Separately Managed Account Reserve Trust
ANNUAL REPORT
For the year ended
September 30, 2011
Brandes Separately Managed Account Reserve Trust
Dear Shareholder:
The Separately Managed Account Reserve Trust I shares (“the Fund”) gained 4.61% in the 12-month period ending September 30, 2011. The Barclays Capital U.S. Aggregate Bond Index advanced 5.26% and the Barclays Capital U.S. Intermediate Credit Bond Index increased 2.92% during the same 12-month period.
In this letter, I will examine the sector- and security-specific factors that affected the Fund’s performance and describe changes in the Fund’s composition for the 12-month period ending September 30, 2011. I will also discuss how the Fund is positioned for the future.
The Markets
The fixed income markets have been dominated more by “macro” driven events throughout the past 12 months than “micro” fundamentals. Significant events that have weighed on the collective market’s mind include concerns about the anemic pace of U.S. economic growth, concerns surrounding European sovereign debt/banking system, the downgrade of the U.S. credit rating by Standard & Poor’s, and atypical Fed monetary actions undertaken in attempt to spur domestic growth. Due primarily to the overwhelming amount of macro headlines for investors to wrap their arms around, volatility in the fixed income markets saw a meaningful rise over the past 12 months. The uptick in volatility had an impact that was two-fold. First, there was strong bid for U.S. Treasury securities, driving interest rates back near historic lows. We often see a “flight to quality” during periods of uncertainty, and we have witnessed this during the past six months. Secondly we witnessed a meaningful re-pricing of risk-based fixed income assets, particularly over the past six months. We believe the “micro” fundamentals in the credit market remain largely positive. The 2008 credit crisis caused many companies to clean up their balance sheets and capital structure; and as a result, metrics like interest coverage, debt service levels, and cash balances are all at or near 20-year highs.
The Fund
Amid widening spreads, the Fund’s overweight to corporate bonds was the largest detractor to the Fund's performance over the 12-month period ending September 30, 2011. Within the corporate bond sector, the Fund’s holdings in the banking industry underperformed the Fund’s benchmark indices largely due to escalating fears that the sovereign stresses in Europe would spread through the global banking system. The homebuilding and building products industries also underperformed as there have been few tangible signs that the housing market has improved. Finally, the Fund’s holdings in electric utilities detracted from performance, effectively driven by the holding of EDP Finance BV – the incumbent utility company in Portugal. A few industries that positively affected performance included holdings in chemicals and energy.
Gains for holdings in select asset backed securities (“ABS”) and collateralized mortgage obligations (“CMO”) contributed positively to performance. Performance in the CMO sector was led by holdings in mortgage trust interest only (“IO”) securities and the ABS sector was led by holdings in floating rate notes backed by private student loans.
1 | Source: Morgan Stanley, the Yield Book, Bloomberg, Factset |
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During the12-month period, notable purchases by the Fund were corporate bonds issued by American International Group, EDP Finance BV, JPMorgan, Lyondell Chemical, Marks & Spencer, Pilgrim’s Pride, Regions Financial, and Spectrum Brands. The Fund also purchased a few ABS floating rate notes backed by private student loans and a mortgage trust IO security. Notable sales by the Fund included positions in corporate bonds issued by Ameren Corp, British Petroleum, Ford Motor Credit, Keycorp, Lorillard Tobacco, Tenet Healthcare, Transocean Inc, and Valero Energy Corp.
The Fund’s yield premium to the benchmarks was a once again a positive factor in relative performance. As of September 30, 2011 the Fund’s most substantial weighting was in the corporate bonds sector, particularly the industrials industry.
Our Outlook
As we look forward to the final three months of the year and into the beginning of next year we believe the credit market has priced in about a 50% possibility of slipping back into a recession and a 5-year default rate that would exceed the worst historical observations. As of 9/30/11, the credit market was pricing in an implied 5-year default rate of approximately 58%. Looking back to 1970, the worst 5-year default rate for the market peaked at approximately 35%. During the 2008/2009 credit crisis, defaults peaked at 13%. While the events of 2008 have taught us that you can “never say never,” it is rare for defaults to stay elevated after a spike. In 1933, defaults hit their all-time high at 15%, but stayed below 3% annually during the late 1930s. In 1970, defaults spiked to 9%, but again the annual default rate remained below 4% until 1986. The reason that defaults have rarely stayed elevated after a spike is that weaker companies are washed out of the market post-spike, and the stronger survivors are forced to clean up their balance sheets. We’ve witnessed both dynamics play out over the past few years.
There is an old adage about always fighting the last war, and that is certainly applicable as it relates to the credit market fundamentals post the 2008/2009 credit crisis. Many companies did not survive the credit crisis; however, many that did have meaningfully improved their balance sheets. In our opinion, the fundamental picture of the corporate market, by and large, is strong. The metrics that are important to credit investors are at or near 20-year highs: interest coverage, debt service ratios, and cash balances. In addition, many companies have opportunistically taken advantage of historic low interest rates and extended the maturity of their debt through refinancing, helping to alleviate much of the concern about liquidity if the credit markets should seize again for a period of time. The other interesting overlay is that while the continued anemic economic growth has ostensibly formed an anchor on equity prices and valuations, slow growth has been positive for corporate credit fundamentals. Usually, once growth recovers corporate conservatism declines. Thanks, however, to the anemic recovery and persistent double-dip recession fears, companies have been hesitant to get aggressive with their balance sheets.
What we have in the current market is stark contrast between the negative macro market and largely positive micro fundamentals. When the macro factors are as powerful as they have been, correlations between sectors and asset classes gravitate towards one. This certainly happened over the course of the most recent period, resulting in the opportunity set of bonds to appear as attractive as we have witnessed over the past few years. As we enter the fourth quarter we will look to continue to take a disciplined and measured
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approach to adding securities to the Fund that we feel are priced at attractive risk premiums relative to our view of their long-term value. Given that the credit markets effectively stopped functioning for a period in 2008, we are especially mindful in our credit assessments of companies that have near-term liquidity needs; as such, they may not (through no fault of their own) have ready access to capital markets. As we have witnessed over the most recent period, macro headlines can drive valuations of fixed income assets over the short term. These periods may be uncomfortable for investors; however, we believe these periods are necessary to reset the value component of the Fund. Periods of short-term volatility are crucial because over longer periods, we believe the market should ultimately turn toward a more balanced assessment of the impact of macro factors on individual credit stories. We’ve witnessed this in past periods of stress over the past 15+ years: from the Asian financial crisis in 1997, to the Russian sovereign default in 1998, the Y2K scare in 1999, the Enron and the WorldCom collapses in 2001/2002, to the more recent credit crisis in 2008. In each case an exogenous “shock” to the system resulted in a broad-based re-pricing of risk, followed by meaningful value in subsequent years for those focused on long-term fundamentals. We feel that we are currently in one of these periods and are confident that our value approach has the potential to reward patient investors.
Sincerely yours,
Debra McGinty-Poteet
President
Brandes Investment Trust
Correlation is the relationship of price movements among different asset classes.
Past performance does not guarantee future results.
Market conditions may impact performance. The performance results presented were achieved in particular market conditions which may not be repeated. Moreover, the current market volatility and uncertain regulatory environment may have a negative impact on future performance.
The Fund invests in foreign and emerging market securities which involve greater volatility and political, economic, and currency risks and differences in accounting methods. Below investment grade debt securities are speculative and involve a greater risk of default and price change due to changes in the issuer’s creditworthiness. The Fund’s use of derivative instruments, such as options contracts, futures contracts or swap agreements, involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other more traditional investments.
Unlike bonds issued or guaranteed by the U.S. government or its agencies, stocks and other bonds are not backed by the full faith and credit of the United States. Stock and bond prices will experience market fluctuations. Please note that the values of government securities and bonds in
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general have an inverse relationship to interest rates. Bonds carry the risk of default, or the risk than an issuer will be unable to make income or principal payment. There is no assurance that private guarantors or insurers will meet their obligations. The credit quality of the investments in the portfolio is no guarantee of the safety or stability of the portfolio. 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.
Current and future portfolio holdings are subject to risk.
Please refer to the Schedule of Investments in the report for complete holdings information. Fund holdings, geographic allocations and/or sector allocations are subject to change at any time and are not a recommendation to buy or sell any security.
Investment performance reflects fee waivers and/or reimbursement of expenses. In the absence of such waivers/reimbursements, total return would be reduced.
The foregoing reflects the thoughts and opinions of Brandes Investment Partners® exclusively and is subject to change without notice.
Brandes Investment Partners® is a registered trademark of Brandes Investment Partners, L.P. in the United States and Canada.
Index Guide
The Barclays Capital U.S. Aggregate Bond Index is an unmanaged index consisting of U.S. dollar-denominated, fixed-rate, taxable bonds. The U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS. The U.S. Aggregate rolls up into other Barclays Capital flagship indices such as the multi-currency Global Aggregate Index and the U.S. Universal Index, which includes high yield and emerging markets debt. The U.S. Aggregate Index was created in 1986, with index history backfilled to January 1, 1976. The index is a total return index which reflects the price changes and interest of each bond in the index.
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The following chart compares the value of a hypothetical $1,000,000 investment in the Separately Managed Account Reserve Trust from its inception (October 3, 2005) to September 30, 2011 as compared with the Barclays Capital U.S. Aggregate Index and Barclays Capital U.S. Intermediate Credit Index.
Cumulative Performance of $1,000,000 Since Inception — (Unaudited)
Average Annual Total Return Periods Ended September 30, 2011 | ||||||||||||||||
One Year | Three Year | Five Year | Since Inception (10/3/05) | |||||||||||||
Separately Managed Account Reserve Trust | 4.61 | % | 14.70 | % | 4.63 | % | 4.86 | % | ||||||||
Barclays Capital U.S. Aggregate Index | 5.26 | % | 7.97 | % | 6.53 | % | 6.09 | % | ||||||||
Barclays Capital U.S. Intermediate Credit Index | 2.92 | % | 10.16 | % | 6.24 | % | 5.83 | % |
Sector Allocation as a Percentage of Total Investments
as of September 30, 2011
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Expense Example (Unaudited)
As a shareholder of the Fund, you incur ongoing costs, including investment advisory and administrative fees and other fund expenses. The examples below are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from April 1, 2011 to September 30, 2011 (the “Period”).
Actual Expenses
This section provides information about actual account values and actual expenses. The “Ending Account Value” shown is derived from the Fund’s actual returns. You may use the information in this section, 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 given for the Fund under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Fund | Beginning Account Value | Ending Account Value | Annual Expense Ratio | Expenses Paid During the Period | ||||||||||||
Separately Managed Account Reserve Trust* | $ | 1,000.00 | $ | 980.90 | 0.00 | % | $ | 0.00 |
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Hypothetical Example for Comparison Purposes
This section provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other mutual funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the last column of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Fund | Beginning Account Value | Ending Account Value | Annual Expense Ratio | Expenses Paid During the Period | ||||||||||||
Separately Managed Account Reserve Trust* | $ | 1,000.00 | $ | 1,025.07 | 0.00 | % | $ | 0.00 |
* | No expenses have been charged to the SMART Fund over the period, as the SMART Fund participates in a wrap-fee program sponsored by investment advisors unaffiliated with the SMART Fund. See Note 3 to the Financial Statements. |
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SCHEDULE OF INVESTMENTS September 30, 2011
Principal Amount | Value | |||||||
FEDERAL AND FEDERALLY SPONSORED CREDITS – 1.42% | ||||||||
Fannie Mae Interest Only Strip – 1.42% | ||||||||
5.500%, 01/01/2036 | $ | 6,044,064 | $ | 957,065 | ||||
6.000%, 06/01/2036 | 7,331,677 | 1,063,373 | ||||||
TOTAL FEDERAL AND FEDERALLY SPONSORED CREDITS (Cost $2,720,710) | $ | 2,020,438 | ||||||
OTHER MORTGAGE RELATED SECURITIES – 10.42% | ||||||||
Collateralized Mortgage Obligations – 0.04% | ||||||||
Wells Fargo Mortgage Backed Securities Trust Series 2006-AR14, 5.876%, 10/25/2036 | $ | 64,559 | $ | 58,238 | ||||
Near Prime Mortgage – 5.63% | ||||||||
Bear Stearns Adjustable Rate Mortgage Trust Series 2005-10, 2.727%, 10/25/2035 | 3,699,997 | 3,045,093 | ||||||
Countrywide Home Loan Mortgage Pass Through Trust Series 2006-HYB1, 2.684%, 03/20/2036 | 1,579,245 | 761,313 | ||||||
First Horizon Alternative Mortgage Securities Series 2004-FA2, 6.000%, 01/25/2035 | 1,768,880 | 1,760,936 | ||||||
Merrill Lynch Mortgage Investors, Inc. Series 2005-A9, 2.762%, 12/25/2035 | 1,047,580 | 813,131 | ||||||
Wells Fargo Alternative Loan Trust Series 2007-PA5, 6.000%, 11/25/2022 | 1,754,162 | 1,641,596 | ||||||
8,022,069 | ||||||||
Sub-Prime Mortgages – 4.75% | ||||||||
Argent Securities, Inc. Series 2004-W11, 1.435%, 11/25/2034 | 666,414 | 127,331 | ||||||
Countrywide Asset-Backed Certificates Series 2004-10, 1.285%, 12/25/2034 | 3,367,568 | 758,023 | ||||||
Series 2004-13, 1.085%, 04/25/2035 | 1,810,000 | 1,117,525 | ||||||
First Franklin Mortgage Loan Asset Backed Certificates Series 2004-FF8, 1.185%, 10/25/2034 | 2,062,380 | 858,177 | ||||||
JP Morgan Mortgage Acquisition Corp. Series 2006-NC1, 0.405%, 04/25/2036 | 2,772,947 | 1,831,872 | ||||||
Structured Asset Investment Loan Trust Series A3, 0.615%, 07/25/2035 | 2,324,003 | 2,061,384 | ||||||
6,754,312 | ||||||||
TOTAL OTHER MORTGAGE RELATED SECURITIES (Cost $20,477,164) | $ | 14,834,619 |
The accompanying notes are an integral part of these Schedules of Investments.
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SCHEDULE OF INVESTMENTS September 30, 2011 – (continued)
Principal Amount | Value | |||||||
US GOVERNMENTS – 1.75% | ||||||||
Sovereign – 1.75% | ||||||||
United States Treasury Bond 4.750%, 02/15/2037 | $ | 1,860,000 | $ | 2,498,213 | ||||
TOTAL US GOVERNMENTS (Cost $1,891,528) | $ | 2,498,213 |
Shares | Value | |||||||
COMMON STOCKS – 0.52% | ||||||||
Paper & Forest Products – 0.51% | ||||||||
AbitibiBowater, Inc.(a) | 31,224 | $ | 468,360 | |||||
Abitibi-Consolidated(a)(c) | 3,950,000 | — | ||||||
Quad/Graphics, Inc. | 14,443 | 260,984 | ||||||
Quebecor World(a)(c) | 9,700,000 | — | ||||||
729,344 | ||||||||
Semiconductors – 0.01% | ||||||||
Magnachip Semiconductor Corp.(a) | 2,010 | 13,507 | ||||||
TOTAL COMMON STOCKS (Cost $4,082,221) | $ | 742,851 | ||||||
PREFERRED STOCKS – 0.64% | ||||||||
Diversified Financial Services – 0.64% | ||||||||
Ally Financial, Inc., 7.000%(b) | 1,363 | $ | 912,827 | |||||
TOTAL PREFERRED STOCKS (Cost $0) | $ | 912,827 |
The accompanying notes are an integral part of these Schedules of Investments.
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SCHEDULE OF INVESTMENTS September 30, 2011 – (continued)
Principal Amount | Value | |||||||
ASSET BACKED SECURITIES – 5.26% | ||||||||
Student Loan – 5.26% | ||||||||
National Collegiate Student Loan Trust Series A-4, 0.540%, 10/25/2033 | $ | 1,500,000 | $ | 700,833 | ||||
SLM Student Loan Trust | ||||||||
Series 2004-B, 0.677%, 03/15/2024 | 2,980,000 | 2,376,921 | ||||||
Series 2004-B, 0.777%, 09/15/2033 | 1,500,000 | 1,222,080 | ||||||
Series 2005-A, 0.657%, 12/15/2038 | 1,865,000 | 1,400,815 | ||||||
Series 2006-A, 0.637%, 06/15/2039 | 2,200,000 | 1,788,357 | ||||||
TOTAL ASSET BACKED SECURITIES (Cost $7,506,414) | $ | 7,489,006 | ||||||
CORPORATE BONDS – 77.39% | ||||||||
Advertising – 2.90% | ||||||||
The Interpublic Group of Companies, Inc. 6.250%, 11/15/2014 | $ | 3,920,000 | $ | 4,135,600 | ||||
Automobile Parts & Equipment – 1.63% | ||||||||
American Axle & Manufacturing, Inc. 5.250%, 02/11/2014 | 2,465,000 | 2,317,100 | ||||||
Banks & Thrifts – 14.70% | ||||||||
Ally Financial, Inc. | ||||||||
7.500%, 12/31/2013 | 1,029,000 | 1,044,435 | ||||||
6.750%, 12/01/2014 | 3,646,000 | 3,486,488 | ||||||
8.000%, 12/31/2018 | 1,235,000 | 1,123,850 | ||||||
First Horizon National Corp. 5.375%, 12/15/2015 | 1,780,000 | 1,801,615 | ||||||
JP Morgan Chase & Co. 7.900%, 04/30/2099 | 5,620,000 | 5,788,655 | ||||||
M&I Marshall & Ilsley Bank 5.000%, 01/17/2017 | 3,380,000 | 3,564,362 | ||||||
Regions Financial Corp. 5.750%, 06/15/2015 | 2,555,000 | 2,452,800 | ||||||
The Goldman Sachs Group, Inc. 7.500%, 02/15/2019 | 1,500,000 | 1,673,879 | ||||||
20,936,084 |
The accompanying notes are an integral part of these Schedules of Investments.
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SCHEDULE OF INVESTMENTS September 30, 2011 – (continued)
Principal Amount | Value | |||||||
Building Materials – 9.79% | ||||||||
CRH America Corp. 6.000%, 09/30/2016 | 1,915,000 | $ | 2,051,005 | |||||
Masco Corp. 6.125%, 10/03/2016 | 4,040,000 | 3,939,739 | ||||||
Mohawk Industries, Inc. 6.875%, 01/15/2016 | 2,965,000 | 3,061,363 | ||||||
Owens Corning 6.500%, 12/01/2016 | 1,445,000 | 1,558,775 | ||||||
USG Corp. 6.300%, 11/15/2016 | 4,555,000 | 3,336,538 | ||||||
13,947,420 | ||||||||
Chemical – 3.08% | ||||||||
Lyondell Chemical Co. 11.000%, 05/01/2018 | 4,065,000 | 4,390,200 | ||||||
Consumer Products – 2.46% | ||||||||
Spectrum Brands, Inc. 9.500%, 06/15/2018(b) | 3,285,000 | 3,498,525 | ||||||
Diversified Financial Services – 6.28% | ||||||||
American International Group, Inc. 6.400%, 12/15/2020 | 2,785,000 | 2,837,330 | ||||||
International Lease Finance Corp. 6.625%, 11/15/2013 | 3,350,000 | 3,249,500 | ||||||
SLM Corp. 5.000%, 10/01/2013 | 2,920,000 | 2,858,323 | ||||||
8,945,153 | ||||||||
Electric Utilities – 7.31% | ||||||||
EDP Finance BV 4.900%, 10/01/2019(b) | 4,450,000 | 3,216,571 | ||||||
FirstEnergy Corp. 7.375%, 11/15/2031 | 3,950,000 | 4,871,705 | ||||||
Nisource Finance Corp. 5.250%, 09/15/2017 | 2,140,000 | 2,321,680 | ||||||
10,409,956 |
The accompanying notes are an integral part of these Schedules of Investments.
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SCHEDULE OF INVESTMENTS September 30, 2011 – (continued)
Principal Amount | Value | |||||||
Energy – 1.21% | ||||||||
Valero Energy Corp. 9.375%, 03/15/2019 | 1,340,000 | $ | 1,717,179 | |||||
Food, Beverage & Tobacco – 6.13% | ||||||||
Chiquita Brands International, Inc. 7.500%, 11/01/2014 | 1,290,000 | 1,273,875 | ||||||
Pilgrim’s Pride Corp. 7.875%, 12/15/2018(b) | 3,195,000 | 2,436,188 | ||||||
Tyson Foods, Inc. 6.850%, 04/01/2016 | 4,615,000 | 5,018,812 | ||||||
8,728,875 | ||||||||
Homebuilders – 9.56% | ||||||||
Centex Corp. 6.500%, 05/01/2016 | 2,695,000 | 2,560,250 | ||||||
Lennar Corp. 5.600%, 05/31/2015 | 4,275,000 | 3,890,249 | ||||||
Pulte Group, Inc. 5.200%, 02/15/2015 | 3,205,000 | 2,900,525 | ||||||
Toll Brothers Finance Corp. 5.150%, 05/15/2015 | 4,235,000 | 4,271,099 | ||||||
13,622,123 | ||||||||
Insurance – 3.39% | ||||||||
CNA Financial Corp. | ||||||||
7.350%, 11/15/2019 | 1,700,000 | 1,882,568 | ||||||
5.875%, 08/15/2020 | 1,250,000 | 1,284,373 | ||||||
Marsh & McLennan Cos, Inc. 5.750%, 09/15/2015 | 1,490,000 | 1,659,708 | ||||||
4,826,649 | ||||||||
Media – 2.09% | ||||||||
The McGraw Hill Cos, Inc. 5.900%, 11/15/2017 | 1,075,000 | 1,162,519 | ||||||
Virgin Media Finance Plc 9.500%, 08/15/2016 | 1,685,000 | 1,819,800 | ||||||
2,982,319 |
The accompanying notes are an integral part of these Schedules of Investments.
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SCHEDULE OF INVESTMENTS September 30, 2011 – (continued)
Principal Amount | Value | |||||||
Oil & Gas – 2.96% | ||||||||
Anadarko Petroleum Corp. 5.950%, 09/15/2016 | 2,800,000 | $ | 3,062,637 | |||||
El Paso Corp. 7.000%, 06/15/2017 | 1,035,000 | 1,159,373 | ||||||
4,222,010 | ||||||||
Retail – 1.82% | ||||||||
Marks & Spencer PLC 7.125%, 12/01/2037(b) | 2,415,000 | 2,587,419 | ||||||
Technology, Equipment & Services – 1.48% | ||||||||
Unisys Corp. 12.500%, 01/15/2016 | 1,980,000 | 2,108,700 | ||||||
Telecommunications – 0.60% | ||||||||
Telecom Italia Capital SA 6.999%, 06/04/2018 | 840,000 | 841,701 | ||||||
TOTAL CORPORATE BONDS (Cost $108,756,713) | $ | 110,217,013 |
Contracts | Value | |||||||
WARRANTS – 0.00% | ||||||||
Semiconductors – 0.00% | ||||||||
MagnaChip Semiconductor Corp. Expiration Date: November 2014, Exercise Price: $1.97(c) | 80,400 | $ | — | |||||
TOTAL WARRANTS (Cost $863,486) | $ | — |
The accompanying notes are an integral part of these Schedules of Investments.
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SCHEDULE OF INVESTMENTS September 30, 2011 – (continued)
Principal Amount | Value | |||||||
SHORT-TERM INVESTMENTS – 0.96% | ||||||||
Repurchase Agreements – 0.96% | ||||||||
State Street Bank and Trust Repurchase Agreement, (Dated 9/30/2011), due 10/1/2011, 0.01%, [Collateralized by $1,365,000 United States Treasury Bill, 5/15/2013, 1.375% (Market Value $1,396,294] (proceeds $1,369,028) | $ | 1,369,027 | $ | 1,369,027 | ||||
TOTAL SHORT-TERM INVESTMENTS (Cost $1,369,027) | $ | 1,369,027 | ||||||
Total Investments (Cost $147,667,263) – 98.36% | $ | 140,083,994 | ||||||
Other Assets in Excess of Liabilities – 1.64% | 2,338,439 | |||||||
TOTAL NET ASSETS – 100.00% | $ | 142,422,433 |
Percentages are stated as a percent of net assets.
(a) | Non-income producing security. |
(b) | Security was purchased exempt from registration in the U.S. pursuant to Rule 144A of the Securities Act of 1933 (the “Act”) or was acquired in a private placement, and, unless registered under the Act, may only be sold to “qualified institutional buyers” (as defined in the Act or pursuant to another exemption from registration.) The market values of these securities total $12,651,530, which represents 8.88% of total net assets. |
(c) | The prices for these securities were derived from an estimate of fair market value pursuant to procedures approved by the Fund’s Board of Trustees. These securities represent $0 or 0.00% of the Fund’s net assets. |
The accompanying notes are an integral part of these Schedules of Investments.
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STATEMENT OF ASSETS AND LIABILITIES September 30, 2011
ASSETS | ||||
Investments in securities, at cost | $ | 147,667,263 | ||
Investments in securities, at value | $ | 140,083,994 | ||
Receivables: | ||||
Fund shares sold | 528,067 | |||
Dividends and interest | 2,364,545 | |||
Total Assets | 142,976,606 | |||
LIABILITIES | ||||
Payables: | ||||
Fund shares redeemed | 36,282 | |||
Dividends payable | 517,891 | |||
Total Liabilities | 554,173 | |||
NET ASSETS | $ | 142,422,433 | ||
COMPONENTS OF NET ASSETS | ||||
Paid-in capital | $ | 175,438,842 | ||
Undistributed net investment income | 428,058 | |||
Accumulated net realized loss on investments and foreign currency | (25,861,198 | ) | ||
Net unrealized depreciation on investments | (7,583,269 | ) | ||
Total Net Assets | $ | 142,422,433 | ||
Net asset value, offering price and redemption proceeds per share | ||||
Net Assets | $ | 142,422,433 | ||
Shares outstanding (unlimited shares authorized without par value) | 17,114,854 | |||
Offering and redemption price | $ | 8.32 |
The accompanying notes to financial statements are an integral part of this statement.
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STATEMENT OF OPERATIONS For the Year Ended September 30, 2011
INVESTMENT INCOME | ||||
Income | ||||
Dividend income | $ | 100,947 | ||
Interest income | 9,098,877 | |||
Total income | 9,199,824 | |||
Expenses (Note 3) | ||||
Total expenses | — | |||
Less reimbursement / waiver | — | |||
Total expenses net of reimbursement / waiver | — | |||
Net investment income | 9,199,824 | |||
REALIZED AND UNREALZIED GAIN (LOSS) ON INVESTMENTS | ||||
Net realized loss on: | ||||
Investments | (176,172 | ) | ||
Foreign currency transactions | (36,812 | ) | ||
Net realized loss | (212,984 | ) | ||
Net change in unrealized depreciation on: | ||||
Investments | (1,461,568 | ) | ||
Foreign currency transactions | (977 | ) | ||
Net change in unrealized appreciation | (1,462,545 | ) | ||
Net realized and unrealized loss on investments and foreign currency transactions | (1,675,529 | ) | ||
Net increase in net assets resulting from operations | $ | 7,524,295 |
The accompanying notes to financial statements are an integral part of this statement.
16
Brandes Separately Managed Account Reserve Trust
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended September 30, 2011 | Year Ended September 30, 2010 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM: | ||||||||
OPERATIONS | ||||||||
Net investment income | $ | 9,199,824 | $ | 11,689,832 | ||||
Net realized loss on: | ||||||||
Investments | (176,172 | ) | (6,513,391 | ) | ||||
Foreign currency transactions | (36,812 | ) | (8,159 | ) | ||||
Net unrealized appreciation (depreciation) on: | ||||||||
Investments | (1,461,568 | ) | 25,591,533 | |||||
Foreign currency transactions | (977 | ) | 521 | |||||
Net increase in net assets resulting from operations | 7,524,295 | 30,760,336 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | (9,522,282 | ) | (11,171,602 | ) | ||||
Decrease in net assets from distributions | (9,522,282 | ) | (11,171,602 | ) | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Proceeds from shares sold | 22,052,366 | 25,070,473 | ||||||
Net asset value of share issued on reinvestment of distributions | 2,989,334 | 3,740,528 | ||||||
Cost of shares redeemed | (39,113,330 | ) | (47,465,356 | ) | ||||
Net decrease in net assets from capital share transactions | (14,071,630 | ) | (18,654,355 | ) | ||||
Total Increase (Decrease) in net assets | (16,069,617 | ) | 934,379 | |||||
NET ASSETS | ||||||||
Beginning of the Period | 158,492,050 | 157,557,671 | ||||||
End of the Period | $ | 142,422,433 | $ | 158,492,050 | ||||
Undistributed net investment income | $ | 428,058 | $ | 210,651 |
The accompanying notes to financial statements are an integral part of this statement.
17
Brandes Separately Managed Account Reserve Trust
FINANCIAL HIGHLIGHTS
Year Ended September 30, 2011 | Year Ended September 30, 2010 | Year Ended September 30, 2009 | Year Ended September 30, 2008 | Year Ended September 30, 2007 | ||||||||||||||||
Net asset value, beginning of period | $ | 8.46 | $ | 7.46 | $ | 6.97 | $ | 9.61 | $ | 9.87 | ||||||||||
Income (Loss) from investment operations: | ||||||||||||||||||||
Net investment income | 0.52 | (2) | 0.60 | (2) | 0.64 | 0.81 | 0.69 | |||||||||||||
Net realized and unrealized gain/(loss) on investments | (0.12 | ) | 0.97 | 0.47 | (2.63 | ) | (0.27 | ) | ||||||||||||
Net increase from payments by affiliates (Note 2L) | — | — | — | 0.01 | — | |||||||||||||||
Total from investment operations | 0.40 | 1.57 | 1.11 | (1.81 | ) | 0.42 | ||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||
Dividends from net investment income | (0.54 | ) | (0.57 | ) | (0.62 | ) | (0.81 | ) | (0.68 | ) | ||||||||||
Dividends from net realized gain | — | — | — | (0.02 | ) | — | ||||||||||||||
Total dividends and distributions | (0.54 | ) | (0.57 | ) | (0.62 | ) | (0.83 | ) | (0.68 | ) | ||||||||||
Net asset value, end of period | $ | 8.32 | $ | 8.46 | $ | 7.46 | $ | 6.97 | $ | 9.61 | ||||||||||
Total return | 4.61 | % | 21.81 | % | 18.25 | % | (20.15 | )%(3) | 4.22 | % | ||||||||||
Net assets, end of period (millions) | $ | 142.4 | $ | 158.49 | $ | 157.53 | $ | 154.58 | $ | 142.50 | ||||||||||
Ratio of net expenses to average net assets(1) | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||||
Ratio of net investment income to average net assets(1) | 5.98 | % | 7.53 | % | 10.15 | % | 9.28 | % | 7.27 | % | ||||||||||
Portfolio turnover rate | 56.16 | % | 36.90 | % | 40.53 | % | 157.66 | % | 230.69 | % |
(1) | Reflects the fact that no fees or expenses are incurred by the Fund. The Fund is an integral part of “wrap-fee” programs sponsored by investment advisers and/or broker-dealers unaffiliated with the Fund or the Advisor. Participants in these programs pay a “wrap” fee to the sponsor of the program. |
(2) | Net investment income per share has been calculated based on average shares outstanding during the period. |
(3) | The Fund’s total return consists of a voluntary reimbursement by the Advisor for a realized investment loss on a transaction not meeting the Fund’s investment guidelines. This item had an impact of less than 0.005% on the SMART Fund’s total return. See Note 2H in the Notes to Financial Statements. |
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Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION
The Separately Managed Account Reserve Trust (the “Fund”) is a series of Brandes Investment Trust (the “Trust”). The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a diversified, open-end management investment company. The Fund began operations on October 3, 2005. The Fund invests its assets primarily in diversified portfolios of debt securities and seeks to maximize total return.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund. These policies are in conformity with accounting principles generally accepted in the United States of America.
A. | Repurchase Agreements. The Fund may enter into repurchase agreements with government securities dealers recognized by the Federal Reserve Board, with member banks of the Federal Reserve System or with other brokers or dealers that meet the credit guidelines established by the Board of Trustees. The Fund will always receive and maintain, as collateral, securities whose market value, including accrued interest (which is recorded in the Schedule of Investments), will be at least equal to 100% of the dollar amount invested by the Fund in each agreement, and the Fund will make payment for such securities only upon physical delivery or upon evidence of book entry transfer to the account of the Fund’s custodian. To the extent that the term of any repurchase transaction exceeds one business day, the value of the Fund’s collateral is marked-to-market on a daily basis to ensure the adequacy of the collateral. If the seller defaults and the value of the collateral declines, or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited. |
B. | Foreign Currency Translation and Transactions. Values of investments denominated in foreign currencies are converted into U.S. dollars using the spot market rates of exchange at the time of valuation. Purchases and sales of investments and dividend and interest income are translated into U.S. dollars using the spot market rates of exchange prevailing on the respective dates of such translations. The gain or loss resulting from changes in foreign exchange rates is included with net realized and unrealized gain or loss from investments, as appropriate. Foreign securities and currency transactions may involve certain considerations and risks not typically associated with those of domestic origin. |
C. | Delayed Delivery Securities. The Fund may purchase securities on a when-issued or delayed delivery basis. “When-issued” or delayed delivery refers to securities whose terms are available and for which a market exists, but that have not been issued. For a when-issued or delayed delivery transaction, no payment is made until delivery date, which is typically longer than the normal course of settlement. When the Fund enters into an agreement to purchase securities on a when-issued or delayed delivery basis, the Fund segregates cash or liquid securities, of any type or maturity, equal in value to the Fund’s commitment. Losses may arise if the market value of the underlying securities change, if the counterparty does not perform under the contract, or if the issuer does not issue the securities due to political, economic, or other factors. |
19
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
D. | Security Transactions, Dividends and Distributions. Security transactions are accounted for on the trade dates. Realized gains and losses are evaluated on the bases of identified costs. Distributions from net investment income are declared daily and paid monthly. Distributions of net realized gains, if any, are declared at least annually. Distributions to shareholders are recorded on the ex-dividend dates. Interest is recorded on an accrual basis. The Fund amortizes premiums and accretes discounts using the constant yield method. |
E. | 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 and revenue and expenses and disclosure of contingent assets and liabilities and revenue and expenses at the date of the financial statements. Actual results could differ from those estimates. |
F. | Indemnification Obligations. Under the Trust’s organizational documents, its current and former officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties and provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred or that would be covered by other parties. |
G. | Accounting for Uncertainty in Income Taxes. The Trust 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. The Trust may be subject to a nondeductible excise tax calculated as a percentage of certain undistributed amounts of net investment income and net capital gains. The Trust intends to distribute its net investment income and capital gains as necessary to avoid this excise tax. Therefore, no provision for federal income taxes or excise taxes has been made. |
The Trust has adopted financial reporting rules that require the Trust to analyze all open tax years, as defined by the applicable statute of limitations, for all major jurisdictions. Open tax years for the Fund are those that are open for exam by taxing authorities (2008 through 2011). As of September 30, 2011 the Trust has no examinations in progress.
Management has analyzed the Trust’s tax positions, and has concluded that no liability should be recorded related to uncertain tax positions expected to be taken on the tax return for the fiscal year-end September 30, 2011. The Trust identifies its major tax jurisdictions as U.S. Federal and the State of California. The Trust is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
H. | Payment by Affiliate. During the fiscal year ended September 30, 2008, the Trust’s investment advisor, Brandes Investment Partners, L.P., voluntarily reimbursed the Fund $145,127, relating to |
20
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
the Fund’s purchase of a security of an affiliate of the Distributor which violated the Fund’s investment restrictions. This reimbursement has been classified on the Financial Highlights as “Net increase from payments by affiliates”. |
I. | Fair Value Measurements. The Trust has adopted US GAAP fair value accounting standards which establish a 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 in changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below: |
Level 1 — | Unadjusted quoted market prices in active markets |
Level 2 — | Quoted prices for similar instruments or inputs derived from observable market data. Directly observable inputs for the life of the financial instrument |
Level 3 — | Unobservable inputs developed using the reporting entity’s estimates and assumptions, which reflect those that market participants would use |
J. | Security Valuation. Bonds and other fixed-income securities (other than short-term securities) are valued using the bid price on the day of the valuation provided by an independent pricing service. |
Securities traded on a national securities exchange are valued at the last reported sale price at the close of regular trading on each day the exchange is open for trading. Securities listed on the NASDAQ National Market System for which market quotations are readily available are valued using the NASDAQ Official Closing Price. Securities traded on an exchange for which there have been no sales are valued at the mean between last bid and ask price on such day. Securities for which quotations are not readily available are valued at their respective fair values as determined in good faith pursuant to procedures adopted by the Board of Trustees. U.S. Government securities with less than 60 days remaining to maturity when acquired by the Fund are valued on an amortized cost basis.
Short-term securities including U.S. Government and other fixed income securities, with more than 60 days remaining to maturity are valued at the current market value as provided by an independent pricing service on the day of valuation until the 60th day prior to maturity, and are then valued at amortized cost based upon the value on such date unless the Board determines during such 60-day period that this amortized cost basis does not represent fair value.
The Fund has adopted valuation procedures that allow for fair value pricing for use in appropriate circumstances. For example, such circumstances may arise when trading in a security has been halted or suspended or a security has been delisted from a national exchange, a security has not been traded for an extended period of time, or a significant event with respect to a security occurs after the close of the market or exchange on which the security principally trades and before the
21
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
time the Fund calculates its own share price. If no price, or in the Advisor’s determination no price representing fair value, is provided for a security held by the Fund by an independent pricing agent, then the security will be fair valued. Thinly traded securities and certain foreign securities may be impacted more by the use of fair valuations than other securities.
The Fund uses a third party fair valuation service to adjust the prices of foreign securities held by the Fund that are traded on foreign exchanges in order to reflect the price impacts of events occurring after the close of such foreign exchanges that may affect the values of such securities. None of the Fund’s securities were fair valued using this third party fair valuation service as of September 30, 2011.
In using fair value pricing, the Fund attempts to establish the price that it might reasonably have expected to receive upon a sale of the security at 4:00 p.m. Eastern time. Valuing securities at fair value involves greater reliance on judgment than valuation of securities based on readily available market quotations. When using fair value to price securities, the Fund may value those securities higher or lower than another fund using market quotations or fair value to price the same securities. Further, there can be no assurance that the Fund could obtain the fair value assigned to a security if it were to sell the security at approximately the time at which the Fund determines its net asset value.
Foreign securities are recorded in the financial statements after translation to U.S. dollars based on the applicable exchange rate at the end of the period. The Fund reports certain foreign currency-related transactions as components of realized gains or losses for financial reporting purposes, whereas such components are treated as ordinary income for federal income tax purposes.
Fixed income securities including corporate, convertible and municipal bonds and notes, U.S. government agencies, U.S. Treasury obligations, sovereign issues, bank loans, convertible preferred securities and non-U.S. bonds are normally valued on the basis of quotes obtained from brokers and dealers or independent pricing services or sources. Independent pricing services typically use information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. The service providers’ internal models use inputs that are observable such as, among other things, issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar assets. Securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.
Fixed income securities purchased on a delayed-delivery basis are typically marked to market daily until settlement at the forward settlement date.
Mortgage and asset-backed securities are usually issued as separate tranches, or classes, of securities within each package of securities. These securities are also normally valued by pricing service providers that use broker dealer quotations or valuation estimates from their internal
22
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
pricing models. The pricing models for these securities usually consider tranche-level attributes, estimated cash flows and market-based yield spreads for each tranche, current market data and incorporate packaged collateral performance, as available. Mortgage and asset-backed securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.
Common stocks, exchange-traded Fund and financial derivative instruments, such as futures contracts or options contracts that are traded on a national securities or commodities exchange, are valued at the last reported sales price, in the case of common stocks and exchange-traded Fund, or, in the case of futures contracts or options contracts, the settlement price determined by the relevant exchange. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level 1 of the fair value hierarchy.
Valuation adjustments may be applied to certain securities that are solely traded on a foreign exchange to account for the market movement between the close of the foreign market and the close of the New York Stock Exchange (“NYSE.”) These securities are generally valued using pricing service providers that consider the correlation of the trading patterns of the foreign security to the intraday trading in the U.S. markets for investments. Securities using these valuation adjustments are categorized as Level 2 of the fair value hierarchy.
Investments in registered open-end management investment companies will be valued based upon the Net Asset Value (“NAVs”) of such investments and are categorized as Level 1 of the fair value hierarchy. Investments in privately held investment Funds will be valued based upon the NAVs of such investments and are categorized as Level 2 of the fair value hierarchy.
Short-term investments having a maturity of 60 days or less are generally valued at amortized cost which approximates fair market value. These investments are categorized as Level 2 of the fair value hierarchy.
Certain securities may be fair valued in accordance with the fair valuation procedures approved by the Board of Trustees. The Valuation Committee is generally responsible for overseeing the day to day valuation processes and reports periodically to the Board. The Valuation Committee is authorized to make all necessary determinations of the fair value of portfolio securities and other assets for which market quotations are not readily available or if it is deemed that the prices obtained from brokers and dealers or independent pricing services are unreliable. The securities fair valued by the Valuation Committee are indicated on the Schedule of Investments. These securities are classified as Level 3.
The following is a summary of the level of inputs used, as of September 30, 2011, involving the Fund’s assets carried at fair value. The inputs of methodology used for valuing securities may not be an indication of the risk associated with investing in those securities.
23
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Investments in Securities | ||||||||||||||||
SMART Fund | ||||||||||||||||
Equities | $ | 742,852 | $ | 912,827 | $ | — | $ | 1,655,679 | ||||||||
Asset Backed Securities | — | 7,489,005 | — | 7,489,005 | ||||||||||||
Corporate Bonds | — | 110,217,013 | — | 110,217,013 | ||||||||||||
Government Securities | — | 4,518,651 | — | 4,518,651 | ||||||||||||
Mortgage Backed Securities | — | 14,834,619 | — | 14,834,619 | ||||||||||||
Repurchase Agreements | — | 1,369,027 | — | 1,369,027 | ||||||||||||
Total Investments in Securities | $ | 742,852 | $ | 139,341,142 | $ | — | $ | 140,083,994 |
There were no significant transfers into and out of Level 1 and 2 during the period presented.
Below is a reconciliation that details the activity of securities in Level 3 during the year ended September 30, 2011:
Beginning Balance – October 1, 2010 | $ | 1,662,683 | ||
Net purchases/(sales) | (2,108,145 | ) | ||
Transfers in/(out) of level 3 | — | |||
Total realized and unrealized gains | 445,462 | |||
Total realized and unrealized losses | — | |||
Ending Balance – September 30, 2011 | — |
The realized and unrealized gains and losses from Level 3 transactions is included with the net realized gains and losses on investments on the Statement of Assets and Liabilities. As of September 30, 2011, the Fund had $863,486 of unrealized losses from Level 3 securities.
NOTE 3 – INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
A. | Advisor Fee. Brandes Investment Partners, L.P. (the “Advisor”) provides the Fund with investment management services under an Investment Advisory Agreement. The Advisor receives no advisory fee or other fee from the Fund. The financial statements of the Fund reflect the fact that no fees or expenses are incurred by the Fund. It should be understood, however, that the Fund is an integral part of “wrap-fee” programs sponsored by investment advisors unaffiliated with the Fund and the Advisor. Typically, participants in these programs pay a “wrap-fee” to their investment advisors. Although the Fund does not compensate the Advisor directly for its service under the Investment Advisory Agreement, the Advisor benefits from its relationships with the sponsors of wrap-fee programs for which the Fund is an investment option. |
24
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
B. | Administration Fee. U.S. Bancorp Fund Services, LLC, (the “Administrator”) acts as administrator for the Fund. The Administrator prepares various federal and state regulatory filings; prepares reports and materials to be supplied to the Trustees; monitors the activities of the Fund’s custodian, transfer agent and accountant; coordinates the preparation and payment of Fund expenses; and prepares several Fund reports. For its services, the Administrator receives an annual fee at the rate of 0.03% of the Trust’s average daily net assets for the first $1 billion in net assets and 0.02% in excess of $1 billion of the Trust’s average daily net assets, subject to a minimum of $50,000 per series of the Trust per annum which is allocated among the series based on their average net assets. The Advisor compensates the Administrator on behalf of the Fund for the services the Administrator performs for the Fund. |
C. | Distribution and Servicing Fees. Quasar Distributors, LLC (the “Distributor”), a registered broker-dealer, acts as the Fund’s principal underwriter in a continuous public offering of the Fund’s shares. The Distributor is an affiliate of the Administrator. All of the Fund’s distribution fees are paid by the Advisor. |
Certain officers and Trustees of the Trust are also officers of the Advisor.
NOTE 4 – PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities of the Fund, excluding short-term investments, were as follows for the year ended September 30, 2011:
U.S. Government | Other | |||||||||||
Purchases | Sales | Purchases | Sales | |||||||||
$35,618,424 | $33,271,954 | $49,070,543 | $69,591,029 |
NOTE 5 – CAPITAL STOCK TRANSACTIONS
The Fund’s capital stock activity in shares and dollars during the years ended September 30, 2011 and September 30, 2010, was as follows (shares and dollar amounts in thousands):
Year Ended 9/30/11 | Year Ended 9/30/10 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 2,551 | $ | 22,052 | 3,149 | $ | 25,070 | ||||||||||
Issued on Reinvestment of Distributions | 346 | 2,989 | 466 | 3,741 | ||||||||||||
Shares Redeemed | (4,520 | ) | (39,113 | ) | (6,009 | ) | (47,465 | ) | ||||||||
Net Increase/(Decrease) Resulting from Fund Share Transactions | (1,623 | ) | $ | (14,072 | ) | (2,394 | ) | $ | (18,654 | ) |
25
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
NOTE 6 – FEDERAL INCOME TAX MATTERS
As of September 30, 2011, the Fund’s components of distributable earnings on a tax basis were as follows:
Cost of investments for tax purposes | $ | 147,667,263 | ||
Gross tax unrealized appreciation | 8,966,675 | |||
Gross tax unrealized depreciation | (16,549,944 | ) | ||
Net tax unrealized appreciation/depreciation on investments and foreign currency | (7,583,269 | ) | ||
Distributable ordinary income | 429,911 | |||
Distributable long-term capital gains | — | |||
Total distributable earnings | 429,911 | |||
Other accumulated gains/losses | (25,863,051 | ) | ||
Total accumulated earnings | $ | (33,016,409 | ) |
The differences between book and tax basis distributable earnings are primarily related to the differences in classification of paydown gains and losses for tax purposes compared to book purposes. The difference between book and tax basis unrealized depreciation on investments and foreign currency is due primarily to timing differences resulting from wash sale transactions.
As of September 30, 2011, the Fund had capital losses expiring on September 30, 2016, 2017, 2018 and 2019 in the amounts of $152,724, $12,360,303, $6,084,748 and $6,501,831, respectively.
The tax composition of dividends for the period ended September 30, 2011 for the Fund was as follows:
Ordinary Income Total | Long Term Capital Gains Total | Return of Capital | ||||||
$9,522,282 | $— | $— |
At September 30, 2011, the Fund had net realized losses on investments and foreign currencies of $763,445 which are deferred for tax purposes and were recognized on October 1, 2011.
Reclassification of Capital Accounts. Accounting principles generally accepted in the United States of America require that certain components of net assets be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the year ended September 30, 2011, as a result of its reclassifications the Fund’s undistributed net investment income/loss was increased by $539,865 and accumulated net realized gain/loss was decreased by $539,865.
NOTE 7 – CHANGE IN AUDITOR
Based on a recommendation by the audit committee, PricewaterhouseCoopers LLP will serve as independent accountants of the Fund for fiscal year 2011.
26
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
NOTE 8 – SUBSEQUENT EVENTS
In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were available to be issued.
NOTE 9 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2010, the FASB issued Accounting Standards Update “Improving Disclosures about Fair Value Measurements” (“ASU”). The ASU requires enhanced disclosures about purchases, sales, issuances, and settlements on a gross basis relating to Level 3 measurements. The disclosure will become effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management is currently evaluating the impact this disclosure may have on the Funds’ financial statements.
In May 2011, the FASB issued an update to requirements relating to Fair Value Measurement which represents amendments to achieve common fair value measurement and disclosure requirements in US Generally Accepted Accounting Principles, (“GAAP”) and International Financial Reporting Standards (“IFRS.”) The amendments are of two types: (i) those that clarify the Board’s intent about the application of existing fair value measurement and disclosure requirements and (ii) those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.
The amendments that change a particular principle or requirement for measuring fair value or disclosing information about fair value measurements relate to (i) measuring the fair value of the financial instruments that are managed within a portfolio; (ii) application of premium and discount in a fair value measurement; and (iii) additional disclosures about fair value measurements. The update is effective for interim and annual periods beginning after December 15, 2011. Management is currently evaluating the impact this update will have on the Funds’ financial statements.
27
Brandes Separately Managed Account Reserve Trust
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders
of Brandes Investment Trust
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statement of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Separately Managed Account Reserve Trust (hereinafter as the“Fund”) at September 30, 2011, and the results of its operations, the changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at September 30, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial statements of the Separately Managed Account Reserve Trust as of September 30, 2010 and for the year then ended, including financial highlights for each of the periods in the four years then ended, were audited by other auditors whose report dated November 24, 2010 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Los Angeles, California
November 28, 2011
28
Brandes Separately Managed Account Reserve Trust
Report of Independent Registered Public Accounting Firm – (continued)
Brandes Separately Managed Account Reserve Trust
ADDITIONAL INFORMATION – (Unaudited)
PROXY VOTING PROCEDURES
The Advisor votes proxies relating to the Fund’s portfolio securities in accordance with procedures adopted by the Advisor. You may obtain a description of these procedures, free of charge, by calling toll-free 1-800-331-2979. This information is also available through the Securities and Exchange Commission’s website at http://www.sec.gov.
Information regarding how the Trust voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling 1-800-331-2979. This information is also available through the Securities and Exchange Commission’s website at http://www.sec.gov.
FORM N-Q DISCLOSURE
The Trust files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Trust’s Form N-Q filings are available on the Securities and Exchange Commission’s website at http://www.sec.gov. The Trust’s Form N-Q filings may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Information regarding the Trust’s Form N-Q filings is also available, without charge, by calling toll-free, 1-800-331-2979.
TAX NOTICE
For the year ended September 30, 2011, 100% of the ordinary distributions paid by the SMART Fund, qualify as interest related dividends under Internal Revenue Code Section 87(k)(1)(c). For the year ended September 30, 2011, 0% of the ordinary distributions paid by the SMART Fund were designated as short-term capital gain distributions under Internal Revenue Code Section 871(k)(2)(c).
The percentage of dividend income distributed for the year ended September 30, 2010, which is designated as qualified dividend income under the Jobs and Growth Tax Relief Reconciliation Act of 2003, is 1.03% for the SMART Fund. Of the dividends paid by the SMART Fund, 1.03% qualify for the corporate dividends received deduction.
29
Brandes Separately Managed Account Reserve Trust
TRUSTEE AND OFFICER INFORMATION – (Unaudited)
The Board of Trustees is responsible for the overall management of the Trust’s business. The Board approves all significant agreements between the Trust and persons or companies furnishing services to the Trust, including the Trust’s agreements with the Advisor, Administrator, Custodian and Transfer Agent. The Board of Trustees delegates the day-to-day operations of the Fund to its officers, subject to the Fund’s investment objective and policies and to general supervision by the Board. The Trust’s Statement of Additional Information includes additional information about the Trustees and is available, without charge, by calling 1-800-331-2979.
The Trustees and officers of the Trust, their business addresses and principal occupations during the past five years are:
Name, Address and Age | Position(s) Held with Trust | Term of Office and Length of Time Served(1) | Principal Occupation During Past 5 Years | Number of Trust Series Overseen by Trustee | Other Directorships/ Trusteeships Held by Trustee | |||||
Independent Trustees(2) | ||||||||||
DeWitt F. Bowman, CFA 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 81) | Trustee | Since February 1995 | Investment Fund Director. | 5 | Pacific Gas and Electric Nuclear Decommissioning Trust; PCG Private Equity Fund; Forward Funds; RREEF America III REIT. | |||||
J. Michael Gaffney, CFA 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 70) | Trustee | Since June 2004 | Independent Consultant, NATIXES Global Asset Management, North America, since 2004. | 5 | None | |||||
Karin B. Bonding, CFA 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 72) | Trustee | Since May 2006 | Lecturer, University of Virginia, since 1996. President of Capital Markets Institute, Inc. serving as fee-only financial planner and investment advisor since 1996. | 5 | The Endowment Fund and the Salient Partners Absolute Return Fund. | |||||
Jean E. Carter 11988 El Camino Real Suite 500 San Diego, CA 92130 (Age 54) | Trustee | Since April 2008 | Retired since 2005; Director, Investment Management of Russell Investment Group from 2000 to 2005. | 5 | None | |||||
Robert M. Fitzgerald, CPA 11988 El Camino Real Suite 500 San Diego, CA 92130 (Age 59) | Trustee | Since April 2008 | Retired from 2002 – 2005 and since 2007; Chief Financial Officer of National Retirement Partners from 2005 to 2007. | 5 | Hotchkis and Wiley Mutual Funds. |
30
Brandes Separately Managed Account Reserve Trust
TRUSTEE AND OFFICER INFORMATION – (Unaudited) – (continued)
Name, Address and Age | Position(s) Held with Trust | Term of Office and Length of Time Served(1) | Principal Occupation During Past 5 Years | Number of Trust Series Overseen by Trustee | Other Directorships/ Trusteeships Held by Trustee | |||||
“Interested” Trustees(3) | ||||||||||
Debra McGinty-Poteet 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 55) | Trustee and President | Since June 2000 | Director, Mutual Fund Services of Brandes Investment Partners, L.P., the investment advisor to the Funds (the “Advisor”). | 5 | Brandes Investment Funds PLC. | |||||
Jeff Busby 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 50) | Trustee | Since July 2006 | Executive Director of the Advisor. | 5 | None | |||||
Officers of the Trust | ||||||||||
Thomas M. Quinlan 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 40) | Secretary | Since June 2003 | Associate General Counsel of the Advisor since January 2006; Counsel of the Advisor from July 2000 to January 2006. | N/A | N/A | |||||
Gary Iwamura 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 54) | Treasurer | Since September 1997 | Finance Director of the Advisor. | N/A | N/A | |||||
George Stevens 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 60) | Chief Compliance Officer | Since January 2010 | Vice President, Citi Fund Services, September 1996 to March 2008; Director, Beacon Hill Fund Services, Inc., March 2008 to present. | N/A | N/A |
(1) | Trustees and officers of the Fund serve until their resignation, removal or retirement. |
(2) | Not “interested persons” of the Trust as defined in the 1940 Act. |
(3) | “Interested persons” of the Trust as defined in the 1940 Act by virtue of their positions with the Advisor. |
31
Advisor
Brandes Investment Partners, L.P.
11988 El Camino Real, Suite 500
San Diego, California 92130
800.331.2979
Distributor
Quasar Distributors, LLC
615 E. Michigan Street, 4th Floor
Milwaukee, WI 53202
Transfer Agent
U.S. Bancorp Fund Services, LLC
615 E. Michigan Street, 3rd Floor
Milwaukee, WI 53202
Independent Registered
Public Accounting Firm
PricewaterhouseCoopers LLP
350 South Grand Avenue, 49th Floor
Los Angeles, CA 92071
Legal Counsel
Bingham McCutchen LLP
355 South Grand Ave., Suite 4400
Los Angeles, CA 90071
This report is intended for shareholders of the Brandes Separately Managed Account Reserve Trust and may not be used as sales literature unless preceded or accompanied by a current prospectus.
Statements and other information herein are dated and are subject to change.
INSTITUTIONAL INTERNATIONAL
EQUITY FUND
INSTITUTIONAL GLOBAL
EQUITY FUND
INSTITUTIONAL EMERGING
MARKETS FUND
INSTITUTIONAL CORE PLUS FIXED INCOME FUND
ANNUAL REPORT
For the periods ended
September 30, 2011
Brandes Institutional International Equity Fund
Dear Shareholder:
In a difficult environment for global capital markets, the net asset value of the Brandes Institutional International Equity Fund (“the Fund”) I shares declined 10.95% during the 12 months ended September 30, 2011. For the same period, the MSCI EAFE Index fell 9.36%.
In this letter I’ll examine the industry-, country-, and stock-specific factors that affected the Fund’s performance and describe changes in the Fund’s composition for the 12-month reporting period. Finally, I’ll discuss how the Fund is positioned for the future.
The Markets
Economic and geopolitical concerns remained common themes during the period. 2011 began with the Jasmine Revolution spreading throughout North Africa and the Middle East. On March 11, the world was stunned by the horrific earthquake and tsunami-inflicted damage in Japan. More recently, renewed fears about European sovereign debt triggered apprehension in global financial markets. As concerns of an economic slowdown in developed markets grew, fear spread to developing countries.
Today’s environment is uncertain. We are mindful of the risks and take them seriously. We are a bottom-up manager, and individual company analysis is paramount to our process. Yet, we incorporate many of the big picture developments into our company-level valuations. We believe our time-tested philosophy, rooted in the principles laid out by Benjamin Graham, will serve long-term investors well.
The Fund
In an adverse environment for international equities, the Fund’s positions in the commercial banks, food & staples, and oil, gas & consumable fuels industries weighed heaviest on returns. Intesa Sanpaolo (Italy — commercial banks), Carrefour (France — food & staples retailing), and Petroleo Brasileiro (Brazil — oil, gas & consumable fuels) were among the positions that declined during the period. Weak returns from our holdings in the construction materials and diversified telecommunication services industry also had a negative effect on overall performance.
There were bright spots in the Fund. Our overweight relative to the benchmark and individual issue selection in the pharmaceuticals industry made positive contributions to performance. Top-performers from this industry included Ono Pharmaceutical (Japan) and Taisho Pharmaceutical (Japan). In addition, while holdings in the commercial bank industry tended to decline on an absolute basis, the Fund’s underweight relative to the benchmark and individual issue selection proved beneficial to relative returns.
From a country perspective, declines for France-based positions weighed heaviest on returns, including France Telecom (diversified telecommunication services) and Natixis (commercial banks). Declines registered by holdings based in Italy, the United Kingdom, and Brazil also proved unfavorable to performance. Some of the largest detractors to performance included falling share prices for ENI S.p.A. (Italy — oil, gas & consumable fuel), Barclays (United Kingdom — commercial banks), and Centrais
1
Brandes Institutional International Equity Fund
Eletricas Brasileiras (Brazil — electric utilities). Conversely, the Fund benefited from its relative overexposure and stock selection to Japanese holdings. Contributors to positive performance included Japan Tobacco (tobacco), Seven & I Holdings (food & staples retailing), and Nippon Telephone and Telegraph (diversified telecommunication services).
During the period, we eliminated exposure to companies such as Volkswagen (Germany — automobiles) and Akzo Nobel (Netherlands – chemicals) to pursue what we believe to be more attractive opportunities. We also purchased shares of companies such as CRH (Ireland — construction materials) at prices that we consider to be compelling. We also took advantage of prices we believe to be attractive by adding to certain existing holdings.
Our Outlook
As of September 30, 2011, the Fund’s most substantial country weighting was in Japan. On an industry basis, the Fund’s largest exposure was in diversified telecommunication services.
Our exposure to Japanese companies is illustrative of our belief in the importance of fundamental analysis and a long-term investment horizon. In the days following the devastating tsunami that struck Japan, nearly every Japanese company we own for our clients declined significantly. It would have been easy to arbitrarily cut our exposure to Japan. However, we stayed disciplined and these holdings went on to be among the strongest performers for the period. As Japan continues its post-tsunami recovery efforts, there appears to be a growing realization in the market that quality Japanese stocks may currently trade at attractive discounts to their estimated intrinsic values. The fundamental strength of our holdings gives us confidence that the Fund is well positioned going forward.
Thank you for your investment in the Brandes Institutional International Equity Fund. We value your support and continued trust.
Sincerely yours,
Debra McGinty-Poteet
President
Brandes Investment Trust
Past performance does not guarantee future results.
Market conditions may impact performance. The performance results presented were achieved in particular market conditions which may not be repeated. Moreover, the current market volatility and uncertain regulatory environment may have a negative impact on future performance.
2
Brandes Institutional International Equity Fund
The values of the Fund’s investments fluctuate in response to the activities of individual companies and general stock market and economic conditions. In addition, the performance of foreign securities depends on the political and economic environments and other overall economic conditions in the countries where the Fund invests. Emerging country markets involve greater risk and volatility than more developed markets. Some emerging markets countries may have fixed or managed currencies that are not free-floating against the U.S. dollar. Certain of these currencies have experienced, and may experience in the future, substantial fluctuations or a steady devaluation relative to the U.S. dollar. The values of the Fund’s convertible securities are also affected by interest rates; if rates rise, the values of convertible securities may fall.
Current and future portfolio holdings are subject to risk.
Please refer to the Schedule of Investments in the report for complete holdings information. Fund holdings, geographic allocations and/or sector allocations are subject to change at any time and are not a recommendation to buy or sell any security.
The foregoing reflects the thoughts and opinions of Brandes Investment Partners® exclusively and is subject to change without notice.
Brandes Investment Partners® is a registered trademark of Brandes Investment Partners, L.P. in the United States and Canada.
Index Guide
The MSCI EAFE (Europe, Australasia, Far East) Index with net dividends is an unmanaged, free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. As of May 27, 2010 the MSCI EAFE Index consisted of 22 developed market country indices. This index often is used as a benchmark for international equity portfolios and includes dividends and distributions net of withholding taxes, but does not reflect fees, brokerage commissions, or other expenses of investing.
3
Brandes Institutional International Equity Fund
The following chart compares the value of a hypothetical $1,000,000 investment in the Brandes Institutional International Equity Fund — Class I from September 30, 2001 to September 30, 2011 as compared with the Morgan Stanley Capital International EAFE Index.
Value of $1,000,000 vs Morgan Stanley Capital
International EAFE (Europe, Australasia and Far East) Index
Average Annual Total Return Periods Ended September 30, 2011 | ||||||||||||||||
One Year | Five Years | Ten Years | Since Inception | |||||||||||||
Brandes Institutional International Equity Fund | ||||||||||||||||
Class I | -10.95 | % | -4.39 | % | 5.60 | % | 7.96 | % | ||||||||
Class E | -11.04 | % | N/A | N/A | -1.55 | % | ||||||||||
Class S** | N/A | N/A | N/A | -17.41 | % | |||||||||||
Morgan Stanley Capital International EAFE Index* | -9.36 | % | -3.46 | % | 5.03 | % | 3.22 | % |
* The since inception (January 2, 1997) return shown is from the inception date of the Brandes Institutional International Equity Fund — Class I. The return from the inception date (December 6, 2008) of the Brandes Institutional International Equity Fund — Class E is 1.68%.
** The since inception return shown for the Class S shares represents a cumulative return.
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 800-331-2979.
The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The Advisor has a fee waiver arrangement in place to limit the Fund’s annual operating expenses. Currently, the expense level has not been exceeded.
4
Brandes Institutional International Equity Fund
Sector Allocation as a Percentage of Total Investments
as of September 30, 2011
The sector classifications represented in the graph above are in accordance with the Global Industry Classification Standard (GICS®), which was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor Financial Services LLC.
5
Brandes Institutional Global Equity Fund
Dear Shareholder:
In a difficult environment for global capital markets, the net asset value of the Brandes Institutional Global Equity Fund (“the Fund”) fell 5.51% during the 12-months ending September 30, 2011. The MSCI World Index declined 4.35% in the same period.
In this letter, I will discuss the industry-, country-, and stock-specific factors that affected the Fund’s performance and describe changes in the Fund’s composition during the past year. I will also share insight into how the Fund is currently positioned for the future.
The Markets
Economic and geopolitical concerns remained common themes during the period. In the last quarter of 2010 fears about European sovereign debt intensified. 2011 began with the Jasmine Revolution spreading throughout North Africa and the Middle East. On March 11, the world was stunned by the horrific earthquake and tsunami-inflicted damage in Japan. More recently, political posturing over the U.S. debt ceiling and Standard & Poor’s downgrade of the U.S. credit rating further exacerbated market anxiety.
Today’s environment is uncertain. We are mindful of the risks and take them seriously. We are a bottom-up manager, and individual company analysis is paramount to our process. Yet, we incorporate many of the big picture developments into our company-level valuations. We believe our time-tested philosophy, rooted in the principles laid out by Benjamin Graham, will serve long-term investors well.
The Fund
Declining share prices for the food & staples retailing, diversified financial services, and electronic equipment, instruments & components industries detracted from performance. Positions from these industries weighing on performance included Carrefour (France — food & staples retailing), Bank of America (United States — diversified financial services), and Corning (United States — electronic equipment, instruments & components). Conversely, gains for holdings in the chemicals, semiconductors & semiconductor equipment, and pharmaceuticals industries made positive contributions to performance, including Dow Chemical (United States — chemicals), Texas Instruments (United States — semiconductors & semiconductor equipment), and Pfizer (United States — pharmaceuticals).
On a country basis, holdings based in France, Italy, and the United Kingdom experienced declines. Among the holdings from these countries impacting performance were France Telecom (France — diversified telecommunication services), ENI S.p.A. (Italy — oil, gas & consumable fuels), and J. Sainsbury (United Kingdom — food & staples retailing).
Looking at performance relative to the Fund’s benchmark, our overweight exposure to the pharmaceuticals industry and Japanese holdings proved beneficial. While issue selection in the commercial banks industry helped relative returns, stock-picking in U.S. companies proved detrimental to relative performance; as did the Fund’s overweight to Italy-based holdings.
6
Brandes Institutional Global Equity Fund
During the period, we sold select holdings to pursue what we believe to be more attractive opportunities. For example, we sold positions such as Texas Instruments (United States – semiconductors & semiconductor equipment), Dow Chemical (United States – chemicals), and Verizon (United States – diversified telecommunication services). At the same time we established new positions in companies such as Corning (United States – electronic equipment, instruments & components) at prices that we consider compelling. In addition, we took advantage of prices we consider attractive by adding to select existing holdings.
Our Outlook
As of September 30, 2011, the Fund’s most substantial country weightings were in the United States and Japan. On an industry basis, the Fund’s largest exposure was in pharmaceuticals.
Keep in mind that the Fund’s weightings for countries and industries are not the product of “top-down” forecasts or opinions regarding interest rates, economic growth, or other macroeconomic variables. Instead, these weightings stem from our company-by-company search for compelling investment opportunities in markets around the world.
We remain optimistic, given the fundamental strengths of our holdings. Throughout this period, we reassessed holdings across the portfolios to account for the worldwide crisis of confidence. Valuations for current holdings reflect the potential effects of the economic difficulties companies may face in the coming years — yet we still see tremendous potential opportunities for these securities.
Thank you for your investment in the Brandes Institutional Global Equity Fund. We value your support and continued trust.
Sincerely yours,
Debra McGinty-Poteet
President
Brandes Investment Trust
Past performance does not guarantee future results.
Market conditions may impact performance. The performance results presented were achieved in particular market conditions which may not be repeated. Moreover, the current market volatility and uncertain regulatory environment may have a negative impact on future performance.
The values of the Fund’s investments fluctuate in response to the activities of individual companies and general stock market and economic conditions. In addition, the performance of foreign securities depends on the political and economic environments and other overall economic
7
Brandes Institutional Global Equity Fund
conditions in the countries where the Fund invests. Emerging country markets involve greater risk and volatility than more developed markets. Some emerging markets countries may have fixed or managed currencies that are not free-floating against the U.S. dollar. Certain of these currencies have experienced, and may experience in the future, substantial fluctuations or a steady devaluation relative to the U.S. dollar. The values of the Fund’s convertible securities are also affected by interest rates; if rates rise, the values of convertible securities may fall.
Current and future portfolio holdings are subject to risk.
Please refer to the Schedule of Investments in the report for complete holdings information. Fund holdings, geographic allocations and/or sector allocations are subject to change at any time and are not a recommendation to buy or sell any security.
The foregoing reflects the thoughts and opinions of Brandes Investment Partners® exclusively and is subject to change without notice.
Brandes Investment Partners® is a registered trademark of Brandes Investment Partners, L.P. in the United States and Canada.
Index Guide
MSCI World Index — The MSCI World Index with net dividends is an unmanaged, free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. As of May 27, 2010 the MSCI World Index consisted of 24 developed market country indices. This index includes dividends and distributions net of withholding taxes, but does not reflect fees, brokerage commissions, or other expenses of investing.
8
Brandes Institutional Global Equity Fund
The following chart compares the value of a hypothetical $1,000,000 investment in the Brandes Institutional Global Equity Fund — Class I from its inception (October 6, 2008) to September 30, 2011 as compared with the Morgan Stanley Capital International World Index.
Value of $1,000,000 vs Morgan Stanley Capital
International World Index
Total Return Periods Ended September 30, 2011 | ||||||||||||
Six Month | One Year | Since Inception Cumulative | ||||||||||
Brandes Institutional Global Equity Fund | ||||||||||||
Class I | -15.96 | % | -5.51 | % | 5.16 | % | ||||||
Class E | -16.10 | % | -5.80 | % | 4.73 | % | ||||||
Class S | -16.05 | % | N/A | -14.10 | % | |||||||
Morgan Stanley Capital International World Index* | -16.22 | % | -4.35 | % | 9.93 | % |
* The Morgan Stanley Capital International World Index since inception return shown is from the inception date of the Brandes Institutional Global Equity Fund — Class I and E (October 6, 2008). The return from the inception of the Brandes Institutional Global Equity Fund — Class S (January 31, 2011) is -14.14%.
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 800-331-2979.
The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Advisor has a fee waiver arrangement in place to limit the Fund’s annual operating expenses.
9
Brandes Institutional Global Equity Fund
Sector Allocation as a Percentage of Total Investments
as of September 30, 2011
The sector classifications represented in the graph above are in accordance with the Global Industry Classification Standard (GICS®), which was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor Financial Services LLC.
10
Brandes Institutional Emerging Markets Equity Fund
Dear Shareholder:
The Brandes Institutional Emerging Markets Fund (“the Fund”) declined 14.39%* during the 12-month period ending September 30, 2011. For the same period, the MSCI Emerging Markets Index fell 15.89%.
Below I discuss the industry-, country-, and stock-specific factors that affected the Fund’s performance during this period and describe changes in the Fund’s composition. In addition, I’ll review current market conditions, our investment philosophy, and discuss how the Fund is positioned for the future.
* | The fund return for the 12-month period is inclusive of performance returns of the emerging markets pooled trust account which was reorganized into the Fund on January 31, 2011. Please see the Fund prospectus for further details. |
The Markets
Economic and geopolitical concerns remained common themes during the period. 2011 began with the Jasmine Revolution spreading throughout North Africa and the Middle East. On March 11, the world was stunned by the horrific earthquake and tsunami-inflicted damage in Japan. More recently, renewed fears about European sovereign debt triggered apprehension in global financial markets. As concerns of an economic slowdown in developed markets grew, fear spread to developing countries.
Today’s environment is uncertain. We are mindful of the risks and take them seriously. We are a bottom-up manager, and individual company analysis is paramount to our process. Yet, we incorporate many of the big picture developments into our company-level valuations. We believe our time-tested philosophy, rooted in the principles laid out by Benjamin Graham, will serve long-term investors well.
The Fund**
Amid market declines that affected most industries, holdings in the commercial banks industry had the greatest adverse effect on returns. Growing concern over a slowing economy, apprehension over emerging market banks’ ability to obtain U.S. dollar funding, and the potential for credit quality to deteriorate weighed on returns for holdings like KB Financial Group (South Korea). Individual issue selection in the construction materials and food products industries also had an unfavorable impact on results. Cemex (Mexico — construction materials) and Chaoda Modern Agriculture (China — food products) were among the holdings contributing to negative performance for these industries.
While declines were pervasive through most industries, gains for individual holdings such as Telefonica Brasil (Brazil — diversified telecommunication services) and Redecard (Brazil — IT services) helped lessen the impact of negative returns.
From a country perspective, our stock selection of holdings based in China and Mexico hurt performance. Among the holdings from these countries experiencing declines were Weiqiao Textile (China – textiles, apparel & luxury goods) and Gruma SAB (Mexico — food products). While holdings based in Brazil tended to have a negative impact on overall returns, our holdings in Brazil performed better than those of the benchmark.
11
Brandes Institutional Emerging Markets Equity Fund
During the period, we eliminated exposure to companies such as Makhteshim-Agan (Israel — chemicals) and M1 LTD (Singapore — wireless telecommunication services) to pursue what we believe to be more attractive opportunities. We also purchased shares of companies such as Hana Financial (South Korea – commercial banks), Air Arabia (United Arab Emirates — airlines), Novatek Microelectronics (Taiwan — semiconductors & semiconductor equipment), and Itau Unibanco Holding (Brazil — commercial banks) at prices that we consider to be compelling. We also took advantage of prices we believe to be attractive by adding to certain existing holdings.
As of September 30, 2011, the Fund’s most substantial weightings were in Brazil and the commercial banks industry.
** | As the effective conversion date from pooled trust to mutual fund was January 31, 2011, this performance review is limited to the period after the conversion (February 1, 2011 through September 30, 2011. |
Our Outlook
The markets appear to be driven more by risk aversion than evidence of a significant deterioration in economic fundamentals. Investors are selling because of perceived risk, and moving investments to “less risky” U.S. government debt without consideration of underlying value. Currently, we believe that the economic fundamentals for many emerging market countries look more robust than developed countries due to their:
• | Lower levels of sovereign and household debt |
• | Better capital controls and currency management |
• | High levels of foreign reserves |
• | Sizeable domestic markets capable of sustaining a base level of growth despite weakening demand from developed markets |
• | Favorable and improving debt ratings |
• | Strong balance sheets and resilient cash flows |
We continue to see tremendous opportunities to invest in emerging market equities. As always, we remain focused on the long term, and view these recent market dislocations as an excellent time to hunt for bargains.
Thank you for your investment in the Brandes Institutional Emerging Markets Fund. We value your support and continued trust.
12
Brandes Institutional Emerging Markets Equity Fund
Sincerely yours,
Debra McGinty-Poteet
President
Brandes Investment Trust
Past performance does not guarantee future results.
Market conditions may impact performance. The performance results presented were achieved in particular market conditions which may not be repeated. Moreover, the current market volatility and uncertain regulatory environment may have a negative impact on future performance.
The Fund invests in foreign securities, which involve greater volatility and political, economic and currency risks and differences in accounting methods than domestic securities. Emerging country markets involve greater risk and volatility than more developed markets. Some emerging markets countries may have fixed or managed currencies that are not free-floating against the U.S. dollar. Certain of these currencies have experienced, and may experience in the future, substantial fluctuations or a steady devaluation relative to the U.S. dollar. The values of the Fund’s convertible securities are also affected by interest rates; if rates rise, the values of convertible securities may fall. Investments in small and medium capitalization companies tend to have limited liquidity and greater price volatility than large capitalization companies. The fund may invest in ETFs which are subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of an ETF's shares may trade at a discount to its net asset value, an active secondary trading market may not develop or be maintained, or trading may be halted by the exchange on which they trade, which may impact a Fund's ability to sell its shares.
Current and future portfolio holdings are subject to risk.
Please refer to the Schedule of Investments in the report for complete holdings information. Fund holdings, geographic allocations and/or sector allocations are subject to change at any time and are not considered a recommendation to buy or sell any security.
The foregoing reflects the thoughts and opinions of Brandes Investment Partners® exclusively and is subject to change without notice.
Brandes Investment Partners® is a registered trademark of Brandes Investment Partners, L.P. in the United States and Canada.
Must be preceded or accompanied by a prospectus.
13
Brandes Institutional Emerging Markets Equity Fund
Index Guide
The MSCI Emerging Markets Index with gross dividends is an unmanaged, free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. As of May 27, 2010 the MSCI Emerging Markets Index consisted of 21 emerging market country indices. This index includes dividends and distributions, but does not reflect fees, brokerage commissions, withholding taxes, or other expenses of investing. Please note that all indices are unmanaged and are not available for direct investment.
14
Brandes Institutional Emerging Markets Equity Fund
The following chart compares the value of a hypothetical $1,000,000 investment in the Brandes Institutional Emerging Markets Fund — Class I from September 30, 2001 to September 30, 2011 as compared with the Morgan Stanley Emerging Markets Index.
Value of $1,000,000 vs Morgan Stanley Capital
Emerging Markets Index
Average Annual Total Return Periods Ended September 30, 2011** | ||||||||||||||||
One Year | Five Years | Ten Years | Since Inception (August 20, 1996) | |||||||||||||
Brandes Institutional Emerging Markets Fund | ||||||||||||||||
Class I | -14.39 | % | 7.26 | % | 16.53 | % | 8.79 | % | ||||||||
Class S | -14.58 | % | 7.03 | % | 16.32 | % | 8.52 | % | ||||||||
Morgan Stanley Capital International Emerging Markets Index* | -15.89 | % | 5.17 | % | 16.41 | % | 6.96 | % |
* The Morgan Stanley Capital International Emerging Markets Index since inception return shown is from the first available period (July 31, 1996) closest to the inception date of the Brandes Institutional Emerging Markets Fund.
** Prior to January 31, 2011, the Advisor managed a private investment fund with an investment objective, investment policies and strategies that were, in all material respects, equivalent to those of the Brandes Institutional Emerging Markets Fund. The performance information shown for the Class I shares for periods before January 31, 2011 is that of the private investment fund and reflects the net expenses of the private investment fund. The performance of the private investment fund prior to January 31, 2011 is based on calculations that are different than the standardized method of calculations presented by the SEC. The performance information shown for the Class S shares has been adjusted to reflect the differences in the net expense ratios between the Class I and S shares. The private investment fund was not registered under the Investment Company Act of 1940 (“1940 Act”) and was not subject to certain investment limitations, diversification requirements, and other restrictions imposed by the 1940 Act and the Internal Revenue Code of 1986, which, if applicable, may have adversely affected its performance.
15
Brandes Institutional Emerging Markets Equity Fund
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 800-331-2979.
The returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Advisor has a fee waiver arrangement in place to limit the Fund’s annual operating expenses.
Sector Allocation as a Percentage of Total Investments
as of September 30, 2011
The sector classifications represented in the graph above are in accordance with the Global Industry Classification Standard (GICS®), which was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor Financial Services LLC.
16
Brandes Institutional Core Plus Fixed Income Fund
Dear Shareholder:
The Brandes Institutional Core Plus Fixed Income Fund I shares (“the Fund”) gained 3.94% from September 30, 2010 through September 30, 2011. The Barclays Capital U.S. Aggregate Bond Index returned 5.26% for the same 12-month period.
Below I will examine the sector- and security-specific factors that affected the Fund’s performance and describe changes in the Fund’s composition for the 12-month period ending September 30, 2011. Finally, I’ll discuss how the Fund is positioned for the future.
The Markets
The fixed income markets have been dominated more by “macro” driven events throughout the past 12 months than “micro” fundamentals. Significant events that have weighed on the collective market’s mind include concerns about the anemic pace of U.S. economic growth, concerns surrounding European sovereign debt/banking system, the downgrade of the U.S. credit rating by Standard & Poor’s, and atypical Fed monetary actions undertaken in attempt to spur domestic growth. Due primarily to the overwhelming amount of macro headlines for investors to wrap their arms around, volatility in the fixed income markets saw a meaningful rise over the past 12 months. The uptick in volatility had an impact that was two-fold. First there was strong bid for U.S. Treasury securities, driving interest rates back near historic lows. We often see a “flight to quality” during periods of uncertainty, and we have witnessed this during the past six months. Secondly we witnessed a meaningful re-pricing of risk-based fixed income assets, particularly over the past six months. We believe the “micro” fundamentals in the credit market remain largely positive. The 2008 credit crisis caused many companies to clean up their balance sheets and capital structure; and as a result, metrics like interest coverage, debt service levels, and cash balances are all at or near 20-year highs.1
The Fund
Amid widening spreads, the Fund’s overweight to corporate bonds was the largest detractor to the Fund's performance over the 12-month period ending September 30, 2011. Within the corporate bond sector, the Fund’s holdings in the banking industry underperformed the Fund’s benchmark indices largely due to escalating fears that the sovereign stresses in Europe would spread through the global banking system. The homebuilding and building products industries also underperformed as there have been few tangible signs that the housing market has improved. Finally, the Fund’s holdings in electric utilities detracted from performance, effectively driven by the holding of EDP Finance BV – the incumbent utility company in Portugal. A few industries that positively affected performance included holdings in chemicals and energy.
Gains for holdings in select asset backed securities (“ABS”) and collateralized mortgage obligations (“CMO”) contributed positively to performance. Performance in the CMO sector was led by holdings in mortgage trust interest only (“IO”) securities and the ABS sector was led by holdings in floating rate notes backed by private student loans.
1 | Source: Morgan Stanley, the Yield Book, Bloomberg, Factset |
17
Brandes Institutional Core Plus Fixed Income Fund
During the 12-month period, notable purchases by the Fund were corporate bonds issued by American International Group, Bank of America, EDP Finance BV, JPMorgan, Lyondell Chemical, Marshall & Ilsley Bank, Marks & Spencer, Pilgrim’s Pride, Regions Financial, and Spectrum Brands. The Fund also purchased a few ABS floating rate notes backed by private student loans and a mortgage trust IO security. Notable sales by the Fund included positions in corporate bonds issued by British Petroleum, Ford Motor Credit, Keycorp, Smithfield Foods, Sprint Nextel, Tenet Healthcare, and Viacom Corp. The Fund Also sold an Alt-A mortgage- backed security and a security backed by subprime mortgages.
The Fund’s yield premium to the benchmarks was a once again a positive factor in relative performance. As of September 30, 2011 the Fund’s most substantial weighting was in the corporate bonds sector, particularly the industrials industry.
Our Outlook
As we look forward to the final three months of the year and into the beginning of next year we believe the credit market has priced in about a 50% possibility of slipping back into a recession and a 5-year default rate that would exceed the worst historical observations. As of 9/30/11, the credit market was pricing in an implied 5-year default rate of approximately 58%. Looking back to 1970, the worst 5-year default rate for the market peaked at approximately 35%. During the 2008/2009 credit crisis, defaults peaked at 13%. While the events of 2008 have taught us that you can “never say never,” it is rare for defaults to stay elevated after a spike. In 1933, defaults hit their all-time high at 15%, but stayed below 3% annually during the late 1930s. In 1970, defaults spiked to 9%, but again the annual default rate remained below 4% until 1986. The reason that defaults have rarely stayed elevated after a spike is that weaker companies are washed out of the market post-spike, and the stronger survivors are forced to clean up their balance sheets. We’ve witnessed both dynamics play out over the past few years.
There is an old adage about always fighting the last war, and that is certainly applicable as it relates to the credit market fundamentals post the 2008/2009 credit crisis. Many companies did not survive the credit crisis; however, many that did have meaningfully improved their balance sheets. In our opinion, the fundamental picture of the corporate market, by and large, is strong. The metrics that are important to credit investors are at or near 20-year highs: interest coverage, debt service ratios, and cash balances. In addition, many companies have opportunistically taken advantage of historic low interest rates and extended the maturity of their debt through refinancing, helping to alleviate much of the concern about liquidity if the credit markets should seize again for a period of time. The other interesting overlay is that while the continued anemic economic growth has ostensibly formed an anchor on equity prices and valuations, slow growth has been positive for corporate credit fundamentals. Usually, once growth recovers corporate conservatism declines. Thanks, however, to the anemic recovery and persistent double-dip recession fears, companies have been hesitant to get aggressive with their balance sheets.
What we have in the current market is stark contrast between the negative macro market and largely positive micro fundamentals. When the macro factors are as powerful as they have been, correlations between sectors and asset classes gravitate towards one. This certainly happened over the course of the most recent period, resulting in the opportunity set of bonds to appear as attractive as we have witnessed over the past
18
Brandes Institutional Core Plus Fixed Income Fund
few years. As we enter the fourth quarter we will look to continue to take a disciplined and measured approach to adding securities to the Fund that we feel are priced at attractive risk premiums relative to our view of their long-term value. Given that the credit markets effectively stopped functioning for a period in 2008, we are especially mindful in our credit assessments of companies that have near-term liquidity needs; as such, they may not (through no fault of their own) have ready access to capital markets. As we have witnessed over the most recent period, macro headlines can drive valuations of fixed income assets over the short term. These periods may be uncomfortable for investors; however, we believe these periods are necessary to reset the value component of the Fund. Periods of short-term volatility are crucial because over longer periods, we believe the market should ultimately turn toward a more balanced assessment of the impact of macro factors on individual credit stories. We’ve witnessed this in past periods of stress over the past 15+ years: from the Asian financial crisis in 1997, to the Russian sovereign default in 1998, the Y2K scare in 1999, the Enron and the WorldCom collapses in 2001/2002, to the more recent credit crisis in 2008. In each case an exogenous “shock” to the system resulted in a broad-based re-pricing of risk, followed by meaningful value in subsequent years for those focused on long-term fundamentals. We feel that we are currently in one of these periods and are confident that our value approach has the potential to reward patient investors.
Sincerely yours,
Debra McGinty-Poteet
President
Brandes Investment Trust
Correlation is the relationship of price movements among different asset classes.
Past performance does not guarantee future results.
Market conditions may impact performance. The performance results presented were achieved in particular market conditions which may not be repeated. Moreover, the current market volatility and uncertain regulatory environment may have a negative impact on future performance.
The Fund invests in foreign and emerging market securities which involve greater volatility and political, economic, and currency risks and differences in accounting methods. Below investment grade debt securities are speculative and involve a greater risk of default and price change due to changes in the issuer’s creditworthiness. The Fund’s use of derivative instruments, such as options contracts, futures contracts or swap agreements, involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other more traditional investments.
19
Brandes Institutional Core Plus Fixed Income Fund
Unlike bonds issued or guaranteed by the U.S. government or its agencies, stocks and other bonds are not backed by the full faith and credit of the United States. Stock and bond prices will experience market fluctuations. Please note that the values of government securities and bonds in general have an inverse relationship to interest rates. Bonds carry the risk of default, or the risk than an issuer will be unable to make income or principal payment. There is no assurance that private guarantors or insurers will meet their obligations. The credit quality of the investments in the portfolio is no guarantee of the safety or stability of the portfolio. 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.
Current and future portfolio holdings are subject to risk.
Please refer to the Schedule of Investments in the report for complete holdings information. Fund holdings, geographic allocations and/or sector allocations are subject to change at any time and are not a recommendation to buy or sell any security.
Investment performance reflects fee waivers and/or reimbursement of expenses. In the absence of such waivers/reimbursements, total return would be reduced.
The foregoing reflects the thoughts and opinions of Brandes Investment Partners® exclusively and is subject to change without notice.
Brandes Investment Partners® is a registered trademark of Brandes Investment Partners, L.P. in the United States and Canada.
Index Guide
The Barclays Capital U.S. Aggregate Bond Index is an unmanaged index consisting of U.S. dollar-denominated, fixed-rate, taxable bonds. The U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS. The U.S. Aggregate rolls up into other Barclays Capital flagship indices such as the multi-currency Global Aggregate Index and the U.S. Universal Index, which includes high yield and emerging markets debt. The U.S. Aggregate Index was created in 1986, with index history backfilled to January 1, 1976. The index is a total return index which reflects the price changes and interest of each bond in the index.
20
Brandes Institutional Core Plus Fixed Income Fund
The following chart compares the value of a hypothetical $1,000,000 investment in the Brandes Institutional Core Plus Fixed Income Fund — Class I from its inception (December 28, 2007) to September 30, 2011 as compared with the Barclays Capital U.S. Aggregate Index.
Value of $1,000,000 vs Barclays Capital U.S. Aggregate Index
Average Annual Total Return Periods Ended September 30, 2011 | ||||||||||||
One Year | Three Years | Since Inception | ||||||||||
Brandes Institutional Core Plus Fixed Income Fund | ||||||||||||
Class I | 3.94 | % | 8.92 | % | 4.34 | % | ||||||
Class E | 3.72 | % | 8.70 | % | 4.14 | % | ||||||
Barclays Capital U.S. Aggregate Index* | 5.26 | % | 7.97 | % | 6.58 | % |
* The Barclays Capital U.S. Aggregate Index since inception return shown is from the inception date of the Brandes Institutional Core Plus Fixed Income Fund — Class I (December 28, 2007). The return from the inception date of the Brandes Institutional Core Plus Fixed Income Fund — Class E (May 28, 2008) is 6.93%.
Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 800-331-2979.
21
Brandes Institutional Core Plus Fixed Income Fund
Sector Allocation as a Percentage of Total Investments
as of September 30, 2011
22
Brandes Investment Trust
Expense Example (Unaudited)
As a shareholder of a Fund, you incur ongoing costs, including investment advisory and administrative fees and other fund expenses. The examples below are intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from April 1, 2011 to September 30, 2011 (the “Period”).
Actual Expenses
This section provides information about actual account values and actual expenses. The “Ending Account Value” shown is derived from the Fund’s actual return. You may use the information in this section, 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 given for the Fund under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Class I | ||||||||||||||||
Fund | Beginning Account Value | Ending Account Value | Annual Expense Ratio | Expenses Paid During Period* | ||||||||||||
Institutional International Equity Fund | $ | 1,000.00 | $ | 832.20 | 1.16 | % | $ | 5.33 | ||||||||
Institutional Global Equity Fund | $ | 1,000.00 | $ | 840.40 | 1.00 | % | $ | 4.61 | ||||||||
Institutional Emerging Markets Fund | $ | 1,000.00 | $ | 759.40 | 1.12 | % | $ | 4.94 | ||||||||
Institutional Core Plus Fixed Income Fund | $ | 1,000.00 | $ | 1,014.30 | 0.50 | % | $ | 2.52 |
Class E | ||||||||||||||||
Beginning Account Value | Ending Account Value | Annual Expense Ratio | Expenses Paid During Period* | |||||||||||||
Institutional International Equity Fund | $ | 1,000.00 | $ | 831.40 | 1.39 | % | $ | 6.38 | ||||||||
Institutional Global Equity Fund | $ | 1,000.00 | $ | 839.00 | 1.25 | % | $ | 5.76 | ||||||||
Institutional Core Plus Fixed Income Fund | $ | 1,000.00 | $ | 1,014.30 | 0.70 | % | $ | 3.53 |
Class S | ||||||||||||||||
Beginning Account Value | Ending Account Value | Annual Expense Ratio | Expenses Paid During Period* | |||||||||||||
Institutional International Equity Fund | $ | 1,000.00 | $ | 831.70 | 1.42 | % | $ | 6.52 | ||||||||
Institutional Global Equity Fund | $ | 1,000.00 | $ | 839.50 | 1.25 | % | $ | 5.76 | ||||||||
Institutional Emerging Markets Fund | $ | 1,000.00 | $ | 758.50 | 1.37 | % | $ | 6.04 |
23
Brandes Investment Trust
Hypothetical Example for Comparison Purposes
This section provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratios 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 mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other mutual funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the last column of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Class I | ||||||||||||||||
Fund | Beginning Account Value | Ending Account Value | Annual Expense Ratio | Expenses Paid During Period* | ||||||||||||
Institutional International Equity Fund | $ | 1,000.00 | $ | 1,019.25 | 1.16 | % | $ | 5.87 | ||||||||
Institutional Global Equity Fund | $ | 1,000.00 | $ | 1,020.05 | 1.00 | % | $ | 5.06 | ||||||||
Institutional Emerging Markets Fund | $ | 1,000.00 | $ | 1,019.45 | 1.12 | % | $ | 5.67 | ||||||||
Institutional Core Plus Fixed Income Fund | $ | 1,000.00 | $ | 1,022.86 | 0.50 | % | $ | 2.54 |
Class E | ||||||||||||||||
Beginning Account Value | Ending Account Value | Annual Expense Ratio | Expenses Paid During Period* | |||||||||||||
Institutional International Equity Fund | $ | 1,000.00 | $ | 1,018.10 | 1.39 | % | $ | 7.03 | ||||||||
Institutional Global Equity Fund | $ | 1,000.00 | $ | 1,018.80 | 1.25 | % | $ | 6.33 | ||||||||
Institutional Core Plus Fixed Income Fund | $ | 1,000.00 | $ | 1,021.56 | 0.70 | % | $ | 3.55 |
Class S | ||||||||||||||||
Beginning Account Value | Ending Account Value | Annual Expense Ratio | Expenses Paid During Period* | |||||||||||||
Institutional International Equity Fund | $ | 1,000.00 | $ | 1,017.95 | 1.42 | % | $ | 7.18 | ||||||||
Institutional Global Equity Fund | $ | 1,000.00 | $ | 1,018.80 | 1.25 | % | $ | 6.33 | ||||||||
Institutional Emerging Markets Fund | $ | 1,000.00 | $ | 1,018.20 | 1.37 | % | $ | 6.93 |
* | Expenses are equal to the Funds’ expense ratio for the period, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
24
Brandes Institutional International Equity Fund
SCHEDULE OF INVESTMENTS — September 30, 2011
Shares | Value | |||||||
COMMON STOCKS – 95.88% | ||||||||
Brazil – 2.33% | ||||||||
Banco do Brasil SA | 295,554 | $ | 3,825,972 | |||||
Brasil Telecom SA – ADR | 13,408 | 85,811 | ||||||
Centrais Electricas Brasileiras SA – ADR | 549,930 | 4,822,886 | ||||||
Telecomunicacoes de Sao Paulo SA | 49,463 | 1,308,297 | ||||||
Tim Participacoes SA – ADR | 30,066 | 708,355 | ||||||
10,751,321 | ||||||||
Finland – 0.72% | ||||||||
Nokia OYJ | 582,482 | 3,293,792 | ||||||
France – 11.92% | ||||||||
Alcatel-Lucent SA(a) | 780,400 | 2,262,764 | ||||||
Carrefour SA | 357,376 | 8,138,141 | ||||||
France Telecom SA | 778,804 | 12,746,534 | ||||||
Natixis | 924,548 | 2,908,402 | ||||||
Renault SA | 55,100 | 1,825,098 | ||||||
Sanofi-Aventis SA | 197,435 | 12,986,609 | ||||||
Total SA | 314,394 | 13,870,844 | ||||||
54,738,392 | ||||||||
Germany – 3.97% | ||||||||
Deutsche Bank AG | 77,905 | 2,699,503 | ||||||
Deutsche Post AG | 319,600 | 4,091,766 | ||||||
Deutsche Telekom AG | 975,000 | 11,444,382 | ||||||
18,235,651 | ||||||||
Ireland – 1.46% | ||||||||
CRH Plc | 431,600 | 6,711,993 | ||||||
Italy – 7.12% | ||||||||
ENI SpA | 806,415 | 14,187,001 | ||||||
Intesa Sanpaolo SpA | 1,949,178 | 3,056,777 | ||||||
Intesa Sanpaolo SpA Savings Shares | 971,300 | 1,248,542 |
The accompanying notes are an integral part of these Schedules of Investments.
25
Brandes Institutional International Equity Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Shares | Value | |||||||
Italcementi SpA Savings Shares | 422,400 | $ | 1,221,123 | |||||
Telecom Italia SpA | 5,219,974 | 5,671,540 | ||||||
Telecom Italia SpA Savings Shares | 7,522,450 | 7,315,787 | ||||||
32,700,770 | ||||||||
Japan – 31.60% | ||||||||
Astellas Pharma, Inc. | 192,700 | 7,273,832 | ||||||
Canon, Inc. | 124,100 | 5,634,890 | ||||||
Mitsui Sumitomo Trust Holdings, Inc. | 703,000 | 2,326,856 | ||||||
Dai Nippon Printing Co. Ltd. | 451,400 | 4,667,984 | ||||||
Daiichi Sankyo Co. Ltd. | 369,602 | 7,704,906 | ||||||
FUJIFILM Holdings Corp. | 313,600 | 7,288,223 | ||||||
Honda Motor Co. Ltd. | 212,300 | 6,219,298 | ||||||
Japan Tobacco, Inc. | 1,133 | 5,299,674 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 1,281,800 | 5,883,018 | ||||||
Mizuho Financial Group, Inc. | 3,717,990 | 5,444,570 | ||||||
MS&AD Insurance Group Holdings | 254,499 | 5,537,309 | ||||||
Nippon Telegraph & Telephone Corp. | 293,400 | 14,056,249 | ||||||
Nissan Motor Co. Ltd. | 174,100 | 1,540,444 | ||||||
NKSJ Holdings, Inc. | 219,000 | 4,861,662 | ||||||
Ono Pharmaceutical Co. Ltd. | 89,000 | 5,310,141 | ||||||
Rohm Co. Ltd. | 107,000 | 5,581,635 | ||||||
Seven & I Holdings Co. Ltd. | 345,100 | 9,673,188 | ||||||
Sony Corp. | 288,400 | 5,520,549 | ||||||
Sumitomo Mitsui Financial Group, Inc. | 212,398 | 5,984,438 | ||||||
Taisho Pharmaceutical Co. Ltd.(b) | 136,000 | 3,339,608 | ||||||
Takeda Pharmaceutical Co. Ltd. | 191,300 | 9,073,024 | ||||||
The Akita Bank Ltd. | 218,000 | 713,079 | ||||||
Tokio Marine Holdings, Inc. | 271,500 | 6,880,622 | ||||||
Toyota Motor Corp. | 269,300 | 9,231,385 | ||||||
145,046,584 | ||||||||
Mexico – 1.23% | ||||||||
America Movil Sab De Cv – ADR | 109,498 | 2,417,716 | ||||||
Cemex SAB de CV – ADR(a) | 1,023,659 | 3,234,762 | ||||||
5,652,478 |
The accompanying notes are an integral part of these Schedules of Investments.
26
Brandes Institutional International Equity Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Shares | Value | |||||||
Netherlands – 7.40% | ||||||||
Aegon NV(a) | 1,235,762 | $ | 5,008,997 | |||||
Koninklijke Ahold NV | 746,752 | 8,781,912 | ||||||
SNS Reaal NV(a) | 141,435 | 350,888 | ||||||
STMicroelectronics NV | 933,900 | 6,103,136 | ||||||
Unilever NV | 291,704 | 9,233,391 | ||||||
Wolters Kluwer NV | 275,972 | 4,478,628 | ||||||
33,956,952 | ||||||||
Portugal – 1.21% | ||||||||
Portugal Telecom SGPS SA | 754,817 | 5,545,598 | ||||||
Singapore – 0.82% | ||||||||
Flextronics International Ltd(a) | 665,300 | 3,745,639 | ||||||
South Korea – 1.73% | ||||||||
Korea Electric Power Corp. – ADR(a) | 473,800 | 4,027,300 | ||||||
SK Telecom Co. Ltd. – ADR | 279,200 | 3,928,344 | ||||||
7,955,644 | ||||||||
Spain – 1.23% | ||||||||
Telefonica SA | 295,501 | 5,663,201 | ||||||
Sweden – 1.13% | ||||||||
Telefonaktiebolaget LM Ericsson | 542,200 | 5,206,211 | ||||||
Switzerland – 6.13% | ||||||||
Swiss Re Ag(a) | 237,320 | 11,132,885 | ||||||
Swisscom AG | 16,800 | 6,834,771 | ||||||
TE Connectivity Ltd | 228,272 | 6,423,57 4 | ||||||
UBS AG(a) | 325,637 | 3,724,822 | ||||||
28,116,052 |
The accompanying notes are an integral part of these Schedules of Investments.
27
Brandes Institutional International Equity Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Shares | Value | |||||||
United Kingdom – 15.88% | ||||||||
AstraZeneca Plc | 245,655 | $ | 10,902,079 | |||||
Barclays Plc | 1,471,121 | 3,607,728 | ||||||
BP Plc | 1,414,790 | 8,482,655 | ||||||
GlaxoSmithKline Plc | 433,320 | 8,941,625 | ||||||
ITV Plc(a) | 5,099,100 | 4,663,823 | ||||||
J. Sainsbury Plc | 1,769,500 | 7,534,676 | ||||||
Kingfisher Plc | 1,442,200 | 5,537,949 | ||||||
Marks & Spencer Group Plc | 1,489,419 | 7,252,825 | ||||||
Vodafone Group Plc | 2,666,000 | 6,871,056 | ||||||
Wm. Morrison Supermarkets Plc | 1,500,511 | 6,765,429 | ||||||
Wolseley | 91,829 | 2,278,460 | ||||||
72,838,305 | ||||||||
TOTAL COMMON STOCKS (Cost $559,829,847) | $ | 440,158,583 | ||||||
PREFERRED STOCKS – 1.77% | ||||||||
Brazil – 1.77% | ||||||||
Brasil Telecom SA | 23,640 | 412,754 | ||||||
Petroleo Brasileiro SA | 328,120 | 6,798,647 | ||||||
Tele Norte Leste Participacoes SA – ADR | 92,800 | 884,384 | ||||||
TOTAL PREFERRED STOCKS (Cost $14,194,793) | $ | 8,095,785 |
The accompanying notes are an integral part of these Schedules of Investments.
28
Brandes Institutional International Equity Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Principal Amount | Value | |||||||
SHORT TERM INVESTMENTS – 0.72% | ||||||||
Repurchase Agreements – 0.72% | ||||||||
State Street Bank and Trust Repurchase Agreement, (Dated 9/30/11), due 10/1/11, 0.01%, [Collateralized by $3,310,000 United States Treasury Bill, 5/15/13, 1.375% (Market Value $3,385,886)] (proceeds $3,318,212) | $ | 3,318,209 | $ | 3,318,209 | ||||
TOTAL SHORT TERM INVESTMENTS (Cost $3,318,209) | $ | 3,318,209 | ||||||
Total Investments (Cost $577,342,849) – 98.37% | $ | 451,572,577 | ||||||
Other Assets in Excess of Liabilities – 1.63% | 7,482,681 | |||||||
TOTAL NET ASSETS – 100.00% | $ | 459,055,258 |
Percentages are stated as a percent of net assets.
ADR | American Depository Receipt |
(a) | Non-income producing security. |
(b) | The price for this security was derived from an estimate of fair market value pursuant to procedures approved by the Fund’s Board of Trustees. This security represents $3,339,608 or 0.73% of the Fund’s net assets. |
The accompanying notes are an integral part of these Schedules of Investments.
29
Brandes Institutional International Equity Fund
SCHEDULE OF INVESTMENTS BY INDUSTRY — September 30, 2011
Air Freight & Logistics | 0.89 | % | ||
Automobiles | 4.10 | % | ||
Capital Markets | 1.40 | % | ||
Commercial Banks | 7.62 | % | ||
Commercial Services & Supplies | 1.02 | % | ||
Communications Equipment | 2.34 | % | ||
Construction Materials | 2.43 | % | ||
Diversified Financial Services | 0.08 | % | ||
Diversified Telecommunication Services | 15.39 | % | ||
Electric Utilities | 1.93 | % | ||
Electronic Equipment, Instruments & Components | 3.80 | % | ||
Food & Staples Retailing | 8.91 | % | ||
Food Products | 2.01 | % | ||
Household Durables | 1.20 | % | ||
Insurance | 7.28 | % | ||
Media | 1.99 | % | ||
Multiline Retail | 1.58 | % | ||
Office Electronics | 1.23 | % | ||
Oil, Gas & Consumable Fuels | 7.96 | % | ||
Pharmaceuticals | 14.28 | % | ||
Semiconductors & Semiconductor Equipment | 2.55 | % | ||
Specialty Retail | 1.21 | % | ||
Tobacco | 1.15 | % | ||
Trading Companies & Distributors | 0.50 | % | ||
Wireless Telecommunication Services | 3.03 | % | ||
COMMON STOCKS | 95.88 | % | ||
Diversified Telecommunication Services | 0.29 | % | ||
Oil, Gas & Consumable Fuels | 1.48 | % | ||
PREFERRED STOCKS | 1.77 | % | ||
SHORT TERM INVESTMENTS | 0.72 | % | ||
TOTAL INVESTMENTS | 98.37 | % | ||
Other Assets in Excess of Liabilities | 1.63 | % | ||
TOTAL NET ASSETS | 100.00 | % |
The accompanying notes are an integral part of these Schedules of Investments.
30
Brandes Institutional Global Equity Fund
SCHEDULE OF INVESTMENTS — September 30, 2011
Shares | Value | |||||||
COMMON STOCKS – 98.64% | ||||||||
Automobiles – 3.52% | ||||||||
Honda Motor Co. Ltd. | 15,700 | $ | 459,929 | |||||
Toyota Motor Corp. | 24,200 | 829,556 | ||||||
1,289,485 | ||||||||
Beverages – 1.26% | ||||||||
Pepsico, Inc. | 7,470 | 462,393 | ||||||
Building Products – 0.65% | ||||||||
Masco Corp. | 33,400 | 237,808 | ||||||
Commercial Banks – 7.79% | ||||||||
BB&T Corp. | 12,800 | 273,024 | ||||||
Intesa Sanpaolo SpA | 98,256 | 154,089 | ||||||
Intesa Sanpaolo SpA Savings Shares | 118,900 | 152,838 | ||||||
KeyCorp | 27,300 | 161,889 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 94,600 | 434,181 | ||||||
Mizuho Financial Group, Inc. | 298,410 | 436,987 | ||||||
PNC Financial Services Group, Inc. | 5,920 | 285,285 | ||||||
Sumitomo Mitsui Financial Group, Inc. | 12,076 | 340,248 | ||||||
Wells Fargo & Co. | 25,369 | 611,901 | ||||||
2,850,442 | ||||||||
Communications Equipment – 1.55% | ||||||||
Nokia OYJ | 29,006 | 164,022 | ||||||
Telefonaktiebolaget LM Ericsson | 42,000 | 403,284 | ||||||
567,306 | ||||||||
Computers & Peripherals – 2.68% | ||||||||
Hewlett Packard Co. | 21,274 | 477,601 | ||||||
Western Digital Corp.(a) | 19,540 | 502,569 | ||||||
980,170 |
The accompanying notes are an integral part of these Schedules of Investments.
31
Brandes Institutional Global Equity Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Shares | Value | |||||||
Diversified Financial Services – 2.01% | ||||||||
Bank Of America Corp. | 57,532 | $ | 352,096 | |||||
Citigroup, Inc. | 14,936 | 382,660 | ||||||
734,756 | ||||||||
Diversified Telecommunication Services – 12.69% | ||||||||
AT&T, Inc. | 21,100 | 601,772 | ||||||
Deutsche Telekom AG | 64,200 | 753,569 | ||||||
France Telecom SA | 46,963 | 768,634 | ||||||
Nippon Telegraph & Telephone Corp. | 20,800 | 996,490 | ||||||
Portugal Telecom SGPS SA | 38,800 | 285,061 | ||||||
Telecom Italia SpA Savings Shares | 842,600 | 819,451 | ||||||
Telefonica SA | 15,400 | 295,137 | ||||||
Telefonos de Mexico SAB de CV – ADR | 8,406 | 125,670 | ||||||
4,645,784 | ||||||||
Electric Utilities – 0.35% | ||||||||
Centrais Electricas Brasileiras SA – ADR | 14,500 | 127,165 | ||||||
Electronic Equipment, Instruments & Components – 3.99% | ||||||||
Corning, Inc. | 42,510 | 525,424 | ||||||
FUJIFILM Holdings Corp. | 19,400 | 450,866 | ||||||
TE Connectivity Ltd | 17,200 | 484,009 | ||||||
1,460,299 | ||||||||
Food & Staples Retailing – 10.38% | ||||||||
Carrefour SA | 22,898 | 521,432 | ||||||
J. Sainsbury Plc | 106,000 | 451,357 | ||||||
Koninklijke Ahold NV | 41,800 | 491,574 | ||||||
Safeway, Inc. | 28,450 | 473,124 | ||||||
Seven & I Holdings Co. Ltd. | 28,000 | 784,843 | ||||||
The Kroger Co. | 28,100 | 617,076 | ||||||
Wm. Morrison Supermarkets Plc | 102,000 | 459,892 | ||||||
3,799,298 |
The accompanying notes are an integral part of these Schedules of Investments.
32
Brandes Institutional Global Equity Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Shares | Value | |||||||
Food Products – 2.43% | ||||||||
Unilever NV | 28,100 | $ | 889,457 | |||||
Health Care Equipment & Supplies – 1.19% | �� | |||||||
Boston Scientific Corp.(a) | 73,600 | 434,976 | ||||||
Household Durables – 1.09% | ||||||||
Sony Corp. | 20,800 | 398,153 | ||||||
Industrial Conglomerates – 1.43% | ||||||||
General Electric Co. | 34,310 | 522,884 | ||||||
Insurance – 7.08% | ||||||||
Aegon NV(a) | 60,400 | 244,822 | ||||||
Marsh & McLennan Companies, Inc. | 15,791 | 419,093 | ||||||
MS&AD Insurance Group Holdings | 20,500 | 446,033 | ||||||
NKSJ Holdings, Inc. | 18,250 | 405,138 | ||||||
Swiss Re Ag(a) | 13,900 | 652,062 | ||||||
Tokio Marine Holdings, Inc. | 16,800 | 425,762 | ||||||
2,592,910 | ||||||||
Media – 1.25% | ||||||||
News Corp. | 29,600 | 457,912 | ||||||
Multiline Retail – 1.06% | ||||||||
Marks & Spencer Group Plc | 79,400 | 386,644 | ||||||
Office Electronics – 2.58% | ||||||||
Canon, Inc. | 12,300 | 558,494 | ||||||
Xerox Corp. | 55,600 | 387,532 | ||||||
946,026 |
The accompanying notes are an integral part of these Schedules of Investments.
33
Brandes Institutional Global Equity Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Shares | Value | |||||||
Oil, Gas & Consumable Fuels – 10.28% | ||||||||
BP Plc | 47,000 | $ | 281,798 | |||||
Chesapeake Energy Corp. | 29,090 | 743,250 | ||||||
Chevron Corp. | 5,948 | 550,309 | ||||||
ENI SpA | 48,800 | 858,523 | ||||||
Total SA | 19,478 | 859,355 | ||||||
Valero Energy Corp. | 26,509 | 471,330 | ||||||
3,764,565 | ||||||||
Pharmaceuticals – 15.59% | ||||||||
Astellas Pharma, Inc. | 12,600 | 475,611 | ||||||
AstraZeneca Plc | 14,500 | 643,505 | ||||||
Daiichi Sankyo Co. Ltd. | 24,800 | 516,993 | ||||||
Eli Lilly & Co. | 19,500 | 720,915 | ||||||
GlaxoSmithKline Plc | 36,800 | 759,374 | ||||||
Merck & Co., Inc. | 15,999 | 523,327 | ||||||
Pfizer, Inc. | 48,154 | 851,363 | ||||||
Sanofi-Aventis SA | 11,200 | 736,698 | ||||||
Takeda Pharmaceutical Co. Ltd. | 10,100 | 479,025 | ||||||
5,706,811 | ||||||||
Semiconductors & Semiconductor Equipment – 2.76% | ||||||||
Intel Corp. | 32,000 | 682,560 | ||||||
STMicroelectronics NV | 50,100 | 327,409 | ||||||
1,009,969 | ||||||||
Software – 3.58% | ||||||||
Microsoft Corp. | 52,800 | 1,314,192 | ||||||
Specialty Retail – 1.45% | ||||||||
Lowe’s Cos, Inc. | 27,700 | 535,717 | ||||||
TOTAL COMMON STOCKS (Cost $39,736,583) | $ | 36,115,123 |
The accompanying notes are an integral part of these Schedules of Investments.
34
Brandes Institutional Global Equity Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Principal Amount | Value | |||||||
SHORT TERM INVESTMENTS – 0.54% | ||||||||
Repurchase Agreements – 0.54% | ||||||||
State Street Bank and Trust Repurchase Agreement, (Dated 9/30/11), due 10/1/11, 0.01%, [Collateralized by $200,000 United States Treasury Bill, 5/15/13, 1.375% (Market Value $204,585)] (proceeds $195,796) | $ | 195,786 | $ | 195,786 | ||||
TOTAL SHORT TERM INVESTMENTS (Cost $195,786) | $ | 195,786 | ||||||
Total Investments (Cost $39,932,369) – 99.18% | $ | 36,310,909 | ||||||
Other Assets in Excess of Liabilities – 0.82% | 300,920 | |||||||
TOTAL NET ASSETS – 100.00% | $ | 36,611,828 |
Percentages are stated as a percent of net assets.
(a) | Non-income producing security. |
ADR American Depository Receipt
The accompanying notes are an integral part of these Schedules of Investments.
35
Brandes Institutional Global Equity Fund
SCHEDULE OF INVESTMENTS — September 30, 2011
Brazil | 0.35 | % | ||
Finland | 0.45 | % | ||
France | 7.88 | % | ||
Germany | 2.06 | % | ||
Italy | 5.42 | % | ||
Japan | 23.05 | % | ||
Mexico | 0.34 | % | ||
Netherlands | 5.34 | % | ||
Portugal | 0.78 | % | ||
Spain | 0.81 | % | ||
Sweden | 1.10 | % | ||
Switzerland | 3.10 | % | ||
United Kingdom | 8.15 | % | ||
United States | 39.81 | % | ||
COMMON STOCKS | 98.64 | % | ||
SHORT TERM INVESTMENTS | 0.54 | % | ||
TOTAL INVESTMENTS | 99.18 | % | ||
Other Assets in Excess of Liabilities | 0.82 | % | ||
TOTAL NET ASSETS | 100.00 | % |
The accompanying notes are an integral part of these Schedules of Investments.
36
Brandes Institutional Emerging Markets Fund
SCHEDULE OF INVESTMENTS — September 30, 2011
Shares | Value | |||||||
COMMON STOCKS – 93.42% | ||||||||
Argentina – 0.33% | ||||||||
Grupo Clarin – GDR(a) | 67,028 | $ | 365,135 | |||||
Austria – 1.98% | ||||||||
Erste Group Bank AG | 85,419 | 2,178,517 | ||||||
Brazil – 16.88% | ||||||||
Banco do Brasil SA | 75,650 | 979,296 | ||||||
Banco Santander Brasil SA – ADR | 337,641 | 2,471,531 | ||||||
Brasil Telecom SA – ADR | 49,531 | 316,998 | ||||||
Centrais Electricas Brasileiras SA – ADR | 214,515 | 1,881,296 | ||||||
Cia de Saneamento Basico do Estado de Sao Paulo – ADR | 33,150 | 1,536,503 | ||||||
Cia Paranaense de Energia | 58,940 | 995,891 | ||||||
Embraer SA – ADR | 130,374 | 3,307,589 | ||||||
Itau Unibanco Hold | 119,190 | 1,610,753 | ||||||
Marfrig Alimentos SA | 247,542 | 809,671 | ||||||
Redecard SA | 37,440 | 503,979 | ||||||
Tele Norte Leste Participacoes SA | 29,690 | 324,178 | ||||||
Telecomunicacoes de Sao Paulo SA | 60,011 | 1,587,291 | ||||||
Tim Participacoes SA – ADR | 34,735 | 818,357 | ||||||
Viver Incorporadora e Construtora SA(a) | 1,200,533 | 1,474,927 | ||||||
18,618,260 | ||||||||
China – 13.26% | ||||||||
Chaoda Modern Agriculture Holdings Ltd.(c) | 3,433,934 | 485,056 | ||||||
China Mobile Ltd | 297,000 | 2,903,265 | ||||||
China Resources Power Holdings Co. Ltd. | 1,528,409 | 2,306,912 | ||||||
China Yuchai International Ltd. | 79,780 | 1,163,192 | ||||||
People’s Food Holdings Ltd. | 3,045,519 | 1,496,632 | ||||||
PetroChina Co. Ltd. | 161,700 | 195,867 | ||||||
Sinotrans Limited | 10,502,350 | 2,043,423 | ||||||
Weiqiao Textile Co. | 3,098,877 | 1,484,285 | ||||||
Xinhua Winshare Publishing and Media Co. Ltd. | 1,118,450 | 446,752 | ||||||
Yingde Gases | 2,311,000 | 2,092,420 | ||||||
14,617,804 |
The accompanying notes are an integral part of these Schedules of Investments.
37
Brandes Institutional Emerging Markets Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Shares | Value | |||||||
Czech Republic – 2.32% | ||||||||
Telefonica Czech Republic AS | 120,260 | $ | 2,558,627 | |||||
Hong Kong – 2.52% | ||||||||
Dickson Concepts International Ltd. | 208,228 | 100,354 | ||||||
First Pacific Co. Ltd. | 3,030,899 | 2,675,131 | ||||||
2,775,485 | ||||||||
Hungary – 1.66% | ||||||||
Magyar Telekom Telecommunications Plc | 820,254 | 1,825,597 | ||||||
India – 2.56% | ||||||||
Reliance Infrastru | 372,410 | 2,818,696 | ||||||
Israel – 1.96% | ||||||||
Bezeq The Israel Telecommunication Corp. Ltd. | 269,300 | 503,893 | ||||||
Partner Communications Co. Ltd. | 132,778 | 1,258,210 | ||||||
Syneron Medical Ltd.(a) | 40,050 | 396,896 | ||||||
2,158,999 | ||||||||
Kuwait – 0.72% | ||||||||
National Mobile Telecommunication Co. KSC | 117,500 | 797,329 | ||||||
Malaysia – 0.74% | ||||||||
Proton Holdings Bhd | 941,100 | 812,818 | ||||||
Mexico – 5.53% | ||||||||
America Movil Sab De Cv – ADR | 74,570 | 1,646,506 | ||||||
Cemex SAB de CV – ADR(a) | 444,714 | 1,405,296 | ||||||
Fibra Uno Administracion SA de CV | 406,230 | 673,708 | ||||||
Gruma SAB de Cv | 748,370 | 1,303,184 | ||||||
Grupo Televisa SA | 249,913 | 957,168 | ||||||
Grupo Televisa SA – ADR | 2,780 | 10,647 | ||||||
Telefonos de Mexico SAB de CV – ADR | 7,131 | 106,608 | ||||||
6,103,117 | ||||||||
Pakistan – 0.97% | ||||||||
Lucky Cement Ltd. | 628,470 | 542,889 | ||||||
Nishat Mills Ltd. | 962,360 | 524,122 | ||||||
1,067,011 |
The accompanying notes are an integral part of these Schedules of Investments.
38
Brandes Institutional Emerging Markets Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Shares | Value | |||||||
Panama – 1.68% | ||||||||
Banco Latinoamericano de Comercio Exterior SA | 121,891 | $ | 1,856,400 | |||||
Philippines – 0.94% | ||||||||
First Philippine Holdings Corp. | 841,300 | 1,035,455 | ||||||
Russia – 4.63% | ||||||||
Gazprom OAO – ADR(a) | 271,678 | 2,594,524 | ||||||
Lukoil OAO – ADR | 50,030 | 2,511,006 | ||||||
5,105,530 | ||||||||
Singapore – 3.00% | ||||||||
Flextronics International Ltd.(a) | 514,684 | 2,897,671 | ||||||
Haw Par Corp. Ltd. | 101,100 | 408,466 | ||||||
3,306,137 | ||||||||
South Africa – 5.46% | ||||||||
JD Group Ltd. | 402,359 | 1,896,333 | ||||||
MTN Group Ltd. | 124,690 | 2,037,021 | ||||||
Standard Bank Group Ltd. | 182,450 | 2,087,402 | ||||||
6,020,756 | ||||||||
South Korea – 13.80% | ||||||||
Hana Financial Group, Inc. | 78,160 | 2,272,620 | ||||||
KB Financial Group, Inc. | 28,200 | 928,023 | ||||||
KB Financial Group, Inc. – ADR | 25,337 | 833,805 | ||||||
Korea Electric Power Corp.(a) | 57,350 | 1,003,538 | ||||||
Korea Electric Power Corp. – ADR(a) | 80,820 | 686,970 | ||||||
Lotte Chilsung Beverage Co. Ltd. | 1,300 | 1,304,116 | ||||||
POSCO | 2,640 | 275,895 | ||||||
POSCO – ADR | 18,868 | 1,971,815 | ||||||
Samsung Electronic | 4,020 | 2,806,992 | ||||||
Shinhan Fin Group | 9,310 | 324,608 | ||||||
Shinhan Financial Group Co. Ltd. – ADR | 7,279 | 498,175 | ||||||
SK Telecom Co. Ltd. | 18,320 | 2,313,618 | ||||||
15,220,175 |
The accompanying notes are an integral part of these Schedules of Investments.
39
Brandes Institutional Emerging Markets Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Shares | Value | |||||||
Taiwan – 2.51% | ||||||||
Novatek Microelect | 1,214,000 | $ | 2,780,164 | |||||
Turkey – 6.30% | ||||||||
Dogus Otomotiv Servis ve Ticaret AS(a) | 697,566 | 1,574,429 | ||||||
Selcuk Ecza Deposu Ticaret ve Sanayi A.S. | 1,066,021 | 987,095 | ||||||
Turkiye Garanti Bankasi | 446,310 | 1,727,131 | ||||||
Turkiye Vakiflar Bankasi Tao | 1,339,200 | 2,669,434 | ||||||
6,958,089 | ||||||||
United Arab Emirates – 2.09% | ||||||||
Air Arabia | 13,580,400 | 2,304,588 | ||||||
TOTAL COMMON STOCKS (Cost $129,718,253) | $ | 101,284,689 | ||||||
PARTICIPATORY NOTES – 1.58% | ||||||||
Saudi Arabia – 1.58% | ||||||||
Etihad Etisalat Co.(a)(b)(c) | 123,000 | 1,738,214 | ||||||
TOTAL PARTICIPATORY NOTES (Cost $1,722,655) | $ | 1,738,214 | ||||||
PREFERRED STOCKS – 4.93% | ||||||||
Argentina – 0.33% | ||||||||
Nortel Inversora SA(a) | 16,356 | $ | 377,824 | |||||
Brazil – 3.12% | ||||||||
Brasil Telecom SA | 20,411 | 356,376 | ||||||
Cia Energetica do Ceara | 45,850 | 792,758 | ||||||
Petroleo Brasileiro SA | 110,792 | 2,295,611 | ||||||
3,444,745 | ||||||||
South Korea – 1.46% | ||||||||
Hyundai Motor Co. | 29,920 | 1,613,143 | ||||||
TOTAL PREFERRED STOCKS (Cost $6,838,418) | $ | 5,435,712 |
The accompanying notes are an integral part of these Schedules of Investments.
40
Brandes Institutional Emerging Markets Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Principal Amount | Value | |||||||
SHORT TERM INVESTMENTS – 1.49% | ||||||||
Money Market Fund – 1.49% | ||||||||
Northern Institutional Treasury Portfolio, 0.010% | $ | 1,641,842 | $ | 1,641,842 | ||||
TOTAL SHORT TERM INVESTMENTS (Cost $1,641,842) | $ | 1,641,842 | ||||||
Total Investments (Cost $139,921,168) – 99.84% | $ | 110,100,457 | ||||||
Other Assets in Excess of Liabilities – 0.16% | 178,741 | |||||||
TOTAL NET ASSETS – 100.00% | $ | 110,279,198 |
Percentages are stated as a percent of net assets.
GDR | Global Depository Receipt |
ADR | American Depository Receipt |
(a) | Non-income producing security. |
(b) | Represents the underlying security of a participatory note with HSBC Bank Plc. The note has a maturity date of April 2, 2012. |
(c) | The price for these securities was derived from an estimate of fair market value pursuant to procedures approved by the Fund’s Board of Trustees. These securities represent $2,223,270 or 2.02% of the Fund’s net assets. |
The accompanying notes are an integral part of these Schedules of Investments.
41
Brandes Institutional Emerging Markets Fund
SCHEDULE OF INVESTMENTS BY INDUSTRY — September 30, 2011 (Unaudited)
Aerospace & Defense | 3.00 | % | ||
Air Freight & Logistics | 1.85 | % | ||
Airlines | 2.09 | % | ||
Automobiles | 0.74 | % | ||
Beverages | 1.18 | % | ||
Chemicals | 1.90 | % | ||
Commercial Banks | 18.53 | % | ||
Construction Materials | 1.77 | % | ||
Distributors | 1.83 | % | ||
Diversified Financial Services | 2.43 | % | ||
Diversified Telecommunication Services | 6.55 | % | ||
Electric Utilities | 7.64 | % | ||
Electronic Equipment, Instruments & Components | 2.63 | % | ||
Food Products | 3.71 | % | ||
Health Care Equipment & Supplies | 0.36 | % | ||
Health Care Providers & Services | 0.90 | % | ||
Household Durables | 1.34 | % | ||
Independent Power Producers & Energy Traders | 2.09 | % | ||
Industrial Conglomerates | 0.37 | % | ||
IT Services | 0.46 | % | ||
Machinery | 1.05 | % | ||
Media | 1.21 | % | ||
Metals & Mining | 2.04 | % | ||
Oil, Gas & Consumable Fuels | 4.81 | % | ||
Real Estate Investment Trust | 0.61 | % | ||
Semiconductors & Semiconductor Equipment | 5.07 | % | ||
Specialty Retail | 1.81 | % | ||
Textiles, Apparel & Luxury Goods | 1.82 | % | ||
Water Utilities | 1.39 | % | ||
Wireless Telecommunication Services | 12.24 | % | ||
COMMON STOCKS | 93.42 | % | ||
Automobiles | 1.46 | % | ||
Diversified Telecommunication Services | 0.67 | % | ||
Electric Utilities | 0.72 | % | ||
Oil, Gas & Consumable Fuels | 2.08 | % | ||
PREFERRED STOCKS | 4.93 | % | ||
SHORT TERM INVESTMENTS | 1.49 | % | ||
TOTAL INVESTMENTS | 99.84 | % | ||
Other Assets in Excess of Liabilities | 0.16 | % | ||
TOTAL NET ASSETS | 100.00 | % |
The accompanying notes are an integral part of these Schedules of Investments.
42
Brandes Institutional Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — September 30, 2011
Principal Amount | Value | |||||||
FEDERAL AND FEDERALLY SPONSORED CREDITS – 12.04% | ||||||||
Federal National Mortgage Association – 5.39% | ||||||||
Pool #983284, 5.500%, 05/01/2038 | $ | 800,000 | $ | 869,425 | ||||
5.000%, 10/01/2019(d) | 550,000 | 591,078 | ||||||
1,460,503 | ||||||||
Fannie Mae Interest Only Strip – 0.82% | ||||||||
5.500%, 01/01/2036 | 739,012 | 117,021 | ||||||
6.000%, 06/01/2036 | 730,007 | 105,879 | ||||||
222,900 | ||||||||
Freddie Mac Mortgage – 5.83% | ||||||||
Pool #G0-6018, 6.500%, 04/01/2039 | 467,242 | 519,729 | ||||||
Pool #A9-3505, 4.500%, 08/01/2040 | 1,000,000 | 1,059,355 | ||||||
1,579,084 | ||||||||
TOTAL FEDERAL AND FEDERALLY SPONSORED CREDITS (Cost $3,316,267) | $ | 3,262,487 | ||||||
OTHER MORTGAGE RELATED SECURITIES – 12.57% | ||||||||
Collateralized Mortgage Obligations – 2.42% | ||||||||
Wells Fargo Mortgage Backed Securities Trust | ||||||||
Series 2004-DD, 2.737%, 01/25/2035 | 775,000 | $ | 648,344 | |||||
Series 2006-AR14, 5.876%, 10/25/2036 | 7,263 | 6,552 | ||||||
654,896 | ||||||||
Near Prime Mortgage – 8.11% | ||||||||
Banc of America Funding Corp. | ||||||||
Series 2006-H, 3.223%, 09/20/2046 | 83,236 | 57,266 | ||||||
Bear Stearns Adjustable Rate Mortgage Trust | ||||||||
Series 2005-10, 2.727%, 10/25/2035 | 854,999 | 703,663 | ||||||
Bear Stearns Alt-A Trust | ||||||||
Series 2004-11, 0.915%, 11/25/2034 | 445,649 | 332,940 | ||||||
Series 2005-7, 0.505%, 08/25/2035 | 473,780 | 350,983 | ||||||
Countrywide Home Loan Mortgage Pass Through Trust | ||||||||
Series 2006-HYB1, 2.684%, 03/20/2036 | 64,410 | 31,051 | ||||||
First Horizon Alternative Mortgage Securities | ||||||||
Series 2004-FA2, 6.000%, 01/25/2035 | 30,498 | 30,361 |
The accompanying notes are an integral part of these Schedules of Investments.
43
Brandes Institutional Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Principal Amount | Value | |||||||
Merrill Lynch Mortgage Investors, Inc. | ||||||||
Series 2005-A9, 2.762%, 12/25/2035 | $ | 230,322 | $ | 178,776 | ||||
Opteum Mortgage Acceptance Corp. | ||||||||
Series 2005-3, 0.525%, 07/25/2035 | 373,515 | 281,001 | ||||||
WaMu Mortgage Pass Through Certificates | ||||||||
Series 2007-HY2, 3.030%, 11/25/2036 | 76,382 | 55,678 | ||||||
Wells Fargo Alternative Loan Trust | ||||||||
Series 2007-PA5, 6.000%, 11/25/2022 | 128,957 | 120,681 | ||||||
Series 2007-PA5, 6.250%, 11/25/2037 | 66,998 | 55,198 | ||||||
2,197,598 | ||||||||
Sub-Prime Mortgages – 2.04% | ||||||||
Accredited Mortgage Loan Trust | ||||||||
Series 2006-2, 0.385%, 09/25/2036 | 567,861 | 421,819 | ||||||
Countrywide Asset-Backed Certificates | ||||||||
Series 2004-10, 1.285%, 12/25/2034 | 115,013 | 25,889 | ||||||
JP Morgan Mortgage Acquisition Corp. | ||||||||
Series 2006-NC1, 0.405%, 04/25/2036 | 162,732 | 107,504 | ||||||
555,212 | ||||||||
TOTAL OTHER MORTGAGE RELATED SECURITIES (Cost $3,356,420) | $ | 3,407,706 | ||||||
US GOVERNMENTS – 13.71% | ||||||||
Sovereign – 13.71% | ||||||||
United States Treasury Bond | ||||||||
4.750%, 02/15/2037(e) | 325,000 | $ | 436,516 | |||||
United States Treasury Note | ||||||||
4.500%, 02/15/2016(e) | 275,000 | 318,678 | ||||||
3.375%, 11/15/2019 | 2,610,000 | 2,959,901 | ||||||
TOTAL US GOVERNMENTS (Cost $3,342,733) | $ | 3,715,095 |
The accompanying notes are an integral part of these Schedules of Investments.
44
Brandes Institutional Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Shares | Value | |||||||
COMMON STOCKS – 0.04% | ||||||||
Paper & Forest Products – 0.04% | ||||||||
AbitibiBowater, Inc.(a) | 632 | $ | 9,480 | |||||
Abitibi-Consolidated(a)(c) | 80,000 | — | ||||||
Quad/Graphics, Inc. | 208 | 3,759 | ||||||
Quebecor World(a)(c) | 140,000 | — | ||||||
13,239 | ||||||||
Semiconductors – 0.00% | ||||||||
Magnachip Semiconductor Corp.(a) | 22 | 146 | ||||||
TOTAL COMMON STOCKS (Cost $66,462) | $ | 13,385 | ||||||
PREFERRED STOCKS – 0.04% | ||||||||
Diversified Financial Services – 0.04% | ||||||||
Ally Financial, Inc., 7.000%(b) | 16 | $ | 10,716 | |||||
TOTAL PREFERRED STOCKS (Cost $0) | $ | 10,716 |
Principal Amount | Value | |||||||
ASSET BACKED SECURITIES – 5.24% | ||||||||
Student Loan – 5.24% | ||||||||
National Collegiate Student Loan Trust | ||||||||
Series A-4, 0.540%, 10/25/2033 | $ | 410,000 | $ | 191,561 | ||||
SLM Student Loan Trust | ||||||||
Series 2004-B, 0.677%, 03/15/2024 | 260,000 | 207,382 | ||||||
Series 2004-B, 0.777%, 09/15/2033 | 300,000 | 244,416 | ||||||
Series 2005-A, 0.657%, 12/15/2038 | 400,000 | 300,443 | ||||||
Series 2006-A, 0.637%, 06/15/2039 | 275,000 | 223,545 | ||||||
Series 2007-A, 0.587%, 12/15/2041 | 350,000 | 252,530 | ||||||
TOTAL ASSET BACKED SECURITIES (Cost $1,440,123) | $ | 1,419,877 | ||||||
CORPORATE BONDS – 52.09% | ||||||||
Advertising – 0.99% | ||||||||
The Interpublic Group of Companies, Inc. | ||||||||
6.250%, 11/15/2014 | $ | 255,000 | $ | 269,025 |
The accompanying notes are an integral part of these Schedules of Investments.
45
Brandes Institutional Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Principal Amount | Value | |||||||
Automobile Parts & Equipment – 0.23% | ||||||||
American Axle & Manufacturing, Inc. | ||||||||
5.250%, 02/11/2014 | $ | 65,000 | $ | 61,100 | ||||
Banks & Thrifts – 12.00% | ||||||||
Ally Financial, Inc. | ||||||||
7.500%, 12/31/2013 | 15,000 | 15,225 | ||||||
6.750%, 12/01/2014 | 650,000 | 621,564 | ||||||
8.000%, 12/31/2018 | 18,000 | 16,380 | ||||||
Banco Santander Chile | ||||||||
7.375%, 07/18/2012 | 23,700 | 24,469 | ||||||
Citigroup, Inc. | ||||||||
6.125%, 11/21/2017 | 235,000 | 251,114 | ||||||
6.875%, 03/05/2038 | 235,000 | 255,145 | ||||||
Fifth Third Bancorp | ||||||||
8.250%, 03/01/2038 | 175,000 | 209,354 | ||||||
First Horizon National Corp. | ||||||||
5.375%, 12/15/2015 | 130,000 | 131,579 | ||||||
JP Morgan Chase & Co. | ||||||||
7.900%, 04/30/2049 | 540,000 | 556,206 | ||||||
KeyCorp | ||||||||
6.500%, 05/14/2013 | 110,000 | 117,333 | ||||||
M&I Marshall & Ilsley Bank | ||||||||
5.000%, 01/17/2017 | 450,000 | 474,545 | ||||||
National City Corp. | ||||||||
4.900%, 01/15/2015 | 235,000 | 254,967 | ||||||
Regions Financial Corp. | ||||||||
5.750%, 06/15/2015 | 205,000 | 196,800 | ||||||
The Goldman Sachs Group, Inc. | ||||||||
7.500%, 02/15/2019 | 115,000 | 128,331 | ||||||
3,253,012 | ||||||||
Building Materials – 4.18% | ||||||||
CRH America Corp. | ||||||||
6.000%, 09/30/2016 | 160,000 | 171,363 | ||||||
Masco Corp. | ||||||||
6.125%, 10/03/2016 | 305,000 | 297,430 | ||||||
Mohawk Industries, Inc. | ||||||||
6.875%, 01/15/2016 | 255,000 | 263,288 |
The accompanying notes are an integral part of these Schedules of Investments.
46
Brandes Institutional Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Principal Amount | Value | |||||||
Owens Corning | ||||||||
6.500%, 12/01/2016 | $ | 125,000 | $ | 134,842 | ||||
USG Corp. | ||||||||
6.300%, 11/15/2016 | 365,000 | 267,363 | ||||||
1,134,286 | ||||||||
Chemical – 1.49% | ||||||||
Lyondell Chemical Co. | ||||||||
11.000%, 05/01/2018 | 375,000 | 405,000 | ||||||
Consumer Products – 1.08% | ||||||||
Spectrum Brands, Inc. | ||||||||
9.500%, 06/15/2018(b) | 275,000 | 292,875 | ||||||
Containers & Packaging – 0.80% | ||||||||
Sealed Air Corp. | ||||||||
7.875%, 06/15/2017 | 205,000 | 215,654 | ||||||
Diversified Financial Services – 6.12% | ||||||||
American International Group, Inc. | ||||||||
6.400%, 12/15/2020 | 300,000 | 305,637 | ||||||
Bank of America Corp. | ||||||||
3.750%, 07/12/2016 | 180,000 | 163,766 | ||||||
Countrywide Financial Corp. | ||||||||
5.800%, 06/07/2012 | 455,000 | 456,310 | ||||||
Ford Motor Credit Co. LLC | ||||||||
7.000%, 10/01/2013 | 250,000 | 262,529 | ||||||
International Lease Finance Corp. | ||||||||
6.625%, 11/15/2013 | 285,000 | 276,450 | ||||||
SLM Corp. | ||||||||
5.000%, 10/01/2013 | 200,000 | 195,776 | ||||||
1,660,468 | ||||||||
Electric Utilities – 9.14% | ||||||||
Ameren Corp. | ||||||||
8.875%, 05/15/2014 | 300,000 | 339,339 | ||||||
Arizona Public Service Co. | ||||||||
8.750%, 03/01/2019 | 340,000 | 427,004 |
The accompanying notes are an integral part of these Schedules of Investments.
47
Brandes Institutional Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Principal Amount | Value | |||||||
Commonwealth Edison Co. | ||||||||
5.900%, 03/15/2036 | $ | 175,000 | $ | 209,630 | ||||
EDP Finance BV | ||||||||
4.900%, 10/01/2019(b) | 400,000 | 289,130 | ||||||
FirstEnergy Corp. | ||||||||
7.375%, 11/15/2031 | 430,000 | 530,337 | ||||||
Nisource Finance Corp. | ||||||||
5.250%, 09/15/2017 | 285,000 | 309,195 | ||||||
Oncor Electric Delivery Co. LLC | ||||||||
6.375%, 01/15/2015 | 30,000 | 34,299 | ||||||
7.000%, 09/01/2022 | 175,000 | 220,529 | ||||||
PPL Energy Supply LLC | ||||||||
6.500%, 05/01/2018 | 100,000 | 116,975 | ||||||
2,476,438 | ||||||||
Energy – 0.80% | ||||||||
Valero Energy Corp. | ||||||||
9.375%, 03/15/2019 | 170,000 | 217,851 | ||||||
Equipment – 0.14% | ||||||||
Continental Airlines 2007-1 Class A Pass Through Trust | ||||||||
Series 2007-1, 5.983%, 04/19/2022 | 37,881 | 38,070 | ||||||
Food, Beverage & Tobacco – 2.42% | ||||||||
Altria Group, Inc. | ||||||||
9.700%, 11/10/2018 | 150,000 | 198,779 | ||||||
Chiquita Brands International, Inc. | ||||||||
7.500%, 11/01/2014 | 70,000 | 69,125 | ||||||
Pilgrim’s Pride Corp. | ||||||||
7.875%, 12/15/2018(b) | 230,000 | 175,375 | ||||||
Tyson Foods, Inc. | ||||||||
6.850%, 04/01/2016 | 195,000 | 212,062 | ||||||
655,341 | ||||||||
Homebuilders – 3.73% | ||||||||
Centex Corp. | ||||||||
6.500%, 05/01/2016 | 80,000 | 76,000 | ||||||
Lennar Corp. | ||||||||
5.600%, 05/31/2015 | 290,000 | 263,900 |
The accompanying notes are an integral part of these Schedules of Investments.
48
Brandes Institutional Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Principal Amount | Value | |||||||
Pulte Group, Inc. | ||||||||
5.200%, 02/15/2015 | $ | 440,000 | $ | 398,200 | ||||
Toll Brothers Finance Corp. | ||||||||
5.150%, 05/15/2015 | 270,000 | 272,301 | ||||||
1,010,401 | ||||||||
Insurance – 1.42% | ||||||||
CNA Financial Corp. | ||||||||
7.350%, 11/15/2019 | 125,000 | 138,424 | ||||||
5.875%, 08/15/2020 | 110,000 | 113,025 | ||||||
Marsh & McLennan Cos, Inc. | ||||||||
5.750%, 09/15/2015 | 120,000 | 133,668 | ||||||
385,117 | ||||||||
Leisure Time – 0.47% | ||||||||
Royal Caribbean Cruises Ltd. | ||||||||
7.000%, 06/15/2013 | 125,000 | 127,188 | ||||||
Media – 0.66% | ||||||||
The McGraw Hill Cos, Inc. | ||||||||
5.900%, 11/15/2017 | 15,000 | 16,221 | ||||||
Virgin Media Finance Plc | ||||||||
9.500%, 08/15/2016 | 150,000 | 162,000 | ||||||
178,221 | ||||||||
Oil & Gas – 3.18% | ||||||||
Anadarko Petroleum Corp. | ||||||||
5.950%, 09/15/2016 | 435,000 | 475,803 | ||||||
El Paso Corp. | ||||||||
7.000%, 06/15/2017 | 90,000 | 100,815 | ||||||
Transocean, Inc. | ||||||||
5.250%, 03/15/2013 | 275,000 | 286,441 | ||||||
863,059 | ||||||||
Retail – 0.73% | ||||||||
Marks & Spencer PLC | ||||||||
7.125%, 12/01/2037(b) | 185,000 | 198,208 |
The accompanying notes are an integral part of these Schedules of Investments.
49
Brandes Institutional Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Principal Amount | Value | |||||||
Technology, Equipment & Services – 0.55% | ||||||||
Unisys Corp. | ||||||||
12.500%, 01/15/2016 | $ | 140,000 | $ | 149,100 | ||||
Telecommunications – 1.96% | ||||||||
Telecom Italia Capital SA | ||||||||
6.999%, 06/04/2018 | 85,000 | 85,172 | ||||||
Verizon New York, Inc. | ||||||||
6.875%, 04/01/2012 | 430,000 | 442,496 | ||||||
527,668 | ||||||||
TOTAL CORPORATE BONDS (Cost $13,206,458) | $ | 14,118,082 |
Contracts | Value | |||||||
WARRANTS – 0.00% | ||||||||
Semiconductors – 0.00% | ||||||||
MagnaChip Semiconductor Corp. | ||||||||
Expiration Date: November 2014, Exercise Price: $1.97(c) | 870 | $ | — | |||||
TOTAL WARRANTS (Cost $8,748) | $ | — |
Principal Amount | Value | |||||||
SHORT TERM INVESTMENTS – 5.04% | ||||||||
COMMERCIAL PAPER – 2.21% | ||||||||
General Electric Commercial Paper | ||||||||
0.100%, 12/13/11 | $ | 599,877 | $ | 599,877 | ||||
Repurchase Agreements – 2.83% | ||||||||
State Street Bank and Trust Repurchase Agreement, (Dated 9/30/2011), due 10/1/11, 0.01%, [Collateralized by $765,000 United States Treasury Bill, 5/15/2013, 1.375% (Market Value $782,539] (proceeds $765,972) | 765,971 | 765,971 | ||||||
TOTAL SHORT TERM INVESTMENTS (Cost $1,365,910) | $ | 1,365,848 | ||||||
Total Investments (Cost $26,103,756) – 100.77% | $ | 27,313,196 | ||||||
Liabilities in Excess of Other Assets – (0.77)% | (208,220) | |||||||
TOTAL NET ASSETS – 100.00% | $ | 27,104,976 |
The accompanying notes are an integral part of these Schedules of Investments.
50
Brandes Institutional Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — September 30, 2011 – (continued)
Percentages are stated as a percent of net assets.
(a) | Non-income producing security. |
(b) | Security was purchased exempt from registration in the U.S. pursuant to Rule 144A of the Securities Act of 1933 (the “Act”) or was acquired in a private placement, and, unless registered under the Act, may only be sold to “qualified institutional buyers” (as defined in the Act or pursuant to another exemption from registration.) The market values of these securities total $966,304, which represents 3.57% of total net assets. |
(c) | The prices for these securities were derived from an estimate of fair market value pursuant to procedures approved by the Fund’s Board of Trustees. These securities represent $0 or 0.00% of the Fund’s net assets. |
(d) | Security purchased on a delayed delivery or when-issued basis. Rate shown is as of issue date. |
(e) | Security pledged as collateral for when-issue purchase commitments outstanding as of September 30, 2011. |
The accompanying notes are an integral part of these Schedules of Investments.
51
Brandes Investment Trust
STATEMENT OF ASSETS AND LIABILITIES — September 30, 2011
Brandes Institutional International Equity Fund | Brandes Institutional Global Equity Fund | Brandes Institutional Emerging Markets Fund | Brandes Institutional Core Plus Fixed Income Fund | |||||||||||||
ASSETS | ||||||||||||||||
Investments in securities, at value(1) | $ | 451,572,577 | $ | 36,310,909 | $ | 110,100,457 | $ | 27,313,196 | ||||||||
Foreign currency(1) | 166,070 | 55,937 | 54,231 | — | ||||||||||||
Receivables: | ||||||||||||||||
Securities sold | 49,360 | — | — | — | ||||||||||||
Fund shares sold | 4,928,873 | 204,813 | 390,573 | 123,620 | ||||||||||||
Dividends and interest | 3,561,696 | 189,584 | 1,202,700 | 320,587 | ||||||||||||
Tax reclaims | 862,773 | 14,894 | 2,992 | — | ||||||||||||
Due from Advisor | — | — | — | 9,820 | ||||||||||||
Prepaid expenses and other assets | 63,336 | 25,996 | 37,882 | 7,112 | ||||||||||||
Total Assets | 461,204,685 | 36,802,133 | 111,788,835 | 27,774,335 | ||||||||||||
LIABILITIES | ||||||||||||||||
Payables: | ||||||||||||||||
Securities purchased | — | 119,871 | 1,236,459 | 594,095 | ||||||||||||
Fund shares redeemed | 1,571,519 | 1,320 | 101,042 | 1,007 | ||||||||||||
Due to advisor | 399,935 | 3,481 | 58,735 | — | ||||||||||||
12b-1 fee | — | 2 | 8,474 | — | ||||||||||||
Trustee fees | 15,621 | 18,027 | 17,778 | 17,809 | ||||||||||||
Dividends payable | — | — | — | 14,202 | ||||||||||||
Accrued expenses | 162,352 | 47,604 | 87,149 | 42,246 | ||||||||||||
Total Liabilities | 2,149,427 | 190,305 | 1,509,637 | 669,359 | ||||||||||||
NET ASSETS | $ | 459,055,258 | $ | 36,611,828 | $ | 110,279,198 | $ | 27,104,976 | ||||||||
COMPONENTS OF NET ASSETS | ||||||||||||||||
Paid-in capital | $ | 650,703,459 | $ | 37,252,738 | $ | 135,684,280 | $ | 25,225,899 | ||||||||
Undistributed net investment income | 19,335,345 | 861,262 | 914,297 | 95,583 | ||||||||||||
Accumulated net realized gain (loss) on investments and foreign currency | (85,261,416 | ) | 2,120,393 | 3,535,312 | 574,054 | |||||||||||
Net unrealized appreciation (depreciation) on: | ||||||||||||||||
Investments | (125,774,561 | ) | (3,622,057 | ) | (29,820,686 | ) | 1,209,440 | |||||||||
Foreign currency | 52,431 | (508 | ) | (34,005 | ) | — | ||||||||||
Total Net Assets | $ | 459,055,258 | $ | 36,611,828 | $ | 110,279,198 | $ | 27,104,976 |
The accompanying notes to financial statements are an integral part of this statement.
52
Brandes Investment Trust
STATEMENT OF ASSETS AND LIABILITIES — September 30, 2011 – (continued)
Brandes Institutional International Equity Fund | Brandes Institutional Global Equity Fund | Brandes Institutional Emerging Markets Fund | Brandes Institutional Core Plus Fixed Income Fund | |||||||||||||
Net asset value, offering price and redemption proceeds per share | ||||||||||||||||
Class I Shares | ||||||||||||||||
Net Assets | $ | 454,695,122 | $ | 36,408,094 | $ | 71,884,806 | $ | 23,259,580 | ||||||||
Shares outstanding (unlimited shares authorized without par value) | 34,994,988 | 1,894,492 | 9,144,770 | 2,486,359 | ||||||||||||
Offering and redemption price | $ | 12.99 | $ | 19.22 | $ | 7.86 | $ | 9.35 | ||||||||
Class E Shares | ||||||||||||||||
Net Assets | $ | 4,360,058 | $ | 192,988 | N/A | $ | 3,845,396 | |||||||||
Shares outstanding (unlimited shares authorized without par value) | 336,103 | 10,090 | N/A | 410,634 | ||||||||||||
Offering and redemption price | $ | 12.97 | $ | 19.13 | N/A | $ | 9.36 | |||||||||
Class S Shares | ||||||||||||||||
Net Assets | $ | 78 | $ | 10,746 | $ | 38,394,392 | N/A | |||||||||
Shares outstanding (unlimited shares authorized without par value) | 6 | 560 | 4,890,269 | N/A | ||||||||||||
Offering and redemption price | $ | 13.00 * | $ | 19.19 * | $ | 7.85 | N/A | |||||||||
(1) Cost of: | ||||||||||||||||
Investments in securities | $ | 577,342,849 | $ | 39,932,369 | $ | 139,921,168 | $ | 26,103,756 | ||||||||
Foreign currency | 170,359 | 56,533 | 54,206 | — |
* | Differences in the calculation of the offering and redemption prices are due to rounding of the Net Assets and the shares outstanding. |
The accompanying notes to financial statements are an integral part of this statement.
53
Brandes Investment Trust
STATEMENT OF OPERATIONS — For the Periods Ended September 30, 2011
Brandes Institutional International Equity Fund | Brandes Institutional Global Equity Fund | Brandes Institutional Emerging Markets Fund* | Brandes Institutional Core Plus Fixed Income Fund | |||||||||||||
INVESTMENT INCOME | ||||||||||||||||
Income | ||||||||||||||||
Dividend income | $ | 30,047,358 | $ | 1,541,801 | $ | 2,524,126 | $ | 1,204 | ||||||||
Less: foreign taxes withheld | (3,546,296 | ) | (130,081 | ) | (223,257 | ) | — | |||||||||
Interest income | 77,332 | 103 | 948 | 1,514,617 | ||||||||||||
Income from securities lending | 432,007 | — | — | — | ||||||||||||
Miscellaneous income | — | — | 1,119 | — | ||||||||||||
Total income | 27,010,401 | 1,411,823 | 2,302,936 | 1,515,821 | ||||||||||||
Expenses | ||||||||||||||||
Advisory fees (Note 3) | 7,252,466 | 341,937 | 626,597 | 94,649 | ||||||||||||
Custody fees | 115,460 | 7,457 | 27,855 | 4,773 | ||||||||||||
Administration fees (Note 3) | 217,618 | 12,787 | 19,567 | 7,991 | ||||||||||||
Insurance expense | 62,261 | 4,086 | 1,712 | 2,440 | ||||||||||||
Legal fees | 42,891 | 43,074 | 19,332 | 43,054 | ||||||||||||
Printing fees | 57,386 | 6,404 | 12,120 | 2,400 | ||||||||||||
Miscellaneous | 130,467 | 8,784 | 9,323 | 6,025 | ||||||||||||
Registration expense | 50,611 | 40,231 | 16,207 | 31,836 | ||||||||||||
Trustee fees | 68,626 | 60,707 | 46,435 | 60,329 | ||||||||||||
Transfer agent fees | 150,574 | 46,060 | 53,387 | 34,934 | ||||||||||||
12b-1 Fees – Class S | — | 14 | 56,174 | — | ||||||||||||
Shareholder Service Fees – Class E | 5,489 | — | — | 6,530 | ||||||||||||
Shareholder Service Fees – Class I | — | — | — | 3,947 | ||||||||||||
Accounting fees | 124,353 | 15,407 | 19,223 | 16,687 | ||||||||||||
Auditing fees | 30,100 | 28,253 | 28,375 | 28,258 | ||||||||||||
Organizational costs | — | — | 19,194 | — | ||||||||||||
Total expenses | 8,308,302 | 615,201 | 955,501 | 343,853 | ||||||||||||
Less reimbursement / waiver | — | (187,218 | ) | (163,603 | ) | (204,045 | ) | |||||||||
Total expenses net of reimbursement / waiver | 8,308,302 | 427,983 | 791,898 | 139,808 | ||||||||||||
Net investment income | 18,702,099 | 983,840 | 1,511,038 | 1,376,013 | ||||||||||||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||||||||||||||
Net realized gain (loss) on: | ||||||||||||||||
Investments | (35,480,644 | ) | 2,361,126 | (194,805 | ) | 831,675 | ||||||||||
In-kind redemptions | — | — | (942,195 | ) | — | |||||||||||
Payments by Affiliate | — | — | 5,862 | — | ||||||||||||
Foreign currency transactions | 215,418 | 12,007 | (279,291 | ) | — | |||||||||||
Net realized gain (loss) | (35,265,226 | ) | 2,373,133 | (1,410,429 | ) | 831,675 | ||||||||||
Net change in unrealized appreciation on: | ||||||||||||||||
Investments and foreign currency | (36,115,793 | ) | (5,398,488 | ) | (29,820,686 | ) | (1,142,879 | ) | ||||||||
Foreign currency transactions | (2,175 | ) | (1,811 | ) | (34,005 | ) | — | |||||||||
Net unrealized depreciation | (36,117,968 | ) | (5,400,299 | ) | (29,854,691 | ) | (1,142,879 | ) | ||||||||
Net realized and unrealized loss on investments and foreign currency transactions | (71,383,194 | ) | (3,027,166 | ) | (31,265,120 | ) | (311,204 | ) | ||||||||
Net increase (decrease) in net assets resulting from operations | $ | (52,681,095 | ) | $ | (2,043,326 | ) | $ | (29,754,082 | ) | $ | 1,064,809 |
* | Commenced operations on January 31, 2011. |
The accompanying notes to financial statements are an integral part of this statement.
54
Brandes Investment Trust
STATEMENTS OF CHANGES IN NET ASSETS
Brandes Institutional International Equity Fund | Brandes Institutional Global Equity Fund | Brandes Institutional Emerging Markets Fund* | Brandes Institutional Core Plus Fixed Income Fund | |||||||||||||||||||||||||||||
Year Ended September 30, 2011 | Year Ended September 30, 2010 | Year Ended September 30, 2011 | Year Ended September 30, 2010 | Period Ended September 30, 2011 | Year Ended September 30, 2011 | Year Ended September 30, 2010 | ||||||||||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM: | ||||||||||||||||||||||||||||||||
OPERATIONS | ||||||||||||||||||||||||||||||||
Net investment income | $ | 18,702,099 | $ | 16,157,155 | $ | 983,840 | $ | 775,052 | $ | 1,511,038 | $ | 1,376,013 | $ | 1,534,094 | ||||||||||||||||||
Net realized gain (loss) on: | ||||||||||||||||||||||||||||||||
Investments | (35,480,644 | ) | (15,577,773 | ) | 2,361,126 | 2,595,495 | (194,805 | ) | 831,675 | 348,884 | ||||||||||||||||||||||
In-kind redemptions | — | (31,914,754 | ) | — | — | (942,195 | ) | — | — | |||||||||||||||||||||||
Payments by Affiliate | — | — | — | — | 5,862 | — | — | |||||||||||||||||||||||||
Foreign currency transactions | 215,418 | (160,909 | ) | 12,007 | (804 | ) | (279,291 | ) | — | — | ||||||||||||||||||||||
Net unrealized appreciation (depreciation) on: | ||||||||||||||||||||||||||||||||
Investments | (36,115,793 | ) | 34,875,688 | (5,398,488 | ) | (1,818,634 | ) | (29,820,686 | ) | (1,142,879 | ) | 1,431,600 | ||||||||||||||||||||
Foreign currency transactions | (2,175 | ) | (20,377 | ) | (1,811 | ) | (77 | ) | (34,005 | ) | — | — | ||||||||||||||||||||
Net increase (decrease) in net assets resulting from operations | (52,681,095 | ) | 3,359,030 | (2,043,326 | ) | 1,551,032 | (29,754,082 | ) | 1,064,809 | 3,314,578 | ||||||||||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||||||||||||||||||||||||||
From net investment income | ||||||||||||||||||||||||||||||||
Class E | (50,227 | ) | (2,220 | ) | (3,136 | ) | (1,959 | ) | N/A | (130,917 | ) | (117,303 | ) | |||||||||||||||||||
Class I | (17,285,049 | ) | (12,352,169 | ) | (792,321 | ) | (665,678 | ) | — | (1,269,592 | ) | (1,253,986 | ) | |||||||||||||||||||
From net realized gains | ||||||||||||||||||||||||||||||||
Class E | — | — | (7,671 | ) | — | N/A | (52,278 | ) | — | |||||||||||||||||||||||
Class I | — | — | (1,937,987 | ) | — | — | (438,040 | ) | — | |||||||||||||||||||||||
Decrease in net assets from distributions | (17,335,276 | ) | (12,354,389 | ) | (2,741,115 | ) | (667,637 | ) | — | (1,890,827 | ) | (1,371,289) |
The accompanying notes to financial statements are an integral part of this statement.
55
Brandes Investment Trust
STATEMENTS OF CHANGES IN NET ASSETS – (continued)
Brandes Institutional International Equity Fund | Brandes Institutional Global Equity Fund | Brandes Institutional Emerging Markets Fund* | Brandes Institutional Core Plus Fixed Income Fund | |||||||||||||||||||||||||
Year Ended September 30, 2011 | Year Ended September 30, 2010 | Year Ended September 30, 2011 | Year Ended September 30, 2010 | Period Ended September 30, 2011 | Year Ended September 30, 2011 | Year Ended September 30, 2010 | ||||||||||||||||||||||
CAPITAL SHARE TRANSACTIONS | ||||||||||||||||||||||||||||
Proceeds from shares sold | 143,394,173 | 286,051,562 | 4,364,262 | 5,791,248 | 204,933,462 | 6,116,803 | 5,290,168 | |||||||||||||||||||||
Net asset value of shares issued on reinvestment of distributions | 16,171,707 | 11,766,419 | 2,710,026 | 658,462 | — | 1,633,598 | 1,219,355 | |||||||||||||||||||||
Cost of shares redeemed | (403,096,490 | ) | (383,317,760 | ) | (6,755,970 | ) | (3,781,630 | ) | (64,900,182 | ) | (7,360,668 | ) | (5,751,698 | ) | ||||||||||||||
Net increase (decrease) in net assets from capital share transactions | (243,530,610 | ) | (85,499,779 | ) | 318,318 | 2,668,080 | 140,033,280 | 389,733 | 757,825 | |||||||||||||||||||
Total Increase (Decrease) in net assets | (313,546,981 | ) | (94,495,138 | ) | (4,466,123 | ) | 3,551,475 | 110,279,198 | (436,285 | ) | 2,701,114 | |||||||||||||||||
NET ASSETS | ||||||||||||||||||||||||||||
Beginning of the Period | 772,602,239 | 867,097,377 | 41,077,951 | 37,526,476 | — | 27,541,261 | 24,840,147 | |||||||||||||||||||||
End of the Period | $ | 459,055,258 | $ | 772,602,239 | $ | 36,611,828 | $ | 41,077,951 | $ | 110,279,198 | $ | 27,104,976 | $ | 27,541,261 | ||||||||||||||
Undistributed net investment income | $ | 19,335,345 | $ | 15,996,246 | $ | 861,262 | $ | 660,872 | $ | 914,297 | $ | 95,583 | $ | 28,776 |
* | Commenced operations on January 31, 2011. |
The accompanying notes to financial statements are an integral part of this statement.
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57
Brandes Investment Trust
FINANCIAL HIGHLIGHTS
For a capital share outstanding for the period ended:
Net asset value, beginning of period | Net investment income | Net realized and unrealized gain/(loss) on investments | Net increase from payments by affiliates | Total from investment operations | Dividends from net investment income | Dividends from net realized gains | ||||||||||||||||||||||
Brandes Institutional International Equity Fund | ||||||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||||||
9/30/2011 | $ | 14.92 | 0.40 | (5) | (1.98 | ) | — | (1.58 | ) | (0.35 | ) | — | ||||||||||||||||
9/30/2010 | $ | 15.24 | 0.32 | (5) | (0.38 | ) | — | (0.06 | ) | (0.26 | ) | — | ||||||||||||||||
9/30/2009 | $ | 17.43 | 0.26 | (0.80 | ) | — | (0.54 | ) | (0.47 | ) | (1.18 | ) | ||||||||||||||||
9/30/2008 | $ | 26.51 | 0.61 | (5.95 | ) | — | (5.34 | ) | (0.45 | ) | (3.29 | ) | ||||||||||||||||
9/30/2007 | $ | 24.73 | 0.40 | 3.98 | — | 4.38 | (0.32 | ) | (2.28 | ) | ||||||||||||||||||
Class E | ||||||||||||||||||||||||||||
9/30/2011 | $ | 14.91 | 0.37 | (5) | (1.96 | ) | — | (1.59 | ) | (0.35 | ) | — | ||||||||||||||||
9/30/2010 | $ | 15.24 | 0.33 | (5) | (0.40 | ) | — | (0.07 | ) | (0.26 | ) | — | ||||||||||||||||
10/6/2008(3) – 9/30/2009 | $ | 16.03 | 0.32 | 0.54 | — | 0.86 | (0.47 | ) | (1.18 | ) | ||||||||||||||||||
Class S | ||||||||||||||||||||||||||||
1/31/2011(3) – 9/30/2011 | $ | 15.74 | 0.26 | (5) | (3.00 | ) | — | (2.74 | ) | — | — | |||||||||||||||||
Brandes Institutional Global Equity Fund | ||||||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||||||
9/30/2011 | $ | 21.76 | 0.51 | (5) | (1.53 | ) | — | (1.02 | ) | (0.44 | ) | (1.08 | ) | |||||||||||||||
9/30/2010 | $ | 21.24 | 0.42 | (5) | 0.48 | — | 0.90 | (0.38 | ) | — | ||||||||||||||||||
10/6/2008(3) – 9/30/2009 | $ | 20.00 | 0.39 | 0.94 | — | 1.33 | (0.09 | ) | — | |||||||||||||||||||
Class E | ||||||||||||||||||||||||||||
9/30/2011 | $ | 21.73 | 0.51 | (5) | (1.59 | ) | — | (1.08 | ) | (0.44 | ) | (1.08 | ) | |||||||||||||||
9/30/2010 | $ | 21.25 | 0.37 | (5) | 0.50 | — | 0.87 | (0.39 | ) | — | ||||||||||||||||||
10/6/2008(3) – 9/30/2009 | $ | 20.00 | 0.40 | 0.94 | — | 1.34 | (0.09 | ) | — | |||||||||||||||||||
Class S | ||||||||||||||||||||||||||||
1/31/2011(3) – 9/30/2011 | $ | 22.34 | 0.29 | (5) | (3.44 | ) | — | (3.15 | ) | — | — | |||||||||||||||||
Brandes Institutional Emerging Markets Income Fund | ||||||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||||||
1/31/2011(3) – 9/30/2011 | $ | 10.00 | 0.15 | (5) | (2.29 | ) | — | (7) | (2.14 | ) | — | — | ||||||||||||||||
Class S | ||||||||||||||||||||||||||||
1/31/2011(3) – 9/30/2011 | $ | 10.00 | 0.14 | (5) | (2.29 | ) | — | (7) | (2.15 | ) | — | — | ||||||||||||||||
Brandes Institutional Core Plus Fixed Income Fund | ||||||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||||||
9/30/2011 | $ | 9.65 | 0.49 | (5) | (0.12 | ) | — | 0.37 | (0.50 | ) | (0.17 | ) | ||||||||||||||||
9/30/2010 | $ | 8.95 | 0.56 | (5) | 0.64 | — | 1.20 | (0.50 | ) | — | ||||||||||||||||||
9/30/2009 | $ | 8.69 | 0.49 | 0.25 | — | 0.74 | (0.48 | ) | — | |||||||||||||||||||
12/28/2007(3) – 9/30/2008 | $ | 10.00 | 0.44 | (1.33 | ) | 0.02 | (0.87 | ) | (0.44 | ) | — | |||||||||||||||||
Class E | ||||||||||||||||||||||||||||
9/30/2011 | $ | 9.66 | 0.47 | (5) | (0.12 | ) | — | 0.35 | (0.48 | ) | (0.17 | ) | ||||||||||||||||
9/30/2010 | $ | 8.96 | 0.54 | (5) | 0.64 | — | 1.18 | (0.48 | ) | — | ||||||||||||||||||
9/30/2009 | $ | 8.70 | 0.47 | 0.25 | — | 0.72 | (0.46 | ) | — | |||||||||||||||||||
5/28/2008(3) – 9/30/2008 | $ | 9.99 | 0.24 | (1.31 | ) | 0.02 | (1.05 | ) | (0.24 | ) | — |
(1) | Not annualized. |
(2) | Annualized. |
(3) | Commencement of operations. |
(4) | After fees reimbursed/waived and expenses absorbed or recouped by the Advisor, where applicable. |
(5) | Net investment income (loss) per share has been calculated based on average shares outstanding during the period. |
(6) | The Funds’ total return includes a voluntary reimbursement by the Advisor for a realized investment loss on a transaction not meeting the Fund’s investment guidelines. The return for the Core Fund Class I and E shares would have been (9.21)% and (10.82)%, respectively. The return for the Emergency Fund Class I and S shares was not affected by the reimbursement. See Note 2K in the Notes to Financial Statements. |
(7) | Amount is less than $0.01 per share. |
58
Net asset value, end of period | Total return | Net assets, end of period (millions) | Ratio of net expenses to average net assets(4) | Ratio of net investment income to average net assets(4) | Ratio of expenses (prior to reimbursements/ waivers) to average net assets | Ratio of net investment income (prior to reimbursements/ waivers) to average net assets | Portfolio turnover rate | |||||||||||||||||||||||||
Brandes Institutional International Equity Fund | ||||||||||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||||||||||
9/30/2011 | $ | 12.99 | (10.95 | )% | $ | 454.7 | 1.14 | % | 2.58 | % | 1.14 | % | 2.58 | % | 4.99 | % | ||||||||||||||||
9/30/2010 | $ | 14.92 | (0.37 | )% | $ | 771.7 | 1.13 | % | 2.19 | % | 1.13 | % | 2.19 | % | 29.15 | % | ||||||||||||||||
9/30/2009 | $ | 15.24 | (0.88 | )% | $ | 867.0 | 1.16 | % | 2.27 | % | 1.16 | % | 2.27 | % | 19.86 | % | ||||||||||||||||
9/30/2008 | $ | 17.43 | (23.42 | )% | $ | 764.4 | 1.13 | % | 2.76 | % | 1.13 | % | 2.76 | % | 26.40 | % | ||||||||||||||||
9/30/2007 | $ | 26.51 | 18.65 | % | $ | 1,067.4 | 1.12 | % | 1.61 | % | 1.12 | % | 1.61 | % | 29.06 | % | ||||||||||||||||
Class E | ||||||||||||||||||||||||||||||||
9/30/2011 | $ | 12.97 | (11.04 | )% | $ | 4.4 | 1.32 | % | 2.40 | % | 1.32 | % | 2.40 | % | 4.99 | % | ||||||||||||||||
9/30/2010 | $ | 14.91 | (0.44 | )% | $ | 0.9 | 1.19 | % | 2.33 | % | 1.19 | % | 2.33 | % | 29.15 | % | ||||||||||||||||
10/6/2008(3) – 9/30/2009 | $ | 15.24 | 7.78 | %(1) | $ | 0.1 | 1.16 | %(2) | 2.35 | %(2) | 1.16 | %(2) | 2.35 | %(2) | 19.86 | %(1) | ||||||||||||||||
Class S | ||||||||||||||||||||||||||||||||
1/31/2011(3) – 9/30/2011 | $ | 13.00 | (17.41 | )%(1) | $ | — | 1.30 | %(2) | 2.54 | %(2) | 1.30 | %(2) | 2.54 | %(2) | 4.99 | %(1) | ||||||||||||||||
Brandes Institutional Global Equity Fund | ||||||||||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||||||||||
9/30/2011 | $ | 19.22 | (5.51 | )% | $ | 36.4 | 1.00 | % | 2.30 | % | 1.44 | % | 1.86 | % | 23.94 | % | ||||||||||||||||
9/30/2010 | $ | 21.76 | 4.28 | % | $ | 41.0 | 1.00 | % | 2.00 | % | 1.41 | % | 1.58 | % | 16.87 | % | ||||||||||||||||
10/6/2008(3) – 9/30/2009 | $ | 21.24 | 6.72 | %(1) | $ | 37.4 | 1.00 | %(2) | 2.45 | %(2) | 1.80 | %(2) | 1.66 | %(2) | 4.05 | %(1) | ||||||||||||||||
Class E | ||||||||||||||||||||||||||||||||
9/30/2011 | $ | 19.13 | (5.80 | )% | $ | — | 1.25 | % | 2.05 | % | 1.69 | % | 1.62 | % | 23.94 | % | ||||||||||||||||
9/30/2010 | $ | 21.73 | 4.08 | % | $ | 0.1 | 1.20 | % | 1.77 | % | 1.41 | % | 1.56 | % | 16.87 | % | ||||||||||||||||
10/6/2008(3) – 9/30/2009 | $ | 21.25 | 6.77 | %(1) | $ | 0.1 | 1.20 | %(2) | 2.29 | %(2) | 1.83 | %(2) | 1.67 | %(2) | 4.05 | %(1) | ||||||||||||||||
Class S | ||||||||||||||||||||||||||||||||
1/31/2011(3) – 9/30/2011 | $ | 19.19 | (14.10 | )%(1) | $ | — | 1.25 | %(2) | 2.05 | %(2) | 1.69% | (2) | 1.61 | %(2) | 23.94 | %(1) | ||||||||||||||||
Brandes Institutional Emerging Markets Income Fund | ||||||||||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||||||||||
1/31/2011(3) – 9/30/2011 | $ | 7.86 | (21.40 | )%(1),(6) | $ | 71.9 | 1.12 | % | 2.38 | % | 1.36 | % | 2.13 | % | 94.70 | %(1) | ||||||||||||||||
Class S | ||||||||||||||||||||||||||||||||
1/31/2011(3) – 9/30/2011 | $ | 7.85 | (21.50 | )%(1),(6) | $ | 38.4 | 1.37 | %(2) | 2.13 | %(2) | 1.61 | %(2) | 1.88 | %(2) | 94.70 | %(1) | ||||||||||||||||
Brandes Institutional Core Plus Fixed Income Fund | ||||||||||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||||||||||
9/30/2011 | $ | 9.35 | 3.94 | % | $ | 23.2 | 0.50 | % | 5.11 | % | 1.25 | % | 4.36 | % | 91.18 | % | ||||||||||||||||
9/30/2010 | $ | 9.65 | 13.73 | % | $ | 24.8 | 0.50 | % | 5.97 | % | 1.25 | % | 5.22 | % | 150.89 | % | ||||||||||||||||
9/30/2009 | $ | 8.95 | 9.07 | % | $ | 23.9 | 0.50 | % | 5.97 | % | 2.20 | % | 4.27 | % | 22.06 | % | ||||||||||||||||
12/28/2007(3) – 9/30/2008 | $ | 8.69 | (9.00 | )%(1),(6) | $ | 4.7 | 0.50 | %(2) | 6.04 | %(2) | 7.93 | %(2) | -1.39 | %(2) | 404.25 | %(1) | ||||||||||||||||
Class E | ||||||||||||||||||||||||||||||||
9/30/2011 | $ | 9.36 | 3.72 | % | $ | 3.8 | 0.70 | % | 4.90 | % | 1.48 | % | 4.12 | %(2) | 91.18 | % | ||||||||||||||||
9/30/2010 | $ | 9.66 | 13.47 | % | $ | 2.7 | 0.70 | % | 5.77 | % | 1.48 | % | 4.99 | % | 150.89 | % | ||||||||||||||||
9/30/2009 | $ | 8.96 | 8.86 | % | $ | 1.0 | 0.70 | % | 5.95 | % | 1.84 | % | 4.81 | % | 22.06 | % | ||||||||||||||||
5/28/2008(3) – 9/30/2008 | $ | 8.70 | (10.62 | )%(1),(6) | $ | 0.0 | 0.70 | %(2) | 8.54 | %(2) | 7.19 | %(2) | 2.05 | %(2) | 404.25 | %(1) |
59
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION
The Brandes Institutional International Equity Fund (the “International Fund”), the Brandes Institutional Global Equity Fund (the “Global Fund”), the Brandes Institutional Emerging Markets Fund (the “Emerging Markets Fund) and the Brandes Institutional Core Plus Fixed Income Fund (the “Core Plus Fund”) (each a “Fund�� and collectively the “Funds”) are series of Brandes Investment Trust (the “Trust”). The Trust is registered under the Investment Company Act of 1940 (the “1940 Act”) as a diversified, open-end management investment company. The International Fund, Global Fund and Emerging Markets Funds began operations on January 2, 1997, October 6, 2008 and January 31, 2011, respectively. Prior to January 31, 2011, the Emerging Markets Fund was managed as a private investment fund with an investment objective, investment policies and strategies that were, in all material respects, equivalent to those of the Emerging Markets Fund. The International Fund and Global Fund have three classes of shares: Class I, Class E and Class S. The Emerging Markets Fund has two classes of shares: Class I and Class S. The Core Plus Fund began operations on December 28, 2007, and has two classes of shares: Class I and Class E. The International Fund and Global Fund invest their assets primarily in equity securities of issuers with market capitalizations greater than $1 billion. The International and Emerging Markets Funds invest their assets in securities of foreign companies, while the Global Fund invests its assets in securities of foreign and domestic companies. The Core Plus Fund seeks to achieve long-term capital appreciation.
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. | Repurchase Agreements. Each Fund may enter into repurchase agreements with government securities dealers recognized by the Federal Reserve Board, with member banks of the Federal Reserve System or with other brokers or dealers that meet the credit guidelines established by the Board of Trustees. Each Fund will always receive and maintain, as collateral, U.S. Government securities whose market value, including accrued interest (which is recorded in the Schedules of Investments), will be at least equal to 100% of the dollar amount invested by the Fund in each agreement, and the Fund will make payment for such securities only upon physical delivery or upon evidence of book entry transfer to the account of the Fund’s custodian. To the extent that the term of any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to ensure the adequacy of the collateral. Before causing a Fund to enter into a repurchase agreement, Brandes will determine that such party does not have any apparent risk of becoming involved in bankruptcy proceedings within the time frame contemplated by the repurchase agreement. If the seller defaults and the value of the collateral declines, or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited. |
60
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
B. | Foreign Currency Translation and Transactions. Values of investments denominated in foreign currencies are converted into U.S. dollars using the spot market rates of exchange at the time of valuation. Purchases and sales of investments and dividend and interest income are translated into U.S. dollars using the spot market rates of exchange prevailing on the respective dates of such translations. The gain or loss resulting from changes in foreign exchange rates is included with net realized and unrealized gain or loss from investments, as appropriate. Foreign securities and currency transactions may involve certain considerations and risks not typically associated with those of domestic origin. |
Foreign securities are recorded in the financial statements after translation to U.S. dollars based on the applicable exchange rate at the end of the period. The Funds report certain foreign currency-related transactions as components of realized gains or losses for financial reporting purposes, whereas such components are treated as ordinary income for federal income tax purposes.
C. | Delayed Delivery Securities. The Funds may purchase securities on a when-issued or delayed delivery basis. “When-issued” or delayed delivery refers to securities whose terms are available and for which a market exists, but that have not been issued. For a when-issued or delayed delivery transaction, no payment is made until delivery date, which is typically longer than the normal course of settlement. When a Fund enters into an agreement to purchase securities on a when-issued or delayed delivery basis, the Fund segregates cash or liquid securities, of any type or maturity, equal in value to the Fund’s commitment. Losses may arise if the market value of the underlying securities change, if the counterparty does not perform under the contract, or if the issuer does not issue the securities due to political, economic, or other factors. |
D. | Participatory Notes. The International, Global and Emerging Markets Funds may invest in participatory notes. Participatory notes are derivative securities which are designed to provide synthetic exposure to one or more underlying security or securities, subject to the credit risk of the issuing financial institution. |
Investments in participatory notes involve risks normally associated with a direct investment in the underlying securities. In addition, participatory notes are subject to counterparty risk, which is the risk that the broker-dealer or bank that issues the notes will not fulfill its contractual obligation to complete the transaction with the Trust. Participatory notes constitute general unsecured, unsubordinated contractual obligations of the banks or broker-dealers that issue them. The Trust is relying on the creditworthiness of such banks or broker-dealers and has no rights under a participatory note against the issuer of the securities underlying such participatory note. The advisor has established guidelines for monitoring participatory note exposure for the Funds. Prior to investment in a participatory note, the advisor will complete an analysis of the prospective counterparties and once purchased, will continue to monitor creditworthiness on a quarterly basis. The advisor requires a minimum credit rating for such counterparties (as determined by rating agencies such as: Moody’s, Fitch and S&P) of A.
61
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
The Funds record counterparty credit risk valuation adjustments, if material, on certain derivative assets in order to appropriately reflect the credit quality of the counterparty. During the periods ended September 30, 2011, the Funds did not make any counterparty credit risk valuation adjustments.
The International and Global Funds did not invest in any participatory notes during the period ended September 30, 2011. The Emerging Markets Fund invested in a participatory note with HSBC Bank Plc in which HSBC Bank Plc is an investment vehicle used to purchase an underlying security, Etihad Etisalat Co. The average monthly market value of this security was $1,736,840 during the period ended September 30, 2011. As a result of the investment in the participation note, the Emerging Markets Fund recognized a net unrealized gain of $15,559 and no realized gain (loss). The market value of the security on September 30, 2011 was $1,738,214 and can be found in the Emerging Market Fund’s Schedule of Investments.
E. | Security Transactions, Dividends and Distributions. Security transactions are accounted for on the trade dates. Realized gains and losses are evaluated on the bases of identified costs. Dividend income and distributions to shareholders are recorded on the ex-dividend dates. Interest is recorded on an accrual basis. Withholding taxes on foreign dividends and capital gains, which are included as a component of net investment income and realized gain (loss) on investments, respectively, have been provided for in accordance with the Trust’s understanding of the applicable country’s tax rules and rates. Each Fund’s investment income, expenses, other than class specific expenses, and realized and unrealized gains and losses are allocated daily to each class of the Fund’s shares based upon the relative net asset values of outstanding shares of each class of shares at the beginning of the day (after adjusting for the current capital shares activity of the respective class). Expenses common to the Funds’ portfolios are allocated among the Funds based upon their relative net asset values or other appropriate allocation methods. The Funds amortize premiums and accrete discounts using the constant yield method. |
F. | Concentration of Risk. As of September 30, 2011, the International, Global and Emerging Markets Funds held a significant portion of their assets in foreign securities. Certain price and foreign exchange fluctuations as well as economic and political situations in the foreign jurisdictions could have an impact on the International, Global and Emerging Markets Funds’ net assets. It is the Trust’s policy to monitor these off-balance sheet risks. |
G. | 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 and revenue and expenses and disclosure of contingent assets and liabilities and revenue and expenses at the date of the financial statements. Actual results could differ from those estimates. |
62
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
H. | Securities Lending. The Funds may lend their portfolio securities to banks, brokers and dealers. Lending Fund securities exposes the Fund to risks such as the following: (i) the borrower may fail to return the loaned securities, (ii) the borrower may not be able to provide additional collateral, or (iii) the Fund may experience delays in recovery of the loaned securities or loss of rights in the collateral if the borrower fails financially. To minimize these risks, the borrower must agree to maintain collateral with the Fund’s custodian, marked to market daily, in the form of cash and/or U.S. Government obligations, in an amount at least equal to 102% (105% in the case of loans of foreign securities not denominated in U.S. dollars) of the market value of the loaned securities. As of September 30, 2011, the Funds did not have any securities on loan. |
I. | Indemnification Obligations. Under the Trust’s organizational documents, its current and former officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties and provide general indemnifications. 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 or that would be covered by other parties. |
J. | Accounting for Uncertainty in Income 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. The Funds may be subject to a nondeductible excise tax calculated as a percentage of certain undistributed amounts of net investment income and net capital gains. The Funds intend to distribute their net investment income and capital gains as necessary to avoid this excise tax. Therefore, no provision for federal income taxes or excise taxes has been made. |
The Funds have adopted financial reporting rules that require the Funds to analyze all open tax years, as defined by the applicable statute of limitations, for all major jurisdictions. Open tax years for the Funds are those that are open for exam by taxing authorities (2008 through 2011). As of September 30, 2011 the Funds have no examinations in progress.
Management has analyzed the Funds’ tax positions, and has concluded that no liability should be recorded related to uncertain tax positions expected to be taken on the tax return for the fiscal year-end September 30, 2011. The Funds identify their major tax jurisdictions as U.S. Federal and the State of California. The Funds are not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
K. | Payment by Affiliate. During the fiscal year ended September 30, 2008, the Funds’ investment advisor, Brandes Investment Partners, L.P., voluntarily reimbursed the Core Plus Fund $8,946 relating to the Fund’s purchase of a security of an affiliate of the Distributor, which violated the Fund’s investment restrictions. Additionally, during the period ended September 30, 2011, |
63
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
Brandes Investment Partners, L.P. voluntarily reimbursed the Emerging Markets Fund $5,862 relating to commissions paid by the Emerging Markets Fund to brokers for execution of certain securities transactions in relation to a redemption in kind during the period ended September 30, 2011. These reimbursements have been classified on the Financial Highlights as “Net increase from payments by affiliates”. |
L. | Fair Value Measurements. The Trust has adopted US GAAP fair value accounting standards which establish a 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 in changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below: |
Level 1 — Unadjusted quoted market prices in active markets
Level 2 — Quoted prices for similar instruments or inputs derived from observable market data. Directly observable inputs for the life of the financial instrument
Level 3 — Unobservable inputs developed using the reporting entity’s estimates and assumptions, which reflect those that market participants would use
Common and preferred stocks, exchange-traded funds and financial derivative instruments, such as futures contracts and options contracts that are traded on a national securities or commodities exchange, are valued at the last reported sales price at the close of regular trading on each day the exchange is open for trading, in the case of common stocks and exchange-traded funds, or, in the case of futures contracts or options contracts, the settlement price determined by the relevant exchange. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level 1 of the fair value hierarchy.
Securities traded on an exchange for which there have been no sales on the valuation date, are valued at the mean between last bid and ask price on such day and are categorized as Level 2 on the fair value hierarchy.
Investments in registered open-end management investment companies will be valued based upon the Net Asset Value, (“NAVs”) of such investments and are categorized as Level 1 of the fair value hierarchy. Investments in privately held investment funds will be valued based upon the NAVs of such investments and are categorized as Level 2 of the fair value hierarchy.
Valuation adjustments may be applied to certain common and preferred stocks that are solely traded on a foreign exchange to account for the market movement between the close of the foreign market and the close of the New York Stock Exchange, (“NYSE”). These securities are generally valued using pricing service providers that consider the correlation of the trading patterns of the foreign security to the intraday trading in the U.S. markets for investments. Securities using these valuation adjustments are categorized as Level 2 of the fair value hierarchy.
64
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
As of September 30, 2011, the International Equity Fund, Global Equity Fund, Emerging Markets Fund and Core Plus Fund had securities with market values of $388,614,024, $19,712,057, $61,146,795 and $0, that represents 84.66%, 53,84%, 55.45% and 0.00% of each Fund’s net assets, respectively, that were fair valued using these valuation adjustments.
Fixed income securities (other than short-term investments) including corporate, convertible and municipal bonds and notes, U.S. government agencies, U.S. Treasury obligations, sovereign issues, bank loans, convertible preferred securities, fixed income securities purchased on a delayed-delivery basis and non-U.S. bonds are normally valued on the basis of bid prices obtained from brokers and dealers or independent pricing services or sources. Independent pricing services typically use information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. The service providers’ internal models use inputs that are observable such as, among other things, issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar assets. Securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.
Mortgage and asset-backed securities are usually issued as separate tranches, or classes, of securities within each package of securities. These securities are also normally valued by pricing service providers that use broker dealer quotations or valuation estimates from their internal pricing models. The pricing models for these securities usually consider tranche-level attributes, estimated cash flows and market-based yield spreads for each tranche, and current market data and incorporate packaged, collateral performance, as available. Mortgage and asset-backed securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.
Short-term investments having a maturity of 60 days or less are generally valued at amortized cost which approximates fair market value. These investments are categorized as Level 2 of the fair value hierarchy.
Certain securities may be fair valued in accordance with the fair valuation procedures approved by the Board of Trustees. The Valuation Committee is generally responsible for overseeing the day-to-day valuation processes and reports periodically to the Board. The Valuation Committee is authorized to make all necessary determinations of the fair value of portfolio securities and other assets for which market quotations are not readily available or if it is deemed that the prices obtained from brokers and dealers or independent pricing services are unreliable. The securities fair valued by the Valuation Committee are indicated in the Schedules of Investments and are catergorized as Level 2 or Level 3.
In using fair value pricing, each Fund attempts to establish the price that it might reasonably have expected to receive upon a sale of the security at 4:00 p.m. Eastern time. Valuing securities at fair value involves greater reliance on judgment than valuation of securities based on readily available market quotations. A Fund using fair value to price securities may value those securities higher or lower than another fund using market quotations or fair value to price the same securities. Further, there can be no assurance that the Fund could obtain the fair value assigned to a security if it were to sell the security at approximately the time at which the Fund determines its net asset value.
65
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
The following is a summary of the level of inputs used, as of September 30, 2011, involving the Funds’ assets carried at fair value. The inputs used for valuing securities may not be an indication of the risk associated with investing in those securities.
Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Investments in Securities | ||||||||||||||||
International Fund | ||||||||||||||||
Equities | ||||||||||||||||
Consumer Discretionary | $ | — | $ | 46,269,999 | $ | — | $ | 46,269,999 | ||||||||
Consumer Staples | — | 55,426,412 | — | 55,426,412 | ||||||||||||
Energy | 6,798,646 | 36,540,500 | — | 43,339,146 | ||||||||||||
Financials | 20,841,875 | 54,354,194 | — | 75,196,069 | ||||||||||||
Health Care | — | 65,531,824 | — | 65,531,824 | ||||||||||||
Industrials | — | 11,038,210 | — | 11,038,210 | ||||||||||||
Information Technology | 10,169,213 | 35,370,652 | — | 45,539,865 | ||||||||||||
Materials | 3,234,762 | 7,933,116 | — | 11,167,878 | ||||||||||||
Telecommunication Services | 9,745,661 | 76,149,118 | — | 85,894,779 | ||||||||||||
Utilities | 8,850,186 | — | — | 8,850,186 | ||||||||||||
Total Equities | 59,640,343 | 388,614,025 | — | 448,254,368 | ||||||||||||
Repurchase Agreements | — | 3,318,209 | — | 3,318,209 | ||||||||||||
Total Investments in Securities | $ | 59,640,343 | $ | 391,932,234 | $ | — | $ | 451,572,577 | ||||||||
Global Fund | ||||||||||||||||
Equities | ||||||||||||||||
Consumer Discretionary | $ | 993,630 | $ | 2,074,283 | $ | — | $ | 3,067,913 | ||||||||
Consumer Staples | 1,552,593 | 3,598,555 | — | 5,151,148 | ||||||||||||
Energy | 1,764,888 | 1,999,676 | — | 3,764,564 | ||||||||||||
Financials | 3,572,190 | 2,605,919 | — | 6,178,109 | ||||||||||||
Health Care | 2,530,581 | 3,611,206 | — | 6,141,787 | ||||||||||||
Industrials | 760,692 | — | — | 760,692 | ||||||||||||
Information Technology | 4,373,886 | 1,904,075 | — | 6,277,961 | ||||||||||||
Materials | — | — | — | — | ||||||||||||
Telecommunication Services | 727,442 | 3,918,342 | — | 4,645,784 | ||||||||||||
Utilities | 127,165 | — | — | 127,165 | ||||||||||||
Total Equities | 16,403,067 | 19,712,056 | — | 36,115,123 | ||||||||||||
Repurchase Agreements | — | 195,786 | — | 195,786 | ||||||||||||
Total Investments in Securities | $ | 16,403,067 | $ | 19,907,842 | $ | — | $ | 36,310,909 |
66
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Emerging Markets Fund | ||||||||||||||||
Equities | ||||||||||||||||
Consumer Discretionary | $ | 2,442,741 | $ | 8,817,372 | $ | — | $ | 11,260,113 | ||||||||
Consumer Staples | 2,112,854 | 3,285,805 | — | 5,398,659 | ||||||||||||
Energy | 7,401,141 | 195,867 | — | 7,597,008 | ||||||||||||
Financials | 8,919,904 | 14,866,631 | — | 23,786,535 | ||||||||||||
Health Care | 396,896 | 987,095 | — | 1,383,991 | ||||||||||||
Industrials | 4,470,781 | 4,756,477 | — | 9,227,258 | ||||||||||||
Information Technology | 3,401,650 | 5,587,155 | — | 8,988,805 | ||||||||||||
Materials | 3,382,342 | 2,905,973 | — | 6,288,315 | ||||||||||||
Telecommunication Services | 8,890,093 | 10,841,605 | — | 19,731,698 | ||||||||||||
Utilities | 5,893,418 | 7,164,601 | — | 13,058,019 | ||||||||||||
Total Equities | 47,311,820 | 61,146,795 | — | 106,720,400 | ||||||||||||
Participatory Notes | — | 1,738,214 | — | 1,738,214 | ||||||||||||
Short Term Investments | 1,641,842 | — | — | 1,641,842 | ||||||||||||
Total Investments in Securities | $ | 48,953,662 | $ | 61,146,795 | $ | — | $ | 110,100,457 | ||||||||
Core Plus Fund | ||||||||||||||||
Equities | $ | 13,385 | $ | 10,716 | $ | — | $ | 24,101 | ||||||||
Asset Backed Securities | — | 1,419,876 | — | 1,419,876 | ||||||||||||
Corporate Bonds | — | 14,118,083 | — | 14,118,083 | ||||||||||||
Government Securities | — | 6,977,582 | — | 6,977,582 | ||||||||||||
Mortgage Backed Securities | — | 3,407,706 | — | 3,407,706 | ||||||||||||
Short Term Investments | — | 599,877 | — | 599,877 | ||||||||||||
Repurchase Agreements | — | 765,971 | — | 765,971 | ||||||||||||
Total Investments in Securities | $ | 13,385 | $ | 27,299,811 | $ | — | $ | 27,313,196 |
There were no significant transfers into or out of Levels 1 or 2 during the periods presented for the Global, Emerging Markets and Core Plus Fund.
Below are the significant transfers into and out of Levels 1 and 2 during the periods presented for the International Fund:
Transfers into Level 1 | $ | 5,883,018 | ||
Transfers out of Level 1 | — | |||
Net transfers in and/or out of Level 1 | $ | 5,883,018 | ||
Transfers into Level 2 | $ | — | ||
Transfers out of Level 2 | (5,883,018 | ) | ||
Net transfers in and/or out of Level 2 | $ | (5,883,018 | ) |
The security transferred from Level 2 to Level 1 due an increase of observable market data.
67
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
There were no Level 3 securities in the International, Emerging Markets and Global Equity Funds at the beginning of the periods presented or during the periods presented.
Below is a reconciliation that details the activity of securities in Level 3 in the Core Plus Fund during the period ended September 30, 2011:
Beginning Balance – October 1, 2010 | $ | 456 | ||
Gross purchases/(sales) | — | |||
Transfers in/(out) of level 3 | — | |||
Total realized and unrealized gains | — | |||
Total realized and unrealized losses | (456 | ) | ||
Ending Balance – September 30, 2011 | — |
The realized and unrealized gains and losses from Level 3 transactions is included with the net realized gains and losses on investments on the Statement of Assets and Liabilities. As of September 30, 2011 the Core Plus Fund had $8,748 of unrealized losses from Level 3 securities.
M. In-Kind Redemptions. Net capital gains or losses recorded on the Statement of Operations resulting from in-kind redemptions are excluded from the International and Emerging Markets Funds’ taxable gains and are not distributed to shareholders.
NOTE 3 – INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
A. | Advisor Fee. Brandes Investment Partners, L.P. (the “Advisor”) provides the Funds with investment management services under an Investment Advisory Agreement. The Advisor furnishes all investment advice, office space and certain administrative services, and provides certain personnel needed by the Funds. As compensation for its services, the Advisor is entitled to a monthly fee at the annual rate of 1.00%, 0.80%, 0.95% and 0.35% based upon the average daily net assets of the International Fund, the Global Fund, the Emerging Markets Fund and the Core Plus Fund, respectively. For the periods ended September 30, 2011, the International Fund, the Global Fund, the Emerging Markets Fund and the Core Plus Fund incurred $7,252,466, $341,937, $626,597 and $94,649 in advisory fees, respectively. |
The Funds are responsible for their own operating expenses. The Advisor has contractually agreed to limit each Fund’s annual operating expenses, including repayment of previous waivers, to the following percentages of the Funds’ average daily net assets attributable to the specific classes through January 30, 2012 (the “Expense Cap Agreement”):
Fund | Class I | Class E | Class S | |||||||||
International Fund | 1.20 | % | 1.45 | % | 1.45 | % | ||||||
Global Fund | 1.00 | % | 1.25 | % | 1.25 | % | ||||||
Emerging Markets Fund | 1.12 | % | N/A | 1.37 | % | |||||||
Core Plus Fund | 0.50 | % | 0.70 | % | N/A |
68
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
Any reimbursements or fee waivers made by the Advisor to a Fund are subject to repayment by the Fund, to the extent that the Fund is able to make the repayment within its Expense Cap Agreement. Under the Expense Cap Agreement, any such repayment must be made before the end of the third full fiscal year after the fiscal year in which the related reimbursement or waiver occurred. For the periods ended September 30, 2011, the Advisor did not waive any expenses for the International Equity Fund, and waived expenses of $187,218, $163,603 and $204,045 for the Global Equity Fund, Emerging Markets Fund and Core Plus Fund, respectively.
Fund | Recovery Expiring September 30, 2012 | Recovery Expiring September 30, 2013 | Recovery Expiring September 30, 2014 | |||||||||
International Fund | $ | — | $ | — | $ | — | ||||||
Global Fund | 209,781 | 158,122 | 187,218 | |||||||||
Emerging Markets Fund | — | — | 163,603 | |||||||||
Core Plus Fund | 225,766 | 192,839 | 204,045 |
For the year ended September 30, 2011, the Advisor did not recoup any fees previously waived or reimbursed.
B. | Administration Fee. U.S. Bancorp Fund Services, LLC, (the “Administrator”) acts as administrator for the Funds. The Administrator prepares various federal and state regulatory filings; prepares reports and materials to be supplied to the Trustees; monitors the activities of the Funds’ custodian, transfer agent and accountant; coordinates the preparation and payment of Fund expenses; and reviews the Funds’ expense accruals. For its services, the Administrator receives an annual fee at the rate of 0.03% for the first $1 billion of the Trust’s average daily net assets and 0.02% in excess of $1 billion of the Trust’s average daily net assets, subject to a minimum of $50,000 per series of the Trust per annum which is allocated among the series based on their average net assets. For the periods ended September 30, 2011, the International Fund, Global Fund, Emerging Markets Fund and Core Plus Fund incurred $217,618, $12,787, $19,567 and $7,991 in such fees, respectively. |
C. | Distribution and Servicing Fees. Quasar Distributors, LLC (the “Distributor”), a registered broker-dealer, acts as the Funds’ principal underwriter in a continuous public offering of the Funds’ shares. The Distributor is an affiliate of the Administrator. A portion of the Funds’ distribution fees are paid by the Advisor. |
The Trust has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the Investment Company Act of 1940 for the Funds’ Class S shares. The Plan is designed to reimburse the Distributor or dealers for certain promotional and other sales related costs associated with sales of Fund shares. Unreimbursed amounts may be carried forward and paid in a subsequent year, to the extent that total expenses under the plan do not exceed 0.25% of the average daily net assets of each Fund’s Class S shares. During the year ended September 30, 2011, the Funds paid to the Distributor and each dealer a monthly fee at the annual rate of 0.25% of the average daily net assets of Fund shares beneficially owned by the
69
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
Distributor’s and each dealer’s existing brokerage clients. The 12b-1 Agreement may be continued in effect from year to year if such continuance is approved annually by the Board of Trustees of the Trust, including the vote of a majority of the Independent Trustees. For the periods ended September 30, 2011, the Emerging Markets Fund – Class S expensed $56,174, the International Fund – Class S expensed $14 pursuant to the plan and the Global Fund – Class S expensed no distribution fees.
Class I of the Core Plus Fund and Class E of the International, Global and Core Plus Funds are permitted to pay to securities broker-dealers, retirement plan sponsors and administrators, banks and their affiliates, and other institutions and service professionals with a written contract as shareholder servicing agent of the Funds, an annual fee for non-distribution sub-transfer agent and/or sub-accounting services up to 0.05% and 0.25% of annual net assets attributable to Class I and Class E, respectively (the “Shareholder Service Fee”). For the year ended September 30, 2011, the effective rate paid by the Funds was the following:
Fund | Class I | Class E | ||||||
International Fund | N/A | 0.18 | % | |||||
Global Fund | 0.00 | % | 0.00 | % | ||||
Core Plus Fund | 0.02 | % | 0.25 | % |
Certain officers and trustees of the Trust are also officers of the Advisor.
NOTE 4 – PURCHASES AND SALES OF SECURITIES
The cost of purchases and the proceeds from sales of securities, excluding short-term investments, were as follows for the periods ended September 30, 2011:
U.S. Government | Other | |||||||||||||||
Fund | Purchases | Sales | Purchases | Sales | ||||||||||||
International Fund | $ | — | $ | — | $ | 35,317,607 | $ | 297,306,504 | ||||||||
Global Fund | $ | — | $ | — | $ | 9,932,747 | $ | 10,743,750 | ||||||||
Emerging Markets Fund | $ | — | $ | — | $ | 113,154,878 | $ | 55,811,886 | ||||||||
Core Plus Fund | $ | 17,851,396 | $ | 18,625,957 | $ | 6,684,456 | $ | 5,619,844 |
70
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
NOTE 5 – CAPITAL STOCK TRANSACTIONS
Capital stock activity for each class of shares was as follows (shares and dollar amounts in thousands):
International Fund | Global Fund | |||||||||||||||||||||||||||||||
Year Ended 9/30/11 | Year Ended 9/30/2010 | Year Ended 9/30/11 | Year Ended 9/30/2010 | |||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Shares Sold | ||||||||||||||||||||||||||||||||
Class I | 9,012 | $ | 137,842 | 19,999 | $ | 285,210 | 190 | $ | 4,241 | 272 | $ | 5,791 | ||||||||||||||||||||
Class E | 359 | 5,553 | 59 | 841 | 5 | 110 | — | — | ||||||||||||||||||||||||
Class S | — | — | — | — | 1 | 13 | — | — | ||||||||||||||||||||||||
Shares Issued on Reinvestment of Distributions | ||||||||||||||||||||||||||||||||
Class I | 1,061 | 16,144 | 793 | 11,765 | 124 | 2,699 | 31 | 657 | ||||||||||||||||||||||||
Class E | 2 | 27 | — | 2 | — | 11 | — | 2 | ||||||||||||||||||||||||
Class S | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Shares Redeemed | ||||||||||||||||||||||||||||||||
Class I | (26,811 | ) | (401,805 | ) | (25,936 | ) | (383,239 | ) | (302 | ) | (6,747 | ) | (182 | ) | (3,782 | ) | ||||||||||||||||
Class E | (86 | ) | (1,292 | ) | (6 | ) | (79 | ) | — | (9 | ) | — | — | |||||||||||||||||||
Class S | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Net Increase/ (Decrease) Resulting from Fund Share Transactions | (16,463 | ) | $ | (243,531 | ) | (5,091 | ) | $ | (85,500 | ) | 18 | $ | 318 | 121 | $ | 2,668 |
Emerging Markets Fund | Core Plus Fund | |||||||||||||||||||||||||||||||
Period Ended 9/30/11 | Year Ended 9/30/2010 | Year Ended 9/30/11 | Year Ended 9/30/2010 | |||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Shares Sold | ||||||||||||||||||||||||||||||||
Class I | 14,976 | $ | 148,059 | — | $ | — | 341 | $ | 3,225 | 370 | $ | 3,426 | ||||||||||||||||||||
Class E | N/A | N/A | N/A | N/A | 304 | 2,891 | 204 | 1,865 | ||||||||||||||||||||||||
Class S | 5,735 | 56,875 | — | — | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Shares Issued on Reinvestment of Distributions | ||||||||||||||||||||||||||||||||
Class I | — | — | — | — | 153 | 1,454 | 119 | 1,105 | ||||||||||||||||||||||||
Class E | N/A | N/A | N/A | N/A | 19 | 180 | 12 | 115 | ||||||||||||||||||||||||
Class S | — | — | — | — | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Shares Redeemed | ||||||||||||||||||||||||||||||||
Class I | (5,831 | ) | (57,310 | ) | — | — | (581 | ) | (5,546 | ) | (583 | ) | (5,338 | ) | ||||||||||||||||||
Class E | N/A | N/A | N/A | N/A | (192 | ) | (1,814 | ) | (44 | ) | (415 | ) | ||||||||||||||||||||
Class S | (845 | ) | (7,591 | ) | — | — | N/A | N/A | N/A | N/A | ||||||||||||||||||||||
Net Increase/ (Decrease) Resulting from Fund Share Transactions | 14,035 | $ | 140,033 | — | $ | — | 44 | $ | 390 | 78 | $ | 758 |
71
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
NOTE 6 – FEDERAL INCOME TAX MATTERS
As of September 30, 2011, the components of distributable earnings on a tax basis were as follows:
International Fund | Global Fund | Emerging Markets Fund | Core Plus Fund | |||||||||||||
Cost of investments for tax purposes | 582,093,953 | 39,956,244 | 137,703,188 | 26,103,121 | ||||||||||||
Gross tax unrealized appreciation | 28,341,191 | 2,122,444 | 4,109,363 | 1,852,568 | ||||||||||||
Gross tax unrealized depreciation | (158,862,567 | ) | (5,767,779 | ) | (31,712,094 | ) | (642,493 | ) | ||||||||
Net tax unrealized appreciation (depreciation) on investments and foreign currency | (130,521,376 | ) | (3,645,335 | ) | (27,602,731 | ) | 1,210,075 | |||||||||
Distributable ordinary income | 21,557,103 | 949,990 | 1,650,786 | 306,271 | ||||||||||||
Distributable long-term capital gains | — | 2,084,132 | 1,078,155 | 363,367 | ||||||||||||
Total distributable earnings | 21,557,103 | 3,034,122 | 2,728,941 | 669,638 | ||||||||||||
Other accumulated gains/(losses) | (82,679,639 | ) | (29,100 | ) | (531,317 | ) | — | |||||||||
Total accumulated earnings | (191,643,912 | ) | (640,313 | ) | (25,405,107 | ) | 1,879,713 |
The differences between book and tax basis distributable earnings are primarily related to foreign currency adjustments and the differences in classification of paydown gains and losses for tax purposes compared to book purposes.
The tax composition of dividends for the periods ended September 30, 2011 for the Funds were as follows:
Ordinary Income Total | Long Term Capital Gains Total | |||||||
International Fund | $ | 17,335,276 | $ | — | ||||
Global Fund | $ | 795,457 | $ | 1,945,658 | ||||
Emerging Markets Fund | $ | — | $ | — | ||||
Core Plus Fund | $ | 1,859,640 | $ | 31,187 |
Pursuant to Internal Revenue Code Section 852(b)(3), the International Fund designated the amount necessary to reduce the earnings and profits related to net capital gains to zero for the tax year ended September 30, 2011.
At September 30, 2011, the International Fund and Emerging Markets Fund had net realized losses on investment and foreign currency transactions between November 1, 2010 and September 30, 2011, of $53,664,854 and $279,291, respectively, which were deferred for tax purposes and recognized on October 1, 2011.
72
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
As of September 30, 2011 the Funds had capital losses expiring as indicated below:
Fund | 2017 | 2018 | ||||||
International Fund | $ | — | $ | 29,067,216 | ||||
Global Fund | — | — | ||||||
Emerging Markets Fund | — | — | ||||||
Core Plus Fund | — | — |
Reclassification of Capital Accounts. Accounting principles generally accepted in the United States of America require that certain components of net assets be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the year ended September 30, 2011, The International Fund increased undistributed net investment income/loss by $1,972,276, decreased accumulated net realized gain/loss by $1,972,274 and decreased paid in capital by $2, due to certain permanent book and tax differences. The Global Fund increased undistributed net investment income/loss by $12,007 and decreased accumulated net realized gain/loss by $12,007. The Emerging Markets Fund decreased undistributed net investment income/loss by $596,741, increased accumulated net realized gain/loss by $4,945,741 and decreased paid in capital by $4,349,000. The Core Plus Fund increased undistributed net investement income/loss by $91,304, decreased accumulated net realized gain/loss by $194,409 and increased paid in capital by $103,105. The permanent book and tax differences relate to a reclassification of foreign currency gain/loss.
NOTE 7 – CHANGE IN AUDITOR
Based on a recommendation by the audit committee, PricewaterhouseCoopers LLP will serve as independent accountants of the Funds for fiscal year 2011.
NOTE 8 – SUBSEQUENT EVENTS
In preparing these financial statements, the Funds have evaluated events and transactions for potential recognition or disclosure through the date the financial statements were available to be issued.
NOTE 9 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2010, the FASB issued Accounting Standards Update “Improving Disclosures about Fair Value Measurements“(“ASU“). The ASU requires enhanced disclosures about purchases, sales, issuances, and settlements on a gross basis relating to Level 3 measurements. The disclosure will become effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management is currently evaluating the impact this disclosure may have on the Funds’ financial statements.
In May 2011, the FASB issued an update to requirements relating to Fair Value Measurement which represents amendments to achieve common fair value measurement and disclosure requirements in US Generally Accepted Accounting Principles (“GAAP”) and International Financial Reporting Standards
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Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS – (continued)
(“IFRS”). The amendments are of two types: (i) those that clarify the Board’s intent about the application of existing fair value measurement and disclosure requirements and (ii) those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.
The amendments that change a particular principle or requirement for measuring fair value or disclosing information about fair value measurements relate to (i) measuring the fair value of the financial instruments that are managed within a portfolio; (ii) application of premium and discount in a fair value measurement; and (iii) additional disclosures about fair value measurements. The update is effective for interim and annual periods beginning after December 15, 2011. Management is currently evaluating the impact this update will have on the Funds’ financial statements.
NOTE 10 – OWNERSHIP BY AFFILIATED PARTIES
As of September 30, 2011, the advisor or an affiliate of the advisor beneficially owned shares of the Funds as follows:
Core Plus Fund | Global Equity Fund | International Equity Fund | ||||||||||||||
Class I | Class I | Class E | Class S | |||||||||||||
Shares | 392,456 | 1,324,450 | 5,475 | 6 | ||||||||||||
Percent of total outstanding shares | 15.78 | % | 69.91 | % | 54.26 | % | 100.00 | % |
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Brandes Investment Trust
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders
of Brandes Investment Trust
In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Brandes Institutional Core Plus Fixed Income Fund, Brandes Institutional Global Equity Fund, Brandes Institutional International Equity Fund, and Brandes Institutional Emerging Markets Fund (hereinafter collectively the“Funds” or individually as the“Fund”) at September 30, 2011, and the results of each of their operations, the changes in their net assets and the financial highlights for the year ended September 30, 2011 for the Brandes Institutional Core Plus Fixed Income Fund, Brandes Institutional Global Equity Fund, and Brandes Institutional International Equity Fund and for the period February 1, 2011 (commencement of operations) through September 30, 2011 for the Brandes Institutional Emerging Markets Fund in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial statements of the Brandes Institutional Core Plus Fixed Income Fund, Brandes Institutional Global Equity Fund, and Brandes Institutional International Equity Fund as of September 30, 2010 and for the year then ended, including financial highlights for each of the periods in the three years then ended for the Brandes Institutional Core Plus Fixed Income Fund, for each of the periods in the four years then ended for the Brandes Institutional International Equity Fund, and for each of the periods in the two years then ended for the Brandes Institutional Global Equity Fund, were audited by other auditors whose report dated November 24, 2010 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Los Angeles, California
November 28, 2011
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Brandes Investment Trust
ADDITIONAL INFORMATION — (Unaudited)
PROXY VOTING PROCEDURES
The Advisor votes proxies relating to the Funds’ portfolio securities in accordance with procedures adopted by the Advisor. You may obtain a description of these procedures, free of charge, by calling toll-free 1-800-331-2979. This information is also available through the Securities and Exchange Commission’s website at http://www.sec.gov.
Information regarding how the Trust voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling 1-800-331-2979. This information is also available through the Securities and Exchange Commission’s website at http://www.sec.gov.
FORM N-Q DISCLOSURE
The Trust files the Fund’s complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Trust’s Form N-Q filings are available on the Securities and Exchange Commission’s website at http://www.sec.gov. The Trust’s Form N-Q filings may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Information regarding the Trust’s Form N-Q filings is also available, without charge, by calling toll-free, 1-800-331-2979.
TAX NOTICE
The percentage of dividend income distributed for the year ended September 30, 2011, which is designated as qualified dividend income under the Jobs and Growth Tax Relief Reconciliation Act of 2003, is 100% for the International Equity and Global Equity Funds, 0.00% for the Emerging Markets Fund and 0.07% for the Core Plus Fund. 0.00%, 49.76%, 0.00% and 0.07% of the dividends paid by the International Fund, Global Fund, Emerging Markets Fund and Core Plus Fund, respectively qualify for the corporate dividends received deduction.
76
Brandes Investment Trust
ADDITIONAL INFORMATION — (Unaudited) – (continued)
For the periods ended September 30, 2011, the International Fund, Global Fund, and Emerging Markets Fund earned foreign source income from dividends earned and paid foreign taxes, as noted below, which they intend to pass through to their shareholders pursuant to Section 853 of the Internal Revenue Code, with the exception of the foreign taxes paid in New Zealand and the United Kingdom. The New Zealand and United Kingdom foreign taxes paid by the Funds do not qualify to be passed through to the Funds’ shareholders.
International Fund | Global Fund | Emerging Markets Fund | ||||||||||||||||||||||
Gross Foreign Income | Foreign Tax Paid | Gross Foreign Income | Foreign Tax Paid | Gross Foreign Income | Foreign Tax Paid | |||||||||||||||||||
Argentina | $ | — | $ | — | $ | — | $ | — | $ | 6,217 | $ | — | ||||||||||||
Austria | — | — | — | — | 31,664 | 4,749 | ||||||||||||||||||
Bermuda | — | — | — | — | 30,915 | — | ||||||||||||||||||
Brazil | 1,449,331 | 184,853 | 8,274 | 1,532 | 722,675 | 88,919 | ||||||||||||||||||
Cayman Islands | — | — | — | — | 24,608 | — | ||||||||||||||||||
China | — | — | — | — | 8,669 | 867 | ||||||||||||||||||
Czech Republic | — | — | — | — | 279,864 | 41,980 | ||||||||||||||||||
Finland | 737,133 | 110,570 | 23,203 | 3,480 | — | — | ||||||||||||||||||
France | 4,545,121 | 827,329 | 210,381 | 36,284 | — | — | ||||||||||||||||||
Germany | 1,766,823 | 20,389 | 63,395 | — | — | — | ||||||||||||||||||
Hong Kong | — | — | — | — | 408,395 | 23,322 | ||||||||||||||||||
Hungary | — | — | — | — | 135,128 | — | ||||||||||||||||||
India | — | — | — | — | 56,284 | — | ||||||||||||||||||
Ireland | 285,688 | — | — | — | — | — | ||||||||||||||||||
Israel | — | — | — | — | 161,689 | 32,352 | ||||||||||||||||||
Italy | 3,146,900 | 445,491 | 169,240 | 22,983 | — | — | ||||||||||||||||||
Japan | 6,100,162 | 427,011 | 271,850 | 19,030 | — | — | ||||||||||||||||||
Malaysia | — | — | — | — | 30,168 | 7,542 | ||||||||||||||||||
Mexico | 323,865 | — | 16,942 | — | 25,623 | — | ||||||||||||||||||
Netherlands | 1,330,689 | 199,603 | 64,923 | 9,739 | — | — | ||||||||||||||||||
New Zealand | 302,583 | 84,918 | — | — | — | — | ||||||||||||||||||
Pakistan | — | — | — | — | 28,681 | — | ||||||||||||||||||
Panama | — | — | — | — | 60,859 | — | ||||||||||||||||||
Philippines | — | — | — | — | 18,372 | 4,841 | ||||||||||||||||||
Portugal | 3,424,674 | 513,701 | 106,948 | 16,042 | — | — | ||||||||||||||||||
Russian Federation | — | — | — | — | 43,713 | 6,557 | ||||||||||||||||||
Singapore | — | — | — | — | 64,782 | — |
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Brandes Investment Trust
ADDITIONAL INFORMATION — (Unaudited) – (continued)
International Fund | Global Fund | Emerging Markets Fund | ||||||||||||||||||||||
Gross Foreign Income | Foreign Tax Paid | Gross Foreign Income | Foreign Tax Paid | Gross Foreign Income | Foreign Tax Paid | |||||||||||||||||||
South Africa | — | — | — | — | 160,352 | — | ||||||||||||||||||
South Korea | 267,836 | 44,193 | — | — | 108,487 | 7,261 | ||||||||||||||||||
Spain | 649,374 | 97,406 | 23,421 | 3,513 | — | — | ||||||||||||||||||
Sweden | 349,406 | 52,411 | 15,113 | 2,267 | — | — | ||||||||||||||||||
Switzerland | 730,894 | 53,845 | 14,992 | — | — | — | ||||||||||||||||||
Turkey | — | — | — | — | 32,447 | 4,867 | ||||||||||||||||||
United Kingdom | 4,815,833 | 484,576 | 150,958 | 15,211 | 38,949 | — | ||||||||||||||||||
$ | 30,226,312 | $ | 3,546,296 | $ | 1,139,640 | $ | 130,081 | $ | 2,478,541 | $ | 223,257 |
For the year ended September 30, 2011, 0.00% of the ordinary distributions paid by the International Fund, 0.01% of the ordinary distributions paid by the Global Fund, 0.00% of the ordinary distributions paid by the Emerging Markets Fund, and 84.55% of the ordinary distributions paid by the Core Plus Fund qualifies as interest related dividends under the Internal Revenue Code Section 871(k)(1)(c). For the year ended September 30, 2011, 0% of the ordinary distributions paid by the International Fund, Global Fund, Emerging Markets Fund and Core Plus Fund are designated as short-term capital gain distributions under Internal Revenue Code Section 871(k)(2)(c).
78
Brandes Investment Trust
TRUSTEE AND OFFICER INFORMATION — (Unaudited)
The Board of Trustees is responsible for the overall management of the Trust’s business. The Board approves all significant agreements between the Trust and persons or companies furnishing services to the Trust, including the Trust’s agreements with the Advisor, Administrator, Custodian and Transfer Agent. The Board of Trustees delegates the day-to-day operations of the Trust to its officers, subject to the Fund’s investment objective and policies and to general supervision by the Board. The Trust’s Statement of Additional Information includes additional information about the Trustees and is available, without charge, by calling 1-800-331-2979.
The Trustees and officers of the Trust, their business addresses and principal occupations during the past five years are:
Name, Address and Age | Position(s) Held with Trust | Term of Office and Length of Time Served(1) | Principal Occupation During Past 5 Years | Number of Trust Series Overseen by Trustee | Other Directorships/ Trusteeships Held by Trustee | |||||
Independent Trustees(2) | ||||||||||
DeWitt F. Bowman, CFA 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 81) | Trustee | Since February 1995 | Investment Fund Director. | 5 | Pacific Gas and Electric Nuclear Decommissioning Trust; PCG Private Equity Fund; Forward Funds; RREEF America III REIT. | |||||
J. Michael Gaffney, CFA 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 70) | Trustee | Since June 2004 | Independent Consultant, NATIXIS Global Asset Management, North America, since 2004. | 5 | None | |||||
Karin B. Bonding, CFA 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 72) | Trustee | Since May 2006 | Lecturer, University of Virginia, since 1996. President of Capital Markets Institute, Inc. serving as fee-only financial planner and investment advisor since 1996. | 5 | The Endowment Fund and the Salient Partners Absolute Return Fund. | |||||
Jean E. Carter 11988 El Camino Real Suite 500 San Diego, CA 92130 (Age 54) | Trustee | Since April 2008 | Retired since 2005; Director, Investment Management of Russell Investment Group from 2000 to 2005. | 5 | None | |||||
Robert M. Fitzgerald, CPA 11988 El Camino Real Suite 500 San Diego, CA 92130 (Age 59) | Trustee | Since April 2008 | Retired from 2002 – 2005 and since 2007; Chief Financial Officer of National Retirement Partners from 2005 to 2007. | 5 | Hotchkis and Wiley Mutual Funds. |
79
Brandes Investment Trust
TRUSTEE AND OFFICER INFORMATION — (Unaudited) – (continued)
Name, Address and Age | Position(s) Held with Trust | Term of Office and Length of Time Served(1) | Principal Occupation During Past 5 Years | Number of Trust Series Overseen by Trustee | Other Directorships/ Trusteeships Held by Trustee | |||||
“Interested” Trustees(3) | ||||||||||
Debra McGinty-Poteet 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 55) | Trustee and President | Since June 2000 | Director, Mutual Fund Services of Brandes Investment Partners, L.P., the investment advisor to the Funds (the “Advisor”). | 5 | Brandes Investment Funds PLC | |||||
Jeff Busby 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 50) | Trustee | Since July 2006 | Executive Director of the Advisor | 5 | None | |||||
Officers of the Trust | ||||||||||
Thomas M. Quinlan 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 40) | Secretary | Since June 2003 | Associate General Counsel to the Advisor since January 2006; Counsel to the Advisor from July 2000 to January 2006. | N/A | N/A | |||||
Gary Iwamura 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 54) | Treasurer | Since September 1997 | Finance Director of the Advisor. | N/A | N/A | |||||
George Stevens 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 60) | Chief Compliance Officer | Since January 2010 | Vice President, Citi Fund Services, September 1996 to March 2008; Director, Beacon Hill Fund Services, Inc., March 2008 to present. | N/A | N/A |
(1) | Trustees and officers of the Fund serve until their resignation, removal or retirement. |
(2) | Not “interested persons” of the Trust as defined in the 1940 Act. |
(3) | “Interested persons” of the Trust as defined in the 1940 Act by virtue of their positions with the Advisor. |
80
ADVISOR
Brandes Investment Partners, L.P.
11988 El Camino Real, Suite 500
San Diego, California 92130
800.331.2979
DISTRIBUTOR
Quasar Distributors, LLC
615 E. Michigan Street, 4th Floor
Milwaukee, WI 53202
TRANSFER AGENT
U.S. Bancorp Fund Services, LLC
615 E. Michigan Street, 3rd Floor
Milwaukee, WI 53202
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
350 South Grand Avenue, 49th Floor
Los Angeles, CA, 92071
LEGAL COUNSEL
Bingham McCutchen LLP
355 South Grand Ave., Suite 4400
Los Angeles, CA 90071
This report is intended for shareholders of the Brandes Institutional International Equity Fund, the Brandes Institutional Global Equity Fund, the Brandes Institutional Emerging Markets Fund and the Brandes Institutional Core Plus Fixed Income Fund and may not be used as sales literature unless preceded or accompanied by a current prospectus.
Statements and other information herein are dated and are subject to change.
FYE 9/30/2011 | FYE 9/30/2010 | |
Audit Fees | $113,000 | $69,250 |
Audit-Related Fees | None | None |
Tax Fees | $31,500 | $12,900 |
All Other Fees | None | None |
Non-Audit Related Fees | FYE 9/30/2011 | FYE 9/30/2010 |
Registrant | None | None |
Registrant’s Investment Adviser | None | None |
(a) | Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form. |
(b) | Not Applicable |
(a) | The registrant’s President and Treasurer 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) | No changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) occurred during the second fiscal quarter of the period covered by this report that materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. |
(a) | (1) Any code of ethics or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. 1) Incorporated by reference to the registrant’s Form N-CSR filed January 7, 2005. |
(b) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. |
(Registrant) | Brandes Investment Trust |
By (Signature and Title)* | /s/ Debra McGinty-Poteet |
Debra McGinty-Poteet, President |
Date | 12/6/11 |
By (Signature and Title)* | /s/ Debra McGinty-Poteet |
Debra McGinty-Poteet, President |
Date | 12/6/11 |
By (Signature and Title)* | /s/ Gary Iwamura |
Gary Iwamura, Treasurer |
Date | 12/6/11 |