UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-08614
Brandes Investment Trust
(Exact name of registrant as specified in charter)
11988 El Camino Real, Suite 500
San Diego, CA 92130
(Address of principal executive offices) (Zip code)
Michael Glazer
Bingham McCutchen LLP
355 South Grand Ave., Suite 4400
Los Angeles, CA 90071-3106
(Name and address of agent for service)
800-331-2979
Registrant's telephone number, including area code
Date of fiscal year end: September 30, 2013
Date of reporting period: March 31, 2013
Item 1. Reports to Stockholders.
Separately Managed Account Reserve Trust
SEMI-ANNUAL REPORT
For the six months ended
March 31, 2013
Brandes Separately Managed Account Reserve Trust
Dear Shareholder,
The Brandes Separately Managed Account Reserve Trust Fund (“the Fund”) gained 4.79% during the six-month period ended March 31, 2013, outperforming the Barclays U.S. Aggregate Bond Index, which returned 0.09% in the same 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 six-month period. I will also discuss how the Fund is positioned for the future.
The Markets
Low volatility and modest returns seemed to have characterized the fixed-income markets in the six-month period ended March 31, 2013. After posting positive returns in the fourth quarter of 2012, the markets moved mostly sideways in the first quarter of 2013. Factors that contributed to the fourth-quarter gains included stimulative central-bank policies globally, a U.S. economy that continued to outperform its developed-country peers despite lackluster performance on an absolute basis, declining euro zone tail risk, another year of strong corporate fundamentals, and robust supply/demand technicals.
The market’s continued low volatility in all fixed-income sectors persisted in the first three months of 2013. It’s interesting to note that the first quarter of 2013 marked the first negative quarterly return for the index since the fourth quarter of 2010, and the first negative first-quarter performance since 2006.
The Fund
The Fund’s positive performance during the six-month period in review was led by holdings in the asset-backed securities (ABS) sector, particularly those backed by pools of private student loans. Within corporate bonds, banks, building products and utilities were the biggest positive return contributors. In a low-volatility environment, we believe carry is king — income advantage versus the benchmark was beneficial. In the first quarter, this focus worked for the Fund — with much of the relative performance attributable to the yield advantage versus the index.
Fund activity in the first quarter was modest. We initiated new positions in preferred stock of Pitney Bowes International Inc, ING USA Inc., ArcelorMittal, and a U.S. Dollar denominated issue of Israel Electric Corp. Sales activity was limited to a pare-back of Mohawk Industries, a buildings product company that approached our estimate of its fair value, and the full sale of a subprime ABS originally issued by Countrywide.
The duration of the Fund at the end of the quarter remained shorter than that of the benchmark. The Fund’s excess yield compared to the benchmark helped relative returns. The largest overweight is to the corporate sector. Within the corporate sector, the largest overweights relative to the benchmark are in the financial, utility and homebuilding/building products industries. The Fund remains underweight agency mortgage-backed pass-through securities in favor of mortgage-backed securities
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(MBS) that, in our view, offer a more compelling value proposition than agency pass throughs: non-agency MBS, trust interest only MBS, and private student loan ABS. The Fund does not have any direct exposure to European sovereign securities, but does have a small weighting in U.S. dollar-denominated securities of Ireland-based building products company CRH Inc., telecommunications firm Telecom Italia and Spanish telecom company Telefonica.
Our Outlook
With interest rates seemingly stuck at historic lows, the search for price return and yield in the fixed-income market remains challenging. There are two questions that we receive more often than any other in recent months: Is there any value left in the corporate bond market? And what will happen to the Fund when rates begin to rise?
The answer to the first question is that while it has become more challenging to find mispriced securities, we believe value continues to exist in certain pockets of the corporate bond market. In our view it simply takes more discipline, patience, and a rigorous bottom-up approach to find securities that offer a compelling value proposition than in past years when the correlation on virtually all assets and securities was near one.
We believe that historically there has been a sweet spot in the corporate bond market around the low-end of investment-grade and upper-end of high-yield. This is an area where we often see compelling opportunity. Simply put, the market is principally segmented to investment-grade managers and high-yield managers. Thus, when a bond trends toward high-yield, investment-grade managers often are forced to sell, and since high-yield managers tend to focus on lower-quality bonds these cross-over bonds often do not have a natural buyer. This potentially creates the sweet spot mentioned above. The numbers also reflect this market inefficiency. Since 1984 the average incremental credit loss from bonds downgraded from BBB to BB is 0.55%, but the average annual spread widening for bonds downgraded from BBB to BB is 1.80% — or triple the incremental credit loss.
We have written in the past about how corporate bonds have historically outperformed the Barclays U.S. Aggregate Bond Index in periods of rising interest rates. Our contention has been that if rates begin to rise, it will likely be primarily due to improvement in the domestic economy and in all likelihood the global economy. If this turns out to be the case, this generally bodes well for corporate income statements and corporate balance sheets — i.e., corporate risk profiles will likely improve. Therefore, one does not have to make too large of a leap to conclude that if and when rates begin to rise, credit spreads can tighten further.
Barclays recently performed an analysis where they found the historical beta (1993-March 22, 2013) of Barclays U.S. Credit Bond Index spreads to interest rates is -0.23x. This means that for a 1% increase in 10-year U.S. Treasury yields, credit spreads tend to tighten 23 basis points — or to put it another way, approximately one quarter of the interest-rate rise is expected to be offset by spread tightening. Barclays
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analysis further found, as you might expect, that the spread beta is more negative for BBB rated securities: -0.57x for financials and -0.33x for non-financials.
Regarding the second question about how the Fund will behave in a rising rate environment — the short answer is that we don’t know — particularly since the current environment is unprecedented in not only the absolute level of interest rates but also in the magnitude of central-bank manipulation. The longer answer is that based on history, we believe that by owning a diversified portfolio containing an allocation to corporate bonds and credit-sensitive MBS, investors may be able to mitigate some of the negative impact of higher rates (of course with the caveat that past performance is not a guarantee of future results).
We anticipate that 2013 will likely be a lower total-return year for the credit market. This is a simple reality dictated by tighter spreads and lower yields to start the year than previous years. We feel that in an environment like this, a more important factor in determining success over the coming year will be what an investor buys rather than if they buy. Quite frankly, we’d still like to see an uptick in volatility. With a low-volatility first quarter now in the books, we do not see a reason to amend our outlook from three months ago.
We like the securities we hold and feel that the Fund has an attractive value component. We also believe that we have a fair amount of dry powder to increase the value component of the Fund if volatility experiences an uptick and real credit risk becomes mispriced. While we’ve been able to deliver strong relative performance over the last few years, we believe that an environment that rewards bottom-up, fundamental research and security selection continues to unquestionably play to our strengths.
Sincerely yours,
Jeffrey A. Busby, CFA
President
Brandes Investment Trust
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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 additional risks, including currency fluctuations, political instability, differences in financial reporting standards and less stringent regulation of securities markets.
International and emerging markets investing is subject to certain risks such as currency fluctuations and social and political changes; such risks may result in greater share price volatility. Emerging market countries involve greater risks, such as immature economic structures, national policies restricting investments by foreigners, and different legal systems. 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.
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 value 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.
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.
Must be preceded or accompanied by a prospectus.
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Index Guide
The Barclays 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.
The Barclays U.S. Credit Bond Index is an unmanaged index consisting of U.S. dollar-denominated, publicly issued, fixed-rate corporate securities. The US Credit Index comprises the US Corporate Index and a non-corporate component that includes foreign agencies, sovereigns, supranationals and local authorities. The US Credit Index was called the US Corporate Investment Grade Index until July 2000, when it was renamed to reflect its inclusion of both corporate and non-corporate issuers. Index history is available back to 1973. The US Credit Index is a subset of the US Government/Credit Index and the US Aggregate Index. The index is a total return index which reflects the price changes and interest of each bond in the index.
Duration: the weighted maturity of a fixed-income investment’s cash flows, used in the estimation of the price sensitivity of fixed-income securities for a given change in interest rates.
Carry: The income advantage versus a fixed-income index as measured by yield-to-worst maturity.
Yield: the annual income from the investment (dividend, interest, etc.) divided by the current market price of the investment.
Beta: A stock’s (or a portfolio’s) beta measures its volatility versus an index. A stock (or portfolio) with a beta higher than 1 has tended to exhibit more volatility than the index, while a stock (or portfolio) with a beta between 0 and 1 has tended to exhibit less volatility than the index.
Dry powder: Securities considered to be dry powder could be Treasuries or other fixed–income investments that can be liquidated on short notice (Investopedia, retrieved 10/8/2012)
Basis Point: A unit that is equal to 1/100th of 1%, and is used to indicate the change in a financial instrument.
The Brandes Separately Managed Account Trust Fund is distributed by Quasar Distributors, LLC.
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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 March 31, 2013 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 March 31, 2013 | ||||||||||||||||
One Year | Three Year | Five Year | Since Inception (10/3/05) | |||||||||||||
Separately Managed Account Reserve Trust | 10.93 | % | 10.75 | % | 8.99 | % | 6.60 | % | ||||||||
Barclays Capital U.S. Aggregate Index | 3.77 | % | 5.52 | % | 5.47 | % | 5.56 | % | ||||||||
Barclays Capital U.S. Intermediate Credit Index | 5.96 | % | 6.41 | % | 6.54 | % | 5.96 | % |
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.
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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 March 31, 2013 (Unaudited)
The sector classifications represented in the graph above and industry classifications represented in the Schedule of Investments are in accordance with the Global Industry Classification Standards (GICS®), which was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor Financial Services LLC.
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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 October 1, 2012 to March 31, 2013 (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 | $ | 1,047.90 | 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 | $ | 1,024.93 | 0.00 | % | $ | 0.00 |
* | The Fund’s expenses are equal to the Fund’s expense ratio for the period, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one half-year period). |
** | 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 — March 31, 2013 (Unaudited)
Principal Amount | Value | |||||||
FEDERAL AND FEDERALLY SPONSORED CREDITS – 0.75% | ||||||||
Fannie Mae Interest Only Strip – 0.75% | ||||||||
5.500%, 01/01/2036 | $ | 3,073,898 | $ | 436,450 | ||||
6.000%, 06/01/2036 | 3,936,502 | 560,807 | ||||||
TOTAL FEDERAL AND FEDERALLY SPONSORED CREDITS (Cost $1,487,080) | $ | 997,257 | ||||||
OTHER MORTGAGE RELATED SECURITIES – 5.91% | ||||||||
Collateralized Mortgage Obligations – 0.02% | ||||||||
Wells Fargo Mortgage Backed Securities Trust | ||||||||
Series 2006-AR14, 5.825%, 10/25/2036 | $ | 21,713 | $ | 21,200 | ||||
Near Prime Mortgage – 3.34% | ||||||||
Bear Stearns Adjustable Rate Mortgage Trust | ||||||||
Series 2005-10, 2.671%, 10/25/2035 | 3,612,536 | 3,499,178 | ||||||
Countrywide Home Loan Mortgage Pass Through Trust | ||||||||
Series 2006-HYB1, 2.691%, 03/20/2036 | 1,199,414 | 925,839 | ||||||
4,425,017 | ||||||||
Sub-Prime Mortgages – 2.55% | ||||||||
JP Morgan Mortgage Acquisition Corp. | ||||||||
Series 2006-NC1, 0.374%, 04/25/2036 | 2,118,798 | 1,983,202 | ||||||
Structured Asset Investment Loan Trust | ||||||||
Series A3, 0.584%, 07/25/2035 | 1,448,585 | 1,399,262 | ||||||
3,382,464 | ||||||||
TOTAL OTHER MORTGAGE RELATED SECURITIES (Cost $7,520,995) | $ | 7,828,681 |
The accompanying notes are an integral part of these Schedules of Investments.
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SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
US GOVERNMENTS – 6.11% | ||||||||
Sovereign – 6.11% | ||||||||
United States Treasury Bond | ||||||||
4.750%, 02/15/2037 | $ | 1,535,000 | $ | 2,020,683 | ||||
United States Treasury Note | ||||||||
2.000%, 02/15/2023 | 6,000,000 | 6,075,935 | ||||||
TOTAL US GOVERNMENTS (Cost $7,638,929) | $ | 8,096,618 | ||||||
Shares | Value | |||||||
COMMON STOCKS – 0.44% | ||||||||
Paper & Forest Products – 0.41% | ||||||||
Abitibi-Consolidated(a)(c) | 3,950,000 | $ | — | |||||
Resolute Forest Products, Inc.(a) | 33,471 | 541,561 | ||||||
541,561 | ||||||||
Semiconductors – 0.03% | ||||||||
MagnaChip Semiconductor Corp.(a) | 2,010 | 34,793 | ||||||
TOTAL COMMON STOCKS (Cost $3,375,523) | $ | 576,354 | ||||||
PREFERRED STOCKS – 3.81% | ||||||||
Banks & Thrifts – 2.55% | ||||||||
Ally Financial, Inc. | 126,200 | $ | 3,379,636 | |||||
Technology Hardware & Equipment – 1.26% | ||||||||
Pitney Bowes International Holdings, Inc.(b) | 1,720 | 1,669,583 | ||||||
TOTAL PREFERRED STOCKS (Cost $4,597,410) | $ | 5,049,219 |
The accompanying notes are an integral part of these Schedules of Investments.
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SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
ASSET BACKED SECURITIES – 3.68% | ||||||||
Student Loan – 3.68% | ||||||||
National Collegiate Student Loan Trust | ||||||||
Series A-4, 0.509%, 10/25/2033 | $ | 1,500,000 | $ | 683,103 | ||||
SLM Student Loan Trust | ||||||||
Series 2004-B, 0.898%, 09/15/2033 | 1,500,000 | 1,155,117 | ||||||
Series 2005-A, 0.778%, 12/15/2038 | 1,865,000 | 1,410,481 | ||||||
Series 2006-A, 0.758%, 06/15/2039 | 2,200,000 | 1,625,549 | ||||||
4,191,147 | ||||||||
TOTAL ASSET BACKED SECURITIES (Cost $5,508,832) | $ | 4,874,250 | ||||||
CORPORATE BONDS – 77.37% | ||||||||
Advertising – 3.17% | ||||||||
The Interpublic Group of Companies, Inc. | ||||||||
6.250%, 11/15/2014 | $ | 3,920,000 | $ | 4,204,199 | ||||
Banks & Thrifts – 13.40% | ||||||||
Ally Financial, Inc. | ||||||||
6.750%, 12/01/2014 | 3,041,000 | 3,261,473 | ||||||
First Horizon National Corp. | ||||||||
5.375%, 12/15/2015 | 1,780,000 | 1,936,295 | ||||||
JP Morgan Chase & Co. | ||||||||
7.900%, Perpetual | 5,620,000 | 6,456,418 | ||||||
Regions Financial Corp. | ||||||||
5.750%, 06/15/2015 | 3,890,000 | 4,221,039 | ||||||
The Goldman Sachs Group, Inc. | ||||||||
7.500%, 02/15/2019 | 1,500,000 | 1,876,599 | ||||||
17,751,824 |
The accompanying notes are an integral part of these Schedules of Investments.
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SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
Building Materials – 9.24% | ||||||||
CRH America, Inc. | ||||||||
6.000%, 09/30/2016 | 1,915,000 | $ | 2,178,759 | |||||
Masco Corp. | ||||||||
6.125%, 10/03/2016 | 4,040,000 | 4,511,484 | ||||||
Mohawk Industries, Inc. | ||||||||
6.375%, 01/15/2016 | 1,570,000 | 1,752,513 | ||||||
Owens Corning | ||||||||
6.500%, 12/01/2016 | 750,000 | 844,385 | ||||||
USG Corp. | ||||||||
6.300%, 11/15/2016 | 2,790,000 | 2,957,400 | ||||||
12,244,541 | ||||||||
Consumer Products – 2.81% | ||||||||
Spectrum Brands Holdings, Inc. | ||||||||
9.500%, 06/15/2018 | 3,285,000 | 3,720,262 | ||||||
Diversified Financial Services – 7.45% | ||||||||
American International Group, Inc. | ||||||||
6.400%, 12/15/2020 | 2,785,000 | 3,449,072 | ||||||
International Lease Finance Corp. | ||||||||
6.625%, 11/15/2013 | 3,350,000 | 3,450,500 | ||||||
SLM Corp. | ||||||||
5.000%, 10/01/2013 | 2,920,000 | 2,971,100 | ||||||
9,870,672 | ||||||||
Electric Utilities – 8.55% | ||||||||
EDP Finance BV | ||||||||
4.900%, 10/01/2019(b) | 4,450,000 | 4,472,250 | ||||||
FirstEnergy Corp. | ||||||||
7.375%, 11/15/2031 | 3,950,000 | 4,627,346 | ||||||
Israel Electric Corporation Ltd. | ||||||||
7.250%, 01/15/2019(b) | 1,930,000 | 2,215,957 | ||||||
11,315,553 | ||||||||
Energy – 1.38% | ||||||||
Valero Energy Corp. | ||||||||
9.375%, 03/15/2019 | 1,340,000 | 1,828,135 |
The accompanying notes are an integral part of these Schedules of Investments.
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SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
Food, Beverage & Tobacco – 5.45% | ||||||||
Pilgrims Pride Corp. | ||||||||
7.875%, 12/15/2018 | 1,790,000 | $ | 1,935,438 | |||||
Tyson Foods, Inc. | ||||||||
6.850%, 04/01/2016 | 4,615,000 | 5,286,464 | ||||||
7,221,902 | ||||||||
Homebuilders – 9.16% | ||||||||
Centex Corp. | ||||||||
6.500%, 05/01/2016 | 2,695,000 | 3,082,406 | ||||||
Lennar Corp. | ||||||||
5.600%, 05/31/2015 | 4,275,000 | 4,552,874 | ||||||
Toll Brothers Finance Corp. | ||||||||
5.150%, 05/15/2015 | 4,235,000 | 4,491,772 | ||||||
12,127,052 | ||||||||
Insurance – 5.85% | ||||||||
CNA Financial Corp. | ||||||||
7.350%, 11/15/2019 | 1,700,000 | 2,151,822 | ||||||
5.875%, 08/15/2020 | 1,250,000 | 1,471,524 | ||||||
ING US, Inc. | ||||||||
5.500%, 07/15/2022(b) | 2,220,000 | 2,456,193 | ||||||
Marsh & McLennan Cos, Inc. | ||||||||
5.750%, 09/15/2015 | 1,490,000 | 1,657,172 | ||||||
7,736,711 | ||||||||
Media – 0.92% | ||||||||
The McGraw Hill Cos, Inc. | ||||||||
5.900%, 11/15/2017 | 1,075,000 | 1,213,182 | ||||||
Oil & Gas – 3.83% | ||||||||
Chesapeake Energy Corp. | ||||||||
6.625%, 08/15/2020 | 3,555,000 | 3,883,838 | ||||||
El Paso Corp. | ||||||||
7.000%, 06/15/2017 | 1,035,000 | 1,183,757 | ||||||
5,067,595 |
The accompanying notes are an integral part of these Schedules of Investments.
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SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
Retail – 2.41% | ||||||||
Marks & Spencer Plc(b) | ||||||||
7.125%, 12/01/2037 | 2,975,000 | $ | 3,197,780 | |||||
Technology Hardware & Equipment – 1.00% | ||||||||
ArcelorMittal SA | ||||||||
6.000%, 03/01/2021 | 1,255,000 | 1,319,456 | ||||||
Telecommunications – 1.85% | ||||||||
Telecom Italia Capital SA | ||||||||
6.999%, 06/04/2018 | 840,000 | 947,962 | ||||||
Telefonica Emisiones SAU | ||||||||
5.462%, 02/16/2021 | 1,390,000 | 1,495,929 | ||||||
2,443,891 | ||||||||
Utilities – 0.90% | ||||||||
Edison Mission Energy | ||||||||
7.000%, 05/15/2017(d) | 2,230,000 | 1,193,050 | ||||||
TOTAL CORPORATE BONDS (Cost $90,686,660) | $ | 102,455,805 | ||||||
Contracts | Value | |||||||
WARRANTS – 0.01% | ||||||||
Semiconductors – 0.01% | ||||||||
MagnaChip Semiconductor Corp. | ||||||||
Expiration Date: November 2014, Exercise Price: 1.97(c) | 80,400 | $ | 15,578 | |||||
TOTAL WARRANTS (Cost $863,486) | $ | 15,578 | ||||||
Principal Amount | Value | |||||||
REPURCHASE AGREEMENTS – 0.78% | ||||||||
Repurchase Agreement – 0.78% | ||||||||
State Street Bank and Trust Repurchase Agreement, (Dated 3/29/13), due 4/1/13, 0.01% [Collateralized by $1,080,000 Fannie Mae Bond, 2.08%, 11/2/22, (Market Value $1,080,736)] (proceeds $1,027,012). | $ | 1,027,011 | $ | 1,027,011 | ||||
TOTAL REPURCHASE AGREEMENTS (Cost $1,027,011) | $ | 1,027,011 | ||||||
Total Investments (Cost $122,705,926) – 98.86% | $ | 130,920,773 | ||||||
Other Assets in Excess of Liabilites – 1.14% | 1,509,320 | |||||||
TOTAL NET ASSETS – 100.00% | $ | 132,430,093 |
The accompanying notes are an integral part of these Schedules of Investments.
15
Brandes Separately Managed Account Reserve Trust
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (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 $14,011,763 which represents 10.58% of total net assets. |
(c) | The prices for these securities were derived from an estimate of fair market value using methods approved by the Fund's Board of Trustees. These securities represent $15,578 or 0.01% of the Fund's net assets and are classified as Level 3. See Note 2 in the Notes to Financial Statements. |
(d) | In default. |
The accompanying notes are an integral part of these Schedules of Investments.
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Brandes Separately Managed Account Reserve Trust
STATEMENT OF ASSETS AND LIABILITIES — March 31, 2013 (Unaudited)
ASSETS | ||||
Investments in securities, at cost | $ | 122,705,926 | ||
Investment in securities, at value | $ | 130,920,773 | ||
Receivables: | ||||
Securities sold | 6,053,624 | |||
Fund shares sold | 13,159 | |||
Dividends and interest | 2,065,773 | |||
Total Assets | 139,053,329 | |||
LIABILITIES | ||||
Payables: | ||||
Securities purchased | 6,093,667 | |||
Fund shares redeemed | 462,889 | |||
Dividends payable | 66,680 | |||
Total Liabilities | 6,623,236 | |||
NET ASSETS | $ | 132,430,093 | ||
COMPONENTS OF NET ASSETS | ||||
Paid-in capital | $ | 151,858,091 | ||
Undistributed net investment income | 21,500 | |||
Accumulated net realized loss on investments | (27,664,345 | ) | ||
Net unrealized appreciation on investments | 8,214,847 | |||
Total Net Assets | $ | 132,430,093 | ||
Net asset value, offering price and redemption proceeds per share | ||||
Net Assets | $ | 132,430,093 | ||
Shares outstanding (unlimited shares authorized without par value) | 14,446,459 | |||
Offering and redemption price | $ | 9.17 |
The accompanying notes to financial statements are an integral part of this statement.
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Brandes Separately Managed Account Reserve Trust
STATEMENT OF OPERATIONS — For the Six Months Ended March 31, 2013 (Unaudited)
INVESTMENT INCOME | ||||
Income | ||||
Dividend income | $ | 190,688 | ||
Interest income | 3,439,898 | |||
Miscellaneous Income | 151,620 | |||
Total Income | 3,782,206 | |||
Expenses (Note 3) | ||||
Total expenses | — | |||
Less reimbursement/waiver | — | |||
Total expenses net of reimbursement/waiver | — | |||
Net investment income | 3,782,206 | |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: | ||||
Net realized loss on Investments | (1,809,565 | ) | ||
Net change in unrealized appreciation on Investments | 4,290,388 | |||
Net realized and unrealized gain on investments and foreign currency transactions | 2,480,823 | |||
Net Increase in net assets resulting from operations | $ | 6,263,029 |
The accompanying notes to financial statements are an integral part of this statement.
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Brandes Separately Managed Account Reserve Trust
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended March 31, 2013 | Year Ended September 30, 2012 | |||||||
(Unaudited) | ||||||||
INCREASE (DECREASE) IN NET ASSETS FROM: | ||||||||
OPERATIONS | ||||||||
Net investment income | $ | 3,782,206 | $ | 8,112,112 | ||||
Net realized gain (loss) on Investments | (1,809,565 | ) | 421,276 | |||||
Net unrealized appreciation on Investments | 4,290,388 | 11,507,728 | ||||||
Net increase in net assets resulting from operations | 6,263,029 | 20,041,116 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
From net investment income | (3,888,699 | ) | (8,827,035 | ) | ||||
Decrease in net assets from distributions | (3,888,699 | ) | (8,827,035 | ) | ||||
CAPITAL SHARE TRANSACTIONS | ||||||||
Proceeds from shares sold | 13,702,447 | 21,773,905 | ||||||
Net asset value of shares issued on reinvestment of distributions | 3,128,366 | 2,132,311 | ||||||
Cost of shares redeemed | (28,361,093 | ) | (35,956,687 | ) | ||||
Net decrease in net assets from capital share transactions | (11,530,280 | ) | (12,050,471 | ) | ||||
Total decrease in net assets | (9,155,950 | ) | (836,390 | ) | ||||
NET ASSETS | ||||||||
Beginning of the Year | 141,586,043 | 142,422,433 | ||||||
End of the Year | $ | 132,430,093 | $ | 141,586,043 | ||||
Undistributed net investment income | $ | 21,500 | $ | 127,993 |
The accompanying notes to financial statements are an integral part of this statement.
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Brandes Separately Managed Account Reserve Trust
FINANCIAL HIGHLIGHTS
Six Months Ended March 31, 2013 | Year Ended September 30, 2012 | Year Ended September 30, 2011 | Year Ended September 30, 2010 | Year Ended September 30, 2009 | Year Ended September 30, 2008 | |||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 9.01 | $ | 8.32 | $ | 8.46 | $ | 7.46 | $ | 6.97 | $ | 9.61 | ||||||||||||
Income (Loss) from investment operations: | ||||||||||||||||||||||||
Net investment income | 0.26 | (4) | 0.49 | (4) | 0.52 | (4) | 0.60 | (4) | 0.64 | 0.81 | ||||||||||||||
Net realized and unrealized gain/(loss) on investments | 0.17 | 0.73 | (0.12 | ) | 0.97 | 0.47 | (2.63 | ) | ||||||||||||||||
Net increase from payments by affiliates (Note 2L) | — | — | — | — | — | 0.01 | ||||||||||||||||||
Total from investment operations | 0.43 | 1.22 | 0.40 | 1.57 | 1.11 | (1.81 | ) | |||||||||||||||||
Less dividends and distributions: | ||||||||||||||||||||||||
Dividends from net investment income | (0.27 | ) | (0.53 | ) | (0.54 | ) | (0.57 | ) | (0.62 | ) | (0.81 | ) | ||||||||||||
Dividends from net realized gain | — | — | — | — | — | (0.02 | ) | |||||||||||||||||
Total dividends and distributions | (0.27 | ) | (0.53 | ) | (0.54 | ) | (0.57 | ) | (0.62 | ) | (0.83 | ) | ||||||||||||
Net asset value, end of period | $ | 9.17 | $ | 9.01 | $ | 8.32 | $ | 8.46 | $ | 7.46 | $ | 6.97 | ||||||||||||
Total return | 4.79 | %(1) | 15.13 | % | 4.61 | % | 21.81 | % | 18.25 | % | (20.15 | )%(5) | ||||||||||||
Net assets, end of period (millions) | $ | 132.4 | $ | 141.6 | $ | 142.4 | $ | 158.5 | $ | 157.5 | $ | 154.6 | ||||||||||||
Ratio of net expenses to average net assets(3) | 0.00 | %(2) | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||||||
Ratio of net investment income to average net assets(3) | 5.70 | %(2) | 5.66 | % | 5.98 | % | 7.53 | % | 10.15 | % | 9.28 | % | ||||||||||||
Portfolio turnover rate | 17.54 | %(2) | 27.44 | % | 56.16 | % | 36.90 | % | 40.53 | % | 157.66 | % |
(1) | Not annualized. |
(2) | Annualized. |
(3) | 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. |
(4) | Net investment income per share has been calculated based on average shares outstanding during the period. |
(5) | 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 Fund's total return. See Note 2H in the Notes to Financial Statements. |
The accompanying notes to financial statements are an integral part of this statement.
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Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS — (Unaudited)
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 |
21
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
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 values 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. | 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. |
22
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
G. | Accounting for Uncertainty in Income Taxes. The 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 Fund 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 Fund 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 (2010 through 2012). As of March 31, 2013, 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, 2012. 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 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: |
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Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
Level 1 — | Quoted unadjusted prices for identical instruments in active markets to which the Trust has access at the date of measurement. |
Level 2 — | Other significant observable market inputs including quoted prices for similar instruments in active markets; quoted adjusted prices in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exist or instances where prices vary substantially over time or among brokered market makers. |
Level 3 — | Significant unobservable inputs including model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect the Trust’s own assumptions that market participants would use to price the asset or liability based on the best available information. |
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
24
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
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 Trust 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 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.
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. None of the Fund’s securities were fair valued utilizing this method as of March 31, 2013.
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.
25
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
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.
The Fund may enter into mortgage dollar roll transactions in which the Fund sells a mortgage-backed security to a counterparty and simultaneously enters into an agreement with the same counterparty to buy back a similar security on a specific future date at a predetermined price. Risks may arise due to the delayed payment date and the potential inability of counterparties to complete the transaction. Mortgage dollar rolls are accounted for as purchase and sale transactions, which may increase the Fund's portfolio turnover rate.
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, 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 only if there are significant observable inputs used.
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
26
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
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 are 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 of the fair value hierarchy.
27
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
The following is a summary of the inputs used, as of March 31, 2013, involving the Fund’s assets carried at value. The inputs of methodology 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 | |||||||||||||
Investment in Securities | |||||||||||||||||
SMART Fund | |||||||||||||||||
Equities | $ | 3,955,988 | $ | 1,669,583 | $ | — | $ | 5,625,571 | |||||||||
Asset Backed Securities | — | 1,399,262 | 4,874,250 | 6,273,512 | |||||||||||||
Corporate Bonds | — | 102,455,806 | — | 102,455,806 | |||||||||||||
Government Securities | — | 8,096,619 | — | 8,096,619 | |||||||||||||
Mortgage Backed Securities | — | 6,429,419 | 997,257 | 7,426,676 | |||||||||||||
Warrants | — | — | 15,578 | 15,578 | |||||||||||||
Repurchase Agreements | — | 1,027,011 | — | 1,027,011 | |||||||||||||
Total Investments in Securities | $ | 3,955,988 | $ | 121,077,700 | $ | 5,887,085 | $ | 130,920,773 |
Please refer to the Schedule of Investments for additional information regarding the composition of the amounts listed above.
The Fund recognizes transfers based on the value of the securities at the end of the reporting period. There were no transfers into or out of levels 1 or 2 during the periods presented for the Fund.
Below is a reconciliation that details the activity of securities in Level 3 during the six months ended March 31, 2013:
Beginning Balance – October 1, 2012 | $ | 5,754,365 | ||
Purchases | — | |||
Sales | (690,351 | ) | ||
Transfers in to level 3 | — | |||
Transfers out of level 3 | — | |||
Realized gains (losses) | (2,223,255 | ) | ||
Change in unrealized gains (losses) | 3,046,326 | |||
Ending Balance – March 31, 2013 | $ | 5,887,085 |
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 & Liabilities. As of March 31, 2013, the Fund had $1,972,313 of unrealized losses from Level 3 securities.
28
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
The following table presents information about unobservable inputs related to the Trust's categories of Level 3 investments as of March 31, 2013:
Fair value at 3/31/2013 | Valuation Techniques | Unobservable Inputs | Ranges | |||||
Student Loans | $4,874,250 | Consensus pricing | Third party inputs | N/A | ||||
Discounted cash flows | Prepayment speeds | 0 - 4% | ||||||
Federal & Federally Sponsored Credits | 997,257 | Consensus pricing | Third party inputs | N/A | ||||
Equity Securities | — | Expected proceeds from pending litigation | No active market Qualitative information based on the status of pending litigation | None | ||||
Warrants | 15,578 | Intrinsic Value | Warrant strike price & underlying stock price | N/A |
The following provides a general description of the impact of a change in an unobservable input on the fair value measurement and the interrelationship of unobservable inputs, where relevant/significant. Interrelationships may also exist between observable and unobservable inputs (for example, as interest rates rise, prepayment rates decline).
Student Loans & Federal & Federally Sponsored Credits
At regular intervals the above unobservable inputs are reviewed and compared to publicly available information for reasonableness. Values are compared to historical averages and general sector trends are taken into account. In general, an increase in the discount rate, default rates, loss severity and delinquencies, in isolation, would result in a decrease in the fair value measurement. In addition, an increase in default rates would generally be accompanied by a decrease in recovery rates, slower prepayment rates and an increase in liquidity spreads. For each of the individual relationships described above, the inverse relationship would also generally apply.
Equity Securities
As there is no active market for Level 3 securities, the value is being derived from qualitative information based on the status of pending litigation.
29
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
Warrants
The fair value of the warrant is derived by calculating the difference between the underlying equity security’s price and the strike price of the warrant. An increase in the underlying equity security’s price will increase the fair value of the warrant security. Alternatively, a decrease in the underlying equity security’s price will decrease the fair value of the warrant security.
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. |
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 Service 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.
30
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
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 six months ended March 31, 2013:
U.S. Government | Other | |||||||||||
Purchases | Sales | Purchases | Sales | |||||||||
$15,210,115 | $23,639,445 | $7,727,356 | $8,494,160 |
NOTE 5 – CAPITAL STOCK TRANSACTIONS
The Fund’s capital stock activity in shares and dollars during the six months ended March 31, 2013 and the year ended September 30, 2012, was as follows (shares and dollar amounts in thousands):
March 31, 2013 | September 30, 2012 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares Sold | 1,506 | $ | 13,703 | 2,514 | $ | 21,774 | ||||||||||
Issued on Reinvestment of Distributions | 343 | 3,128 | 247 | 2,132 | ||||||||||||
Shares Redeemed | (3,123 | ) | (28,361 | ) | (4,155 | ) | (35,956 | ) | ||||||||
Net (Decrease) Resulting from Fund Share Transactions | (1,274 | ) | $ | (11,530 | ) | (1,394 | ) | $ | (12,050 | ) |
NOTE 6 – FEDERAL INCOME TAX MATTERS
As of September 30, 2012, the Fund’s components of distributable earnings on a tax basis were as follows:
Cost of investments for tax purposes | $ | 136,347,181 | ||
Gross tax unrealized appreciation | 13,702,700 | |||
Gross tax unrealized depreciation | (9,778,241 | ) | ||
Net unrealized appreciation on investments and foreign currency | 3,924,459 | |||
Distributable ordinary income | 127,993 | |||
Distributable long-term capital gains | — | |||
Total distributable earnings | 127,993 | |||
Other accumulated gains | (25,854,780 | ) | ||
Total accumulated earnings | $ | (21,802,328 | ) |
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
31
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
unrealized depreciation on investments and foreign currency is due primarily to timing differences resulting from wash sale transactions. These differences are temporary.
During the year ended September 30, 2012, the Fund utilized $373,286 of capital loss carryforwards. As of September 30, 2012, the Fund had capital losses expiring on September 30, 2017, 2018 and 2019 in the amounts of $12,139,741, $6,084,748 and $6,501,831, respectively.
The tax composition of dividends for the period ended September 30, 2012 for the Fund was as follows:
Ordinary Income Total | Long Term Capital Gains Total | Return of Capital | ||||||
$8,827,035 | $ — | $ — |
At September 30, 2012, the Fund had net realized losses on investments and foreign currencies of $1,128,460 which are deferred for tax purposes and were recognized on October 1, 2012.
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, 2012, as a result of its reclassifications the Fund’s undistributed net investment income was increased by $414,858 and accumulated net realized loss was decreased by $414,858.
On December 22, 2010, The Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was signed by the President. The Modernization Act is the first major piece of legislation affecting Regulated Investment Companies (“RICs”) since 1986 and it modernizes several of the federal income and excise tax provisions related to RICs. Some highlights of the enacted provisions are described below.
New capital losses may now be carried forward indefinitely, and retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for up to eight years, and carried forward as short-term capital loss, irrespective of the character of the original loss. The Modernization Act contains simplification provisions, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization Act exempts RICs from the preferential dividend rule, and repeals the 60-day designation requirement for certain types of pay-through income and gains. Finally, the Modernization Act contains several provisions aimed at preserving the character of distributions made by a fiscal year RIC during the portion of its taxable year ending after October 31 or December 31, reducing the circum-
32
Brandes Separately Managed Account Reserve Trust
NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
stances under which a RIC might be required to file amended Forms 1099 to restate previously reported distributions.
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 7 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On December 16, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) issued common disclosure requirements that are intended to help investors and other financial statement users to better assess the effect or potential effect of offsetting arrangements on a company’s financial position. The eligibility criteria for offsetting are different in International Financial Reporting Standards (IFRSs) and U.S. Generally Accepted Accounting Principles (US GAAP). The Trust will be required to apply the amendments in this Update for annual reporting periods beginning on or after January 1, 2013, and for interim periods within those annual periods. Management is currently evaluating the impact this disclosure may have on the Trust’s financial statements.
NOTE 8 – OWNERSHIP BY AFFILIATED PARTIES
As of March 31, 2013, the Advisor or an affiliate of the Advisor beneficially owned 613,353 shares of the Fund which comprised 4.25% of the total outstanding shares.
33
Brandes Separately Managed Account Reserve Trust
ADDITIONAL INFORMATION — (Unaudited)
BOARD CONSIDERATION AND CONTINUATION OF INVESTMENT ADVISORY AGREEMENT
In November 2012 the Board of Trustees of the Trust, including the independent Trustees, unanimously approved renewal of the Investment Advisory Agreement (the “Agreement”) between the Trust and Brandes Investment Partners, L.P. (the “Advisor”) with respect to the SMART Fund (the “Fund”) for an additional one-year term.
Information Reviewed
During the course of each year, Board members review a wide variety of materials relating to the nature, extent and quality of the services provided to the Fund by the Advisor, including reports on the Fund’s investment results, portfolio composition, portfolio trading practices, and other matters. In addition, in connection with its annual review of the Agreement with respect to the Fund, the Board requested and reviewed supplementary information that included materials regarding the Fund’s investment results, advisory fee and expense comparisons, financial and profitability information regarding the Advisor, descriptions of various functions such as compliance monitoring and portfolio trading practices, and information about the personnel providing investment management and administrative services to the Fund.
In connection with its reviews, the Board received assistance and advice regarding legal and industry standards from counsel to the Trust and the independent Trustees. The independent Trustees discussed the approval of the Agreement with respect to the Fund with representatives of the Advisor and in private sessions with counsel at which no representatives of the Advisor were present. In deciding to recommend approval of the Agreement with respect to the Fund, the Board and the independent Trustees did not identify any single or particular piece of information that, in isolation, was the controlling factor, and each Trustee did not necessarily attribute the same weight to each factor. This summary describes the most important, but not all, of the factors considered by the Board and the independent Trustees.
Nature, Extent and Quality of Services
With respect to the nature, extent and quality of services provided by the Advisor to the Fund, the Trustees reviewed among other things the quality and depth of the Advisor’s investment management staff, its regulatory compliance procedures, the day-to-day administrative services provided by the Advisor to the Fund and the investment results of the Fund.
The Trustees noted that the Fund’s investment results gross of fees (which are paid by the Advisor) were in the first quartile of the results of a peer group of funds identified by Morningstar Associates (“Morningstar”) for the one-year and three-year periods ended September 30, 2012, although they were in the fourth quartile for the five-year period ended on that date; were in the first quartile of the larger group of
34
Brandes Separately Managed Account Reserve Trust
ADDITIONAL INFORMATION — (Unaudited)
funds in its Morningstar category for four of the last seven calendar years; and were above its benchmark indices for the one-year, three-year and since-inception periods although below one of the indices for the five-year period . They concluded that the Fund’s performance was satisfactory.
Advisory Fees, Total Expenses, Profitability and Ancillary Benefits
The Trustees noted that the Fund does not incur any advisory fees or other expenses, all of which are paid by the Advisor, and as a result the Advisor’s relationship with the Fund alone is not profitable. The Board also considered ancillary benefits to the Advisor as a result of its relationship with the Fund. They noted that these were primarily related to the Advisor’s receipt of wrap account fees from Fund shareholders through various broker-dealer sponsors that are not affiliated with either the Fund or the Advisor, and the benefit of research provided by broker-dealers executing portfolio transactions on behalf of the Fund (as the Adviser did not obtain third-party research or other services in return for allocating the Fund’s brokerage).
Conclusions
Based on their review, including consideration of each of the factors referred to above, the Board and the independent Trustees concluded that the Agreement is fair and reasonable to the Fund and its shareholders, that each of the factors discussed above supported renewal of the Agreement, and that renewal of the Agreement was in the best interests of the Fund and its shareholders.
35
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.
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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 objectives 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) | ||||||||||
J. Michael Gaffney, CFA 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 71) | Trustee | Since June 2004 | Independent Consultant, NATIXIS Global Asset Management, North America, from 2004 to 2011. | 7 | None | |||||
Jean E. Carter 11988 El Camino Real Suite 500 San Diego, CA 92130 (Age 55) | Trustee | Since April 2008 | Retired since 2005; Director, Investment Management and other positions of Russell Investment Group from 1982 to 2005. | 7 | None | |||||
Robert M. Fitzgerald, CPA 11988 El Camino Real Suite 500 San Diego, CA 92130 (Age 61) | Trustee | Since April 2008 | Retired from 2002 – 2005 and since 2007; Chief Financial Officer of National Retirement Partners from 2005 to 2007. | 7 | Hotchkis and Wiley Mutual Funds. | |||||
Craig Wainscott 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age: 51) | Trustee | Since February 2012 | Retired since 2006; Managing Director and other positions, US Mutual Funds; Russell Investments from 1982 to 2006; currently Partner with The Paradigm Project and advisor to early-stage companies. | 7 | None |
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Brandes Separately Managed Account Reserve Trust
TRUSTEE AND OFFICER INFORMATION — (Unaudited)
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) | ||||||||||
Oliver Murray 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 50) | Trustee | Since February 2012 | CEO, Brandes Investment Partners & Co.; Managing Director – PMCS of Brandes Investment Partners, L.P., the investment advisor to the Fund (the “Advisor”). | 7 | None | |||||
Jeff Busby 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 52) | Trustee and President | Since July 2006 | Executive Director of the Advisor. | 7 | None | |||||
Officers of the Trust | ||||||||||
Thomas M. Quinlan 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 42) | 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 56) | 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 62) | 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. |
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Brandes Separately Managed Account Reserve Trust
TRUSTEE AND OFFICER INFORMATION — (Unaudited)
PRIVACY NOTICE
Brandes Investment Partners, L.P. and the Brandes Investment Trust collect nonpublic information about you from the following sources:
• | Information we receive about you on applications or other forms; |
• | Information you give us orally; and |
• | Information about your transactions with us or others. |
We do not disclose any nonpublic personal information about our customers or former customers without the customer’s authorization, except as permitted by law or in response to inquires from governmental authorities.
We restrict access to your personal and account information to those personnel who need to know that information to provide products and services to you. We also may disclose that information to unaffiliated third parties (such as to brokers or custodians) only as permitted by law and only as needed for us to provide agreed services to you. We maintain physical, electronic and procedural safeguards to guard your nonpublic personal information.
39
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 90071
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.
INTERNATIONAL EQUITY FUND
GLOBAL EQUITY FUND
EMERGING MARKETS FUND
INTERNATIONAL
SMALL CAP EQUITY FUND
CORE PLUS FIXED INCOME FUND
CREDIT FOCUS YIELD FUND
SEMI-ANNUAL REPORT
For the periods ended
March 31, 2013
Brandes International Equity Fund
Dear Shareholder:
The Brandes International Equity Fund I shares gained 9.70% during the six months ended March 31, 2013, underperforming its benchmark, the MSCI EAFE Index, which rose 12.04% during the same period.
In this letter, I will discuss sector-, country- and stock-specific factors that affected the Fund’s performance and describe changes in the Fund’s composition for the six-month period. In addition, I will share insight into how the Fund is currently positioned for the future.
The Markets
The last six months were marked with mixed results for international equity markets. In Japan, the weakening yen resulting from the new government’s promise to tackle deflation and support more export-friendly exchange rate helped boost investors’ confidence in the prospects of many companies in the country. In Europe, investors’ optimism shown toward the end of 2012 following the European Central Bank’s commitment to “do whatever it takes” to save the euro zone was lowered, but still maintained, during the first quarter of 2013. Political uncertainties surrounding some of European Union member countries — such as Italy — and Cyprus’ recent banking crisis weighed on investors’ skepticism toward equities in the region.
Amid this backdrop, international equities delivered favorable performance overall — as indicated by the positive returns of MSCI EAFE Index for the period.
The Fund
During the period, the Fund’s large overweight to and stock selection in the telecommunications services sector weighed most heavily on relative returns. The sector was home to six out of 10 largest performance detractors within the Fund, including Telecom Italia, France Telecom, Deutsche Telekom and Nippon Telegraph and Telephone Corp. The Fund’s allocations to the utilities sector also contributed negatively to performance, as represented by holdings in France-based GDF Suez and Brazil-based Eletrobras, which was down 42% during the period. Despite their unfavorable performances, we believe these companies continue to offer attractive upside potential and thus merit continued inclusion in the Fund.
Despite the negative relative performance, there were plenty of bright spots in the Fund. Holdings in the information technology (IT) and materials sectors made positive contributions to relative returns. Within materials, Mexican cement company Cemex, which returned about 47%, continued to benefit the Fund strongly. In the IT sector, the Fund was aided by holdings in Netherlands-based semiconductor manufacturer STMicroelectronics — the Fund’s best-performing stock on an absolute basis — and Switzerland-based TE Connectivity.
1
Brandes International Equity Fund
From a country perspective, the Fund’s overweight to Italy-based companies, including commercial bank Intesa Sanpaolo and the above-mentioned Telecom Italia, contributed most negatively to relative returns. Conversely, the Fund’s exposure to the Netherlands and the United Kingdom helped performance.
During the period, we sold select holdings as their prices appreciated toward our estimates of their intrinsic value, such as positions in Japan-based conglomerate Sony and the above-mentioned STMicrolectronics. Other eliminated positions included holdings in Netherlands-based chemicals company Akzo Nobel, Germany-based Deutsche Bank and two telecommunications services companies (Portugal-based Portugal Telecom and South Korea-based SK Telecom).
At the same time, we initiated new positions in companies such as Ireland-domiciled hard disk drives manufacturer Seagate Technology, France-based utility company Suez Environment and Japan-based electronic components producer TDK Corporation.
As of March 31, 2013, the Fund’s most substantial country weightings were in Japan, the United Kingdom and France. On a sector basis, the Fund’s largest exposures were to financials, telecommunications services and health care.
Outlook
Amid the ongoing uncertainties in the international equity markets, we continue to believe that our commitment to value investing remains crucial in helping our clients pursue long-term capital appreciation. As a true value investor, we are mindful of the relationship between stock price and intrinsic value. Our long-term focus helps us keep our investment decisions objective and uninfluenced by short-term market fads. We hold the view that some companies perceived as good could turn out to be poor investments due to their inflated stock prices driven by overly rosy expectations. On the other hand, out-of-favor companies could be excellent investments as widespread pessimism could disproportionately drive their prices down. As value practitioner Benjamin Graham was reportedly fond of saying, “In the short run, the market is a voting machine... but in the long run [it] is a weighing machine.” In this light, we believe valuations ultimately matter for investors focused on the road ahead.
We are excited about the future prospects of the Brandes International Equity Fund, and appreciate the trust you have placed in us.
Sincerely yours,
Jeffrey A. Busby, CFA
President
Brandes Investment Trust
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Brandes International Equity Fund
Past performance does not guarantee future results.
Because the values of the Fund's investments will fluctuate with market conditions, so will the value of your investment in the Fund. You could lose money on your investment in the Fund, or the Fund could underperform other investments. 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.
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.
Must be preceded or accompanied by a prospectus.
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. The MSCI EAFE Index consists 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.
The Brandes International Equity Fund is distributed by Quasar Distributors, LLC.
3
Brandes International Equity Fund
The following chart compares the value of a hypothetical $1,000,000 investment in the Brandes International Equity Fund — Class I from March 31, 2003 to March 31, 2013 and in the Morgan Stanley Capital International EAFE Index.
Value of $1,000,000 vs Morgan Stanley Capital International
EAFE (Europe, Australasia and Far East) Index — (Unaudited)
Average Annual Total Return Periods Ended March 31, 2013 | ||||||||||||||||
One Year | Five Years | Ten Years | Since Inception(1) | |||||||||||||
Brandes International Equity Fund | ||||||||||||||||
Class A | 4.81 | % | N/A | N/A | -0.67 | % | ||||||||||
Class A (with maximum sales charge) | -1.21 | % | N/A | N/A | -3.35 | % | ||||||||||
Class C | N/A | N/A | N/A | -0.49 | %(2) | |||||||||||
Class E | 4.81 | % | N/A | N/A | 2.98 | % | ||||||||||
Class I | 4.95 | % | -1.72 | % | 9.74 | % | 8.39 | % | ||||||||
Morgan Stanley Capital International EAFE Index* | 11.25 | % | -0.89 | % | 9.69 | % | 4.47 | % |
(1) | The since inception dates are as follows: Class A: January 31, 2011; Class C: January 31, 2013; Class E: December 6, 2008; Class I: January 2, 1997. |
(2) | Represents cumulative performance. |
* The average annual return shown is from the inception date of the Brandes International Equity Fund — Class I. The average annual returns since inception of the other classes of Brandes International Equity Fund are: Class A: 2.67%; and Class E: 6.73%. The cumulative return since the inception of the Brandes International Equity Fund — Class C is -0.14%.
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
4
Brandes International Equity Fund
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.
Sector Allocation as a Percentage of Total Investments as of
March 31, 2013 (Unaudited)
The sector classifications represented in the graph above and industry classifications represented in the Schedule of Investments are in accordance with 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 Global Equity Fund
Dear Shareholder:
The Brandes Global Equity Fund I shares gained 12.34% during the six-month period ended March 31, 2013, outperforming the MSCI World Index, which returned 10.41% in the same 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 six-month period. I will also discuss how the Fund is positioned for the future.
The Markets
Global markets moved higher in the fourth quarter of 2012 and the first quarter of 2013 despite concerns about the euro zone sovereign debt crisis, seemingly unsolvable fiscal quandaries in Washington D.C. and other legislative crossroads around the world, as well as the Cyprus banking problems toward the end of the period. Whether the advance was caused by commitments from major central banks to keep easy money policies in place, or perhaps a result of disaster fatigue among equity investors everywhere, is unknown. Nonetheless, a growing sense that the global economic recovery from the financial crisis is perhaps now on a more sustainable track was evident throughout the period.
The Fund
The Fund’s return for the period was driven mainly by investments in the United States, as well as companies in the information technology, consumer staples and financials sectors. Despite the Fund’s substantial underweight in the United States — a region that performed meaningfully better than the broad market — relative to the MSCI World Index, individual stock selection strongly benefited the Fund’s absolute and relative returns. Among the Fund’s best-performing holdings were Safeway, Hewlett-Packard, Swiss Re AG, Western Digital and Carrefour, S.A.
Safeway, which like many traditional grocers lost market share to expanding discount food retailers over the last decade amid the economic slowdown, was up dramatically in the first quarter of 2013 due to the positive results of its loyalty program initiatives and a now more manageable food-inflation environment. Hewlett Packard’s share price also increased sharply after it announced better-than-expected earnings in the midst of its multi-year turnaround strategy.
During the period, the Fund’s performance was positively affected by the Japanese stock market’s strong upturn, as it outperformed most countries in both local currency and U.S. dollar. Since November 14, 2012, the Nikkei 225 has rallied 42% in yen and 21% in USD terms. The cause of the difference is the weakening of the yen, which has hampered returns for U.S. based investors, but on the other hand makes Japanese exporters, like automaker Toyota, much more competitive. Our overweight allocation to Japan has benefited from the positive change in market sentiment that was sparked by the new Japanese administration’s proposed economic policy changes.
6
Brandes Global Equity Fund
Japanese automakers Toyota and Honda Motor, which derive meaningful revenues from outside of Japan, fared well in the period. Sumitomo Mitsui Financial Group also registered gains.
The main performance detractors in the Global Equity Fund during the first quarter were investments in the telecommunications services sector, specifically in Europe. Telecom Italia and France Telecom have experienced share-price distress due to declining revenues, and a difficult regulatory environment that may have created excessive competition. Although these positions have not yet performed to our expectations, we continue to believe in their long-term prospects and hold them. There is a growing market perception that the telecom sector is perhaps nearing an inflection point and may possibly turn for the better, despite some very challenging industry fundamentals. We hold the view that the regulatory environment is likely to improve, and in the meantime the valuations of these and our other European telecoms are extremely attractive. As long-time value investors we place the most emphasis on attractive pricing.
The Fund’s weightings shifted during the quarter. Most notably, we eliminated our positions in Portugal Telecom, electronics manufacturers Sony and STM Microelectronics, Valero Energy and multinational document management firm Xerox as their share prices appreciated toward our estimates of intrinsic value. For Xerox, we had reduced our estimates of its intrinsic value over the past few years as we ultimately underestimated the extent and risk of the secular decline to Xerox’s core copier business, brought on by intense competition and the onset of mobile computing. For Sony, we sold our position as we no longer believe they can overcome the increased competition and margin destruction from lower-cost Korean, Taiwanese and Chinese competitors. The Fund established new positions in Brazil-based Banco Santander and Genting Malaysia, a hotels, restaurant and leisure company.
Our Outlook
While it may be too soon to say that global markets are done churning through the economic and political turmoil created by the recent financial crisis, there are tentative signs that headline risk may now be taking a back seat and that company fundamentals are once again gaining importance. Certainly macroeconomic factors will continue to cause short-term market price fluctuations, as they always have. But as value investors, we will keep our focus at the company level, and buy and hold businesses trading at a substantial discount to what we believe are their intrinsic business values, regardless of popular market sentiment. This approach appears most rational to us, and it is the style we are most comfortable with despite its periodic, mostly near-term shortcomings.
7
Brandes Global Equity Fund
As always, thank you for your business and the continued trust you have placed in us in managing your portfolio.
Sincerely yours,
Jeffrey A. Busby, CFA
President
Brandes Investment Trust
Index Guide
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. The MSCI World Index consists 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.
The Nikkei 225 Index is an unmanaged stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. It has been calculated daily by the Nihon Keizai Shimbun (Nikkei) newspaper since 1971. It is a price-weighted average (the unit is Yen), and the components are reviewed once a year.
8
Brandes Global Equity Fund
Past performance does not guarantee future results.
Because the values of the Fund's investments will fluctuate with market conditions, so will the value of your investment in the Fund. You could lose money on your investment in the Fund, or the Fund could underperform other investments. 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.
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.
Must be preceded or accompanied by a prospectus.
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.
The Brandes Global Equity Fund is distributed by Quasar Distributors, LLC.
9
Brandes Global Equity Fund
The following chart compares the value of a hypothetical $1,000,000 investment in the Brandes Global Equity Fund — Class I from its inception (October 6, 2008) to March 31, 2013 and in the Morgan Stanley Capital International World Index.
Value of $1,000,000 vs Morgan Stanley Capital
International World Index — (Unaudited)
Average Annual Total Return | ||||||||||||
One Year | Three Years | Since Inception(1) | ||||||||||
Brandes Global Equity Fund | ||||||||||||
Class A | 10.04 | % | N/A | 4.62 | % | |||||||
Class A (with maximum sales charge) | 3.72 | % | N/A | 1.80 | % | |||||||
Class C | N/A | N/A | 2.59 | %(2) | ||||||||
Class E | 10.11 | % | 5.92 | % | 6.82 | % | ||||||
Class I | 10.33 | % | 6.19 | % | 7.01 | % | ||||||
Morgan Stanley Capital International World Index* | 11.85 | % | 8.46 | % | 9.07 | % |
(1) | The since inception dates are as follows: Class A: January 31, 2011; Class C: January 31, 2013; Class E: October 6, 2008; Class I: October 6, 2008. |
(2) | Represents cumulative performance. |
* The return shown is from the inception date of the Brandes Global Equity Fund — Class I and E (October 6, 2008). The average annual returns since inception of the other classes of Brandes Global Equity Fund are: Class A: 6.79%. The cumulative return since the inception of the Brandes Globlal Equity Fund — Class C is 2.51%.
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.
10
Brandes Global Equity Fund
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
March 31, 2013 (Unaudited)
The sector classifications represented in the graph above and industry classifications represented in the Schedule of Investments are in accordance with Global Industry Classification Standard (GICS®), which was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor Financial Services LLC.
11
Brandes Emerging Markets Fund
Dear Shareholder:
The Brandes Emerging Markets Fund I gained 8.08% during the six months ended March 31, 2013 and outperformed its benchmark, the MSCI Emerging Markets Index, which rose 3.95% for the same period.
In this letter, I will discuss sector-, country- and stock-specific factors that affected the Fund’s performance and describe changes in the Fund’s composition for the six-month period. In addition, I will share insight into how the Fund is currently positioned for the future.
The Markets
The last six months were again marked with ups and downs for emerging markets. After closing the last three months of 2012 with a gain, emerging-market equities started off 2013 sluggishly. Positive notes from the fourth quarter of 2012, such as China’s manufacturing sector expansion and accelerated industrial output in India and Mexico, were countered by less-than-favorable news during the first quarter of 2013. Even though many emerging-market countries continue to boast solid economic growth, the overall growth during the past quarter has not been quite as good as expected — mainly driven by tepid, albeit positive, growth of the Chinese economy as well as worries surrounding the Russian and Brazilian economies. In addition, declining commodity prices might also have weighed on investors’ pessimism about the prospects of commodity-linked companies in the emerging markets.
The Fund
Allocations to the materials and industrials sectors contributed positively to relative returns, driven primarily by the Fund’s stock selections in both sectors. In materials, Mexican cement company Cemex continued to perform strongly; the stock gained almost 50% during the period and was the second-largest contributor to the Fund’s outperformance. In industrials, notable companies included Brazilian aerospace conglomerate Embraer, which also served as one of the Fund’s top-three positive contributors, as well as United Arab Emirates-based airline company Air Arabia and China-based logistics company Sinotrans.
During the period, select holdings in utilities and information technology partly offset the positive contributions from other sectors. Allocation to electric utilities industry served as the most negative contributor to relative returns — with companies such as Russia-based RusHydro, Brazil-based Eletrobas and India-based Reliance Infrastructure weighing on performance. Within information technology, the Fund’s position in Taiwanese computer peripherals supplier Compal Electronics detracted from performance. South Korean multinational electronics company Samsung Electronics generated positive absolute returns during the period; however, the Fund’s underweight in the stock compared to the benchmark resulted in negative net effect to relative performance.
From a country perspective, the Fund benefited strongly from select holdings in China, most notably People’s Food Holdings — the Fund’s best-performing stock during the period — as well as from exposures to Turkey and South Korea. Conversely, the Fund’s allocations to India and Russia hurt relative performance.
12
Brandes Emerging Markets Fund
We executed a number of transactions for the Fund during the period. We eliminated several positions in the utilities and financial sectors, including South Korea-based Korea Electric Power and Brazil-based commercial bank Itau Unibanco Holding. The Fund’s position in Taiwanese electronics company Novatek Microelectronics was also sold off. At the same time, we initiated new positions across several countries and sectors, including Mexican home builders Urbi Desarrollos and Homex, Malaysian hotels and leisure company Genting Malaysia, Luxembourg-domiciled food products company Adecoagro, Egypt-based tobacco producer Eastern Tobacco, and South Korea-based automobile company Kia Motors and auto component manufacturer Hyundai Mobis.
As of March 31, 2013, the Fund’s most substantial country weightings were in Brazil, South Korea and China. On a sector basis, the Fund’s largest exposures were to financials, telecommunication services, and consumer discretionary.
Outlook
Despite the emerging-market equity rally in the last few years, the fundamentals in the emerging markets remained attractive compared to those in global developed markets. As of March 31, 2013, the MSCI Emerging Markets Index was trading at a discount to the MSCI World Index, based on various price ratios such as price-to-earnings, price-to-book and price-to-cash flow. The Brandes Emerging Markets Fund had even more attractive fundamental characteristics, with lower price ratios than the index as of March 31, 2013.
Looking ahead and beyond the period’s gain, we believe many emerging-market companies continue to provide very appealing opportunities with long-term capital appreciation potential. With our commitment to long-term value investing and our discipline in bottom-up stock selection firmly in place, we remain convinced that the Fund is well positioned to pursue holdings in undervalued businesses offering broad emerging-market exposure.
Thank you for the trust you have placed in us.
Sincerely yours,
Jeffrey A. Busby, CFA
President
Brandes Investment Trust
13
Brandes Emerging Markets Fund
Past performance does not guarantee future results.
Because the values of the Fund's investments will fluctuate with market conditions, so will the value of your investment in the Fund. You could lose money on your investment in the Fund, or the Fund could underperform other investments. 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. Investments in small and medium capitalization companies tend to have limited liquidity and greater price volatility than large capitalization companies.
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.
Price/Book: Price per share divided by book value per share.
Price/Earnings: Price per share divided by earnings per share.
Price/Cash Flow: Price per share divided by cash flow per share.
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. The MSCI Emerging Markets Index consists 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.
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. The MSCI World Index consists 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.
The Brandes Emerging Markets Fund is distributed by Quasar Distributors, LLC.
14
Brandes Emerging Markets Fund
The following chart compares the value of a hypothetical $1,000,000 investment in the Brandes Emerging Markets Fund — Class I from March 31, 2003 to March 31, 2013 and in the Morgan Stanley Emerging Markets Index.
Value of $1,000,000 vs Morgan Stanley Capital
Emerging Markets Index — (Unaudited)
Average Annual Total Return Periods Ended March 31, 2013** | ||||||||||||||||
One Year | Five Years | Ten Years | Since Inception(1) | |||||||||||||
Brandes Emerging Markets Fund | ||||||||||||||||
Class A | 3.30 | % | 6.05 | % | 18.94 | % | 9.22 | % | ||||||||
Class A (with maximum sales charge) | -2.64 | % | 4.80 | % | 18.24 | % | 8.83 | % | ||||||||
Class C | N/A | N/A | N/A | -2.52 | %(2) | |||||||||||
Class I | 3.58 | % | 6.28 | % | 19.17 | % | 9.49 | % | ||||||||
Morgan Stanley Capital International Emerging Markets Index | 2.31 | % | 1.39 | % | 17.41 | % | 7.59 | % |
(1) | The since inception dates are as follow: Class A and Class I: January 31, 2011; Class C: January 31, 2013. |
(2) | Represents cumulative performance. |
** 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 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 A shares has been adjusted to reflect the differences in the net expense ratios between the Class I and A shares. The private investment fund was not registered under the
15
Brandes Emerging Markets Fund
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.
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
March 31, 2013 (Unaudited)
The sector classifications represented in the graph above and industry classifications represented in the Schedule of Investments are in accordance with 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 International Small Cap Equity Fund
Dear Shareholder:
The Brandes International Small Cap Equity Fund I shares gained 15.94% during the six months ended March 31, 2013. For the same period, the Fund’s benchmark, the S&P Developed Ex-U.S. Small Cap Index, rose 12.38%.
In this letter, I will discuss sector-, country- and stock-specific factors that affected the Fund’s performance and describe changes in the Fund’s composition during the past year. In addition, I will share insight into how the Fund is currently positioned for the future.
The Markets
The last six months marked an eventful period for international equity markets around the world. Leadership changes took place in a number of countries, such as in China with its new president Xi Jinping, and in Japan, where new prime minister Shinzo Abe promised to tackle deflation and support a more export-friendly Yen. Euzo zone also continued to dominate the headlines, with Italy’s recent political turmoil and Cyprus’ banking crisis.
Amid uncertainty over the global economy, it was a good period for international equities. Macroeconomic concerns during the period seemed to be outweighed by market-friendly news, such as global central banks’ continued campaign of easy monetary policy, which helped send markets higher during the last six months.
The Fund
Almost all sectors contributed positively to relative returns — with consumer staples, materials and industrials serving as the top three positive contributors. Within consumer staples, China-based hog processor People’s Food Holdings (PFH) gained an impressive 110% and was the Fund’s best-performing stock on absolute and relative basis. The position in PFH was sold off during the period as its share price approached our estimate of intrinsic value.
In materials, our underweight to and stock selection within the metals and mining industry, one of the more poorly performing industries within the benchmark, aided relative returns. In industrials, France-based professional services provider Teleperformance, one of the Fund’s top-three contributors on stock level, helped boost performance.
Consumer discretionary was the only sector that contributed negatively to relative performance, although the sector actually delivered overall positive absolute returns. The biggest detractors within this sector came from the household durables industry, with holdings such as Mexican home builders Desarorolladora Homex (Homex) and Urbi Desarrollos (Urbi), which were newly added during the period. Despite their recent unfavorable performance, we believe the long-term fundamentals of Mexican housing look attractive given a young and growing demographic, a well-funded and popular mortgage financing institution financed by employee paycheck deductions and a sizeable housing deficit estimated to be nine million units in size, according to
17
Brandes International Small Cap Equity Fund
the Mexican government. Given their current valuations and the opportunities we see in the Mexican homebuilding industry, in our opinion, the Fund’s holdings in this industry trade inexpensively and offer good upside potential.
From a country perspective, our overweight to and stock selection in China contributed most to outperformance, mainly due to the excellent performance of PFH. Our holdings in Canada, including communications equipment company Sierra Wireless, and France, most notably Teleperformance, also benefited the Fund. Conversely, the Fund’s exposures to Switzerland and Japan detracted from outperformance.
During the period, we executed a number of transactions within the Fund. In addition to PFH, we also sold off the Fund’s position in U.K.-based media company ITV PLC as its shares appreciated toward our estimate of intrinsic value. Other eliminated positions included Canada-based paper products manufacturer Supremex and Brazil-based telecom services company Telefonica Brasil.
Apart from Homex and Urbi, we also initiated a new position in another Mexican home builder, Consorcio ARA. Other new buys during the period included an Egypt-based tobacco producer Eastern Tobacco, Denmark’s second-largest pharmaceutical company Lundbeck and India’s largest private electric utility provider Reliance Infrastructure.
As of March 31, 2013, the Fund’s most substantial country weightings were in Japan, the United Kingdom and Canada. On a sector basis, the Fund’s largest exposures were to consumer discretionary, industrials and consumer staples.
Outlook
With limited analyst coverage and increasing number of companies that far outnumbers the number of international large-cap companies, international small caps represent a vast investment area offering potential pricing inefficiencies. We believe our fundamental, bottom-up stock selection approach could continue to help investors identify undervalued businesses in this area, while ensuring that the associated investment risks could be justified through adequate margin of safety (difference between a security’s price and our estimate of its intrinsic value).
We remain excited about the future of the Brandes International Small Cap Equity Fund and appreciate your trust in us.
Sincerely yours,
Jeffrey A. Busby, CFA
President
Brandes Investment Trust
18
Brandes International Small Cap Equity Fund
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 investments in 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 the 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.
Index Guide
The S&P Developed Ex-U.S. SmallCap Index with gross dividends is an unmanaged, float-adjusted market capitalization weighted index that measures the equity performance of small capitalization companies from developed markets around the world, excluding the United States. This index includes dividends and distributions but does not reflect fees, brokerage commissions, withholding taxes, or other expenses of investing.
The Brandes International Small Cap Equity Fund is distributed by Quasar Distributors, LLC.
19
Brandes International Small Cap Equity Fund
The following chart compares the value of a hypothetical $1,000,000 investment in the Brandes International Small Cap Fund — Class I from March 31, 2003 to March 31, 2013 and in the S&P Developed SmallCap — Excluding U.S. Index (“S&P Developed SmallCap — Ex. U.S. Index”) for the same period.
Value of $1,000,000 vs S&P Developed SmallCap —
Ex. U.S. Index — (Unaudited)
Average Annual Total Return Periods Ended March 31, 2013* | ||||||||||||||||
One Year | Five Years | Ten Years | Since Inception(1) | |||||||||||||
Brandes International Small Cap Fund | ||||||||||||||||
Class A | 15.70 | % | 9.20 | % | 15.28 | % | 10.43 | % | ||||||||
Class A (with maximum sales charge) | 9.05 | % | 7.92 | % | 14.60 | % | 10.04 | % | ||||||||
Class C | N/A | N/A | N/A | 0.59 | %(2) | |||||||||||
Class I | 16.05 | % | 9.25 | % | 15.31 | % | 10.45 | % | ||||||||
S&P Developed SmallCap – Ex. U.S. Index | 11.43 | % | 1.51 | % | 13.44 | % | 6.73 | % |
(1) | The since inception dates are as follows: Class A and Class I: January 31, 2012; Class C: January 31, 2013. |
(2) | Represents cumulative performance. |
* | Prior to February 1, 2012, 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 International Small Cap Fund. The performance information shown for the Class I shares for periods before February 1, 2012 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 February 1, 2012 is based on calculations that are different than the standardized method of calculations presented by the SEC. The performance information shown for the Class A shares has been adjusted to reflect the |
20
Brandes International Small Cap Equity Fund
differences in the net expense ratios between the Class I and A 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. |
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
March 31, 2013 (Unaudited)
The sector classifications represented in the graph above and industry classifications represented in the Schedule of Investments are in accordance with Global Industry Classification Standard (GICS®), which was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor Financial Services LLC.
21
Brandes Core Plus Fixed Income Fund
Dear Shareholder:
The Brandes Core Plus Fixed Income Fund I shares gained 2.24% during the six-month period ended March 31, 2013, outperforming the Barclays U.S. Aggregate Bond Index, which returned 0.09% in the same 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 six-month period. I will also discuss how the Fund is positioned for the future.
The Markets
Low volatility and modest returns seemed to have characterized the fixed-income markets in the six-month period ended March 31, 2013. After posting positive returns in the fourth quarter of 2012, the markets moved mostly sideways in the first quarter of 2013. Factors that contributed to the fourth-quarter gains included stimulative central-bank policies globally, a U.S. economy that continued to outperform its developed-country peers despite lackluster performance on an absolute basis, declining euro zone tail risk, another year of strong corporate fundamentals, and robust supply/demand technicals.
The market’s continued low volatility in all fixed-income sectors persisted in the first three months of 2013. It’s interesting to note that the first quarter of 2013 marked the first negative quarterly return for the index since the fourth quarter of 2010, and the first negative first-quarter performance since 2006.
The Fund
The Fund’s positive performance during the six-month period in review was led by holdings in the asset-backed securities (ABS) sector, particularly those backed by pools of private student loans. Within corporate bonds, banks, building products and utilities were the biggest positive return contributors. In a low-volatility environment, we believe carry is king — income advantage versus the benchmark was beneficial. In the first quarter, this focus worked for the Fund — with much of the relative performance attributable to the yield advantage versus the index.
Fund activity in the first quarter was modest. We initiated new positions in preferred stock of Pitney Bowes International Inc, ING USA Inc, ArcelorMittal, and a U.S. Dollar denominated issue of Israel Electric Corp. Sales activity was limited to a pare-back of Mohawk Industries, a buildings product company that approached our estimate of its fair value, and the full sale of a subprime ABS originally issued by Countrywide.
The duration of the Fund at the end of the quarter remained shorter than that of the benchmark. The Fund’s excess yield compared to the benchmark helped relative returns. The largest overweight is to the corporate sector. Within the corporate sector, the largest overweights relative to the benchmark are in the financial, utility and homebuilding/building products industries. The Fund remains underweight agency mortgage-backed pass-through securities in favor of mortgage-backed securities
22
Brandes Core Plus Fixed Income Fund
(MBS) that, in our view, offer a more compelling value proposition than agency pass throughs: non-agency MBS, trust interest only MBS, and private student loan ABS. The Fund does not have any direct exposure to European sovereign securities, but does have a small weighting in U.S. dollar-denominated securities of Ireland-based building products company CRH Inc., telecommunications firm Telecom Italia and Spanish telecom company Telefonica.
Our Outlook
With interest rates seemingly stuck at historic lows, the search for price return and yield in the fixed-income market remains challenging. There are two questions that we receive more often than any other in recent months: Is there any value left in the corporate bond market? And what will happen to the Fund when rates begin to rise?
The answer to the first question is that while it has become more challenging to find mispriced securities, we believe value continues to exist in certain pockets of the corporate bond market. In our view it simply takes more discipline, patience, and a rigorous bottom-up approach to find securities that offer a compelling value proposition than in past years when the correlation on virtually all assets and securities was near one.
We believe that historically there has been a sweet spot in the corporate bond market around the low-end of investment-grade and upper-end of high-yield. This is an area where we often see compelling opportunity. Simply put, the market is principally segmented to investment-grade managers and high-yield managers. Thus, when a bond trends toward high-yield, investment-grade managers often are forced to sell, and since high-yield managers tend to focus on lower-quality bonds these cross-over bonds often do not have a natural buyer. This potentially creates the sweet spot mentioned above. The numbers also reflect this market inefficiency. Since 1984 the average incremental credit loss from bonds downgraded from BBB to BB is 0.55%, but the average annual spread widening for bonds downgraded from BBB to BB is 1.80% — or triple the incremental credit loss.
We have written in the past about how corporate bonds have historically outperformed the Barclays U.S. Aggregate Bond Index in periods of rising interest rates. Our contention has been that if rates begin to rise, it will likely be primarily due to improvement in the domestic economy and in all likelihood the global economy. If this turns out to be the case, this generally bodes well for corporate income statements and corporate balance sheets — i.e., corporate risk profiles will likely improve. Therefore, one does not have to make too large of a leap to conclude that if and when rates begin to rise, credit spreads can tighten further.
Barclays recently performed an analysis where they found the historical beta (1993-March 22, 2013) of Barclays U.S. Credit Bond Index spreads to interest rates is -0.23x. This means that for a 1% increase in 10-year U.S. Treasury yields, credit spreads tend to tighten 23 basis points — or to put it another way, approximately one quarter of the interest-rate rise is expected to be offset by spread tightening. Barclays
23
Brandes Core Plus Fixed Income Fund
analysis further found, as you might expect, that the spread beta is more negative for BBB rated securities: -0.57x for financials and -0.33x for non-financials.
Regarding the second question about how the Fund will behave in a rising rate environment — the short answer is that we don’t know — particularly since the current environment is unprecedented in not only the absolute level of interest rates but also in the magnitude of central-bank manipulation. The longer answer is that based on history, we believe that by owning a diversified portfolio containing an allocation to corporate bonds and credit-sensitive MBS, investors may be able to mitigate some of the negative impact of higher rates (of course with the caveat that past performance is not a guarantee of future results).
We anticipate that 2013 will likely be a lower total-return year for the credit market. This is a simple reality dictated by tighter spreads and lower yields to start the year than previous years. We feel that in an environment like this, a more important factor in determining success over the coming year will be what an investor buys rather than if they buy. Quite frankly, we’d still like to see an uptick in volatility. With a low-volatility first quarter now in the books, we do not see a reason to amend our outlook from three months ago.
We like the securities we hold and feel that the Fund has an attractive value component. We also believe that we have a fair amount of dry powder to increase the value component of the Fund if volatility experiences an uptick and real credit risk becomes mispriced. While we’ve been able to deliver strong relative performance over the last few years, we believe that an environment that rewards bottom-up, fundamental research and security selection continues to unquestionably play to our strengths.
Sincerely yours,
Jeffrey A. Busby, CFA
President
Brandes Investment Trust
24
Brandes Core Plus Fixed Income Fund
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 additional risks, including currency fluctuations, political instability, differences in financial reporting standards and less stringent regulation of securities markets.
International and emerging markets investing is subject to certain risks such as currency fluctuations and social and political changes; such risks may result in greater share price volatility. Emerging market countries involve greater risks, such as immature economic structures, national policies restricting investments by foreigners, and different legal systems.
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 value 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.
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.
Must be preceded or accompanied by a prospectus.
Index Guide
The Barclays 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-denomi-
25
Brandes Core Plus Fixed Income Fund
nated, 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.
The Barclays U.S. Credit Bond Index is an unmanaged index consisting of U.S. dollar-denominated, publicly issued, fixed-rate corporate securities. The US Credit Index comprises the US Corporate Index and a non-corporate component that includes foreign agencies, sovereigns, supranationals and local authorities. The US Credit Index was called the US Corporate Investment Grade Index until July 2000, when it was renamed to reflect its inclusion of both corporate and non-corporate issuers. Index history is available back to 1973. The US Credit Index is a subset of the US Government/Credit Index and the US Aggregate Index. The index is a total return index which reflects the price changes and interest of each bond in the index.
Please note that all indices are unmanaged are not available for direct investment.
Duration: the weighted maturity of a fixed-income investment’s cash flows, used in the estimation of the price sensitivity of fixed-income securities for a given change in interest rates.
Carry: The income advantage versus a fixed-income index as measured by yield-to-worst maturity.
Yield: The annual income from the investment (dividend, interest, etc.) divided by the current market price of the investment.
Beta: A stock’s (or a portfolio’s) beta measures its volatility versus an index. A stock (or portfolio) with a beta higher than 1 has tended to exhibit more volatility than the index, while a stock (or portfolio) with a beta between 0 and 1 has tended to exhibit less volatility than the index.
Dry powder: Securities considered to be dry powder could be Treasuries or other fixed–income investments that can be liquidated on short notice (Investopedia, retrieved 10/8/2012)
Basis Point: A unit that is equal to 1/100th of 1%, and is used to indicate the change in a financial instrument.
The Brandes Core Plus Fixed Income Fund is distributed by Quasar Distributors, LLC.
26
Brandes Core Plus Fixed Income Fund
The following chart compares the value of a hypothetical $1,000,000 investment in the Brandes Core Plus Fixed Income Fund — Class I from its inception (December 28, 2007) to March 31, 2013 and in the Barclays Capital U.S. Aggregate Index.
Value of $1,000,000 vs Barclays Capital
U.S. Aggregate Index — (Unaudited)
Average Annual Total Return Periods Ended March 31, 2013 | ||||||||||||
One Year | Three Years | Since Inception(1) | ||||||||||
Brandes Core Plus Fixed Income Fund | ||||||||||||
Class A | N/A | N/A | 0.55 | %(2) | ||||||||
Class A (with maximum sales charge) | N/A | N/A | -3.25 | %(2) | ||||||||
Class E | 7.23 | % | 7.49 | % | 5.34 | % | ||||||
Class I | 7.35 | % | 7.68 | % | 5.43 | % | ||||||
Barclays Capital U.S. Aggregate Index* | 3.77 | % | 5.52 | % | 5.69 | % |
(1) | The since inception dates are as follows: Class A: January 31, 2013; Class E: May 28, 2008; Class I: December 28, 2007. |
(2) | Represents cumulative performance. |
* The Barclays Capital U.S. Aggregate Index since inception return shown is from the inception date of the Brandes Core Plus Fixed Income Fund — Class I. The average annual returns since inception of the other classes of Brandes Institutional Core Plus Fixed Income Fund are: Class E: 5.85%. The cumulative return since the inception of the Brandes Institutional Core Plus Fixed Income Fund — Class A is 0.58%.
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
27
Brandes Core Plus Fixed Income Fund
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
March 31, 2013 (Unaudited)
The sector classifications represented in the graph above and industry classifications represented in the Schedule of Investments are in accordance with Global Industry Classification Standards (GICS®), which was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor Financial Services LLC.
28
Brandes Credit Focus Yield Fund
Dear Shareholder:
The Brandes Institutional Credit Focus Yield Fund I shares gained 1.93% during the six-month period ended March 31, 2013, outperforming the Barclays U.S. Intermediate Credit Bond Index, which returned 1.42% in the same 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 six-month period. I will also discuss how the Fund is positioned for the future.
The Markets
Low volatility and modest returns seemed to have characterized the fixed-income markets in the six-month period ended March 31, 2013. After posting positive returns in the fourth quarter of 2012, the markets moved mostly sideways in the first quarter of 2013. Factors that contributed to the fourth-quarter gains included stimulative central-bank policies globally, a U.S. economy that continued to outperform its developed-country peers despite lackluster performance on an absolute basis, declining euro zone tail risk, another year of strong corporate fundamentals, and robust supply/demand technicals.
The theme of low volatility persisted in the first three months of 2013 among all fixed-income sectors. It’s interesting to note that the first quarter of 2013 marked the first negative quarterly return for the index since the fourth quarter of 2010, and the first negative first-quarter performance since 2006.
The Fund
The Fund’s positive performance was led by holdings in banks, life insurance and independent energy. Our allocation to Treasuries was a modest drag on performance.
The Fund’s portfolio activity in the first quarter was modest. We initiated new positions in preferred stock of Pitney Bowes International Inc, ING USA Inc, ArcelorMittal, and a U.S. Dollar denominated issue of Israel Electric Corp. Sales activity was limited to a pare-back of a building products company that approached our estimate of its fair value. The duration of the portfolio at the end of the quarter remained shorter than that of the benchmark. The Fund’s excess yield compared to the benchmark helped relative returns.
Within the corporate sector, the largest overweights are in the financial, utility and homebuilder/building products industries. The portfolio does not have any direct exposure to European sovereign securities, but does have a small weighting in U.S. dollar-denominated securities of an Ireland-based building products company — CRH Inc., an Italian telecommunications company — Telecom Italia and a Spanish telecommunications firm- Telefonica.
29
Brandes Credit Focus Yield Fund
Our Outlook
With interest rates seemingly stuck at historic lows, the search for price return and yield in the fixed-income market remains challenging. There are two questions that we receive more often than any other in recent months: Is there any value left in the corporate bond market? And what will happen to the Fund when rates begin to rise?
The answer to the first question is that while it has become more challenging to find mispriced securities, we believe value continues to exist in certain pockets of the corporate bond market. In our view it simply takes more discipline, patience, and a rigorous bottom-up approach to find securities that offer a compelling value proposition than in past years when the correlation on virtually all assets and securities was near one.
We believe that historically there has been a sweet spot in the corporate bond market around the low-end of investment-grade and upper-end of high-yield. This is an area where we often see compelling opportunity. Simply put, the market is principally segmented to investment-grade managers and high-yield managers. Thus, when a bond trends toward high-yield, investment-grade managers often are forced to sell, and since high-yield managers tend to focus on lower-quality bonds these cross-over bonds often do not have a natural buyer. This potentially creates the sweet spot mentioned above. The numbers also reflect this market inefficiency. Since 1984 the average incremental credit loss from bonds downgraded from BBB to BB is 0.55%, but the average annual spread widening for bonds downgraded from BBB to BB is 1.80% — or triple the incremental credit loss.
We have written in the past about how corporate bonds have historically outperformed the Barclays U.S. Aggregate Bond Index in periods of rising interest rates. Our contention has been that if rates begin to rise, it will likely be primarily due to improvement in the domestic economy and in all likelihood the global economy. If this turns out to be the case, this generally bodes well for corporate income statements and corporate balance sheets — i.e., corporate risk profiles will likely improve. Therefore, one does not have to make too large of a leap to conclude that if and when rates begin to rise, credit spreads can tighten further.
Barclays recently performed an analysis where they found the historical beta (1993-March 22, 2013) of Barclays U.S. Credit Bond Index spreads to interest rates is -0.23x. This means that for a 1% increase in 10-year U.S. Treasury yields, credit spreads tend to tighten 23 basis points — or to put it another way, approximately one quarter of the interest-rate rise is expected to be offset by spread tightening. Barclays analysis further found, as you might expect, that the spread beta is more negative for BBB rated securities: -0.57x for financials and -0.33x for non-financials.
Regarding the second question about how the Fund will behave in a rising rate environment — the short answer is that we don’t know — particularly since the current environment is unprecedented in not only the absolute level of interest rates but also in the magnitude of central-bank manipulation. The longer answer is that based on
30
Brandes Credit Focus Yield Fund
history, we believe that by owning a diversified portfolio containing an allocation to corporate bonds and credit-sensitive MBS, investors may be able to mitigate some of the negative impact of higher rates (of course with the caveat that past performance is not a guarantee of future results).
We anticipate that 2013 will likely be a lower total-return year for the credit market. This is a simple reality dictated by tighter spreads and lower yields to start the year than previous years. We feel that in an environment like this, a more important factor in determining success over the coming year will be what an investor buys rather than if they buy. Quite frankly, we’d still like to see an uptick in volatility. With a low-volatility first quarter now in the books, we do not see a reason to amend our outlook from three months ago.
We like the securities we hold and feel that the Fund has an attractive value component. We also believe that we have a fair amount of dry powder to increase the value component of the Fund if volatility experiences an uptick and real credit risk becomes mispriced. While we’ve been able to deliver strong relative performance over the last few years, we believe that an environment that rewards bottom-up, fundamental research and security selection continues to unquestionably play to our strengths.
Sincerely yours,
Jeffrey A. Busby, CFA
President
Brandes Investment Trust
31
Brandes Credit Focus Yield Fund
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 additional risks, including currency fluctuations, political instability, differences in financial reporting standards and less stringent regulation of securities markets.
International and emerging markets investing is subject to certain risks such as currency fluctuations and social and political changes; such risks may result in greater share price volatility. Emerging market countries involve greater risks, such as immature economic structures, national policies restricting investments by foreigners, and different legal systems. 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.
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 value 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.
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.
Must be preceded or accompanied by a prospectus.
32
Brandes Credit Focus Yield Fund
Index Guide
The Barclays U.S. Intermediate Credit Bond Index is an unmanaged index consisting of U.S. dollar-denominated, publicly issued, fixed-rate corporate securities. The index includes securities in the intermediate maturity range of the U.S. Credit Index. The Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements. The index is a total return index which reflects the price changes and interest of each bond in the index.
The Barclays 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.
The Barclays U.S. Credit Bond Index is an unmanaged index consisting of U.S. dollar-denominated, publicly issued, fixed-rate corporate securities. The US Credit Index comprises the US Corporate Index and a non-corporate component that includes foreign agencies, sovereigns, supranationals and local authorities. The US Credit Index was called the US Corporate Investment Grade Index until July 2000, when it was renamed to reflect its inclusion of both corporate and non-corporate issuers. Index history is available back to 1973. The US Credit Index is a subset of the US Government/Credit Index and the US Aggregate Index. The index is a total return index which reflects the price changes and interest of each bond in the index.
Duration: the weighted maturity of a fixed-income investment’s cash flows, used in the estimation of the price sensitivity of fixed-income securities for a given change in interest rates.
Yield: The annual income from the investment (dividend, interest, etc.) divided by the current market price of the investment.
Beta: A stock’s (or a portfolio’s) beta measures its volatility versus an index. A stock (or portfolio) with a beta higher than 1 has tended to exhibit more volatility than the index, while a stock (or portfolio) with a beta between 0 and 1 has tended to exhibit less volatility than the index.
Dry powder: Securities considered to be dry powder could be Treasuries or other fixed–income investments that can be liquidated on short notice (Investopedia, retrieved 10/8/2012)
Basis Point: A unit that is equal to 1/100th of 1%, and is used to indicate the change in a financial instrument.
The Brandes Credit Focus Yield Fund is distributed by Quasar Distributors, LLC.
33
Brandes Credit Focus Yield Fund
The following chart compares the value of a hypothetical $1,000,000 investment in the Brandes Credit Focus Yield Fund — Class I from March 31, 2003 to March 31, 2013 as compared with the Barclays Capital U.S. Intermediate Credit Index.
Value of $1,000,000 vs Barclays Capital
U.S. Intermediate Credit Index — (Unaudited)
Average Annual Total Return Periods Ended March 31, 2013* | ||||||||||||||||
One Year | Five Years | Ten Years | Since Inception(1) | |||||||||||||
Brandes Credit Focus Yield Fund | ||||||||||||||||
Class A | 6.11 | % | N/A | N/A | 5.98 | % | ||||||||||
Class A (with maximum sales charge) | 2.16 | % | N/A | N/A | 2.32 | % | ||||||||||
Class I | 6.41 | % | 6.63 | % | 6.57 | % | 6.82 | % | ||||||||
Barclays Capital U.S. Intermediate Credit Index* | 5.96 | % | 6.54 | % | 5.41 | % | 6.51 | % |
(1) | The since inception dates are as follows: Class A: March 1, 2012; Class I: January 31, 2012. |
* Prior to February 1, 2012, 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 Credit Focus Yield Fund. The performance information shown for the Class I shares for periods before February 1, 2012 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 February 1, 2012 is based on calculations that are different than the standardized method of calculations presented by the SEC. The performance information shown for the Class A shares has been adjusted to reflect the differences in the net expense ratios between the Class I and A 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
34
Brandes Credit Focus Yield Fund
1940 Act and the Internal Revenue Code of 1986, which, if applicable, may have adversely affected its performance.
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 shareholders 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
March 31, 2013 (Unaudited)
The sector classifications represented in the graph above and industry classifications represented in the Schedule of Investments are in accordance with Global Industry Classification Standards (GICS®), which was developed by and/or is the exclusive property of MSCI, INC. and Standard & Poor Financial Services LLC.
35
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 October 1, 2012 to March 31, 2013 (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 the Period* | ||||||||||||
Core Plus Fixed Income Fund | $ | 1,000.00 | $ | 1,022.40 | 0.50 | % | $ | 2.52 | ||||||||
Credit Focus Yield Fund | $ | 1,000.00 | $ | 1,019.30 | 0.70 | % | $ | 3.52 | ||||||||
Emerging Markets Fund | $ | 1,000.00 | $ | 1,080.80 | 1.12 | % | $ | 5.81 | ||||||||
Global Equity Fund | $ | 1,000.00 | $ | 1,123.40 | 1.00 | % | $ | 5.29 | ||||||||
International Equity Fund | $ | 1,000.00 | $ | 1,097.00 | 1.05 | % | $ | 5.49 | ||||||||
International Small Cap Fund | $ | 1,000.00 | $ | 1,159.40 | 1.15 | % | $ | 6.19 |
Class E | ||||||||||||||||
Fund | Beginning Account Value | Ending Account Value | Annual Expense Ratio | Expenses Paid During the Period* | ||||||||||||
Core Plus Fixed Income Fund | $ | 1,000.00 | $ | 1,022.30 | 0.70 | % | $ | 3.53 | ||||||||
Global Equity Fund | $ | 1,000.00 | $ | 1,122.40 | 1.25 | % | $ | 6.61 | ||||||||
International Equity Fund | $ | 1,000.00 | $ | 1,095.60 | 1.20 | % | $ | 6.27 |
36
Brandes Investment Trust
Class A | ||||||||||||||||
Fund | Beginning Account Value | Ending Account Value | Annual Expense Ratio | Expenses Paid During the Period* | ||||||||||||
Core Plus Fixed Income Fund | $ | 1,000.00 | $ | 1,005.50 | 0.70 | % | $ | 1.13 | ||||||||
Credit Focus Yield Fund | $ | 1,000.00 | $ | 1,018.80 | 0.95 | % | $ | 4.78 | ||||||||
Emerging Markets Fund | $ | 1,000.00 | $ | 1,080.30 | 1.37 | % | $ | 7.11 | ||||||||
Global Equity Fund | $ | 1,000.00 | $ | 1,122.10 | 1.25 | % | $ | 6.61 | ||||||||
International Equity Fund | $ | 1,000.00 | $ | 1,095.40 | 1.30 | % | $ | 6.79 | ||||||||
International Small Cap Fund | $ | 1,000.00 | $ | 1,157.00 | 1.40 | % | $ | 7.53 |
Class C | ||||||||||||||||
Fund | Beginning Account Value | Ending Account Value | Annual Expense Ratio | Expenses Paid During the Period** | ||||||||||||
Emerging Markets Fund | $ | 1,000.00 | $ | 974.80 | 2.12 | % | $ | 3.38 | ||||||||
Global Equity Fund | $ | 1,000.00 | $ | 1,025.90 | 2.00 | % | $ | 3.27 | ||||||||
International Equity Fund | $ | 1,000.00 | $ | 995.10 | 2.05 | % | $ | 3.31 | ||||||||
International Small Cap Fund | $ | 1,000.00 | $ | 1,005.90 | 2.15 | % | $ | 3.49 |
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.
37
Brandes Investment Trust
Class I | ||||||||||||||||
Fund | Beginning Account Value | Ending Account Value | Annual Expense Ratio | Expenses Paid During the Period* | ||||||||||||
Core Plus Fixed Income Fund | $ | 1,000.00 | $ | 1,022.44 | 0.50 | % | $ | 2.52 | ||||||||
Credit Focus Yield Fund | $ | 1,000.00 | $ | 1,021.44 | 0.70 | % | $ | 3.53 | ||||||||
Emerging Markets Fund | $ | 1,000.00 | $ | 1,019.35 | 1.12 | % | $ | 5.64 | ||||||||
Global Equity Fund | $ | 1,000.00 | $ | 1,019.95 | 1.00 | % | $ | 5.04 | ||||||||
International Equity Fund | $ | 1,000.00 | $ | 1,019.70 | 1.05 | % | $ | 5.29 | ||||||||
International Small Cap Fund | $ | 1,000.00 | $ | 1,019.20 | 1.15 | % | $ | 5.79 | ||||||||
Class E | ||||||||||||||||
Fund | Beginning Account Value | Ending Account Value | Annual Expense Ratio | Expenses Paid During the Period* | ||||||||||||
Core Plus Fixed Income Fund | $ | 1,000.00 | $ | 1,021.44 | 0.70 | % | $ | 3.53 | ||||||||
Global Equity Fund | $ | 1,000.00 | $ | 1,018.70 | 1.25 | % | $ | 6.29 | ||||||||
International Equity Fund | $ | 1,000.00 | $ | 1,018.95 | 1.20 | % | $ | 6.04 | ||||||||
Class A | ||||||||||||||||
Fund | Beginning Account Value | Ending Account Value | Annual Expense Ratio | Expenses Paid During the Period* | ||||||||||||
Core Plus Fixed Income Fund | $ | 1,000.00 | $ | 1,006.95 | 0.70 | % | $ | 1.14 | ||||||||
Credit Focus Yield Fund | $ | 1,000.00 | $ | 1,020.19 | 0.95 | % | $ | 4.78 | ||||||||
Emerging Markets Fund | $ | 1,000.00 | $ | 1,018.10 | 1.37 | % | $ | 6.89 | ||||||||
Global Equity Fund | $ | 1,000.00 | $ | 1,018.70 | 1.25 | % | $ | 6.29 | ||||||||
International Equity Fund | $ | 1,000.00 | $ | 1,018.45 | 1.30 | % | $ | 6.54 | ||||||||
International Small Cap Fund | $ | 1,000.00 | $ | 1,017.95 | 1.40 | % | $ | 7.04 | ||||||||
Class C | ||||||||||||||||
Fund | Beginning Account Value | Ending Account Value | Annual Expense Ratio | Expenses Paid During the Period** | ||||||||||||
Emerging Markets Fund | $ | 1,000.00 | $ | 1,004.66 | 2.12 | % | $ | 3.43 | ||||||||
Global Equity Fund | $ | 1,000.00 | $ | 1,004.85 | 2.00 | % | $ | 3.24 | ||||||||
International Equity Fund | $ | 1,000.00 | $ | 1,004.77 | 2.05 | % | $ | 3.32 | ||||||||
International Small Cap Fund | $ | 1,000.00 | $ | 1,004.61 | 2.15 | % | $ | 3.48 |
* | Expenses are equal to the Funds’ expense ratio for the period, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). |
** | Expenses are equal to the Funds’ expense ratio for the period, multiplied by the average account value over the period, multiplied by 59/365. |
38
Brandes International Equity Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited)
Shares | Value | ||||||||
COMMON STOCKS – 94.16% | |||||||||
Brazil – 2.92% | |||||||||
198,354 | Banco do Brasil SA | $ | 2,687,582 | ||||||
346,900 | Banco Santander Brasil SA – ADR | 2,518,494 | |||||||
343,130 | Centrais Electricas Brasileiras SA – ADR | 1,173,505 | |||||||
216,934 | Tim Participacoes SA – ADR | 4,746,516 | |||||||
11,126,097 | |||||||||
France – 14.92% | |||||||||
365,204 | Carrefour SA | 10,004,153 | |||||||
679,904 | France Telecom SA | 6,889,377 | |||||||
586,957 | GDF Suez | 11,276,029 | |||||||
514,348 | Natixis | 1,956,769 | |||||||
55,100 | Renault SA | 3,456,855 | |||||||
74,935 | Sanofi | 7,642,296 | |||||||
329,869 | Suez Environnement S.A. | 4,206,228 | |||||||
237,594 | Total SA | 11,379,340 | |||||||
56,811,047 | |||||||||
Germany – 2.72% | |||||||||
81,100 | Daimler AG | 4,422,989 | |||||||
562,200 | Deutsche Telekom AG | 5,951,638 | |||||||
10,374,627 | |||||||||
Ireland – 2.97% | |||||||||
466,948 | CRH Plc | 10,333,827 | |||||||
27,000 | Seagate Technology Plc | 987,120 | |||||||
11,320,947 | |||||||||
Italy – 6.37% | |||||||||
368,215 | ENI SpA | 8,243,767 | |||||||
1,949,178 | Intesa Sanpaolo SpA | 2,871,934 | |||||||
3,416,812 | Intesa Sanpaolo SpA Savings Shares | 4,329,241 | |||||||
422,400 | Italcementi SpA Savings Shares | 1,248,577 | |||||||
4,166,774 | Telecom Italia SpA | 2,938,854 | |||||||
7,522,450 | Telecom Italia SpA Savings Shares | 4,637,842 | |||||||
24,270,215 | |||||||||
Japan – 24.93% | |||||||||
89,800 | Astellas Pharma, Inc. | 4,846,225 | |||||||
160,500 | Canon, Inc. | 5,898,374 | |||||||
293,400 | Dai Nippon Printing Co. Ltd. | 2,803,297 | |||||||
326,202 | Daiichi Sankyo Co. Ltd. | 6,296,595 | |||||||
288,000 | FUJIFILM Holdings Corp. | 5,712,824 | |||||||
154,400 | Honda Motor Co. Ltd. | 5,946,019 | |||||||
911,700 | Mitsubishi UFJ Financial Group, Inc. | 5,500,502 | |||||||
229,899 | MS&AD Insurance Group Holdings | 5,120,642 | |||||||
213,200 | Nippon Telegraph & Telephone Corp. | 9,308,225 | |||||||
219,000 | NKSJ Holdings, Inc. | 4,613,267 | |||||||
61,800 | Ono Pharmaceutical Co. Ltd. | 3,819,539 | |||||||
55,600 | Rohm Co. Ltd. | 1,927,808 | |||||||
109,498 | Sumitomo Mitsui Financial Group, Inc. | 4,492,141 | |||||||
703,000 | Sumitomo Mitsui Trust Holdings, Inc. | 3,347,565 | |||||||
32,400 | Taisho Pharmaceutical Co. Ltd. | 2,296,350 | |||||||
104,800 | Takeda Pharmaceutical Co. Ltd. | 5,741,233 | |||||||
83,300 | TDK Corp. | 2,927,627 | |||||||
214,500 | Tokio Marine Holdings, Inc. | 6,205,566 | |||||||
157,000 | Toyota Motor Corp. | 8,095,827 | |||||||
94,899,626 | |||||||||
Mexico – 2.75% | |||||||||
297,298 | America Movil SAB de CV – ADR | 6,231,366 | |||||||
346,085 | Cemex SAB de CV – ADR(a) | 4,225,698 | |||||||
10,457,064 | |||||||||
Netherlands – 7.06% | |||||||||
980,507 | Aegon NV | 5,920,382 | |||||||
489,052 | Koninklijke Ahold NV | 7,497,332 | |||||||
186,804 | Unilever NV | 7,654,047 | |||||||
265,201 | Wolters Kluwer NV | 5,795,160 | |||||||
26,866,921 |
The accompanying notes are an integral part of these Schedules of Investments.
39
Brandes International Equity Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Shares | Value | |||||||
Russia – 1.73% | ||||||||
102,003 | Lukoil OAO – ADR(a) | $ | 6,579,194 | |||||
Singapore – 1.01% | ||||||||
569,000 | Flextronics International Ltd.(a) | 3,846,440 | ||||||
South Korea – 1.34% | ||||||||
17,311 | POSCO | 5,094,137 | ||||||
Spain – 0.74% | ||||||||
207,977 | Telefonica SA | 2,817,797 | ||||||
Sweden – 1.78% | ||||||||
542,200 | Telefonaktiebolaget LM Ericsson | 6,792,518 | ||||||
Switzerland – 5.98% | ||||||||
102,620 | Swiss Re AG | 8,357,584 | ||||||
203,172 | TE Connectivity Ltd. | 8,519,002 | ||||||
382,337 | UBS AG | 5,879,279 | ||||||
22,755,865 | ||||||||
United Kingdom – 16.94% | ||||||||
180,255 | AstraZeneca Plc | 9,041,763 | ||||||
1,109,421 | Barclays Plc | 4,936,128 | ||||||
1,495,870 | BP Plc | 10,519,014 | ||||||
273,720 | GlaxoSmithKline Plc | 6,409,741 | ||||||
406,000 | HSBC Holdings Plc | 4,331,869 | ||||||
1,421,700 | ITV Plc | 2,803,209 | ||||||
791,400 | J. Sainsbury Plc | 4,558,443 | ||||||
797,900 | Kingfisher Plc | 3,497,480 | ||||||
1,061,819 | Marks & Spencer Group Plc | 6,296,780 | ||||||
1,807,800 | Vodafone Group Plc | 5,129,984 | ||||||
1,664,011 | Wm. Morrison Supermarkets Plc | 6,994,376 | ||||||
64,518,787 | ||||||||
TOTAL COMMON STOCKS (Cost $381,832,815) | $ | 358,531,282 | ||||||
PREFERRED STOCKS – 1.82% | ||||||||
Brazil – 1.82% | ||||||||
309,550 | Petroleo Brasileiro SA – ADR | $ | 5,618,332 | |||||
49,463 | Telefonica Brasil SA – ADR | 1,319,673 | ||||||
TOTAL PREFERRED STOCKS (Cost $9,956,390) | $ | 6,938,005 |
Principal Amount | Value | |||||||
SHORT TERM INVESTMENT – 1.90% | ||||||||
Repurchase Agreement – 1.90% | ||||||||
State Street Bank and Trust Repurchase Agreement, (Dated 3/29/13), due 4/1/13, 0.01%, [Collateralized by $7,605,000 Fannie Mae Bond, 2.08%, 11/2/22, (Market Value $7,610,182)] (proceeds $7,245,877). | $ | 7,245,869 | $ | 7,245,869 | ||||
TOTAL SHORT TERM INVESTMENT (Cost $7,245,869) | $ | 7,245,869 | ||||||
Total Investments (Cost $399,035,074) – 97.88% | $ | 372,715,156 | ||||||
Other Assets in Excess of Liabilities – 2.12% | 8,069,321 | |||||||
TOTAL NET ASSETS – 100.00% | $ | 380,784,477 |
Percentages are stated as a percent of net assets.
ADR | American Depository Receipt |
(a) | Non-income producing security. |
The accompanying notes are an integral part of these Schedules of Investments.
40
Brandes International Equity Fund
SCHEDULE OF INVESTMENTS BY INDUSTRY — March 31, 2013 (Unaudited)
COMMON STOCKS | ||||
Automobiles | 5.76 | % | ||
Capital Markets | 1.54 | % | ||
Commercial Banks | 9.71 | % | ||
Commercial Services & Supplies | 0.74 | % | ||
Communications Equipment | 1.78 | % | ||
Computers & Peripherals | 0.26 | % | ||
Construction Materials | 4.15 | % | ||
Diversified Telecommunication Services | 8.55 | % | ||
Electric Utilities | 0.31 | % | ||
Electronic Equipment, Instruments & Components | 5.52 | % | ||
Food & Staples Retailing | 7.63 | % | ||
Food Products | 2.01 | % | ||
Insurance | 7.94 | % | ||
Media | 2.26 | % | ||
Metals & Mining | 1.34 | % | ||
Multiline Retail | 1.65 | % | ||
Multi-Utilities | 4.07 | % | ||
Office Electronics | 1.55 | % | ||
Oil, Gas & Consumable Fuels | 9.64 | % | ||
Pharmaceuticals | 12.10 | % | ||
Semiconductors & Semiconductor Equipment | 0.51 | % | ||
Specialty Retail | 0.92 | % | ||
Wireless Telecommunication Services | 4.22 | % | ||
TOTAL COMMON STOCKS | 94.16 | % | ||
PREFERRED STOCKS | ||||
Diversified Telecommunication Services | 0.35 | % | ||
Oil, Gas & Consumable Fuels | 1.47 | % | ||
TOTAL PREFERRED STOCKS | 1.82 | % | ||
REPURCHASE AGREEMENTS | 1.90 | % | ||
TOTAL INVESTMENTS | 97.88 | % | ||
Other Assets in Excess of Liabilities | 2.12 | % | ||
TOTAL NET ASSETS | 100.00 | % |
The accompanying notes are an integral part of these Schedules of Investments.
41
Brandes Global Equity Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited)
Shares | Value | |||||||
COMMON STOCKS – 96.36% | ||||||||
Automobiles – 3.27% | ||||||||
11,900 | Honda Motor Co. Ltd. | $ | 458,275 | |||||
12,500 | Toyota Motor Corp. | 644,572 | ||||||
1,102,847 | ||||||||
Beverages – 2.60% | ||||||||
11,090 | Pepsico, Inc. | 877,330 | ||||||
Building Products – 1.03% | ||||||||
17,100 | Masco Corp. | 346,275 | ||||||
Capital Markets – 2.73% | ||||||||
14,200 | Bank Of New York Mellon Corp. | 397,458 | ||||||
8,848 | State Street Corp. | 522,828 | ||||||
920,286 | ||||||||
Commercial Banks – 6.71% | ||||||||
44,073 | Banco Santander Brasil SA – ADR | 319,970 | ||||||
77,256 | Intesa Sanpaolo SpA | 113,830 | ||||||
146,200 | Intesa Sanpaolo SpA Savings Shares | 185,241 | ||||||
71,600 | Mitsubishi UFJ Financial Group, Inc. | 431,980 | ||||||
3,990 | PNC Financial Services Group, Inc. | 265,335 | ||||||
8,076 | Sumitomo Mitsui Financial Group, Inc. | 331,317 | ||||||
16,669 | Wells Fargo & Co. | 616,586 | ||||||
2,264,259 | ||||||||
Communications Equipment – 1.62% | ||||||||
43,500 | Telefonaktiebolaget LM Ericsson | 544,955 | ||||||
Computers & Peripherals – 3.40% | ||||||||
18,684 | Hewlett Packard Co. | 445,427 | ||||||
13,940 | Western Digital Corp. | 700,903 | ||||||
1,146,330 | ||||||||
Construction Materials – 2.04% | ||||||||
31,101 | CRH Plc | 688,283 | ||||||
Diversified Financial Services – 3.39% | ||||||||
45,532 | Bank of America Corp. | 554,580 | ||||||
13,346 | Citigroup, Inc. | 590,427 | ||||||
1,145,007 | ||||||||
Diversified Telecommunication Services – 7.07% | ||||||||
43,200 | Deutsche Telekom AG | 457,330 | ||||||
49,563 | France Telecom SA | 502,215 | ||||||
15,300 | Nippon Telegraph & Telephone Corp. | 667,992 | ||||||
875,400 | Telecom Italia SpA Savings Shares | 539,713 | ||||||
15,952 | Telefonica SA | 216,127 | ||||||
2,383,377 | ||||||||
Electric Utilities – 0.24% | ||||||||
24,100 | Centrais Electricas Brasileiras SA – ADR | 82,422 | ||||||
Electronic Equipment, Instruments & Components – 4.93% | ||||||||
48,190 | Corning, Inc. | 642,373 | ||||||
17,300 | FUJIFILM Holdings Corp. | 343,166 | ||||||
16,200 | TE Connectivity Ltd. | 679,266 | ||||||
1,664,805 | ||||||||
Food & Staples Retailing – 9.14% | ||||||||
23,795 | Carrefour SA | 651,824 | ||||||
40,000 | J. Sainsbury Plc | 230,399 | ||||||
34,200 | Koninklijke Ahold NV | 524,298 | ||||||
27,050 | Safeway, Inc. | 712,767 | ||||||
13,500 | The Kroger Co. | 447,390 | ||||||
123,100 | Wm. Morrison Supermarkets Plc | 517,429 | ||||||
3,084,107 | ||||||||
Food Products – 1.74% | ||||||||
14,300 | Unilever NV | 585,924 | ||||||
Health Care Equipment & Supplies – 1.24% | ||||||||
53,600 | Boston Scientific Corp.(a) | 418,616 | ||||||
Hotels, Restaurants & Leisure – 1.10% | ||||||||
311,700 | Genting Malaysia Berhad | 370,020 | ||||||
Insurance – 6.30% | ||||||||
70,884 | Aegon NV | 428,003 | ||||||
16,000 | MS&AD Insurance Group Holdings | 356,375 | ||||||
15,200 | NKSJ Holdings, Inc. | 320,190 | ||||||
7,800 | Swiss Re AG | 635,249 |
The accompanying notes are an integral part of these Schedules of Investments.
42
Brandes Global Equity Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Shares | Value | |||||||
13,300 | Tokio Marine Holdings, Inc. | $ | 384,774 | |||||
2,124,591 | ||||||||
Media – 1.85% | ||||||||
20,500 | News Corp. | 625,660 | ||||||
Multiline Retail – 1.56% | ||||||||
88,900 | Marks & Spencer Group Plc | 527,193 | ||||||
Multi-Utilities – 2.49% | ||||||||
43,584 | GDF Suez | 837,292 | ||||||
Office Electronics – 1.49% | ||||||||
13,700 | Canon, Inc. | 503,475 | ||||||
Oil, Gas & Consumable Fuels – 10.37% | ||||||||
108,900 | BP Plc | 765,789 | ||||||
41,250 | Chesapeake Energy Corp. | 841,913 | ||||||
32,200 | ENI SpA | 720,908 | ||||||
6,700 | Lukoil OAO – ADR(a) | 432,150 | ||||||
15,378 | Total SA | 736,515 | ||||||
3,497,275 | ||||||||
Pharmaceuticals – 13.35% | ||||||||
8,900 | Astellas Pharma, Inc. | 480,305 | ||||||
11,500 | AstraZeneca Plc | 576,852 | ||||||
23,300 | Daiichi Sankyo Co. Ltd. | 449,754 | ||||||
7,800 | Eli Lilly & Co. | 442,962 | ||||||
24,000 | GlaxoSmithKline Plc | 562,011 | ||||||
6,589 | Merck & Co., Inc. | 291,431 | ||||||
25,054 | Pfizer, Inc. | 723,059 | ||||||
5,500 | Sanofi | 560,921 | ||||||
7,600 | Takeda Pharmaceutical Co. Ltd. | 416,349 | ||||||
4,503,644 | ||||||||
Semiconductors & Semiconductor Equipment – 1.51% | ||||||||
23,364 | Intel Corp. | 510,503 | ||||||
Software – 2.69% | ||||||||
31,700 | Microsoft Corp. | 906,937 | ||||||
Wireless Telecommunication Services – 2.50% | ||||||||
22,600 | America Movil SAB de CV – ADR | 473,696 | ||||||
16,900 | Tim Participacoes SA – ADR | 369,772 | ||||||
843,468 | ||||||||
TOTAL COMMON STOCKS (Cost $29,090,079) | $ | 32,504,881 |
Principal Amount | Value | |||||||
SHORT TERM INVESTMENTS – 3.18% | ||||||||
Repurchase Agreement – 3.18% | ||||||||
State Street Bank and Trust Repurchase Agreement, (Dated 3/29/13), due 4/1/13, 0.01%, [Collateralized by $1,125,000 Fannie Mae Bond, 2.08%, 11/2/22, (Market Value $1,125,767)] (proceeds $1,072,064). | $ | 1,072,063 | $ | 1,072,063 | ||||
TOTAL SHORT TERM INVESTMENTS (Cost $1,072,063) | $ | 1,072,063 | ||||||
Total Investments (Cost $30,162,142) – 99.54% | $ | 33,576,944 | ||||||
Other Assets in Excess of Liabilities – 0.46% | 154,953 | |||||||
TOTAL NET ASSETS – 100.00% | $ | 33,731,897 |
Percentages are stated as a percent of net assets.
ADR | American Depository Receipt |
(a) | Non-income producing security. |
The accompanying notes are an integral part of these Schedules of Investments.
43
Brandes Global Equity Fund
SCHEDULE OF INVESTMENTS BY COUNTRY — March 31, 2013 (Unaudited)
COMMON STOCKS | ||||
Brazil | 2.29 | % | ||
France | 9.75 | % | ||
Germany | 1.36 | % | ||
Ireland | 2.04 | % | ||
Italy | 4.63 | % | ||
Japan | 17.15 | % | ||
Malaysia | 1.10 | % | ||
Mexico | 1.40 | % | ||
Netherlands | 4.56 | % | ||
Russia | 1.28 | % | ||
Spain | 0.64 | % | ||
Sweden | 1.62 | % | ||
Switzerland | 3.89 | % | ||
United Kingdom | 9.43 | % | ||
United States | 35.22 | % | ||
TOTAL COMMON STOCKS | 96.36 | % | ||
REPURCHASE AGREEMENTS | 3.16 | % | ||
TOTAL INVESTMENTS | 99.52 | % | ||
Other Assets in Excess of Liabilities | 0.48 | % | ||
TOTAL NET ASSETS | 100.00 | % |
The accompanying notes are an integral part of these Schedules of Investments.
44
Brandes Emerging Markets Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited)
Shares | Value | |||||||
COMMON STOCKS – 82.77% | ||||||||
Argentina – 0.06% | ||||||||
67,028 | Grupo Clarin SA – GDR(a) | $ | 164,219 | |||||
Austria – 2.64% | ||||||||
247,768 | Erste Group Bank AG | 6,933,565 | ||||||
Brazil – 12.72% | ||||||||
178,530 | Banco Bradesco SA | 3,094,844 | ||||||
297,550 | Banco do Brasil SA | 4,031,632 | ||||||
517,815 | Banco Santander Brasil SA – ADR | 3,759,337 | ||||||
469,425 | Centrais Electricas Brasileiras SA – ADR | 1,605,434 | ||||||
58,940 | Cia Paranaense de Energia | 729,185 | ||||||
223,424 | Embraer SA – ADR | 7,969,535 | ||||||
559,142 | Marfrig Alimentos SA(a) | 2,274,476 | ||||||
429,018 | Tim Participacoes SA – ADR | 9,386,914 | ||||||
1,419,243 | Viver Incorporadora e Construtora SA(a) | 547,821 | ||||||
33,399,178 | ||||||||
China – 12.30% | ||||||||
332,515 | Asiainfo-Linkage, Inc.(a) | 3,946,953 | ||||||
8,184,000 | Bosideng International Holdings Ltd. | 2,547,642 | ||||||
3,433,934 | Chaoda Modern Agriculture Holdings Ltd.(c) | 188,866 | ||||||
600,000 | China Mobile Ltd. | 6,363,836 | ||||||
79,780 | China Yuchai International Ltd. | 1,275,682 | ||||||
5,082,519 | People's Food Holdings Ltd. | 5,163,038 | ||||||
10,502,350 | Sinotrans Ltd. | 2,196,379 | ||||||
4,775,377 | Weiqiao Textile Co. | 2,664,925 | ||||||
2,358,450 | Xinhua Winshare Publishing and Media Co. Ltd. | 1,305,012 | ||||||
5,954,000 | Yingde Gases | 6,647,943 | ||||||
32,300,276 | ||||||||
Czech Republic – 1.48% | ||||||||
257,380 | Telefonica Czech Republic AS | 3,878,354 | ||||||
Egypt – 0.98% | ||||||||
182,125 | Eastern Tobacco Co. | 2,569,756 | ||||||
Hong Kong – 2.60% | ||||||||
208,228 | Dickson Concepts International Ltd. | 118,217 | ||||||
4,938,899 | First Pacific Co. Ltd. | 6,694,984 | ||||||
6,813,201 | ||||||||
Hungary – 1.04% | ||||||||
1,570,244 | Magyar Telekom Telecommunications Plc | 2,731,149 | ||||||
India – 4.23% | ||||||||
931,876 | Indian Oil Corp. Ltd. | 4,828,266 | ||||||
870,600 | Reliance Infrastructure Ltd. | 5,212,264 | ||||||
491,968 | United Phosphorus Ltd. | 1,065,514 | ||||||
11,106,044 | ||||||||
Israel – 0.61% | ||||||||
269,300 | Bezeq The Israeli Telecommunication Corp. Ltd. | 373,760 | ||||||
132,778 | Partner Communications Co. Ltd. | 827,215 | ||||||
40,050 | Syneron Medical Ltd.(a) | 409,311 | ||||||
1,610,286 | ||||||||
Luxembourg – 1.92% | ||||||||
312,500 | Adecoagro SA(a) | 2,403,125 | ||||||
129,880 | Ternium SA – ADR | 2,643,058 | ||||||
5,046,183 | ||||||||
Malaysia – 1.02% | ||||||||
2,260,400 | Genting Malaysia Berhad | 2,683,329 | ||||||
Mexico – 6.31% | ||||||||
202,620 | America Movil SAB de CV – ADR | 4,246,915 | ||||||
422,932 | Cemex SAB de CV – ADR(a) | 5,164,000 | ||||||
1,562,519 | Desarrolladora Homex SAB. de CV(a) | 2,360,582 | ||||||
394,833 | Grupo Televisa SAB | 2,155,483 | ||||||
2,780 | Grupo Televisa SAB – ADR | 15,177 | ||||||
10,231,455 | Urbi Desarrollos Urbanos SA de CV(a) | 2,625,903 | ||||||
16,568,060 | ||||||||
Pakistan – 0.31% | ||||||||
962,360 | Nishat Mills Ltd. | 816,735 |
The accompanying notes are an integral part of these Schedules of Investments.
45
Brandes Emerging Markets Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Shares | Value | |||||||
Panama – 1.74% | ||||||||
184,981 | Banco Latinoamericano de Comercio Exterior SA | $ | 4,576,431 | |||||
Russia – 7.30% | ||||||||
1,408,810 | Federal Hydrogenerating Co. JSC – ADR(a) | 2,702,098 | ||||||
767,528 | Gazprom OAO – ADR(a) | 6,523,988 | ||||||
103,120 | Lukoil OAO – ADR(a) | 6,651,240 | ||||||
258,660 | Sberbank of Russia – ADR | 3,297,915 | ||||||
19,175,241 | ||||||||
Singapore – 3.60% | ||||||||
1,202,854 | Flextronics International Ltd.(a) | 8,131,292 | ||||||
213,100 | Haw Par Corp. Ltd. | 1,326,732 | ||||||
9,458,024 | ||||||||
South Africa – 1.28% | ||||||||
191,820 | MTN Group Ltd. | 3,370,709 | ||||||
South Korea – 14.20% | ||||||||
92,570 | Halla Climate Control Corp. | 2,356,586 | ||||||
108,890 | Hana Financial Group, Inc. | 3,860,565 | ||||||
9,610 | Hyundai Mobis Co. Ltd. | 2,697,768 | ||||||
95,430 | KB Financial Group, Inc. | 3,180,623 | ||||||
25,337 | KB Financial Group, Inc. – ADR | 844,467 | ||||||
53,960 | Kia Motors Corp.(a) | 2,737,820 | ||||||
1,590 | Lotte Chilsung Beverage Co. Ltd. | 2,144,351 | ||||||
2,150 | Lotte Confectionery Co. Ltd. | 3,412,245 | ||||||
17,180 | POSCO | 3,072,244 | ||||||
18,868 | POSCO – ADR | 3,374,104 | ||||||
4,236 | Samsung Electronics Co. Ltd. | 5,773,797 | ||||||
92,720 | Shinhan Financial Group Co. Ltd. | 3,597,982 | ||||||
14,558 | Shinhan Financial Group Co. Ltd. – ADR | 261,900 | ||||||
37,314,452 | ||||||||
Taiwan – 1.57% | ||||||||
5,827,000 | Compal Electronics, Inc. | 4,125,414 | ||||||
Turkey – 3.22% | ||||||||
1,066,021 | Selcuk Ecza Deposu Ticaret ve Sanayi AS | 1,302,934 | ||||||
634,380 | Turkiye Garanti Bankasi AS | 3,368,697 | ||||||
1,176,700 | Turkiye Vakiflar Bankasi Tao | 3,775,675 | ||||||
8,447,306 | ||||||||
United Arab Emirates – 1.64% | ||||||||
10,572,365 | Air Arabia PJSC | 2,302,720 | ||||||
141,960 | DP World Ltd.(a) | 1,995,136 | ||||||
4,297,856 | ||||||||
TOTAL COMMON STOCKS (Cost $225,855,925) | $ | 217,385,768 | ||||||
PARTICIPATORY NOTES – 2.55% | ||||||||
Saudi Arabia – 2.55% | ||||||||
308,286 | Etihad Etisalat Co.(a)(b)(c) | $ | 6,699,733 | |||||
TOTAL PARTICIPATORY NOTES (Cost $4,726,669) | $ | 6,699,733 | ||||||
PREFERRED STOCKS – 8.32% | ||||||||
Argentina – 0.09% | ||||||||
16,356 | Nortel Inversora SA – ADR(a) | $ | 239,125 | |||||
Brazil – 5.36% | ||||||||
119,860 | Cia Paranaense de Energia – ADR | 1,854,234 | ||||||
382,692 | Petroleo Brasileiro SA – ADR | 6,945,860 | ||||||
197,601 | Telefonica Brasil SA – ADR | 5,271,994 | ||||||
14,072,088 | ||||||||
South Korea – 2.87% | ||||||||
105,736 | Hyundai Motor Co. | 7,537,706 | ||||||
TOTAL PREFERRED STOCKS (Cost $22,445,611) | $ | 21,848,919 | ||||||
REAL ESTATE INVESTMENT TRUSTS – 2.02% | ||||||||
Mexico – 2.02% | ||||||||
853,832 | Fibra Uno Administracion SA de CV | $ | 2,816,969 | |||||
1,111,800 | Macquarie Mexico Real Estate Management SA de CV(a) | 2,475,377 | ||||||
TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $3,746,086) | $ | 5,292,346 |
The accompanying notes are an integral part of these Schedules of Investments.
46
Brandes Emerging Markets Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
SHORT TERM INVESTMENTS – 3.96% | ||||||||
Repurchase Agreement – 3.96% | ||||||||
State Street Bank and Trust Repurchase Agreement, (Dated 3/29/13), due 4/1/13, 0.01% [Collateralized by $10,900,000 Freddie Mac Bond, 2.08%, 10/17/22, (Market Value $10,932,733)] (proceeds $10,408,188). | $ | 10,408,179 | $ | 10,408,179 | ||||
TOTAL SHORT TERM INVESTMENTS (Cost $10,408,179) | $ | 10,408,179 | ||||||
Total Investments (Cost $267,182,470) – 99.62% | $ | 261,634,945 | ||||||
Other Assets in Excess of Liabilities – 0.38% | 998,956 | |||||||
TOTAL NET ASSETS – 100.00% | $ | 262,633,901 |
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 March 30, 2015. See Note 2.D of the Notes to Financial Statements. |
(c) | The prices for these securities were derived from an estimate of fair market value using methods approved by the Fund's Board of Trustees. These securities represent $6,888,599 or 2.62% of the Fund's net assets and are classified as Level 2. See Note 2 in the Notes to Financial Statements. |
The accompanying notes are an integral part of these Schedules of Investments.
47
Brandes Emerging Markets Fund
SCHEDULE OF INVESTMENTS BY INDUSTRY — March 31, 2013 (Unaudited)
COMMON STOCKS | ||||
Aerospace & Defense | 3.02 | % | ||
Air Freight & Logistics | 0.84 | % | ||
Airlines | 0.88 | % | ||
Auto Components | 0.90 | % | ||
Automobiles | 2.07 | % | ||
Beverages | 0.82 | % | ||
Chemicals | 2.94 | % | ||
Commercial Banks | 16.98 | % | ||
Computers & Peripherals | 1.57 | % | ||
Construction Materials | 1.97 | % | ||
Distributors | 0.50 | % | ||
Diversified Financial Services | 2.55 | % | ||
Diversified Telecommunication Services | 2.66 | % | ||
Electric Utilities | 3.90 | % | ||
Electronic Equipment, Instruments & Components | 3.10 | % | ||
Food Products | 5.11 | % | ||
Health Care Equipment & Supplies | 0.16 | % | ||
Health Care Providers & Services | 0.50 | % | ||
Hotels, Restaurants & Leisure | 1.02 | % | ||
Household Durables | 2.10 | % | ||
Internet Software & Services | 1.50 | % | ||
Machinery | 0.49 | % | ||
Media | 0.89 | % | ||
Metals & Mining | 3.45 | % | ||
Oil, Gas & Consumable Fuels | 6.85 | % | ||
Pharmaceuticals | 0.50 | % | ||
Semiconductors & Semiconductor Equipment | 2.20 | % | ||
Specialty Retail | 0.05 | % | ||
Textiles, Apparel & Luxury Goods | 2.29 | % | ||
Tobacco | 0.98 | % | ||
Transportation Infrastructure | 0.76 | % | ||
Wireless Telecommunication Services | 9.22 | % | ||
TOTAL COMMON STOCKS | 82.77 | % | ||
PARTICIPATORY NOTES | ||||
Wireless Telecommunication Services | 2.55 | % | ||
TOTAL PARTICIPATORY NOTES | 2.55 | % | ||
PREFERRED STOCKS | ||||
Automobiles | 2.87 | % | ||
Diversified Telecommunication Services | 2.10 | % | ||
Electric Utilities | 0.71 | % | ||
Oil, Gas & Consumable Fuels | 2.64 | % | ||
TOTAL PREFERRED STOCKS | 8.32 | % | ||
REAL ESTATE INVESTMENT TRUSTS | 2.02 | % | ||
SHORT TERM INVESTMENTS | 3.96 | % | ||
TOTAL INVESTMENTS | 99.62 | % | ||
Other Assets in Excess of Liabilities | 0.38 | % | ||
TOTAL NET ASSETS | 100.00 | % |
The accompanying notes are an integral part of these Schedules of Investments.
48
Brandes International Small Cap Equity Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited)
Shares | Value | |||||||
COMMON STOCKS – 93.33% | ||||||||
Australia – 0.03% | ||||||||
55,152 | Australian Vintage Ltd. | $ | 25,840 | |||||
Bermuda – 1.10% | ||||||||
19,706 | Argo Group International Holdings Ltd. | 815,434 | ||||||
Brazil – 0.49% | ||||||||
933,854 | Viver Incorporadora e Construtora SA(a) | 360,463 | ||||||
Canada – 10.03% | ||||||||
173,780 | Celestica, Inc.(a) | 1,405,880 | ||||||
51,530 | Dorel Industries, Inc.(a) | 2,077,229 | ||||||
2,234 | E-L Financial Corp. Ltd.(a) | 1,150,240 | ||||||
24,100 | Linamar Corp.(a) | 574,595 | ||||||
207,703 | Sierra Wireless, Inc.(a) | 2,199,575 | ||||||
7,407,519 | ||||||||
China – 2.46% | ||||||||
34,820 | China Yuchai International Ltd. | 556,772 | ||||||
3,013,000 | Sinotrans Ltd. | 630,115 | ||||||
1,133,000 | Weiqiao Textile Co. | 632,277 | ||||||
1,819,164 | ||||||||
Denmark – 1.03% | ||||||||
41,370 | H. Lundbeck A/S | 761,764 | ||||||
Egypt – 2.08% | ||||||||
108,645 | Eastern Tobacco Co. | 1,532,964 | ||||||
France – 3.91% | ||||||||
27,740 | Bongrain SA | 1,822,380 | ||||||
24,889 | Teleperformance SA | 1,061,333 | ||||||
2,883,713 | ||||||||
Greece – 3.21% | ||||||||
61,306 | Folli Follie Group(a) | 1,038,757 | ||||||
148,140 | Sarantis SA(a) | 826,038 | ||||||
30,200 | Titan Cement Co. SA(a) | 503,424 | ||||||
2,368,219 | ||||||||
Hong Kong – 1.82% | ||||||||
1,183,500 | Dickson Concepts International Ltd. | 671,905 | ||||||
495,600 | First Pacific Co. Ltd. | 671,817 | ||||||
1,343,722 | ||||||||
India – 1.36% | ||||||||
91,125 | Nava Bharat Ventures Ltd. | 281,566 | ||||||
120,740 | Reliance Infrastructure Ltd. | 722,869 | ||||||
1,004,435 | ||||||||
Ireland – 1.04% | ||||||||
116,622 | Grafton Group Plc(a) | 765,423 | ||||||
Israel – 1.10% | ||||||||
79,250 | Syneron Medical Ltd. (a) | 809,935 | ||||||
Italy – 4.11% | ||||||||
1,071,788 | Iren Spa | 799,770 | ||||||
323,040 | Italcementi SpA Savings Shares | 954,879 | ||||||
72,993 | Italmobiliare SpA(a) | 941,126 | ||||||
152,026 | Natuzzi SpA – ADR(a) | 335,977 | ||||||
3,031,752 | ||||||||
Japan – 26.93% | ||||||||
77,000 | Alpine Electronics, Inc. | 740,991 | ||||||
52,700 | Chudenko Corp. | 530,743 | ||||||
273,300 | Fuji Machine Manufacturing Co. Ltd. | 2,382,995 | ||||||
64,600 | Futaba Corp. | 691,695 | ||||||
130,500 | Hibiya Engineering Ltd. | 1,349,424 | ||||||
118,850 | Hosiden Corp. | 699,037 | ||||||
19,000 | Makita Corp. | 847,052 | ||||||
154,600 | Noritsu Koki Co. Ltd. | 720,849 | ||||||
75,200 | Okinawa Cellular Telephone Co. | 1,797,419 | ||||||
81,200 | Otsuka Kagu Ltd. | 825,154 | ||||||
42,400 | San-A Co. Ltd. | 1,935,884 | ||||||
100,000 | Sanki Engineering Co. Ltd. | 538,814 |
The accompanying notes are an integral part of these Schedules of Investments.
49
Brandes International Small Cap Equity Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Shares | Value | |||||||
89,800 | Tenma Corporation | $ | 1,075,164 | |||||
53,700 | Torii Pharmaceutical Co. Ltd. | 1,338,863 | ||||||
132,700 | TSI Holdings Co. Ltd. | 769,899 | ||||||
38,600 | Tsutsumi Jewelry Co. Ltd. | 1,072,153 | ||||||
120,200 | Yamaha Corp. | 1,170,302 | ||||||
52,600 | Yamaha Motor Co. Ltd. | 712,272 | ||||||
184,000 | Yodogawa Steel Works Ltd. | 693,386 | ||||||
19,892,096 | ||||||||
Mexico – 4.65% | ||||||||
4,132,514 | Consorcio ARA S.A.B. de C.V.(a) | 1,679,578 | ||||||
434,412 | Desarrolladora Homex S.A.B. de C.V. (a) | 656,290 | ||||||
4,290,330 | Urbi Desarrollos Urbanos SA de CV(a) | 1,101,113 | ||||||
3,436,981 | ||||||||
Norway – 1.28% | ||||||||
59,480 | Cermaq ASA | 944,531 | ||||||
Panama – 1.47% | ||||||||
43,779 | Banco Latinoamericano de Comercio Exterior SA | 1,083,092 | ||||||
Singapore – 4.98% | ||||||||
163,070 | Flextronics International Ltd.(a) | 1,102,353 | ||||||
364,000 | Haw Par Corp. Ltd. | 2,266,215 | ||||||
1,254,000 | HTL International Holdings Ltd. | 309,661 | ||||||
3,678,229 | ||||||||
South Korea – 2.34% | ||||||||
740 | Lotte Chilsung Beverage Co. Ltd. | 998,000 | ||||||
6,840 | Samchully Co. Ltd. | 730,735 | ||||||
1,728,735 | ||||||||
Switzerland – 5.20% | ||||||||
16,460 | Lonza Group AG | 1,070,173 | ||||||
96,457 | Micronas Semiconductor Holding AG | 691,976 | ||||||
23,590 | Panalpina Welttransport Holding AG | 2,079,936 | ||||||
3,842,085 | ||||||||
Turkey – 1.30% | ||||||||
785,408 | Selcuk Ecza Deposu Ticaret ve Sanayi A.S. | 959,958 | ||||||
United Arab Emirates – 0.03% | ||||||||
94,149 | Air Arabia PJSC | 20,506 | ||||||
United Kingdom – 11.38% | ||||||||
273,573 | Chime Communications Plc | 1,087,009 | ||||||
34,310 | Clarkson Plc | 810,661 | ||||||
694,147 | Debenhams Plc | 873,313 | ||||||
384,560 | Home Retail Group Plc | 910,310 | ||||||
258,568 | LSL Property Services Plc | 1,323,034 | ||||||
1,239,801 | Mcbride Plc(a) | 2,237,042 | ||||||
52,490 | Travis Perkins Plc | 1,162,301 | ||||||
8,403,670 | ||||||||
TOTAL COMMON STOCKS (Cost $61,945,213) | $ | 68,920,230 | ||||||
PREFERRED STOCKS – 0.45% | ||||||||
Argentina – 0.45% | ||||||||
22,889 | Nortel Inversora SA | $ | 334,637 | |||||
TOTAL PREFERRED STOCKS (Cost $361,900) | $ | 334,637 | ||||||
REAL ESTATE INVESTMENT TRUSTS – 0.93% | ||||||||
Mexico – 0.93% | ||||||||
207,800 | Fibra Uno Administracion SA de CV | $ | 685,575 | |||||
TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $407,314) | $ | 685,575 |
The accompanying notes are an integral part of these Schedules of Investments.
50
Brandes International Small Cap Equity Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
CORPORATE BONDS — 0.34% | ||||||||
Mexico – 0.34% | ||||||||
Urbi Desarrollos Urbanos SA de CV | ||||||||
8.500%, 04/19/2016 | $ | 391,000 | $ | 248,285 | ||||
TOTAL CORPORATE BONDS (Cost $235,065) | $ | 248,285 | ||||||
Principal Amount | Value | |||||||
SHORT TERM INVESTMENTS – 5.20% | ||||||||
Repurchase Agreement – 5.20% | ||||||||
State Street Bank and Trust Repurchase Agreement, (Dated 3/29/13), due 4/1/13, 0.01% [Collateralized by $4,035,000 Fannie Mae Bond, 2.08%, 11/2/22, (Market Value $4,037,749)] (proceeds $3,841,345). | $ | 3,841,341 | $ | 3,841,341 | ||||
TOTAL SHORT TERM INVESTMENTS (Cost $3,841,341) | $ | 3,841,341 | ||||||
Total Investments (Cost $66,790,833) – 100.25% | $ | 74,030,068 | ||||||
Liabilities in Excess of Other Assets – (0.25%) | (185,203 | ) | ||||||
TOTAL NET ASSETS – 100.00% | $ | 73,844,865 |
Percentages are stated as a percent of Net Assets.
ADR | American Depository Receipt |
(a) | Non-income producing security. |
The accompanying notes are an integral part of these Schedules of Investments.
51
Brandes International Small Cap Equity Fund
SCHEDULE OF INVESTMENTS BY INDUSTRY — March 31, 2013 (Unaudited)
COMMON STOCKS | ||||
Air Freight & Logistics | 3.66 | % | ||
Airlines | 0.03 | % | ||
Auto Components | 0.78 | % | ||
Automobiles | 0.96 | % | ||
Beverages | 1.38 | % | ||
Chemicals | 1.46 | % | ||
Commercial Banks | 1.47 | % | ||
Communications Equipment | 2.98 | % | ||
Construction & Engineering | 3.28 | % | ||
Construction Materials | 3.26 | % | ||
Diversified Financial Services | 0.91 | % | ||
Electric Utilities | 0.98 | % | ||
Electrical Equipment | 0.94 | % | ||
Electronic Equipment, Instruments & Components | 4.34 | % | ||
Food & Staples Retailing | 2.62 | % | ||
Food Products | 3.75 | % | ||
Gas Utilities | 0.99 | % | ||
Health Care Equipment & Supplies | 1.10 | % | ||
Health Care Providers & Services | 1.30 | % | ||
Household Durables | 9.82 | % | ||
Household Products | 3.04 | % | ||
Industrial Conglomerates | 0.38 | % | ||
Insurance | 2.66 | % | ||
Internet & Catalog Retail | 1.23 | % | ||
Leisure Equipment & Products | 2.56 | % | ||
Life Sciences Tools & Services | 1.45 | % | ||
Machinery | 5.12 | % | ||
Marine | 1.10 | % | ||
Media | 1.47 | % | ||
Metals & Mining | 0.94 | % | ||
Multiline Retail | 1.18 | % | ||
Multi-Utilities | 1.08 | % | ||
Personal Products | 1.12 | % | ||
Pharmaceuticals | 5.91 | % | ||
Professional Services | 1.44 | % | ||
Real Estate Management & Development | 1.79 | % | ||
Semiconductors & Semiconductor Equipment | 0.94 | % | ||
Specialty Retail | 4.89 | % | ||
Textiles, Apparel & Luxury Goods | 1.90 | % | ||
Tobacco | 2.08 | % | ||
Trading Companies & Distributors | 2.61 | % | ||
Wireless Telecommunication Services | 2.43 | % | ||
TOTAL COMMON STOCKS | 93.33 | % | ||
PREFERRED STOCKS | ||||
Diversified Telecommunication Services | 0.45 | % | ||
TOTAL PREFERRED STOCKS | 0.45 | % |
The accompanying notes are an integral part of these Schedules of Investments.
52
Brandes International Small Cap Equity Fund
SCHEDULE OF INVESTMENTS BY INDUSTRY — March 31, 2013 (Unaudited) (continued)
CORPORATE BONDS | ||||
Household Durables | 0.34 | % | ||
TOTAL CORPORATE BONDS | 0.34 | % | ||
REAL ESTATE INVESTMENT TRUSTS | 0.93 | % | ||
REPURCHASE AGREEMENTS | 5.20 | % | ||
TOTAL INVESTMENTS | 100.25 | % | ||
Liabilities in Excess of Other Assets | (0.25 | )% | ||
TOTAL NET ASSETS | 100.00 | % |
The accompanying notes are an integral part of these Schedules of Investments.
53
Brandes Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited)
Principal Amount | Value | |||||||
FEDERAL AND FEDERALLY SPONSORED CREDITS – 7.34% | ||||||||
Fannie Mae Interest Only Strip – 0.33% | ||||||||
5.500%, 01/01/2036 | $ | 375,848 | $ | 53,365 | ||||
6.000%, 06/01/2036 | 391,953 | 55,839 | ||||||
109,204 | ||||||||
Federal National Mortgage Association – 4.57% | ||||||||
Pool #MA0918, 4.000%, 12/01/2041 | 806,998 | 860,991 | ||||||
Pool #934124, 5.500%, 07/01/2038 | 291,777 | 318,252 | ||||||
Pool #254631, 5.000%, 02/01/2018 | 303,038 | 327,787 | ||||||
1,507,030 | ||||||||
Freddie Mac Mortgage – 2.44% | ||||||||
Pool #G0-6018, 6.500%, 04/01/2039 | 217,577 | 247,560 | ||||||
Pool #A9-3505, 4.500%, 08/01/2040 | 519,088 | 555,646 | ||||||
803,206 | ||||||||
TOTAL FEDERAL AND FEDERALLY SPONSORED CREDITS (Cost $2,370,168) | $ | 2,419,440 | ||||||
OTHER MORTGAGE RELATED SECURITIES – 8.38% | ||||||||
Collateralized Mortgage Obligations – 2.32% | ||||||||
Wells Fargo Mortgage Backed Securities Trust | ||||||||
Series 2004-DD, 2.617%, 01/25/2035 | $ | 763,742 | $ | 761,418 | ||||
Series 2006-AR14, 5.825%, 10/25/2036 | 2,443 | 2,385 | ||||||
763,803 | ||||||||
Near Prime Mortgage – 5.71% | ||||||||
Bear Stearns Adjustable Rate Mortgage Trust | ||||||||
Series 2005-10, 2.671%, 10/25/2035 | 834,789 | 808,594 | ||||||
Bear Stearns Alt-A Trust | ||||||||
Series 2004-11, 0.884%, 11/25/2034 | 363,966 | 358,838 | ||||||
Series 2005-7, 0.474%, 08/25/2035 | 408,313 | 380,298 | ||||||
Countrywide Home Loan Mortgage Pass Through Trust | ||||||||
Series 2006-HYB1, 2.691%, 03/20/2036 | 48,919 | 37,761 | ||||||
Opteum Mortgage Acceptance Corp. | ||||||||
Series 2005-3, 0.494%, 07/25/2035 | 305,908 | 295,608 | ||||||
1,881,099 |
The accompanying notes are an integral part of these Schedules of Investments.
54
Brandes Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
Sub-Prime Mortgages – 0.35% | ||||||||
JP Morgan Mortgage Acquisition Corp. | ||||||||
Series 2006-NC1, 0.374%, 04/25/2036 | $ | 124,343 | $ | 116,385 | ||||
TOTAL OTHER MORTGAGE RELATED SECURITIES (Cost $2,324,832) | $ | 2,761,287 | ||||||
US GOVERNMENTS – 33.75% | ||||||||
Sovereign – 33.75% | ||||||||
United States Treasury Bond | ||||||||
4.750%, 02/15/2037 | 475,000 | 625,293 | ||||||
United States Treasury Note | ||||||||
4.250%, 08/15/2014 | 405,000 | 427,449 | ||||||
4.500%, 02/15/2016 | 2,865,000 | 3,204,995 | ||||||
3.375%, 11/15/2019 | 2,715,000 | 3,107,828 | ||||||
2.000%, 11/15/2021 | 3,640,000 | 3,753,750 | ||||||
10,494,022 | ||||||||
TOTAL US GOVERNMENTS (Cost $10,881,040) | $ | 11,119,315 | ||||||
Shares | Value | |||||||
COMMON STOCKS – 0.03% | ||||||||
Paper & Forest Products – 0.03% | ||||||||
Abitibi-Consolidated(a)(c) | 80,000 | $ | — | |||||
Resolute Forest Products, Inc.(a) | 677 | 10,954 | ||||||
10,954 | ||||||||
Semiconductors – 0.00% | ||||||||
MagnaChip Semiconductor Corp.(a) | 22 | 381 | ||||||
TOTAL COMMON STOCKS (Cost $56,874) | $ | 11,335 | ||||||
PREFERRED STOCKS – 1.13% | ||||||||
Banks & Thrifts – 0.63% | ||||||||
Ally Financial, Inc., 8.500% | 7,800 | $ | 208,884 | |||||
Technology Hardware & Equipment – 0.50% | ||||||||
Pitney Bowes International Holdings, Inc., 6.130%(b) | 170 | 165,017 | ||||||
TOTAL PREFERRED STOCKS (Cost $354,420) | $ | 373,901 |
The accompanying notes are an integral part of these Schedules of Investments.
55
Brandes Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
ASSET BACKED SECURITIES – 3.50% | ||||||||
Student Loan – 3.50% | ||||||||
National Collegiate Student Loan Trust | ||||||||
Series A-4, 0.509%, 10/25/2033 | $ | 410,000 | $ | 186,715 | ||||
SLM Student Loan Trust | ||||||||
Series 2004-B, 0.898%, 09/15/2033 | 300,000 | 231,023 | ||||||
Series 2005-A, 0.778%, 12/15/2038 | 400,000 | 302,516 | ||||||
Series 2006-A, 0.758%, 06/15/2039 | 275,000 | 203,194 | ||||||
Series 2007-A, 0.708%, 12/15/2041 | 350,000 | 231,366 | ||||||
968,099 | ||||||||
TOTAL ASSET BACKED SECURITIES (Cost $1,318,913) | $ | 1,154,814 | ||||||
CORPORATE BONDS – 41.69% | ||||||||
Advertising – 0.83% | ||||||||
The Interpublic Group of Companies, Inc. | ||||||||
6.250%, 11/15/2014 | $ | 255,000 | $ | 273,488 | ||||
Banks & Thrifts – 10.19% | ||||||||
Ally Financial, Inc. | ||||||||
6.750%, 12/01/2014 | 520,000 | 557,700 | ||||||
Citigroup, Inc. | ||||||||
6.125%, 11/21/2017 | 235,000 | 277,857 | ||||||
6.875%, 03/05/2038 | 235,000 | 308,319 | ||||||
Fifth Third Bancorp | ||||||||
8.250%, 03/01/2038 | 175,000 | 242,247 | ||||||
First Horizon National Corp. | ||||||||
5.375%, 12/15/2015 | 130,000 | 141,415 | ||||||
JP Morgan Chase & Co. | ||||||||
7.900%, Perpetual | 740,000 | 850,134 | ||||||
KeyCorp | ||||||||
6.500%, 05/14/2013 | 110,000 | 110,756 | ||||||
National City Corp. | ||||||||
4.900%, 01/15/2015 | 235,000 | 252,041 | ||||||
Regions Financial Corp. | ||||||||
5.750%, 06/15/2015 | 435,000 | 472,018 | ||||||
The Goldman Sachs Group, Inc. | ||||||||
7.500%, 02/15/2019 | 115,000 | 143,873 | ||||||
3,356,360 |
The accompanying notes are an integral part of these Schedules of Investments.
56
Brandes Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
Building Materials – 3.06% | ||||||||
CRH America, Inc. | ||||||||
6.000%, 09/30/2016 | $ | 160,000 | $ | 182,037 | ||||
Masco Corp. | ||||||||
6.125%, 10/03/2016 | 305,000 | 340,595 | ||||||
Mohawk Industries, Inc. | ||||||||
6.375%, 01/15/2016 | 135,000 | 150,694 | ||||||
Owens Corning | ||||||||
6.500%, 12/01/2016 | 80,000 | 90,068 | ||||||
USG Corp. | ||||||||
6.300%, 11/15/2016 | 230,000 | 243,800 | ||||||
1,007,194 | ||||||||
Consumer Products – 0.94% | ||||||||
Spectrum Brands Holdings, Inc. | ||||||||
9.500%, 06/15/2018 | 275,000 | 311,438 | ||||||
Containers & Packaging – 0.66% | ||||||||
Sealed Air Corp. | ||||||||
7.875%, 06/15/2017 | 205,000 | 216,275 | ||||||
Diversified Financial Services – 4.59% | ||||||||
American International Group, Inc. | ||||||||
6.400%, 12/15/2020 | 400,000 | 495,378 | ||||||
Bank of America Corp. | ||||||||
3.750%, 07/12/2016 | 245,000 | 260,574 | ||||||
Ford Motor Credit Co. LLC | ||||||||
7.000%, 10/01/2013 | 250,000 | 257,432 | ||||||
International Lease Finance Corp. | ||||||||
6.625%, 11/15/2013 | 285,000 | 293,550 | ||||||
SLM Corp. | ||||||||
5.000%, 10/01/2013 | 200,000 | 203,500 | ||||||
1,510,434 | ||||||||
Electric Utilities – 8.80% | ||||||||
Ameren Corp. | ||||||||
8.875%, 05/15/2014 | 300,000 | 323,924 | ||||||
Arizona Public Service Co. | ||||||||
8.750%, 03/01/2019 | 340,000 | 459,314 | ||||||
Commonwealth Edison Co. | ||||||||
5.900%, 03/15/2036 | 175,000 | 222,164 | ||||||
EDP Finance BV | ||||||||
4.900%, 10/01/2019(b) | 400,000 | 402,000 |
The accompanying notes are an integral part of these Schedules of Investments.
57
Brandes Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
FirstEnergy Corp. | ||||||||
7.375%, 11/15/2031 | $ | 430,000 | $ | 503,735 | ||||
Israel Electric Corporation Ltd. | ||||||||
7.250%, 01/15/2019(b) | 200,000 | 229,633 | ||||||
Nisource Finance Corp. | ||||||||
5.250%, 09/15/2017 | 285,000 | 327,062 | ||||||
Oncor Electric Delivery Co. LLC | ||||||||
6.375%, 01/15/2015 | 30,000 | 32,834 | ||||||
7.000%, 09/01/2022 | 215,000 | 279,730 | ||||||
PPL Energy Supply LLC | ||||||||
6.500%, 05/01/2018 | 100,000 | 118,411 | ||||||
2,898,807 | ||||||||
Energy – 0.70% | ||||||||
Valero Energy Corp. | ||||||||
9.375%, 03/15/2019 | 170,000 | 231,928 | ||||||
Equipment – 0.12% | ||||||||
Continental Airlines 2007-1 Class A Pass Through Trust | ||||||||
Series 2007-1, 5.983%, 04/19/2022 | 35,784 | 40,704 | ||||||
Food, Beverage & Tobacco – 1.32% | ||||||||
Altria Group, Inc. | ||||||||
9.700%, 11/10/2018 | 51,000 | 70,975 | ||||||
Pilgrims Pride Corp. | ||||||||
7.875%, 12/15/2018 | 130,000 | 140,562 | ||||||
Tyson Foods, Inc. | ||||||||
6.850%, 04/01/2016 | 195,000 | 223,372 | ||||||
434,909 | ||||||||
Homebuilders – 2.18% | ||||||||
Centex Corp. | ||||||||
6.500%, 05/01/2016 | 80,000 | 91,500 | ||||||
Lennar Corp. | ||||||||
5.600%, 05/31/2015 | 320,000 | 340,799 | ||||||
Toll Brothers Finance Corp. | ||||||||
5.150%, 05/15/2015 | 270,000 | 286,370 | ||||||
718,669 | ||||||||
Insurance – 2.37% | ||||||||
CNA Financial Corp. | ||||||||
7.350%, 11/15/2019 | 125,000 | 158,222 | ||||||
5.875%, 08/15/2020 | 110,000 | 129,494 |
The accompanying notes are an integral part of these Schedules of Investments.
58
Brandes Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
ING US, Inc. | ||||||||
5.500%, 07/15/2022(b) | $ | 235,000 | $ | 260,003 | ||||
Marsh & McLennan Cos, Inc. | ||||||||
5.750%, 09/15/2015 | 210,000 | 233,561 | ||||||
781,280 | ||||||||
Leisure Time – 0.38% | ||||||||
Royal Caribbean Cruises Ltd. | ||||||||
7.000%, 06/15/2013 | 125,000 | 126,250 | ||||||
Media – 0.05% | ||||||||
The McGraw Hill Cos, Inc. | ||||||||
5.900%, 11/15/2017 | 15,000 | 16,928 | ||||||
Oil & Gas – 3.06% | ||||||||
Anadarko Petroleum Corp. | ||||||||
5.950%, 09/15/2016 | 435,000 | 500,732 | ||||||
Chesapeake Energy Corp. | ||||||||
6.625%, 08/15/2020 | 370,000 | 404,225 | ||||||
El Paso Corp. | ||||||||
7.000%, 06/15/2017 | 90,000 | 102,935 | ||||||
1,007,892 | ||||||||
Retail – 0.93% | ||||||||
Marks & Spencer Plc | ||||||||
7.125%, 12/01/2037(b) | 285,000 | 306,342 | ||||||
Technology Hardware & Equipment – 0.43% | ||||||||
ArcelorMittal SA | ||||||||
6.000%, 03/01/2021 | 135,000 | 141,933 | ||||||
Telecommunications – 0.73% | ||||||||
Telecom Italia Capital SA | ||||||||
6.999%, 06/04/2018 | 85,000 | 95,925 | ||||||
Telefonica Emisiones SAU | ||||||||
5.462%, 02/16/2021 | 135,000 | 145,288 | ||||||
241,213 | ||||||||
Utilities – 0.35% | ||||||||
Edison Mission Energy | ||||||||
7.000%, 05/15/2017(d) | 210,000 | 112,350 | ||||||
TOTAL CORPORATE BONDS (Cost $11,960,212) | $ | 13,734,394 |
The accompanying notes are an integral part of these Schedules of Investments.
59
Brandes Core Plus Fixed Income Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Contracts | Value | |||||||
WARRANTS – 0.00% | ||||||||
Semiconductors – 0.00% | ||||||||
MagnaChip Semiconductor Corp. | ||||||||
Expiration Date: November 2014, Exercise Price: $1.97(c) | 870 | $ | 169 | |||||
TOTAL WARRANTS (Cost $8,748) | $ | 169 | ||||||
Principal Amount | Value | |||||||
REPURCHASE AGREEMENTS – 4.93% | ||||||||
Repurchase Agreement – 4.93% | ||||||||
State Street Bank and Trust Repurchase Agreement, (Dated 3/29/13), due 4/1/13, 0.01% [Collateralized by $1,710,000 Fannie Mae Bond, 2.08%, 11/2/22, (Market Value $1,711,165)] (proceeds $1,626,173). | $ | 1,626,171 | $ | 1,626,171 | ||||
TOTAL REPURCHASE AGREEMENTS (Cost $1,626,171) | $ | 1,626,171 | ||||||
Total Investments (Cost $30,901,378) – 100.75% | $ | 33,200,826 | ||||||
Liabilities in Excess of Other Assets – (0.75%) | (246,967 | ) | ||||||
TOTAL NET ASSETS – 100.00% | $ | 32,953,859 |
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 $1,362,995, which represents 4.14% of total net assets. |
(c) | The prices for these securities were derived from an estimate of fair market value using methods approved by the Fund's Board of Trustees. These securities represent $169 or 0.00% of the Fund's net assets and are classified as Level 3. See Note 2.L in the Notes to Financial Statements. |
(d) | In default. |
The accompanying notes are an integral part of these Schedules of Investments.
60
Brandes Credit Focus Yield Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited)
Principal Amount | Value | |||||||
FEDERAL AND FEDERALLY SPONSORED CREDITS – 0.05% | ||||||||
Fannie Mae Interest Only Strip – 0.05% | ||||||||
Fannie Mae Interest Only Strip | ||||||||
6.000%, 06/01/2036 | $ | 96,978 | $ | 13,816 | ||||
TOTAL FEDERAL AND FEDERALLY SPONSORED CREDITS (Cost $17,333) | $ | 13,816 | ||||||
OTHER MORTGAGE RELATED SECURITIES – 1.11% | ||||||||
Near Prime Mortgage – 0.93% | ||||||||
Bear Stearns Adjustable Rate Mortgage Trust | ||||||||
Series 2005-10, 2.671%, 10/25/2035 | 277,042 | 268,349 | ||||||
Sub-Prime Mortgages – 0.18% | ||||||||
Structured Asset Investment Loan Trust | ||||||||
Series A3, 0.584%, 07/25/2035 | 54,470 | 52,615 | ||||||
TOTAL OTHER MORTGAGE RELATED SECURITIES (Cost $281,373) | $ | 320,964 | ||||||
US GOVERNMENTS – 38.02% | ||||||||
Sovereign – 38.02% | ||||||||
United States Treasury Note | ||||||||
4.250%, 08/15/2014 | $ | 60,000 | $ | 63,326 | ||||
4.500%, 02/15/2016 | 4,700,000 | 5,257,758 | ||||||
3.375%, 11/15/2019 | 3,220,000 | 3,685,895 | ||||||
2.000%, 11/15/2021 | 1,940,000 | 2,000,625 | ||||||
TOTAL US GOVERNMENTS (Cost $10,932,018) | $ | 11,007,604 |
The accompanying notes are an integral part of these Schedules of Investments.
61
Brandes Credit Focus Yield Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Shares | Value | |||||||
COMMON STOCKS – 0.10% | ||||||||
Paper & Forest Products – 0.09% | ||||||||
Abitibi-Consolidated (a)(c) | 205,000 | $ | — | |||||
Resolute Forest Products, Inc.(a) | 1,736 | 28,089 | ||||||
28,089 | ||||||||
Semiconductors – 0.01% | ||||||||
MagnaChip Semiconductor Corp.(a) | 97 | 1,679 | ||||||
TOTAL COMMON STOCKS (Cost $24,407) | $ | 29,768 | ||||||
PREFERRED STOCKS – 1.63% | ||||||||
Banks & Thrifts – 0.91% | ||||||||
Ally Financial, Inc., 8.500% | 9,800 | $ | 262,443 | |||||
Technology Hardware & Equipment – 0.72% | ||||||||
Pitney Bowes International Holdings, Inc., 6.130%(b) | 215 | 208,698 | ||||||
TOTAL PREFERRED STOCKS (Cost $446,565) | $ | 471,141 | ||||||
Principal Amount | Value | |||||||
ASSET BACKED SECURITIES – 1.31% | ||||||||
Student Loan – 1.31% | ||||||||
National Collegiate Student Loan Trust | ||||||||
Series A-4, 0.509%, 10/25/2033 | $ | 400,000 | $ | 182,161 | ||||
SLM Student Loan Trust | ||||||||
Series 2007-A, 0.714%, 12/15/2041 | 300,000 | 198,314 | ||||||
TOTAL ASSET BACKED SECURITIES (Cost $407,138) | $ | 380,475 | ||||||
CORPORATE BONDS – 52.47% | ||||||||
Advertising – 0.72% | ||||||||
The Interpublic Group of Companies, Inc. | ||||||||
6.250%, 11/15/2014 | $ | 195,000 | $ | 209,138 | ||||
Banks & Thrifts – 13.28% | ||||||||
Ally Financial, Inc. | ||||||||
6.750%, 12/01/2014 | 350,000 | 375,375 | ||||||
Citigroup, Inc. | ||||||||
6.125%, 11/21/2017 | 500,000 | 591,186 | ||||||
Fifth Third Bancorp | ||||||||
8.250%, 03/01/2038 | 65,000 | 89,978 | ||||||
First Horizon National Corp. | ||||||||
5.375%, 12/15/2015 | 230,000 | 250,195 | ||||||
JP Morgan Chase & Co. | ||||||||
7.900%, Perpetual | 900,000 | 1,033,945 |
The accompanying notes are an integral part of these Schedules of Investments.
62
Brandes Credit Focus Yield Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
KeyCorp | ||||||||
6.500%, 05/14/2013 | $ | 60,000 | $ | 60,412 | ||||
National City Corp. | ||||||||
4.900%, 01/15/2015 | 245,000 | 262,766 | ||||||
Regions Financial Corp. | ||||||||
5.750%, 06/15/2015 | 510,000 | 553,401 | ||||||
The Goldman Sachs Group, Inc. | ||||||||
7.500%, 02/15/2019 | 245,000 | 306,511 | ||||||
USB Capital IX | ||||||||
6.189%, Perpetual | 350,000 | 324,660 | ||||||
3,848,429 | ||||||||
Building Materials – 3.05% | ||||||||
CRH America, Inc. | ||||||||
6.000%, 09/30/2016 | 90,000 | 102,396 | ||||||
Masco Corp. | ||||||||
6.125%, 10/03/2016 | 390,000 | 435,515 | ||||||
Mohawk Industries, Inc. | ||||||||
6.625%, 01/15/2016 | 75,000 | 83,719 | ||||||
Owens Corning | ||||||||
6.500%, 12/01/2016 | 100,000 | 112,585 | ||||||
USG Corp. | ||||||||
6.300%, 11/15/2016 | 140,000 | 148,400 | ||||||
882,615 | ||||||||
Consumer Products – 1.06% | ||||||||
Spectrum Brands Holdings, Inc. | ||||||||
9.500%, 06/15/2018 | 270,000 | 305,775 | ||||||
Containers & Packaging – 0.36% | ||||||||
Sealed Air Corp. | ||||||||
7.875%, 06/15/2017 | 100,000 | 105,500 | ||||||
Diversified Financial Services – 9.58% | ||||||||
American International Group, Inc. | ||||||||
6.400%, 12/15/2020 | 485,000 | 600,646 | ||||||
Bank of America Corp. | ||||||||
3.750%, 07/12/2016 | 415,000 | 441,380 | ||||||
Ford Motor Credit Co. LLC | ||||||||
7.000%, 10/01/2013 | 345,000 | 355,256 | ||||||
General Motors Acceptance Corp. | ||||||||
6.750%, 12/01/2014 | 325,000 | 348,563 |
The accompanying notes are an integral part of these Schedules of Investments.
63
Brandes Credit Focus Yield Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
International Lease Finance Corp. | ||||||||
6.625%, 11/15/2013 | $ | 565,000 | $ | 581,950 | ||||
SLM Corp. | ||||||||
5.000%, 10/01/2013 | 440,000 | 447,700 | ||||||
2,775,495 | ||||||||
Electric Utilities – 8.58% | ||||||||
Ameren Corp. | ||||||||
8.875%, 05/15/2014 | 120,000 | 129,570 | ||||||
Arizona Public Service Co. | ||||||||
8.750%, 03/01/2019 | 435,000 | 587,651 | ||||||
Commonwealth Edison Co. | ||||||||
Series 104, 5.950%, 08/15/2016 | 110,000 | 127,806 | ||||||
FirstEnergy Corp. | ||||||||
7.375%, 11/15/2031 | 350,000 | 410,018 | ||||||
Israel Electric Corporation Ltd. | ||||||||
7.250%, 01/15/2019 (b) | 255,000 | 292,782 | ||||||
Nisource Finance Corp. | ||||||||
5.250%, 09/15/2017 | 65,000 | 74,593 | ||||||
Oncor Electric Delivery Co. LLC | ||||||||
6.375%, 01/15/2015 | 465,000 | 508,919 | ||||||
7.000%, 09/01/2022 | 120,000 | 156,128 | ||||||
PPL Energy Supply LLC | ||||||||
6.500%, 05/01/2018 | 165,000 | 195,378 | ||||||
2,482,845 | ||||||||
Energy – 0.90% | ||||||||
Valero Energy Corp. | ||||||||
9.375%, 03/15/2019 | 190,000 | 259,213 | ||||||
Equipment – 0.35% | ||||||||
Continental Airlines 2007-1 Class A Pass Through Trust | ||||||||
Series 2007-1, 5.983%, 10/19/2023 | 89,459 | 101,760 | ||||||
Food, Beverage & Tobacco – 1.52% | ||||||||
Altria Group, Inc. | ||||||||
9.700%, 11/10/2018 | 43,000 | 59,842 | ||||||
Pilgrims Pride Corp. | ||||||||
7.875%, 12/15/2018 | 140,000 | 151,375 | ||||||
Tyson Foods, Inc. | ||||||||
6.850%, 04/01/2016 | 200,000 | 229,099 | ||||||
440,316 |
The accompanying notes are an integral part of these Schedules of Investments.
64
Brandes Credit Focus Yield Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
Homebuilders – 3.06% | ||||||||
Centex Corp. | ||||||||
6.500%, 05/01/2016 | $ | 155,000 | $ | 177,281 | ||||
Lennar Corp. | ||||||||
5.600%, 05/31/2015 | 505,000 | 537,824 | ||||||
Toll Brothers Finance Corp. | ||||||||
5.150%, 05/15/2015 | 160,000 | 169,701 | ||||||
884,806 | ||||||||
Insurance – 3.58% | ||||||||
CNA Financial Corp. | ||||||||
7.350%, 11/15/2019 | 70,000 | 88,604 | ||||||
5.875%, 08/15/2020 | 235,000 | 276,647 | ||||||
ING US, Inc. | ||||||||
5.500%, 07/15/2022 (b) | 355,000 | 392,770 | ||||||
Marsh & McLennan Cos, Inc. | ||||||||
5.750%, 09/15/2015 | 250,000 | 278,049 | ||||||
1,036,070 | ||||||||
Leisure Time – 0.30% | ||||||||
Royal Caribbean Cruises Ltd. | ||||||||
7.000%, 06/15/2013 | 85,000 | 85,850 | ||||||
Media – 0.16% | ||||||||
The McGraw Hill Cos, Inc. | ||||||||
5.900%, 11/15/2017 | 40,000 | 45,142 | ||||||
Oil & Gas – 4.18% | ||||||||
Anadarko Petroleum Corp. | ||||||||
5.950%, 09/15/2016 | 510,000 | 587,065 | ||||||
Chesapeake Energy Corp. | ||||||||
6.625%, 08/15/2020 | 520,000 | 568,100 | ||||||
El Paso Corp. | ||||||||
7.000%, 06/15/2017 | 50,000 | 57,186 | ||||||
1,212,351 | ||||||||
Technology Hardware & Equipment – 0.71% | ||||||||
ArcelorMittal SA | ||||||||
6.000%, 03/01/2021 | 195,000 | 205,015 | ||||||
Telecommunications – 0.85% | ||||||||
Telecom Italia Capital SA | ||||||||
6.999%, 06/04/2018 | 140,000 | 157,994 |
The accompanying notes are an integral part of these Schedules of Investments.
65
Brandes Credit Focus Yield Fund
SCHEDULE OF INVESTMENTS — March 31, 2013 (Unaudited) (continued)
Principal Amount | Value | |||||||
Telefonica Emisiones SAU | ||||||||
5.462%, 02/16/2021 | $ | 80,000 | $ | 86,097 | ||||
244,091 | ||||||||
Utilities – 0.23% | ||||||||
Edison Mission Energy | ||||||||
7.000%, 05/15/2017(d) | 125,000 | 66,875 | ||||||
TOTAL CORPORATE BONDS (Cost $14,649,470) | $ | 15,191,286 | ||||||
Contracts | Value | |||||||
WARRANTS – 0.00% | ||||||||
Semiconductors – 0.00% | ||||||||
MagnaChip Semiconductor Corp. | ||||||||
Expiration Date: November 2014, Exercise Price: $1.97(c) | $ | 3,900 | $ | 756 | ||||
TOTAL WARRANTS (Cost $0) | $ | 756 | ||||||
Principal Amount | Value | |||||||
REPURCHASE AGREEMENTS – 3.56% | ||||||||
Repurchase Agreement – 3.56% | ||||||||
State Street Bank and Trust Repurchase Agreement, (Dated 3/29/13), due 4/1/13, 0.01% [Collateralized by $1,085,000 Fannie Mae Bond, 2.08%, 11/2/22, (Market Value $1,085,739)] (proceeds $1,031,232). | $ | 1,031,231 | $ | 1,031,231 | ||||
TOTAL REPURCHASE AGREEMENTS (Cost $1,031,231) | $ | 1,031,231 | ||||||
Total Investments (Cost $27,789,535) – 98.25% | $ | 28,447,041 | ||||||
Other Assets in Excess of Liabilites – 1.75% | 506,165 | |||||||
TOTAL NET ASSETS – 100.00% | $ | 28,953,206 |
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 $894,250, which represents 3.09% of total net assets. |
(c) | The prices for these securities were derived from an estimate of fair market value using methods approved by the Fund's Board of Trustees. These securities represent $756 or 0.00% of the Fund's net assets and are classified as Level 3. See Note 2.L in the Notes to Financial Statements. |
(d) | In default. |
The accompanying notes are an integral part of these Schedules of Investments.
66
Brandes Investment Trust
STATEMENT OF ASSETS AND LIABILITIES — March 31, 2013 (Unaudited)
Brandes International Equity Fund | Brandes Global Equity Fund | Brandes Emerging Markets Fund | ||||||||||
ASSETS | ||||||||||||
Investments in securities, at value(1) | $ | 372,715,156 | $ | 33,576,944 | $ | 261,634,945 | ||||||
Foreign currency (1) | 987,933 | 53,534 | 151,956 | |||||||||
Receivables: | ||||||||||||
Fund shares sold | 5,008,145 | 5,109 | 1,110,384 | |||||||||
Dividends and interest | 2,155,475 | 109,628 | 1,061,121 | |||||||||
Tax reclaims | 848,317 | 17,019 | 2,862 | |||||||||
Prepaid expenses and other assets | 73,918 | 42,368 | 68,965 | |||||||||
Total Assets | 381,788,944 | 33,804,602 | 264,030,233 | |||||||||
LIABILITIES | ||||||||||||
Payables: | ||||||||||||
Securities purchased | 289,503 | — | 895,963 | |||||||||
Fund shares redeemed | 263,183 | 8,568 | 166,503 | |||||||||
Due to advisor | 264,120 | 4,146 | 183,429 | |||||||||
12b-1 fee | 45 | 21 | 36,795 | |||||||||
Trustee fees | 13,403 | 13,731 | 13,730 | |||||||||
Foreign currency spot trade payable | 69 | — | 11,027 | |||||||||
Accrued expenses | 161,759 | 46,239 | 88,885 | |||||||||
Total Liabilities | 992,082 | 72,705 | 1,396,332 | |||||||||
NET ASSETS | $ | 380,796,862 | $ | 33,731,897 | $ | 262,633,901 | ||||||
COMPONENTS OF NET ASSETS | ||||||||||||
Paid-in capital | $ | 536,871,698 | $ | 30,340,545 | $ | 262,469,715 | ||||||
Undistributed net investment income (loss) | 164,338 | 145,368 | (146,781 | ) | ||||||||
Accumulated net realized gain (loss) on investments and foreign currency | (129,944,495 | ) | (164,981 | ) | 5,887,247 | |||||||
Net unrealized appreciation (depreciation) on: | ||||||||||||
Investments | (26,318,458 | ) | 3,413,389 | (5,548,419 | ) | |||||||
Foreign currency | 23,779 | (2,424 | ) | (27,861 | ) | |||||||
Total Net Assets | $ | 380,796,862 | $ | 33,731,897 | $ | 262,633,901 | ||||||
Class A Shares | ||||||||||||
Net Assets | $ | 190,751 | $ | 100,676 | $ | 96,087,220 | ||||||
Shares outstanding (unlimited shares authorized without par value) | 13,389 | 4,622 | 10,318,314 | |||||||||
Offering and redemption price | $ | 14.25 | $ | 21.78 | $ | 9.31 | ||||||
Maximum offering price per share** | $ | 15.12 | $ | 23.11 | $ | 9.88 | ||||||
Class C Shares | ||||||||||||
Net Assets | $ | 995 | $ | 1,025 | $ | 259,683 | ||||||
Shares outstanding (unlimited shares authorized without par value) | 70 | 47 | 27,918 | |||||||||
Offering and redemption price | $ | 14.23 | * | $ | 21.83 | $ | 9.30 | |||||
Class E Shares | ||||||||||||
Net Assets | $ | 12,853,229 | $ | 207,340 | N/A | |||||||
Shares outstanding (unlimited shares authorized without par value) | 903,050 | 9,583 | — | |||||||||
Offering and redemption price | $ | 14.23 | $ | 21.64 | N/A | |||||||
Class I Shares | ||||||||||||
Net Assets | $ | 367,751,887 | $ | 33,422,856 | $ | 166,286,998 | ||||||
Shares outstanding (unlimited shares authorized without par value) | 25,781,762 | 1,530,912 | 17,825,296 | |||||||||
Offering and redemption price | $ | 14.26 | $ | 21.83 | $ | 9.33 | ||||||
(1)Cost of: | ||||||||||||
Investments in securities | 399,035,074 | 30,162,142 | 267,182,470 | |||||||||
Foreign currency | 986,473 | 55,337 | 152,850 |
* | Differences in the calculation of the offering and redemption prices are due to rounding of the Net Assets and the shares outstanding. |
** | Includes a sales load of 5.75% for the International, Global, Emerging Markets, and International Small Cap Funds and 3.75% for the Core Plus Fixed Income and Credit Focus Yield Funds. (see Note 7 of the Notes to Financial Statements) |
The accompanying notes to financial statements are an integral part of this statement.
67
Brandes Investment Trust
STATEMENT OF ASSETS AND LIABILITIES — March 31, 2013 (Unaudited) (continued)
Brandes International Small Cap Equity Fund | Brandes Institutional Core Plus Fixed Income Fund | Brandes Credit Focus Yield Fund | ||||||||||
ASSETS | ||||||||||||
Investments in securities, at value(1) | $ | 74,030,068 | $ | 33,200,826 | $ | 28,447,041 | ||||||
Foreign currency(1) | 46,934 | — | — | |||||||||
Receivables: | ||||||||||||
Fund shares sold | 595,305 | 112,522 | 515,806 | |||||||||
Dividends and interest | 234,862 | 327,162 | 334,027 | |||||||||
Tax reclaims | 4,705 | — | — | |||||||||
Due from Advisor | — | 7,331 | 5,351 | |||||||||
Prepaid expenses and other assets | 47,616 | 36,961 | 25,542 | |||||||||
Total Assets | 74,959,490 | 33,684,802 | 29,327,767 | |||||||||
LIABILITIES | ||||||||||||
Payables: | ||||||||||||
Securities purchased | 759,089 | 618,411 | 320,449 | |||||||||
Fund shares redeemed | 4,724 | 17,722 | 496 | |||||||||
Due to advisor | 41,701 | — | — | |||||||||
12b-1 fee | 6,505 | 162 | 722 | |||||||||
Trustee fees | 12,187 | 13,716 | 12,237 | |||||||||
Dividends payable | — | 17,101 | 4,439 | |||||||||
Due to Custodian | 249,187 | 27,618 | — | |||||||||
Accrued expenses | 41,232 | 36,213 | 36,218 | |||||||||
Total Liabilities | 1,114,625 | 730,943 | 374,561 | |||||||||
NET ASSETS | $ | 73,844,865 | $ | 32,953,859 | $ | 28,953,206 | ||||||
COMPONENTS OF NET ASSETS | ||||||||||||
Paid-in capital | $ | 63,982,388 | $ | 30,701,443 | $ | 27,843,346 | ||||||
Undistributed net investment income | (145,216 | ) | (138,744 | ) | (8,868 | ) | ||||||
Accumulated net realized gain (loss) on investments and foreign currency | 2,772,035 | 91,711 | 461,222 | |||||||||
Net unrealized appreciation (depreciation) on: | ||||||||||||
Investments | 7,239,189 | 2,299,449 | 657,506 | |||||||||
Foreign currency | (3,531 | ) | — | — | ||||||||
Total Net Assets | $ | 73,844,865 | $ | 32,953,859 | $ | 28,953,206 | ||||||
Net asset value, offering price and redemption proceeds per share | ||||||||||||
Class A Shares | ||||||||||||
Net Assets | $ | 18,017,902 | $ | 776,568 | $ | 3,394,335 | ||||||
Shares outstanding (unlimited shares authorized without par value) | 1,503,831 | 82,378 | 325,861 | |||||||||
Offering and redemption price | $ | 11.98 | $ | 9.43 | $ | 10.42 | ||||||
Maximum offering price per share** | $ | 12.71 | $ | 9.80 | $ | 10.83 | ||||||
Class C Shares | ||||||||||||
Net Assets | 21,864 | N/A | N/A | |||||||||
Shares outstanding (unlimited shares authorized without par value) | 1,826 | — | — | |||||||||
Offering and redemption price | $ | 11.97 | N/A | N/A | ||||||||
Class E Shares | ||||||||||||
Net Assets | N/A | 1,604,699 | N/A | |||||||||
Shares outstanding (unlimited shares authorized without par value) | — | 169,285 | — | |||||||||
Offering and redemption price | N/A | 9.48 | N/A | |||||||||
Class I Shares | ||||||||||||
Net Assets | $ | 55,805,099 | $ | 30,572,592 | $ | 25,558,871 | ||||||
Shares outstanding (unlimited shares authorized without par value) | 4,650,676 | 3,232,281 | 2,454,549 | |||||||||
Offering and redemption price | $ | 12.00 | $ | 9.46 | $ | 10.41 | ||||||
(1) Cost of: | ||||||||||||
Investments in securities | $ | 66,790,833 | $ | 30,901,378 | $ | 27,789,535 | ||||||
Foreign currency | 46,979 | — | — |
The accompanying notes to financial statements are an integral part of this statement.
68
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69
Brandes Investment Trust
STATEMENT OF OPERATIONS — For the Periods Ended March 31, 2013 (Unaudited)
Brandes International Equity Fund | ||||
INVESTMENT INCOME | ||||
Income | ||||
Dividend income | $ | 4,145,776 | ||
Less: Foreign taxes withheld | (349,163 | ) | ||
Issuance fees | (1,979 | ) | ||
Interest income | 165 | |||
Income from securities lending | 36,013 | |||
Miscellaneous income | — | |||
Total income | 3,830,812 | |||
Expenses | ||||
Advisory fees (Note 3) | 1,814,695 | |||
Custody fees | 36,534 | |||
Administration fees (Note 3) | 75,462 | |||
Insurance expense | 18,831 | |||
Legal fees | 9,957 | |||
Printing fees | 18,135 | |||
Miscellaneous | 40,237 | |||
Registration expense | 26,444 | |||
Trustee fees | 20,430 | |||
Transfer agent fees | 72,460 | |||
12b-1 Fees – Class A | 111 | |||
12b-1 Fees – Class C | 1 | |||
Shareholder Service Fees – Class C | 88,380 | |||
Shareholder Service Fees – Class E | — | |||
Shareholder Service Fees – Class I | 1 | |||
Accounting fees | 32,875 | |||
Auditing fees | 15,582 | |||
Organizational costs | — | |||
Total expenses | 2,270,135 | |||
Less reimbursement / waiver | (357,381 | ) | ||
Total expenses net of reimbursement / waiver | 1,912,754 | |||
Net investment income | 1,918,058 | |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||
Net realized gain (loss) on: | ||||
Investments | (11,984,904 | ) | ||
Less: Foreign taxes withheld | — | |||
Foreign currency transactions | (117,681 | ) | ||
Net realized gain (loss) | (12,102,585 | ) | ||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 43,557,515 | |||
Foreign currency transactions | (22,089 | ) | ||
Net unrealized appreciation (depreciation) | 43,535,426 | |||
Net realized and unrealized gain on investments and foreign currency transactions | 31,432,841 | |||
Net increase (decrease) in net assets resulting from operations | $ | 33,350,899 |
The accompanying notes to financial statements are an integral part of this statement.
70
Brandes Investment Trust
STATEMENT OF OPERATIONS — For the Periods Ended March 31, 2013 (Unaudited) (continued)
Brandes Global Equity Fund | Brandes Emerging Markets Fund | Brandes International Small Cap Fund | Brandes Core Plus Fixed Income Fund | Brandes Credit Focus Yield Fund | ||||||||||||||||
INVESTMENT INCOME | ||||||||||||||||||||
Income | ||||||||||||||||||||
Dividend income | $ | 363,581 | $ | 1,935,879 | $ | 408,137 | $ | 10,575 | $ | 13,452 | ||||||||||
Less: Foreign taxes withheld | (20,498 | ) | (179,031 | ) | (34,856 | ) | — | — | ||||||||||||
Issuance fees | ||||||||||||||||||||
Interest income | 42 | 292 | 17,607 | 602,749 | 345,389 | |||||||||||||||
Income from securities lending | — | — | — | — | — | |||||||||||||||
Miscellaneous income | — | 13 | 248 | 20,670 | 13,469 | |||||||||||||||
Total income | 343,125 | 1,757,153 | 391,136 | 633,994 | 372,310 | |||||||||||||||
Expenses | ||||||||||||||||||||
Advisory fees (Note 3) | 123,976 | 1,091,781 | 280,228 | 53,773 | 65,659 | |||||||||||||||
Custody fees | 2,648 | 31,146 | 11,817 | 1,927 | 1,816 | |||||||||||||||
Administration fees (Note 3) | 6,275 | 42,866 | 9,478 | 6,536 | 4,694 | |||||||||||||||
Insurance expense | 1,565 | 8,136 | 1,468 | 1,650 | 648 | |||||||||||||||
Legal fees | 9,954 | 10,594 | 9,072 | 9,867 | 9,697 | |||||||||||||||
Printing fees | 3,013 | 16,734 | 2,726 | 3,188 | 2,103 | |||||||||||||||
Miscellaneous | 4,054 | 21,308 | 4,895 | 3,931 | 2,638 | |||||||||||||||
Registration expense | 21,701 | 27,654 | 20,661 | 16,219 | 19,956 | |||||||||||||||
Trustee fees | 20,335 | 20,335 | 21,145 | 20,325 | 21,055 | |||||||||||||||
Transfer agent fees | 25,448 | 92,153 | 19,656 | 17,794 | 16,946 | |||||||||||||||
12b-1 Fees – Class A | 117 | 99,077 | 13,677 | 162 | 1,488 | |||||||||||||||
12b-1 Fees – Class C | 1 | 165 | 6 | — | — | |||||||||||||||
Shareholder Service Fees – Class C | 1 | 55 | 2 | — | — | |||||||||||||||
Shareholder Service Fees – Class E | 122 | — | — | 8,816 | — | |||||||||||||||
Shareholder Service Fees – Class I | 7,676 | 37,823 | 5,470 | 5,886 | 2,056 | |||||||||||||||
Accounting fees | 27,014 | 27,003 | 26,379 | 23,177 | 21,418 | |||||||||||||||
Auditing fees | 15,497 | 15,167 | 16,786 | 15,497 | 17,048 | |||||||||||||||
Organizational costs | — | — | 8,983 | — | 7,744 | |||||||||||||||
Total expenses | 269,397 | 1,541,997 | 452,449 | 188,748 | 194,966 | |||||||||||||||
Less reimbursement / waiver | (114,057 | ) | (155,432 | ) | (99,541 | ) | (104,769 | ) | (101,555 | ) | ||||||||||
Total expenses net of reimbursement / waiver | 155,340 | 1,386,565 | 352,908 | 83,979 | 93,411 | |||||||||||||||
Net investment income | 187,785 | 370,588 | 38,228 | 550,015 | 278,899 | |||||||||||||||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||||||||||||||||||
Net realized gain (loss) on: | ||||||||||||||||||||
Investments | (106,453 | ) | 5,197,412 | 2,831,815 | 191,303 | 28,018 | ||||||||||||||
Less: Foreign taxes withheld | — | (7,305 | ) | — | — | — | ||||||||||||||
Foreign currency transactions | (4,929 | ) | (48,331 | ) | (9,920 | ) | — | — | ||||||||||||
Net realized gain (loss) | (111,382 | ) | 5,141,776 | 2,821,895 | 191,303 | 28,018 | ||||||||||||||
Net change in unrealized appreciation (depreciation) on: | ||||||||||||||||||||
Investments | 3,556,095 | 11,772,143 | 5,557,478 | (65,575 | ) | 198,775 | ||||||||||||||
Foreign currency transactions | (1,768 | ) | (17,616 | ) | (3,750 | ) | — | — | ||||||||||||
Net unrealized appreciation (depreciation) | 3,554,327 | 11,754,527 | 5,553,728 | (65,575 | ) | 198,775 | ||||||||||||||
Net realized and unrealized loss on investments and foreign currency transactions | 3,442,945 | 16,896,303 | 8,375,623 | 125,728 | 226,793 | |||||||||||||||
Net increase (decrease) in net assets resulting from operations | $ | 3,630,730 | $ | 17,266,891 | $ | 8,413,851 | $ | 675,743 | $ | 505,692 |
The accompanying notes to financial statements are an integral part of this statement.
71
Brandes Investment Trust
STATEMENTS OF CHANGES IN NET ASSETS
Brandes International Equity Fund | Brandes Global Equity Fund | Brandes Emerging Markets Fund | ||||||||||||||||||||||
Six Months Ended March 31, 2013 | Year Ended September 30, 2012 | Six Months Ended March 31, 2013 | Year Ended September 30, 2012 | Six Months Ended March 31, 2013 | Period Ended September 30, 2012 | |||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM: | ||||||||||||||||||||||||
OPERATIONS | ||||||||||||||||||||||||
Net investment income | $ | 1,918,058 | $ | 12,918,224 | $ | 187,785 | $ | 833,016 | $ | 370,588 | $ | 3,539,094 | ||||||||||||
Net realized gain (loss) on: | ||||||||||||||||||||||||
Investments | (11,984,904 | ) | (32,118,611 | ) | (106,453 | ) | 543,036 | 5,197,412 | 4,139,759 | |||||||||||||||
Foreign currency transactions | (117,681 | ) | (69,469 | ) | (4,929 | ) | (17,226 | ) | (55,636 | ) | (94,710 | ) | ||||||||||||
Net unrealized appreciation (depreciation) on: | ||||||||||||||||||||||||
Investments | 43,557,515 | 55,898,588 | 3,556,095 | 3,479,351 | 11,772,143 | 12,500,123 | ||||||||||||||||||
Foreign currency transactions | (22,089 | ) | (6,563 | ) | (1,768 | ) | (148 | ) | (17,616 | ) | 23,761 | |||||||||||||
Net increase (decrease) in net assets resulting from operations | 33,350,899 | 36,622,169 | 3,630,730 | 4,838,029 | 17,266,891 | 20,108,027 | ||||||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||||||||||||||||||
From net investment income | ||||||||||||||||||||||||
Class A | (563 | ) | (4 | ) | (2,375 | ) | (249 | ) | (1,077,651 | ) | (407,118 | ) | ||||||||||||
Class C | — | N/A | — | N/A | — | N/A | ||||||||||||||||||
Class E | (277,556 | ) | (208,815 | ) | (5,369 | ) | (4,752 | ) | N/A | N/A | ||||||||||||||
Class I | (12,564,479 | ) | (21,348,284 | ) | (821,871 | ) | (884,851 | ) | (2,386,767 | ) | (1,004,514 | ) | ||||||||||||
From net realized gains | ||||||||||||||||||||||||
Class A | — | (1,515 | ) | (634 | ) | (1,665,022 | ) | (415,797 | ) | |||||||||||||||
Class C | — | N/A | — | N/A | — | N/A | ||||||||||||||||||
Class E | — | — | (3,242 | ) | (11,450 | ) | N/A | N/A | ||||||||||||||||
Class I | — | — | (489,837 | ) | (2,132,185 | ) | (3,312,472 | ) | (901,535 | ) | ||||||||||||||
Decrease in net assets from distributions | (12,842,598 | ) | (21,557,103 | ) | (1,324,209 | ) | (3,034,121 | ) | (8,441,912 | ) | (2,728,964 | ) | ||||||||||||
CAPITAL SHARE TRANSACTIONS | ||||||||||||||||||||||||
Proceeds from shares sold | 52,679,837 | 91,548,588 | 3,261,243 | 5,971,637 | 72,607,741 | 104,998,425 | ||||||||||||||||||
Net asset value of share issued on reinvestment of distributions | 11,652,172 | 19,458,718 | 475,870 | 2,952,953 | 8,238,081 | 2,608,174.00 | ||||||||||||||||||
Cost of shares redeemed | (63,433,734 | ) | (225,737,344 | ) | (2,728,627 | ) | (16,923,436 | ) | (29,622,765 | ) | (32,678,995 | ) | ||||||||||||
Net increase (decrease) in net assets from capital share transactions | 898,275 | (114,730,038 | ) | 1,008,486 | (7,998,846 | ) | 51,223,057 | 74,927,604 | ||||||||||||||||
Total Increase (Decrease) in net assets | 21,406,576 | (99,664,972 | ) | 3,315,007 | (6,194,938 | ) | 60,048,036 | 92,306,667 | ||||||||||||||||
NET ASSETS | ||||||||||||||||||||||||
Beginning of the Period | 359,390,286 | 459,055,258 | 30,416,890 | 36,611,828 | 202,585,865 | 110,279,198 | ||||||||||||||||||
End of the Period | $ | 380,796,862 | $ | 359,390,286 | $ | 33,731,897 | $ | 30,416,890 | $ | 262,633,901 | $ | 202,585,865 | ||||||||||||
Undistributed net investment income (loss) | $ | 164,338 | $ | 11,088,878 | $ | 145,368 | $ | 787,198 | $ | (146,781 | ) | $ | 2,947,049 |
* | Commenced operations on January 31, 2012. |
The accompanying notes to financial statements are an integral part of this statement.
72
Brandes Investment Trust
STATEMENTS OF CHANGES IN NET ASSETS (continued)
Brandes International Small Cap Fund | Brandes Core Plus Fixed Income Fund | Brandes Credit Focus Yield Fund | ||||||||||||||||||||||
Six Months Ended March 31, 2013 | Period Ended September 30, 2012* | Six Months Ended March 31, 2013 | Year Ended September 30, 2012 | Six Months Ended March 31, 2013 | Period Ended September 30, 2012* | |||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM: | ||||||||||||||||||||||||
OPERATIONS | ||||||||||||||||||||||||
Net investment income | $ | 38,228 | $ | 290,760 | $ | 550,015 | $ | 1,258,168 | $ | 278,899 | $ | 306,294 | ||||||||||||
Net realized gain (loss) on: | ||||||||||||||||||||||||
Investments | 2,831,815 | 510,475 | 191,303 | 427,921 | 28,018 | 65,484 | ||||||||||||||||||
Foreign currency transactions | (9,920 | ) | (16,405 | ) | — | — | — | — | ||||||||||||||||
Net unrealized appreciation (depreciation) on: | ||||||||||||||||||||||||
Investments | 5,557,478 | 1,681,711 | (65,575 | ) | 1,155,584 | 198,775 | 458,731 | |||||||||||||||||
Foreign currency transactions | (3,750 | ) | 219 | — | — | — | — | |||||||||||||||||
Net increase (decrease) in net assets resulting from operations | 8,413,851 | 2,466,760 | 675,743 | 2,841,673 | 505,692 | 830,509 | ||||||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||||||||||||||||||
From net investment income | ||||||||||||||||||||||||
Class A | (65,215 | ) | — | (2,002 | ) | N/A | (11,689 | ) | (2 | ) | ||||||||||||||
Class C | N/A | N/A | N/A | (244,744 | ) | N/A | N/A | |||||||||||||||||
Class E | N/A | — | (167,625 | ) | (1,179,368 | ) | N/A | (297,633 | ) | |||||||||||||||
Class I | (403,875 | ) | N/A | (563,172 | ) | N/A | (289,779 | ) | N/A | |||||||||||||||
From net realized gains | ||||||||||||||||||||||||
Class A | (90,469 | ) | — | N/A | N/A | (5,802 | ) | — | ||||||||||||||||
Class C | N/A | N/A | (93,234 | ) | (93,990 | ) | N/A | N/A | ||||||||||||||||
Class E | (533,046 | ) | — | (286,860 | ) | (480,064 | ) | (143,186 | ) | — | ||||||||||||||
Class I | — | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||
Decrease in net assets from distributions | (1,092,605 | ) | — | (1,112,893 | ) | (1,998,166 | ) | (450,456 | ) | (297,635 | ) | |||||||||||||
CAPITAL SHARE TRANSACTIONS | ||||||||||||||||||||||||
Proceeds from shares sold | 24,984,426 | 41,885,389 | 12,546,729 | 7,548,731 | 9,148,662 | 18,477,543 | ||||||||||||||||||
Net asset value of share issued on reinvestment of distributions | 920,544 | — | 1,052,040 | 1,691,449 | 448,501 | 295,151 | ||||||||||||||||||
Cost of shares redeemed | (3,673,649 | ) | (59,851 | ) | (12,347,793 | ) | (5,048,630 | ) | (4,761 | ) | — | |||||||||||||
Net increase (decrease) in net assets from capital share transactions | 22,231,321 | 41,825,538 | 1,250,976 | 4,191,550 | 9,592,402 | 18,772,694 | ||||||||||||||||||
Total Increase (Decrease) in net assets | 29,552,567 | 44,292,298 | 813,826 | 5,035,057 | 9,647,638 | 19,305,568 | ||||||||||||||||||
NET ASSETS | ||||||||||||||||||||||||
Beginning of the Period | 44,292,298 | — | 32,140,033 | 27,104,976 | 19,305,568 | — | ||||||||||||||||||
End of the Period | $ | 73,844,865 | $ | 44,292,298 | $ | 32,953,859 | $ | 32,140,033 | $ | 28,953,206 | $ | 19,305,568 | ||||||||||||
Undistributed net investment income (loss) | $ | (145,216 | ) | $ | 285,646 | $ | (138,744 | ) | $ | 44,040 | $ | (8,868 | ) | $ | 13,701 |
The accompanying notes to financial statements are an integral part of this statement.
73
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 International Equity Fund | ||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 13.50 | 0.06 | (5) | 1.19 | — | 1.25 | (0.50 | ) | — | ||||||||||||||||||
9/30/2012 | $ | 13.00 | 0.38 | (5) | 0.76 | — | 1.14 | (0.64 | ) | — | ||||||||||||||||||
1/31/2011(3) – 9/30/2011 | $ | 15.74 | 0.26 | (5) | (3.00 | ) | — | (2.74 | ) | — | — | |||||||||||||||||
Class C | ||||||||||||||||||||||||||||
1/31/2013(3) – 3/31/2013 (Unaudited) | $ | 14.30 | 0.01 | (5) | (0.08 | ) | — | (0.07 | ) | — | — | |||||||||||||||||
Class E | ||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 13.48 | 0.06 | (5) | 1.19 | — | 1.25 | (0.50 | ) | — | ||||||||||||||||||
9/30/2012 | $ | 12.97 | 0.41 | (5) | 0.74 | — | 1.15 | (0.64 | ) | — | ||||||||||||||||||
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 I | ||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 13.50 | 0.07 | (5) | 1.19 | — | 1.26 | (0.50 | ) | — | ||||||||||||||||||
9/30/2012 | $ | 12.99 | 0.41 | (5) | 0.76 | — | 1.17 | (0.66 | ) | — | ||||||||||||||||||
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 | ) | ||||||||||||||||
Brandes Global Equity Fund | ||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 20.27 | 0.10 | (5) | 2.28 | — | 2.38 | (0.53 | ) | (0.34 | ) | |||||||||||||||||
9/30/2012 | $ | 19.19 | 0.43 | (5) | 2.22 | — | 2.65 | (0.44 | ) | (1.13 | ) | |||||||||||||||||
1/31/2011(3) – 9/30/2011 | $ | 22.34 | 0.29 | (5) | (3.44 | ) | — | (3.15 | ) | — | — | |||||||||||||||||
Class C | ||||||||||||||||||||||||||||
1/31/2013(3) – 3/31/2013 (Unaudited) | $ | 21.21 | 0.01 | (5) | 0.61 | — | 0.62 | — | — | |||||||||||||||||||
Class E | ||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 20.17 | 0.10 | (5) | 2.27 | — | 2.37 | (0.56 | ) | (0.34 | ) | |||||||||||||||||
9/30/2012 | $ | 19.13 | 0.44 | (5) | 2.20 | — | 2.64 | (0.47 | ) | (1.13 | ) | |||||||||||||||||
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 I | ||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 20.33 | 0.12 | (5) | 2.28 | — | 2.40 | (0.56 | ) | (0.34 | ) | |||||||||||||||||
9/30/2012 | $ | 19.22 | 0.49 | (5) | 2.22 | — | 2.71 | (0.47 | ) | (1.13 | ) | |||||||||||||||||
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 | ) | — | |||||||||||||||||||
Brandes Emerging Markets Fund | ||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 8.96 | 0.01 | (5) | 0.69 | — | 0.70 | (0.14 | ) | (0.21 | ) | |||||||||||||||||
9/30/2012 | $ | 7.85 | 0.17 | (5) | 1.10 | — | 1.27 | (0.08 | ) | (0.08 | ) | |||||||||||||||||
1/31/2011(3) – 9/30/2011 | $ | 10.00 | 0.14 | (5) | (2.29 | ) | — | (6) | (2.15 | ) | — | — | ||||||||||||||||
Class C | ||||||||||||||||||||||||||||
1/31/2013(3) – 3/31/2013 (Unaudited) | $ | 9.54 | (0.01 | )(5) | (0.23 | ) | — | (0.24 | ) | — | — | |||||||||||||||||
Class I | ||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 8.99 | 0.02 | (5) | 0.68 | — | 0.70 | (0.15 | ) | (0.21 | ) | |||||||||||||||||
9/30/2012 | $ | 7.86 | 0.20 | (5) | 1.10 | — | 1.30 | (0.09 | ) | (0.08 | ) | |||||||||||||||||
1/31/2011(3) – 9/30/2011 | $ | 10.00 | 0.15 | (5) | (2.29 | ) | — | (6) | (2.14 | ) | — | — |
(1) | Not annualized. |
(2) | Annualized. |
(3) | Commencement of operations. |
(4) | After fees 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) | Amount is less than $0.01 per share. |
(7) | The total return calculation does not reflect the sales loads that may be imposed on Class A or C shares (see Note 7 of the Notes to Financial Statements). |
74
Brandes Investment Trust
FINANCIAL HIGHLIGHTS For a capital share outstanding for the period ended:
Net asset value, end of period | Total return(7) | 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 reimburse- ments) to average net assets | Ratio of net investment income (prior to reimburse- ments) to average net assets | Portfolio turnover rate | |||||||||||||||||||||||||
Brandes Institutional International Equity Fund | ||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 14.25 | 9.54 | %(1) | $ | 0.2 | 1.30 | %(2) | 0.81 | %(2) | 1.44 | %(2) | 0.67 | %(2) | 6.51 | %(1) | ||||||||||||||||
9/30/2012 | $ | 13.50 | 8.94 | % | $ | — | 1.40 | % | 2.86 | % | 1.45 | % | 2.81 | % | 13.47 | % | ||||||||||||||||
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) | ||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||
1/31/2013(3) – 3/31/2013 (Unaudited) | $ | 14.23 | (0.49 | )%(1) | $ | — | 2.05 | %(2) | 0.08 | %(2) | 2.09 | %(2) | 0.04 | %(2) | 6.51 | %(1) | ||||||||||||||||
Class E | ||||||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 14.23 | 9.56 | %(1) | $ | 12.8 | 1.20 | %(2) | 0.91 | %(2) | 1.20 | %(2) | 0.91 | %(2) | 6.51 | %(1) | ||||||||||||||||
9/30/2012 | $ | 13.48 | 9.05 | % | $ | 6.6 | 1.18 | % | 3.09 | % | 1.23 | % | 3.04 | % | 13.47 | % | ||||||||||||||||
9/30/2011 | $ | 12.97 | (11.04 | )% | $ | 4.4 | 1.32 | %(2) | 2.40 | % | 1.32 | % | 2.40 | % | 4.99 | % | ||||||||||||||||
9/30/2010 | $ | 14.91 | (0.44 | )% | $ | 0.9 | 1.19 | % | 2.36 | % | 1.19 | % | 2.36 | % | 29.15 | % | ||||||||||||||||
10/6/2008(3) – 9/30/2009 | $ | 15.24 | 7.78 | %(1) | $ | 0.1 | 1.16 | %(2) | 2.21 | %(2) | 1.16 | %(2) | 2.21 | %(2) | 19.88 | %(1) | ||||||||||||||||
Class I | ||||||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 14.26 | 9.70 | %(1) | $ | 367.8 | 1.05 | %(2) | 1.06 | %(2) | 1.25 | %(2) | 0.86 | %(2) | 6.51 | %(1) | ||||||||||||||||
9/30/2012 | $ | 13.50 | 9.09 | % | $ | 352.7 | 1.16 | % | 3.11 | % | 1.21 | % | 3.06 | % | 13.47 | % | ||||||||||||||||
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 | % | ||||||||||||||||
Brandes Institutional Global Equity Fund | ||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 21.78 | 12.21 | %(1) | $ | 0.1 | 1.25 | %(2) | 0.97 | %(2) | 1.94 | %(2) | 0.28 | %(2) | 9.60 | %(1) | ||||||||||||||||
9/30/2012 | $ | 20.27 | 14.38 | % | $ | 0.1 | 1.25 | % | 2.23 | % | 2.00 | % | 1.47 | % | 18.00 | % | ||||||||||||||||
1/31/2011(3) – 9/30/2011 | $ | 19.19 | (14.10 | )%(1) | $ | — | 1.25 | %(2) | 2.05 | %(2) | 1.74 | %(2) | 1.56 | %(2) | 23.94 | %(1) | ||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||
1/31/2013(3) – 3/31/2013 (Unaudited) | $ | 21.83 | 2.59 | %(1) | $ | — | 2.00 | %(2) | 0.36 | %(2) | 2.12 | %(2) | 0.24 | %(2) | 9.60 | %(1) | ||||||||||||||||
Class E | ||||||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 21.64 | 12.24 | %(1) | $ | 0.2 | 1.25 | %(2) | 0.96 | %(2) | 1.81 | %(2) | 0.40 | %(2) | 9.60 | %(1) | ||||||||||||||||
9/30/2012 | $ | 20.17 | 14.35 | % | $ | 0.2 | 1.25 | % | 2.23 | % | 1.69 | % | 1.78 | % | 18.00 | % | ||||||||||||||||
9/30/2011 | $ | 19.13 | (5.80 | )% | $ | 0.2 | 1.25 | % | 2.05 | % | 1.69 | % | 1.62 | % | 23.94 | % | ||||||||||||||||
9/30/2010 | $ | 21.73 | 4.08 | % | $ | 0.1 | 1.20 | % | 1.78 | % | 1.41 | % | 1.57 | % | 16.87 | % | ||||||||||||||||
10/6/2008(3) – 9/30/2009 | $ | 21.25 | 6.77 | %(1) | $ | 0.1 | 1.20 | %(2) | 2.30 | %(2) | 1.83 | %(2) | 1.67 | %(2) | 4.06 | %(1) | ||||||||||||||||
Class I | ||||||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 21.83 | 12.34 | %(1) | $ | 33.4 | 1.00 | %(2) | 1.22 | %(2) | 1.74 | %(2) | 0.48 | %(2) | 9.60 | %(1) | ||||||||||||||||
9/30/2012 | $ | 20.33 | 14.67 | % | $ | 30.1 | 1.00 | % | 2.47 | % | 1.68 | % | 1.79 | % | 18.00 | % | ||||||||||||||||
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 | % | 1.59 | % | 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) | 4.06 | %(1) | ||||||||||||||||
Brandes Institutional Emerging Markets Fund | ||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 9.31 | 8.03 | %(1) | $ | 96.1 | 1.37 | %(2) | 0.16 | %(2) | 1.47 | %(2) | 0.06 | %(2) | 12.06 | %(1) | ||||||||||||||||
9/30/2012 | $ | 8.96 | 16.40 | % | $ | 68.1 | 1.37 | % | 2.03 | % | 1.60 | % | 1.79 | % | 28.59 | % | ||||||||||||||||
1/31/2011(3) – 9/30/2011 | $ | 7.85 | (21.50 | )%(1) | $ | 38.4 | 1.37 | %(2) | 2.12 | %(2) | 1.64 | %(2) | 1.85 | %(2) | 94.70 | %(1) | ||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||
1/31/2013(3) - 3/31/2013 (Unaudited) | $ | 9.30 | (2.52 | )%(1) | $ | 0.3 | 2.12 | %(2) | (0.57 | )%(2) | 2.21 | %(2) | (0.66 | )%(2) | 12.06 | %(1) | ||||||||||||||||
Class I | ||||||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 9.33 | 8.08 | %(1) | $ | 166.3 | 1.12 | %(2) | 0.41 | %(2) | 1.27 | %(2) | 0.26 | %(2) | 12.06 | %(1) | ||||||||||||||||
9/30/2012 | $ | 8.99 | 16.79 | % | $ | 134.5 | 1.12 | % | 2.26 | % | 1.35 | % | 2.03 | % | 28.59 | % | ||||||||||||||||
1/31/2011(3) – 9/30/2011 | $ | 7.86 | (21.40 | )%(1) | $ | 71.9 | 1.11 | %(2) | 2.38 | %(2) | 1.35 | %(2) | 2.14 | %(2) | 94.70 | %(1) |
75
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 | ||||||||||||||||||||||
Brandes International Small Cap Fund | ||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 10.56 | — | (5) | 1.63 | — | 1.63 | (0.09 | ) | (0.12 | ) | |||||||||||||||||
1/31/2012(3) – 9/30/12 | $ | 10.00 | 0.10 | (5) | 0.46 | — | 0.56 | — | — | |||||||||||||||||||
Class C | ||||||||||||||||||||||||||||
1/31/2013(3) – 3/31/2013 (Unaudited) | $ | 11.90 | (0.01 | )(5) | 0.08 | — | 0.07 | — | — | |||||||||||||||||||
Class I | ||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 10.56 | 0.01 | (5) | 1.64 | — | 1.65 | (0.09 | ) | (0.12 | ) | |||||||||||||||||
1/31/2012(3) – 9/30/12 | $ | 10.00 | 0.10 | (5) | 0.46 | — | 0.56 | — | 10.56 | |||||||||||||||||||
Brandes Core Plus Fixed Income Fund | ||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
1/31/2013(3) – 3/31/2013 (Unaudited) | $ | 9.43 | 0.05 | (5) | — | — | 0.05 | (0.05 | ) | — | ||||||||||||||||||
Class E | ||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 9.61 | 0.16 | (5) | 0.05 | — | 0.21 | (0.22 | ) | (0.12 | ) | |||||||||||||||||
9/30/2012 | $ | 9.36 | 0.38 | (5) | 0.50 | — | 0.88 | (0.44 | ) | (0.19 | ) | |||||||||||||||||
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 | ) | — | |||||||||||||||||||
12/28/2007(3) – 9/30/2008 | $ | 9.99 | 0.24 | (1.31 | ) | 0.02 | (1.05 | ) | (0.24 | ) | — | |||||||||||||||||
Class I | ||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 9.60 | 0.17 | (5) | 0.04 | — | 0.21 | (0.23 | ) | (0.12 | ) | |||||||||||||||||
9/30/2012 | $ | 9.35 | 0.40 | (5) | 0.50 | — | 0.90 | (0.46 | ) | (0.19 | ) | |||||||||||||||||
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 | ) | — | |||||||||||||||||||
5/28/2008(3) – 9/30/2008 | $ | 10.00 | 0.44 | (1.33 | ) | 0.02 | (0.87 | ) | (0.44 | ) | — | |||||||||||||||||
Brandes Credit Focus Yield Fund | ||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 10.39 | 0.10 | (5) | 0.09 | — | 0.19 | (0.10 | ) | (0.06 | ) | |||||||||||||||||
3/2/2012(3) – 9/30/12 | $ | 10.10 | 0.16 | (5) | 0.29 | — | 0.45 | (0.16 | ) | — | ||||||||||||||||||
Class I | ||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 10.39 | 0.11 | (5) | 0.09 | — | 0.20 | (0.12 | ) | (0.06 | ) | |||||||||||||||||
1/31/2012(3) – 9/30/12 | $ | 10.00 | 0.23 | (5) | 0.38 | — | 0.61 | (0.22 | ) | — |
(1) | Not annualized. |
(2) | Annualized. |
(3) | Commencement of operations. |
(4) | After fees 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 Fund's 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, absent such reimbursement. See Note 2K in the Notes to Financial Statements. |
(7) | The total return calculation does not reflect the sales load that may be imposed on Class A or C shares (see Note 7 of the Notes to Financial Statements). |
76
Brandes Investment Trust
FINANCIAL HIGHLIGHTS For a capital share outstanding for the period ended:
Net asset value, end of period | Total return(7) | 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 reimburse- ments/ waivers) to average net assets | Ratio of net investment income (prior to reimburse- ments/ waivers) to average net assets | Portfolio turnover rate | |||||||||||||||||||||||||
Brandes International Small Cap Fund | ||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 11.98 | 15.70 | %(1) | $ | 18.0 | 1.40 | %(2) | (0.08 | )%(2) | 1.70 | %(2) | (0.38 | )%(2) | 12.84 | %(1) | ||||||||||||||||
1/31/2012(3) – 9/30/12 | $ | 10.56 | 5.60 | %(1) | $ | 38.4 | 1.40 | %(2) | 1.19 | %(2) | 2.16 | %(2) | 0.43 | %(2) | 13.55 | %(1) | ||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||
1/31/2013(3) – 3/31/2013 (Unaudited) | $ | 11.97 | 0.59 | %(1) | $ | — | 2.15 | %(2) | (0.64 | )%(2) | 2.45 | %(2) | (0.94 | )%(2) | 12.84 | %(1) | ||||||||||||||||
Class I | ||||||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 12.00 | 15.94 | %(1) | $ | 55.8 | 1.15 | %(2) | 0.17 | %(2) | 1.49 | %(2) | (0.17 | )%(2) | 12.84 | %(1) | ||||||||||||||||
1/31/2012(3) – 9/30/12 | $ | 10.56 | 5.60 | %(1) | $ | 38.4 | 1.15 | %(2) | 1.44 | %(2) | 1.91 | %(2) | 0.68 | %(2) | 13.55 | %(1) | ||||||||||||||||
Brandes Institutional Core Plus Fixed Income Fund | ||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||
1/31/2013(3) – 3/31/2013 (Unaudited) | $ | 9.43 | 0.55 | %(1) | $ | 0.8 | 0.70 | %(2) | 3.44 | %(2) | 1.28 | %(2) | 2.86 | %(2) | 16.96 | %(1) | ||||||||||||||||
Class E | ||||||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 9.48 | 2.23 | %(1) | $ | 1.6 | 0.70 | %(2) | 3.42 | %(2) | 1.38 | %(2) | 2.74 | %(2) | 16.96 | %(1) | ||||||||||||||||
9/30/2012 | $ | 9.61 | 9.85 | % | $ | 6.9 | 0.70 | % | 4.06 | % | 1.45 | % | 3.33 | % | 31.59 | % | ||||||||||||||||
9/30/2011 | $ | 9.36 | 3.72 | % | $ | 3.8 | 0.70 | % | 4.90 | % | 1.48 | % | 4.13 | % | 91.18 | % | ||||||||||||||||
9/30/2010 | $ | 9.66 | 13.47 | % | $ | 2.7 | 0.70 | % | 5.80 | % | 1.48 | % | 5.02 | % | 150.89 | % | ||||||||||||||||
9/30/2009 | $ | 8.96 | 8.86 | % | $ | 1.0 | 0.70 | % | 5.95 | % | 1.84 | % | 4.81 | % | 22.06 | % | ||||||||||||||||
12/28/2007(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) | ||||||||||||||||
Class I | ||||||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 9.46 | 2.24 | %(1) | $ | 30.6 | 0.50 | %(2) | 3.62 | %(2) | 1.18 | %(2) | 2.94 | %(2) | 16.96 | %(1) | ||||||||||||||||
9/30/2012 | $ | 9.60 | 10.06 | % | $ | 25.3 | 0.50 | % | 4.28 | % | 1.23 | % | 3.55 | % | 31.59 | % | ||||||||||||||||
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 | % | 6.00 | % | 1.25 | % | 5.25 | % | 150.89 | % | ||||||||||||||||
9/30/2009 | $ | 8.95 | 9.07 | % | $ | 23.9 | 0.50 | % | 5.97 | % | 2.20 | % | 4.27 | % | 22.06 | % | ||||||||||||||||
5/28/2008(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) | ||||||||||||||||
Brandes Credit Focus Yield Fund | ||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 10.42 | 1.88 | % | $ | 3.4 | 0.95 | %(2) | 1.90 | %(2) | 1.67 | %(2) | 1.17 | %(2) | 16.62 | %(1) | ||||||||||||||||
3/2/2012(3) – 9/30/12 | $ | 10.39 | 4.51 | % | $ | — | 0.95 | %(2) | 2.69 | %(2) | 1.05 | %(2) | 2.06 | %(2) | 162.73 | %(1) | ||||||||||||||||
Class I | ||||||||||||||||||||||||||||||||
3/31/2013 (Unaudited) | $ | 10.41 | 1.93 | % | $ | 25.6 | 0.70 | %(2) | 2.14 | %(2) | 1.48 | %(2) | 1.36 | %(2) | 16.62 | %(1) | ||||||||||||||||
1/31/2012(3) – 9/30/12 | $ | 10.39 | 6.23 | % | $ | 19.3 | 0.70 | %(2) | 3.39 | %(2) | 2.35 | %(2) | 1.74 | %(2) | 162.73 | %(1) |
77
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS — (Unaudited)
NOTE 1 – ORGANIZATION
The Brandes International Equity Fund (the “International Fund”), the Brandes Global Equity Fund (the “Global Fund”), the Brandes Emerging Markets Fund (the “Emerging Markets Fund), the Brandes International Small Cap Equity Fund (the “International Small Cap Fund”), the Brandes Institutional Core Plus Fixed Income Fund (the “Core Plus Fund”) and the Brandes Credit Focus Yield Fund (the “Credit Focus Yield 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, Emerging Markets Fund and International Small Cap Fund began operations on January 2, 1997, October 6, 2008, January 31, 2011 and January 31, 2012, respectively. Prior to January 31, 2011 for the Emerging Markets Fund and January 31, 2012 for the International Small Cap and Credit Focus Yield Funds, these Funds’ portfolios were managed as private investment funds with investment objectives, investment policies and strategies that were, in all material respects, equivalent to those of the Emerging Markets Fund, International Small Cap Fund and Credit Focus Yield Fund, respectively.
The International Fund and Global Fund have four classes of shares: Class A, Class C, Class E and Class I. The Emerging Markets Fund and International Small Cap Fund have three classes of shares: Class A, Class C and Class I. The Core Plus Fund began operations on December 28, 2007, and has three classes of shares: Class A, Class E and Class I. The Credit Focus Yield Fund has two classes of shares: Class A and Class I. The International Fund and Global Fund invest their assets primarily in equity securities of issuers with market capitalizations greater than $1 billion. The International, International Small Cap 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 and Credit Focus Yield Fund invest predominantly in debt securities issued by U.S. and foreign companies and debt obligations issued or guaranteed by the U.S. Government and foreign governments and their agencies and instrumentalities.
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 |
78
Brandes Investment Trust
NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
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, the investment advisor 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. |
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 |
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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. The Funds did not hold any delayed delivery securities as of March 31, 2013. |
D. | Participatory Notes. The International, Global, Emerging Markets and International Small Cap 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 investment advisor has established guidelines for monitoring participatory note exposure for the Funds. Prior to investment in a participatory note, the investment advisor will complete an analysis of the prospective counterparties and once purchased, will continue to monitor creditworthiness on a quarterly basis. The investment advisor requires a minimum credit rating for such counterparties (as determined by rating agencies such as Moody’s, Fitch and S&P) of A.
The Funds record counterparty credit risk valuation adjustments, if material, on the participatory notes in order to appropriately reflect the credit quality of the counterparty. During the six months ended March 31, 2013, the Funds did not make any counterparty credit risk valuation adjustments.
The International, Global and International Small Cap Funds did not invest in any participatory notes at March 31, 2013. 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 $5,927,562 during the six months ended March 31, 2013. As a result of the investment in the participation note, the Emerging Markets Fund recognized a net unrealized gain of $1,973,064 and no realized gain (loss). The market value of the security on March 31, 2013 was $6,699,733 and can be found in the Emerging Market Fund’s Schedule of Investments.
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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 March 31, 2013, the International, Global, Emerging Markets and International Small Cap 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, Emerging Markets and International Small Cap Funds’ net assets. The investment advisor monitors 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. |
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 |
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loans of foreign securities not denominated in U.S. dollars) of the market value of the loaned securities. As of March 31, 2013, 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 Trust has 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 (2009 through 2012). As of March 31, 2013 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, 2012. 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 Fund’s 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, |
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2011, 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 — Quoted unadjusted prices for identical instruments in active markets to which the Trust has access at the date of measurement.
Level 2 — Other significant observable market inputs including quoted prices for similar instruments in active markets; quoted adjusted prices in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exist or instances where prices vary substantially over time or among brokered market makers.
Level 3 — Significant unobservable inputs including model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect the Trust’s own assumptions that market participants would use to price the asset or liability based on the best available information.
M. | Security Valuation. 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. Securities listed on the NASDAQ National Market System for which market quotations are readily available are valued using the NASDAQ Official Closing |
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Price. 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 if there are significant observable inputs used.
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.
As of March 31, 2013, the International Equity Fund, Global Equity Fund, Emerging Markets Fund, International Small Cap Fund, Core Plus Fund and Credit Focus Yield Fund had securities with market values of $317,016,366, $18,266,844, $107,001,515, $34,675,058, $0 and $0, that represents 86.74%, 56.20%, 42.59%, 49.40%, 0.00% 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. Secu-
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rities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.
The Funds may enter into mortgage dollar roll transactions in which the Funds sell a mortgage-backed security to a counterparty and simultaneously enter into an agreement with the same counterparty to buy back a similar security on a specific future date at a predetermined price. Risks may arise due to the delayed payment date and the potential inability of counterparties to complete the transaction. Mortgage dollar rolls are accounted for as purchase and sale transactions, which may increase a Fund’s portfolio turnover rate.
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 categorized as Level 2 or Level 3 of the fair value hierarchy. Certain vendor priced securities may be considered Level 3 if significant unobservable inputs are used.
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
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NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
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.
The following is a summary of the level inputs used, as of March 31, 2013, 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 | $ | — | $ | 77,022,670 | $ | — | $ | 77,022,670 | ||||||||
Energy | 12,197,525 | 30,142,121 | — | 42,339,646 | ||||||||||||
Financials | 5,206,076 | 67,862,871 | — | 73,068,947 | ||||||||||||
Health Care | — | 46,093,742 | — | 46,093,742 | ||||||||||||
Industrials | — | 7,009,525 | — | 7,009,525 | ||||||||||||
Information Technology | 13,352,562 | 23,259,151 | — | 36,611,713 | ||||||||||||
Materials | 4,225,698 | 16,676,541 | — | 20,902,239 | ||||||||||||
Telecommunication Services | 12,297,555 | 37,673,718 | — | 49,971,273 | ||||||||||||
Utilities | 1,173,505 | 11,276,027 | — | 12,449,532 | ||||||||||||
Total Equities | 48,452,921 | 317,016,366 | — | 365,469,287 | ||||||||||||
Repurchase Agreements | — | 7,245,869 | — | 7,245,869 | ||||||||||||
Total Investments in Securities | $ | 48,452,921 | $ | 324,262,235 | $ | — | $ | 372,715,156 | ||||||||
Global Fund | ||||||||||||||||
Equities | ||||||||||||||||
Consumer Discretionary | $ | 625,660 | $ | 2,000,060 | $ | — | $ | 2,625,720 | ||||||||
Consumer Staples | 2,037,487 | 2,509,873 | — | 4,547,360 | ||||||||||||
Energy | 1,274,063 | 2,223,213 | — | 3,497,276 | ||||||||||||
Financials | 3,267,184 | 3,186,959 | — | 6,454,143 | ||||||||||||
Health Care | 1,876,068 | 3,046,192 | — | 4,922,260 | ||||||||||||
Industrials | 346,275 | — | — | 346,275 | ||||||||||||
Information Technology | 3,885,409 | 1,391,596 | — | 5,277,005 | ||||||||||||
Materials | — | 688,283 | — | 688,283 | ||||||||||||
Telecommunication Services | 843,468 | 2,383,377 | — | 3,226,845 | ||||||||||||
Utilities | 82,423 | 837,291 | — | 919,714 | ||||||||||||
Total Equities | 14,238,037 | 18,266,844 | — | 32,504,881 | ||||||||||||
Repurchase Agreements | — | 1,072,063 | — | 1,072,063 | ||||||||||||
Total Investments in Securities | $ | 14,238,037 | $ | 19,338,907 | $ | — | $ | 33,576,944 | ||||||||
Emerging Fund | ||||||||||||||||
Equities | ||||||||||||||||
Consumer Discretionary | $ | 11,089,045 | $ | 24,649,004 | $ | — | $ | 35,738,049 | ||||||||
Consumer Staples | 10,007,270 | 5,745,462 | — | 15,752,732 | ||||||||||||
Energy | 24,949,354 | — | — | 24,949,354 | ||||||||||||
Financials | 25,412,270 | 31,158,692 | — | 56,570,962 | ||||||||||||
Health Care | 409,311 | 2,629,666 | — | 3,038,977 | ||||||||||||
Industrials | 11,547,937 | 4,191,516 | — | 15,739,453 | ||||||||||||
Information Technology | 12,078,246 | 9,899,210 | — | 21,977,456 | ||||||||||||
Materials | 9,197,818 | 12,769,045 | — | 21,966,863 | ||||||||||||
Telecommunication Services | 25,754,452 | 10,935,520 | — | 36,689,972 | ||||||||||||
Utilities | 6,890,950 | 5,212,265 | — | 12,103,215 | ||||||||||||
Total Equities | 137,336,653 | 107,190,380 | — | 244,527,033 | ||||||||||||
Participatory Notes | — | 6,699,733 | 6,699,733 | |||||||||||||
Repurchase Agreements | — | 10,408,179 | — | 10,408,179 | ||||||||||||
Total Investments in Securities | $ | 137,336,653 | $ | 124,298,292 | $ | — | $ | 261,634,945 |
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NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
International Small Cap Fund | ||||||||||||||||
Equities | ||||||||||||||||
Consumer Discretionary | $ | 8,745,568 | $ | 9,574,530 | $ | — | $ | 18,320,098 | ||||||||
Consumer Staples | 7,388,803 | 2,933,884 | — | 10,322,687 | ||||||||||||
Financials | 3,907,135 | 1,822,057 | — | 5,729,192 | ||||||||||||
Health Care | 2,910,563 | 4,296,346 | — | 7,206,909 | ||||||||||||
Industrials | 3,467,875 | 10,241,462 | — | 13,709,337 | ||||||||||||
Information Technology | 4,707,808 | 1,391,012 | — | 6,098,820 | ||||||||||||
Materials | 855,344 | 3,312,634 | — | 4,167,978 | ||||||||||||
Telecommunication Services | 2,132,056 | — | — | 2,132,056 | ||||||||||||
Utilities | — | 2,253,365 | — | 2,253,365 | ||||||||||||
Total Equities | 34,115,152 | 35,825,290 | — | 69,940,442 | ||||||||||||
Corporate Bonds | — | 248,285 | — | 248,285 | ||||||||||||
Repurchase Agreements | — | 3,841,341 | — | 3,841,341 | ||||||||||||
Total Investments in Securities | $ | 34,115,152 | $ | 39,914,916 | $ | — | $ | 74,030,068 | ||||||||
Core Plus Fund | ||||||||||||||||
Equities | $ | 220,218 | $ | 165,017 | $ | — | $ | 385,235 | ||||||||
Asset Backed Securities | — | — | 1,154,814 | 1,154,814 | ||||||||||||
Corporate Bonds | — | 13,734,395 | — | 13,734,395 | ||||||||||||
Government Securities | — | 13,429,551 | 109,204 | 13,538,755 | ||||||||||||
Mortgage Backed Securities | — | 2,761,287 | — | 2,761,287 | ||||||||||||
Repurchase Agreements | — | 1,626,171 | — | 1,626,171 | ||||||||||||
Warrants | — | — | 169 | 169 | ||||||||||||
Total Investments in Securities | $ | 220,218 | $ | 31,716,421 | $ | 1,264,187 | $ | 33,200,826 | ||||||||
Credit Focus Yield Fund | ||||||||||||||||
Equities | $ | 292,211 | $ | 208,698 | $ | — | $ | 500,909 | ||||||||
Asset Backed Securities | — | — | 380,474 | 380,474 | ||||||||||||
Corporate Bonds | 15,191,287 | — | 15,191,287 | |||||||||||||
Government Securities | — | 11,007,605 | 13,815 | 11,021,420 | ||||||||||||
Mortgage Backed Securities | — | 320,964 | — | 320,964 | ||||||||||||
Repurchase Agreements | — | 1,031,231 | — | 1,031,231 | ||||||||||||
Warrants | — | — | 756 | 756 | ||||||||||||
Total Investments in Securities | $ | 292,211 | $ | 27,759,785 | $ | 395,045 | $ | 28,447,041 |
Please refer to the Schedule of Investments for additional information regarding the composition of the amounts listed above.
Below are the transfers into or out of Levels 1 and 2 for the Funds using market values measured at the end of the reporting periods:
International Fund | Global Fund | Emerging Fund | International Small Cap Fund | Core Plus Fund | Credit Focus Yield Fund | |||||||||||||||||||
Transfers into Level 1 | $ | — | $ | — | $ | 5,198,088 | $ | 7,054,568 | $ | — | $ | — | ||||||||||||
Transfers out of Level 1 | — | — | 2,144,351 | 4,516,438 | — | — | ||||||||||||||||||
Net Transfers in/(out) of Level 1 | $ | — | $ | — | $ | 3,053,737 | $ | 2,538,130 | $ | — | $ | — | ||||||||||||
Transfers into Level 2 | $ | — | $ | — | $ | 2,144,351 | $ | 4,516,438 | $ | — | $ | — | ||||||||||||
Transfers out of Level 2 | — | — | 5,198,088 | 7,054,568 | — | — | ||||||||||||||||||
Net Transfers in/(out) of Level 2 | $ | — | $ | — | $ | (3,053,737 | ) | $ | (2,538,130 | ) | $ | — | $ | — |
The transfers from Level 1 to Level 2 are due to the securities being fair valued as a result of market movements following the close of local trading and/or due to the lack
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NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
of trading volume on March 31, 2013. The transfers from Level 2 to Level 1 are due to the securities no longer being fair valued as a result of trading on a stock exchange on March 31, 2013.
There were no Level 3 securities in the International, Emerging Markets, Global Equity and International Small Cap Funds at the beginning or during the periods presented.
Below is a reconciliation that details the activity of securities in Level 3 in the Core Plus and Credit Focus Yield Funds during the period ended March 31, 2013:
Core Plus Fund | Credit Focus Yield Fund | |||||||
Beginning Balance-October 1, 2012 | $ | 1,165,074 | $ | 371,834 | ||||
Purchases | — | — | ||||||
Sales | (23,578 | ) | — | |||||
Transfers in to level 3 | — | — | ||||||
Transfers out of level 3 | — | — | ||||||
Realized gains (losses), net | (45,588 | ) | — | |||||
Change in unrealized gains (losses) | 168,279 | 23,211 | ||||||
Ending Balance – March 31, 2013 | $ | 1,264,187 | $ | 395,045 |
The realized and unrealized gains and losses from Level 3 transactions are included with the net realized gains and losses on investments on the Statement of Assets and Liabilities. As of March 31, 2013 the Core Plus and Credit Focus Yield Funds had $213,393 and $29,425 of unrealized losses from Level 3 securities, respectively.
The following table presents information about unobservable inputs related to the Trust's categories of Level 3 investments as of March 31, 2013.
Fair Value at 3/31/13 | Valuation Techniques | Unobservable Inputs | Ranges | |||||
Student Loans | $1,535,289 | Consensus pricing | Third party inputs | N/A | ||||
Discounted cash flows | Prepayment speeds | 0 - 4% | ||||||
Federal & Federally Sponsored Credits | $123,019 | Consensus pricing | Third party inputs | N/A | ||||
Equity Securities | — | Expected proceeds from pending litigation | No active market Qualitative information based on the status of pending litigation | None | ||||
Warrants | $924 | Intrinsic value | Warrant strike price & underlying stock price | N/A |
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NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
The following provides a general description of the impact of a change in an unobservable input on the fair value measurement and the interrelationship of unobservable inputs, where relevant/significant. Interrelationships may also exist between observable and unobservable inputs (for example, as interest rates rise, prepayment rates decline).
Student Loans & Federal & Federally Sponsored Credits
At regular intervals the above unobservable inputs are reviewed and compared to publicly available information for reasonableness. Values are compared to historical averages and general sector trends are taken into account. In general, an increase in the discount rate, default rates, loss severity and delinquencies, in isolation, would result in a decrease in the fair value measurement. In addition, an increase in default rates would generally be accompanied by a decrease in recovery rates, slower prepayment rates and an increase in liquidity spreads. For each of the individual relationships described above, the inverse relationship would also generally apply.
Equity Securities
As there is no active market for Level 3 securities, the value is being derived from qualitative information based on the status of pending litigation.
Warrants
The fair value of the warrant is derived by calculating the difference between the underlying equity security’s price and the strike price of the warrant. An increase in the underlying equity security’s price will increase the fair value of the warrant security. Alternatively, a decrease in the underlying equity security’s price will decrease the fair value of the warrant security.
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 of1.00% on the first $2.5 billion, 0.90% on the next $2.5 billion and 0.80% on the amount of average daily net assets greater than $5 billion of the International Fund and 0.80%, 0.95%, 0.95%, 0.35% and 0.50% based upon the average daily net assets of the Global Fund, the Emerging Markets Fund, the International Small Cap Fund, the Core Plus Fund and the Credit Focus Yield Fund, respectively. For the six months ended March 31, 2013, the International Fund, the Global Fund, the Emerging Markets Fund, the International Small Cap Fund, the Core Plus Fund and the Credit Focus Yield Fund incurred $1,814,695, $123,976, $1,091,781, $280,228, $53,773 and $65,659 in advisory fees, respectively.
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NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
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, 2014 (the “Expense Cap Agreement”):
Fund | Class A | Class C | Class E | Class I | ||||||||||||
International Fund | 1.30 | % | 2.05 | % | 1.30 | % | 1.05 | % | ||||||||
Global Fund | 1.25 | % | 2.00 | % | 1.25 | % | 1.00 | % | ||||||||
Emerging Markets Fund | 1.37 | % | 2.12 | % | N/A | 1.12 | % | |||||||||
International Small Cap Fund | 1.40 | % | 2.15 | % | N/A | 1.15 | % | |||||||||
Core Plus Fund | 0.70 | % | N/A | 0.70 | % | 0.50 | % | |||||||||
Credit Focus Yield Fund | 0.95 | % | N/A | N/A | 0.70 | % |
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 six months ended March 31, 2013, the Advisor waived expenses and/or reimbursed the Funds $357,381, $114,057, $155,432, $99,541, $104,769 and $101,555 for the International Equity Fund, Global Equity Fund, Emerging Markets Fund, International Small Cap Fund, Core Plus Fixed Income Fund and Credit Focus Yield Fund, respectively.
Fund | Recovery Expiring September 30, 2013 | Recovery Expiring September 30, 2014 | Recovery Expiring September 30, 2015 | |||||||||
International Fund | $ | — | $ | — | $ | 208,594 | ||||||
Global Fund | 158,122 | 187,218 | 229,270 | |||||||||
Emerging Markets Fund | — | 163,603 | 378,305 | |||||||||
International Small Cap Fund | N/A | N/A | 218,903 | |||||||||
Core Plus Fund | 192,839 | 204,045 | 156,102 | |||||||||
Credit Focus Yield Fund | N/A | N/A | 149,098 |
For the six months ended March 31, 2013, 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
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NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
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 six months ended March 31, 2013, the International Fund, Global Fund, Emerging Markets Fund, International Small Cap Fund, Core Plus Fund and Credit Focus Yield Fund incurred $75,462, $6,275, $42,866, $9,478, $6,536 and $4,694 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 is 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 A and C 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% and 0.75% of the average daily net assets of each Fund's Class A and C shares, respectively. During the six months ended March 31, 2013, 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 Class A shares and 0.75% of Class C shares beneficially owned by the 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 six months ended March 31, 2013, the following Funds incurred expenses pursuant to the Plan:
Class A | Class C | |||||||
International Fund | $ | 111 | $ | 1 | ||||
Global Fund | 117 | 1 | ||||||
Emerging Markets Fund | 99,077 | 165 | ||||||
International Small Cap Fund | 13,677 | 6 | ||||||
Core Plus Fund | 162 | N/A | ||||||
Credit Focus Yield Fund | 1,488 | N/A |
Classes C, E and I of the 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 0.25%, 0.25% and 0.05% of annual net assets attributable to
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Class C, Class E and Class I, respectively (the “Service Fee”). For the six months ended March 31, 2013, the Funds incurred the following Service Fees:
Fund | Class C | Class E | Class I | |||||||||
International Fund | $ | 1 | $ | — | $ | 88,380 | ||||||
Global Fund | 1 | 122 | 7,676 | |||||||||
Emerging Fund | 55 | N/A | 37,823 | |||||||||
International Small Cap Fund | 2 | N/A | 5,470 | |||||||||
Core Plus Fund | N/A | 8,816 | 5,886 | |||||||||
Credit Focus Yield Fund | N/A | N/A | 2,056 |
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 six months ended March 31, 2013:
U.S. Government | Other | |||||||||||||||
Fund | Purchases | Sales | Purchases | Sales | ||||||||||||
International Fund | $ | — | $ | — | $ | 23,309,308 | $ | 44,845,084 | ||||||||
Global Fund | $ | — | $ | — | $ | 2,996,933 | $ | 2,897,984 | ||||||||
Emerging Markets Fund | $ | — | $ | — | $ | 61,787,612 | $ | 27,144,598 | ||||||||
International Small Cap Fund | $ | — | $ | — | $ | 27,814,140 | $ | 7,203,351 | ||||||||
Core Plus Fund | $ | 5,357,147 | $ | 3,744,607 | $ | 1,080,915 | $ | 1,334,076 | ||||||||
Credit Focus Yield Fund | $ | 7,954,779 | $ | 3,149,830 | $ | 4,803,721 | $ | 981,544 |
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NOTES TO FINANCIAL STATEMENTS — (Unaudited) (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 | |||||||||||||||||||||||||||||||
Six Months Ended 3/31/13 | Year Ended 9/30/12 | Six Months Ended 3/31/13 | Year Ended 9/30/12 | |||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Shares Sold | ||||||||||||||||||||||||||||||||
Class A | 15 | $ | 200 | — | $ | — | — | $ | 5 | 5 | $ | 110 | ||||||||||||||||||||
Class C | — | 1 | N/A | N/A | — | 1 | N/A | N/A | ||||||||||||||||||||||||
Class E | 467 | 6,423 | 292 | 3,889 | — | 2 | 2 | 39 | ||||||||||||||||||||||||
Class I | 3,329 | 46,056 | 6,652 | 87,660 | 160 | 3,253 | 297 | 5,822 | ||||||||||||||||||||||||
Issued on Reinvestment of Distributions | ||||||||||||||||||||||||||||||||
Class A | — | 1 | — | — | — | 1 | — | 1 | ||||||||||||||||||||||||
Class C | — | — | N/A | N/A | — | — | N/A | N/A | ||||||||||||||||||||||||
Class E | 21 | 275 | 10 | 131 | — | 7 | 1 | 16 | ||||||||||||||||||||||||
Class I | 865 | 11,376 | 1,483 | 19,328 | 24 | 468 | 154 | 2,936 | ||||||||||||||||||||||||
Shares Redeemed | ||||||||||||||||||||||||||||||||
Class A | (1 | ) | (16 | ) | — | — | — | (1 | ) | (2 | ) | (31 | ) | |||||||||||||||||||
Class C | — | — | N/A | N/A | — | — | N/A | N/A | ||||||||||||||||||||||||
Class E | (78 | ) | (1,066 | ) | (145 | ) | (1,904 | ) | — | (9 | ) | (3 | ) | (66 | ) | |||||||||||||||||
Class I | (4,543 | ) | (62,352 | ) | (16,999 | ) | (223,834 | ) | (136 | ) | (2,719 | ) | (863 | ) | (16,826 | ) | ||||||||||||||||
Net Increase/(Decrease) Resulting from Fund Share Transactions | 75 | $ | 898 | (8,707 | ) | $ | (114,730 | ) | 48 | $ | 1,008 | (409 | ) | $ | (7,999 | ) |
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NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
Emerging Markets Fund | International Small Cap Fund | |||||||||||||||||||||||||||||||
Six Months Ended 3/31/13 | Year Ended 9/30/12 | Six Months Ended 3/31/13 | Year Ended 9/30/12 | |||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Shares Sold | ||||||||||||||||||||||||||||||||
Class A | 3,291 | $ | 30,453 | 4,535 | $ | 40,023 | 1,040 | $ | 11,970 | 560 | $ | 5,485 | ||||||||||||||||||||
Class C | 28 | 263 | N/A | N/A | 2 | 22 | N/A | N/A | ||||||||||||||||||||||||
Class E | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Class I | 4,549 | 41,892 | 7,453 | 64,976 | 1,164 | 12,992 | 3,640 | 36,401 | ||||||||||||||||||||||||
Issued on Reinvestment of Distributions | ||||||||||||||||||||||||||||||||
Class A | 315 | 2,742 | 96 | 795 | 14 | 156 | — | — | ||||||||||||||||||||||||
Class C | — | — | N/A | N/A | — | — | N/A | N/A | ||||||||||||||||||||||||
Class E | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Class I | 630 | 5,496 | 218 | 1,813 | 71 | 765 | — | — | ||||||||||||||||||||||||
Shares Redeemed | ||||||||||||||||||||||||||||||||
Class A | (886 | ) | (8,084 | ) | (1,922 | ) | (16,169 | ) | (105 | ) | (1,220 | ) | (6 | ) | (60 | ) | ||||||||||||||||
Class C | — | — | N/A | N/A | — | — | N/A | N/A | ||||||||||||||||||||||||
Class E | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Class I | (2,319 | ) | (21,539 | ) | (1,851 | ) | (16,510 | ) | (224 | ) | (2,454 | ) | — - | — | ||||||||||||||||||
Net Increase Resulting from Fund Share Transactions | 5,608 | $ | 51,223 | 8,529 | $ | 74,928 | 1,962 | $ | 22,231 | 4,194 | $ | 41,826 |
Core Plus Fund | Credit Focus Yield Fund | |||||||||||||||||||||||||||||||
Six Months Ended 3/31/13 | Year Ended 9/30/12 | Six Months Ended 3/31/13 | Year Ended 9/30/12 | |||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Shares Sold | �� | |||||||||||||||||||||||||||||||
Class A | 82 | $ | 775 | N/A | $ | N/A | 324 | $ | 3,377 | — | $ | — | ||||||||||||||||||||
Class E | 154 | 1,474 | 437 | 4,103 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Class I | 1,089 | 10,298 | 367 | 3,447 | 554 | 5,772 | 1,830 | 18,478 | ||||||||||||||||||||||||
Issued on Reinvestment of Distributions | ||||||||||||||||||||||||||||||||
Class A | — | 2 | N/A | N/A | 2 | 17 | — | — | ||||||||||||||||||||||||
Class E | 26 | 262 | 29 | 269 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||
Class I | 76 | 787 | 153 | 1,422 | 42 | 431 | 29 | 295 | ||||||||||||||||||||||||
Shares Redeemed | ||||||||||||||||||||||||||||||||
Class A | — | (1 | ) | N/A | N/A | — | (5 | ) | — | — | ||||||||||||||||||||||
Class E | (726 | ) | (6,880 | ) | (162 | ) | (1,524 | ) | N/A | N/A | N/A | N/A | ||||||||||||||||||||
Class I | (565 | ) | (5,467 | ) | (375 | ) | (3,525 | ) | — | — | — | — | ||||||||||||||||||||
Net Increase/(Decrease) Resulting from Fund Share Transactions | 136 | $ | 1,250 | 449 | $ | 4,192 | 923 | $ | 9,592 | 1,859 | $ | 18,773 |
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NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
NOTE 6 – FEDERAL INCOME TAX MATTERS
As of September 30, 2012, the components of distributable earnings on a tax basis were as follows:
International Fund | Global Fund | Emerging Markets Fund | ||||||||||
Cost of investments for tax purposes | $ | 432,559,696 | $ | 30,073,254 | $ | 217,240,735 | ||||||
Gross tax unrealized appreciation | 29,002,756 | 3,601,837 | 15,287,536 | |||||||||
Gross tax unrealized depreciation | (103,865,848 | ) | (3,797,895 | ) | (30,641,598 | ) | ||||||
Net tax unrealized appreciation (depreciation) on investments and foreign currency | (74,863,092 | ) | (196,058 | ) | (15,354,062 | ) | ||||||
Distributable ordinary income | 12,842,597 | 837,080 | 5,562,464 | |||||||||
Distributable long-term capital gains | — | 470,900 | 1,338,816 | |||||||||
Total distributable earnings | 12,842,597 | 1,307,980 | 6,901,280 | |||||||||
Other accumulated gains/(losses) | (114,502,642 | ) | (27,091 | ) | (208,009 | ) | ||||||
Total accumulated earnings | $ | (176,583,137 | ) | $ | 1,084,831 | $ | (8,660,791 | ) |
International Small Cap Fund | Core Plus Fund | Credit Focus Yield Fund | ||||||||||
Cost of investments for tax purposes | $ | 41,827,531 | $ | 29,688,253 | $ | 18,505,948 | ||||||
Gross tax unrealized appreciation | 3,944,386 | 2,879,394 | 975,962 | |||||||||
Gross tax unrealized depreciation | (2,152,808 | ) | (514,369 | ) | (84,008 | ) | ||||||
Net tax unrealized appreciation (depreciation) on investments and foreign currency | 1,791,578 | 2,365,024 | 891,955 | |||||||||
Distributable ordinary income | 805,988 | 65,939 | 109,602 | |||||||||
Distributable long-term capital gains | — | 258,603 | 63,184 | |||||||||
Total distributable earnings | 805,988 | 324,542 | 172,786 | |||||||||
Other accumulated gains/(losses) | (56,335 | ) | — | (10,117 | ) | |||||||
Total accumulated earnings | $ | 2,541,231 | $ | 2,689,566 | $ | 1,054,624 |
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. These differences are temporary.
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NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
The tax composition of dividends for the periods ended September 30, 2012 for the Funds, were as follows:
Ordinary Income Total | Long Term Capital Gains Total | |||||||
International Fund | $ | 21,557,103 | $ | — | ||||
Global Equity Fund | $ | 949,989 | $ | 2,084,132 | ||||
Emerging Markets Fund | $ | 1,650,809 | $ | 1,078,155 | ||||
International Small Cap Fund | $ | — | $ | — | ||||
Core Plus Fund | $ | 1,634,799 | $ | 363,367 | ||||
Credit Focus Yield Fund | $ | 297,635 | $ | — |
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, 2012.
At September 30, 2012, the International Fund had net realized losses on investment and foreign currencies between November 1, 2011 and September 30, 2012, of $26,501,673, which were deferred for tax purposes and recognized on October 1, 2012.
As of September 30, 2012 the Funds had capital losses expiring as indicated below:
Fund | 2018 | Indefinite | ||||||
International Fund | $ | 29,067,216 | $ | 59,035,452 | ||||
Global Equity Fund | — | — | ||||||
Emerging Markets Fund | — | — | ||||||
International Small Cap Fund | — | — | ||||||
Core Plus Fund | — | — | ||||||
Credit Focus Yield 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 periods ended September 30, 2012, the International Fund increased undistributed net investment income/loss by $392,412, decreased accumulated net realized gain/loss by $392,414 and increased paid in capital by $2, due to certain permanent book and tax differences. The Global Fund decreased undistributed net investment income/loss by $17,228, decreased accumulated net realized gain/loss by $60,939 and increased paid in capital by $78,167. The Emerging Markets Fund decreased undistributed net investment income/loss by $94,710, decreased accumulated net realized gain/loss by $540,064 and increased paid in capital by $634,774. The Core Plus Fund increased undistributed net investement income/loss by $114,401, decreased accumulated net realized
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NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
gain/loss by $147,419 and increased paid in capital by $33,018. The Credit Focus Yield Fund increased undistributed net investment income/loss by $5,042, increased accumulated net realized gain/loss by $516,708 and decreased paid in capital by $521,750. The International Small Cap Fund decreased undistributed net investment income/loss by $5,114, increased accumulated net realized gain/loss by $79,585 and decreased paid in capital by $74,471. The permanent book and tax differences relate to a reclassification of foreign currency gain/loss.
On December 22, 2010, The Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was signed by the President. The Modernization Act is the first major piece of legislation affecting Regulated Investment Companies (“RICs”) since 1986 and it modernizes several of the federal income and excise tax provisions related to RICs. Some highlights of the enacted provisions are described below.
New capital losses may now be carried forward indefinitely, and retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for up to eight years, and carried forward as short-term capital loss, irrespective of the character of the original loss. The Modernization Act contains simplification provisions, which are aimed at preventing disqualification of a RIC for “inadvertent” failures of the asset diversification and/or qualifying income tests. Additionally, the Modernization Act exempts RICs from the preferential dividend rule, and repeals the 60-day designation requirement for certain types of pay-through income and gains. Finally, the Modernization Act contains several provisions aimed at preserving the character of distributions made by a fiscal year RIC during the portion of its taxable year ending after October 31 or December 31, reducing the circumstances under which a RIC might be required to file amended Forms 1099 to restate previously reported distributions.
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 7 – OFFERING PRICE PER SHARE
The public offering price for Class A shares is the net asset value plus a sales charge, which varies in accordance with the amount of the purchase up to a maximum of 5.75% for the International, Global, Emerging Markets and International Small Cap Funds; and 3.75% for the Core Plus and Credit Focus Yield Funds. A contingent deferred sales charge (“CDSC”) of 1.00% will be deducted with respect to Class A Shares purchased without a sales load and redeemed within 12 months of purchase, unless waived, as discussed in the Prospectus. Any applicable CDSC will be 1.00% of the lesser of the original purchase price or the redemption value of the Class A Shares redeemed. Class C Shares include a 1.00% CDSC paid by redeeming shareholders within 12 months of purchase. As a result the redemption price may
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differ from the net asset value per share. The public offering price for Class E and I shares are the respective net asset values. Sales charges are not an expense of the Funds and are not reflected in the financial statements of the Funds.
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.
On May 14, 2013 the Board of Trustees of Brandes Investment Trust approved revisions to the Expense Cap Agreement and the annual Advisor Fee rate of the International Fund as indicated below. These revisions are effective starting on May 14, 2013.
Expense Cap Agreement | ||||||||
Old Expense Cap | New Expense Cap | |||||||
Class A | 1.30 | % | 1.20 | % | ||||
Class C | 2.05 | % | 1.95 | % | ||||
Class E | 1.30 | % | 1.20 | % | ||||
Class I | 1.05 | % | 1.00 | % |
Advisor Fee | ||||||||
For average daily net assets | Old Rate | New Rate | ||||||
Less than $2.5 billion | 1.00 | % | 0.80 | % | ||||
$2.5 billion - $5.0 billion | 0.90 | % | 0.80 | % | ||||
More than $5.0 billion | 0.80 | % | 0.70 | % |
NOTE 9 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On December 16, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) issued common disclosure requirements that are intended to help investors and other financial statement users to better assess the effect or potential effect of offsetting arrangements on a company’s financial position. The eligibility criteria for offsetting are different in International Financial Reporting Standards (IFRSs) and U.S. Generally Accepted Accounting Principles (US GAAP). The Trust will be required to apply the amendments in this Update for annual reporting periods beginning on or after January 1, 2013, and for interim periods within those annual periods. Management is currently evaluating the impact this disclosure may have on the Trust’s financial statements.
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NOTES TO FINANCIAL STATEMENTS — (Unaudited) (continued)
NOTE 10 – OWNERSHIP BY AFFILIATED PARTIES
As of March 31, 2013, the Advisor or affiliates of the Advisor beneficially owned shares of the Funds as follows:
International Equity Fund | Global Equity Fund | International Small Cap Equity Fund | Core Plus Fund | Credit Focus Yield Fund | ||||||||||||||||||||||||||||||||||||
Class C | Class E | Class I | Class C | Class E | Class C | Class I | Class I | Class I | ||||||||||||||||||||||||||||||||
Shares | 70 | 8,014 | 925,104 | 47 | 9,583 | 84 | 805,383 | 599,943 | 2,421,978 | |||||||||||||||||||||||||||||||
Percent of total outstanding shares | 100.00 | % | 0.89 | % | 60.47 | % | 100.00 | % | 64.82 | % | 4.60 | % | 18.57 | % | 18.61 | % | 98.82 | % |
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ADDITIONAL INFORMATION — (Unaudited)
BOARD CONSIDERATION AND CONTINUATION OF INVESTMENT ADVISORY AGREEMENT
In November 2012, the Board of Trustees of the Trust, including the independent Trustees, unanimously approved renewal of the Investment Advisory Agreement (the “Agreement”) between the Trust and Brandes Investment Partners, L.P. (the “Advisor”) for an additional one-year term with respect to the Brandes International Equity Fund (the “International Fund”), the Brandes Global Equity Fund (the “Global Fund”), the Brandes Emerging Markets Fund (the “Emerging Markets Fund”), and the Brandes Core Plus Fixed Income Fund (the “Core Plus Fund”). Each of the International Fund, Global Fund, Emerging Markets Fund and Core Plus Fund is referred to below as a “Fund” and they are collectively referred to below as the “Funds.”
Information Reviewed
During the course of each year, Board members review a wide variety of materials relating to the nature, extent and quality of the services provided by the Advisor to the Funds, including reports on each such Fund’s investment results, portfolio composition, portfolio trading practices, and other matters. In addition, in connection with its annual review of the Agreement with respect to the Funds, the Board requested and reviewed supplementary information that included materials regarding the Funds’ investment results, advisory fee and expense comparisons for peer groups and categories of similar funds identified by Morningstar Associates (“Morningstar”); financial and profitability information regarding the Advisor; descriptions of various functions such as compliance monitoring and portfolio trading practices; and information about the personnel providing investment management and administrative services to the Funds.
In connection with its reviews, the Board received assistance and advice regarding legal and industry standards from counsel to the Trust and the independent Trustees. The independent Trustees discussed the approval of the Agreement with respect to each Fund with representatives of the Advisor at two Board meetings and in private sessions with counsel at which no representatives of the Advisor were present. In deciding to recommend approval of the Agreement with respect to each Fund, the Board and the independent Trustees did not identify any single or particular piece of information that, in isolation, was the controlling factor, and each Trustee did not necessarily attribute the same weight to each factor. This summary describes the most important, but not all, of the factors considered by the Board and the independent Trustees.
Nature, Extent and Quality of Services
With respect to the nature, extent and quality of services provided by the Advisor to the Funds, the Trustees reviewed among other things the quality and depth of
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the Advisor’s investment management staff, its regulatory compliance procedures, the day-to-day administrative services provided by the Advisor to the Funds, and the investment results of the Funds.
With respect to each Fund’s investment results, the Trustees reviewed detailed information regarding a peer group of similarly managed funds selected by Morningstar Associates, all of the funds in the larger Morningstar category of funds managed with the same general style, and the Fund’s benchmark indices. The Trustees also discussed extensively with representatives of Morningstar the principles used in determining the Funds’ peer groups (which varied from those considered in prior years) and categories, and determined to work with management and Morningstar to attempt to stabilize the peer groups used in connection with subsequent annual contract reviews. In addition, they reviewed the results of certain Funds considered by the Advisor to be the most direct competitors to the Funds in the Funds’ marketing channels.
The independent Trustees noted as follows with respect to the Funds’ I class shares for periods ended September 30, 2012:
• | The International Fund’s investment results were in the fourth quartile of the funds in its Morningstar peer group and its larger Morningstar category for the one-year and three-year periods, in the third quartile for the five-year period, and in the second quartile for the ten-year period; were above the average results of the funds in its category for four of the last ten calendar years; and were close to or above its benchmark index for the 10-year and since-inception periods although below the index for the one-year, three-year and five-year periods. The independent Trustees discussed extensively the Advisor’s fundamental commitment to the Graham and Dodd value strategy of investment management; noted that the Advisor has had little style drift compared with other value managers; considered that it is not unusual for the performance of funds managed with the long-term Graham and Dodd value strategy to fall below the performance of measurement indices for some periods, and that the investment returns from value stocks have been out of favor in the markets for almost five years (an unprecedentedly long period since 1977); and noted in addition that the Fund’s investment approach is fully described in its prospectus and the Fund’s shareholders likely were willing to accept the long-term outlook associated with the Advisor’s approach. |
• | The Global Fund’s investment results were in the fourth quartile of the funds in its Morningstar peer group and category for the one-year and three-year periods; were below the average results of the funds in its category for all calendar years since its inception; and were below its benchmark index for the one-year, three-year and since-inception periods. |
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Brandes Investment Trust
ADDITIONAL INFORMATION — (Unaudited) (continued)
The independent Trustees discussed extensively the factors described above with respect to the Advisor’s commitment to the long-term Graham and Dodd value strategy, and also considered that these relative results were affected by the inclusion in the Morningstar category of growth-leaning funds as well as value-leaning funds. |
• | The Emerging Markets Fund’s investment results were in the first quartile of the funds in its Morningstar peer group for the three-year, five-year and ten-year periods, although they were in the third quartile for the one-year period; were above the average results of the funds in its category for six of the last ten calendar years; and were above its benchmark index for the three-year, five-year, ten-year and since-inception periods although below the index for the one-year period. |
• | The Core Plus Fund’s investment results were above the average results of the funds in its Morningstar category for the one-year and three-year periods; were above the average results of the funds in its category for three of the last five calendar years; and were above its benchmark index for the one-year and three-year periods although below the index for the since-inception period. |
Based on these discussions and reviews, the Trustees determined that under all the circumstances the investment results of the Funds were satisfactory.
Advisory Fees, Total Expenses, Profitability and Ancillary Benefits
With respect to advisory fees and total expenses of the Funds, the independent Trustees noted that:
• | Although the International Fund’s management fee was in the fourth quartile of the fees of the funds in its Morningstar peer group, the majority of its non-advisory expenses were below the median for its peer group and the Advisor effectively provided fee reductions to the Fund by subsidizing the sub-transfer agency fees charged by administrators of omnibus accounts for maintenance of shareholder records and by retaining an expense cap for the Fund. The Trustees also noted that at the request of the independent Trustees the Advisor had added a schedule of breakpoints to its management fee and increased the amount of its fee that was being waived to provide a more favorable expense ratio for the Fund’s shareholders. |
• | The management fees and total expenses for the Global Fund, Emerging Markets Fund and Core Plus Fund, after waivers by the Advisor of expenses above stated expense caps, were below the averages of the funds in their respective Morningstar peer groups. The independent Trustees also noted that the Advisor continues to waive any expenses over stated expense caps for the Funds. |
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Brandes Investment Trust
ADDITIONAL INFORMATION — (Unaudited) (continued)
• | Although the Advisor’s management fee is higher for the Funds than for its similar institutional separate accounts and, in the case of the International Fund, for other mutual funds to which the Advisor provides sub-advisory services, the Trustees noted information provided by the Advisor regarding the additional responsibilities and expenses that the Advisor incurs in sponsoring and operating the Funds. |
• | The independent Trustees noted that although the Advisor’s fees for the Funds other than the International Fund do not have breakpoints as those Funds’ assets increase, the Advisor believes that it is premature to discuss economies of scale when it is subsidizing the Funds’ expenses. The independent Trustees also noted that the Advisor had agreed to review the nature and extent of any economies of scale that it may realize as the Funds’ assets increase in the future and how such economies would be shared with the Funds’ shareholders. |
In addition, the independent Trustees reviewed an analysis of the profitability to the Advisor of its relationship with the Funds and information regarding the Advisor’s financial capability to continue to provide services to the Funds in the future. They also reviewed the methods used by the Advisor to evaluate and compensate its professional investment personnel. Finally, they considered ancillary benefits to the Advisor as a result of its relationships with the Funds. They noted that these were primarily related to the benefit of research provided by broker-dealers executing portfolio transactions on behalf of the Funds, as the Adviser did not obtain third-party research or other services in return for allocating the Funds’ brokerage.
Conclusions
Based on their review, including consideration of each of the factors referred to above, the Board and the independent Trustees concluded that the Agreement is fair and reasonable to the Funds and their respective shareholders, that each of the factors discussed above supported renewal of the Agreement with respect to each of the Funds, and that renewal of the Agreement was in the best interests of each Fund and its shareholders.
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Brandes Investment Trust
ADDITIONAL INFORMATION — (Unaudited) (continued)
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.
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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 investment objectives 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) | ||||||||||
J. Michael Gaffney, CFA 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 71) | Trustee | Since June 2004 | Independent Consultant, NATIXIS Global Asset Management, North America from 2004 to 2011. | 7 | None | |||||
Jean E. Carter 11988 El Camino Real Suite 500 San Diego, CA 92130 (Age 55) | Trustee | Since April 2008 | Retired since 2005; Director, Investment Management and other positions of Russell Investment Group from 1982 to 2005. | 7 | None | |||||
Robert M. Fitzgerald, CPA 11988 El Camino Real Suite 500 San Diego, CA 92130 (Age 61) | Trustee | Since April 2008 | Retired from 2002 – 2005 and since 2007; Chief Financial Officer, National Retirement Partners from 2005 to 2007. | 7 | Hotchkis and Wiley Mutual Funds. | |||||
Craig Wainscott 11988 El Camino Real Suite 500 San Diego, CA 92130 (Age 51) | Trustee | Since February 2012 | Retired since 2006; Managing Director and other positions, US Mutual Funds, Russell Investments, from 1982 to 2006; currently Partner with The Paradigm Project and advisor to early-stage companies. | 7 | None |
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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) | ||||||||||
Oliver Murray 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 50) | Trustee | Since February 2012 | CEO, Brandes Investment Partners & Co.; Managing Director – PMCS of Brandes Investment Partners, L.P., the investment advisor to the Funds (the “Advisor”). | 7 | None | |||||
Jeff Busby 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 52) | Trustee and President | Since July 2006 | Executive Director of the Advisor | 7 | None | |||||
Officers of the Trust | ||||||||||
Thomas M. Quinlan 11988 El Camino Real, Suite 500 San Diego, CA 92130 (Age 42) | 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 56) | 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 62) | 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. |
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Brandes Investment Trust
TRUSTEE AND OFFICER INFORMATION — (Unaudited) (continued)
PRIVACY NOTICE
Brandes Investment Partners, L.P. and the Brandes Investment Trust collect nonpublic information about you from the following sources:
• | Information we receive about you on applications or other forms; |
• | Information you give us orally; and |
• | Information about your transactions with us or others. |
We do not disclose any nonpublic personal information about our customers or former customers without the customer’s authorization, except as permitted by law or in response to inquires from governmental authorities.
We restrict access to your personal and account information to those personnel who need to know that information to provide products and services to you. We also may disclose that information to unaffiliated third parties (such as to brokers or custodians) only as permitted by law and only as needed for us to provide agreed services to you. We maintain physical, electronic and procedural safeguards to guard your nonpublic personal information.
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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, 90071
LEGAL COUNSEL
Bingham McCutchen LLP
355 South Grand Ave., Suite 4400
Los Angeles, CA 90071
This report is intended for shareholders of the Brandes International Equity Fund, the Brandes Global Equity Fund, the Brandes Emerging Markets Fund, the Brandes International Small Cap Equity Fund and the Brandes Core Plus Fixed Income Fund and the Brandes Credit Focus Yield 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.
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable to registrants who are not listed issuers (as defined in Rule 10A-3 under the Securities Exchange Act of 1934).
Item 6. Investments.
(a) | Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form. |
(b) | Not Applicable |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable to open-end investment companies.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of trustees.
Item 11. Controls and Procedures.
(a) | The registrant’s 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. |
Item 12. Exhibits.
(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. |
(2) A separate certification for each principal executive and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable to open-end investment companies.
(b) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Brandes Investment Trust
By (Signature and Title)* /s/ Jeff Busby
Jeff Busby, President
Date 6/4/13
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* /s/ Jeff Busby
Jeff Busby, President
Date 6/4/13
By (Signature and Title)* /s/ Gary Iwamura
Gary Iwamura, Treasurer
Date 6/4/13
* Print the name and title of each signing officer under his or her signature.