 | ) | | | — | | | | — | |
| Investor Shares | | | (43,977 | ) | | | (94,064 | ) | | | (543,668 | ) | | | (2,420,788 | ) |
| Advisor Shares | | | — | | | | — | | | | (9,351 | ) | | | (55,995 | ) |
| Net realized gain: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (98,534 | ) | | | — | | | | — | | | | — | |
| Investor Shares | | | (3,277 | ) | | | — | | | | — | | | | — | |
| Advisor Shares | | | — | | | | — | | | | — | | | | — | |
| Total Distributions to Shareholders | | | (1,198,833 | ) | | | (2,222,152 | ) | | | (553,019 | ) | | | (2,476,783 | ) |
| CAPITAL SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 16,370,473 | | | | 20,855,744 | | | | — | | | | — | |
| Investor Shares | | | 2,375,510 | | | | 1,343,005 | | | | 25,580,659 | | | | 3,826,957 | |
| Advisor Shares | | | — | | | | — | | | | 5,313 | | | | — | |
| Reinvestment of distributions: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 277,138 | | | | 135,297 | | | | — | | | | — | |
| Investor Shares | | | 35,979 | | | | 79,685 | | | | 85,250 | | | | 317,063 | |
| Advisor Shares | | | — | | | | — | | | | 8,321 | | | | 42,801 | |
| Redemption of shares | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (6,969,623 | ) | | | (13,649,303 | ) | | | — | | | | — | |
| Investor Shares | | | (1,271,408 | ) | | | (8,612,071 | ) | | | (5,226,507 | ) | | | (22,475,247 | ) |
| Advisor Shares | | | — | | | | — | | | | (185,492 | ) | | | (811,615 | ) |
| Redemption fees | | | | | | | | | | | | | | | | |
| Institutional Shares | | | — | | | | — | | | | — | | | | — | |
| Investor Shares | | | — | | | | — | | | | — | | | | — | |
| Advisor Shares | | | — | | | | — | | | | — | | | | — | |
| Increase (Decrease) from Capital Share Transactions | | | 10,818,069 | | | | 152,357 | | | | 20,267,544 | | | | (19,100,041 | ) |
| Increase (Decrease) in Net Assets | | | 7,902,627 | | | | 2,996,120 | | | | 20,478,078 | | | | (21,295,806 | ) |
| NET ASSETS | |
| Beginning of period | | | 85,811,660 | | | | 82,815,540 | | | | 40,076,028 | | | | 61,371,834 | |
| End of period | | $ | 93,714,287 | | | $ | 85,811,660 | | | $ | 60,554,106 | | | $ | 40,076,028 | |
| Undistributed (Accumulated) net investment income (loss) | | $ | (35,231 | ) | | $ | (623 | ) | | $ | (86,107 | ) | | $ | (73,959 | ) |
| SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 1,625,630 | | | | 2,109,393 | | | | — | | | | — | |
| Investor Shares | | | 231,972 | | | | 135,649 | | | | 2,681,072 | | | | 403,394 | |
| Advisor Shares | | | — | | | | — | | | | 554 | | | | — | |
| Reinvestment of distributions: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 27,785 | | | | 13,657 | | | | — | | | | — | |
| Investor Shares | | | 3,568 | | | | 8,049 | | | | 8,931 | | | | 33,319 | |
| Advisor Shares | | | — | | | | — | | | | 871 | | | | 4,491 | |
| Redemption of shares: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (689,054 | ) | | | (1,380,268 | ) | | | — | | | | — | |
| Investor Shares | | | (128,687 | ) | | | (874,785 | ) | | | (547,617 | ) | | | (2,367,203 | ) |
| Advisor Shares | | | — | | | | — | | | | (19,489 | ) | | | (85,611 | ) |
| Increase (Decrease) in shares outstanding | | | 1,071,214 | | | | 11,695 | | | | 2,124,322 | | | | (2,011,610 | ) |
The accompanying notes are an integral part of these financial statements.
Statements of Changes in Net Assets
| | | BROWN ADVISORY | | | BROWN ADVISORY | |
| | | MARYLAND BOND FUND | | | TAX EXEMPT BOND FUND | |
| | | Six Months Ended | | | Fiscal | | | Six Months Ended | | | Fiscal | |
| | | December 31, | | | Year Ended | | | December 31, | | | Year Ended | |
| | | 2016 | | | June 30, | | | 2016 | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | (Unaudited) | | | 2016 | |
| OPERATIONS | |
| Net investment income (loss) | | $ | 1,986,047 | | | $ | 4,035,203 | | | $ | 3,281,084 | | | $ | 5,642,298 | |
| Net realized gain (loss) | | | (304,854 | ) | | | 1,347,240 | | | | (842,033 | ) | | | 331,921 | |
| Net change in unrealized appreciation (depreciation) | | | (7,577,256 | ) | | | 4,359,306 | | | | (9,931,844 | ) | | | 7,199,311 | |
| Increase (Decrease) in Net Assets from Operations | | | (5,896,063 | ) | | | 9,741,749 | | | | (7,492,793 | ) | | | 13,173,530 | |
| DISTRIBUTIONS TO SHAREHOLDERS FROM | |
| Net investment income: | | | | | | | | | | | | | | | | |
| Investor Shares | | | (1,985,702 | ) | | | (4,035,074 | ) | | | (3,280,958 | ) | | | (5,642,129 | ) |
| Net realized gain: | | | | | | | | | | | | | | | | |
| Investor Shares | | | (627,717 | ) | | | (906,772 | ) | | | — | | | | — | |
| Total Distributions to Shareholders | | | (2,613,419 | ) | | | (4,941,846 | ) | | | (3,280,958 | ) | | | (5,642,129 | ) |
| CAPITAL SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | | | | | | | | | |
| Investor Shares | | | 36,290,334 | | | | 27,494,531 | | | | 82,890,953 | | | | 59,630,595 | |
| Reinvestment of distributions: | | | | | | | | | | | | | | | | |
| Investor Shares | | | 693,972 | | | | 1,233,816 | | | | 585,168 | | | | 1,187,875 | |
| Redemption of shares | | | | | | | | | | | | | | | | |
| Investor Shares | | | (75,850,114 | ) | | | (49,292,605 | ) | | | (64,330,327 | ) | | | (58,829,020 | ) |
| Redemption fees | | | | | | | | | | | | | | | | |
| Investor Shares | | | — | | | | — | | | | — | | | | — | |
| Increase (Decrease) from Capital Share Transactions | | | (38,865,808 | ) | | | (20,564,258 | ) | | | 19,145,794 | | | | 1,989,450 | |
| Increase (Decrease) in Net Assets | | | (47,375,290 | ) | | | (15,764,355 | ) | | | 8,372,043 | | | | 9,520,851 | |
| NET ASSETS | |
| Beginning of period | | | 183,704,776 | | | | 199,469,131 | | | | 233,675,326 | | | | 224,154,475 | |
| End of period | | $ | 136,329,486 | | | $ | 183,704,776 | | | $ | 242,047,369 | | | $ | 233,675,326 | |
| Undistributed (Accumulated) net investment income (loss) | | $ | 502 | | | $ | 157 | | | $ | 172 | | | $ | 46 | |
| SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | | | | | | | | | |
| Investor Shares | | | 3,425,053 | | | | 2,553,474 | | | | 8,309,593 | | | | 5,916,196 | |
| Reinvestment of distributions: | | | | | | | | | | | | | | | | |
| Investor Shares | | | 65,582 | | | | 114,852 | | | | 58,094 | | | | 117,959 | |
| Redemption of shares: | | | | | | | | | | | | | | | | |
| Investor Shares | | | (7,240,409 | ) | | | (4,580,145 | ) | | | (6,485,659 | ) | | | (5,841,862 | ) |
| Increase (Decrease) in shares outstanding | | | (3,749,774 | ) | | | (1,911,819 | ) | | | 1,882,028 | | | | 192,293 | |
The accompanying notes are an integral part of these financial statements.
Statements of Changes in Net Assets
| | | | | | | | | BROWN ADVISORY — | |
| | | BROWN ADVISORY | | | WMC STRATEGIC | |
| | | MORTGAGE SECURITIES FUND | | | EUROPEAN EQUITY FUND | |
| | | Six Months Ended | | | Fiscal | | | Six Months Ended | | | Fiscal | |
| | | December 31, | | | Year Ended | | | December 31, | | | Year Ended | |
| | | 2016 | | | June 30, | | | 2016 | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | (Unaudited) | | | 2016 | |
| OPERATIONS | |
| Net investment income (loss) | | $ | 3,102,902 | | | $ | 6,730,528 | | | $ | (670,435 | ) | | $ | 12,716,179 | |
| Net realized gain (loss) | | | (3,251,499 | ) | | | 2,435,203 | | | | (11,960,636 | ) | | | (38,401,054 | ) |
| Net change in unrealized appreciation (depreciation) | | | (7,676,678 | ) | | | 4,611,749 | | | | 18,140,878 | | | | (16,316,729 | ) |
| Increase (Decrease) in Net Assets from Operations | | | (7,825,275 | ) | | | 13,777,480 | | | | 5,509,807 | | | | (42,001,604 | ) |
| DISTRIBUTIONS TO SHAREHOLDERS FROM | |
| Net investment income: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (4,226,260 | ) | | | (7,634,638 | ) | | | (12,504,483 | ) | | | (2,992,321 | ) |
| Investor Shares | | | (9,723 | ) | | | (272,364 | ) | | | (101,420 | ) | | | — | |
| Advisor Shares | | | — | | | | — | | | | (6,394 | ) | | | — | |
| Net realized gain: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (2,569,582 | ) | | | (1,251,294 | ) | | | — | | | | — | |
| Investor Shares | | | (5,800 | ) | | | (6,444 | ) | | | — | | | | — | |
| Advisor Shares | | | — | | | | — | | | | — | | | | — | |
| Total Distributions to Shareholders | | | (6,811,365 | ) | | | (9,164,740 | ) | | | (12,612,297 | ) | | | (2,992,321 | ) |
| CAPITAL SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 57,996,649 | | | | 190,657,531 | | | | 61,943,733 | | | | 1,071,009,646 | |
| Investor Shares | | | 434,083 | | | | 4,298,461 | | | | 1,694,086 | | | | 16,339,283 | |
| Advisor Shares | | | — | | | | — | | | | 90,465 | | | | 407,912 | |
| Reinvestment of distributions: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 2,666,292 | | | | 1,978,340 | | | | 10,024,081 | | | | 2,334,075 | |
| Investor Shares | | | 13,687 | | | | 164,060 | | | | 97,787 | | | | — | |
| Advisor Shares | | | — | | | | — | | | | 6,394 | | | | — | |
| Redemption of shares | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (58,340,935 | ) | | | (25,603,200 | ) | | | (160,505,161 | ) | | | (209,118,819 | ) |
| Investor Shares | | | (1,373,981 | ) | | | (31,354,854 | ) | | | (6,107,279 | ) | | | (28,730,256 | ) |
| Advisor Shares | | | — | | | | — | | | | (217,775 | ) | | | (699,362 | ) |
| Redemption fees | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 47 | | | | — | | | | 820 | | | | 1 | |
| Investor Shares | | | — | | | | — | | | | — | | | | — | |
| Advisor Shares | | | — | | | | — | | | | — | | | | — | |
| Increase (Decrease) from Capital Share Transactions | | | 1,395,842 | | | | 140,140,338 | | | | (92,972,849 | ) | | | 851,542,480 | |
| Increase (Decrease) in Net Assets | | | (13,240,798 | ) | | | 144,753,078 | | | | (100,075,339 | ) | | | 806,548,555 | |
| NET ASSETS | |
| Beginning of period | | | 379,701,544 | | | | 234,948,466 | | | | 1,073,646,282 | | | | 267,097,727 | |
| End of period | | $ | 366,460,746 | | | $ | 379,701,544 | | | $ | 973,570,943 | | | $ | 1,073,646,282 | |
| Undistributed (Accumulated) net investment income (loss) | | $ | (1,135,929 | ) | | $ | (2,848 | ) | | $ | (671,156 | ) | | $ | 12,611,576 | |
| SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 5,709,201 | | | | 18,863,416 | | | | 6,172,230 | | | | 104,321,742 | |
| Investor Shares | | | 42,808 | | | | 423,537 | | | | 165,417 | | | | 1,657,066 | |
| Advisor Shares | | | — | | | | — | | | | 9,158 | | | | 40,534 | |
| Reinvestment of distributions: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 271,249 | | | | 196,274 | | | | 1,032,346 | | | | 225,951 | |
| Investor Shares | | | 1,377 | | | | 16,201 | | | | 10,071 | | | | — | |
| Advisor Shares | | | — | | | | — | | | | 661 | | | | — | |
| Redemption of shares: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (5,805,879 | ) | | | (2,524,958 | ) | | | (16,022,503 | ) | | | (21,019,706 | ) |
| Investor Shares | | | (134,356 | ) | | | (3,110,533 | ) | | | (611,119 | ) | | | (2,876,056 | ) |
| Advisor Shares | | | — | | | | — | | | | (22,225 | ) | | | (70,670 | ) |
| Increase (Decrease) in shares outstanding | | | 84,400 | | | | 13,863,937 | | | | (9,265,964 | ) | | | 82,278,861 | |
The accompanying notes are an integral part of these financial statements.
Statements of Changes in Net Assets
| | | BROWN ADVISORY — | | | BROWN ADVISORY — | |
| | | WMC JAPAN ALPHA | | | SOMERSET EMERGING | |
| | | OPPORTUNITIES FUND | | | MARKETS FUND | |
| | | Six Months Ended | | | Fiscal | | | Six Months Ended | | | Fiscal | |
| | | December 31, | | | Year Ended | | | December 31, | | | Year Ended | |
| | | 2016 | | | June 30, | | | 2016 | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | (Unaudited) | | | 2016 | |
| OPERATIONS | |
| Net investment income (loss) | | $ | 6,059,975 | | | $ | 11,295,045 | | | $ | 2,384,767 | | | $ | 6,259,315 | |
| Net realized gain (loss) | | | 81,980,498 | | | | (510,551,726 | ) | | | (19,510,467 | ) | | | (22,999,699 | ) |
| Net change in unrealized appreciation (depreciation) | | | 80,150,683 | | | | (72,848,302 | ) | | | 11,688,623 | | | | (17,139,970 | ) |
| Increase (Decrease) in Net Assets from Operations | | | 168,191,156 | | | | (572,104,983 | ) | | | (5,437,077 | ) | | | (33,880,354 | ) |
| DISTRIBUTIONS TO SHAREHOLDERS FROM | |
| Net investment income: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | — | | | | (188,806,891 | ) | | | (4,318,102 | ) | | | (2,214,836 | ) |
| Investor Shares | | | — | | | | (2,854,668 | ) | | | (2,188,677 | ) | | | (1,712,443 | ) |
| Advisor Shares | | | — | | | | (139,380 | ) | | | (1,624 | ) | | | (742 | ) |
| Net realized gain: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | — | | | | (39,006,684 | ) | | | — | | | | — | |
| Investor Shares | | | — | | | | (593,987 | ) | | | — | | | | — | |
| Advisor Shares | | | — | | | | (29,833 | ) | | | — | | | | — | |
| Total Distributions to Shareholders | | | — | | | | (231,431,443 | ) | | | (6,508,403 | ) | | | (3,928,021 | ) |
| CAPITAL SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 771,493,710 | | | | 1,472,565,101 | | | | 45,983,454 | | | | 224,157,581 | |
| Investor Shares | | | 439,423 | | | | 18,627,215 | | | | 16,317,950 | | | | 186,372,395 | |
| Advisor Shares | | | 42,565 | | | | 1,410,394 | | | | 10,000 | | | | 224,436 | |
| Reinvestment of distributions: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | — | | | | 13,872,815 | | | | 1,750,302 | | | | 455,104 | |
| Investor Shares | | | — | | | | 3,431,115 | | | | 2,152,636 | | | | 1,685,181 | |
| Advisor Shares | | | — | | | | 165,236 | | | | 1,624 | | | | 726 | |
| Redemption of shares | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (1,387,624,042 | ) | | | (448,721,260 | ) | | | (28,040,146 | ) | | | (153,243,842 | ) |
| Investor Shares | | | (734,212 | ) | | | (34,159,583 | ) | | | (19,871,188 | ) | | | (129,370,609 | ) |
| Advisor Shares | | | (200,414 | ) | | | (2,045,925 | ) | | | (81,571 | ) | | | (749,289 | ) |
| Redemption fees | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 10,627 | | | | 1,200 | | | | 72 | | | | — | |
| Investor Shares | | | — | | | | 970 | | | | — | | | | 325 | |
| Advisor Shares | | | — | | | | 2 | | | | — | | | | — | |
| Increase (Decrease) from Capital Share Transactions | | | (616,572,343 | ) | | | 1,025,147,280 | | | | 18,223,133 | | | | 129,532,008 | |
| Increase (Decrease) in Net Assets | | | (448,381,187 | ) | | | 221,610,854 | | | | 6,277,653 | | | | 91,723,633 | |
| NET ASSETS | |
| Beginning of period | | | 1,831,121,897 | | | | 1,609,511,043 | | | | 517,115,443 | | | | 425,391,810 | |
| End of period | | $ | 1,382,740,710 | | | $ | 1,831,121,897 | | | $ | 523,393,096 | | | $ | 517,115,443 | |
| Undistributed (Accumulated) net investment income (loss) | | $ | (351,892,188 | ) | | $ | (357,952,163 | ) | | $ | 218,968 | | | $ | 4,342,604 | |
| SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | 79,711,265 | | | | 126,755,340 | | | | 5,177,630 | | | | 27,019,470 | |
| Investor Shares | | | 47,431 | | | | 1,596,337 | | | | 1,853,148 | | | | 21,728,904 | |
| Advisor Shares | | | 4,661 | | | | 119,056 | | | | 1,159 | | | | 26,550 | |
| Reinvestment of distributions: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | — | | | | 1,236,172 | | | | 207,136 | | | | 54,569 | |
| Investor Shares | | | — | | | | 307,350 | | | | 255,052 | | | | 202,302 | |
| Advisor Shares | | | — | | | | 14,836 | | | | 191 | | | | 87 | |
| Redemption of shares: | | | | | | | | | | | | | | | | |
| Institutional Shares | | | (144,212,643 | ) | | | (44,100,589 | ) | | | (3,182,090 | ) | | | (17,973,135 | ) |
| Investor Shares | | | (80,454 | ) | | | (3,721,563 | ) | | | (2,225,293 | ) | | | (15,355,320 | ) |
| Advisor Shares | | | (21,721 | ) | | | (186,243 | ) | | | (9,334 | ) | | | (91,522 | ) |
| Increase (Decrease) in shares outstanding | | | (64,551,461 | ) | | | 82,020,696 | | | | 2,077,599 | | | | 15,611,905 | |
The accompanying notes are an integral part of these financial statements.
Statements of Changes in Net Assets
| | | BROWN ADVISORY | |
| | | EMERGING MARKETS | |
| | | SMALL-CAP FUND | |
| | | Six Months Ended | | | Fiscal | |
| | | December 31, | | | Year Ended | |
| | | 2016 | | | June 30, | |
| | | (Unaudited) | | | 2016 | |
| OPERATIONS | |
| Net investment income (loss) | | $ | 257,422 | | | $ | (85,965 | ) |
| Net realized gain (loss) | | | (2,821,553 | ) | | | (38,258,677 | ) |
| Net change in unrealized appreciation (depreciation) | | | (19,241,036 | ) | | | (1,666,992 | ) |
| Increase (Decrease) in Net Assets from Operations | | | (21,805,167 | ) | | | (40,011,634 | ) |
| DISTRIBUTIONS TO SHAREHOLDERS FROM | |
| Net realized gain: | | | | | | | | |
| Institutional Shares | | | — | | | | (8,236,160 | ) |
| Investor Shares | | | — | | | | (267,081 | ) |
| Total Distributions to Shareholders | | | — | | | | (8,503,241 | ) |
| CAPITAL SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | |
| Institutional Shares | | | 37,274,694 | | | | 125,620,842 | |
| Investor Shares | | | 681,366 | | | | 7,501,704 | |
| Reinvestment of distributions: | | | | | | | | |
| Institutional Shares | | | — | | | | 4,501,118 | |
| Investor Shares | | | — | | | | 244,075 | |
| Redemption of shares | | | | | | | | |
| Institutional Shares | | | (70,010,141 | ) | | | (60,180,293 | ) |
| Investor Shares | | | (2,352,268 | ) | | | (18,088,567 | ) |
| Redemption fees | | | | | | | | |
| Institutional Shares | | | 1,853 | | | | — | |
| Investor Shares | | | — | | | | 1 | |
| Increase (Decrease) from Capital Share Transactions | | | (34,404,496 | ) | | | 59,598,880 | |
| Increase (Decrease) in Net Assets | | | (56,209,663 | ) | | | 11,084,005 | |
| NET ASSETS | |
| Beginning of period | | | 217,976,925 | | | | 206,892,920 | |
| End of period | | $ | 161,767,262 | | | $ | 217,976,925 | |
| Undistributed (Accumulated) net investment income (loss) | | $ | (244,165 | ) | | $ | (501,587 | ) |
| SHARE TRANSACTIONS | |
| Sale of shares: | | | | | | | | |
| Institutional Shares | | | 4,164,519 | | | | 12,939,592 | |
| Investor Shares | | | 75,861 | | | | 729,171 | |
| Reinvestment of distributions: | | | | | | | | |
| Institutional Shares | | | — | | | | 463,679 | |
| Investor Shares | | | — | | | | 25,187 | |
| Redemption of shares: | | | | | | | | |
| Institutional Shares | | | (8,000,713 | ) | | | (6,319,193 | ) |
| Investor Shares | | | (258,020 | ) | | | (1,763,461 | ) |
| Increase (Decrease) in shares outstanding | | | (4,018,353 | ) | | | 6,074,975 | |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY GROWTH EQUITY FUND
INSTITUTIONAL SHARES
| | | Six Months | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013(g) | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 19.16 | | | $ | 20.33 | | | $ | 19.10 | | | $ | 16.22 | | | $ | 14.58 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | (0.03 | ) | | | (0.02 | ) | | | 0.02 | | | | — | | | | 0.01 | |
| Net realized and unrealized gains (losses) | | | (0.21 | ) | | | 0.13 | | | | 1.82 | | | | 2.99 | | | | 1.66 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.24 | ) | | $ | 0.11 | | | $ | 1.84 | | | $ | 2.99 | | | $ | 1.67 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | — | | | | — | | | | — | | | | — | | | | (0.03 | ) |
| Net realized gains | | | (1.57 | ) | | | (1.28 | ) | | | (0.61 | ) | | | (0.11 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (1.57 | ) | | $ | (1.28 | ) | | $ | (0.61 | ) | | $ | (0.11 | ) | | $ | (0.03 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | —(e | ) | | | — | | | | —(e | ) | | | —(e | ) | | | —(e | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 17.35 | | | $ | 19.16 | | | $ | 20.33 | | | $ | 19.10 | | | $ | 16.22 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total return | | | (1.33 | )%(b) | | | 0.49 | % | | | 9.73 | % | | | 18.46 | % | | | 11.49 | %(b) |
| | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 245,615 | | | $ | 253,640 | | | $ | 259,098 | | | $ | 233,627 | | | $ | 116,575 | |
| | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | (0.32 | )%(c) | | | (0.12 | )% | | | 0.09 | % | | | 0.03 | % | | | 0.30 | %(c) |
| Net expenses | | | 0.72 | %(c) | | | 0.72 | % | | | 0.72 | % | | | 0.74 | % | | | 0.78 | %(c) |
| Gross expenses(d) | | | 0.72 | %(c) | | | 0.72 | % | | | 0.72 | % | | | 0.74 | % | | | 0.78 | %(c) |
| Portfolio turnover rate | | | 17 | %(b) | | | 24 | % | | | 24 | % | | | 25 | % | | | 40 | %(f) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | Reflects portfolio turnover at the Fund level for the year ended June 30, 2013. |
| (g) | Commenced operations on October 19, 2012. The information presented is for the period from October 19, 2012 to June 30, 2013. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY GROWTH EQUITY FUND
INVESTOR SHARES*
| | | Six Months | | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 19.06 | | | $ | 20.26 | | | $ | 19.07 | | | $ | 16.21 | | | $ | 13.80 | | | $ | 13.63 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | (0.05 | ) | | | (0.05 | ) | | | (0.01 | ) | | | (0.02 | ) | | | 0.03 | | | | (0.05 | ) |
| Net realized and unrealized gains (losses) | | | (0.21 | ) | | | 0.13 | | | | 1.81 | | | | 2.99 | | | | 2.41 | | | | 0.22 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.26 | ) | | $ | 0.08 | | | $ | 1.80 | | | $ | 2.97 | | | $ | 2.44 | | | $ | 0.17 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | — | | | | — | | | | — | | | | — | | | | (0.03 | ) | | | — | |
| Net realized gains | | | (1.57 | ) | | | (1.28 | ) | | | (0.61 | ) | | | (0.11 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (1.57 | ) | | $ | (1.28 | ) | | $ | (0.61 | ) | | $ | (0.11 | ) | | $ | (0.03 | ) | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | —(c | ) | | | —(c | ) | | | —(c | ) | | | —(c | ) | | | —(c | ) | | | —(c | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 17.23 | | | $ | 19.06 | | | $ | 20.26 | | | $ | 19.07 | | | $ | 16.21 | | | $ | 13.80 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total return | | | (1.45 | )%(d) | | | 0.34 | % | | | 9.54 | % | | | 18.35 | % | | | 17.67 | % | | | 1.25 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 1,450,333 | | | $ | 1,916,472 | | | $ | 2,143,325 | | | $ | 2,497,036 | | | $ | 1,653,389 | | | $ | 954,560 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | (0.47 | )%(e) | | | (0.27 | )% | | | (0.06 | )% | | | (0.12 | )% | | | 0.17 | % | | | (0.35 | )% |
| Net expenses | | | 0.87 | %(e) | | | 0.87 | % | | | 0.87 | % | | | 0.89 | % | | | 0.91 | % | | | 0.90 | % |
| Gross expenses(b) | | | 0.87 | %(e) | | | 0.87 | % | | | 0.87 | % | | | 0.89 | % | | | 0.91 | % | | | 0.90 | % |
| Portfolio turnover rate | | | 17 | %(d) | | | 24 | % | | | 24 | % | | | 25 | % | | | 40 | % | | | 58 | % |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (c) | Less than $0.01 per share. |
| (d) | Not annualized. |
| (e) | Annualized. |
| * | Prior to October 19, 2012, Investor Shares were known as Institutional Shares. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY GROWTH EQUITY FUND
ADVISOR SHARES
| | | Six Months | | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 18.35 | | | $ | 19.60 | | | $ | 18.51 | | | $ | 15.78 | | | $ | 13.45 | | | $ | 13.31 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | (0.07 | ) | | | (0.10 | ) | | | (0.06 | ) | | | (0.07 | ) | | | (0.01 | ) | | | (0.07 | ) |
| Net realized and unrealized gains (losses) | | | (0.20 | ) | | | 0.13 | | | | 1.76 | | | | 2.91 | | | | 2.35 | | | | 0.21 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.27 | ) | | $ | 0.03 | | | $ | 1.70 | | | $ | 2.84 | | | $ | 2.34 | | | $ | 0.14 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | — | | | | — | | | | — | | | | — | | | | (0.01 | ) | | | — | |
| Net realized gains | | | (1.57 | ) | | | (1.28 | ) | | | (0.61 | ) | | | (0.11 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (1.57 | ) | | $ | (1.28 | ) | | $ | (0.61 | ) | | $ | (0.11 | ) | | $ | (0.01 | ) | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (c) | | | — | (c) | | | — | (c) | | | — | (c) | | | — | (c) | | | — | (c) |
| Net asset value, end of period | | $ | 16.51 | | | $ | 18.35 | | | $ | 19.60 | | | $ | 18.51 | | | $ | 15.78 | | | $ | 13.45 | |
| Total return | | | (1.56 | )%(d) | | | 0.09 | % | | | 9.28 | % | | | 18.02 | % | | | 17.43 | % | | | 1.05 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 26,964 | | | $ | 33,304 | | | $ | 44,587 | | | $ | 48,632 | | | $ | 21,478 | | | $ | 11,593 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | (0.72 | )%(e) | | | (0.52 | )% | | | (0.31 | )% | | | (0.37 | )% | | | (0.07 | )% | | | (0.55 | )% |
| Net expenses | | | 1.12 | %(e) | | | 1.12 | % | | | 1.12 | % | | | 1.14 | % | | | 1.15 | % | | | 1.10 | % |
| Gross expenses(b) | | | 1.12 | %(e) | | | 1.12 | % | | | 1.12 | % | | | 1.14 | % | | | 1.15 | % | | | 1.10 | % |
| Portfolio turnover rate | | | 17 | %(d) | | | 24 | % | | | 24 | % | | | 25 | % | | | 40 | % | | | 58 | % |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (c) | Less than $0.01 per share. |
| (d) | Not annualized. |
| (e) | Annualized. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY FLEXIBLE EQUITY FUND
INSTITUTIONAL SHARES
| | | Six Months | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013(f) | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 15.15 | | | $ | 15.92 | | | $ | 14.81 | | | $ | 12.28 | | | $ | 10.46 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.05 | | | | 0.11 | | | | 0.12 | | | | 0.09 | | | | 0.06 | |
| Net realized and unrealized gains (losses) | | | 1.70 | | | | (0.77 | ) | | | 1.08 | | | | 2.49 | | | | 1.82 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 1.75 | | | $ | (0.66 | ) | | $ | 1.20 | | | $ | 2.58 | | | $ | 1.88 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.10 | ) | | | (0.11 | ) | | | (0.09 | ) | | | (0.05 | ) | | | (0.06 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.10 | ) | | $ | (0.11 | ) | | $ | (0.09 | ) | | $ | (0.05 | ) | | $ | (0.06 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (g) | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 16.80 | | | $ | 15.15 | | | $ | 15.92 | | | $ | 14.81 | | | $ | 12.28 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 11.56 | %(b) | | | (4.16 | )% | | | 8.09 | % | | | 21.06 | % | | | 18.07 | %(b) |
| | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 51,811 | | | $ | 24,012 | | | $ | 4,240 | | | $ | 3,126 | | | $ | 12 | |
| | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 0.64 | %(c) | | | 0.71 | % | | | 0.76 | % | | | 0.66 | % | | | 0.65 | %(c) |
| Net expenses | | | 0.74 | %(c) | | | 0.73 | % | | | 0.76 | % | | | 0.82 | % | | | 1.00 | %(c) |
| Gross expenses(d) | | | 0.74 | %(c) | | | 0.73 | % | | | 0.76 | % | | | 0.81 | % | | | 0.88 | %(c) |
| Portfolio turnover rate | | | 11 | %(b) | | | 15 | % | | | 7 | % | | | 15 | % | | | 12 | %(e) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers or recoupments. |
| (e) | Reflects portfolio turnover at the Fund level for the year ended June 30, 2013. |
| (f) | Commenced operations on October 19, 2012. The information presented is for the period from October 19, 2012 to June 30, 2013. |
| (g) | Less than $0.01 per share. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY FLEXIBLE EQUITY FUND
INVESTOR SHARES*
| | | Six Months | | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 15.12 | | | $ | 15.89 | | | $ | 14.79 | | | $ | 12.28 | | | $ | 9.68 | | | $ | 9.16 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.04 | | | | 0.08 | | | | 0.10 | | | | 0.07 | | | | 0.05 | | | | 0.05 | |
| Net realized and unrealized gains (losses) | | | 1.69 | | | | (0.76 | ) | | | 1.07 | | | | 2.48 | | | | 2.60 | | | | 0.50 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 1.73 | | | $ | (0.68 | ) | | $ | 1.17 | | | $ | 2.55 | | | $ | 2.65 | | | $ | 0.55 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.07 | ) | | | (0.09 | ) | | | (0.07 | ) | | | (0.04 | ) | | | (0.05 | ) | | | (0.03 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.07 | ) | | $ | (0.09 | ) | | $ | (0.07 | ) | | $ | (0.04 | ) | | $ | (0.05 | ) | | $ | (0.03 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (c) | | | — | (c) | | | — | (c) | | | — | (c) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 16.78 | | | $ | 15.12 | | | $ | 15.89 | | | $ | 14.79 | | | $ | 12.28 | | | $ | 9.68 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 11.47 | %(d) | | | (4.30 | )% | | | 7.92 | % | | | 20.78 | % | | | 27.51 | % | | | 5.98 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 328,880 | | | $ | 306,456 | | | $ | 268,569 | | | $ | 162,615 | | | $ | 82,783 | | | $ | 37,477 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 0.49 | %(e) | | | 0.56 | % | | | 0.61 | % | | | 0.51 | % | | | 0.50 | % | | | 0.52 | % |
| Net expenses | | | 0.89 | %(e) | | | 0.88 | % | | | 0.91 | % | | | 0.97 | % | | | 1.15 | % | | | 1.15 | % |
| Gross expenses(b) | | | 0.89 | %(e) | | | 0.88 | % | | | 0.91 | % | | | 0.96 | % | | | 1.05 | % | | | 1.18 | % |
| Portfolio turnover rate | | | 11 | %(d) | | | 15 | % | | | 7 | % | | | 15 | % | | | 12 | % | | | 19 | % |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Reflects the expense ratio excluding any waivers or recoupments. |
| (c) | Less than $0.01 per share. |
| (d) | Not annualized. |
| (e) | Annualized. |
| * | Prior to October 19, 2012, Investor Shares were known as Institutional Shares. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY FLEXIBLE EQUITY FUND
ADVISOR SHARES
| | | Six Months | | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 15.12 | | | $ | 15.88 | | | $ | 14.77 | | | $ | 12.28 | | | $ | 9.68 | | | $ | 9.17 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.02 | | | | 0.05 | | | | 0.06 | | | | 0.04 | | | | 0.02 | | | | 0.03 | |
| Net realized and unrealized gains (losses) | | | 1.70 | | | | (0.77 | ) | | | 1.07 | | | | 2.48 | | | | 2.61 | | | | 0.49 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 1.72 | | | $ | (0.72 | ) | | $ | 1.13 | | | $ | 2.52 | | | $ | 2.63 | | | $ | 0.52 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.03 | ) | | | (0.04 | ) | | | (0.02 | ) | | | (0.03 | ) | | | (0.03 | ) | | | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.03 | ) | | $ | (0.04 | ) | | $ | (0.02 | ) | | $ | (0.03 | ) | | $ | (0.03 | ) | | $ | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | —(c | ) | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 16.81 | | | $ | 15.12 | | | $ | 15.88 | | | $ | 14.77 | | | $ | 12.28 | | | $ | 9.68 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 11.36 | %(d) | | | (4.56 | )% | | | 7.68 | % | | | 20.52 | % | | | 27.25 | % | | | 5.73 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 8,091 | | | $ | 7,168 | | | $ | 11,540 | | | $ | 14,831 | | | $ | 6,115 | | | $ | 1,079 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 0.24 | %(e) | | | 0.31 | % | | | 0.36 | % | | | 0.26 | % | | | 0.30 | % | | | 0.32 | % |
| Net expenses | | | 1.14 | %(e) | | | 1.13 | % | | | 1.16 | % | | | 1.22 | % | | | 1.35 | % | | | 1.35 | % |
| Gross expenses(b) | | | 1.14 | %(e) | | | 1.13 | % | | | 1.16 | % | | | 1.21 | % | | | 1.30 | % | | | 1.38 | % |
| Portfolio turnover rate | | | 11 | %(d) | | | 15 | % | | | 7 | % | | | 15 | % | | | 12 | % | | | 19 | % |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Reflects the expense ratio excluding any waivers or recoupments. |
| (c) | Less than $0.01 per share. |
| (d) | Not annualized. |
| (e) | Annualized. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY EQUITY INCOME FUND
INSTITUTIONAL SHARES
| | | Six Months | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013(f) | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 12.87 | | | $ | 13.14 | | | $ | 13.70 | | | $ | 12.16 | | | $ | 11.07 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.13 | | | | 0.28 | | | | 0.29 | | | | 0.29 | | | | 0.21 | |
| Net realized and unrealized gains (losses) | | | 0.35 | | | | (0.13 | ) | | | 0.08 | | | | 1.99 | | | | 1.19 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 0.48 | | | $ | 0.15 | | | $ | 0.37 | | | $ | 2.28 | | | $ | 1.40 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.12 | ) | | | (0.29 | ) | | | (0.30 | ) | | | (0.29 | ) | | | (0.23 | ) |
| Net realized gains | | | (0.48 | ) | | | (0.13 | ) | | | (0.63 | ) | | | (0.45 | ) | | | (0.08 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.60 | ) | | $ | (0.42 | ) | | $ | (0.93 | ) | | $ | (0.74 | ) | | $ | (0.31 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 12.75 | | | $ | 12.87 | | | $ | 13.14 | | | $ | 13.70 | | | $ | 12.16 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 3.70 | %(b) | | | 1.31 | % | | | 2.60 | % | | | 19.30 | % | | | 12.88 | %(b) |
| | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 11,137 | | | $ | 13,840 | | | $ | 18,134 | | | $ | 17,663 | | | $ | 11 | |
| | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 1.94 | %(c) | | | 2.24 | % | | | 2.16 | % | | | 2.23 | % | | | 2.53 | %(c) |
| Net expenses | | | 0.76 | %(c) | | | 0.75 | % | | | 0.75 | % | | | 0.77 | % | | | 0.80 | %(c) |
| Gross expenses(d) | | | 0.76 | %(c) | | | 0.75 | % | | | 0.75 | % | | | 0.77 | % | | | 0.80 | %(c) |
| Portfolio turnover rate | | | 4 | %(b) | | | 17 | % | | | 18 | % | | | 32 | % | | | 21 | %(e) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Reflects portfolio turnover at the Fund level for the year ended June 30, 2013. |
| (f) | Commenced operations on October 19, 2012. The information presented is for the period from October 19, 2012 to June 30, 2013. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY EQUITY INCOME FUND
INVESTOR SHARES*
| | | Six Months | | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012(f) | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 12.86 | | | $ | 13.13 | | | $ | 13.69 | | | $ | 12.16 | | | $ | 10.49 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.12 | | | | 0.26 | | | | 0.27 | | | | 0.27 | | | | 0.27 | | | | 0.15 | |
| Net realized and unrealized gains (losses) | | | 0.36 | | | | (0.13 | ) | | | 0.08 | | | | 1.98 | | | | 1.76 | | | | 0.46 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 0.48 | | | $ | 0.13 | | | $ | 0.35 | | | $ | 2.25 | | | $ | 2.03 | | | $ | 0.61 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.11 | ) | | | (0.27 | ) | | | (0.28 | ) | | | (0.27 | ) | | | (0.28 | ) | | | (0.12 | ) |
| Net realized gains | | | (0.48 | ) | | | (0.13 | ) | | | (0.63 | ) | | | (0.45 | ) | | | (0.08 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.59 | ) | | $ | (0.40 | ) | | $ | (0.91 | ) | | $ | (0.72 | ) | | $ | (0.36 | ) | | $ | (0.12 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | | | | — | | | | — | | | | —(e | ) | | | —(e | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 12.75 | | | $ | 12.86 | | | $ | 13.13 | | | $ | 13.69 | | | $ | 12.16 | | | $ | 10.49 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 3.70 | %(b) | | | 1.15 | % | | | 2.45 | % | | | 19.04 | % | | | 19.62 | % | | | 6.11 | %(b) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 97,482 | | | $ | 112,116 | | | $ | 183,001 | | | $ | 180,372 | | | $ | 173,599 | | | $ | 106,075 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 1.79 | %(c) | | | 2.09 | % | | | 2.01 | % | | | 2.08 | % | | | 2.37 | % | | | 2.82 | %(c) |
| Net expenses | | | 0.91 | %(c) | | | 0.90 | % | | | 0.90 | % | | | 0.92 | % | | | 0.96 | % | | | 0.99 | %(c) |
| Gross expenses(d) | | | 0.91 | %(c) | | | 0.90 | % | | | 0.90 | % | | | 0.92 | % | | | 0.96 | % | | | 0.99 | %(c) |
| Portfolio turnover rate | | | 4 | %(b) | | | 17 | % | | | 18 | % | | | 32 | % | | | 21 | % | | | 14 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | Commenced operations on December 29, 2011. The information presented is for the period from December 29, 2011 to June 30, 2012. |
| * | Prior to October 19, 2012, Investor Shares were known as Institutional Shares. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY EQUITY INCOME FUND
ADVISOR SHARES
| | | Six Months | | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012(f) | |
For a share outstanding throughout each period | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 12.84 | | | $ | 13.11 | | | $ | 13.67 | | | $ | 12.14 | | | $ | 10.48 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.10 | | | | 0.23 | | | | 0.24 | | | | 0.24 | | | | 0.25 | | | | 0.14 | |
| Net realized and unrealized gains (losses) | | | 0.37 | | | | (0.13 | ) | | | 0.07 | | | | 1.98 | | | | 1.75 | | | | 0.46 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 0.47 | | | $ | 0.10 | | | $ | 0.31 | | | $ | 2.22 | | | $ | 2.00 | | | $ | 0.60 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.10 | ) | | | (0.24 | ) | | | (0.24 | ) | | | (0.24 | ) | | | (0.26 | ) | | | (0.12 | ) |
| Net realized gains | | | (0.48 | ) | | | (0.13 | ) | | | (0.63 | ) | | | (0.45 | ) | | | (0.08 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.58 | ) | | $ | (0.37 | ) | | $ | (0.87 | ) | | $ | (0.69 | ) | | $ | (0.34 | ) | | $ | (0.12 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (e) | | | — | | | | — | | | | — | | | | — | | | | — | (e) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 12.73 | | | $ | 12.84 | | | $ | 13.11 | | | $ | 13.67 | | | $ | 12.14 | | | $ | 10.48 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 3.58 | %(b) | | | 0.90 | % | | | 2.19 | % | | | 18.79 | % | | | 19.33 | % | | | 5.95 | %(b) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 3,064 | | | $ | 2,980 | | | $ | 3,148 | | | $ | 3,298 | | | $ | 2,346 | | | $ | 636 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 1.54 | %(c) | | | 1.84 | % | | | 1.76 | % | | | 1.83 | % | | | 2.13 | % | | | 2.60 | %(c) |
| Net expenses | | | 1.16 | %(c) | | | 1.15 | % | | | 1.15 | % | | | 1.17 | % | | | 1.20 | % | | | 1.19 | %(c) |
| Gross expenses(d) | | | 1.16 | %(c) | | | 1.15 | % | | | 1.15 | % | | | 1.17 | % | | | 1.20 | % | | | 1.19 | %(c) |
| Portfolio turnover rate | | | 4 | %(b) | | | 17 | % | | | 18 | % | | | 32 | % | | | 21 | % | | | 14 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | Commenced operations on December 29, 2011. The information presented is for the period from December 29, 2011 to June 30, 2012. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY SUSTAINABLE GROWTH FUND*
INSTITUTIONAL SHARES
| | | Six Months | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 16.05 | | | $ | 15.69 | | | $ | 14.11 | | | $ | 11.64 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | (0.01 | ) | | | (0.02 | ) | | | (0.02 | ) | | | — | | | | — | |
| Net realized and unrealized gains (losses) | | | 0.63 | | | | 1.13 | | | | 1.91 | | | | 2.61 | | | | 1.65 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 0.62 | | | $ | 1.11 | | | $ | 1.89 | | | $ | 2.61 | | | $ | 1.65 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | |
| Net realized gains | | | (0.12 | ) | | | (0.75 | ) | | | (0.31 | ) | | | (0.14 | ) | | | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.12 | ) | | $ | (0.75 | ) | | $ | (0.31 | ) | | $ | (0.14 | ) | | $ | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (c) | | | — | (c) | | | — | (c) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 16.55 | | | $ | 16.05 | | | $ | 15.69 | | | $ | 14.11 | | | $ | 11.64 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 3.83 | %(d) | | | 7.17 | % | | | 13.50 | % | | | 22.51 | % | | | 16.47 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 151,459 | | | $ | 122,008 | | | $ | 67,789 | | | $ | 30,374 | | | $ | 32,045 | |
| | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | (0.15 | )%(e) | | | (0.11 | )% | | | (0.11 | )% | | | (0.01 | )% | | | 0.03 | % |
| Net expenses | | | 0.74 | %(e) | | | 0.74 | % | | | 0.75 | % | | | 0.77 | % | | | 0.86 | % |
| Gross expenses(b) | | | 0.74 | %(e) | | | 0.74 | % | | | 0.75 | % | | | 0.77 | % | | | 0.86 | % |
| Portfolio turnover rate | | | 27 | %(d) | | | 30 | % | | | 37 | % | | | 30 | % | | | 30 | % |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (c) | Less than $0.01 per share. |
| (d) | Not annualized. |
| (e) | Annualized. |
| * | Commenced operations on June 29, 2012. No financial highlights are presented for the period from June 29, 2012 to June 30, 2012, as the Fund did not make any investments, earn any income or incur any expenses during the period. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY SUSTAINABLE GROWTH FUND*
INVESTOR SHARES
| | | Six Months | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 15.94 | | | $ | 15.61 | | | $ | 14.06 | | | $ | 11.62 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | (0.02 | ) | | | (0.04 | ) | | | (0.04 | ) | | | (0.02 | ) | | | (0.01 | ) |
| Net realized and unrealized gains (losses) | | | 0.62 | | | | 1.12 | | | | 1.90 | | | | 2.60 | | | | 1.64 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 0.60 | | | $ | 1.08 | | | $ | 1.86 | | | $ | 2.58 | | | $ | 1.63 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | |
| Net realized gains | | | (0.12 | ) | | | (0.75 | ) | | | (0.31 | ) | | | (0.14 | ) | | | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.12 | ) | | $ | (0.75 | ) | | $ | (0.31 | ) | | $ | (0.14 | ) | | $ | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (c) | | | — | (c) | | | — | (c) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 16.42 | | | $ | 15.94 | | | $ | 15.61 | | | $ | 14.06 | | | $ | 11.62 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 3.74 | %(d) | | | 7.01 | % | | | 13.34 | % | | | 22.29 | % | | | 16.27 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 28,627 | | | $ | 25,676 | | | $ | 11,206 | | | $ | 46,823 | | | $ | 24,028 | |
| | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | (0.30 | )%(e) | | | (0.26 | )% | | | (0.26 | )% | | | (0.16 | )% | | | (0.12 | )% |
| Net expenses | | | 0.89 | %(e) | | | 0.89 | % | | | 0.90 | % | | | 0.92 | % | | | 1.01 | % |
| Gross expenses(b) | | | 0.89 | %(e) | | | 0.89 | % | | | 0.90 | % | | | 0.92 | % | | | 1.01 | % |
| Portfolio turnover rate | | | 27 | %(d) | | | 30 | % | | | 37 | % | | | 30 | % | | | 30 | % |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (c) | Less than $0.01 per share. |
| (d) | Not annualized. |
| (e) | Annualized. |
| * | Commenced operations on June 29, 2012. No financial highlights are presented for the period from June 29, 2012 to June 30, 2012, as the Fund did not make any investments, earn any income or incur any expenses during the period. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY SUSTAINABLE GROWTH FUND*
ADVISOR SHARES
| | | Six Months | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 15.78 | | | $ | 15.50 | | | $ | 14.00 | | | $ | 11.60 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | (0.05 | ) | | | (0.08 | ) | | | (0.07 | ) | | | (0.05 | ) | | | (0.04 | ) |
| Net realized and unrealized gains (losses) | | | 0.62 | | | | 1.11 | | | | 1.88 | | | | 2.59 | | | | 1.65 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 0.57 | | | $ | 1.03 | | | $ | 1.81 | | | $ | 2.54 | | | $ | 1.61 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | |
| Net realized gains | | | (0.12 | ) | | | (0.75 | ) | | | (0.31 | ) | | | (0.14 | ) | | | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.12 | ) | | $ | (0.75 | ) | | $ | (0.31 | ) | | $ | (0.14 | ) | | $ | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (c) | | | — | (c) | | | — | (c) | | | — | (c) | | | — | (c) |
| | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 16.23 | | | $ | 15.78 | | | $ | 15.50 | | | $ | 14.00 | | | $ | 11.60 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 3.58 | %(d) | | | 6.73 | % | | | 13.03 | % | | | 21.99 | % | | | 16.07 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 174,576 | | | $ | 201,727 | | | $ | 137,410 | | | $ | 132,846 | | | $ | 124,256 | |
| | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | (0.55 | )%(e) | | | (0.51 | )% | | | (0.51 | )% | | | (0.41 | )% | | | (0.37 | )% |
| Net expenses | | | 1.14 | %(e) | | | 1.14 | % | | | 1.15 | % | | | 1.17 | % | | | 1.26 | % |
| Gross expenses(b) | | | 1.14 | %(e) | | | 1.14 | % | | | 1.15 | % | | | 1.17 | % | | | 1.26 | % |
| Portfolio turnover rate | | | 27 | %(d) | | | 30 | % | | | 37 | % | | | 30 | % | | | 30 | % |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (c) | Less than $0.01 per share. |
| (d) | Not annualized. |
| (e) | Annualized. |
| * | Commenced operations on June 29, 2012. No financial highlights are presented for the period from June 29, 2012 to June 30, 2012, as the Fund did not make any investments, earn any income or incur any expenses during the period. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY SMALL-CAP GROWTH FUND
INSTITUTIONAL SHARES*
| | | Six Months | | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 31.19 | | | $ | 35.91 | | | $ | 35.85 | | | $ | 31.67 | | | $ | 28.36 | | | $ | 29.56 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | (0.08 | ) | | | (0.14 | ) | | | (0.18 | ) | | | (0.22 | ) | | | (0.07 | ) | | | (0.21 | ) |
| Net realized and unrealized gains (losses) | | | 2.23 | | | | 0.51 | | | | 4.45 | | | | 6.08 | | | | 6.07 | | | | (0.72 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 2.15 | | | $ | 0.37 | | | $ | 4.27 | | | $ | 5.86 | | | $ | 6.00 | | | $ | (0.93 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net realized gains | | | (1.13 | ) | | | (5.09 | ) | | | (4.21 | ) | | | (1.68 | ) | | | (2.69 | ) | | | (0.27 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (1.13 | ) | | $ | (5.09 | ) | | $ | (4.21 | ) | | $ | (1.68 | ) | | $ | (2.69 | ) | | $ | (0.27 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (e) | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 32.21 | | | $ | 31.19 | | | $ | 35.91 | | | $ | 35.85 | | | $ | 31.67 | | | $ | 28.36 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 6.82 | %(c) | | | 1.61 | % | | | 12.98 | % | | | 18.59 | % | | | 22.84 | % | | | (3.08 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 95,123 | | | $ | 17,037 | | | $ | 12,841 | | | $ | 8,497 | | | $ | 7,347 | | | $ | 6,944 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | (0.50 | )%(d) | | | (0.45 | )% | | | (0.51 | )% | | | (0.63 | )% | | | (0.24 | )% | | | (0.77 | )% |
| Net expenses | | | 0.98 | %(d) | | | 0.98 | % | | | 0.99 | % | | | 1.01 | % | | | 1.05 | % | | | 1.11 | % |
| Gross expenses(b) | | | 0.98 | %(d) | | | 0.98 | % | | | 0.99 | % | | | 1.01 | % | | | 1.05 | % | | | 1.11 | % |
| Portfolio turnover rate | | | 16 | %(c) | | | 32 | % | | | 28 | % | | | 19 | % | | | 48 | % | | | 66 | % |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (c) | Not annualized. |
| (d) | Annualized. |
| (e) | Less than $0.01 per share. |
| * | Prior to October 19, 2012, Institutional Shares were known as D Shares. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY SMALL-CAP GROWTH FUND
INVESTOR SHARES*
| | | Six Months | | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 15.65 | | | $ | 18.05 | | | $ | 18.04 | | | $ | 15.96 | | | $ | 14.31 | | | $ | 15.07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | (0.05 | ) | | | (0.10 | ) | | | (0.11 | ) | | | (0.14 | ) | | | (0.05 | ) | | | (0.11 | ) |
| Net realized and unrealized gains (losses) | | | 1.11 | | | | 0.26 | | | | 2.24 | | | | 3.07 | | | | 3.06 | | | | (0.38 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 1.06 | | | $ | 0.16 | | | $ | 2.13 | | | $ | 2.93 | | | $ | 3.01 | | | $ | (0.49 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net realized gains | | | (0.56 | ) | | | (2.56 | ) | | | (2.12 | ) | | | (0.85 | ) | | | (1.36 | ) | | | (0.27 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.56 | ) | | $ | (2.56 | ) | | $ | (2.12 | ) | | $ | (0.85 | ) | | $ | (1.36 | ) | | $ | (0.27 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | —(c | ) | | | —(c | ) | | | —(c | ) | | | —(c | ) | | | —(c | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 16.15 | | | $ | 15.65 | | | $ | 18.05 | | | $ | 18.04 | | | $ | 15.96 | | | $ | 14.31 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 6.75 | %(d) | | | 1.43 | % | | | 12.86 | % | | | 18.42 | % | | | 22.68 | % | | | (3.12 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 291,836 | | | $ | 268,390 | | | $ | 262,426 | | | $ | 285,287 | | | $ | 281,027 | | | $ | 215,311 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | (0.65 | )%(e) | | | (0.60 | )% | | | (0.66 | )% | | | (0.78 | )% | | | (0.36 | )% | | | (0.82 | )% |
| Net expenses | | | 1.13 | %(e) | | | 1.13 | % | | | 1.14 | % | | | 1.16 | % | | | 1.17 | % | | | 1.16 | % |
| Gross expenses(b) | | | 1.13 | %(e) | | | 1.13 | % | | | 1.14 | % | | | 1.16 | % | | | 1.17 | % | | | 1.16 | % |
| Portfolio turnover rate | | | 16 | %(d) | | | 32 | % | | | 28 | % | | | 19 | % | | | 48 | % | | | 66 | % |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (c) | Less than $0.01 per share. |
| (d) | Not annualized. |
| (e) | Annualized. |
| * | Prior to October 19, 2012, Investor Shares were known as Institutional Shares. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY SMALL-CAP GROWTH FUND
ADVISOR SHARES
| | | Six Months | | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 15.02 | | | $ | 17.35 | | | $ | 17.39 | | | $ | 15.43 | | | $ | 13.86 | | | $ | 14.65 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | (0.07 | ) | | | (0.13 | ) | | | (0.15 | ) | | | (0.18 | ) | | | (0.09 | ) | | | (0.14 | ) |
| Net realized and unrealized gains (losses) | | | 1.07 | | | | 0.26 | | | | 2.15 | | | | 2.96 | | | | 2.97 | | | | (0.38 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 1.00 | | | $ | 0.13 | | | $ | 2.00 | | | $ | 2.78 | | | $ | 2.88 | | | $ | (0.52 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net realized gains | | | (0.54 | ) | | | (2.46 | ) | | | (2.04 | ) | | | (0.82 | ) | | | (1.31 | ) | | | (0.27 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.54 | ) | | $ | (2.46 | ) | | $ | (2.04 | ) | | $ | (0.82 | ) | | $ | (1.31 | ) | | $ | (0.27 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (c) | | | — | (c) | | | — | | | | — | | | | — | | | | — | (c) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 15.48 | | | $ | 15.02 | | | $ | 17.35 | | | $ | 17.39 | | | $ | 15.43 | | | $ | 13.86 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 6.61 | %(d) | | | 1.27 | % | | | 12.54 | % | | | 18.07 | % | | | 22.45 | % | | | (3.41 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 35,233 | | | $ | 9,704 | | | $ | 6,348 | | | $ | 7,300 | | | $ | 5,493 | | | $ | 2,875 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | (0.90 | )%(e) | | | (0.85 | )% | | | (0.91 | )% | | | (1.03 | )% | | | (0.60 | )% | | | (1.07 | )% |
| Net expenses | | | 1.38 | %(e) | | | 1.38 | % | | | 1.39 | % | | | 1.41 | % | | | 1.41 | % | | | 1.41 | % |
| Gross expenses(b) | | | 1.38 | %(e) | | | 1.38 | % | | | 1.39 | % | | | 1.41 | % | | | 1.41 | % | | | 1.41 | % |
| Portfolio turnover rate | | | 16 | %(d) | | | 32 | % | | | 28 | % | | | 19 | % | | | 48 | % | | | 66 | % |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (c) | Less than $0.01 per share. |
| (d) | Not annualized. |
| (e) | Annualized. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY SMALL-CAP FUNDAMENTAL VALUE FUND
INSTITUTIONAL SHARES
| | | Six Months | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013(g) | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 22.75 | | | $ | 23.61 | | | $ | 23.96 | | | $ | 20.06 | | | $ | 16.77 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.08 | | | | 0.13 | | | | 0.10 | | | | 0.12 | | | | 0.06 | |
| Net realized and unrealized gains (losses) | | | 3.69 | | | | (0.44 | ) | | | 0.86 | | | | 4.91 | | | | 3.30 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 3.77 | | | $ | (0.31 | ) | | $ | 0.96 | | | $ | 5.03 | | | $ | 3.36 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.09 | ) | | | (0.10 | ) | | | (0.14 | ) | | | (0.19 | ) | | | (0.07 | ) |
| Net realized gains | | | (0.03 | ) | | | (0.45 | ) | | | (1.17 | ) | | | (0.94 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.12 | ) | | $ | (0.55 | ) | | $ | (1.31 | ) | | $ | (1.13 | ) | | $ | (0.07 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (e) | | | — | (e) | | | — | (e) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 26.40 | | | $ | 22.75 | | | $ | 23.61 | | | $ | 23.96 | | | $ | 20.06 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 16.59 | %(b) | | | (1.17 | )% | | | 4.04 | % | | | 25.37 | % | | | 20.13 | %(b) |
| | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 301,052 | | | $ | 156,205 | | | $ | 75,994 | | | $ | 19,515 | | | $ | 1,061 | |
| | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 0.66 | %(c) | | | 0.59 | % | | | 0.43 | % | | | 0.51 | % | | | 1.14 | %(c) |
| Net expenses | | | 0.97 | %(c) | | | 0.98 | % | | | 0.98 | % | | | 1.00 | % | | | 1.05 | %(c) |
| Gross expenses(d) | | | 0.97 | %(c) | | | 0.98 | % | | | 0.98 | % | | | 1.00 | % | | | 1.05 | %(c) |
| Portfolio turnover rate | | | 13 | %(b) | | | 30 | % | | | 26 | % | | | 30 | % | | | 34 | %(f) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | Reflects portfolio turnover at the Fund level for the year ended June 30, 2013. |
| (g) | Commenced operations on October 19, 2012. The information presented is for the period from October 19, 2012 to June 30, 2013. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY SMALL-CAP FUNDAMENTAL VALUE FUND
INVESTOR SHARES*
| | | Six Months | | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 22.73 | | | $ | 23.59 | | | $ | 23.94 | | | $ | 20.06 | | | $ | 15.65 | | | $ | 16.89 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.06 | | | | 0.10 | | | | 0.07 | | | | 0.08 | | | | 0.18 | | | | 0.10 | |
| Net realized and unrealized gains (losses) | | | 3.69 | | | | (0.44 | ) | | | 0.86 | | | | 4.90 | | | | 4.29 | | | | (0.51 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 3.75 | | | $ | (0.34 | ) | | $ | 0.93 | | | $ | 4.98 | | | $ | 4.47 | | | $ | (0.41 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.06 | ) | | | (0.07 | ) | | | (0.11 | ) | | | (0.16 | ) | | | (0.06 | ) | | | (0.12 | ) |
| Net realized gains | | | (0.03 | ) | | | (0.45 | ) | | | (1.17 | ) | | | (0.94 | ) | | | — | | | | (0.71 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.09 | ) | | $ | (0.52 | ) | | $ | (1.28 | ) | | $ | (1.10 | ) | | $ | (0.06 | ) | | $ | (0.83 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (c) | | | — | (c) | | | — | (c) | | | —c | (c) | | | — | (c) | | | — | (c) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 26.39 | | | $ | 22.73 | | | $ | 23.59 | | | $ | 23.94 | | | $ | 20.06 | | | $ | 15.65 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 16.50 | %(d) | | | (1.32 | )% | | | 3.90 | % | | | 25.13 | % | | | 28.64 | % | | | (1.90 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 850,754 | | | $ | 774,547 | | | $ | 748,003 | | | $ | 567,799 | | | $ | 371,018 | | | $ | 194,719 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 0.51 | %(e) | | | 0.44 | % | | | 0.28 | % | | | 0.36 | % | | | 1.01 | % | | | 0.64 | % |
| Net expenses | | | 1.12 | %(e) | | | 1.13 | % | | | 1.13 | % | | | 1.15 | % | | | 1.18 | % | | | 1.19 | % |
| Gross expenses(b) | | | 1.12 | %(e) | | | 1.13 | % | | | 1.13 | % | | | 1.15 | % | | | 1.18 | % | | | 1.19 | % |
| Portfolio turnover rate | | | 13 | %(d) | | | 30 | % | | | 26 | % | | | 30 | % | | | 34 | % | | | 36 | % |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (c) | Less than $0.01 per share. |
| (d) | Not annualized. |
| (e) | Annualized. |
| * | Prior to October 19, 2012, Investor Shares were known as Institutional Shares. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY SMALL-CAP FUNDAMENTAL VALUE FUND
ADVISOR SHARES
| | | Six Months | | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012(g) | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 22.62 | | | $ | 23.48 | | | $ | 23.87 | | | $ | 20.01 | | | $ | 15.63 | | | $ | 16.39 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.03 | | | | 0.04 | | | | 0.01 | | | | 0.02 | | | | 0.03 | | | | 0.07 | |
| Net realized and unrealized gains (losses) | | | 3.68 | | | | (0.44 | ) | | | 0.85 | | | | 4.89 | | | | 4.38 | | | | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 3.71 | | | $ | (0.40 | ) | | $ | 0.86 | | | $ | 4.91 | | | $ | 4.41 | | | $ | 0.06 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | — | | | | (0.01 | ) | | | (0.08 | ) | | | (0.11 | ) | | | (0.03 | ) | | | (0.11 | ) |
| Net realized gains | | | (0.03 | ) | | | (0.45 | ) | | | (1.17 | ) | | | (0.94 | ) | | | — | | | | (0.71 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.03 | ) | | $ | (0.46 | ) | | $ | (1.25 | ) | | $ | (1.05 | ) | | $ | (0.03 | ) | | $ | (0.82 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (e) | | | —e | (e) | | | — | | | | — | (e) | | | — | | | | — | (e) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 26.30 | | | $ | 22.62 | | | $ | 23.48 | | | $ | 23.87 | | | $ | 20.01 | | | $ | 15.63 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 16.41 | %(b) | | | (1.58 | )% | | | 3.61 | % | | | 24.83 | % | | | 28.28 | % | | | 0.90 | %(b) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 58,989 | | | $ | 52,883 | | | $ | 58,583 | | | $ | 21,416 | | | $ | 15,764 | | | $ | 418 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 0.26 | %(c) | | | 0.19 | % | | | 0.03 | % | | | 0.11 | % | | | 0.75 | % | | | 0.44 | %(c) |
| Net expenses | | | 1.37 | %(c) | | | 1.38 | % | | | 1.38 | % | | | 1.40 | % | | | 1.44 | % | | | 1.39 | %(c) |
| Gross expenses(d) | | | 1.37 | %(c) | | | 1.38 | % | | | 1.38 | % | | | 1.40 | % | | | 1.44 | % | | | 1.39 | %(c) |
| Portfolio turnover rate | | | 13 | %(b) | | | 30 | % | | | 26 | % | | | 30 | % | | | 34 | % | | | 36 | %(f) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | Reflects portfolio turnover at the Fund level for the year ended June 30, 2012. |
| (g) | Advisor Shares commenced operations July 28, 2011. The information presented is for the period from July 28, 2011 to June 30, 2012. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY GLOBAL LEADERS FUND
INVESTOR SHARES
| | | Six Months | | | Fiscal | |
| | | Ended | | | Year | |
| | | December 31, | | | Ended | |
| | | 2016 | | | June 30, | |
| | | (Unaudited) | | | 2016(e) | |
| For a share outstanding throughout each period | | | | | | |
| | | | | | | |
| Net asset value, beginning of period | | $ | 9.65 | | | $ | 10.00 | |
| | | | | | | | | |
| Net investment income (loss)(a) | | | — | | | | 0.05 | |
| Net realized and unrealized gains (losses) | | | 0.11 | | | | (0.40 | ) |
| | | | | | | | | |
| Total from investment operations | | $ | 0.11 | | | $ | (0.35 | ) |
| | | | | | | | | |
| Distributions from: | | | | | | | | |
| Net investment income | | | (0.02 | ) | | | — | |
| | | | | | | | | |
| Total distributions to shareholders | | $ | (0.02 | ) | | $ | — | |
| | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | |
| | | | | | | | | |
| Net asset value, end of period | | $ | 9.74 | | | $ | 9.65 | |
| | | | | | | | | |
| Total return | | | 1.12 | %(b) | | | (3.50 | )%(b) |
| | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 29,495 | | | $ | 26,367 | |
| | | | | | | | | |
| Ratios to average net assets: | | | | | | | | |
| Net investment income (loss) | | | 0.05 | %(c) | | | 0.55 | %(c) |
| Net expenses | | | 0.85 | %(c) | | | 0.85 | %(c) |
| Gross expenses(d) | | | 1.20 | %(c) | | | 1.41 | %(c) |
| Portfolio turnover rate | | | 24 | %(b) | | | 53 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Commenced operations on July 1, 2015. The information presented is for the period from July 1, 2015 (end of day) to June 30, 2016. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY INTERMEDIATE INCOME FUND
INVESTOR SHARES*
| | | Six Months | | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 10.78 | | | $ | 10.63 | | | $ | 10.74 | | | $ | 10.85 | | | $ | 11.37 | | | $ | 11.28 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.10 | | | | 0.20 | | | | 0.19 | | | | 0.17 | | | | 0.19 | | | | 0.24 | |
| Net realized and unrealized gains (losses) | | | (0.24 | ) | | | 0.22 | | | | (0.08 | ) | | | 0.12 | | | | (0.26 | ) | | | 0.36 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.14 | ) | | $ | 0.42 | | | $ | 0.11 | | | $ | 0.29 | | | $ | (0.07 | ) | | $ | 0.60 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.10 | ) | | | (0.21 | ) | | | (0.22 | ) | | | (0.18 | ) | | | (0.25 | ) | | | (0.25 | ) |
| Net realized gains | | | — | | | | (0.06 | ) | | | — | | | | (0.22 | ) | | | (0.20 | ) | | | (0.26 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.10 | ) | | $ | (0.27 | ) | | $ | (0.22 | ) | | $ | (0.40 | ) | | $ | (0.45 | ) | | $ | (0.51 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | (c) | | | — | (c) | | | —c | (c) | | | — | (c) | | | — | (c) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 10.54 | | | $ | 10.78 | | | $ | 10.63 | | | $ | 10.74 | | | $ | 10.85 | | | $ | 11.37 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total return | | | (1.28 | )%(f) | | | 3.99 | % | | | 1.01 | % | | | 2.66 | % | | | (0.72 | )% | | | 5.42 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 134,354 | | | $ | 137,900 | | | $ | 140,006 | | | $ | 207,371 | | | $ | 241,543 | | | $ | 292,556 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(d) | | | 1.76 | %(g) | | | 1.92 | % | | | 1.78 | % | | | 1.54 | % | | | 1.66 | % | | | 2.15 | % |
| Net expenses(e) | | | 0.45 | %(g) | | | 0.43 | % | | | 0.45 | % | | | 0.52 | % | | | 0.52 | % | | | 0.50 | % |
| Gross expenses(b)(e) | | | 0.51 | %(g) | | | 0.50 | % | | | 0.50 | % | | | 0.52 | % | | | 0.52 | % | | | 0.50 | % |
| Portfolio turnover rate | | | 31 | %(f) | | | 68 | % | | | 130 | % | | | 162 | % | | | 111 | % | | | 75 | % |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (c) | Less than $0.01 per share. |
| (d) | The Net investment income (loss) ratio includes income actually earned by the Fund from its investments in fixed income securities as well as from dividend distributions made to it by the underlying investment companies in which it invests, as disclosed on the Statement of Operations and in further detail within the “Investments in Affiliates — Intermediate Income Fund” section of Note 3. The Net investment income ratio does not include any other pro-rata amounts of the net investment income of the underlying investment companies in which it invests. |
| (e) | The Gross and Net Expense ratios include the actual gross and Net expenses incurred by the Fund as disclosed on the Statement of Operations. The Gross and Net Expense ratios do not include any other pro-rata amounts of expenses ’incurred by the underlying investment companies in which the Fund invests (known as Acquired Fund Fees and Expenses). For further details regarding the expenses waived in this fund, refer to the “investments in Affiliates — Intermediate Income Fund” section of Note 3. |
| (f) | Not annualized. |
| (g) | Annualized. |
| * | Prior to October 19, 2012, Investor Shares were known as Institutional Shares. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY INTERMEDIATE INCOME FUND
ADVISOR SHARES
| | | Six Months | | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 10.56 | | | $ | 10.42 | | | $ | 10.53 | | | $ | 10.65 | | | $ | 11.16 | | | $ | 11.08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.08 | | | | 0.17 | | | | 0.16 | | | | 0.14 | | | | 0.16 | | | | 0.22 | |
| Net realized and unrealized gains (losses) | | | (0.23 | ) | | | 0.21 | | | | (0.08 | ) | | | 0.11 | | | | (0.25 | ) | | | 0.35 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.15 | ) | | $ | 0.38 | | | $ | 0.08 | | | $ | 0.25 | | | $ | (0.09 | ) | | $ | 0.57 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.09 | ) | | | (0.18 | ) | | | (0.19 | ) | | | (0.15 | ) | | | (0.22 | ) | | | (0.23 | ) |
| Net realized gains | | | — | | | | (0.06 | ) | | | — | | | | (0.22 | ) | | | (0.20 | ) | | | (0.26 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.09 | ) | | $ | (0.24 | ) | | $ | (0.19 | ) | | $ | (0.37 | ) | | $ | (0.42 | ) | | $ | (0.49 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | (c) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 10.32 | | | $ | 10.56 | | | $ | 10.42 | | | $ | 10.53 | | | $ | 10.65 | | | $ | 11.16 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total return | | | (1.43 | )%(f) | | | 3.71 | % | | | 0.78 | % | | | 2.36 | % | | | (0.87 | )% | | | 5.21 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 8,419 | | | $ | 8,972 | | | $ | 9,608 | | | $ | 12,613 | | | $ | 16,149 | | | $ | 19,540 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(d) | | | 1.51 | %(g) | | | 1.67 | % | | | 1.53 | % | | | 1.29 | % | | | 1.43 | % | | | 1.94 | % |
| Net expenses(e) | | | 0.70 | %(g) | | | 0.68 | % | | | 0.70 | % | | | 0.77 | % | | | 0.75 | % | | | 0.71 | % |
| Gross expenses(b)(e) | | | 0.76 | %(g) | | | 0.75 | % | | | 0.75 | % | | | 0.77 | % | | | 0.75 | % | | | 0.71 | % |
| Portfolio turnover rate | | | 31 | %(f) | | | 68 | % | | | 130 | % | | | 162 | % | | | 111 | % | | | 75 | % |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (c) | Less than $0.01 per share. |
| (d) | The Net investment income (loss) ratio includes income actually earned by the Fund from its investments in fixed income securities as well as from dividend distributions made to it by the underlying investment companies in which it invests, as disclosed on the Statement of Operations and in further detail within the “Investments in Affiliates — Intermediate Income Fund” section of Note 3. The Net investment income ratio does not include any other pro-rata amounts of the net investment income of the underlying investment companies in which it invests. |
| (e) | The Gross and Net Expense ratios include the actual gross and Net expenses incurred by the Fund as disclosed on the Statement of Operations. The Gross and Net Expense ratios do not include any other pro-rata amounts of expenses ’incurred by the underlying investment companies in which the Fund invests (known as Acquired Fund Fees and Expenses). For further details regarding the expenses waived in this fund, refer to the “investments in Affiliates — Intermediate Income Fund” section of Note 3. |
| (f) | Not annualized. |
| (g) | Annualized. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY TOTAL RETURN FUND
INSTITUTIONAL SHARES
| | | Six Months | | | | | | | |
| | | Ended | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015(e) | |
| For a share outstanding throughout each period | | | | | | | | | |
| | | | | | | | | | |
| Net asset value, beginning of period | | $ | 10.18 | | | $ | 9.83 | | | $ | 10.00 | |
| | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.12 | | | | 0.25 | | | | 0.13 | |
| Net realized and unrealized gains (losses) | | | (0.31 | ) | | | 0.37 | | | | (0.19 | ) |
| | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.19 | ) | | $ | 0.62 | | | $ | (0.06 | ) |
| | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | |
| Net investment income | | | (0.12 | ) | | | (0.27 | ) | | | (0.11 | ) |
| Net realized gains | | | (0.01 | ) | | | — | | | | — | |
| | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.13 | ) | | $ | (0.27 | ) | | $ | (0.11 | ) |
| | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 9.86 | | | $ | 10.18 | | | $ | 9.83 | |
| | | | | | | | | | | | | |
| Total return | | | (1.86 | )%(b) | | | 6.46 | % | | | (0.60 | )%(b) |
| | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 90,764 | | | $ | 83,854 | | | $ | 73,735 | |
| | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | |
| Net investment income (loss) | | | 2.33 | %(c) | | | 2.55 | % | | | 1.89 | %(c) |
| Net expenses | | | 0.50 | %(c) | | | 0.51 | % | | | 0.54 | %(c) |
| Gross expenses(d) | | | 0.50 | %(c) | | | 0.51 | % | | | 0.54 | %(c) |
| Portfolio turnover rate | | | 108 | %(b) | | | 218 | % | | | 235 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Commenced operations on October 30, 2014. The information presented is for the period from October 30, 2014 to June 30, 2015. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY TOTAL RETURN FUND
INVESTOR SHARES
| | | Six Months | | | | | | | |
| | | Ended | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015(e) | |
| For a share outstanding throughout each period | | | | | | | | | |
| | | | | | | | | | |
| Net asset value, beginning of period | | $ | 10.18 | | | $ | 9.83 | | | $ | 10.00 | |
| | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.12 | | | | 0.25 | | | | 0.12 | |
| Net realized and unrealized gains (losses) | | | (0.31 | ) | | | 0.37 | | | | (0.18 | ) |
| | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.19 | ) | | $ | 0.62 | | | $ | (0.06 | ) |
| | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | |
| Net investment income | | | (0.12 | ) | | | (0.27 | ) | | | (0.11 | ) |
| Net realized gains | | | (0.01 | ) | | | — | | | | — | |
| | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.13 | ) | | $ | (0.27 | ) | | $ | (0.11 | ) |
| | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 9.86 | | | $ | 10.18 | | | $ | 9.83 | |
| | | | | | | | | | | | | |
| Total return | | | (1.89 | )%(b) | | | 6.40 | % | | | (0.63 | )%(b) |
| | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 2,950 | | | $ | 1,957 | | | $ | 9,081 | |
| | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | |
| Net investment income (loss) | | | 2.28 | %(c) | | | 2.50 | % | | | 1.84 | %(c) |
| Net expenses | | | 0.55 | %(c) | | | 0.56 | % | | | 0.59 | %(c) |
| Gross expenses(d) | | | 0.55 | %(c) | | | 0.56 | % | | | 0.59 | %(c) |
| Portfolio turnover rate | | | 108 | %(b) | | | 218 | % | | | 235 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Commenced operations on October 30, 2014. The information presented is for the period from October 30, 2014 to June 30, 2015. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY STRATEGIC BOND FUND
INVESTOR SHARES
| | | Six Months | | | | | | | |
| | | Ended | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015(e) | |
| For a share outstanding throughout each period | | | | | | | | | |
| | | | | | | | | | |
| Net asset value, beginning of period | | $ | 9.47 | | | $ | 9.83 | | | $ | 10.07 | |
| | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.12 | | | | 0.30 | | | | 0.16 | |
| Net realized and unrealized gains (losses) | | | 0.06 | | | | (0.19 | ) | | | (0.35 | ) |
| | | | | | | | | | | | | |
| Total from investment operations | | $ | 0.18 | | | $ | 0.11 | | | $ | (0.19 | ) |
| | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | |
| Net investment income | | | (0.12 | ) | | | (0.47 | ) | | | (0.05 | ) |
| | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.12 | ) | | $ | (0.47 | ) | | $ | (0.05 | ) |
| | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 9.53 | | | $ | 9.47 | | | $ | 9.83 | |
| | | | | | | | | | | | | |
| Total return | | | 1.89 | %(b) | | | 1.18 | % | | | (1.85 | )%(b) |
| | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 59,856 | | | $ | 39,211 | | | $ | 59,680 | |
| | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | |
| Net investment income (loss) | | | 2.48 | %(c) | | | 3.21 | % | | | 2.42 | %(c) |
| Net expenses | | | 0.70 | %(c) | | | 0.70 | % | | | 0.70 | %(c) |
| Gross expenses(d) | | | 0.75 | %(c) | | | 0.73 | % | | | 0.72 | %(c) |
| Portfolio turnover rate | | | 164 | %(b) | | | 288 | % | | | 317 | %(e) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Reflects portfolio turnover at the Fund level for the year ended June 30, 2015. |
| (f) | Commenced operations on October 31, 2014. The information presented is for the period from October 31, 2014 to June 30, 2015. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY STRATEGIC BOND FUND
ADVISOR SHARES
| | | Six Months | | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012(g) | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 9.47 | | | $ | 9.82 | | | $ | 10.04 | | | $ | 9.68 | | | $ | 9.68 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.11 | | | | 0.28 | | | | 0.19 | | | | (0.01 | ) | | | (0.09 | ) | | | (0.04 | ) |
| Net realized and unrealized gains (losses) | | | 0.06 | | | | (0.20 | ) | | | (0.37 | ) | | | 0.42 | | | | 0.29 | | | | (0.27 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 0.17 | | | $ | 0.08 | | | $ | (0.18 | ) | | $ | 0.41 | | | $ | 0.20 | | | $ | (0.31 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.11 | ) | | | (0.43 | ) | | | (0.04 | ) | | | (0.05 | ) | | | (0.20 | ) | | | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.11 | ) | | $ | (0.43 | ) | | $ | (0.04 | ) | | $ | (0.05 | ) | | $ | (0.20 | ) | | $ | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | | | | — | | | | — | | | | —(e | ) | | | —(e | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 9.53 | | | $ | 9.47 | | | $ | 9.82 | | | $ | 10.04 | | | $ | 9.68 | | | $ | 9.68 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total return | | | 1.76 | %(b) | | | 0.84 | % | | | (1.80 | )% | | | 4.22 | % | | | 2.09 | % | | | (3.09 | )%(b) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 698 | | | $ | 865 | | | $ | 1,692 | | | $ | 24,399 | | | $ | 25,570 | | | $ | 29,541 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 2.23 | %(c) | | | 2.96 | % | | | 1.91 | % | | | (0.07 | )% | | | (0.87 | )% | | | (0.56 | )%(c) |
| Net expenses | | | 0.95 | %(c) | | | 0.95 | % | | | 1.21 | %(f) | | | 1.33 | % | | | 1.40 | % | | | 1.40 | %(c) |
| Gross expenses(d) | | | 1.00 | %(c) | | | 0.98 | % | | | 1.22 | %(f) | | | 1.33 | % | | | 1.40 | % | | | 1.40 | %(c) |
| Portfolio turnover rate | | | 164 | %(b) | | | 288 | % | | | 317 | % | | | 1010 | % | | | 992 | % | | | 1290 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | On October 31, 2015, the expense cap for this share class was lowered to 0.95%. For the period from October 31, 2014 to June 30, 2015, the net and gross expense ratios were 0.95% and 0.97%, respectively. |
| (g) | Commenced operations on September 30, 2011. The information presented is for the period from September 30, 2011 to June 30, 2012. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY MARYLAND BOND FUND
INVESTOR SHARES*
| | | Six Months | | | | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 10.92 | | | $ | 10.65 | | | $ | 10.82 | | | $ | 10.81 | | | $ | 11.06 | | | $ | 10.85 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.12 | | | | 0.23 | | | | 0.18 | | | | 0.21 | | | | 0.21 | | | | 0.25 | |
| Net realized and unrealized gains (losses) | | | (0.45 | ) | | | 0.32 | | | | (0.12 | ) | | | 0.10 | | | | (0.23 | ) | | | 0.26 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.33 | ) | | $ | 0.55 | | | $ | 0.06 | | | $ | 0.31 | | | $ | (0.02 | ) | | $ | 0.51 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.12 | ) | | | (0.23 | ) | | | (0.18 | ) | | | (0.21 | ) | | | (0.21 | ) | | | (0.25 | ) |
| Net realized gains | | | (0.04 | ) | | | (0.05 | ) | | | (0.05 | ) | | | (0.09 | ) | | | (0.02 | ) | | | (0.05 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.16 | ) | | $ | (0.28 | ) | | $ | (0.23 | ) | | $ | (0.30 | ) | | $ | (0.23 | ) | | $ | (0.30 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | | | | — | (c) | | | — | | | | — | (c) | | | — | (c) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 10.43 | | | $ | 10.92 | | | $ | 10.65 | | | $ | 10.82 | | | $ | 10.81 | | | $ | 11.06 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total return | | | (3.08 | )%(d) | | | 5.24 | % | | | 0.58 | % | | | 2.94 | % | | | (0.25 | )% | | | 4.69 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 136,329 | | | $ | 183,705 | | | $ | 199,469 | | | $ | 205,717 | | | $ | 252,166 | | | $ | 250,087 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 2.16 | %(e) | | | 2.12 | % | | | 1.66 | % | | | 1.99 | % | | | 1.86 | % | | | 2.23 | % |
| Net expenses | | | 0.49 | %(e) | | | 0.48 | % | | | 0.49 | % | | | 0.52 | % | | | 0.52 | % | | | 0.51 | % |
| Gross expenses(b) | | | 0.49 | %(e) | | | 0.48 | % | | | 0.49 | % | | | 0.52 | % | | | 0.52 | % | | | 0.51 | % |
| Portfolio turnover rate | | | 18 | %(d) | | | 80 | % | | | 61 | % | | | 56 | % | | | 30 | % | | | 16 | % |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (c) | Less than $0.01 per share. |
| (d) | Not annualized. |
| (e) | Annualized. |
| * | Prior to October 19, 2012, Investor Shares were known as Institutional Shares. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY TAX EXEMPT BOND FUND*
INVESTOR SHARES
| | | Six Months | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 10.26 | | | $ | 9.93 | | | $ | 10.03 | | | $ | 9.84 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.14 | | | | 0.25 | | | | 0.18 | | | | 0.19 | | | | 0.13 | |
| Net realized and unrealized gains (losses) | | | (0.44 | ) | | | 0.33 | | | | (0.10 | ) | | | 0.19 | | | | (0.12 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.30 | ) | | $ | 0.58 | | | $ | 0.08 | | | $ | 0.38 | | | $ | 0.01 | |
| | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.14 | ) | | | (0.25 | ) | | | (0.18 | ) | | | (0.19 | ) | | | (0.13 | ) |
| Net realized gains | | | — | | | | — | | | | — | | | | —(c | ) | | | (0.04 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.14 | ) | | $ | (0.25 | ) | | $ | (0.18 | ) | | $ | (0.19 | ) | | $ | (0.17 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | | | | — | (c) | | | — | | | | — | (c) |
| | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 9.82 | | | $ | 10.26 | | | $ | 9.93 | | | $ | 10.03 | | | $ | 9.84 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total return | | | (2.98 | )%(d) | | | 5.94 | % | | | 0.78 | % | | | 3.94 | % | | | 0.03 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 242,047 | | | $ | 233,675 | | | $ | 224,154 | | | $ | 205,177 | | | $ | 161,891 | |
| | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 2.68 | %(e) | | | 2.51 | % | | | 1.78 | % | | | 1.96 | % | | | 1.35 | % |
| Net expenses | | | 0.49 | %(e) | | | 0.49 | % | | | 0.50 | % | | | 0.52 | % | | | 0.55 | % |
| Gross expenses(b) | | | 0.49 | %(e) | | | 0.49 | % | | | 0.50 | % | | | 0.52 | % | | | 0.55 | % |
| Portfolio turnover rate | | | 34 | %(d) | | | 119 | % | | | 109 | % | | | 157 | % | | | 87 | % |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (c) | Less than $0.01 per share. |
| (d) | Not annualized. |
| (e) | Annualized. |
| * | Commenced operations on June 29, 2012. No financial highlights are presented for the period from June 29, 2012 to June 30, 2012, as the Fund did not make any investments, earn any income or incur any expenses during the period. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY MORTGAGE SECURITIES FUND
INSTITUTIONAL SHARES
| | | Six Months | | | | | | | | | | |
| | | Ended | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014(e) | |
| For a share outstanding throughout each period | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 10.20 | | | $ | 10.06 | | | $ | 10.16 | | | $ | 10.15 | |
| | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.08 | | | | 0.22 | | | | 0.27 | | | | 0.03 | |
| Net realized and unrealized gains (losses) | | | (0.27 | ) | | | 0.21 | | | | 0.01 | | | | 0.02 | |
| | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.19 | ) | | $ | 0.43 | | | $ | 0.28 | | | $ | 0.05 | |
| | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.11 | ) | | | (0.25 | ) | | | (0.30 | ) | | | (0.04 | ) |
| Net realized gains | | | (0.07 | ) | | | (0.04 | ) | | | (0.08 | ) | | | — | |
| | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.18 | ) | | $ | (0.29 | ) | | $ | (0.38 | ) | | $ | (0.04 | ) |
| | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (f) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 9.83 | | | $ | 10.20 | | | $ | 10.06 | | | $ | 10.16 | |
| | | | | | | | | | | | | | | | | |
| Total return | | | (1.88 | )%(b) | | | 4.32 | % | | | 2.74 | % | | | 0.49 | %(b) |
| | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 365,620 | | | $ | 377,908 | | | $ | 206,299 | | | $ | 131,415 | |
| | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 1.58 | %(c) | | | 2.12 | % | | | 2.68 | % | | | 1.98 | %(c) |
| Net expenses | | | 0.45 | %(c) | | | 0.45 | % | | | 0.47 | % | | | 0.52 | %(c) |
| Gross expenses(d) | | | 0.45 | %(c) | | | 0.45 | % | | | 0.47 | % | | | 0.52 | %(c) |
| Portfolio turnover rate | | | 197 | %(b) | | | 244 | % | | | 147 | % | | | 88 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Commenced operations on May 13, 2014. The information presented is for the period from May 13, 2014 to June 30, 2014. |
| (f) | Less than $0.01 per share. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY MORTGAGE SECURITIES FUND
INVESTOR SHARES
| | | Six Months | | | | | | | | | | |
| | | Ended | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014(e) | |
| For a share outstanding throughout each period | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 10.21 | | | $ | 10.06 | | | $ | 10.16 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.08 | | | | 0.21 | | | | 0.27 | | | | 0.10 | |
| Net realized and unrealized gains (losses) | | | (0.28 | ) | | | 0.22 | | | | — | | | | 0.16 | |
| | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.20 | ) | | $ | 0.43 | | | $ | 0.27 | | | $ | 0.26 | |
| | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.11 | ) | | | (0.24 | ) | | | (0.29 | ) | | | (0.10 | ) |
| Net realized gains | | | (0.07 | ) | | | (0.04 | ) | | | (0.08 | ) | | | — | |
| | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.18 | ) | | $ | (0.28 | ) | | $ | (0.37 | ) | | $ | (0.10 | ) |
| | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 9.83 | | | $ | 10.21 | | | $ | 10.06 | | | $ | 10.16 | |
| | | | | | | | | | | | | | | | | |
| Total return | | | (2.01 | )%(b) | | | 4.33 | % | | | 2.68 | % | | | 2.62 | %(b) |
| | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 841 | | | $ | 1,793 | | | $ | 28,649 | | | $ | 67,776 | |
| | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 1.53 | %(c) | | | 2.07 | % | | | 2.63 | % | | | 1.93 | %(c) |
| Net expenses | | | 0.50 | %(c) | | | 0.50 | % | | | 0.52 | % | | | 0.57 | %(c) |
| Gross expenses(d) | | | 0.50 | %(c) | | | 0.50 | % | | | 0.52 | % | | | 0.57 | %(c) |
| Portfolio turnover rate | | | 197 | %(b) | | | 244 | % | | | 147 | % | | | 88 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Commenced operations on December 26, 2013. The information presented is for the period from December 26, 2013 to June 30, 2014. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY — WMC STRATEGIC EUROPEAN EQUITY FUND
INSTITUTIONAL SHARES
| | | Six Months | | | | | | | | | | |
| | | Ended | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014(f) | |
| For a share outstanding throughout each period | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 9.90 | | | $ | 10.20 | | | $ | 10.46 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | (0.01 | ) | | | 0.13 | | | | 0.14 | | | | 0.14 | |
| Net realized and unrealized gains (losses) | | | 0.05 | | | | (0.40 | ) | | | (0.29 | ) | | | 0.32 | |
| | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 0.04 | | | $ | (0.27 | ) | | $ | (0.15 | ) | | $ | 0.46 | |
| | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.13 | ) | | | (0.03 | ) | | | (0.11 | ) | | | — | |
| | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.13 | ) | | $ | (0.03 | ) | | $ | (0.11 | ) | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (e) | | | —e | (e) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 9.81 | | | $ | 9.90 | | | $ | 10.20 | | | $ | 10.46 | |
| | | | | | | | | | | | | | | | | |
| Total return | | | 0.39 | %(b) | | | (2.68 | )% | | | (1.42 | )% | | | 4.60 | %(b) |
| | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 964,306 | | | $ | 1,059,870 | | | $ | 240,182 | | | $ | 202,616 | |
| | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | (0.12 | )%(c) | | | 1.30 | % | | | 1.35 | % | | | 2.01 | %(c) |
| Net expenses | | | 1.08 | %(c) | | | 1.11 | % | | | 1.13 | % | | | 1.23 | %(c) |
| Gross expenses(d) | | | 1.08 | %(c) | | | 1.11 | % | | | 1.13 | % | | | 1.23 | %(c) |
| Portfolio turnover rate | | | 13 | %(b) | | | 31 | % | | | 48 | % | | | 25 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | Commenced operations on October 21, 2013. The information presented is for the period from October 21, 2013 to June 30, 2014. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY — WMC STRATEGIC EUROPEAN EQUITY FUND
INVESTOR SHARES
| | | Six Months | | | | | | | | | | |
| | | Ended | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014(f) | |
| For a share outstanding throughout each period | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 9.90 | | | $ | 10.19 | | | $ | 10.45 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | (0.01 | ) | | | 0.12 | | | | 0.12 | | | | 0.13 | |
| Net realized and unrealized gains (losses) | | | 0.05 | | | | (0.41 | ) | | | (0.29 | ) | | | 0.32 | |
| | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 0.04 | | | $ | (0.29 | ) | | $ | (0.17 | ) | | $ | 0.45 | |
| | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.12 | ) | | | — | | | | (0.09 | ) | | | — | |
| | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.12 | ) | | $ | — | | | $ | (0.09 | ) | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | | | | —(e | ) | | | — | |
| | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 9.82 | | | $ | 9.90 | | | $ | 10.19 | | | $ | 10.45 | |
| | | | | | | | | | | | | | | | | |
| Total return | | | 0.39 | %(b) | | | (2.85 | )% | | | (1.56 | )% | | | 4.50 | %(b) |
| | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 8,647 | | | $ | 13,031 | | | $ | 25,840 | | | $ | 18,011 | |
| | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | (0.27 | )%(c) | | | 1.15 | % | | | 1.20 | % | | | 1.86 | %(c) |
| Net expenses | | | 1.23 | %(c) | | | 1.26 | % | | | 1.28 | % | | | 1.38 | %(c) |
| Gross expenses(d) | | | 1.23 | %(c) | | | 1.26 | % | | | 1.28 | % | | | 1.38 | %(c) |
| Portfolio turnover rate | | | 13 | %(b) | | | 31 | % | | | 48 | % | | | 25 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | Commenced operations on October 21, 2013. The information presented is for the period from October 21, 2013 to June 30, 2014. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY — WMC STRATEGIC EUROPEAN EQUITY FUND
ADVISOR SHARES
| | | Six Months | | | | | | | | | | |
| | | Ended | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014(f) | |
| For a share outstanding throughout each period | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 9.85 | | | $ | 10.17 | | | $ | 10.44 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | (0.03 | ) | | | 0.09 | | | | 0.10 | | | | 0.11 | |
| Net realized and unrealized gains (losses) | | | 0.05 | | | | (0.41 | ) | | | (0.29 | ) | | | 0.33 | |
| | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 0.02 | | | $ | (0.32 | ) | | $ | (0.19 | ) | | $ | 0.44 | |
| | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.10 | ) | | | — | | | | (0.08 | ) | | | — | |
| | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.10 | ) | | $ | — | | | $ | (0.08 | ) | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | | | | — | (e) | | | — | |
| | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 9.77 | | | $ | 9.85 | | | $ | 10.17 | | | $ | 10.44 | |
| | | | | | | | | | | | | | | | | |
| Total return | | | 0.24 | %(b) | | | (3.15 | )% | | | (1.78 | )% | | | 4.40 | %(b) |
| | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 618 | | | $ | 745 | | | $ | 1,076 | | | $ | 240 | |
| | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | (0.52 | )%(c) | | | 0.90 | % | | | 0.95 | %(c) | | | 1.61 | %(c) |
| Net expenses | | | 1.48 | %(c) | | | 1.51 | % | | | 1.53 | %(c) | | | 1.63 | %(c) |
| Gross expenses(d) | | | 1.48 | %(c) | | | 1.51 | % | | | 1.53 | %(c) | | | 1.63 | %(c) |
| Portfolio turnover rate | | | 13 | %(b) | | | 31 | % | | | 48 | %(b) | | | 25 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | Commenced operations on October 21, 2013. The information presented is for the period from October 21, 2013 to June 30, 2014. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY — WMC JAPAN ALPHA OPPORTUNITIES FUND
INSTITUTIONAL SHARES
| | | Six Months | | | | | | | | | | |
| | | Ended | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014(f) | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 8.83 | | | $ | 12.83 | | | $ | 10.50 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.04 | | | | 0.06 | | | | 0.05 | | | | 0.05 | |
| Net realized and unrealized gains (losses) | | | 0.81 | | | | (2.91 | ) | | | 2.86 | | | | 0.45 | |
| | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 0.85 | | | $ | (2.85 | ) | | $ | 2.91 | | | $ | 0.50 | |
| | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | |
| Net investment income | | | — | | | | (0.95 | ) | | | (0.51 | ) | | | — | |
| | | | | | | | | | | | | | | | | |
| Net realized gains | | | — | | | | (0.20 | ) | | | (0.07 | ) | | | — | |
| | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | — | | | $ | (1.15 | ) | | $ | (0.58 | ) | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (e) | | | — | (e) | | | — | (e) | | | — | |
| | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 9.68 | | | $ | 8.83 | | | $ | 12.83 | | | $ | 10.50 | |
| | | | | | | | | | | | | | | | | |
| Total return | | | 9.63 | %(b) | | | (24.02 | )% | | | 28.62 | % | | | 5.00 | %(b) |
| | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 1,380,725 | | | $ | 1,828,840 | | | $ | 1,582,214 | | | $ | 1,080,717 | |
| | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 0.76 | %(c) | | | 0.53 | % | | | 0.41 | % | | | 1.59 | %(c) |
| Net expenses | | | 1.15 | %(c) | | | 1.14 | % | | | 1.15 | % | | | 1.21 | %(c) |
| Gross expenses(d) | | | 1.15 | %(c) | | | 1.14 | % | | | 1.15 | % | | | 1.21 | %(c) |
| Portfolio turnover rate | | | 51 | %(b) | | | 105 | % | | | 70 | % | | | 26 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | Commenced operations on March 4, 2014. The information presented is for the period from March 4, 2014 to June 30, 2014. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY — WMC JAPAN ALPHA OPPORTUNITIES FUND
INVESTOR SHARES
| | | Six Months | | | | | | | | | | |
| | | Ended | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014(f) | |
| For a share outstanding throughout each period | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 8.81 | | | $ | 12.82 | | | $ | 10.49 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.03 | | | | 0.04 | | | | 0.03 | | | | 0.05 | |
| Net realized and unrealized gains (losses) | | | 0.81 | | | | (2.91 | ) | | | 2.87 | | | | 0.44 | |
| | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 0.84 | | | $ | (2.87 | ) | | $ | 2.90 | | | $ | 0.49 | |
| | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | |
| Net investment income | | | — | | | | (0.94 | ) | | | (0.50 | ) | | | — | |
| Net realized gains | | | — | | | | (0.20 | ) | | | (0.07 | ) | | | — | |
| | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | — | | | $ | (1.14 | ) | | $ | (0.57 | ) | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | (e) | | | — | (e) | | | — | |
| | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 9.65 | | | $ | 8.81 | | | $ | 12.82 | | | $ | 10.49 | |
| | | | | | | | | | | | | | | | | |
| Total return | | | 9.53 | %(b) | | | (24.20 | )% | | | 28.57 | % | | | 4.90 | %(b) |
| | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 1,428 | | | $ | 1,595 | | | $ | 25,628 | | | $ | 4,522 | |
| | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 0.61 | %(c) | | | 0.38 | % | | | 0.26 | % | | | 1.44 | %(c) |
| Net expenses | | | 1.30 | %(c) | | | 1.29 | % | | | 1.30 | % | | | 1.36 | %(c) |
| Gross expenses(d) | | | 1.30 | %(c) | | | 1.29 | % | | | 1.30 | % | | | 1.36 | %(c) |
| Portfolio turnover rate | | | 51 | %(b) | | | 105 | % | | | 70 | % | | | 26 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | Commenced operations on March 4, 2014. The information presented is for the period from March 4, 2014 to June 30, 2014. |
| | |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY — WMC JAPAN ALPHA OPPORTUNITIES FUND
ADVISOR SHARES
| | | Six Months | | | | | | | | | | |
| | | Ended | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014(f) | |
| For a share outstanding throughout each period | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 8.78 | | | $ | 12.79 | | | $ | 10.48 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.02 | | | | 0.01 | | | | — | | | | 0.04 | |
| Net realized and unrealized gains (losses) | | | 0.81 | | | | (2.90 | ) | | | 2.87 | | | | 0.44 | |
| | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | 0.83 | | | $ | (2.89 | ) | | $ | 2.87 | | | $ | 0.48 | |
| | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | |
| Net investment income | | | — | | | | (0.92 | ) | | | (0.49 | ) | | | — | |
| Net realized gains | | | — | | | | (0.20 | ) | | | (0.07 | ) | | | — | |
| | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | — | | | $ | (1.12 | ) | | $ | (0.56 | ) | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | (e) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 9.61 | | | $ | 8.78 | | | $ | 12.79 | | | $ | 10.48 | |
| | | | | | | | | | | | | | | | | |
| Total return | | | 9.45 | %(b) | | | (24.39 | )% | | | 28.22 | % | | | 4.80 | %(b) |
| | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 587 | | | $ | 687 | | | $ | 1,670 | | | $ | 59 | |
| | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 0.36 | %(c) | | | 0.13 | % | | | 0.01 | % | | | 1.19 | %(c) |
| Net expenses | | | 1.55 | %(c) | | | 1.54 | % | | | 1.55 | % | | | 1.61 | %(c) |
| Gross expenses(d) | | | 1.55 | %(c) | | | 1.54 | % | | | 1.55 | % | | | 1.61 | %(c) |
| Portfolio turnover rate | | | 51 | %(b) | | | 105 | % | | | 70 | % | | | 26 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | Commenced operations on March 4, 2014. The information presented is for the period from March 4, 2014 to June 30, 2014. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY – SOMERSET EMERGING MARKETS FUND
INSTITUTIONAL SHARES
| | | Six Months | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013(f) | |
| For a share outstanding throughout each period | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 8.73 | | | $ | 9.74 | | | $ | 10.22 | | | $ | 9.52 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.04 | | | | 0.13 | | | | 0.13 | | | | 0.20 | | | | 0.12 | |
| Net realized and unrealized gains (losses) | | | (0.13 | ) | | | (1.05 | ) | | | (0.46 | ) | | | 0.61 | | | | (0.60 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.09 | ) | | $ | (0.92 | ) | | $ | (0.33 | ) | | $ | 0.81 | | | $ | (0.48 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.11 | ) | | | (0.09 | ) | | | (0.15 | ) | | | (0.11 | ) | | | — | (e) |
| | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.11 | ) | | $ | (0.09 | ) | | $ | (0.15 | ) | | $ | (0.11 | ) | | $ | — | (e) |
| | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (e) | | | — | | | | — | | | | — | | | | — | (e) |
| | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 8.53 | | | $ | 8.73 | | | $ | 9.74 | | | $ | 10.22 | | | $ | 9.52 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total return | | | (0.99 | )%(b) | | | (9.40 | )% | | | (3.22 | )% | | | 8.62 | % | | | (4.77 | )%(b) |
| | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 331,611 | | | $ | 319,993 | | | $ | 268,530 | | | $ | 193,676 | | | $ | 122,515 | |
| | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 0.94 | %(c) | | | 1.56 | % | | | 1.31 | % | | | 2.08 | % | | | 2.17 | %(c) |
| Net expenses | | | 1.16 | %(c) | | | 1.17 | % | | | 1.22 | % | | | 1.25 | % | | | 1.41 | %(c) |
| Gross expenses(d) | | | 1.16 | %(c) | | | 1.17 | % | | | 1.22 | % | | | 1.25 | % | | | 1.41 | %(c) |
| Portfolio turnover rate | | | 13 | %(b) | | | 19 | % | | | 22 | % | | | 19 | % | | | 19 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | Commenced operations on December 12, 2012. The information presented is for the period from December 12, 2012 to June 30, 2013. |
| | |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY – SOMERSET EMERGING MARKETS FUND
INVESTOR SHARES
| | | Six Months | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013(f) | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 8.71 | | | $ | 9.73 | | | $ | 10.21 | | | $ | 9.51 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.04 | | | | 0.12 | | | | 0.11 | | | | 0.19 | | | | 0.11 | |
| Net realized and unrealized gains (losses) | | | (0.13 | ) | | | (1.06 | ) | | | (0.45 | ) | | | 0.61 | | | | (0.60 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.09 | ) | | $ | (0.94 | ) | | $ | (0.34 | ) | | $ | 0.80 | | | $ | (0.49 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.10 | ) | | | (0.08 | ) | | | (0.14 | ) | | | (0.10 | ) | | | — | (e) |
| | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.10 | ) | | $ | (0.08 | ) | | $ | (0.14 | ) | | $ | (0.10 | ) | | $ | — | (e) |
| | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | (e) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 8.52 | | | $ | 8.71 | | | $ | 9.73 | | | $ | 10.21 | | | $ | 9.51 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total return | | | (1.03 | )%(b) | | | (9.60 | )% | | | (3.33 | )% | | | 8.51 | % | | | (4.87 | )%(b) |
| | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 191,575 | | | $ | 196,841 | | | $ | 155,919 | | | $ | 24,291 | | | $ | 11,695 | |
| | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 0.79 | %(c) | | | 1.41 | % | | | 1.16 | % | | | 1.93 | % | | | 2.02 | %(c) |
| Net expenses | | | 1.31 | %(c) | | | 1.32 | % | | | 1.37 | % | | | 1.40 | % | | | 1.56 | %(c) |
| Gross expenses(d) | | | 1.31 | %(c) | | | 1.32 | % | | | 1.37 | % | | | 1.40 | % | | | 1.56 | %(c) |
| Portfolio turnover rate | | | 13 | %(b) | | | 19 | % | | | 22 | % | | | 19 | % | | | 19 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | Commenced operations on December 12, 2012. The information presented is for the period from December 12, 2012 to June 30, 2013. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY – SOMERSET EMERGING MARKETS FUND
ADVISOR SHARES
| | | Six Months | | | | | | | | | | | | | |
| | | Ended | | | | | | | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015 | | | 2014 | | | 2013(f) | |
| For a share outstanding throughout each period | |
| | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $ | 8.73 | | | $ | 9.70 | | | $ | 10.18 | | | $ | 9.49 | | | $ | 10.00 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.02 | | | | 0.10 | | | | 0.09 | | | | 0.16 | | | | 0.10 | |
| Net realized and unrealized gains (losses) | | | (0.12 | ) | | | (1.05 | ) | | | (0.46 | ) | | | 0.61 | | | | (0.61 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.10 | ) | | $ | (0.95 | ) | | $ | (0.37 | ) | | $ | 0.77 | | | $ | (0.51 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | | (0.07 | ) | | | (0.02 | ) | | | (0.11 | ) | | | (0.08 | ) | | | — | (e) |
| | | | | | | | | | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | (0.07 | ) | | $ | (0.02 | ) | | $ | (0.11 | ) | | $ | (0.08 | ) | | $ | — | (e) |
| | | | | | | | | | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 8.56 | | | $ | 8.73 | | | $ | 9.70 | | | $ | 10.18 | | | $ | 9.49 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total return | | | (1.17 | )%(b) | | | (9.82 | )% | | | (3.60 | )% | | | 8.19 | % | | | (5.07 | )%(b) |
| | | | | | | | | | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 207 | | | $ | 281 | | | $ | 942 | | | $ | 533 | | | $ | 990 | |
| | | | | | | | | | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | |
| Net investment income (loss) | | | 0.54 | %(c) | | | 1.16 | % | | | 0.91 | % | | | 1.68 | % | | | 1.77 | %(c) |
| Net expenses | | | 1.56 | %(c) | | | 1.57 | % | | | 1.62 | % | | | 1.65 | % | | | 1.81 | %(c) |
| Gross expenses(d) | | | 1.56 | %(c) | | | 1.57 | % | | | 1.62 | % | | | 1.65 | % | | | 1.81 | %(c) |
| Portfolio turnover rate | | | 13 | %(b) | | | 19 | % | | | 22 | % | | | 19 | % | | | 19 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | Commenced operations on December 12, 2012. The information presented is for the period from December 12, 2012 to June 30, 2013. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY EMERGING MARKETS SMALL-CAP FUND
INSTITUTIONAL SHARES
| | | Six Months | | | | | | | |
| | | Ended | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015(e) | |
| For a share outstanding throughout each period | | | | | | | | | |
| | | | | | | | | | |
| Net asset value, beginning of period | | $ | 9.18 | | | $ | 11.70 | | | $ | 10.00 | |
| | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | 0.01 | | | | — | | | | 0.02 | |
| Net realized and unrealized gains (losses) | | | (0.99 | ) | | | (2.10 | ) | | | 1.68 | |
| | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.98 | ) | | $ | (2.10 | ) | | $ | 1.70 | |
| | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | |
| Net realized gains | | | — | | | | (0.42 | ) | | | — | |
| | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | — | | | $ | (0.42 | ) | | $ | — | |
| | | | | | | | | | | | | |
| Redemption fees(a) | | | — | (f) | | | — | | | | — | |
| | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 8.20 | | | $ | 9.18 | | | $ | 11.70 | |
| | | | | | | | | | | | | |
| Total return | | | (10.68 | )%(b) | | | (18.16 | )% | | | 17.00 | %(b) |
| | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 158,228 | | | $ | 212,344 | | | $ | 187,901 | |
| | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | |
| Net investment income (loss) | | | 0.24 | %(c) | | | (0.03 | )% | | | 0.27 | %(c) |
| Net expenses | | | 1.53 | %(c) | | | 1.51 | % | | | 1.83 | %(c) |
| Gross expenses(d) | | | 1.53 | %(c) | | | 1.51 | % | | | 1.83 | %(c) |
| Portfolio turnover rate | | | 70 | %(b) | | | 126 | % | | | 89 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Commenced operations on November 21, 2014. The information presented is for the period from November 21, 2014 to June 30, 2015. |
| (f) | Less than $0.01 per share. |
The accompanying notes are an integral part of these financial statements.
Financial Highlights
BROWN ADVISORY EMERGING MARKETS SMALL-CAP FUND
INVESTOR SHARES
| | | Six Months | | | | | | | |
| | | Ended | | | | | | | |
| | | December 31, | | | Fiscal Year Ended: | |
| | | 2016 | | | June 30, | | | June 30, | |
| | | (Unaudited) | | | 2016 | | | 2015(f) | |
| For a share outstanding throughout each period | | | | | | | | | |
| | | | | | | | | | |
| Net asset value, beginning of period | | $ | 9.15 | | | $ | 11.69 | | | $ | 10.00 | |
| | | | | | | | | | | | | |
| Net investment income (loss)(a) | | | — | | | | (0.02 | ) | | | 0.01 | |
| Net realized and unrealized gains (losses) | | | (0.98 | ) | | | (2.10 | ) | | | 1.68 | |
| | | | | | | | | | | | | |
| Total from investment operations | | $ | (0.98 | ) | | $ | (2.12 | ) | | $ | 1.69 | |
| | | | | | | | | | | | | |
| Distributions from: | | | | | | | | | | | | |
| Net realized gains | | | — | | | | (0.42 | ) | | | — | |
| | | | | | | | | | | | | |
| Total distributions to shareholders | | $ | — | | | $ | (0.42 | ) | | $ | — | |
| | | | | | | | | | | | | |
| Redemption fees(a) | | | — | | | | — | (e) | | | — | |
| | | | | | | | | | | | | |
| Net asset value, end of period | | $ | 8.17 | | | $ | 9.15 | | | $ | 11.69 | |
| | | | | | | | | | | | | |
| Total return | | | (10.71 | )%(b) | | | (18.35 | )% | | | 16.90 | %(b) |
| | | | | | | | | | | | | |
| Net assets at end of period (000’s omitted) | | $ | 3,539 | | | $ | 5,633 | | | $ | 18,992 | |
| | | | | | | | | | | | | |
| Ratios to average net assets: | | | | | | | | | | | | |
| Net investment income (loss) | | | 0.09 | %(c) | | | (0.18 | )% | | | 0.12 | %(c) |
| Net expenses | | | 1.68 | %(c) | | | 1.66 | % | | | 1.98 | %(c) |
| Gross expenses(d) | | | 1.68 | %(c) | | | 1.66 | % | | | 1.98 | %(c) |
| Portfolio turnover rate | | | 70 | %(b) | | | 126 | % | | | 89 | %(b) |
| (a) | Calculated based on average shares outstanding during the period. |
| (b) | Not annualized. |
| (c) | Annualized. |
| (d) | Reflects the expense ratio excluding any waivers and/or expense reimbursements. |
| (e) | Less than $0.01 per share. |
| (f) | Commenced operations on November 21, 2014. The information presented is for the period from November 21, 2014 to June 30, 2015. |
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
December 31, 2016 (Unaudited)
Note 1. Organization
The Brown Advisory Growth Equity Fund (“Growth Equity Fund”), Brown Advisory Flexible Equity Fund (“Flexible Equity Fund”), Brown Advisory Equity Income Fund (“Equity Income Fund”), Brown Advisory Sustainable Growth Fund (“Sustainable Growth Fund”), Brown Advisory Small-Cap Growth Fund (“Small-Cap Growth Fund”), Brown Advisory Small-Cap Fundamental Value Fund (“Small-Cap Fundamental Value Fund”), Brown Advisory Global Leaders Fund (“Global Leaders Fund”), Brown Advisory Intermediate Income Fund (“Intermediate Income Fund”), Brown Advisory Total Return Fund (“Total Return Fund”), Brown Advisory Strategic Bond Fund (“Strategic Bond Fund”), Brown Advisory Maryland Bond Fund (“Maryland Bond Fund”), Brown Advisory Tax Exempt Bond Fund (“Tax Exempt Bond Fund”), Brown Advisory Mortgage Securities Fund (“Mortgage Securities Fund”), Brown Advisory – WMC Strategic European Equity Fund (“WMC Strategic European Equity Fund”), Brown Advisory – WMC Japan Alpha Opportunities Fund (“WMC Japan Alpha Opportunities Fund”), Brown Advisory – Somerset Emerging Markets Fund (“Somerset Emerging Markets Fund”) and Brown Advisory Emerging Markets Small-Cap Fund (“Emerging Markets Small-Cap Fund”) (individually a “Fund,” and collectively, the “Funds”) are each a series of shares of beneficial interest of Brown Advisory Funds (the “Trust”), which is registered under the Investment Company Act of 1940 as an open-ended management investment company. Prior to October 19, 2012, the Funds, except for the Sustainable Growth Fund, Global Leaders Fund, Total Return Fund, Tax Exempt Bond Fund, Mortgage Securities Fund, WMC Strategic European Equity Fund, WMC Japan Alpha Opportunities Fund, Somerset Emerging Markets Fund, and Emerging Markets Small-Cap Fund, were series of Professionally Managed Portfolios Trust. Prior to April 12, 2010, the Funds, except for the Equity Income Fund, Sustainable Growth Fund, Global Leaders Fund, Total Return Fund, Strategic Bond Fund, Tax Exempt Bond Fund, Mortgage Securities Fund, WMC Strategic European Equity Fund, WMC Japan Alpha Opportunities Fund, Somerset Emerging Markets Fund, and Emerging Markets Small-Cap Fund, each of which had yet to commence operations, were part of the Forum Funds Trust.
The Funds commenced operations as follows:
| | Institutional | Investor | Advisor |
| | Shares | Shares | Shares |
| Growth Equity Fund | 10/19/2012 | 6/28/1999* | 5/18/2006** |
| Flexible Equity Fund | 10/19/2012 | 11/30/2006* | 1/24/2007** |
| Equity Income Fund | 10/19/2012 | 12/29/2011* | 12/29/2011 |
| Sustainable Growth Fund | 6/29/2012 | 6/29/2012 | 6/29/2012 |
| Small-Cap Growth Fund | 9/20/2002*** | 6/28/1999* | 4/25/2006** |
| Small-Cap Fundamental Value Fund | 10/19/2012 | 12/31/2008* | 7/28/2011 |
| Global Leaders Fund | — | 7/1/2015 | — |
| Intermediate Income Fund | — | 11/2/1995* | 5/13/1991** |
| Total Return Fund | 10/30/2014 | 10/30/2014 | — |
| Strategic Bond Fund | — | 10/31/2014 | 9/30/2011 |
| Maryland Bond Fund | — | 12/21/2000* | — |
| Tax Exempt Bond Fund | — | 6/29/2012 | — |
| Mortgage Securities Fund | 5/13/2014 | 12/26/2013 | — |
| WMC Strategic European Equity Fund | 10/21/2013 | 10/21/2013 | 10/21/2013 |
| WMC Japan Alpha Opportunities Fund | 3/4/2014 | 3/4/2014 | 3/4/2014 |
| Somerset Emerging Markets Fund | 12/12/2012 | 12/12/2012 | 12/12/2012 |
| Emerging Markets Small-Cap Fund | 11/21/2014 | 11/21/2014 | — |
_________________________
| * | | Prior to October 19, 2012, Investor Shares were known as Institutional Shares. |
| ** | | Prior to July 1, 2011, Advisor Shares were known as A Shares. |
| *** | | Prior to October 19, 2012, Small-Cap Growth Fund Institutional Shares were known as D Shares. |
Each share class has equal rights as to earnings and assets except that each class bears different shareholder servicing and distribution expenses. Each share class has exclusive voting rights with respect to matters that affect just that class. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each share class on its relative net assets.
Notes to Financial Statements
December 31, 2016 (Unaudited)
The investment objective of Growth Equity Fund and Small-Cap Growth Fund is to achieve capital appreciation by primarily investing in equity securities. The investment objective of Small-Cap Fundamental Value Fund is to achieve long-term capital appreciation. Flexible Equity Fund’s investment objective is to achieve long-term growth of capital. Maryland Bond Fund’s investment objective is to provide a high level of current income exempt from both Federal and Maryland State income taxes without undue risk. Intermediate Income Fund’s investment objective is to provide a high level of current income consistent with preservation of principal within an intermediate-term maturity structure. Equity Income Fund’s investment objective is to provide current dividend yield and dividend growth. Sustainable Growth Fund’s investment objective is to seek capital appreciation by investing at least 80% of its net assets in equity securities of environmentally sustainable domestic companies. The investment objective of the Strategic Bond Fund is to achieve capital appreciation and income with a low correlation to interest rate movements. Tax Exempt Bond Fund’s investment objective is to seek to provide a high level of current income exempt from Federal income tax by investing primarily in intermediate-term investment grade municipal bonds. The investment objective of the Somerset Emerging Markets Fund is to seek to achieve total return by investing principally in equity securities issued by companies established or operating in emerging markets. The investment objective of the WMC Strategic European Equity Fund seeks to achieve total return by investing principally in equity securities issued by companies established or operating in Europe. The investment objective of the Mortgage Securities Fund seeks to maximize total return consistent with preservation of capital. The investment objective of the WMC Japan Alpha Opportunities Fund seeks to achieve total return by investing principally in equity securities of companies which are domiciled in or exercise the predominant part of their economic activity in Japan. Global Leaders Fund seeks to achieve capital appreciation by investing primarily in global equities. The investment objective of the Total Return Fund is to provide a competitive total return consistent with preservation of principal. The Emerging Markets Small-Cap Fund’s investment objective is to achieve total return by investing principally in equity securities issued by small-capitalization companies established or operating in emerging markets.
Note 2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the Funds. These policies are in conformity with accounting principles generally accepted in the United States of America.
A. Security Valuation – The Funds have adopted fair valuation accounting standards which establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion of changes in valuation techniques and related inputs, if any, during the period. These inputs are summarized in the three broad levels listed below:
| Level 1 – | Quoted prices in active markets for identical securities. |
| | |
| Level 2 – | Evaluated price based on other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment spreads, credit risk, etc). |
| | |
| Level 3 – | Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Equity securities that are traded on a national securities exchange, except those listed on the NASDAQ Global Market® (“NASDAQ”), are valued at the last reported sale price on the exchange on which the security is principally traded. Securities traded on NASDAQ will be valued at the NASDAQ Official Closing Price (“NOCP”). If, on a particular day, an exchange-traded or NASDAQ security does not trade, then the mean between the most recent quoted bid and asked prices will be used. All equity securities that are not traded on a listed exchange are valued at the last sale price in the over-the counter market. If a non-exchange traded security does not trade on a particular day, then the mean between the last quoted closing bid and asked price will be used. Such domestic equity securities are typically categorized as Level 1 securities. Investments in other domestic investment companies are valued at their reported Net Asset Value (“NAV”) and are typically categorized as Level 1 securities. Investments in Exchange Traded Funds (“ETFs”) are valued at their last reported sale price and are typically categorized as Level 1 securities.
For foreign securities that are traded on foreign exchanges, the Funds have selected Interactive Data Corporation (“IDC”) to provide pricing data for those such securities that are held by the Funds. The use of IDC’s pricing services with respect to these foreign exchange traded securities is designed to capture events occurring after a foreign exchange closes that may affect the value of certain holdings of the Funds that are traded on those foreign exchanges. The Funds utilize a confidence interval when determining whether or not to utilize these prices provided by IDC. The confidence interval is a measure of the relationship that
Notes to Financial Statements
December 31, 2016 (Unaudited)
each foreign exchange traded security has to movements in various indices and the price of the foreign exchange traded security’s corresponding American Depositary Receipt, if one exists. IDC provides a confidence interval for each foreign exchange traded security for which it provides a price. If the confidence interval provided by IDC is equal to or greater than a predefined level utilized by the Funds, the Funds will value that foreign exchange traded security at that price. If the confidence interval provided by IDC is less than the predefined level utilized by the Funds, the Funds will value that foreign exchange traded security at the preceding closing price on its respective foreign exchange, or, if there were no transactions on the preceding day, at the mean between the bid and the asked prices. Such foreign securities are typically categorized as Level 2 securities. Foreign securities for which the local market closing prices are utilized are typically categorized as Level 1 securities.
Debt securities are valued by using the mean between the closing bid and asked prices provided by an independent pricing service. If the closing bid and asked prices are not readily available, the independent pricing service may provide a price determined by a matrix pricing method. These techniques generally consider such factors as yields or prices of bonds of comparable quality, type of issue, coupon, maturity, ratings and general market conditions. Fixed income debt instruments, such as commercial paper, banker’s acceptances and U.S. Treasury Bills, having a maturity of less than 60 days are valued at amortized cost when the amortized cost value is determined to approximate fair value established using market-based and issuer-specific factors. Such debt securities are typically categorized as Level 2.
Exchange traded options are valued at the composite price, using the National Best Bid and Offer quotes (NBBO). NBBO consists of the highest bid price and lowest ask price across any of the exchanges on which an option is quoted, thus providing a view across the entire U.S. options marketplace. Specifically, composite pricing calculates the mean of the highest bid price and lowest ask price across the exchanges where the option is traded. Such options are typically categorized as Level 2.
Futures contracts are generally valued at the settlement prices established each day on the exchange on which they are traded and are categorized as Level 1 securities.
Forward foreign currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and are categorized as Level 2 securities.
Credit default swaps are valued based upon the daily closing price of the underlying index or reference entity and are categorized as Level 2 securities.
Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith under guidelines and procedures adopted by the Board of Trustees. These are generally considered Level 3 securities when significant unobservable inputs are utilized in the determination of the fair value. When a security is “fair valued,” consideration is given to the facts and circumstances relevant to the particular situation, including a review of various factors set forth in the guidelines and procedures adopted by the Board of Trustees. Fair value pricing is an inherently subjective process, and no single standard exists for determining fair value. Different funds could reasonably arrive at different values for the same security. The use of fair value pricing by a fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated without regard to such considerations. As of December 31, 2016, the Small-Cap Growth Fund was the only fund that held any fair valued securities. As of December 31, 2016, the Small-Cap Growth Fund held fair valued securities with a total market value of $2,874,868 or 0.7% of total net assets.
The following is a summary of inputs used to value the Funds’ investments as of December 31, 2016:
| Growth Equity Fund | | Level 1 | | | Level 2 | | | Level 3 | |
| Common Stocks | | $ | 1,656,113,970 | | | $ | — | | | $ | — | |
| Short-Term Investments | | | 43,650,546 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 1,699,764,516 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | |
| Flexible Equity Fund | | Level 1 | | | Level 2 | | | Level 3 | |
| Common Stocks | | $ | 365,349,336 | | | $ | — | | | $ | — | |
| Real Estate Investment Trusts | | | 6,620,725 | | | | — | | | | — | |
| Warrants | | | 426,600 | | | | — | | | | — | |
| Short-Term Investments | | | 15,473,111 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 387,869,772 | | | $ | — | | | $ | — | |
Notes to Financial Statements
December 31, 2016 (Unaudited)
| Equity Income Fund | | Level 1 | | | Level 2 | | | Level 3 | |
| Common Stocks | | $ | 99,962,940 | | | $ | — | | | $ | — | |
| Preferred Stocks | | | 2,327,892 | | | | — | | | | — | |
| Real Estate Investment Trusts | | | 6,359,800 | | | | — | | | | — | |
| Short-Term Investments | | | 2,796,489 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 111,447,121 | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
| Sustainable Growth Fund | | | | | | | | | | | | |
| Common Stocks | | $ | 327,187,437 | | | $ | — | | | $ | — | |
| Real Estate Investment Trusts | | | 12,994,201 | | | | — | | | | — | |
| Short-Term Investments | | | 13,353,192 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 353,534,830 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | |
| Small-Cap Growth Fund | | Level 1 | | | Level 2 | | | Level 3 | |
| Common Stocks | | $ | 391,714,875 | | | $ | — | | | $ | — | |
| Contingent Value Rights | | | — | | | | — | | | | 131,192 | |
| Private Placements | | | — | | | | — | | | | 2,743,676 | |
| Short-Term Investments | | | 32,356,817 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 424,071,692 | | | $ | — | | | $ | 2,874,868 | |
| | | | | | | | | | | | | |
| Small-Cap Fundamental Value Fund | | Level 1 | | | Level 2 | | | Level 3 | |
| Common Stocks | | $ | 1,041,923,551 | | | $ | — | | | $ | — | |
| Real Estate Investment Trusts | | | 110,653,436 | | | | — | | | | — | |
| Short-Term Investments | | | 48,019,276 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 1,200,596,263 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | |
| Global Leaders Fund | | Level 1 | | | Level 2 | | | Level 3 | |
| Common Stocks: | | | | | | | | | | | | |
| China | | $ | — | | | $ | 927,295 | | | $ | — | |
| France | | | — | | | | 925,951 | | | | — | |
| Germany | | | — | | | | 911,582 | | | | — | |
| India | | | 689,369 | | | | 540,430 | | | | — | |
| Indonesia | | | — | | | | 471,156 | | | | — | |
| Japan | | | — | | | | 307,176 | | | | — | |
| Sweden | | | — | | | | 493,996 | | | | — | |
| Switzerland | | | — | | | | 927,202 | | | | — | |
| Taiwan | | | 1,141,577 | | | | — | | | | — | |
| United Kingdom | | | 87,424 | | | | 1,092,126 | | | | — | |
| United States | | | 20,310,355 | | | | — | | | | — | |
| Short-Term Investments | | | 336,562 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 22,565,287 | | | $ | 6,596,914 | | | $ | — | |
| | | | | | | | | | | | | |
| Intermediate Income Fund | | Level 1 | | | Level 2 | | | Level 3 | |
| Corporate Bonds & Notes | | $ | — | | | $ | 40,142,316 | | | $ | — | |
| Mortgage Backed Securities | | | — | | | | 22,493,381 | | | | — | |
| Municipal Bonds | | | — | | | | 14,158,232 | | | | — | |
| Asset Backed Securities | | | — | | | | 11,993,413 | | | | — | |
| U.S. Treasury Notes | | | — | | | | 24,019,180 | | | | — | |
| Affiliated Mutual Funds | | | 25,450,830 | | | | — | | | | — | |
| Short-Term Investments | | | 3,952,738 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 29,403,568 | | | $ | 112,806,522 | | | $ | — | |
Notes to Financial Statements
December 31, 2016 (Unaudited)
| Total Return Fund | | Level 1 | | | Level 2 | | | Level 3 | |
| Corporate Bonds & Notes | | $ | — | | | $ | 32,470,041 | | | $ | — | |
| Mortgage Backed Securities | | | — | | | | 32,413,243 | | | | — | |
| Asset Backed Securities | | | — | | | | 23,405,793 | | | | — | |
| U.S. Treasury Notes | | | — | | | | 6,152,522 | | | | — | |
| Municipal Bonds | | | — | | | | 2,512,420 | | | | — | |
| Preferred Stocks | | | 899,835 | | | | — | | | | — | |
| Short-Term Investments | | | 4,609,354 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 5,509,189 | | | $ | 96,954,019 | | | $ | — | |
| Future Contracts – Long* | | $ | (85,267 | ) | | $ | — | | | $ | — | |
| * Unrealized Appreciation (Depreciation) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Strategic Bond Fund | | Level 1 | | | Level 2 | | | Level 3 | |
| Asset Backed Securities | | $ | — | | | $ | 27,229,751 | | | $ | — | |
| Mortgage Backed Securities | | | — | | | | 22,080,352 | | | | — | |
| Corporate Bonds & Notes | | | — | | | | 11,262,308 | | | | — | |
| Municipal Bonds | | | — | | | | 1,360,267 | | | | — | |
| Preferred Stocks | | | 134,697 | | | | — | | | | — | |
| Mutual Funds | | | 1,154,642 | | | | — | | | | — | |
| Exchange Traded Funds | | | 2,960,010 | | | | — | | | | — | |
| Short-Term Investments | | | 11,143,833 | | | | 99,948 | | | | — | |
| Total Investments in Securities | | $ | 15,393,182 | | | $ | 62,032,626 | | | $ | — | |
| Future Contracts – Short* | | $ | 3,946 | | | $ | — | | | $ | — | |
| * Unrealized Appreciation (Depreciation) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Maryland Bond Fund | | Level 1 | | | Level 2 | | | Level 3 | |
| Municipal Bonds | | $ | — | | | $ | 133,711,908 | | | $ | — | |
| Short-Term Investments | | | 2,003,754 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 2,003,754 | | | $ | 133,711,908 | | | $ | — | |
| | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
| Tax Exempt Bond Fund | | | | | | | | | | | | |
| Municipal Bonds | | $ | — | | | $ | 237,023,003 | | | $ | — | |
| Short-Term Investments | | | 1,920,837 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 1,920,837 | | | $ | 237,023,003 | | | $ | — | |
| | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
| Mortgage Securities Fund | | | | | | | | | | | | |
| Mortgage Backed Securities | | $ | — | | | $ | 401,539,789 | | | $ | — | |
| Asset Backed Securities | | | — | | | | 46,570,978 | | | | — | |
| Local Government Housing Agency Bonds | | | — | | | | 2,398,825 | | | | — | |
| Preferred Stocks | | | 375,150 | | | | — | | | | — | |
| Short-Term Investments | | | 30,266,376 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 30,641,526 | | | $ | 450,509,592 | | | $ | — | |
| Mortgage Backed Securities – Short | | $ | — | | | $ | (6,308,320 | ) | | $ | — | |
Notes to Financial Statements
December 31, 2016 (Unaudited)
| | | Level 1 | | | Level 2 | | | Level 3 | |
| WMC Strategic European Equity Fund | | | | | | | | | |
| Common Stocks: | | | | | | | | | |
| Belgium | | $ | — | | | $ | 21,201,113 | | | $ | — | |
| Denmark | | | — | | | | 49,508,997 | | | | — | |
| Finland | | | — | | | | 41,525,953 | | | | — | |
| France | | | — | | | | 128,906,142 | | | | — | |
| Germany | | | — | | | | 75,499,181 | | | | — | |
| Italy | | | 10,374,435 | | | | 7,912,242 | | | | — | |
| Netherlands | | | — | | | | 58,520,695 | | | | — | |
| Spain | | | — | | | | 8,667,128 | | | | — | |
| Sweden | | | 5,607,513 | | | | 88,534,281 | | | | — | |
| Switzerland | | | — | | | | 181,594,575 | | | | — | |
| United Kingdom | | | 11,847,778 | | | | 270,306,576 | | | | — | |
| Preferred Stocks | | | — | | | | 3,789,908 | | | | — | |
| Short-Term Investments | | | 1,720,582 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 29,550,308 | | | $ | 935,966,791 | | | $ | — | |
| | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
| WMC Japan Alpha Opportunities Fund | | | | | | | | | | | | |
| Common Stocks | | $ | — | | | $ | 1,271,773,388 | | | $ | — | |
| Real Estate Investment Trusts | | | — | | | | 1,064,470 | | | | — | |
| Exchange Traded Funds | | | — | | | | 4,303,188 | | | | — | |
| Short-Term Investments | | | 94,372,496 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 94,372,496 | | | $ | 1,277,141,046 | | | $ | — | |
| Futures Contracts – Long* | | $ | 1,913,271 | | | $ | — | | | $ | — | |
| * Unrealized Appreciation (Depreciation) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | |
| Somerset Emerging Markets Fund | | | | | | | | | | | | |
| Common Stocks: | | | | | | | | | | | | |
| Brazil | | $ | — | | | $ | 25,825,502 | | | $ | — | |
| Chile | | | 18,388,583 | | | | 3,851,385 | | | | — | |
| China | | | — | | | | 28,497,459 | | | | — | |
| Hungary | | | — | | | | 47,316,458 | | | | — | |
| India | | | — | | | | 43,089,570 | | | | — | |
| Indonesia | | | — | | | | 14,636,653 | | | | — | |
| Nigeria | | | 2,483,448 | | | | — | | | | — | |
| Philippines | | | — | | | | 22,904,566 | | | | — | |
| Poland | | | — | | | | 26,747,197 | | | | — | |
| Portugal | | | — | | | | 6,259,696 | | | | — | |
| South Africa | | | — | | | | 32,894,921 | | | | — | |
| South Korea | | | — | | | | 97,944,387 | | | | — | |
| Taiwan | | | 4,574,630 | | | | 49,715,411 | | | | — | |
| Turkey | | | — | | | | 22,690,027 | | | | — | |
| United Arab Emirates | | | 4,930,354 | | | | 13,883,829 | | | | — | |
| United Kingdom | | | — | | | | 26,593,258 | | | | — | |
| Warrants | | | 6,939 | | | | — | | | | — | |
| Short-Term Investments | | | 26,717,549 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 57,101,503 | | | $ | 462,850,319 | | | $ | — | |
Notes to Financial Statements
December 31, 2016 (Unaudited)
| | | Level 1 | | | Level 2 | | | Level 3 | |
| Emerging Markets Small-Cap Fund | | | | | | | | | |
| Common Stocks: | | | | | | | | | |
| China | | $ | 14,768,027 | | | $ | 30,758,988 | | | $ | — | |
| India | | | 1,595,052 | | | | 23,454,799 | | | | — | |
| Indonesia | | | — | | | | 2,975,510 | | | | — | |
| Malaysia | | | — | | | | 1,857,005 | | | | — | |
| Philippines | | | — | | | | 4,273,084 | | | | — | |
| Singapore | | | — | | | | 1,630,064 | | | | — | |
| South Korea | | | — | | | | 42,460,543 | | | | — | |
| Taiwan | | | — | | | | 24,131,549 | | | | — | |
| Thailand | | | — | | | | 7,410,834 | | | | — | |
| Real Estate Investment Trusts | | | — | | | | 1,818,258 | | | | — | |
| Mutual Funds | | | — | | | | 1,855,283 | | | | — | |
| Short-Term Investments | | | 3,775,999 | | | | — | | | | — | |
| Total Investments in Securities | | $ | 20,139,078 | | | $ | 142,625,917 | | | $ | — | |
The Funds recognize transfers between levels as of the end of the fiscal year. There were no transfers into or out of Level 1 or Level 2 securities as of December 31, 2016.
The following is a reconciliation of Level 3 securities for which significant unobservable inputs were used to determine fair value.
Small-Cap Growth Fund | | Contingent Value Rights | | | Private Placements | |
| Balance as of June 30, 2016 | | $ | 131,192 | | | $ | 2,559,816 | |
| Acquisitions/Purchases | | | — | | | | 44,000 | |
| Returns of Capital | | | — | | | | (115,899 | ) |
| Change in Unrealized Appreciation | | | — | | | | 255,759 | |
| Balance as of December 31, 2016 | | $ | 131,192 | | | $ | 2,743,676 | |
The Contingent Value Rights (“CVR”) were acquired as a result of Dyax Corp. (which was a portfolio holding of the Fund) being acquired by Shire PLC. In exchange for the Fund’s shares in Dyax Corp., the Fund received cash considerations from Shire PLC as well as the CVR. The CVR are valued at the difference between the cash price at which Dyax Corp. was acquired by Shire PLC and the closing price of Dyax Corp. on its last day of trading prior to the acquisition.
The inputs utilized in valuing the Private Placements consist of annual audited financial statements and quarterly capital statements which are provided by the issuer. These valuations are adjusted periodically for certain events (additional contributions of capital or purchases made by the Fund, distributions to the Fund made by the issuer, etc) that may occur prior to receipt of the next quarterly capital statement or Annual Report.
B. Securities Transactions and Investment Income – Investment securities transactions are accounted for on the trade date. Discounts/premiums on debt securities purchased are accreted/amortized over the life of the respective securities using the effective interest method. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Foreign dividend income is recorded on the ex-dividend date or as soon as practical after a Fund determines the existence of a dividend declaration after exercising reasonable due diligence. Income and capital gains on some foreign securities may be subject to foreign withholding taxes, which are accrued as applicable. Identified cost of investments sold is used to determine the gain and loss for both financial statement and Federal income tax purposes. Distributions deemed to be a return of capital are recorded as a reduction of the cost of the related investments.
C. Foreign Currency – Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. Dollar amounts at the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. Dollar amounts on the respective dates of such transactions.
The Funds do not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
Notes to Financial Statements
December 31, 2016 (Unaudited)
The Funds report net realized foreign exchange gains and losses that arise from 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 foreign exchange gains and losses arise from changes in the fair values of the assets and liabilities, other than investments in securities at fiscal year end, resulting from changes in exchange rates.
Some of the Funds may invest in forward foreign currency contracts. These amounts are presented separately from realized and unrealized gains and losses from investments in the financial statements.
D. Options – The Funds may invest in options. When a Fund writes an option, an amount equal to the premium received by a Fund is recorded as a liability and is subsequently adjusted to the current value of the option written. Premiums received from writing options that expire unexercised are treated by a Fund on the expiration date as realized gain from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency determining whether a Fund has a realized gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchase by a Fund. A Fund, as a writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option.
When a Fund purchases an option, an amount equal to the premium paid by a Fund is recorded as an investment and is subsequently adjusted to the current value of the option purchased. If an option expires on the stipulated expiration date or if a Fund enters into a closing sale transaction, a gain or loss is realized. If a call option is exercised, the cost of the security acquired is increased by the premium paid for the call. If a put option is exercised, a gain or loss is realized from the sale of the underlying security, and the proceeds from such sale are decreased by the premium originally paid. Written and purchased options are non- income producing securities.
None of the Funds purchased, sold or wrote any options during the six months ended December 31, 2016.
E. Distributions to Shareholders – For the Maryland Bond Fund and Tax Exempt Bond Fund distributions of net investment income, if any, are declared daily and paid monthly. Distributions to shareholders of net investment income, if any, are declared and paid monthly for the Intermediate Income Fund, Total Return Fund, Strategic Bond Fund and Mortgage Securities Fund and quarterly for the Equity Income Fund. The remaining Funds declare and pay net investment income, if any, at least annually. Distributions to shareholders of net capital gains, if any, are declared and paid at least annually. Distributions are recorded on the ex-dividend date.
F. Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Actual results could differ from those estimates.
G. Federal Taxes – Each Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. Therefore, no provision for federal income taxes or excise taxes has been made.
The Funds recognize tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities.
The Funds have analyzed their tax positions and have concluded that no liability for unrecognized tax benefits should be recorded related to uncertain income tax positions taken on returns filed for open tax years (2013-2015) as of June 30, 2016 or are expected to be taken in the Funds’ 2016 tax returns. The Funds identify their major tax jurisdictions as U.S. Federal and Delaware State; however the Funds are not aware of any tax position for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next year.
H. Redemption Fees – A shareholder who redeems or exchanges shares of the Funds within fourteen days of purchase will incur a redemption fee of 1.00% of the current net asset value of shares redeemed or exchanged, subject to certain exceptions. The fee is charged for the benefit of the remaining shareholders and will be paid to the Fund to help offset transaction costs. The fee is
Notes to Financial Statements
December 31, 2016 (Unaudited)
accounted for as an addition to paid-in capital. Each Fund reserves the right to modify the terms of or terminate the fee at any time. There are limited exceptions to the imposition of the redemption fee.
I. Guarantees and Indemnifications – In the normal course of business, the Funds enter into contracts with service providers that contain general indemnification clauses. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote.
J. Subsequent Events – In preparing these financial statements, the Funds have evaluated events and transactions for potential recognition through the date the financial statements were issued.
Note 3. Commitments and Other Affiliated Party Transactions
Investment Adviser – Brown Advisory LLC serves as Investment Adviser (“the Adviser”) to the Funds. Pursuant to investment advisory agreements, the Adviser receives an advisory fee, accrued daily and payable monthly, from each Fund at an annual rate of the Fund’s average daily net assets as follows:
| | Annual Advisory Fee |
| Growth Equity Fund | 0.60% |
| Flexible Equity Fund | 0.60% |
| Equity Income Fund | 0.60% |
| Sustainable Growth Fund | 0.60% |
| Small-Cap Growth Fund | 0.85% |
| Small-Cap Fundamental Value Fund | 0.85% |
| Global Leaders Fund* | 0.65% |
| Intermediate Income Fund | 0.30% |
| Total Return Fund | 0.30% |
| Strategic Bond Fund | 0.40% |
| Maryland Bond Fund | 0.30% |
| Tax Exempt Bond Fund | 0.30% |
| Mortgage Securities Fund | 0.30% |
| WMC Strategic European Equity Fund** | 0.90% |
| WMC Japan Alpha Opportunities Fund** | 1.00% |
| Somerset Emerging Markets Fund*** | 0.90% |
| Emerging Markets Small-Cap Fund**** | 1.25% |
| * | | Subject to the general oversight of the Adviser and Board of Trustees during the six months ended December 31, 2016, Brown Advisory Limited (“BAL”) served as sub- adviser to the Global Leaders Fund and made investment decisions on its behalf. BAL is compensated for its services by the Adviser. |
| ** | | Subject to the general oversight of the Adviser and Board of Trustees during the six months ended December 31, 2016, Wellington Management Company LLP (“Wellington”) served as sub-adviser to the WMC Strategic European Equity Fund and the WMC Japan Alpha Opportunities Fund and made investment decisions on their behalf. Wellington is compensated for its services by the Adviser. |
| *** | | Subject to the general oversight of the Adviser and Board of Trustees during the six months ended December 31, 2016, Somerset Capital Management, LLP (“Somerset”) served as sub-adviser to the Somerset Emerging Markets Fund and made investment decisions on its behalf. Somerset is compensated for its services by the Adviser. |
| *** | | Subject to the general oversight of the Adviser and Board of Trustees during the six months ended December 31, 2016, Macquarie Funds Management Hong Kong Limited (“MFMHKL”) served as sub-adviser to the Emerging Markets Small-Cap Fund and made investment decisions on its behalf. MFMHKL is compensated for its services by the Adviser. |
| | | |
The Adviser is also entitled to receive an annual business management fee of 0.05%, accrued daily and payable monthly, of the Funds’ average daily net assets in exchange for its management and oversight of the non-investment advisory services provided to the Funds and the Trust. The Funds’ advisory fees and business management fees are reported in the Statements of Operations.
Notes to Financial Statements
December 31, 2016 (Unaudited)
Fee Waivers and Expense Reimbursements (Operating Expense Caps) – The Adviser has contractually agreed to waive a portion of its fees and reimburse certain expenses to limit total annual operating expenses for each or the class’ average daily net assets for the Funds noted below:
| | Institutional Shares | Investor Shares | Advisor Shares |
| Growth Equity Fund | 1.00% | 1.15% | 1.35% |
| Flexible Equity Fund | 1.00% | 1.15% | 1.35% |
| Equity Income Fund | 1.00% | 1.15% | 1.35% |
| Sustainable Growth Fund | 1.00% | 1.15% | 1.35% |
| Small-Cap Growth Fund | 1.25% | 1.40% | 1.60% |
| Small-Cap Fundamental Value Fund | 1.25% | 1.40% | 1.60% |
| Global Leaders Fund | 0.70% | 0.85% | 1.10% |
| Intermediate Income Fund | 0.55% | 0.60% | 0.80% |
| Total Return Fund | 0.55% | 0.60% | 0.80% |
| Strategic Bond Fund | 0.65% | 0.70% | 0.95% |
| Maryland Bond Fund | 0.55% | 0.60% | 0.80% |
| Tax Exempt Bond Fund | 0.55% | 0.60% | 0.80% |
| Mortgage Securities Fund | 0.55% | 0.60% | 0.80% |
| WMC Strategic European Equity Fund | 1.60% | 1.75% | 2.00% |
| WMC Japan Alpha Opportunities Fund | 1.70% | 1.85% | 2.10% |
| Somerset Emerging Markets Fund | 1.60% | 1.75% | 2.00% |
| Emerging Markets Small-Cap Fund | 1.95% | 2.10% | 2.35% |
During the six months ended December 31, 2016, the Adviser waived $53,048 in expenses for the Global Leaders Fund and $10,651 in expenses for the Strategic Bond Fund. The Adviser is permitted to seek reimbursement from the Funds for fees waived and/or Fund expenses it pays over the following three years after such payment. The Funds must pay their current ordinary operating expenses before the Adviser is entitled to any reimbursement of fees and/or expenses. At December 31, 2016, the cumulative amounts of previously waived fees that the Adviser may recoup from the Funds are shown below:
| | | June 30, | |
| | | 2017 | | | 2018 | | | 2019 | | | Total | |
| Global Leaders Fund | | $ | — | | | $ | — | | | $ | 84,282 | | | $ | 84,282 | |
| Strategic Bond Fund | | | — | | | | 7,500 | | | | 14,033 | | | | 21,533 | |
Distribution – Quasar Distributors, LLC (“the Distributor”) serves as principal underwriter for shares of the Funds, and acts as each Fund’s Distributor in a continuous public offering of each Fund’s shares. The Distributor is an affiliate of the Administrator.
Under a Distribution Plan adopted pursuant to Rule 12b-1 under the Act (“Distribution Plan”), each Fund pays the Distributor or any other entity as authorized by the Board, as compensation for the distribution-related and/or shareholder services provided by such entities an aggregate fee equal to 0.25% of the average daily net assets of Advisor Shares for each Fund. The Distributor may pay any or all amounts received under the Rule 12b-1 Plan to other persons, including the Adviser, for any distribution or service activity. These distribution fees are reported in the Funds’ Statements of Operations.
The Trust has also adopted a Shareholder Service Plan under which each Fund may pay a fee of up to 0.15% of the average daily net assets of each Fund’s Investor and Advisor Shares (except for the Maryland Bond Fund, Intermediate Income Fund, Tax Exempt Bond Fund, Mortgage Securities Fund, Total Return Fund and Strategic Bond Fund, which may pay a fee of up to 0.05%) for shareholder services provided to the Funds by financial institutions, including the Adviser. These service fees are reported in the Funds’ Statements of Operations.
Investments in Affiliates – Intermediate Income Fund
The Intermediate Income Fund and Mortgage Securities Fund are considered affiliates since Brown Advisory LLC is the Adviser to both of the Funds. In seeking to achieve its investment objective, the Intermediate Income Fund invests a portion of its assets into the Mortgage Securities Fund. As of December 31, 2016, the Intermediate Income Fund owned shares of the Mortgage Securities Fund with a total market value of $25,450,830, or 17.8% of the Intermediate Income Fund’s net assets.
Notes to Financial Statements
December 31, 2016 (Unaudited)
The Intermediate Income Fund has entered into a Fee Waiver Agreement (“the Agreement”) with the Adviser. Per the Agreement, the Intermediate Income Fund will waive Advisory Fees in an amount equal to the Advisory Fees earned by the Mortgage Securities Fund on the assets invested into it by the Intermediate Income Fund. For example, if the Intermediate Income Fund owned $10,000,000 worth of the Mortgage Securities Fund for an entire year, it would waive, on an annual basis, $30,000 in Advisory Fees ($10,000,000 multiplied by 0.30%, the annual Advisory Fee ratio for the Mortgage Securities Fund). During the six months ended December 31, 2016, the Intermediate Income Fund waived $42,619 in Advisory Fees per the terms of the Agreement. This is a permanent waiver of fees and these waived fees may not be recouped by the Adviser at any time in the future.
See the table below for details of the Intermediate Income Fund’s investment in the Mortgage Securities Fund Institutional Shares during the six months ended December 31, 2016:
| Beginning | | | Purchases | | | Proceeds | | | Unrealized | | | | | | Change in | | | Ending | | | | | | | |
| Market Value; | | | at Cost; | | | from Sales; | | | Appreciation | | | Realized | | | Unrealized | | | Market Value; | | | | | | Capital | |
| [# of shares held] | | | [# of shares | | | [# of | | | (Depreciation) | | | Gains | | | Appreciation | | | [# of shares held] | | | Dividend | | | Gains | |
| 7/1/2016 | | | purchased] | | | shares sold] | | | 12/31/2016 | | | (Losses) | | | (Depreciation) | | | 12/31/2016 | | | Income | | | Distributions | |
| $ | 30,526,684 | | | $ | — | | | $ | 4,130,000 | | | $ | (787,611 | ) | | $ | 28,260 | | | $ | (974,114 | ) | | $ | 25,450,830 | | | $ | 298,921 | | | $ | 179,892 | |
| | [2,992,812 | ] | | | [— | ] | | | [403,714 | ] | | | | | | | | | | | | | | | [2,589,098 | ] | | | | | | | | |
Other Service Providers – U.S. Bancorp Fund Services, LLC (“USBFS”), an indirect wholly-owned subsidiary of U.S. Bancorp, serves as the Funds’ Administrator (“Administrator”), and in that capacity, performs various administrative and accounting services for the Funds. USBFS also serves as the Funds’ fund accountant and transfer agent. Certain officers of the Trust are employees of USBFS and the Funds’ custodian, U.S. Bank, N.A., is an affiliate of the Administrator. Fees paid to USBFS and U.S. Bank, N.A. for its services can be found in the Statements of Operations as “Administration, transfer agent and accounting fees” and “Custodian fees”, respectively. Additional amounts for miscellaneous expenses may be paid by the Funds to USBFS and included in “Miscellaneous expenses” in the Statements of Operations.
Rule 17a-7 – Each Fund is permitted to purchase and sell securities to certain affiliated parties under specified conditions outlined in procedures adopted by the Board of Trustees pursuant to Rule 17a-7 under the 1940 Act. Pursuant to these procedures, during the six months ended December 31, 2016, the Tax Exempt Bond Fund and WMC Strategic European Equity Fund engaged in securities purchases of $3,094,815 and $342,591, respectively, and the Maryland Bond Fund engaged in securities sales of $3,094,815. These transactions are included in the purchases and sales table in Note 4.
Note 4. Purchases and Sales of Securities
The cost of purchases and the proceeds from sales of investment securities (including maturities), other than short-term investments, during the six months ended December 31, 2016 were as follows:
| | | Investment Securities | |
| | | Purchases | | | Sales | |
| Growth Equity Fund | | $ | 340,623,783 | | | $ | 765,505,837 | |
| Flexible Equity Fund | | | 37,012,586 | | | | 69,492,320 | |
| Equity Income Fund | | | 4,176,700 | | | | 21,686,370 | |
| Sustainable Growth Fund | | | 94,502,257 | | | | 99,149,134 | |
| Small-Cap Growth Fund | | | 152,377,032 | | | | 51,237,788 | |
| Small-Cap Fundamental Value Fund | | | 179,108,177 | | | | 133,099,527 | |
| Global Leaders Fund | | | 10,010,310 | | | | 6,551,975 | |
| Intermediate Income Fund | | | 44,268,309 | | | | 45,192,134 | |
| Total Return Fund | | | 115,444,555 | | | | 98,783,232 | |
| Strategic Bond Fund | | | 102,819,733 | | | | 87,249,091 | |
| Maryland Bond Fund | | | 30,897,515 | | | | 68,995,695 | |
| Tax Exempt Bond Fund | | | 95,533,257 | | | | 81,588,014 | |
| Mortgage Securities Fund | | | 949,707,676 | | | | 959,510,055 | |
| WMC Strategic European Equity Fund | | | 130,569,149 | | | | 229,222,875 | |
| WMC Japan Alpha Opportunities Fund | | | 793,449,150 | | | | 1,453,093,414 | |
| Somerset Emerging Markets Fund | | | 72,803,161 | | | | 68,227,875 | |
| Emerging Markets Small-Cap Fund | | | 136,014,948 | | | | 152,203,783 | |
Notes to Financial Statements
December 31, 2016 (Unaudited)
The Intermediate Income Fund purchased $16,723,769 and sold $20,291,381 in U.S. Government securities during the six months ended December 31, 2016. The Mortgage Securities Fund purchased $24,974,609 and sold $42,579,570 in U.S. Government securities during the six months ended December 31, 2016. Purchases and sales of U.S. Government securities are included in the totals above and include U.S. Treasury Bonds and Notes.
The cost basis of investments for federal income tax purposes at December 31, 2016 were as follows*:
| | | | | | | | | | | | Sustainable | |
| | | Growth Equity | | | Flexible Equity | | | Equity Income | | | Growth | |
| | | Fund | | | Fund | | | Fund | | | Fund | |
| Cost of investments | | $ | 1,242,801,540 | | | $ | 297,601,669 | | | $ | 80,767,078 | | | $ | 267,224,752 | |
| Gross unrealized appreciation | | | 517,594,139 | | | | 98,356,858 | | | | 31,246,540 | | | | 88,700,536 | |
| Gross unrealized depreciation | | | (60,631,163 | ) | | | (8,088,755 | ) | | | (566,497 | ) | | | (2,390,458 | ) |
| Net unrealized appreciation (depreciation) | | $ | 456,962,976 | | | $ | 90,268,103 | | | $ | 30,680,043 | | | $ | 86,310,078 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | Small-Cap | | | | | | | | | |
| | | Small-Cap | | | Fundamental | | | Global Leaders | | | Intermediate | |
| | | Growth Fund | | | Value Fund | | | Fund | | | Income Fund | |
| Cost of investments | | $ | 337,315,518 | | | $ | 910,372,327 | | | $ | 27,349,873 | | | $ | 143,449,111 | |
| Gross unrealized appreciation | | | 104,240,202 | | | | 301,701,812 | | | | 2,572,297 | | | | 937,440 | |
| Gross unrealized depreciation | | | (14,609,160 | ) | | | (11,477,876 | ) | | | (759,969 | ) | | | (2,176,461 | ) |
| Net unrealized appreciation (depreciation) | | $ | 89,631,042 | | | $ | 290,223,936 | | | $ | 1,812,328 | | | $ | (1,239,021 | ) |
| | | | | | | | | | | | | | | | | |
| | | Total Return | | | Strategic | | | Maryland | | | Tax Exempt | |
| | | Fund | | | Bond Fund | | | Bond Fund | | | Bond Fund | |
| Cost of investments | | $ | 102,541,272 | | | $ | 77,352,635 | | | $ | 137,227,911 | | | $ | 242,650,054 | |
| Gross unrealized appreciation | | | 955,353 | | | | 498,119 | | | | 1,230,284 | | | | 481,329 | |
| Gross unrealized depreciation | | | (1,033,417 | ) | | | (424,946 | ) | | | (2,742,533 | ) | | | (4,187,543 | ) |
| Net unrealized appreciation (depreciation) | | $ | (78,064 | ) | | $ | 73,173 | | | $ | (1,512,249 | ) | | $ | (3,706,214 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | WMC Strategic | | | WMC Japan Alpha | | | Somerset | |
| | | Mortgage | | | European | | | Opportunities | | | Emerging | |
| | | Securities Fund | | | Equity Fund | | | Fund | | | Markets Fund | |
| Cost of investments | | $ | 485,176,125 | | | $ | 952,626,097 | | | $ | 1,225,953,136 | | | $ | 528,064,358 | |
| Gross unrealized appreciation | | | 1,934,386 | | | | 127,441,840 | | | | 213,135,185 | | | | 52,221,097 | |
| Gross unrealized depreciation | | | (5,959,393 | ) | | | (114,550,838 | ) | | | (67,574,779 | ) | | | (60,333,633 | ) |
| Net unrealized appreciation (depreciation) | | $ | (4,025,007 | ) | | $ | 12,891,002 | | | $ | 145,560,406 | | | $ | (8,112,536 | ) |
| | | | | | | | | | | | | | | | | |
| | | Emerging | | | | | | | | | | | | | |
| | | Markets | | | | | | | | | | | | | |
| | | Small-Cap Fund | | | | | | | | | | | | | |
| Cost of Investments | | $ | 169,842,641 | | | | | | | | | | | | | |
| Gross unrealized appreciation | | | 8,002,915 | | | | | | | | | | | | | |
| Gross unrealized depreciation | | | (15,080,561 | ) | | | | | | | | | | | | |
| Net unrealized appreciation (depreciation) | | $ | (7,077,646 | ) | | | | | | | | | | | | |
| * | Because tax adjustments are calculated annually at the end of the Funds’ fiscal year, the above table does not reflect tax adjustments for the current fiscal year. For the previous year’s federal income tax information, please refer to the Notes to Financial Statements section in the Funds’ most recent annual report. |
Notes to Financial Statements
December 31, 2016 (Unaudited)
Note 5. Federal Income Tax and Distribution Information
Distributions during the fiscal periods ended as noted were characterized for tax purposes as follows (tax character during the six months ended December 31, 2016 is estimated):
| | | Tax Exempt Income | | | Ordinary Income | |
| | | December 31, 2016 | | | June 30, 2016 | | | December 31, 2016 | | | June 30, 2016 | |
| Growth Equity Fund | | $ | — | | | $ | — | | | $ | — | | | $ | 7,902,803 | |
| Flexible Equity Fund | | | — | | | | — | | | | 1,573,168 | | | | 1,728,214 | |
| Equity Income Fund | | | — | | | | — | | | | 1,172,799 | | | | 3,370,204 | |
| Sustainable Growth Fund | | | — | | | | — | | | | — | | | | 2,679,763 | |
| Small-Cap Growth Fund | | | — | | | | — | | | | 2,502,010 | | | | 763,358 | |
| Small-Cap Fundamental Value Fund | | | — | | | | — | | | | 3,609,251 | | | | 2,796,635 | |
| Global Leaders Fund | | | — | | | | — | | | | 53,915 | | | | — | |
| Intermediate Income Fund | | | — | | | | — | | | | 1,396,949 | | | | 3,434,796 | |
| Total Return Fund | | | — | | | | — | | | | 1,097,022 | | | | 2,222,152 | |
| Strategic Bond Fund | | | — | | | | — | | | | 553,019 | | | | 2,476,783 | |
| Maryland Bond Fund | | | 1,985,702 | | | | 4,031,803 | | | | 246,412 | | | | 3,271 | |
| Tax Exempt Bond Fund | | | 3,280,958 | | | | 5,642,129 | | | | — | | | | — | |
| Mortgage Securities Fund | | | — | | | | — | | | | 6,811,365 | | | | 7,907,002 | |
| WMC Strategic European Equity Fund | | | — | | | | — | | | | 12,612,297 | | | | 2,992,321 | |
| WMC Japan Alpha Opportunities Fund | | | — | | | | — | | | | — | | | | 227,528,772 | |
| Somerset Emerging Markets Fund | | | — | | | | — | | | | 6,508,403 | | | | 3,928,021 | |
| Emerging Markets Small-Cap Fund | | | — | | | | — | | | | — | | | | 8,503,241 | |
| | | | | | | | | | | | | | | | | |
| | | Long-Term Capital Gain^ | | | | | | | | | |
| | | December 31, 2016 | | | June 30, 2016 | | | | | | | | | |
| Growth Equity Fund | | $ | 147,417,247 | | | $ | 141,076,499 | | | | | | | | | |
| Flexible Equity Fund | | | — | | | | — | | | | | | | | | |
| Equity Income Fund | | | 3,997,807 | | | | 1,785,670 | | | | | | | | | |
| Sustainable Growth Fund | | | 2,507,623 | | | | 11,297,130 | | | | | | | | | |
| Small-Cap Growth Fund | | | 11,689,587 | | | | 39,659,100 | | | | | | | | | |
| Small-Cap Fundamental Value Fund | | | 686,156 | | | | 17,190,395 | | | | | | | | | |
| Global Leaders Fund | | | — | | | | — | | | | | | | | | |
| Intermediate Income Fund | | | — | | | | 369,469 | | | | | | | | | |
| Total Return Fund | | | 101,811 | | | | — | | | | | | | | | |
| Strategic Bond Fund | | | — | | | | — | | | | | | | | | |
| Maryland Bond Fund | | | 381,305 | | | | 906,772 | | | | | | | | | |
| Tax Exempt Bond Fund | | | — | | | | — | | | | | | | | | |
| Mortgage Securities Fund | | | — | | | | 1,257,738 | | | | | | | | | |
| WMC Strategic European Equity Fund | | | — | | | | — | | | | | | | | | |
| WMC Japan Alpha Opportunities Fund | | | — | | | | 3,902,671 | | | | | | | | | |
| Somerset Emerging Markets Fund | | | — | | | | — | | | | | | | | | |
| Emerging Markets Small-Cap Fund | | | — | | | | — | | | | | | | | | |
^ Designated as a long-term capital gain dividend, pursuant to Internal Revenue Code Section 852(b)(3).
Notes to Financial Statements
December 31, 2016 (Unaudited)
At June 30, 2016, the components of distributable earnings (accumulated losses) on a tax basis were as follows:
| | | | | | | | | | | | Sustainable | |
| | | Growth Equity | | | Flexible Equity | | | Equity Income | | | Growth | |
| | | Fund | | | Fund | | | Fund | | | Fund | |
| Net tax unrealized appreciation (depreciation) | | $ | 606,831,751 | | | $ | 49,228,476 | | | $ | 33,152,221 | | | $ | 81,540,379 | |
| Net unrealized appreciation (depreciation) on foreign receivables | | | — | | | | (363 | ) | | | — | | | | — | |
| Undistributed ordinary income | | | — | | | | 808,933 | | | | 38,600 | | | | — | |
| Undistributed long-term capital gain | | | 84,659,198 | | | | — | | | | 1,700,458 | | | | — | |
| Total distributable earnings | | | 84,659,198 | | | | 808,933 | | | | 1,739,058 | | | | — | |
| Other accumulated losses | | | (17,608,743 | ) | | | (9,706,852 | ) | | | — | | | | (9,168,486 | ) |
| Total accumulated earnings (losses) | | $ | 673,882,206 | | | $ | 40,330,194 | | | $ | 34,891,279 | | | $ | 72,371,893 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | Small-Cap | | | | | | | | | |
| | | Small-Cap | | | Fundamental | | | Global Leaders | | | Intermediate | |
| | | Growth Fund | | | Value Fund | | | Fund | | | Income Fund | |
| Net tax unrealized appreciation (depreciation) | | $ | 77,057,528 | | | $ | 118,068,299 | | | $ | 827,200 | | | $ | 2,984,809 | |
| Net unrealized appreciation (depreciation) on foreign receivables | | | — | | | | — | | | | (1,022 | ) | | | — | |
| Undistributed ordinary income | | | — | | | | 1,070,636 | | | | 53,912 | | | | — | |
| Undistributed long-term capital gain | | | 10,003,131 | | | | 685,715 | | | | — | | | | — | |
| Total distributable earnings | | | 10,003,131 | | | | 1,756,351 | | | | 53,912 | | | | — | |
| Other accumulated losses | | | (676,056 | ) | | | — | | | | (1,232,310 | ) | | | (1,142,117 | ) |
| Total accumulated earnings (losses) | | $ | 86,384,603 | | | $ | 119,824,650 | | | $ | (352,220 | ) | | $ | 1,842,692 | |
| | | | | | | | | | | | | | | | | |
| | | Total Return | | | Strategic | | | Maryland | | | Tax Exempt | |
| | | Fund | | | Bond Fund | | | Bond Fund | | | Bond Fund | |
| Net tax unrealized appreciation (depreciation) | | $ | 1,102,817 | | | $ | 25,433 | | | $ | 6,065,007 | | | $ | 6,225,630 | |
| Undistributed ordinary income | | | 152,033 | | | | — | | | 275,319^ | | | 426,654^ | |
| Undistributed long-term capital gain | | | 101,725 | | | | — | | | | 326,226 | | | | — | |
| Total distributable earnings | | | 253,758 | | | | — | | | | 601,545 | | | | 426,654 | |
| Other accumulated losses | | | (152,656 | ) | | | (3,476,757 | ) | | | (275,162 | ) | | | (1,504,874 | ) |
| Total accumulated earnings (losses) | | $ | 1,203,919 | | | $ | (3,451,324 | ) | | $ | 6,391,390 | | | $ | 5,147,410 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | WMC Strategic | | | WMC Japan Alpha | | | Somerset | |
| | | Mortgage | | | European | | | Opportunities | | | Emerging | |
| | | Securities Fund | | | Equity Fund | | | Fund | | | Markets Fund | |
| Net tax unrealized appreciation (depreciation) | | $ | 3,699,548 | | | $ | (10,922,143 | ) | | $ | 10,190,518 | | | $ | (20,727,552 | ) |
| Net unrealized appreciation (depreciation) on foreign receivables | | | — | | | | (94,001 | ) | | | 470,823 | | | | (41,487 | ) |
| Undistributed ordinary income | | | 2,221,131 | | | | 12,611,576 | | | | — | | | | 4,342,604 | |
| Undistributed long-term capital gain | | | — | | | | — | | | | — | | | | — | |
| Total distributable earnings | | | 2,221,131 | | | | 12,611,576 | | | | — | | | | 4,342,604 | |
| Other accumulated losses | | | (1,205,319 | ) | | | (45,442,160 | ) | | | (414,321,974 | ) | | | (29,009,316 | ) |
| Total accumulated earnings (losses) | | $ | 4,715,360 | | | $ | (43,846,728 | ) | | $ | (403,660,633 | ) | | $ | (45,435,751 | ) |
| | | | | | | | | | | | | | | | | |
| | | Emerging | | | | | | | | | | | | | |
| | | Markets | | | | | | | | | | | | | |
| | | Small-Cap Fund | | | | | | | | | | | | | |
| Net tax unrealized appreciation (depreciation) | | $ | 10,935,118 | | | | | | | | | | | | | |
| Net unrealized appreciation (depreciation) on foreign receivables | | | 1,154 | | | | | | | | | | | | | |
| Undistributed ordinary income | | | — | | | | | | | | | | | | | |
| Undistributed long-term capital gain | | | — | | | | | | | | | | | | | |
| Total distributable earnings | | | — | | | | | | | | | | | | | |
| Other accumulated losses | | | (37,508,288 | ) | | | | | | | | | | | | |
| Total accumulated earnings (losses) | | $ | (26,572,016 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| ^ Represents tax exempt income | | | | | | | | | | | | | | | | |
Notes to Financial Statements
December 31, 2016 (Unaudited)
Note 6. Forward Foreign Currency Contracts
The WMC Japan Alpha Opportunities Fund held forward foreign currency contracts during the six months ended December 31, 2016.
The majority of the WMC Japan Alpha Opportunities Fund’s assets are denominated in Japanese Yen. The WMC Japan Alpha Opportunities Fund may seek to offset or hedge its exposure to the Japanese Yen by entering into forward foreign currency contracts. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at an agreed upon price. These contracts are traded over-the-counter and not on an organized exchange. The contracts are marked-to-market daily and the change in market value is recorded as unrealized appreciation or depreciation. When the contract is closed, a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed is recorded. The realized gains or losses are reported in the Statement of Operations as net realized gains or losses from forward foreign currency contracts. Unrealized appreciation on forward foreign currency contracts and unrealized depreciation on forward foreign currency contracts is reported in the Statement of Assets and Liabilities for those contracts that remain open as of year end. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. There is generally no collateral exchanged by the Fund or counterparty to the contract in connection with these contracts. The Fund’s risk of loss from counterparty credit risk on these contracts is generally limited to the aggregate unrealized appreciation (depreciation) on open contracts on a counterparty by counterparty basis. The Fund attempts to mitigate counterparty credit risk by only entering into agreements with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties.
The effect of forward foreign currency contracts on the Statements of Operations during the six months ended December 31, 2016 is as follows:
| | Derivatives not accounted | Statement of | |
Fund | for as hedging instruments | Operations Location | Amount |
| WMC Japan Alpha Opportunities Fund | Forward Foreign Currency Contracts | Net Realized Gain (Loss) – Forward | |
| | | Foreign Currency Contracts | $(11,565,713) |
| WMC Japan Alpha Opportunities Fund | Forward Foreign Currency Contracts | Net Change in Unrealized | |
| | | Appreciation (Depreciation) – | |
| | | Forward Foreign Currency Contract | $(10,962,063) |
During the six months ended December 31, 2016, the average net exposure, in U.S. Dollars, of forward foreign currency contracts held by the WMC Japan Alpha Opportunities Fund was $32,563,624.
Note 7. Futures Contracts
The Total Return Fund, Strategic Bond Fund, and WMC Japan Alpha Opportunities Fund invested in futures contracts during the six months ended December 31, 2016. At the time a Fund purchases or enters into a futures contract, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the terms of the contract. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the fluctuation in the value of the contract. These daily fluctuations are known as variation margin and are recorded by the Fund as unrealized gains or losses on futures contracts. When these futures contracts are closed, realized gains or losses on futures contracts are recorded by the Fund. The realized gains or losses are reported in the Statement of Operations as net realized gains or losses from futures contracts. Depending upon the agreement with the broker, the Funds may or may not settle variation margin daily. The Funds attempt to mitigate counterparty credit risk by only entering into futures contracts with brokers that the Funds believe have the financial resources to honor their obligations and by monitoring the financial stability of these brokers. The use of long futures contracts by the Funds subjects them to a risk of loss in excess of the amounts shown on the Statements of Assets and Liabilities and up to the total notional amount of the futures contract as shown in the Schedule of Investments. The use of short futures contracts by the Funds subjects them to a risk of loss in excess of the amounts shown on the Statements of Assets and Liabilities and, hypothetically, up to an unlimited amount of loss that could exceed the notional amount of the futures contract as shown in the Schedule of Investments.
Notes to Financial Statements
December 31, 2016 (Unaudited)
The effect of futures contracts on the Statements of Assets and Liabilities as of December 31, 2016 is as follows:
| | | Derivatives not accounted | Statement of Assets | | | |
Fund | | for as hedging instruments | and Liabilities Location | | Amount | |
| Total Return Fund | | Futures Contracts | Gross Unrealized Appreciation – | | | |
| | | | | Futures Contracts | | $ | 17,912 | |
| Total Return Fund | | Futures Contracts | Gross Unrealized Depreciation – | | | | |
| | | | | Futures Contracts | | $ | 103,179 | |
| Strategic Bond Fund | | Futures Contracts | Gross Unrealized Appreciation – | | | | |
| | | | | Futures Contracts | | $ | 3,946 | |
| Strategic Bond Fund | | Futures Contracts | Gross Unrealized Depreciation – | | | | |
| | | | | Futures Contracts | | $ | — | |
| WMC Japan Alpha Opportunities Fund | | Futures Contracts | Gross Unrealized Appreciation – | | | | |
| | | | | Futures Contracts | | $ | 1,913,271 | (a) |
| WMC Japan Alpha Opportunities Fund | | Futures Contracts | Gross Unrealized Depreciation – | | | | |
| | | | | Futures Contracts | | $ | — | |
| (a) | Includes $156,556 of variation margin due to the Fund. |
The effect of futures contracts on the Statements of Operations during the six months ended December 31, 2016 is as follows:
| | Derivatives not accounted | Statement of | | | |
Fund | | for as hedging instruments | Operations Location | | Amount | |
| Total Return Fund | | Futures Contracts | Net Realized Gain (Loss) – | | | |
| | | | | Futures Contracts | | $ | (897,383 | ) |
| Total Return Fund | | Futures Contracts | Net Change in Unrealized | | | | |
| | | | | Appreciation (Depreciation) – | | | | |
| | | | | Futures Contracts | | $ | (819,210 | ) |
| Strategic Bond Fund | | Futures Contracts | Net Realized Gain (Loss) – | | | | |
| | | | | Futures Contracts | | $ | 80,861 | |
| Strategic Bond Fund | | Futures Contracts | Net Change in Unrealized | | | | |
| | | | | Appreciation (Depreciation) – | | | | |
| | | | | Futures Contracts | | $ | 182,256 | |
| WMC Japan Alpha Opportunities Fund | | Futures Contracts | Net Realized Gain (Loss) – | | | | |
| | | | | Futures Contracts | | $ | 7,191,414 | |
| WMC Japan Alpha Opportunities Fund | | Futures Contracts | Net Change in Unrealized | | | | |
| | | | | Appreciation (Depreciation) – | | | | |
| | | | | Futures Contracts | | $ | 1,913,271 | |
During the six months ended December 31, 2016, the average notional value of long futures contracts held by the Total Return Fund and WMC Japan Alpha Opportunities Fund were $17,049,399 and $24,630,160, respectively. The Total Return Fund was invested in long U.S. Treasury futures contracts. The WMC Japan Alpha Opportunities Fund was invested in long stock index futures contracts.
During the six months ended December 31, 2016, the average notional value of the short futures contracts held by the Strategic Bond Fund was $9,098,776. The Strategic Bond Fund was invested in short U.S. Treasury futures contracts.
Offsetting Assets & Liabilities – Futures Contracts
To facilitate the Funds investment in futures contracts, the Funds have entered into agreements with counterparties that dictate the terms under which the Funds and the counterparty will enter into such agreements. Under these agreements, both the Funds and the counterparty may be allowed to combine amounts owed to or receivable from the other and settle all outstanding obligations on a “net basis.” In order to facilitate comparability amongst different funds, the table below shows what the Funds’ Statement of Assets and Liabilities accounts related to futures contracts would look like if they choose to offset, or present on a net basis, assets and liabilities related to futures contracts.
Notes to Financial Statements
December 31, 2016 (Unaudited)
| Assets: | | | | | | | | | | | | | | | | | | |
| | | | | | Gross Amounts | | | Net Amounts | | | Gross Amounts Not Offset | | | | |
| | | Gross | | | Offset in the | | | Presented in | | | in the Statement of | | | | |
| | | Amounts of | | | Statement | | | the Statement | | | Assets & Liabilities | | | | |
| | | Recognized | | | of Assets | | | of Assets | | | Financial | | | Collateral | | | | |
Description | | Assets | | | & Liabilities | | | & Liabilities | | | Instruments | | | Received | | | Net Amount | |
| Total Return Fund | | | | | | | | | | | | | | | | | | |
| Futures Contracts | | $ | 17,912 | | | $ | (17,912 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Strategic Bond Fund | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures Contracts | | | 3,946 | | | | — | | | | 3,946 | | | | — | | | | — | | | | 3,946 | |
| WMC Japan Alpha Opportunities Fund | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures Contracts | | | 1,913,271 | | | | — | | | | 1,913,271 | | | | — | | | | — | | | | 1,913,271 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Gross Amounts | | | Net Amounts | | | Gross Amounts Not Offset | | | | | |
| | | Gross | | | Offset in the | | | Presented in | | | in the Statement of | | | | | |
| | | Amounts of | | | Statement | | | the Statement | | | Assets & Liabilities | | | | | |
| | | Recognized | | | of Assets | | | of Assets | | | Financial | | | Collateral | | | | | |
Description | | Liabilities | | | & Liabilities | | | & Liabilities | | | Instruments | | | Pledged | | | Net Amount | |
| Total Return Fund | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures Contracts | | $ | 103,179 | | | $ | (17,912 | ) | | $ | 85,267 | | | $ | 85,267 | | | $ | — | | | $ | — | |
| Strategic Bond Fund | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures Contracts | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| WMC Japan Alpha Opportunities Fund | | | | | | | | | | | | | | | | | | | | | | | | |
| Futures Contracts | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Note 8. Line of Credit
As of December 31, 2016, Brown Advisory Funds has an unsecured line of credit of up to $100,000,000 with U.S. Bank, N.A. The interest rate on the line of credit as of December 31, 2016 was 3.75% (prime rate). The following table shows the details of the Funds’ borrowing activity during the six months ended December 31, 2016. Funds that are not listed did not utilize the line of credit during the period.
| | | Maximum | | | | | | | | | | |
| | | Outstanding | | | Average Daily | | | Total Interest | | | Average | |
| | | Balance | | | Balance | | | Incurred | | | Interest Rate | |
| Equity Income Fund | | $ | 1,810,000 | | | $ | 58,223 | | | $ | 1,042 | | | | 3.50 | % |
| Sustainable Growth Fund | | | 321,000 | | | | 1,745 | | | | 31 | | | | 3.50 | % |
| WMC Strategic European Equity Fund | | | 680,000 | | | | 4,495 | | | | 80 | | | | 3.50 | % |
| WMC Japan Alpha Opportunities Fund | | | 52,121,000 | | | | 1,239,500 | | | | 22,173 | | | | 3.50 | % |
| Emerging Markets Small-Cap Fund | | | 2,448,000 | | | | 63,071 | | | | 1,200 | | | | 3.72 | % |
As of December 31, 2016, none of the Funds had any amounts outstanding under the line of credit.
Note 9. Merger of Funds
As of the close of business on December 2, 2016, pursuant to an Agreement and Plan of Reorganization approved by the Funds’ Board of Trustees, all of the assets, subject to the liabilities, of the Brown Advisory Value Equity Fund (“Value Equity Fund”) were transferred to the Flexible Equity Fund in exchange for shares of the Flexible Equity Fund of equal value. The purpose of the transaction was to combine two funds with similar investment strategies and investments into a single fund having a larger asset base that has the potential to produce economies of scale. The exchange ratio was 0.868 for Institutional Shares, 0.870 for Investor Shares and 0.875 for Advisor Shares. The net asset values of the Flexible Equity Fund Institutional, Investor, and Advisor Shares on the close of business December 2, 2016, both before and after the reorganization, were $16.57, $16.55 and $16.58,
Notes to Financial Statements
December 31, 2016 (Unaudited)
respectively. A total of 72,612 Institutional Shares, 2,509,981 Investor Shares and 59,882 Advisor Shares were issued to shareholders of the Value Equity Fund in the exchange. The Value Equity Fund’s net assets at the reorganization date of $43,734,447, including $10,536,322 of unrealized appreciation, were combined with those of the Flexible Equity Fund. Assuming the acquisition had been completed on July 1, 2016, the beginning of the annual reporting period of the Flexible Equity Fund, proforma results of operations during the six months ended December 31, 2016 would include net investment income of $1,048,358, and net realized and change in unrealized gain of $41,056,664, resulting in an increase in net assets of $42,105,022. Prior to the reorganization, the Flexible Equity Fund net assets totaled $339,791,609. Immediately after the reorganization, the net assets of the Flexible Equity Fund totaled $383,526,056. The exchange was a tax-free event to the Value Equity Fund shareholders. For financial reporting purposes, assets received and shares issued by the Flexible Equity Fund were recorded at fair value; however, the cost basis of investments received from the Value Equity Fund was carried forward to align ongoing reporting of the Flexible Equity Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
Expense Example For the Six Months Ended December 31, 2016 (Unaudited)
As a shareholder of a Fund you incur two types of costs: (1) transaction costs, including redemption fees and exchange fees; and (2) ongoing costs, including investment advisory fees; distribution and/or service fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the six month period and held for the entire period (July 1, 2016 – December 31, 2016).
Actual Expenses
The “Actual Return” row in the following table provides information about actual account values based on actual returns and actual expenses. As a shareholder you will be assessed fees for outgoing wire transfers, returned checks and stop payment orders at prevailing rates charged by U.S. Bancorp Fund Services, LLC, the Funds’ transfer agent. If you request that a redemption be made by wire transfer, currently, the Funds’ transfer agent charges a $15.00 fee. You will be charged a redemption fee equal to 1.00% of the net amount of the redemption if you redeem your shares less than 14 days after you purchase, with certain limited exceptions. Individual Retirement Accounts (“IRA”) that are held directly at the Funds will be charged a $15.00 annual maintenance fee. IRAs held by broker-dealers or through other means, may or may not incur an annual maintenance fee. Yet, if IRAs maintenance fees are charged to accounts held elsewhere, the fees charged may be more or may be less than $15.00. To the extent the Funds invest in shares of other investment companies as part of their investment strategy, you will indirectly bear your proportionate share of any fees and expenses charged by the underlying funds in which the Funds invest in addition to the expenses of the Funds. Actual expenses of the underlying funds may vary. These expenses are not included in the example below. The example below includes, but is not limited to, investment advisory, shareholder servicing, fund accounting, custody and transfer agent fees. However, the example below does not include portfolio trading commissions and related expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6). Then, multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The “Hypothetical Return” row in the following table provides information about hypothetical account values based on a hypothetical return and hypothetical expenses based on the Funds’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the hypothetical information in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| | Beginning | Ending | | Annualized |
| | Account Value | Account Value | Expenses Paid | Net Expense |
| | July 1, 2016 | December 31, 2016 | During the Period* | Ratio* |
Growth Equity Fund: | | | | |
| Institutional Shares | | | | |
| Actual Return | $1,000 | $ 987 | $3.61 | 0.72% |
| Hypothetical Return | $1,000 | $1,022 | $3.67 | 0.72% |
| Investor Shares | | | | |
| Actual Return | $1,000 | $ 986 | $4.35 | 0.87% |
| Hypothetical Return | $1,000 | $1,021 | $4.43 | 0.87% |
| Advisor Shares | | | | |
| Actual Return | $1,000 | $ 984 | $5.60 | 1.12% |
| Hypothetical Return | $1,000 | $1,020 | $5.70 | 1.12% |
Expense Example For the Six Months Ended December 31, 2016 (Unaudited)
| | Beginning | Ending | | Annualized |
| | Account Value | Account Value | Expenses Paid | Net Expense |
| | July 1, 2016 | December 31, 2016 | During the Period* | Ratio* |
Flexible Equity Fund: | | | | |
| Institutional Shares | | | | |
| Actual Return | $1,000 | $1,116 | $3.95 | 0.74% |
| Hypothetical Return | $1,000 | $1,021 | $3.77 | 0.74% |
| Investor Shares | | | | |
| Actual Return | $1,000 | $1,115 | $4.74 | 0.89% |
| Hypothetical Return | $1,000 | $1,021 | $4.53 | 0.89% |
| Advisor Shares | | | | |
| Actual Return | $1,000 | $1,114 | $6.07 | 1.14% |
| Hypothetical Return | $1,000 | $1,019 | $5.80 | 1.14% |
| | | | | |
Equity Income Fund: | | | | |
| Institutional Shares | | | | |
| Actual Return | $1,000 | $1,037 | $3.90 | 0.76% |
| Hypothetical Return | $1,000 | $1,021 | $3.87 | 0.76% |
| Investor Shares | | | | |
| Actual Return | $1,000 | $1,037 | $4.67 | 0.91% |
| Hypothetical Return | $1,000 | $1,021 | $4.63 | 0.91% |
| Advisor Shares | | | | |
| Actual Return | $1,000 | $1,036 | $5.95 | 1.16% |
| Hypothetical Return | $1,000 | $1,019 | $5.90 | 1.16% |
| | | | | |
Sustainable Growth Fund: | | | | |
| Institutional Shares | | | | |
| Actual Return | $1,000 | $1,038 | $3.80 | 0.74% |
| Hypothetical Return | $1,000 | $1,021 | $3.77 | 0.74% |
| Investor Shares | | | | |
| Actual Return | $1,000 | $1,037 | $4.57 | 0.89% |
| Hypothetical Return | $1,000 | $1,021 | $4.53 | 0.89% |
| Advisor Shares | | | | |
| Actual Return | $1,000 | $1,036 | $5.85 | 1.14% |
| Hypothetical Return | $1,000 | $1,019 | $5.80 | 1.14% |
| | | | | |
Small-Cap Growth Fund: | | | | |
| Institutional Shares | | | | |
| Actual Return | $1,000 | $1,068 | $5.11 | 0.98% |
| Hypothetical Return | $1,000 | $1,020 | $4.99 | 0.98% |
| Investor Shares | | | | |
| Actual Return | $1,000 | $1,068 | $5.89 | 1.13% |
| Hypothetical Return | $1,000 | $1,020 | $5.75 | 1.13% |
| Advisor Shares | | | | |
| Actual Return | $1,000 | $1,066 | $7.19 | 1.38% |
| Hypothetical Return | $1,000 | $1,018 | $7.02 | 1.38% |
Expense Example For the Six Months Ended December 31, 2016 (Unaudited)
| | Beginning | Ending | | Annualized |
| | Account Value | Account Value | Expenses Paid | Net Expense |
| | July 1, 2016 | December 31, 2016 | During the Period* | Ratio* |
Small-Cap Fundamental Value Fund: | | | | |
| Institutional Shares | | | | |
| Actual Return | $1,000 | $1,166 | $5.30 | 0.97% |
| Hypothetical Return | $1,000 | $1,020 | $4.94 | 0.97% |
| Investor Shares | | | | |
| Actual Return | $1,000 | $1,165 | $6.11 | 1.12% |
| Hypothetical Return | $1,000 | $1,020 | $5.70 | 1.12% |
| Advisor Shares | | | | |
| Actual Return | $1,000 | $1,164 | $7.47 | 1.37% |
| Hypothetical Return | $1,000 | $1,018 | $6.97 | 1.37% |
| | | | | |
Global Leaders Fund: | | | | |
| Investor Shares | | | | |
| Actual Return | $1,000 | $1,011 | $4.31 | 0.85% |
| Hypothetical Return | $1,000 | $1,021 | $4.33 | 0.85% |
| | | | | |
Intermediate Income Fund: | | | | |
| Investor Shares | | | | |
| Actual Return | $1,000 | $ 987 | $2.25 | 0.45% |
| Hypothetical Return | $1,000 | $1,023 | $2.29 | 0.45% |
| Advisor Shares | | | | |
| Actual Return | $1,000 | $ 986 | $3.50 | 0.70% |
| Hypothetical Return | $1,000 | $1,022 | $3.57 | 0.70% |
| | | | | |
Total Return Fund: | | | | |
| Institutional Shares | | | | |
| Actual Return | $1,000 | $ 981 | $2.50 | 0.50% |
| Hypothetical Return | $1,000 | $1,023 | $2.55 | 0.50% |
| Investor Shares | | | | |
| Actual Return | $1,000 | $ 981 | $2.75 | 0.55% |
| Hypothetical Return | $1,000 | $1,022 | $2.80 | 0.55% |
| | | | | |
Strategic Bond Fund: | | | | |
| Investor Shares | | | | |
| Actual Return | $1,000 | $1,019 | $3.56 | 0.70% |
| Hypothetical Return | $1,000 | $1,022 | $3.57 | 0.70% |
| Advisor Shares | | | | |
| Actual Return | $1,000 | $1,018 | $4.83 | 0.95% |
| Hypothetical Return | $1,000 | $1,020 | $4.84 | 0.95% |
| | | | | |
Maryland Bond Fund: | | | | |
| Investor Shares | | | | |
| Actual Return | $1,000 | $ 969 | $2.43 | 0.49% |
| Hypothetical Return | $1,000 | $1,023 | $2.50 | 0.49% |
Expense Example For the Six Months Ended December 31, 2016 (Unaudited)
| | Beginning | Ending | | Annualized |
| | Account Value | Account Value | Expenses Paid | Net Expense |
| | July 1, 2016 | December 31, 2016 | During the Period* | Ratio* |
Tax Exempt Bond Fund: | | | | |
| Investor Shares | | | | |
| Actual Return | $1,000 | $ 970 | $2.43 | 0.49% |
| Hypothetical Return | $1,000 | $1,023 | $2.50 | 0.49% |
| | | | | |
Mortgage Securities Fund: | | | | |
| Institutional Shares | | | | |
| Actual Return | $1,000 | $ 981 | $2.25 | 0.45% |
| Hypothetical Return | $1,000 | $1,023 | $2.29 | 0.45% |
| Investor Shares | | | | |
| Actual Return | $1,000 | $ 980 | $2.50 | 0.50% |
| Hypothetical Return | $1,000 | $1,023 | $2.55 | 0.50% |
| | | | | |
WMC Strategic European Equity Fund: | | | | |
| Institutional Shares | | | | |
| Actual Return | $1,000 | $1,004 | $5.46 | 1.08% |
| Hypothetical Return | $1,000 | $1,020 | $5.50 | 1.08% |
| Investor Shares | | | | |
| Actual Return | $1,000 | $1,004 | $6.21 | 1.23% |
| Hypothetical Return | $1,000 | $1,019 | $6.26 | 1.23% |
| Advisor Shares | | | | |
| Actual Return | $1,000 | $1,002 | $7.47 | 1.48% |
| Hypothetical Return | $1,000 | $1,018 | $7.53 | 1.48% |
| | | | | |
WMC Japan Alpha Opportunities Fund: | | | | |
| Institutional Shares | | | | |
| Actual Return | $1,000 | $1,096 | $6.08 | 1.15% |
| Hypothetical Return | $1,000 | $1,019 | $5.85 | 1.15% |
| Investor Shares | | | | |
| Actual Return | $1,000 | $1,095 | $6.87 | 1.30% |
| Hypothetical Return | $1,000 | $1,019 | $6.61 | 1.30% |
| Advisor Shares | | | | |
| Actual Return | $1,000 | $1,095 | $8.18 | 1.55% |
| Hypothetical Return | $1,000 | $1,017 | $7.88 | 1.55% |
| | | | | |
Somerset Emerging Markets Fund: | | | | |
| Institutional Shares | | | | |
| Actual Return | $1,000 | $ 990 | $5.82 | 1.16% |
| Hypothetical Return | $1,000 | $1,019 | $5.90 | 1.16% |
| Investor Shares | | | | |
| Actual Return | $1,000 | $ 990 | $6.57 | 1.31% |
| Hypothetical Return | $1,000 | $1,019 | $6.67 | 1.31% |
| Advisor Shares | | | | |
| Actual Return | $1,000 | $ 988 | $7.82 | 1.56% |
| Hypothetical Return | $1,000 | $1,017 | $7.93 | 1.56% |
Expense Example For the Six Months Ended December 31, 2016 (Unaudited)
| | Beginning | Ending | | Annualized |
| | Account Value | Account Value | Expenses Paid | Net Expense |
| | July 1, 2016 | December 31, 2016 | During the Period* | Ratio* |
Emerging Markets Small-Cap Fund: | | | | |
| Institutional Shares | | | | |
| Actual Return | $1,000 | $ 893 | $7.30 | 1.53% |
| Hypothetical Return | $1,000 | $1,017 | $7.78 | 1.53% |
| Investor Shares | | | | |
| Actual Return | $1,000 | $ 893 | $8.02 | 1.68% |
| Hypothetical Return | $1,000 | $1,017 | $8.54 | 1.68% |
_________________________
| * | The calculations are based on expenses incurred during the most recent six-month period ended as of the date of this report. The dollar amounts shown as expenses paid during the period are equal to the annualized six-month net expense ratio multiplied by the average account value during the period, multiplied by the number of days (184) in the most recent six-month period divided by the number of days in the Funds’ fiscal year (365). |
Board of Trustees Approval of: (i) the Continuation of the Investment Advisory Agreement for Each of the Funds and (ii) the Continuation of the Sub-Investment Advisory Agreements for Each of the Sub-Advised Funds (Unaudited)
In accordance with the Investment Company Act of 1940 Act, the Board of Trustees of the Trust is required, on an annual basis, to consider: (i) the continuation of the Investment Advisory Agreement between the Trust, on behalf of each of the Funds, and Brown Advisory LLC (“Brown Advisory” or the “Adviser”), as well as (ii) any applicable Sub-Advisory Agreements that are being considered for continuation, and this must take place at an in-person meeting of the Board. The relevant provisions of the Investment Company Act of 1940 specifically provide that it is the duty of the Board to request and evaluate such information as the Board determines is necessary to allow them to properly consider the continuation of the Investment Advisory Agreement and each of the Sub-Advisory Agreements, and it is the duty of the Adviser, and each of the Sub-Advisers, as applicable, to furnish the Trustees with such information that is responsive to their request.
Set forth below is information regarding the Board’s most recent consideration of the approval of the continuation of the Investment Advisory Agreement and each of the Sub-Advisory Agreements. The first section provides information regarding the Board’s review of matters with respect to the continuation of the Investment Advisory Agreement with Brown Advisory. In addition, set forth immediately following that section are separate discussions of the Board’s consideration of matters with respect to: (1) the approval of the continuation of the Sub-Investment Advisory Agreement with respect to the Brown Advisory-Somerset Emerging Markets Fund; (2) the approval of the continuation of each of the Sub-Investment Advisory Agreements with respect to the Brown Advisory-WMC Strategic European Equity Fund and the Brown Advisory-WMC Japan Alpha Opportunities Fund; (3) the approval of the continuation of the Sub-Investment Advisory Agreement with respect to the Brown Advisory Global Leaders Fund; and (4) the approval of the continuation of the Sub-Investment Advisory Agreement with respect to the Brown Advisory Emerging Markets Small-Cap Fund.
1. Board of Trustees Approval of the Continuation of the Trust’s Investment Advisory Agreement for Each of the Funds
In determining whether to approve the continuation of the Investment Advisory Agreement, the Trustees requested, and Brown Advisory provided, information and data relevant to the Board’s consideration. This included materials prepared by Brown Advisory and by the Funds’ administrator that provided the Board with information regarding the investment performance of the Funds, and information regarding the fees and expenses of the Funds, as compared to other similar mutual funds. As part of its deliberations, the Board also considered and relied upon information about the Funds and Brown Advisory that they had received during the past year in connection with their regular Board meetings at which they engage in the ongoing oversight of the Funds and their operations.
The Board most recently considered the continuation of the Investment Advisory Agreement at an in-person meeting held on September 15, 2016. At this meeting, the Board engaged in a thorough review process in connection with determining whether to continue the Investment Advisory Agreement. In addition, the Board also considered the continuation of the currently effective Expense Limitation Agreement with respect to each Fund which would limit the total operating expenses for each class of shares of each of the Funds through October 31, 2017.
Following their review and consideration, the Trustees determined that the continuation of the Investment Advisory Agreement with respect to each of the Funds was advisable and would enable shareholders of the Funds to continue to obtain high quality services at a cost that is appropriate, reasonable, and in the best interests of the Funds and their shareholders. Accordingly, the Board, including those Trustees who are not considered to be “interested persons” of the Trust, as that term is defined in the 1940 Act (the “Independent Trustees”), unanimously approved the continuation of the Investment Advisory Agreement. In reaching their decision, the Trustees requested and obtained from the Adviser such information as they deemed reasonably necessary to evaluate the Investment Advisory Agreement. The Trustees also carefully considered the profitability data and comparative fee, expense and performance information prepared for their use. In considering the continuation of the Investment Advisory Agreement with respect to each applicable Fund, the Trustees evaluated a number of factors that they believed, in light of their reasonable business judgment, to be relevant. They based their decision on the following considerations, among others, although they did not identify any one specific consideration or any particular information that was controlling of their decision:
The nature, extent and quality of the advisory services provided. The Trustees concluded that Brown Advisory is capable of providing high quality services to the Funds, as indicated by the nature, extent and quality of the services provided in the past by Brown Advisory to each of the Funds, Brown Advisory’s management capabilities demonstrated with respect to the Funds, the professional qualifications and experience of each of the portfolio managers of the Funds, Brown Advisory’s investment management and compliance oversight processes, and the competitive investment performance of the Funds. On the basis of the Trustees’ assessment of the nature, extent and quality of the advisory services provided by Brown Advisory, the Trustees concluded
Board of Trustees Approval of: (i) the Continuation of the Investment Advisory Agreement for Each of the Funds and (ii) the Continuation of the Sub-Investment Advisory Agreements for Each of the Sub-Advised Funds (Unaudited)
that Brown Advisory is capable of generating a level of long-term investment performance that is appropriate in light of the Funds’ investment objectives, policies and strategies and is competitive with many other comparable investment companies.
The Board received and reviewed performance information for each of the Funds separately, including performance information for applicable one-, three-, five- and ten-year periods ended June 30, 2016, and for shorter periods as applicable with respect to those Funds with shorter operating histories. The Board also reviewed with the representatives of Brown Advisory other information and data, including each Fund’s performance against its benchmark and its peers, as follows:
Equity Income Fund
The Board first reviewed information and materials regarding the performance results for the Equity Income Fund, noting that the Investor Shares of the Fund had underperformed its primary benchmark index, the S&P 500 Index, for the one-year and three-year periods ended June 30, 2016. The Board noted that the Institutional Shares of the Fund had outperformed its peer group median for the one-year period ended June 30, 2016, but had underperformed its peer group median for the three-year period ended June 30, 2016.
Flexible Equity Fund
The Board next reviewed information and materials regarding the performance results for the Flexible Equity Fund, noting that the Investor Shares of the Fund had underperformed its primary benchmark index, the S&P 500 Index, for the one-, three- and five-year periods ended June 30, 2016. The Board noted that the Institutional Shares of the Fund had underperformed its peer group median for the one- and three-year periods ended June 30, 2016, but had outperformed its peer group median for the five-year period ended June 30, 2016.
Growth Equity Fund
The Board then reviewed information and materials regarding the performance results for the Growth Equity Fund, noting that the Investor Shares of the Fund had underperformed its primary benchmark index, the Russell 1000 Growth Index, for the one-, three-, and five-year periods ended June 30, 2016, but had outperformed its primary benchmark index for the ten-year period ended June 30, 2016. The Board noted that the Institutional Shares of the Fund had underperformed its peer group median for the three- and five-year periods ended June 30, 2016, but had outperformed its peer group median for the one- and ten-year periods ended June 30, 2016.
Small-Cap Fundamental Value Fund
The Board then reviewed information and materials regarding the performance results for the Small-Cap Fundamental Value Fund, noting that the Investor Shares of the Fund had outperformed its primary benchmark index, the Russell 2000 Value Index, for the one-, three- and five-year periods ended June 30, 2016. The Board noted that the Institutional Shares of the Fund had outperformed its peer group median for the one-, three-, and five-year periods ended June 30, 2016.
Small-Cap Growth Fund
The Board next reviewed information and materials regarding the performance results for the Small-Cap Growth Fund, noting that the Investor Shares of the Fund had outperformed its primary benchmark index, the Russell 2000 Growth Index, for the one-, three-, five-, and ten- year periods ended June 30, 2016. The Board noted that the Institutional Shares of the Fund had outperformed its peer group median for the one-, three-, five-, and ten-year periods ended June 30, 2016.
Value Equity Fund
The Board then reviewed information and materials regarding the performance results for the Value Equity Fund, noting that the Investor Shares of the Fund had underperformed its primary benchmark index, the Russell 1000 Value Index, for the one-, three-, five- and ten-year periods ended June 30, 2016. The Board noted that the Institutional Shares of the Fund had underperformed its peer group median for the one-, three-, five-, and ten-year periods ended June 30, 2016.
Board of Trustees Approval of: (i) the Continuation of the Investment Advisory Agreement for Each of the Funds and (ii) the Continuation of the Sub-Investment Advisory Agreements for Each of the Sub-Advised Funds (Unaudited)
Sustainable Growth Fund
The Board next reviewed information and materials regarding the performance results for the Sustainable Growth Fund, noting that the Investor Shares of the Fund had outperformed its primary benchmark index, the Russell 1000 Growth Index, for the one- and three-year periods ended June 30, 2016. The Board noted that the Institutional Shares of the Fund had outperformed its peer group median for the one- and three-year periods ended June 30, 2016.
Intermediate Income Fund
The Board then reviewed information and materials regarding the performance results for the Intermediate Income Fund, noting that the Investor Shares of the Fund had underperformed its primary benchmark index, the Barclays Intermediate Aggregate Bond Index, for the one-, three-, five- and ten-year periods ended June 30, 2016. The Board noted that the Investor Shares of the Fund had underperformed its peer group median for the one-, three-, five-, and ten-year periods ended June 30, 2016.
Maryland Bond Fund
The Board next reviewed information and materials regarding the performance results for the Maryland Bond Fund, noting that the Investor Shares of the Fund had .underperformed its primary benchmark index, the Barclays 1-10 Year Blended Municipal Bond Index, for the three-, five- and ten-year periods ended June 30, 2016, but had outperformed its primary benchmark index for the one-year period ended June 30, 2016. The Board noted that the Investor Shares of the Fund had outperformed its peer group median for the one-, three-, five-, and ten-year periods ended June 30, 2016.
Strategic Bond Fund
The Board then reviewed information and materials regarding the performance results for the Strategic Bond Fund, noting that the Advisor Shares of the Fund had underperformed its primary benchmark index, the Barclays Intermediate Aggregate Bond Index, for the one- and three-year periods ended June 30, 2016. The Board noted that the Investor Shares of the Fund had outperformed its peer group median for the one- and three-year periods ended June 30, 2016.
Tax Exempt Bond Fund
The Board next reviewed information and materials regarding the performance results for the Tax Exempt Bond Fund, noting that the Investor Shares of the Fund had underperformed its primary benchmark index, the Barclays 1-10 Year Blended Municipal Bond Index, for the three-year period ended June 30, 2016, but had outperformed its primary benchmark index for the one-year period ended June 30, 2016. The Board noted that the Investor Shares of the Fund had outperformed its peer group median for the one- and three-year periods ended June 30, 2016.
Somerset Emerging Markets Fund
The Board then reviewed information and materials regarding the performance results for the Somerset Emerging Markets Fund, noting that the Institutional Shares of the Fund had outperformed its primary benchmark index, the MSCI Emerging Markets Index, for the one-year period ended June 30, 2016, but had underperformed its primary benchmark for the three-year period ended June 30, 2016. The Board also noted that the Institutional Shares of the Fund had outperformed its peer group median for the one-year period ended June 30, 2016, but had underperformed its peer group median for the three-year period ended June 30, 2016.
WMC Strategic European Equity Fund
The Board next reviewed information and materials regarding the performance results for the WMC Strategic European Equity Fund, noting that the Institutional Shares of the Fund had outperformed its primary benchmark index, the MSCI Europe EUR Net Total Return Index, for the one-year period ended June 30, 2016. The Board noted that the Institutional Shares of the Fund had outperformed its peer group median for the one-year period ended June 30, 2016.
WMC Japan Alpha Opportunities Fund
The Board then reviewed information and materials regarding the performance results for the WMC Japan Alpha Opportunities Fund, noting that the Institutional Shares of the Fund had underperformed its primary benchmark index, the Tokyo Total Return U.S. Dollar Hedged Index, for the one-year period ended June 30, 2016. The Board noted that the Institutional Shares of the Fund had underperformed its peer group median for the one-year period ended June 30, 2016. The Board also noted that, because the Fund commenced operations in March 2014, the Fund has a relatively short performance history.
Mortgage Securities Fund
The Board next reviewed information and materials regarding the performance results for the Mortgage Securities Fund, noting that the Institutional Shares of the Fund had slightly underperformed its primary benchmark index, the Barclays Mortgage Backed Securities Index, for the one-year period ended June 30, 2016. The Board noted that the Institutional Shares of the Fund had
Board of Trustees Approval of: (i) the Continuation of the Investment Advisory Agreement for Each of the Funds and (ii) the Continuation of the Sub-Investment Advisory Agreements for Each of the Sub-Advised Funds (Unaudited)
outperformed its peer group median for the one-year period ended June 30, 2016. The Board also noted that, because the Fund commenced operations in May 2014, the Fund has a relatively short performance history.
Total Return Fund
The Board then reviewed information and materials regarding the performance results for the Total Return Fund, noting that the Institutional Shares of the Fund had outperformed its primary benchmark index, the Barclays U.S. Aggregate Bond Index, for the one-year period ended June 30, 2016. The Board noted that the Institutional Shares of the Fund had outperformed its peer group median for the one-year period ended June 30, 2016. The Board also noted that, because the Fund commenced operations in October 2014, the Fund has a relatively short performance history.
Emerging Markets Small-Cap Fund
The Board next reviewed information and materials regarding the performance results for the Emerging Markets Small-Cap Fund, noting that the Institutional Shares of the Fund had underperformed its primary benchmark index, the MSCI Emerging Markets Small-Cap Index, for the one-year period ended June 30, 2016. The Board noted that the Institutional Shares of the Fund had underperformed its peer group median for the one-year period ended June 30, 2016. The Board also noted that, because the Fund commenced operations in November 2014, the Fund has a relatively short performance history.
Global Leaders Fund
The Board then reviewed information and materials regarding the performance results for the Global Leaders Fund, noting that the Fund had only commenced investment operations as of July 1, 2015 and therefore did not have an extensive operating history. The Board reviewed certain information regarding the performance of the Fund and considered the Fund’s investment performance since its inception date.
The cost of advisory services provided and the level of profitability. The Board also considered the advisory fees and overall expenses of the Funds as compared to the advisory fees and overall expenses of other mutual funds in each Fund’s peer group, as well as profitability information with respect to Brown Advisory’s management and operation of the Funds. On the basis of this comparative information, the Trustees determined that the overall advisory fees and expense ratios of the Funds are competitive with industry averages. The Trustees noted that Brown Advisory had proposed the continuation of their contractual commitment for the benefit of shareholders of the Funds to limit the Funds’ operating expenses through October 31, 2017, subject to recoupment by the Adviser of certain amounts under specified circumstances.
The Board also considered Brown Advisory’s level of profitability with respect to each of the Funds, and noted that Brown Advisory’s level of profitability was acceptable and not unreasonable. The Board reviewed the extent to which Brown Advisory uses its own financial resources to help promote and market the Funds in order to support various components of the distribution efforts of the Funds. In considering the profitability of Brown Advisory from their operation of the Funds, the Trustees considered the level of profitability realized by Brown Advisory before the imposition of any distribution and marketing expenses incurred by the firm from its own resources. The Board also considered information regarding the fees that Brown Advisory charges to its other clients for investment advisory services that are similar to the advisory services provided to the Funds and the Board noted that the fees charged to the Funds by the Adviser were reasonable in light of the nature of the services provided by the Adviser to the other accounts, the types of accounts involved, and the applicable services provided in each case. Accordingly, on the basis of the Board’s review of the fees charged by Brown Advisory for investment advisory services, the investment advisory and other services provided to the Funds by Brown Advisory, and the level of profitability from Brown Advisory’s relationship with the Funds, the Board concluded that the level of investment advisory fees and Brown Advisory’s profitability were appropriate in light of the management fees, overall expense ratios and investment performance of comparable investment companies.
The Board reviewed with the representatives of Brown Advisory certain fee and expense information for the Institutional Shares of those Funds having Institutional Shares outstanding as compared to the advisory fees and overall expenses (excluding Rule 12b-1 fees) of other mutual funds in each Fund’s peer group, and as compared to the Investor Shares for those Funds that do not have Institutional Shares outstanding, as follows:
Equity Income Fund
The Board first reviewed expense information and materials for the Equity Income Fund, noting that the Investment Advisory Agreement provided for a 0.60% investment advisory fee for the Fund, which was below the median compared to its peer funds.
Board of Trustees Approval of: (i) the Continuation of the Investment Advisory Agreement for Each of the Funds and (ii) the Continuation of the Sub-Investment Advisory Agreements for Each of the Sub-Advised Funds (Unaudited)
The Board also noted that the net expense ratio of the Fund’s Institutional Shares was 0.75%, which is lower than the median net expense ratio of its peer funds.
Flexible Equity Fund
The Board next reviewed expense information and materials for the Flexible Equity Fund, noting that the Investment Advisory Agreement provided for a 0.60% investment advisory fee for the Fund, which was below the median compared to its peer funds. The Board also noted that the net expense ratio of the Fund’s Institutional Shares was 0.73%, which was below the median net expense ratio of its peer funds.
Growth Equity Fund
The Board then reviewed expense information and materials for the Growth Equity Fund, noting that the Investment Advisory Agreement provided for a 0.60% investment advisory fee for the Fund, which was below the median compared to its peer funds. The Board also noted that the net expense ratio of the Fund’s Institutional Shares was 0.72%, which was below the median net expense ratio of its peer funds.
Small-Cap Fundamental Value Fund
The Board then reviewed expense information and materials for the Small-Cap Fundamental Value Fund, noting that the Investment Advisory Agreement provided for a 0.85% investment advisory fee for the Fund, which was above the median compared to its peer funds. The Board also noted that the net expense ratio of the Fund’s Institutional Shares was 0.98%, which was lower than the median net expense ratio of its peer funds.
Small-Cap Growth Fund
The Board next reviewed expense information and materials for the Small-Cap Growth Fund, noting that the Investment Advisory Agreement provided for a 0.85% investment advisory fee for the Fund, which was above the median compared to its peer funds. The Board also noted that the net expense ratio of the Fund’s Institutional Shares was 0.98%, which was lower than the median net expense ratio of its peer funds.
Value Equity Fund
The Board then reviewed expense information and materials for the Value Equity Fund, noting that the Investment Advisory Agreement provided for a 0.60% investment advisory fee for the Fund, which was below the median compared to its peer funds. The Board also noted that the net expense ratio of the Fund’s Institutional Shares was 0.77%, which was lower than the median net expense ratio of its peer funds.
Sustainable Growth Fund
The Board next reviewed expense information and materials for the Sustainable Growth Fund, noting that the Investment Advisory Agreement provided for a 0.60% investment advisory fee for the Fund, which was below the median compared to its peer funds. The Board also noted that the net expense ratio of the Fund’s Institutional Shares was 0.74%, which was lower than the average net expense ratio of its peer funds.
Intermediate Income Fund
The Board then reviewed expense information and materials for the Intermediate Income Fund, noting that the Investment Advisory Agreement provided for a 0.30% investment advisory fee for the Fund, which was below the median compared to its peer funds. The Board also noted that the net expense ratio of the Fund’s Investor Shares was 0.43%, which was lower than the median net expense ratio of its peer funds.
Maryland Bond Fund
The Board next reviewed expense information and materials for the Maryland Bond Fund, noting that the Investment Advisory Agreement provided for a 0.30% investment advisory fee for the Fund, which was below median compared to its peer funds. The Board also noted that the net expense ratio of the Fund’s Investor Shares was 0.48%, which was lower than the median net expense ratio of its peer funds.
Board of Trustees Approval of: (i) the Continuation of the Investment Advisory Agreement for Each of the Funds and (ii) the Continuation of the Sub-Investment Advisory Agreements for Each of the Sub-Advised Funds (Unaudited)
Strategic Bond Fund
The Board then reviewed expense information and materials for the Strategic Bond Fund, noting that the Investment Advisory Agreement provided for a 0.40% investment advisory fee for the Fund, which was below the median compared to its peer funds. The Board also noted that the net expense ratio of the Fund’s Investor Shares was 0.70%, which was lower than the median net expense ratio of its peer funds.
Tax Exempt Bond Fund
The Board next reviewed expense information and materials for the Tax Exempt Bond Fund, noting that the Investment Advisory Agreement provided for a 0.30% investment advisory fee for the Fund, which was below the median compared to its peer funds. The Board also noted that the net expense ratio of the Fund’s Investor Shares was 0.49%, which was higher than the median net expense ratio of its peer funds.
Somerset Emerging Markets Fund
The Board next reviewed expense information and materials for the Somerset Emerging Markets Fund, noting that the Investment Advisory Agreement provided for a 0.90% investment advisory fee for the Fund, which was below the median compared to its peer funds. The Board also noted that the net expense ratio of the Fund’s Institutional Shares was 1.17%, which was lower than the median net expense ratio of its peer funds.
WMC Strategic European Equity Fund
The Board next reviewed expense information and materials for the European Equity Fund, noting that the Investment Advisory Agreement provided for a 0.90% investment advisory fee for the Fund, which was comparable to the median for its peer funds. The Board also noted that the net expense ratio of the Fund’s Institutional Shares was 1.11%, which matched the median net expense ratio of its peer funds.
WMC Japan Alpha Opportunities Fund
The Board then reviewed expense information and materials for the WMC Japan Alpha Opportunities Fund, noting that the Investment Advisory Agreement provided for a 1.00% investment advisory fee for the Fund, which was above the median compared to its peer funds. The Board also noted that the net expense ratio of the Fund’s Institutional Shares was 1.14%, which was higher than the median net expense ratio of its peer funds.
Mortgage Securities Fund
The Board next reviewed expense information and materials for the Mortgage Securities Fund, noting that the Investment Advisory Agreement provided for a 0.30% investment advisory fee for the Fund, which was below the median compared to its peer funds. The Board also noted that the net expense ratio of the Fund’s Institutional Shares was 0.45%, which was lower than the median net expense ratio of its peer funds.
Total Return Fund
The Board then reviewed expense information and materials for the Total Return Fund, noting that the Investment Advisory Agreement provided for a 0.30% investment advisory fee for the Fund, which was below the median compared to its peer funds. The Board also noted that the net expense ratio of the Fund’s Institutional Shares was 0.51%, which was lower than the median net expense ratio of its peer funds.
Emerging Markets Small-Cap Fund
The Board next reviewed expense information and materials for the Emerging Markets Small-Cap Fund, noting that the Investment Advisory Agreement provided for a 1.25% investment advisory fee for the Fund, which was above the median compared to its peer funds. The Board also noted that the net expense ratio of the Fund’s Institutional Shares was 1.51%, which was higher than the median net expense ratio of its peer funds.
Global Leaders Fund
The Board then reviewed expense information and materials for the Global Leaders Fund, noting that the Investment Advisory Agreement provided for a 0.65% investment advisory fee for the Fund, but that the Fund had only commenced investment
Board of Trustees Approval of: (i) the Continuation of the Investment Advisory Agreement for Each of the Funds and (ii) the Continuation of the Sub-Investment Advisory Agreements for Each of the Sub-Advised Funds (Unaudited)
operations as of July 1, 2015 and therefore there was not yet meaningful comparative data available for a comparison of the Fund’s expenses. The Board took into consideration that the Fund is subject to an Expense Limitation Agreement and that the Adviser is currently waiving fees and reimbursing expenses in order to maintain the Fund’s total operating expenses.
The extent to which economies of scale may be realized as the Funds grow and whether the advisory fees reflect possible economies of scale. While it was noted that the Funds’ investment advisory fees will not decrease as the Funds’ assets grow because they are not subject to investment advisory fee breakpoints, the Trustees concluded that the Funds’ investment advisory fees are appropriate in light of the size of the Funds, and appropriately reflect the current economic environment for Brown Advisory and the competitive nature of the mutual fund marketplace. The Trustees also noted that the Funds’ advisory fees are competitive against their peers. The Trustees then noted that they will have the opportunity to periodically re-examine whether any of the Funds have achieved economies of scale, and the appropriateness of investment advisory fees payable to Brown Advisory with respect to the Funds, in the future at which time the implementation of fee breakpoints on applicable Funds could be further considered.
Benefits to Brown Advisory from its relationship with the Funds (and any corresponding benefits to the Funds). The Trustees concluded that other benefits that may be derived by Brown Advisory from its relationship with the Funds, including “soft dollar” benefits in connection with Fund brokerage transactions and use of the Funds’ performance track record in advertising materials, are reasonable and fair, and consistent with industry practice and the best interests of the Funds and their shareholders. In addition, the Trustees determined that the Funds benefit from their relationship with Brown Advisory by virtue of Brown Advisory’s provision of business management and shareholder services, in addition to investment advisory services, at a cost to the Funds that is generally comparable to the costs of an outside service provider, which the Trustees had previously determined to be reasonable, fair and in the best interests of the shareholders of the Funds in light of the nature and quality of the services provided and the necessity of the services for the Funds’ operations.
Other Considerations. In approving the continuation of the Investment Advisory Agreement, the Trustees determined that Brown Advisory has made a substantial commitment to the recruitment and retention of high quality personnel, and maintains the financial, compliance and operational resources reasonably necessary to manage the Funds in a professional manner that is consistent with the best interests of the Funds and their shareholders. The Board also acknowledged the experience and expertise of members of the Brown Advisory senior management team and the focus these individuals have on ensuring that the Funds operate successfully. The Trustees also concluded that Brown Advisory has made a significant entrepreneurial commitment to the management and success of the Funds, which entails a substantial financial and professional commitment, including the Expense Limitation Agreement under which Brown Advisory has undertaken to waive a portion of its fees and to reimburse expenses of the Funds to the benefit of Fund shareholders to the extent necessary in accordance with the terms of the Expense Limitation Agreement. The Board also considered matters with respect to the brokerage practices of Brown Advisory, including its soft dollar arrangements and its best-execution procedures, and noted that these were reasonable and consistent with standard industry practice.
The Board also considered various matters with respect to the distribution and shareholder servicing arrangements applicable to the Funds and they considered the distribution fees and the non-distribution shareholder servicing fees payable with respect to certain of the share classes of the Funds, including certain of such fees which are payable to the Adviser for the shareholder administrative services that it provides to shareholders of the Funds. The Board took note of the fact that the non-distribution related shareholder administrative fees payable to the Adviser are intended to compensate the Adviser for providing certain administrative services to those Fund shareholders covered by the applicable servicing arrangements in the relevant share classes.
The Board also took into consideration the nature and extent of the business management fees payable to the Adviser by each of the Funds pursuant to which Brown Advisory provides certain business management services to the Funds, which the Board had previously considered and approved at a prior meeting based upon a finding that the business management fees charged are fair and reasonable in light of the usual and customary charges made by others for services of the same nature and quality.
In reaching their conclusion with respect to the approval of the of the continuation of the Investment Advisory Agreement and the level of fees paid under the Agreement, the Trustees did not identify any one single factor as being controlling, but rather, the Board took note of a combination of factors that had influenced their decision making process. They noted the level and quality of the investment advisory services provided by Brown Advisory to each of the Funds in the Trust, and they found that these services will continue to benefit the Funds and their shareholders and also reflected the Adviser’s overall commitment to the continued growth and development of the Funds.
Board of Trustees Approval of: (i) the Continuation of the Investment Advisory Agreement for Each of the Funds and (ii) the Continuation of the Sub-Investment Advisory Agreements for Each of the Sub-Advised Funds (Unaudited)
Based upon their review and consideration of these factors and other matters deemed relevant by the Board in reaching an informed business judgment, a majority of the Board of Trustees, including a majority of the Independent Trustees, concluded that the terms of the Investment Advisory Agreement, were fair and reasonable and the Board voted to renew the Investment Advisory Agreement with respect to the Funds for an additional one-year period.
2. Board of Trustees Approval of the Continuation of the Sub-Investment Advisory Agreement With Respect to the Brown Advisory-Somerset Emerging Markets Fund
The Sub-Investment Advisory Agreement with respect to the Brown Advisory-Somerset Emerging Markets Fund (the “Fund”) between Brown Advisory and Somerset Capital Management LLP, the sub-investment adviser to the Fund (“Somerset”), was also approved by the Board of Trustees at the Board meeting held on September 15, 2016.
In accordance with the Investment Company Act of 1940, the Board of Trustees was required to consider the approval of the continuation of the Sub-Investment Advisory Agreement, and this was required to take place at an in-person meeting of the Board. The relevant provisions of the Investment Company Act of 1940 specifically provide that it is the duty of the Board to request and evaluate such information as the Board determines is necessary to allow them to properly consider the approval of the continuation of the Sub-Advisory Agreement, and it is the duty of the Adviser and Somerset, as applicable, to furnish the Trustees with such information that is responsive to their request.
Accordingly, in determining whether to approve the continuation of the Sub-Investment Advisory Agreement between Brown Advisory and Somerset, the Board of Trustees requested, and the Adviser and Somerset provided, information and data relevant to the Board’s consideration.
The Board then undertook the consideration of various matters with respect to the proposed approval of the continuation of the Sub-Investment Advisory Agreement between Brown Advisory and Somerset. The Trustees considered various matters involving the respective services provided by each of the Adviser and Somerset in connection with the management and operation of the Fund and they took note of the extensive oversight duties performed by the Adviser including investment management and compliance oversight of the operations of Somerset. The Trustees considered that the Adviser is actively engaged in conducting an ongoing monitoring program involving Somerset’s investment activities with respect to Somerset’s day-to-day portfolio management of the Fund’s assets in order to make sure that Somerset is adhering to all of the stated investment objectives, policies, limitations and restrictions that the Fund is subject to. In addition, the Trustees also took note of the fact that in connection with the Adviser’s oversight of the investment program maintained by Somerset with respect to the Fund, the Adviser prepares extensive reports to the Board regarding the investment activities of Somerset, which reports contain detailed analyses of how Somerset is performing.
The Board reviewed and evaluated the information that the Adviser and Somerset had presented for the Board’s review. The Board particularly noted, among other considerations, that the Fund’s investment advisory fees and overall operating expenses were competitive with comparable mutual funds. The Board also took into account presentations made by Somerset and the Adviser throughout the year. Based on its review of all of the information, the Board determined that the Sub-Investment Advisory Agreement was consistent with the best interests of the Fund and its shareholders and would enable the Fund to continue to receive high quality sub-advisory services at a cost that is appropriate, reasonable, and in the best interests of the Fund and its shareholders. In reaching these conclusions, the Board considered the following:
The nature, extent and quality of the sub-investment advisory services provided. The Trustees concluded that Somerset is capable of providing high quality sub-advisory services to the Fund as indicated by the professional qualifications and experience of the portfolio managers of the Fund, and Somerset’s investment management processes. On the basis of the Trustees’ assessment of the nature, extent and quality of the sub-advisory services provided by Somerset, the Trustees concluded that Somerset is capable of generating a level of long-term investment performance that is appropriate in light of the Fund’s investment objectives, policies and strategies and competitive with many other comparable investment companies.
The cost of advisory services provided and the expected level of profitability. On the basis of comparative information derived from the data that had been provided to the Board members, the Trustees determined that the expense ratios for each respective class of shares of the Fund are competitive with industry averages. The Trustees also noted that the Fund is subject to a contractual expense limitation agreement for the benefit of shareholders of the Fund to limit the Fund’s operating expenses through October 31, 2017. The Board took note of the fact that the sub-advisory fee had been separately negotiated by Brown
Board of Trustees Approval of: (i) the Continuation of the Investment Advisory Agreement for Each of the Funds and (ii) the Continuation of the Sub-Investment Advisory Agreements for Each of the Sub-Advised Funds (Unaudited)
Advisory and Somerset. Accordingly, on the basis of the Board’s review of the fees charged by Somerset for sub-investment advisory services provided to the Fund, the Board concluded that the level of sub-investment advisory fees are appropriate in light of the management fees, overall expense ratios and investment performance of comparable investment companies, and that the sub-advisory fee had been separately negotiated at arms-length by independent third parties.
The extent to which economies of scale may be realized as the Fund grows and whether the advisory fees reflect possible economies of scale. While it was noted that the Fund’s investment sub-advisory fees will not decrease as the Fund’s assets grow because they will not be subject to investment sub-advisory fee breakpoints, the Trustees concluded that the Fund’s investment sub-advisory fees are appropriate in light of the size of the Fund, and appropriately reflect the current economic environment for Brown Advisory and Somerset and the competitive nature of the mutual fund marketplace. The Trustees then noted that they will have the opportunity to periodically re-examine whether the Fund has achieved economies of scale, and the appropriateness of the investment sub-advisory fees with respect to the Fund, in the future at which time the implementation of fee breakpoints on the Fund could be further considered.
Benefits to Somerset from its relationship with the Fund (and any corresponding benefits to the Fund). The Trustees concluded that other benefits that may be derived by Somerset from its relationship with the Fund, including any potential “soft dollar” benefits in connection with the Fund’s brokerage transactions and use of the Fund’s performance track record in advertising materials, are reasonable and fair, and consistent with industry practice and the best interests of the Fund and its shareholders.
Other Considerations. In approving the continuation of the Sub-Investment Advisory Agreement, the Trustees determined that Somerset has made a substantial commitment to the recruitment and retention of high quality personnel, and maintains the financial, compliance and operational resources reasonably necessary to provide sub-advisory services to the Fund in a professional manner that is consistent with the best interests of the Fund and its shareholders. The Board also considered matters with respect to the brokerage practices of Somerset, including its soft dollar arrangements and its best-execution procedures, and noted that these were reasonable and consistent with standard industry practice.
It was noted that in making their determinations, the Trustees had considered and relied upon the materials provided to them by Somerset with respect to the contract and the presentation of the representatives of Brown Advisory. In reaching their conclusion with respect to the approval of the continuation of the Sub-Investment Advisory Agreement and the level of fees paid under the Agreement, the Trustees did not identify any one single factor as being controlling, rather, the Trustees took note of a combination of factors that had influenced their decision making process. They noted the level and quality of investment advisory services provided by Somerset to the Fund and determined that these services will continue to benefit the Fund and its shareholders. They also considered the nature of the allocation of the duties and responsibilities for the management and operation of the Fund between Brown Advisory and Somerset and they determined that the sub-advisory fee, as negotiated by Brown Advisory and Somerset, reasonably reflected the nature and extent of the services provided by Somerset with respect to the Fund.
3. Board of Trustees Approval of the Continuation of Each of the Sub-Investment Advisory Agreements With Respect to: (i) the Brown Advisory-WMC Strategic European Equity Fund and (ii) the Brown Advisory-WMC Japan Alpha Opportunities Fund
Each of the Sub-Investment Advisory Agreements with respect to: (i) the Brown Advisory-WMC Strategic European Equity Fund (the “WMC Strategic European Equity Fund”) between Brown Advisory and Wellington Management Company LLP, the sub-investment adviser to the WMC Strategic European Equity Fund (“Wellington”), and (ii) the Brown Advisory-WMC Japan Alpha Opportunities Fund (the “WMC Japan Alpha Opportunities Fund”) between Brown Advisory and Wellington, the sub-investment adviser to the WMC Japan Alpha Opportunities Fund, were also approved by the Board of Trustees at the Board meeting held on September 15, 2016.
In accordance with the Investment Company Act of 1940, the Board of Trustees was required to consider the approval of the continuation of each of the Sub-Investment Advisory Agreements, and this was required to take place at an in-person meeting of the Board. The relevant provisions of the Investment Company Act of 1940 specifically provide that it is the duty of the Board to request and evaluate such information as the Board determines is necessary to allow them to properly consider the approval of the continuation of the Sub-Advisory Agreements, and it is the duty of the Adviser and Wellington, as applicable, to furnish the Trustees with such information that is responsive to their request.
Board of Trustees Approval of: (i) the Continuation of the Investment Advisory Agreement for Each of the Funds and (ii) the Continuation of the Sub-Investment Advisory Agreements for Each of the Sub-Advised Funds (Unaudited)
Accordingly, in determining whether to approve the continuation each of the Sub-Investment Advisory Agreements between Brown Advisory and Wellington, the Board of Trustees requested, and the Adviser and Wellington provided, information and data relevant to the Board’s consideration.
The Board then undertook the consideration of various matters with respect to the proposed approval of the continuation of each of the Sub-Investment Advisory Agreements between Brown Advisory and Wellington. The Trustees considered various matters involving the respective services provided by each of the Adviser and Wellington in connection with the management and operation of each of the Funds and they took note of the extensive oversight duties performed by the Adviser including investment management and compliance oversight of the operations of Wellington. The Trustees considered that the Adviser is actively engaged in conducting an ongoing monitoring program involving Wellington’s investment activities with respect to Wellington’s day-to-day portfolio management of each Fund’s assets in order to make sure that Wellington is adhering to all of the stated investment objectives, policies, limitations and restrictions that each Fund is subject to. In addition, the Trustees also took note of the fact that in connection with the Adviser’s oversight of the investment program maintained by Wellington with respect to each of the Funds, the Adviser prepares extensive reports to the Board regarding the investment activities of Wellington, which reports contain detailed analyses of how Wellington is performing.
The Board reviewed and evaluated the information that the Adviser and Wellington had presented for the Board’s review. The Board particularly noted, among other considerations, that each respective Fund’s investment advisory fees and overall operating expenses were competitive with comparable mutual funds. The Board also took into account presentations made by Wellington and the Adviser throughout the year. Based on its review of all of the information, the Board determined that each of the Sub-Investment Advisory Agreements was consistent with the best interests of the respective Funds and their shareholders and would enable each of the Funds to continue to receive high quality sub-advisory services at a cost that is appropriate, reasonable, and in the best interests of each of the Funds and their respective shareholders. In reaching these conclusions, the Board considered the following:
The nature, extent and quality of the sub-investment advisory services provided. The Trustees concluded that Wellington is capable of providing high quality sub-advisory services to each of the Funds as indicated by the professional qualifications and experience of the respective portfolio managers of the Funds, and Wellington’s investment management processes. On the basis of the Trustees’ assessment of the nature, extent and quality of the sub-advisory services provided by Wellington, the Trustees concluded that Wellington is capable of generating a level of long-term investment performance that is appropriate in light of each Fund’s investment objectives, policies and strategies and competitive with many other comparable investment companies.
The cost of advisory services provided and the expected level of profitability. On the basis of comparative information derived from the data that had been provided to the Board members, the Trustees determined that the expense ratios for each respective class of shares of each of the Funds are competitive with industry averages. The Trustees also noted that each of the Funds is subject to a contractual expense limitation agreement for the benefit of shareholders of the Fund to limit the Fund’s operating expenses through October 31, 2017. The Board took note of the fact that the sub-advisory fees had been separately negotiated by Brown Advisory and Wellington. Accordingly, on the basis of the Board’s review of the fees charged by Wellington for sub-investment advisory services provided to the Funds, the Board concluded that the level of sub-investment advisory fees are appropriate in light of the management fees, overall expense ratios and investment performance of comparable investment companies, and that the sub-advisory fees had been separately negotiated at arms-length by independent third parties.
The extent to which economies of scale may be realized as the Funds grows and whether the advisory fees reflect possible economies of scale. While it was noted that each Fund’s investment sub-advisory fees will not decrease as the Funds’ assets grow because they will not be subject to investment sub-advisory fee breakpoints, the Trustees concluded that each Fund’s investment sub-advisory fees are appropriate in light of the size of the Funds, and appropriately reflect the current economic environment for Brown Advisory and Wellington and the competitive nature of the mutual fund marketplace. The Trustees then noted that they will have the opportunity to periodically re-examine whether either Fund has achieved economies of scale, and the appropriateness of the investment sub-advisory fees with respect to each Fund, in the future at which time the implementation of fee breakpoints on one or both of the Funds could be further considered.
Benefits to Wellington from its relationships with the Funds (and any corresponding benefits to the Funds). The Trustees concluded that other benefits that may be derived by Wellington from its relationships with the Funds, including any potential “soft dollar” benefits in connection with each Fund’s brokerage transactions and use of each Fund’s performance track record in
Board of Trustees Approval of: (i) the Continuation of the Investment Advisory Agreement for Each of the Funds and (ii) the Continuation of the Sub-Investment Advisory Agreements for Each of the Sub-Advised Funds (Unaudited)
advertising materials, are reasonable and fair, and consistent with industry practice and the best interests of the Fund and its shareholders.
Other Considerations. In approving the continuation of the Sub-Investment Advisory Agreements, the Trustees determined that Wellington has made a substantial commitment to the recruitment and retention of high quality personnel, and maintains the financial, compliance and operational resources reasonably necessary to provide sub-advisory services to the Funds in a professional manner that is consistent with the best interests of the Funds and their shareholders. The Board also considered matters with respect to the brokerage practices of Wellington, including its soft dollar arrangements and its best-execution procedures, and noted that these were reasonable and consistent with standard industry practice.
It was noted that in making their determinations, the Trustees had considered and relied upon the materials provided to them by Wellington with respect to the contracts and the presentation of the representatives of Brown Advisory. In reaching their conclusion with respect to the approval of the continuation of the Sub-Investment Advisory Agreements and the level of fees paid under the Agreements, the Trustees did not identify any one single factor as being controlling, rather, the Trustees took note of a combination of factors that had influenced their decision making process. They noted the level and quality of investment advisory services provided by Wellington to the Funds and determined that these services will continue to benefit the Funds and their shareholders. They also considered the nature of the allocation of the duties and responsibilities for the management and operation of the Funds between Brown Advisory and Wellington and they determined that the sub-advisory fees for each respective Fund, as negotiated by Brown Advisory and Wellington, reasonably reflected the nature and extent of the services provided by Wellington with respect to the Funds.
4. Board of Trustees Approval of the Continuation of the Sub-Investment Advisory Agreement With Respect to the Brown Advisory Global Leaders Fund
At their September 15, 2016 Board meeting, the Board also undertook the consideration of matters with respect to the proposed continuation of the Sub-Investment Advisory Agreement between Brown Advisory and its affiliate Brown Advisory Ltd. with respect to the Global Leaders Fund.
In accordance with the Investment Company Act of 1940, the Board of Trustees was required to consider the approval of the continuation of the Sub-Investment Advisory Agreement, and this was required to take place at an in-person meeting of the Board. The relevant provisions of the Investment Company Act of 1940 specifically provide that it is the duty of the Board to request and evaluate such information as the Board determines is necessary to allow them to properly consider the approval of the continuation of the Sub-Advisory Agreement, and it is the duty of Brown Advisory and Brown Advisory Ltd., as applicable, to furnish the Trustees with such information that is responsive to their request.
Accordingly, in determining whether to approve the continuation of the Sub-Investment Advisory Agreement between Brown Advisory and Brown Advisory Ltd., the Board of Trustees requested, and Brown Advisory and Brown Advisory Ltd. provided, information and data relevant to the Board’s consideration. In connection with these matters with respect to the sub-advisory arrangements for the Global Leaders Fund, the Trustees took into consideration the fact that the two firms are affiliates of one another and under common control. In addition, the Trustees also took into consideration the fact that the Global Leaders Fund had only commenced investment operations as of July 1, 2015, and therefore it did not yet have an extensive performance record.
The Board then undertook the consideration of various matters with respect to the proposed approval of the continuation of the Sub-Investment Advisory Agreement between Brown Advisory and Brown Advisory Ltd. The Trustees considered various matters involving the respective services provided by each of Brown Advisory and Brown Advisory Ltd. in connection with the management and operation of the Fund and they took note of the extensive oversight duties performed by Brown Advisory including investment management and compliance oversight of the operations of Brown Advisory Ltd. The Trustees considered that Brown Advisory is actively engaged in conducting an ongoing monitoring program involving Brown Advisory Ltd.’s investment activities with respect to Brown Advisory Ltd.’s day-to-day portfolio management of the Fund’s assets in order to make sure that Brown Advisory Ltd. is adhering to all of the stated investment objectives, policies, limitations and restrictions that the Fund is subject to. In addition, the Trustees also took note of the fact that in connection with Brown Advisory’s oversight of the investment program maintained by Brown Advisory Ltd. with respect to the Fund, Brown Advisory prepares extensive reports to the Board regarding the investment activities of Brown Advisory Ltd., which reports contain detailed analyses of how Brown Advisory Ltd. is performing.
Board of Trustees Approval of: (i) the Continuation of the Investment Advisory Agreement for Each of the Funds and (ii) the Continuation of the Sub-Investment Advisory Agreements for Each of the Sub-Advised Funds (Unaudited)
The Board reviewed and evaluated the information that Brown Advisory and Brown Advisory Ltd. had presented for the Board’s review. The Board particularly noted, among other considerations, that the Fund’s investment advisory fees and overall operating expenses were competitive with comparable mutual funds. The Board also took into account presentations made by Brown Advisory Ltd. and Brown Advisory throughout the year. Based on its review of all of the information, the Board determined that the Sub-Investment Advisory Agreement was consistent with the best interests of the Fund and its shareholders and would enable the Fund to continue to receive high quality sub-advisory services at a cost that is appropriate, reasonable, and in the best interests of the Fund and its respective shareholders. In reaching these conclusions, the Board considered the following:
The nature, extent and quality of the sub-investment advisory services provided. The Trustees concluded that Brown Advisory Ltd. is capable of providing high quality sub-advisory services to the Fund as indicated by the professional qualifications and experience of the portfolio managers of the Fund, and Brown Advisory Ltd.’s investment management processes. On the basis of the Trustees’ assessment of the nature, extent and quality of the sub-advisory services provided by Brown Advisory Ltd., the Trustees concluded that Brown Advisory Ltd. is capable of generating a level of long-term investment performance that is appropriate in light of the Fund’s investment objectives, policies and strategies and competitive with many other comparable investment companies.
The cost of advisory services provided and the expected level of profitability. On the basis of comparative information derived from the data that had been provided to the Board members, the Trustees determined that the expense ratios for each respective class of shares of the Fund are competitive with industry averages. The Trustees also noted that the Fund is subject to a contractual expense limitation agreement for the benefit of shareholders of the Funds to limit the Funds’ operating expenses through October 31, 2017. Accordingly, on the basis of the Board’s review of the fees charged by Brown Advisory Ltd. for sub-investment advisory services provided to the Fund, the Board concluded that the level of sub-investment advisory fees are appropriate in light of the management fees, overall expense ratios and investment performance of comparable investment companies.
The extent to which economies of scale may be realized as the Fund grows and whether the advisory fees reflect possible economies of scale. While it was noted that the Fund’s investment sub-advisory fees will not decrease as the Fund’s assets grow because they will not be subject to investment sub-advisory fee breakpoints, the Trustees concluded that the Fund’s investment sub-advisory fees are appropriate in light of the size of the Fund, and appropriately reflect the current economic environment for Brown Advisory and Brown Advisory Ltd. and the competitive nature of the mutual fund market. The Trustees then noted that they will have the opportunity to periodically re-examine whether the Fund has achieved economies of scale, and the appropriateness of the investment sub-advisory fees with respect to the Fund, in the future at which time the implementation of fee breakpoints on the Fund could be further considered.
Benefits to Brown Advisory Ltd. from its relationship with the Fund (and any corresponding benefits to the Fund). The Trustees concluded that other benefits that may be derived by Brown Advisory Ltd. from its relationships with the Fund, including any potential “soft dollar” benefits in connection with the Fund’s brokerage transactions and use of the Fund’s performance track record in advertising materials, are reasonable and fair, and consistent with industry practice and the best interests of the Fund and its shareholders.
Other Considerations. In approving the continuation of the Sub-Investment Advisory Agreement, the Trustees determined that Brown Advisory Ltd. has made a substantial commitment to the recruitment and retention of high quality personnel, and maintains the financial, compliance and operational resources reasonably necessary to provide sub-advisory services to the Fund in a professional manner that is consistent with the best interests of the Fund and its shareholders. The Board also considered matters with respect to the brokerage practices of Brown Advisory Ltd., including its soft dollar arrangements and its best-execution procedures, and noted that these were reasonable and consistent with standard industry practice.
It was noted that in making their determinations, the Trustees had considered and relied upon the materials provided to them by Brown Advisory Ltd. with respect to the contract and the presentation of the representatives of Brown Advisory. In reaching their conclusion with respect to the approval of the continuation of the Sub-Investment Advisory Agreement and the level of fees paid under the Agreement, the Trustees did not identify any one single factor as being controlling, rather, the Trustees took note of a combination of factors that had influenced their decision making process. They noted the level and quality of investment advisory services provided by Brown Advisory Ltd. to the Fund and determined that these services will continue to benefit the Fund
Board of Trustees Approval of: (i) the Continuation of the Investment Advisory Agreement for Each of the Funds and (ii) the Continuation of the Sub-Investment Advisory Agreements for Each of the Sub-Advised Funds (Unaudited)
and its shareholders. They also considered the nature of the allocation of the duties and responsibilities for the management and operation of the Fund between Brown Advisory and Brown Advisory Ltd. and they determined that the sub-advisory fees for the Fund, as negotiated by Brown Advisory and Brown Advisory Ltd., reasonably reflected the nature and extent of the services provided by Brown Advisory Ltd. with respect to the Fund. The Trustees also took into consideration the fact that Brown Advisory and Brown Advisory Ltd. are affiliated entities and under common control.
5. Board of Trustees Approval of the Continuation of the Sub-Investment Advisory Agreement With Respect to the Brown Advisory Emerging Markets Small-Cap Fund
The Sub-Investment Advisory Agreement with respect to the Brown Advisory Emerging Markets Small-Cap Fund (the “Fund”) between Brown Advisory and Macquarie Funds Management Hong Kong Limited, the sub-investment adviser to the Fund (“Macquarie Hong Kong”), was also approved by the Board of Trustees at the Board meeting held on September 15, 2016.
In accordance with the Investment Company Act of 1940, the Board of Trustees was required to consider the approval of the continuation of the Sub-Investment Advisory Agreement, and this was required to take place at an in-person meeting of the Board. The relevant provisions of the Investment Company Act of 1940 specifically provide that it is the duty of the Board to request and evaluate such information as the Board determines is necessary to allow them to properly consider the approval of the continuation of the Sub-Advisory Agreement, and it is the duty of Brown Advisory and Macquarie Hong Kong, as applicable, to furnish the Trustees with such information that is responsive to their request.
Accordingly, in determining whether to approve the continuation of the Sub-Investment Advisory Agreement between Brown Advisory and Macquarie Hong Kong, the Board of Trustees requested, and Brown Advisory and Macquarie Hong Kong provided, information and data relevant to the Board’s consideration.
The Board then undertook the consideration of various matters with respect to the proposed approval of the continuation of the Sub-Investment Advisory Agreement between Brown Advisory and Macquarie Hong Kong. The Trustees considered various matters involving the respective services provided by each of Brown Advisory and Macquarie Hong Kong in connection with the management and operation of the Fund and they took note of the extensive oversight duties performed by Brown Advisory including investment management and compliance oversight of the operations of Macquarie Hong Kong. The Trustees considered that Brown Advisory is actively engaged in conducting an ongoing monitoring program involving Macquarie Hong Kong’s investment activities with respect to Macquarie Hong Kong’s day-to-day portfolio management of the Fund’s assets in order to make sure that Macquarie Hong Kong is adhering to all of the stated investment objectives, policies, limitations and restrictions that the Fund is subject to. In addition, the Trustees also took note of the fact that in connection with Brown Advisory’s oversight of the investment program maintained by Macquarie Hong Kong with respect to the Fund, Brown Advisory prepares extensive reports to the Board regarding the investment activities of Macquarie Hong Kong, which reports contain detailed analyses of how Macquarie Hong Kong is performing.
The Board reviewed and evaluated the information that Brown Advisory and Macquarie Hong Kong had presented for the Board’s review. The Board particularly noted, among other considerations, that the Fund’s investment advisory fees and overall operating expenses were competitive with comparable mutual funds. The Board also took into account presentations made by Macquarie Hong Kong and Brown Advisory throughout the year. Based on its review of all of the information, the Board determined that the Sub-Investment Advisory Agreement was consistent with the best interests of the Fund and its shareholders and would enable the Fund to continue to receive high quality sub-advisory services at a cost that is appropriate, reasonable, and in the best interests of the Fund and its shareholders. In reaching these conclusions, the Board considered the following:
The nature, extent and quality of the sub-investment advisory services provided. The Trustees concluded that Macquarie Hong Kong is capable of providing high quality sub-advisory services to the Fund as indicated by the professional qualifications and experience of the portfolio managers of the Fund, and Macquarie Hong Kong’s investment management processes. On the basis of the Trustees’ assessment of the nature, extent and quality of the sub-advisory services provided by Macquarie Hong Kong, the Trustees concluded that Macquarie Hong Kong is capable of generating a level of long-term investment performance that is appropriate in light of the Fund’s investment objectives, policies and strategies and competitive with many other comparable investment companies.
The cost of advisory services provided and the expected level of profitability. On the basis of comparative information derived from the data that had been provided to the Board members, the Trustees determined that the expense ratios for each
Board of Trustees Approval of: (i) the Continuation of the Investment Advisory Agreement for Each of the Funds and (ii) the Continuation of the Sub-Investment Advisory Agreements for Each of the Sub-Advised Funds (Unaudited)
respective class of shares of the Fund are competitive with industry averages. The Trustees also noted that the Fund is subject to a contractual expense limitation agreement for the benefit of shareholders of the Fund to limit the Fund’s operating expenses through October 31, 2017. The Board took note of the fact that the sub-advisory fee had been separately negotiated by Brown Advisory and Macquarie Hong Kong. Accordingly, on the basis of the Board’s review of the fees charged by Macquarie Hong Kong for sub-investment advisory services provided to the Fund, the Board concluded that the level of sub-investment advisory fees are appropriate in light of the management fees, overall expense ratios and investment performance of comparable investment companies, and that the sub-advisory fee had been separately negotiated at arms-length by independent third parties.
The extent to which economies of scale may be realized as the Fund grows and whether the advisory fees reflect possible economies of scale. While it was noted that the Fund’s investment sub-advisory fees will not decrease as the Fund’s assets grow because they will not be subject to investment sub-advisory fee breakpoints, the Trustees concluded that the Fund’s investment sub-advisory fees are appropriate in light of the size of the Fund, and appropriately reflect the current economic environment for Brown Advisory and Macquarie Hong Kong and the competitive nature of the mutual fund marketplace. The Trustees then noted that they will have the opportunity to periodically re-examine whether the Fund has achieved economies of scale, and the appropriateness of the investment sub-advisory fees with respect to the Fund, in the future at which time the implementation of fee breakpoints on the Fund could be further considered.
Benefits to Macquarie Hong Kong from its relationship with the Fund (and any corresponding benefits to the Fund). The Trustees concluded that other benefits that may be derived by Macquarie Hong Kong from its relationship with the Fund, including any potential “soft dollar” benefits in connection with the Fund’s brokerage transactions and use of the Fund’s performance track record in advertising materials, are reasonable and fair, and consistent with industry practice and the best interests of the Fund and its shareholders.
Other Considerations. In approving the continuation of the Sub-Investment Advisory Agreement, the Trustees determined that Macquarie Hong Kong has made a substantial commitment to the recruitment and retention of high quality personnel, and maintains the financial, compliance and operational resources reasonably necessary to provide sub-advisory services to the Fund in a professional manner that is consistent with the best interests of the Fund and its shareholders. The Board also considered matters with respect to the brokerage practices of Macquarie Hong Kong, including its soft dollar arrangements and its best-execution procedures, and noted that these were reasonable and consistent with standard industry practice.
It was noted that in making their determinations, the Trustees had considered and relied upon the materials provided to them by Macquarie Hong Kong with respect to the contract and the presentation of the representatives of Brown Advisory. In reaching their conclusion with respect to the approval of the continuation of the Sub-Investment Advisory Agreement and the level of fees paid under the Agreement, the Trustees did not identify any one single factor as being controlling, rather, the Trustees took note of a combination of factors that had influenced their decision making process. They noted the level and quality of investment advisory services provided by Macquarie Hong Kong to the Fund and determined that these services will continue to benefit the Fund and its shareholders. They also considered the nature of the allocation of the duties and responsibilities for the management and operation of the Fund between Brown Advisory and Macquarie Hong Kong and they determined that the sub-advisory fee, as negotiated by Brown Advisory and Macquarie Hong Kong, reasonably reflected the nature and extent of the services provided by Macquarie Hong Kong with respect to the Fund.
Information About Proxy Voting (Unaudited)
A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available without charge upon request by calling toll-free at 800-540-6807 and by accessing the Funds’ website at www.brownadvisoryfunds.com. Furthermore, you can obtain the description on the SEC’s website at www.sec.gov.
Information regarding how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30 is available without charge, by calling toll-free at 800-540-6807. In addition, you can obtain the Funds’ proxy voting records on the SEC’s website at www.sec.gov.
Information About the Portfolio Holdings (Unaudited)
The Funds file their complete schedule of portfolio holdings for their first and third fiscal quarters with the SEC on Form N-Q. The Funds’ Form N-Q is available without charge, upon request, by calling toll-free at 800-540-6807. Furthermore, you can obtain the Form N-Q on the SEC’s website at www.sec.gov. The Funds’ schedules of portfolio holdings are posted on their website at www.brownadvisoryfunds.com within ten business days after calendar quarter end.
Householding (Unaudited)
In an effort to decrease costs, the Funds will reduce the number of duplicate Prospectuses and annual and semi-annual reports that you receive by sending only one copy of each to those addresses shown by two or more accounts. Please call the Transfer Agent toll free at 1-800-540-6807 to request individual copies of these documents. The Funds will begin sending individual copies 30 days after receiving your request. This policy does not apply to account statements.
BROWN ADVISORY FUNDS
At Brown Advisory, we believe that you deserve frank and open communication on all aspects of our relationship. In this spirit, we provide this annual summary of our policies relating to confidentiality and privacy of client information, mutual funds, conflicts of interest, trading commissions, proxy voting and Form ADV annual notice.
CONFIDENTIALITY AND PRIVACY POLICY
Brown Advisory takes the confidentiality of your personal information and the privacy of your account very seriously. Our commitment to safeguard your personal information goes beyond our legal obligation to process your transactions accurately and securely. Whether we serve you online, in person, on the telephone or by mail, the principles that guide the way in which we conduct business are built upon the core values of trust and integrity.
We limit access to your personal information to only those employees with a business reason to know such information. We train and consistently remind all employees to respect client privacy and to recognize the importance of the confidentiality of such information. Those who violate our privacy policy are subject to disciplinary action. This commitment also applies to the sharing of information among Brown Advisory and its affiliates.
We maintain physical, electronic and procedural safeguards that comply with applicable laws and regulations to protect your personal information, including various measures to protect your personal information while it is stored electronically.
Federal law requires us to inform you that we have on record personal information about you and that we obtain such information from you directly (e.g., information you provide to us on account applications and other forms, such as your name, address, social security number, occupation, assets and income) and indirectly (e.g., information on our computer systems about your transactions with us, such as your account balance and account holdings). Any personal information you choose to provide is kept confidential and allows us to: (i) provide better and more complete investment and strategic advice; (ii) develop new services that meet additional needs you may have; and, (iii) comply with legal and regulatory requirements.
In addition, in the normal conduct of our business, it may become necessary for us to share information relating to our clients that we have on record, as described above, with companies not affiliated with us who are under contract to perform services on our behalf. For example, we have contracted with companies to assist us in complying with anti-terrorist and anti-money laundering statutory requirements (including the identification and reporting of activities that may involve terrorist acts or money laundering activities), companies that provide clearing services, and other vendors that provide services directly related to your account relationship with us. Our agreements with these companies require that they keep your information confidential and not use such information for any unrelated purpose.
We do not sell information about you to third parties, and we do not otherwise disclose information to third parties without your permission or unless required by law.
(This Page Intentionally Left Blank.)
INVESTMENT ADVISER
Brown Advisory LLC
901 South Bond Street, Suite 400
Baltimore, MD 21231
www.brownadvisory.com
DISTRIBUTOR
Quasar Distributors, LLC
615 East Michigan Street
Milwaukee, WI 53202
CUSTODIAN
U.S. Bank, N.A.
Custody Operations
1555 North Rivercenter Drive, Suite 302
Milwaukee, WI 53212
TRANSFER AGENT
U.S. Bancorp Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201
(800) 540-6807
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
1818 Market Street, Suite 2400
Philadelphia, PA 19103
LEGAL COUNSEL
Dechert LLP
1900 K Street, NW
Washington, DC 20006
| | | Institutional Shares | | Investor Shares | | | Advisor Shares | |
| | | Symbol | | | CUSIP | | Symbol | | CUSIP | | | Symbol | | | CUSIP | |
| Growth Equity Fund | | BAFGX | | | | 115233702 | | BIAGX | | | 115233504 | | | BAGAX | | | | 115233603 | |
| Flexible Equity Fund | | BAFFX | | | | 115233843 | | BIAFX | | | 115233868 | | | BAFAX | | | | 115233850 | |
| Equity Income Fund | | BAFDX | | | | 115233660 | | BIADX | | | 115233686 | | | BADAX | | | | 115233678 | |
| Sustainable Growth Fund | | BAFWX | | | | 115233207 | | BIAWX | | | 115233306 | | | BAWAX | | | | 115233405 | |
| Small-Cap Growth Fund | | BAFSX | | | | 115233819 | | BIASX | | | 115233835 | | | BASAX | | | | 115233827 | |
| Small-Cap Fundamental Value Fund | | BAUUX | | | | 115233777 | | BIAUX | | | 115233793 | | | BAUAX | | | | 115233785 | |
| Global Leaders Fund | | | — | | | | — | | BIALX | | | 115233462 | | | | — | | | | — | |
| Intermediate Income Fund | | | — | | | | — | | BIAIX | | | 115233744 | | | BAIAX | | | | 115233736 | |
| Total Return Fund | | BAFTX | | | | 115233538 | | BIATX | | | 115233520 | | | | — | | | | — | |
| Strategic Bond Fund | | | — | | | | — | | BIABX | | | 115233470 | | | BATBX | | | | 115233710 | |
| Maryland Bond Fund | | | — | | | | — | | BIAMX | | | 115233751 | | | | — | | | | — | |
| Tax Exempt Bond Fund | | | — | | | | — | | BIAEX | | | 115233108 | | | | — | | | | — | |
| Mortgage Securities Fund | | BAFZX | | | | 115233546 | | BIAZX | | | 115233587 | | | | — | | | | — | |
| WMC Strategic European Equity Fund | | BAFHX | | | | 115233629 | | BIAHX | | | 115233611 | | | BAHAX | | | | 115233595 | |
| WMC Japan Alpha Opportunities Fund | | BAFJX | | | | 115233579 | | BIAJX | | | 115233561 | | | BAJAX | | | | 115233553 | |
| Somerset Emerging Markets Fund | | BAFQX | | | | 115233652 | | BIAQX | | | 115233645 | | | BAQAX | | | | 115233637 | |
| Emerging Markets Small-Cap Fund | | BAFNX | | | | 115233512 | | BIANX | | | 115233496 | | | | — | | | | — | |
This report is submitted for the general information of the shareholders of each Fund. It is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus, which includes information regarding the Funds’ risks, objectives, fees and expenses, experience of their management, and other information.
BX-SEMIANNUAL
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable to registrants who are not listed issuers (as defined in Rule 10A-3 under the Securities Exchange Act of 1934).
Item 6. Schedule of Investments.
(a) Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 9. Purchases of Equity Securities by Closed‑End Management Investment Company and Affiliated Purchasers.
Not applicable to open-end investment companies.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of trustees.
Item 11. Controls and Procedures.
| (a) | The Registrant’s Principal Executive Officer and Principal Financial Officer have reviewed the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d‑15(b) under the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant’s service provider. |
| (b) | There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) 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) Any code of ethics or amendment thereto, that is subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Incorporated by reference to previous Form N-CSR filing. |
(2) A separate certification for each principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
(3) Any written solicitation to purchase securities under Rule 23c‑1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable to open-end investment companies.
| (b) | Certification pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002. Furnished herewith. |
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)
By (Signature and Title)* /s/David M. Churchill
David M. Churchill, Principal Executive Officer
Date March 7, 2017
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/David M. Churchill
David M. Churchill, Principal Executive Officer
Date March 7, 2017
By (Signature and Title)* /s/Jason T. Meix
Jason T. Meix, Principal Financial Officer
Date March 7, 2017
* Print the name and title of each signing officer under his or her signature.
