Annual Report - Brown Brothers Harriman€¦ · The graph below illustrates the hypothetical...

Annual ReportO C T O B E R 3 1 , 2 0 1 7

BBH INTERMEDIATE MUNICIPAL BOND FUND

BBH Intermediate Municipal Bond Fund (“the Fund”) Class I had a total return of 3.36% (net of fees andexpenses) for the twelve-month period ending October 31, 2017 as compared to the benchmark BarclaysCapital 1-15 Year Municipal Index1 which had a return of 1.94%.

The objective of the Intermediate Municipal Bond Fund is to protect our investors’ capital and generateattractive risk-adjusted returns. We seek to achieve this objective by investing in a limited number ofdurable credits with attractive return potential. We were all excited to celebrate the Fund’s three-yearanniversary in early April. Since launching the Fund on April 1, 2014, we have invested in a mannerconsistent with our criteria and our strategy.

In the Municipal market, valuations are often disconnected from their underlying fundamentals,particularly during periods of heightened market volatility. As the Fund’s fiscal year began, the surpriseUS Presidential election result sent the municipal market into a tailspin. This was the market’s firstserious bout of volatility since the Taper Tantrum of 2013 and we were thankful for the opportunities thatemerged as a consequence.

For the twelve-month period, tax-exempt interest rates increased 25 to 30 basis points2 across the yieldcurve and the performance of credit-sensitive bonds was generally strong. The Fund’s tobacco holdings,New Jersey exposure, positions in California school districts and Auction-Rate Securities (ARS) allcontributed positively to performance.

We invest our portfolios from the bottom-up and have continued to identify more opportunities in RevenueBonds than in General Obligation issues (GO). As of October 31, 2017, the Fund held roughly 61% inRevenue Bonds and 39% in GOs. Beyond traditional credit opportunities, we have also actively investedin bonds with non-standard coupon structures, such as floating rate securities and zero-coupon bonds(zeros). As of October 31st, excluding cash equivalents, the Fund held roughly 20% in floating ratesecurities (“floaters”) and 19% in zeros. These exposures are consistent with our positioning inrecent years.

The majority of the Fund’s floating rate securities are Auction Rate Securities (ARS). We own ARS ofissuers we consider high quality and that pay coupons at a multiple of short-term indexes. The incomegenerated from these securities has risen materially as a result of the Federal Reserve’s four ratehikes thus far this cycle. Over the last twelve months, the Fund experienced several par-pricedARS redemptions, notably New Jersey Turnpike and Greenwood Hospital, which materially addedto performance.

We have also found significant value in intermediate maturity zero coupon bonds. Relative to comparablequality coupon-bearing debt, the Fund’s zeros offer meaningfully higher yield, no reinvestment risk, and


MANAGEMENT’S DISCUSSION OF FUND PERFORMANCEOctober 31, 2017

2

strong protection from call risk. Owning a combination of floaters and zeros has allowed us to largelyavoid the most expensive segment of the municipal yield curve — 1 to 5-year maturities. This positioninghelps generate a yield advantage for the Fund.

The municipal market quickly recovered from its post-election weakness and anxiety about tax reform. As2017 progressed, attractive opportunities became more difficult to identify and we gradually increasedthe Fund’s reserve positions by selling into market strength. In a repeat of history, the Fund’s fiscal yearended with negative investor sentiment pushing both yields and volatility higher. With our reserves inhand, we are optimistic that market valuations will continue to loosen and produce a growing number ofopportunities for investment.

Thank you for your continued confidence and support.

1 Barclays Municipal Bond 1-15 Year Blend (1-17) Index is a sub-index of the Barclays Capital Municipal Bond Index,a rules-based market value-weighted index of bonds with maturities of one year to 17 years engineered for the taxexempt bond market. One cannot invest directly in an index.

2 One “basis point” or ”bp” is 1/100th of a percent (0.01% or 0.0001).


MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)October 31, 2017

3f i n a n c i a l s t a t e m e n t s o c t o b e r 3 1 , 2 0 1 7

Growth of $10,000 Invested in BBH Intermediate Municipal BondThe graph below illustrates the hypothetical investment of $10,0001 in the Class N shares of the Fundsince inception (April 1, 2014) to October 31, 2017 as compared to the BMBB.

4/30/144/01/14 7/31/14 10/31/14 1/31/15 4/30/15 7/31/15 10/31/15 1/31/16 4/30/16 7/31/16 10/31/177/31/174/30/171/31/1710/31/16$9,000

$10,000

$11,000

$12,000

* net of fees and expenses

BBH Intermediate Municipal Bond Fund* BMBB

$11,468

$11,163

Total Return for the Period Ended October 31, 2017

One YearClass N 3.20% 14.68%Class I 3.36% 15.16%

Since Inception

The annualized gross expense ratios as shown in the February 28, 2017 prospectus for Class N and Class Ishares were 1.03% and 0.68%, respectively.

Performance data quoted represents past performance which is no guarantee of future results. Investmentreturn and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more orless than their original cost. Fund performance changes over time and current performance may be lower orhigher than what is stated. Returns do not reflect the deduction of taxes that a shareholder would pay on Funddistributions or the redemption of Fund shares. For performance current to the most recent month-end pleasecall 1-800-575-1265.

Hypothetical performance results are calculated on a total return basis and include all portfolio income,unrealized and realized capital gains, losses and reinvestment of dividends and other earnings. No oneshareholder has actually achieved these results and no representation is being made that any actualshareholder achieved, or is likely to achieve, similar results to those shown. Hypothetical performance does notrepresent actual trading and may not reflect the impact of material economic and market factors. Unduereliance should not be placed on hypothetical performance results in making an investment decision.

1 The Fund’s performance assumes the reinvestment of all dividends and distributions. The Barclays Municipal Bond 1-15Year Blend (1-17) Index (“BMBB”) has been adjusted to reflect reinvestment of dividends on securities in the index. TheBMBB is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commissionrequires to be reflected in the Fund’s performance. The index is unmanaged. Investments cannot be made in the index.


MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE (continued)October 31, 2017

4

To the Trustees of the BBH Trust and Shareholders ofBBH Intermediate Municipal Bond Fund:

We have audited the accompanying statement of assets and liabilities, including the portfolio ofinvestments, of BBH Intermediate Municipal Bond Fund, a series of BBH Trust (the “Trust”), as ofOctober 31, 2017, the related statement of operations for the year then ended, the statements of changesin net assets for each of the two years in the period then ended, and the financial highlights for each ofthe periods presented. These financial statements and financial highlights are the responsibility of theTrust’s management. Our responsibility is to express an opinion on these financial statements andfinancial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements and financial highlights are free of materialmisstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. Our audits included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in the circumstances, but not forthe purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overallfinancial statement presentation. Our procedures included confirmation of securities owned as ofOctober 31, 2017, by correspondence with the custodian and brokers. We believe that our audits providea reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights referred to above present fairly, in allmaterial respects, the financial position of BBH Intermediate Municipal Bond Fund as of October 31, 2017,the results of its operations for the year then ended, the changes in its net assets for each of the twoyears in the period then ended, and the financial highlights for each of the periods presented, inconformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Boston, MassachusettsDecember 22, 2017


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


BREAKDOWN BY SECURITY TYPE

U.S. $ ValuePercent ofNet Assets

Municipal Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $86,614,945 99.0%Cash and Other Assets in Excess of Liabilities . . . . . . . . . . . . 874,913 1.0

NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $87,489,858 100.0%

All data as of October 31, 2017. The Fund’s security type diversification is expressed as a percentage ofnet assets and may vary over time.

CREDIT QUALITY

U.S. $ ValuePercent of

Total Investments

AAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,724,885 20.5%AA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,035,610 31.2A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,684,240 41.2BBB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,170,210 7.1

TOTAL INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $86,614,945 100.0%

All data as of October 31, 2017. The Fund’s credit quality is expressed as a percentage of totalinvestments and may vary over time. Ratings are provided by Standard and Poor’s (S&P). WhereS&P ratings are not available, they are substituted with Moody’s. S&P and Moody’s are independentthird parties.


PORTFOLIO ALLOCATIONOctober 31, 2017

6

The accompanying notes are an integral part of these financial statements.

PrincipalAmount

MaturityDate

InterestRate Value

MUNICIPAL BONDS (99.0%)Arizona (0.7%)

$ 475,000 Salt Verde Financial Corp.,Revenue Bonds . . . . . . . . . . . . . . . . . . . . 12/01/19 5.250% $ 510,535

55,000 Salt Verde Financial Corp.,Revenue Bonds . . . . . . . . . . . . . . . . . . . . 12/01/22 5.250 63,306

Total Arizona . . . . . . . . . . . . . . . . . . . . . . . . 573,841

California (12.7%)1,000,000 Anaheim City School District, General

Obligation Bonds, NPFG1 . . . . . . . . . . . 08/01/26 0.000 806,0602,000,000 Anaheim City School District, General

Obligation Bonds, AGM, NPFG1 . . . . . . 08/01/29 0.000 1,421,120750,000 California Pollution Control Financing

Authority, Revenue Bonds2,3 . . . . . . . . 11/01/40 3.125 779,3851,000,000 California Statewide Communities

Development Authority,Revenue Bonds2,3 . . . . . . . . . . . . . . . . . . 11/01/33 2.625 1,026,930

1,000,000 Golden State Tobacco SecuritizationCorp., Revenue Bonds, AGM1 . . . . . . . 06/01/25 0.000 840,840

1,100,000 La Mesa-Spring Valley School District,General Obligation Bonds, NPFG1 . . . . 08/01/26 0.000 876,766

25,000 Long Beach Bond Finance Authority,Revenue Bonds . . . . . . . . . . . . . . . . . . . . 11/15/19 5.250 26,805

725,000 Long Beach Bond Finance Authority,Revenue Bonds . . . . . . . . . . . . . . . . . . . . 11/15/22 5.250 834,344

30,000 Long Beach Bond Finance Authority,Revenue Bonds (3-Month USD-LIBOR+ 1.450%)2 . . . . . . . . . . . . . . . . . . . . . . . . . 11/15/27 2.331 28,673

500,000 Monterey Peninsula CommunityCollege District, GeneralObligation Bonds1 . . . . . . . . . . . . . . . . . . 08/01/26 0.000 409,170

1,000,000 Santa Ana Unified School District,General Obligation Bonds, NPFG1 . . . . 08/01/24 0.000 862,580

180,000 State of California, General ObligationBonds (SIFMA Municipal Swap IndexYield + 1.150%)2 . . . . . . . . . . . . . . . . . . . . 05/01/20 2.070 182,808


PORTFOLIO OF INVESTMENTSOctober 31, 2017

7


f i n a n c i a l s t a t e m e n t s o c t o b e r 3 1 , 2 0 1 7

PrincipalAmount

MaturityDate

InterestRate Value

MUNICIPAL BONDS (continued)California (continued)

$ 1,000,000 Ukiah Unified School District, GeneralObligation Bonds, NPFG1 . . . . . . . . . . . 08/01/23 0.000% $ 891,420

1,000,000 Ukiah Unified School District, GeneralObligation Bonds, NPFG1 . . . . . . . . . . . 08/01/24 0.000 862,180

590,000 Ukiah Unified School District, GeneralObligation Bonds, NPFG1 . . . . . . . . . . . 08/01/25 0.000 489,311

1,120,000 Whittier Union High School District,General Obligation Bonds1 . . . . . . . . . . 08/01/29 0.000 799,523

Total California . . . . . . . . . . . . . . . . . . . . . . 11,137,915

Connecticut (0.8%)725,000 State of Connecticut, General Obligation

Bonds (SIFMA Municipal Swap IndexYield + 0.990%)2 . . . . . . . . . . . . . . . . . . . . 03/01/25 1.910 720,693

Total Connecticut . . . . . . . . . . . . . . . . . . . . 720,693

Florida (3.0%)1,005,000 County of Broward Airport System,

Revenue Bonds . . . . . . . . . . . . . . . . . . . . 10/01/25 5.000 1,139,3781,000,000 County of Hillsborough Solid Waste

& Resource Recovery,Revenue Bonds . . . . . . . . . . . . . . . . . . . . 09/01/24 5.000 1,173,880

35,000 Hillsborough County Aviation Authority,Revenue Bonds . . . . . . . . . . . . . . . . . . . . 10/01/25 5.000 40,217

10,000 Hillsborough County Aviation Authority,Revenue Bonds . . . . . . . . . . . . . . . . . . . . 10/01/26 5.000 11,491

250,000 Pinellas County Health FacilitiesAuthority, Revenue Bonds, NPFG2,3 . . 11/15/23 1.803 236,257

Total Florida . . . . . . . . . . . . . . . . . . . . . . . . . 2,601,223

Georgia (4.5%)1,500,000 Bartow County Development Authority,

Revenue Bonds2,3 . . . . . . . . . . . . . . . . . . 09/01/29 2.050 1,497,6752,000,000 State of Georgia, General

Obligation Bonds . . . . . . . . . . . . . . . . . . 12/01/24 5.000 2,434,040

Total Georgia . . . . . . . . . . . . . . . . . . . . . . . . 3,931,715


PORTFOLIO OF INVESTMENTS (continued)October 31, 2017

8


PrincipalAmount

MaturityDate

InterestRate Value

MUNICIPAL BONDS (continued)Illinois (2.1%)

$ 75,000 Chicago Park District, GeneralObligation Bonds . . . . . . . . . . . . . . . . . . 01/01/19 3.000% $ 76,031

360,000 Chicago Park District, GeneralObligation Bonds . . . . . . . . . . . . . . . . . . 01/01/19 4.000 369,076

100,000 Chicago Park District, GeneralObligation Bonds . . . . . . . . . . . . . . . . . . 01/01/19 5.000 103,667

170,000 Chicago Transit Authority, RevenueBonds, AGC . . . . . . . . . . . . . . . . . . . . . . . 06/01/19 5.250 174,170




300,000 Illinois Finance Authority, RevenueBonds3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11/07/17 0.910 300,000

Total Illinois . . . . . . . . . . . . . . . . . . . . . . . . . 1,832,963

Indiana (1.8%)1,520,000 Indiana University, Revenue Bonds . . . . . 06/01/29 2.750 1,529,257

Total Indiana . . . . . . . . . . . . . . . . . . . . . . . . 1,529,257

Kansas (0.4%)200,000 City of La Cygne, Revenue Bonds,

NPFG2,3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 04/15/27 1.880 179,320100,000 City of St. Marys, Revenue Bonds,

NPFG2,3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 04/15/32 1.880 89,471100,000 City of Wamego, Revenue

Bonds, NPFG2,3 . . . . . . . . . . . . . . . . . . . . 04/15/32 1.840 88,585

Total Kansas . . . . . . . . . . . . . . . . . . . . . . . . 357,376

Maryland (1.4%)1,000,000 County of Howard, General


Total Maryland . . . . . . . . . . . . . . . . . . . . . . 1,253,060



9



PrincipalAmount

MaturityDate

InterestRate Value

MUNICIPAL BONDS (continued)Massachusetts (3.9%)

$ 300,000 Commonwealth of Massachusetts,General Obligation Bonds, AGM2,3 . . . 11/01/19 2.608% $ 302,760

1,500,000 Commonwealth of Massachusetts,Revenue Bonds, AGM2,3 . . . . . . . . . . . . 06/01/22 2.576 1,569,780

500,000 Massachusetts Clean Water Trust,Revenue Bonds2,3 . . . . . . . . . . . . . . . . . . 08/01/23 3.255 505,530

1,000,000 Massachusetts Housing FinanceAgency, Revenue Bonds . . . . . . . . . . . . 12/01/21 2.500 1,019,420

Total Massachusetts . . . . . . . . . . . . . . . . . 3,397,490

Michigan (7.1%)220,000 Detroit City School District, General

Obligation Bonds, FGIC . . . . . . . . . . . . . 05/01/20 6.000 243,091350,000 Detroit City School District, General

Obligation Bonds . . . . . . . . . . . . . . . . . . 05/01/23 5.000 398,01395,000 Detroit City School District, General

Obligation Bonds, BHAC,FGIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05/01/25 5.250 107,939

90,000 Detroit City School District, GeneralObligation Bonds, AGM . . . . . . . . . . . . . 05/01/27 5.250 108,194

345,000 Detroit City School District, GeneralObligation Bonds, AGM . . . . . . . . . . . . . 05/01/29 6.000 423,743

1,510,000 Detroit City School District, GeneralObligation Bonds, AGM . . . . . . . . . . . . . 05/01/30 5.250 1,856,590

1,000,000 Detroit City School District, GeneralObligation Bonds, AGM . . . . . . . . . . . . . 05/01/32 5.250 1,244,130

105,000 Michigan Finance Authority, RevenueBonds, . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05/01/19 5.000 110,919

1,425,000 New Haven Community Schools,General Obligation Bonds . . . . . . . . . . . 05/01/26 3.000 1,492,602

200,000 University of Michigan,Revenue Bonds4 . . . . . . . . . . . . . . . . . . . 11/01/17 0.800 200,000

Total Michigan . . . . . . . . . . . . . . . . . . . . . . 6,185,221



10


PrincipalAmount

MaturityDate

InterestRate Value

MUNICIPAL BONDS (continued)Minnesota (0.1%)

$ 100,000 City of Minneapolis, Revenue Bonds4 . . . 11/07/17 0.900% $ 100,000

Total Minnesota . . . . . . . . . . . . . . . . . . . . . 100,000

Missouri (1.0%)310,000 Health & Educational Facilities Authority

of the State of Missouri, RevenueBonds, AMBAC2,3 . . . . . . . . . . . . . . . . . . 06/01/31 1.657 285,693

600,000 Health & Educational Facilities Authorityof the State of Missouri, RevenueBonds, AMBAC2,3 . . . . . . . . . . . . . . . . . . 06/01/31 1.659 552,671

Total Missouri . . . . . . . . . . . . . . . . . . . . . . . 838,364

Nebraska (0.5%)355,000 Central Plains Energy Project,

Revenue Bonds . . . . . . . . . . . . . . . . . . . . 09/01/27 5.000 399,091

Total Nebraska . . . . . . . . . . . . . . . . . . . . . . 399,091

New Hampshire (0.7%)600,000 New Hampshire Health &

Education Facilities Authority Act,Revenue Bonds4 . . . . . . . . . . . . . . . . . . . 11/01/17 0.900 600,000

Total New Hampshire . . . . . . . . . . . . . . . . 600,000

New Jersey (17.4%)1,500,000 New Jersey Economic Development

Authority, Revenue Bonds(SIFMA Municipal Swap IndexYield + 1.550%)2 . . . . . . . . . . . . . . . . . . . . 09/01/27 2.470 1,465,455

1,315,000 New Jersey Transit Corp., RevenueBonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09/15/19 5.000 1,383,525

1,125,000 New Jersey Transit Corp., RevenueBonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09/15/20 5.000 1,216,339

460,000 New Jersey Transit Corp., RevenueBonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09/15/21 5.000 504,468

1,150,000 New Jersey Transportation Trust FundAuthority, Revenue Bonds1 . . . . . . . . . . 12/15/26 0.000 810,025



11



PrincipalAmount

MaturityDate

InterestRate Value

MUNICIPAL BONDS (continued)New Jersey (continued)

$ 1,850,000 New Jersey Transportation Trust FundAuthority, Revenue Bonds1 . . . . . . . . . . 12/15/30 0.000% $ 1,068,245

2,500,000 New Jersey Turnpike Authority,Revenue Bonds (1-Month USD-LIBOR + 0.750%)2 . . . . . . . . . . . . . . . . . . 01/01/30 1.618 2,500,575

8,150,000 Tobacco Settlement Financing Corp.,Revenue Bonds1 . . . . . . . . . . . . . . . . . . . 06/01/41 0.000 2,295,937

14,365,000 Tobacco Settlement Financing Corp.,Revenue Bonds1 . . . . . . . . . . . . . . . . . . . 06/01/41 0.000 3,958,994

Total New Jersey . . . . . . . . . . . . . . . . . . . . 15,203,563

New York (14.5%)1,600,000 City of New York, General Obligation

Bonds4 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11/01/17 0.900 1,600,000200,000 New York City Water & Sewer System,

Revenue Bonds4 . . . . . . . . . . . . . . . . . . . 11/01/17 0.880 200,000300,000 New York City Water & Sewer System,

Revenue Bonds4 . . . . . . . . . . . . . . . . . . . 11/01/17 0.880 300,000400,000 New York City Water & Sewer System,

Revenue Bonds4 . . . . . . . . . . . . . . . . . . . 11/01/17 0.900 400,0001,500,000 New York City Water & Sewer System,

Revenue Bonds4 . . . . . . . . . . . . . . . . . . . 11/01/17 0.900 1,500,0001,000,000 New York State Dormitory Authority,

Revenue Bonds . . . . . . . . . . . . . . . . . . . . 02/15/25 5.000 1,213,770120,000 New York State Energy Research &

Development Authority, RevenueBonds, AMBAC2,3 . . . . . . . . . . . . . . . . . . 12/01/23 3.104 117,530

700,000 New York State Energy Research &Development Authority, RevenueBonds, FGIC2,3 . . . . . . . . . . . . . . . . . . . . . 06/01/25 3.104 665,503

270,000 New York State Energy Research &Development Authority, RevenueBonds, AMBAC2,3 . . . . . . . . . . . . . . . . . . 12/01/25 3.030 265,639



12


PrincipalAmount

MaturityDate

InterestRate Value

MUNICIPAL BONDS (continued)New York (continued)

$ 305,000 New York State Energy Research &Development Authority, RevenueBonds, AMBAC2,3 . . . . . . . . . . . . . . . . . . 12/01/26 3.097% $ 299,962


1,890,000 New York State Energy Research &Development Authority, RevenueBonds, AMBAC2,3 . . . . . . . . . . . . . . . . . . 07/01/27 3.100 1,850,423


2,000,000 New York State Energy Research &Development Authority, RevenueBonds, AMBAC2,3 . . . . . . . . . . . . . . . . . . 05/01/34 1.593 1,893,702

490,000 New York State Energy Research &Development Authority, RevenueBonds, XLCA2,3 . . . . . . . . . . . . . . . . . . . . 07/01/29 3.104 484,580

1,000,000 Port Authority of New York & NewJersey, Revenue Bonds . . . . . . . . . . . . . 10/15/27 5.000 1,218,710

Total New York . . . . . . . . . . . . . . . . . . . . . . 12,716,810

North Carolina (1.9%)1,405,000 County of Mecklenburg, General


Total North Carolina . . . . . . . . . . . . . . . . . . 1,691,269

Ohio (0.3%)100,000 County of Montgomery,

Revenue Bonds4 . . . . . . . . . . . . . . . . . . . 11/01/17 0.900 100,000200,000 Ohio Higher Educational Facility

Commission, Revenue Bonds4 . . . . . . . 11/01/17 0.900 200,000

Total Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000



13



PrincipalAmount

MaturityDate

InterestRate Value

MUNICIPAL BONDS (continued)Pennsylvania (5.1%)

$ 150,000 Allegheny County Airport Authority,Revenue Bonds, FGIC . . . . . . . . . . . . . . 01/01/22 5.000% $ 168,144

50,000 Allegheny County Airport Authority,Revenue Bonds, FGIC . . . . . . . . . . . . . . 01/01/23 5.000 57,007

300,000 Geisinger Authority, Revenue Bonds4 . . . 11/01/17 0.890 300,000100,000 Hospitals & Higher Education

Facilities Authority of Philadelphia,Revenue Bonds4 . . . . . . . . . . . . . . . . . . . 11/01/17 0.900 100,000

255,000 School District of Philadelphia, GeneralObligation Bonds, AGM, FGIC . . . . . . . 06/01/24 5.000 292,546

1,100,000 School District of Philadelphia, GeneralObligation Bonds . . . . . . . . . . . . . . . . . . 09/01/24 5.000 1,266,441

1,000,000 School District of Philadelphia, GeneralObligation Bonds . . . . . . . . . . . . . . . . . . 09/01/27 5.000 1,154,940

1,000,000 State Public School Building Authority,Revenue Bonds . . . . . . . . . . . . . . . . . . . . 06/01/32 5.000 1,129,910

Total Pennsylvania . . . . . . . . . . . . . . . . . . . 4,468,988

South Dakota (0.5%)430,000 Educational Enhancement Funding

Corp., Revenue Bonds . . . . . . . . . . . . . . 06/01/25 5.000 476,909

Total South Dakota . . . . . . . . . . . . . . . . . . . 476,909

Texas (11.0%)1,000,000 Allen Independent School District,

General Obligation Bonds . . . . . . . . . . . 02/15/25 5.000 1,215,290325,000 City of Houston Airport System,

Revenue Bonds, AGM2,3 . . . . . . . . . . . . 07/01/30 2.421 306,652750,000 City of Houston Airport System,

Revenue Bonds, AGM2,3 . . . . . . . . . . . . 07/01/30 2.461 707,734475,000 City of Houston Airport System,

Revenue Bonds, XLCA2,3 . . . . . . . . . . . . 07/01/32 2.480 447,037525,000 City of Houston Airport System,

Revenue Bonds, XLCA2,3 . . . . . . . . . . . . 07/01/32 2.480 494,046



14


PrincipalAmount

MaturityDate

InterestRate Value

MUNICIPAL BONDS (continued)Texas (continued)

$ 725,000 City of Houston Airport System,Revenue Bonds, XLCA2,3 . . . . . . . . . . . . 07/01/32 2.485% $ 682,390

1,000,000 Dallas Love Field, Revenue Bonds . . . . . . 11/01/25 5.000 1,187,3701,000,000 Houston Independent School District,

General Obligation Bonds . . . . . . . . . . . 02/15/25 5.000 1,215,2902,000,000 State of Texas, General

Obligation Bonds . . . . . . . . . . . . . . . . . . 04/01/25 5.000 2,433,000380,000 Texas Municipal Gas Acquisition &

Supply Corp. I, Revenue Bonds . . . . . . 12/15/19 5.250 408,37195,000 Texas Municipal Gas Acquisition &

Supply Corp. I, Revenue Bonds . . . . . . 12/15/20 5.250 104,715400,000 Texas Municipal Gas Acquisition &

Supply Corp. I, Revenue Bonds . . . . . . 12/15/21 5.250 450,644

Total Texas . . . . . . . . . . . . . . . . . . . . . . . . . . 9,652,539

Virginia (2.8%)2,000,000 County of Arlington, General


Total Virginia . . . . . . . . . . . . . . . . . . . . . . . . 2,464,600

Washington (1.2%)500,000 Port of Seattle, Revenue Bonds . . . . . . . . 06/01/23 5.000 573,700425,000 Port of Seattle, Revenue Bonds . . . . . . . . 06/01/27 3.750 442,591

Total Washington . . . . . . . . . . . . . . . . . . . . 1,016,291



15



PrincipalAmount

MaturityDate

InterestRate Value

MUNICIPAL BONDS (continued)Wisconsin (3.6%)

$ 280,000 County of Milwaukee Airport,Revenue Bonds . . . . . . . . . . . . . . . . . . . . 12/01/28 5.250% $ 324,377

1,000,000 Public Finance Authority, RevenueBonds2,3 . . . . . . . . . . . . . . . . . . . . . . . . . . 07/01/29 2.000 1,009,680

1,500,000 State of Wisconsin, General ObligationBonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05/01/25 5.000 1,831,710

Total Wisconsin . . . . . . . . . . . . . . . . . . . . . 3,165,767

Total Municipal Bonds(Identified cost $84,503,902) . . . . . . . . . 86,614,945

TOTAL INVESTMENTS (Identified cost $84,503,902)5 . . . . . . . . . . . . . . . . 99.0% $86,614,945CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES . . . . . . . . . . . . . 1.0% 874,913

NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% $87,489,858

1 Security issued with zero coupon. Income is recognized through accretion of discount.2 Variable rate instrument. Interest rates change on specific dates (such as coupon or interest payment date). The

yield shown represents the October 31, 2017 coupon or interest rate.3 This variable rate security is based on a predetermined schedule and the rate at year end also represents the

reference rate at year end.4 Variable rate demand note. The maturity date reflects the demand repayment dates. Interest rates change on

specific dates (such as coupon or interest payment date). The yield shown represents the coupon or interest rate asof October 31, 2017.

5 The aggregate cost for federal income tax purposes is $84,503,902, the aggregate gross unrealized appreciationis $2,173,214, and the aggregate gross unrealized depreciation is $62,171, resulting in net unrealized appreciationof $2,111,043.

Abbreviations:

AGC – Assured Guaranty Corp.

AGM – Assured Guaranty Municipal Corp.

AMBAC – AMBAC Financial Group, Inc.

BHAC – Berkshire Hathaway Assurance Corporation.

FGIC – Financial Guaranty Insurance Company.

LIBOR – London Interbank Offered Rate.

NPFG – National Public Finance Guaranty Corp.

SIFMA – Securities Industry and Financial Markets Association.

XLCA – XL Capital Assurance, Inc.



16


FAIR VALUE MEASUREMENTSThe Fund is required to disclose information regarding the fair value measurements of the Fund’s assetsand liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants at the measurement date. The disclosurerequirement established a three-tier hierarchy to maximize the use of observable market data andminimize the use of unobservable inputs and to establish classification of fair value measurements fordisclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricingthe asset or liability, including, for example, the risk inherent in a particular valuation technique used tomeasure fair value, including the model and/or the risk inherent in the inputs to the valuation technique.Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptionsmarket participants would use in pricing the asset or liability developed based on market data obtainedfrom sources independent of the reporting entity. Unobservable inputs are inputs that reflect the Fund’sown considerations about the assumptions market participants would use in pricing the asset or liabilitydeveloped based on the best information available in the circumstances.

Authoritative guidance establishes three levels of the fair value hierarchy as follows:

— Level 1 − unadjusted quoted prices in active markets for identical assets and liabilities.

— Level 2 − significant other observable inputs (including quoted prices for similar assets and liabilities,interest rates, prepayment speeds, credit risk, etc.).

— Level 3 − significant unobservable inputs (including the Fund’s own assumptions in determining thefair value of assets and liabilities).

Inputs are used in applying the various valuation techniques and broadly refer to the assumptions thatmarket participants use to make valuation decisions, including assumptions about risk. Inputs may includeprice information, specific and broad credit data, liquidity statistics, and other factors. A financialinstrument’s level within the fair value hierarchy is based on the lowest level of any input that issignificant to the fair value measurement. However, the determination of what constitutes “observable”requires judgment by the investment adviser. The investment adviser considers observable data to be thatmarket data which is readily available, regularly distributed or updated, reliable and verifiable, notproprietary, and provided by independent sources that are actively involved in the relevant market. Thecategorization of a financial instrument within the hierarchy is based upon the pricing transparency ofthe instrument and does not necessarily correspond to the investment adviser’s perceived risk ofthat instrument.



17



Financial assets within level 1 are based on quoted market prices in active markets. The Fund does notadjust the quoted price for these instruments.

Financial instruments that trade in markets that are not considered to be active but are valued based onquoted market prices, dealer quotations or alternative pricing sources supported by observable inputs areclassified within level 2. These include municipal bonds, investment-grade corporate bonds, U.S. Treasurynotes and bonds, and certain non-U.S. sovereign obligations and over-the-counter derivatives. As level 2financial assets include positions that are not traded in active markets and/or are subject to transferrestrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which aregenerally based on available market information.

Financial assets classified within level 3 have significant unobservable inputs, as they trade infrequently.Level 3 financial assets include private equity and certain corporate debt securities.

Because of the inherent uncertainties of valuation, the values reflected in the financial statements maymaterially differ from the value received upon the actual sale of those investments.

The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchylevels as of October 31, 2017.

Investments, at value

UnadjustedQuoted Prices inActive Markets

for IdenticalInvestments

(Level 1)*

SignificantOther

ObservableInputs

(Level 2)*

SignificantUnobservable

Inputs(Level 3)*

Balance as ofOctober 31, 2017

Municipal Bonds** . . . . . . . . . . . $ — $86,614,945 $ — $86,614,945

Investments, at value . . . . . . . $ — $86,614,945 $ — $86,614,945

* The Fund’s policy is to disclose transfers between levels based on valuations at the end of the reporting period.There were no transfers between Levels 1, 2 or 3 during the period ended October 31, 2017.

** For geographical breakdown of municipal bond investments, refer to the Portfolio of Investments.



18


ASSETS:Investments in securities, at value (Identified cost $84,503,902) . . . . . . . . . . $86,614,945Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371,050Receivables for:

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 589,069Shares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,468Investment advisory and administrative fee waiver reimbursement . . . . 13,840

Prepaid assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,608,963

LIABILITIES:Payables for:

Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,159Investment advisory and administrative fees . . . . . . . . . . . . . . . . . . . . . . . . 28,652Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,693Transfer agent fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,394Custody and fund accounting fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,115Distributor fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,286Shareholder servicing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,580Board of Trustees’ fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,872

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,105

NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $87,489,858

Net Assets Consist of:Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $84,573,333Accumulated net realized gain on investments in securities . . . . . . . . . . . . 805,482Net unrealized appreciation/(depreciation) on investments in securities . . 2,111,043

Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $87,489,858

NET ASSET VALUE AND OFFERING PRICE PER SHARECLASS N SHARES

($15,982,155 ÷ 1,524,419 shares outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.48

CLASS I SHARES($71,507,703 ÷ 6,828,103 shares outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.47


STATEMENT OF ASSETS AND LIABILITIESOctober 31, 2017

19



NET INVESTMENT INCOME:Income:

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,443,517Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,443,639

Expenses:Investment advisory and administrative fees . . . . . . . . . . . . . . . . . . . . . . . . . 334,405Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,106Board of Trustees’ fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,743Custody and fund accounting fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,831Shareholder servicing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,101Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,070Transfer agent fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,113Distributor fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,636Miscellaneous expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,392

Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650,397Investment advisory and administrative fee waiver . . . . . . . . . . . . . . . . . (202,356)Expense offset arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (709)

Net Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447,332

Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,996,307

NET REALIZED AND UNREALIZED GAIN/(LOSS):Net realized gain on investments in securities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,099,658Net change in unrealized appreciation/(depreciation) on

investments in securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (534,966)

Net Realized and Unrealized Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 564,692

Net Increase in Net Assets Resulting from Operations . . . . . . . . . . . . . . . . . . . . . $2,560,999


STATEMENT OF OPERATIONSFor the year ended October 31, 2017

20


For the years ended October 31,

2017 2016

INCREASE IN NET ASSETS:Operations:

Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,996,307 $ 1,682,680Net realized gain on investments in securities . . . . . . . . 1,099,658 1,254,006Net change in unrealized appreciation/(depreciation)

on investments in securities . . . . . . . . . . . . . . . . . . . . . . (534,966) 1,415,612

Net increase in net assets resulting from operations . . 2,560,999 4,352,298

Dividends and distributions declared:From net investment income:

Class N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (449,944) (421,806)Class I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,740,315) (1,260,733)

From net realized gains:Class N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (307,076) (54,688)Class I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (842,969) (143,942)

Total dividends and distributions declared . . . . . . . . . (3,340,304) (1,881,169)

Share transactions:Proceeds from sales of shares . . . . . . . . . . . . . . . . . . . . . . 22,328,960* 15,152,028Net asset value of shares issued to shareholders for

reinvestment of dividends and distributions . . . . . . . . 1,394,699 720,752Proceeds from short-term redemption fees . . . . . . . . . . . 146 542Cost of shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,953,058)* (20,695,368)

Net decrease in net assets resulting fromshare transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,229,253) (4,822,046)

Total decrease in net assets . . . . . . . . . . . . . . . . . . . . . . (2,008,558) (2,350,917)NET ASSETS:

Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,498,416 91,849,333

End of year (including undistributed net investmentincome of $0 and $141, respectively) . . . . . . . . . . . . . . . . . $ 87,489,858 $ 89,498,416

* Includes share exchanges. See Note 5 in Notes to Financial Statements.


STATEMENTS OF CHANGES IN NET ASSETS

21



For the years ended October 31,2017 2016 2015

For theperiod fromApril 1, 2014

(commencementof operations)to October 31,

2014Net asset value, beginning of period . . . . . . . . . . . . $ 10.56 $10.29 $10.30 $ 10.00Income from investment operations:

Net investment income1 . . . . . . . . . . . . . . . . . . . 0.22 0.18 0.15 0.09Net realized and unrealized gain . . . . . . . . . . . . . 0.11 0.29 0.08 0.29

Total income from investment operations . . . . 0.33 0.47 0.23 0.38Less dividends and distributions:

From net investment income . . . . . . . . . . . . . . . . (0.26) (0.18) (0.16) (0.08)From net realized gains . . . . . . . . . . . . . . . . . . . . (0.15) (0.02) (0.08) —

Total dividends and distributions . . . . . . . . . . . (0.41) (0.20) (0.24) (0.08)Short-term redemption fees1 . . . . . . . . . . . . . . . . . . 0.002 0.002 0.002 —Net asset value, end of period . . . . . . . . . . . . . . . . $ 10.48 $10.56 $10.29 $ 10.30

Total return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20% 4.64% 2.29% 3.82%3

Ratios/Supplemental data:Net assets, end of period (in millions) . . . . . . . . $16 $23 $26 $1Ratio of expenses to average net assets

before reductions . . . . . . . . . . . . . . . . . . . . . . . 1.05% 1.03% 1.10% 8.78%4

Fee waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.40%5 0.38%5 0.45%5 8.13%4,5

Expense offset arrangement . . . . . . . . . . . . . . . . 0.00%6 0.00%6 0.00%6 0.00%4,6

Ratio of expenses to average net assetsafter reductions . . . . . . . . . . . . . . . . . . . . . . . . 0.65% 0.65% 0.65% 0.65%4

Ratio of net investment income to averagenet assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.16% 1.73% 1.43% 1.43%4

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . 125% 77% 142% 91%Portfolio turnover rate7 . . . . . . . . . . . . . . . . . . . . . . . 64% 40% 83% 56%

1 Calculated using average shares outstanding for the period.2 Less than $0.01.3 Not annualized.4 Annualized with the exception of audit fees and registration fees.5 The ratio of expenses to average net assets for the years ended October 31, 2017, 2016 and 2015 and the period ended

October 31, 2014, reflect fees reduced as result of a contractual operating expense limitation of the share class of 0.65%.The agreement is effective beginning on April 1, 2014 and will terminate on March 1, 2018, unless it is renewed by allparties to the agreement. For the years ended October 31, 2017, 2016 and 2015 and the period from April 1, 2014 toOctober 31, 2014, the waived fees were $78,871, $92,199, $71,871 and $47,942, respectively.

6 Less than 0.01%.7 The portfolio turnover rate excludes variable rate demand notes.


FINANCIAL HIGHLIGHTSSelected per share data and ratios for a Class N share outstanding throughout each period.

22


For the years ended October 31,2017 2016 2015

For theperiod fromApril 1, 2014

(commencementof operations)to October 31,

2014Net asset value, beginning of period . . . . . . . . . . . . $10.55 $10.28 $10.30 $10.00Income from investment operations:

Net investment income1 . . . . . . . . . . . . . . . . . . . 0.25 0.20 0.18 0.09Net realized and unrealized gain . . . . . . . . . . . . . 0.09 0.29 0.06 0.30

Total income from investment operations . . . . 0.34 0.49 0.24 0.39Less dividends and distributions:

From net investment income . . . . . . . . . . . . . . . . (0.27) (0.20) (0.18) (0.09)From net realized gains . . . . . . . . . . . . . . . . . . . . (0.15) (0.02) (0.08) —

Total dividends and distributions . . . . . . . . . . . (0.42) (0.22) (0.26) (0.09)Short-term redemption fees1 . . . . . . . . . . . . . . . . . . 0.002 0.002 0.002 —Net asset value, end of period . . . . . . . . . . . . . . . . $10.47 $10.55 $10.28 $10.30

Total return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.36% 4.80% 2.33% 3.89%3

Ratios/Supplemental data:Net assets, end of period (in millions) . . . . . . . . $71 $66 $66 $52Ratio of expenses to average net assets

before reductions . . . . . . . . . . . . . . . . . . . . . . . 0.69% 0.68% 0.78% 0.88%4

Fee waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.19%5 0.18%5 0.28%5 0.38%4,5

Expense offset arrangement . . . . . . . . . . . . . . . . 0.00%6 0.00%6 0.00%6 0.00%4,6

Ratio of expenses to average net assetsafter reductions . . . . . . . . . . . . . . . . . . . . . . . . 0.50% 0.50% 0.50% 0.50%4

Ratio of net investment income to averagenet assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.46% 1.88% 1.72% 1.49%4

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . 125% 77% 142% 91%Portfolio turnover rate7 . . . . . . . . . . . . . . . . . . . . . . . 64% 40% 83% 56%

1 Calculated using average shares outstanding for the period.2 Less than $0.01.3 Not annualized.4 Annualized with the exception of audit fees and registration fees.5 The ratio of expenses to average net assets for the years ended October 31, 2017, 2016 and 2015 and the period

ended October 31, 2014, reflect fees reduced as result of a contractual operating expense limitation of the shareclass of 0.50%. The agreement is effective for period beginning on April 1, 2014 and will terminate on March 1,2018, unless it is renewed by all parties to the agreement. For the years ended October 31, 2017, 2016 and 2015 andthe period from April 1, 2014 to October 31, 2014, the waived fees were $123,485, $121,168, $163,323 and$137,383, respectively.

6 Less than 0.01%.7 The portfolio turnover rate excludes variable rate demand notes.


FINANCIAL HIGHLIGHTS (continued)Selected per share data and ratios for a Class I share outstanding throughout each period.

23



1. Organization. The Fund is a separate, diversified series of BBH Trust (the “Trust”), which is registeredunder the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-endmanagement investment company. The Trust was originally organized under the laws of the State ofMaryland on July 16, 1990 as BBH Fund, Inc. and re-organized as a Delaware statutory trust onJune 12, 2007. The Fund commenced operations on April 1, 2014. The Fund offers Class N shares andClass I shares. Class N and Class I shares have different operating expenses. With the exception ofclass specific expenses, all expenses are allocated between classes based on net assets. NeitherClass N shares nor Class I shares automatically convert to any other share class of the Fund. As ofOctober 31, 2017, there were six series of the Trust.

2. Significant Accounting Policies. The Fund’s financial statements are prepared in accordance withGenerally Accepted Accounting Principles in the United States of America (“GAAP”). The Fund is aninvestment company and accordingly follows the investment company accounting and reportingguidance of the Financial Accounting Standards Board (FASB) Accounting Standard CodificationTopic 946 Financial Services — Investment Companies. The following summarizes significantaccounting policies of the Fund:

A. Valuation of Investments. Prices of municipal bonds are provided by an external pricing serviceapproved by the Fund’s Board of Trustees (the “Board”). These securities are generally classifiedas Level 2. The evaluated vendor pricing is based on methods that may include consideration ofthe following: yields or prices of municipal securities of comparable quality, type of issue, coupon,maturity and rating, market quotes or indications of value from security dealers, evaluations ofanticipated cash flows or collateral, general market conditions and other information and analysis,including the obligor’s credit characteristics considered relevant.

Securities or other assets for which market quotations are not readily available are valued at fairvalue in accordance with procedures established by and under the general supervision andresponsibility of the Board. Short-term investments, which mature in 60 days or less are valued atamortized cost if their original maturity was 60 days or less, or by amortizing their value on the 61stday prior to maturity, if their original maturity when acquired by the Fund was more than 60 days,unless the use of amortized cost is determined not to represent “fair value” by the Board.

B. Accounting for Investments and Income. Investment transactions are accounted for on the tradedate. Realized gains and losses on investment transactions are determined based on the identifiedcost method. Interest income is accrued daily and consists of interest accrued, discount earned(including, if any, both original issue and market discount) and premium amortization on theinvestments of the Fund. Debt obligations may be placed on non-accrual status and related interestincome may be reduced by ceasing current accruals and writing off interest receivable when the


NOTES TO FINANCIAL STATEMENTSOctober 31, 2017

24

collection of all or a portion of the interest has become doubtful based on consistently appliedprocedures. A debt obligation is removed from non-accrual status when the issuer resumes interestpayments or when collectability of interest is reasonably assured.

C. Fund Expenses. Most expenses of the Trust can be directly attributed to a specific fund. Expenseswhich cannot be directly attributed to a fund are apportioned amongst each fund in the Trust equally.Expense estimates are accrued in the period to which they relate and adjustments are made whenactual amounts are known.

D. Federal Income Taxes. It is the Trust’s policy to comply with the requirements of the InternalRevenue Code (the “Code”) applicable to regulated investment companies and to distributesubstantially all of its taxable income to its shareholders. Accordingly, no federal income taxprovision is required. The Fund files a tax return annually using tax accounting methods requiredunder provisions of the Code, which may differ from GAAP, which is the basis on which thesefinancial statements are prepared. Accordingly, the amount of net investment income and netrealized gain reported in these financial statements may differ from that reported on the Fund’s taxreturn, due to certain book-to-tax timing differences such as losses deferred due to “wash sale”transactions and utilization of capital loss carryforwards. These differences may result in temporaryover-distributions for financial statement purposes and are classified as distributions in excess ofaccumulated net realized gains or net investment income. These distributions do not constitute areturn of capital. Permanent differences are reclassified in the Statement of Assets & Liabilitiesbased upon their tax classification. As such, the character of distributions to shareholders reportedin the Financial Highlights table may differ from that reported to shareholders on Form 1099-DIV.

The Fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes(“ASC 740”). ASC 740 sets forth a minimum threshold for financial statement recognition of thebenefit of a tax position taken or expected to be taken in a tax return. The Fund did not have anyunrecognized tax benefits as of October 31, 2017, nor were there any increases or decreases inunrecognized tax benefits for the year then ended. The Fund recognizes interest and penalties, ifany, related to unrecognized tax benefits as an income tax expense in the Statement of Operations.During the year ended October 31, 2017, the Fund did not incur any such interest or penalties. TheFund is subject to examination by U.S. federal and state tax authorities for returns filed for the priorthree years. The Fund is not aware of any tax positions for which it is reasonably possible that thetotal amounts of unrecognized tax benefits will significantly change in the next twelve months.

E. Dividends and Distributions to Shareholders. Dividends and distributions from net investmentincome to shareholders, if any, are paid monthly and are recorded on the ex-dividend date.Distributions from net capital gains, if any, are generally declared and paid annually and are recordedon the ex-dividend date. The Fund declared dividends in the amount of $757,020 and $2,583,284


NOTES TO FINANCIAL STATEMENTS (continued)October 31, 2017


to Class N and Class I shareholders, respectively, during the year ended October 31, 2017. Inaddition, the Fund designated a portion of the payment made to redeeming shareholders as adistribution for income tax purposes.

The tax character of distributions paid during the years ended October 31, 2017 and 2016,respectively, were as follows:

Distributions paid from:

Ordinaryincome

Netlong-term

capital gainTotal taxabledistributions

Tax exemptincome

Tax returnof capital

Totaldistributions

paid

2017: $795,101 $705,293 $1,500,394 $1,839,910 $ — $3,340,3042016: 474,909 124,475 599,384 1,281,785 — 1,881,169

As of October 31, 2017 and 2016, respectively, the components of accumulated earnings/(deficit) ona tax basis were as follows:

Components of accumulated earnings/(deficit):

Undistributedordinaryincome

Undistributedlong-term

capital gainAccumulated

earnings

Accumulatedcapital andother losses

Otherbook/tax

temporarydifferences

Bookunrealized

appreciation/(depreciation)

Totalaccumulated

earnings / (deficit)

2017: $108,314 $697,168 $ 805,482 $ — $ — $2,111,043 $2,916,5252016: 638,250 511,015 1,149,265 — — 2,646,009 3,795,274

The Fund did not have a net capital loss carryforward at October 31, 2017.

Total distributions paid may differ from amounts reported in the Statements of Changes in NetAssets because, for tax purposes, dividends are recognized when actually paid.

To the extent future capital gains are offset by capital loss carryforwards, if any; such gains will notbe distributed.

F. Use of Estimates. The preparation of financial statements in accordance with GAAP requiresmanagement to make estimates and assumptions that affect the reported amounts of assets andliabilities in the financial statements, disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of increases and decreases in net assets fromoperations during the reporting period. Actual results could differ from these estimates.



26

3. Fees and Other Transactions with Affiliates.

A. Investment Advisory and Administrative Fees. Effective April 1, 2014 (commencement ofoperations), under a combined Investment Advisory and Administrative Services Agreement(“Agreement”) with the Trust, Brown Brothers Harriman & Co. (“BBH”) through a separatelyidentifiable department (“SID” or “Investment Adviser”) provides investment advisory, portfoliomanagement and administrative services to the Fund. The Fund’s investment advisory andadministrative services fee is calculated daily and paid monthly at an annual rate equivalent to0.40% of the Fund’s average daily net assets. For the year ended October 31, 2017, the Fund incurred$334,405 under the Agreement.

B. Investment Advisory and Administrative Fee Waiver. Effective April 1, 2014 (commencementof operations), the Investment Adviser contractually agreed to limit the annual fund operatingexpenses (excluding interest, taxes, brokerage commissions, other expenditures that are capitalizedin accordance with GAAP and other extraordinary expenses not incurred in the ordinary course ofthe Fund’s business) of Class N and Class I to 0.65% and 0.50%, respectively. The agreement willterminate on March 1, 2018, unless it is renewed by all parties to the agreement. The agreementmay only be terminated during its term with approval of the Fund’s Board of Trustees. For the yearended October 31, 2017, the Investment Adviser waived fees in the amount of $78,871 and $123,485for Class N and Class I, respectively.

C. Shareholder Servicing Fees. The Trust has a shareholder servicing agreement with BBH. BBHreceives a fee from the Fund calculated daily and paid monthly at an annual rate of 0.20% of Class Nshares’ average daily net assets. For the year ended October 31, 2017, Class N shares of the Fundincurred $39,101 in shareholder servicing fees.

D. Custody and Fund Accounting Fees. BBH acts as a custodian and fund accountant and receivescustody and fund accounting fees from the Fund calculated daily and incurred monthly. BBH holdsall of the Fund’s cash and investments and calculates the Fund’s daily net asset value. The custodyfee is an asset and transaction-based fee. The fund accounting fee is an asset-based fee calculatedat 0.004% of the Fund’s net asset value. For the year ended October 31, 2017, the Fund incurred$39,831 in custody and fund accounting fees. These fees for the Fund were reduced by $709 asa result of an expense offset arrangement with the Fund’s custodian. The credit amount (if any)is disclosed in the Statement of Operations as a reduction to the Fund’s expenses. In the eventthat the Fund is overdrawn, under the custody agreement with BBH, BBH will make overnight loansto the Fund to cover overdrafts. Pursuant to their agreement, the Fund will pay the Federal Funds




overnight investment rate on the day of the overdraft. The total interest incurred by the Fund forthe year ended October 31, 2017, was $530. This amount is included under line item “Custody andFund Accounting Fees” in the Statement of Operations.

E. Board of Trustees’ Fees. Each Trustee who is not an “interested person” as defined under the1940 Act receives an annual fee as well as reimbursement for reasonable out-of-pocket expensesfrom the Fund. For the year ended October 31, 2017, the Fund incurred $54,743 in independentTrustee compensation and reimbursements.

F. Affiliated Ownership. As of October 31, 2017, BBH is the owner of record of 49.8% of the totaloutstanding shares of the Fund.

4. Investment Transactions. For the year ended October 31, 2017, the cost of purchases and theproceeds of sales of investment securities, other than short-term investments, was $104,036,350 and$108,855,666, respectively.

5. Shares of Beneficial Interest. The Trust is permitted to issue an unlimited number of Class N sharesand Class I shares of beneficial interest, at no par value. Transactions in Class N and Class I shareswere as follows:

For the year endedOctober 31, 2017

For the year endedOctober 31, 2016

Shares Dollars Shares Dollars

Class NShares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453,720 $ 4,704,644 456,024 $ 4,784,482Shares issued in connection with

reinvestments of dividends . . . . . . . . . . . . . 61,745 633,673 36,145 378,154Proceeds from short-term redemption fees . . . N/A 118 N/A 105Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . (1,188,349) (12,342,086) (817,062) (8,568,577)

Net decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . (672,884) $ (7,003,651) (324,893) $ (3,405,836)

Class IShares sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,700,059 $ 17,624,316 989,906 $ 10,367,546Shares issued in connection with

reinvestments of dividends . . . . . . . . . . . . . 73,690 761,026 32,728 342,598Proceeds from short-term redemption fees . . . N/A 28 N/A 437Shares redeemed . . . . . . . . . . . . . . . . . . . . . . . (1,227,128) (12,610,972) (1,155,115) (12,126,791)

Net increase (decrease) . . . . . . . . . . . . . . . . . . 546,621 $ 5,774,398 (132,481) $ (1,416,210)



28

Included in Shares Sold and Shares Redeemed are shareholder exchanges during the year endedOctober 31, 2017. Specifically:

During the year 2017, 506,895 shares of Class N were exchanged for 507,378 shares of Class I valuedat $5,342,523.

6. Principal Risk Factors and Indemnifications.

A. Principal Risk Factors. Investing in the Fund may involve certain risks, as discussed in the Fund’sprospectus, including but not limited to, those described below:

A shareholder may lose money by investing in the Fund (investment risk). The Fund is activelymanaged and the decisions by the Investment Adviser may cause the Fund to incur losses or missprofit opportunities (management risk). In the normal course of business, the Fund may invest inauction rate securities, the liquidity and price of which are subject to the risk of insufficient demandat auction or on a secondary market (auction rate securities risk). Additionally, in the normal courseof business, the Fund invests in securities and enters into transactions where risks exist due toredemption of securities by the issuer before maturity (call risk), failure of a counterparty to atransaction to perform (credit risk), changes in interest rates (interest rate risk), higher volatility forsecurities with longer maturities (maturity risk), difficulty in being able to purchase or sell a security(liquidity risk) and a significant position in municipal securities in a particular state (state-specificrisk). Political, legislative and economic events may affect a municipal security’s value, interestpayments, repayments of principal and the Fund’s ability to sell it (municipal issuer risk).Additionally, as the Fund’s exposure to similar municipal revenue sectors increases, the Fund willbecome more sensitive to adverse economic, business or political developments relevant to thesesectors (municipal revenue sector risk). The Fund’s use of derivatives creates risks that are differentfrom, or possibly greater than, the risks associated with investing directly in securities as the Fundcould lose more than the principal amount invested (derivatives risk). The value of securities held bythe Fund may decline in response to certain events, including: those directly involving thecompanies or issuers whose securities are held by the Fund; conditions affecting the generaleconomy; overall market changes; and political and regulatory events (market risk). While the Fundendeavors to purchase only bona fide tax exempt bonds, there is a risk that a bond may bereclassified by the IRS as a taxable bond creating taxable income for the Fund and its shareholders(taxation risk). The Fund’s shareholders may be adversely impacted by asset allocation decisionsmade by an investment adviser whose discretionary clients make up a large percentage of theFund’s shareholders (shareholder concentration risk). The extent of the Fund’s exposure to theserisks in respect to these financial assets is included in their value as recorded in the Fund’sStatement of Assets and Liabilities.




Please refer to the Fund’s prospectus for a complete description of the principal risks of investing inthe Fund.

B. Indemnifications. Under the Trust’s organizational documents, its officers and Trustees may beindemnified against certain liabilities and expenses arising out of the performance of their dutiesto the Fund, and shareholders are indemnified against personal liability for the obligations of theTrust. Additionally, in the normal course of business, the Fund enters into agreements with serviceproviders that may contain indemnification clauses. The Fund’s maximum exposure under thesearrangements is unknown as this would involve future claims that may be made against the Fundthat have not yet occurred. The risk of material loss from such claims is considered remote.

7. Recent pronouncements.

A. Regulation S-X. In October 2016, the U.S. Securities and Exchange Commission adopted new rulesand amended existing rules (together, “final rules”) intended to modernize the reporting anddisclosure of information by registered investment companies. In part, the final rules amendRegulation S-X and require standardized, enhanced disclosure about derivatives in investmentcompany financial statements, as well as other amendments. The compliance date for theamendments to Regulation S-X was August 1, 2017. The changes related to Regulation S-X arereflected in the financial statements.

B. ASU 2017-08. In March 2017, the Financial Accounting Standards Board issued an AccountingStandards Update, ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amendsthe amortization period for certain purchased callable debt securities held at a premium, shorteningsuch period to the earliest call date. The ASU does not require any accounting change for debtsecurities held at a discount; the discount continues to be amortized to maturity. The ASU is effectivefor years, and interim periods within those years, beginning after December 15, 2018. Managementis currently evaluating the application of ASU 2017-08 and its impact, if any, on the Fund’s financialstatements.

8. Subsequent Events. Management has evaluated events and transactions that have occurred sinceOctober 31, 2017 through the date the financial statements were issued and determined that therewere none that would require recognition or additional disclosure in the financial statements.



30

EXAMPLEAs a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including salescharges (loads) on purchase payments, reinvested distributions, or other distributions; redemption fees;and exchange fees; and (2) ongoing costs, including management fees; and other Fund expenses. ThisExample is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and tocompare these costs with the ongoing costs of investing in other mutual funds.

The Example is based on an investment of $1,000 invested at the beginning of the period and held for theentire period (May 1, 2017 to October 31, 2017).

ACTUAL EXPENSESThe first line of the table provides information about actual account values and actual expenses. You mayuse information in this line, together with the amount you invested, to estimate the expenses that youpaid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account valuedivided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled“Expenses Paid During the Period” to estimate the expenses you paid on your account during the period.

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSESThe second line of the table provides information about hypothetical account values and hypotheticalexpenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year beforeexpenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not beused to estimate the actual ending account balance or expenses you paid during the period. You may usethis information to compare the ongoing costs of investing in the Fund and other funds. To do so, comparethis 5% Hypothetical Example with the 5% hypothetical examples that appear in the shareholder reportsof other funds.


DISCLOSURE OF FUND EXPENSESOctober 31, 2017 (unaudited)


Please note that the expenses shown in the table are meant to highlight your ongoing costs only and donot reflect any transactional costs, such as redemption fees or exchange fees. Therefore, the second lineof the table is useful in comparing ongoing costs only, and will not help you determine the relative totalcosts of owning different funds. In addition, if these transactional costs were included, your costs wouldhave been higher.

BeginningAccount Value

May 1, 2017

EndingAccount Value

October 31, 2017

Expenses PaidDuring PeriodMay 1, 2017 to

October 31, 20171

Class NActual . . . . . . . . . . . . . . . . . . . . . . . . . $1,000 $1,036 $3.34Hypothetical2 . . . . . . . . . . . . . . . . . . . $1,000 $1,022 $3.31

BeginningAccount Value

May 1, 2017

EndingAccount Value

October 31, 2017

Expenses PaidDuring PeriodMay 1, 2017 to

October 31, 20171

Class IActual . . . . . . . . . . . . . . . . . . . . . . . . . $1,000 $1,037 $2.57Hypothetical2 . . . . . . . . . . . . . . . . . . . $1,000 $1,023 $2.55

1 Expenses are equal to the Fund’s annualized expense ratio of 0.65% and 0.50% for Class N and I shares,respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-halfyear period).

2 Assumes a return of 5% before expenses. For the purposes of the calculation, the applicable annualized expensesratio for each class of shares is subtracted from the assumed return before expenses.


DISCLOSURE OF FUND EXPENSES (continued)October 31, 2017 (unaudited)

32

Conflicts of InterestBBH, including the Investment Adviser, provides discretionary and non-discretionary investmentmanagement services and products to corporations, institutions and individual investors throughout theworld. As a result, in the ordinary course of its businesses, BBH, including the Investment Adviser, mayengage in activities in which its interests or the interests of its clients may conflict with or be adverse tothe interests of the Fund. In addition, certain of such clients (including the Fund) utilize the services ofBBH for which they will pay to BBH customary fees and expenses that will not be shared with the Fund.

BBH, including the Investment Adviser, seeks to meet its fiduciary obligation with respect to allinvestment management clients, including the Fund. BBH, including the Investment Adviser, has adoptedand implemented policies and procedures that seek to manage conflicts of interest. Pursuant to suchpolicies and procedures, BBH&Co., including the Investment Adviser, monitors a variety of areas,including compliance with fund investment guidelines, review of allocation decisions and compliancewith the Investment Adviser’s Code of Ethics. With respect to the allocation of investment opportunities,BBH, including the Investment Adviser, has adopted and implemented policies designed to achieve fairand equitable allocation of investment opportunities among its clients over time. The Investment Adviserhas structured the portfolio managers’ compensation in a manner it believes is reasonably designed tosafeguard the Fund from being negatively affected as a result of any such potential conflicts.

The Trust also manages these conflicts of interest. For example, the Trust has designated a chiefcompliance officer and has adopted and implemented policies and procedures designed to manage theconflicts identified below and other conflicts that may arise in the course of the Fund’s operations in sucha way as to safeguard the Fund from being negatively affected as a result of any such potential conflicts.From time to time, the Trustees receive reports from the Investment Adviser and the Trust’s chiefcompliance officer on areas of potential conflict.

Investors should carefully review the following, which describes potential and actual conflicts of interestthat BBH and the Investment Adviser can face in the operation of its investment management services.This section is not, and is not intended to be, a complete enumeration or explanation of all of the potentialconflicts of interest that may arise. The Investment Adviser and the Fund has adopted policies andprocedures reasonably designed to appropriately prevent, limit or mitigate the conflicts of interestdescribed below. Additional information about potential conflicts of interest regarding the InvestmentAdviser is set forth in the Investment Adviser’s Form ADV. A copy of Part 1 and Part 2A of the InvestmentAdviser’s Form ADV is available on the SEC’s website (www.adviserinfo.sec.gov). In addition, many of theactivities that create these conflicts of interest are limited and/or prohibited by law, unless an exceptionis available.


CONFLICT OF INTERESTOctober 31, 2017 (unaudited)


Other Clients and Allocation of Investment Opportunities. BBH, including the Investment Adviser.manages funds and accounts of clients other than the Fund (“Other Clients”). In general, BBH, includingthe Investment Adviser, faces conflicts of interest when it renders investment advisory services todifferent clients and, from time to time, provides dissimilar investment advice to different clients.Investment decisions will not necessarily be made in parallel among the Fund and BBH’s Other Clients.Investments made by the Fund do not, and are not intended to, replicate the investments, or theinvestment methods and strategies, of Other Clients managed by BBH. Accordingly, such Other Clientsmanaged by BBH, may produce results that are materially different from those experienced by the Fund.Certain other conflicts of interest may arise in connection with a portfolio manager’s management of theFund’s investments, on the one hand, and the investments of other funds or accounts for which theportfolio manager is responsible, on the other. For example, it is possible that the various funds oraccounts managed by BBH&Co. could have different investment strategies that, at times, might conflictwith one another to the possible detriment of the Fund. Alternatively, the investment methods andstrategies that the Investment Adviser utilizes in managing the Fund are utilized by BBH, including theInvestment Adviser, in managing investments for Other Clients. From time to time, BBH, including theInvestment Adviser, establishes, sponsors and is affiliated with other investment pools and accountswhich engage in the same or similar businesses as the Fund using the same or similar investmentstrategies. To the extent that the same investment opportunities might be desirable for more than oneaccount or fund, possible conflicts could arise in determining how to allocate them because BBH mayhave an incentive to allocate investment opportunities to certain accounts or funds. For example, BBHmay act as adviser to private funds with investment strategies similar to the Fund. Those private fundsmay pay BBH a performance fee in addition to the stated investment advisory fee. In such cases, BBH mayhave an incentive to allocate certain investment opportunities to the private fund rather than the Fund inorder to increase the private fund’s performance and thus improve BBH’s chances of receiving theperformance fee. However, BBH has implemented policies and procedures to assure that investmentopportunities are allocated equitably between the Fund and other funds and accounts with similarinvestment strategies.

Actual or potential conflicts of interest may also arise when a portfolio manager has managementresponsibilities to multiple accounts or funds, resulting in unequal commitment of time and attention tothe portfolio management of the funds or accounts.

Affiliated Service Providers. Other potential conflicts might include conflicts between the Fund and itsaffiliated and unaffiliated service providers (e.g. conflicting duties of loyalty). In addition to providinginvestment management services through the SID, BBH provides administrative, custody, shareholderservicing and fund accounting services to the Fund. BBH may have conflicting duties of loyalty whileservicing the Fund and/or opportunities to further its own interest to the detriment of the Fund. Forexample, in negotiating fee arrangements with affiliated service providers, BBH may have an incentive to


CONFLICT OF INTEREST (continued)October 31, 2017 (unaudited)

34

agree to higher fees than it would in the case of unaffiliated providers. BBH acting in its capacity as theFund’s administrator is the primary valuation agent of the Fund. BBH values securities and assets in theFund according to the Fund’s valuation policies. Because the Investment Adviser and BBH’s advisory andadministrative fees are calculated by reference to a Fund’s net assets, BBH and its affiliates may have anincentive to seek to overvalue certain assets.

Aggregation. Potential conflicts of interest also arise with the aggregation of trade orders. Purchasesand sales of securities for the Fund may be aggregated with orders for other BBH client accounts. BBHhowever is not required to aggregate orders if portfolio management decisions for different accounts aremade separately, or if it is determined that aggregating is not practicable, or in cases involving clientdirection. Prevailing trading activity frequently may make impossible the receipt of the same price orexecution on the entire volume of securities purchased or sold. When this occurs, the various prices maybe averaged, and the Fund will be charged or credited with the average price. Thus, the effect of theaggregation may operate on some occasions to the disadvantage of the Fund. In addition, under certaincircumstances, the Fund will not be charged the same commission or commission equivalent rates inconnection with an aggregated order. Allocations of aggregated trades, particularly trade orders thatwere only partially filled due to limited availability, raise a potential conflict of interest because BBH hasan incentive to allocate trades to certain accounts or funds.

Soft Dollars. The Investment Adviser may direct brokerage transactions and/or payment of a portion ofclient commissions (“soft dollars”) to specific brokers or dealers or other providers to pay for research orother appropriate services which provide, in the Investment Adviser’s view, appropriate assistance to theInvestment Adviser in the investment decision-making process (including with respect to futures, fixedprice offerings and over-the-counter transactions). The use of a broker that provides research andsecurities transaction services may result in a higher commission than that offered by a broker who doesnot provide such services. The Investment Adviser will determine in good faith whether the amount ofcommission is reasonable in relation to the value of research and services provided and whether theservices provide lawful and appropriate assistance in its investment decision-making responsibilities.

Research or other services obtained in this manner may be used in servicing any or all of the Funds andother BBH client accounts, including in connection with BBH client accounts that do not pay commissionsto the broker related to the research or other service arrangements. Such products and services maydisproportionately benefit other BBH client accounts relative to the Fund based on the amount ofbrokerage commissions paid by the Fund and such other BBH client accounts. For example, research orother services that are paid for through one client’s commissions may not be used in managing thatclient’s account. In addition, other BBH client accounts may receive the benefit, including disproportionatebenefits, of economies of scale or price discounts in connection with products and services that may be




provided to the Fund and to such other BBH client accounts. To the extent that BBH uses soft dollars, itwill not have to pay for those products and services itself.

BBH may receive research that is bundled with the trade execution, clearing, and/or settlement servicesprovided by a particular broker-dealer. To the extent that BBH receives research on this basis, many of thesame conflicts related to traditional soft dollars may exist. For example, the research effectively will bepaid by client commissions that also will be used to pay for the execution, clearing, and settlementservices provided by the broker-dealer and will not be paid by BBH.

BBH may endeavor to execute trades through brokers who, pursuant to such arrangements, provideresearch or other services in order to ensure the continued receipt of research or other services BBHbelieves are useful in its investment decision-making process. BBH may from time to time choose not toengage in the above described arrangements to varying degrees. BBH may also enter into commissionsharing arrangements under which BBH may execute transactions through a broker-dealer, and requestthat the broker-dealer allocate a portion of the commissions or commission credits to another firm thatprovides research to BBH to the extent that BBH engages in commission sharing arrangements, many ofthe same conflicts related to traditional soft dollars may exist.

Arrangements regarding compensation and delegation of responsibility may create conflicts relating toselection of brokers or dealers to execute Fund portfolio trades and/or specific uses of commissions fromFund portfolio trades, administration of investment advice and valuation of securities.

Investments in BBH Funds. From time to time BBH may invest a portion of the assets of itsdiscretionary investment advisory clients in the Fund. That investment by BBH on behalf of itsdiscretionary investment advisory clients in the Fund may be significant at times.

Increasing the Fund’s assets may enhance investment flexibility and diversification and may contribute toeconomies of scale that tend to reduce the Fund’s expense ratio. In selecting the Fund for its discretionaryinvestment advisory clients, BBH may limit its selection to funds managed by BBH or the InvestmentAdviser. BBH may not consider or canvass the universe of unaffiliated investment companies available,even though there may be unaffiliated investment companies that may be more appropriate or that havesuperior performance. BBH, the Investment Adviser and their affiliates providing services to the Fundbenefit from additional fees when the Fund is included as an investment by a discretionary investmentadvisory client.

BBH reserves the right to redeem at any time some or all of the shares of the Fund acquired for itsdiscretionary investment advisory clients’ accounts. A large redemption of shares of the Fund by BBH on



36

behalf of its discretionary investment advisory clients could significantly reduce the asset size of the Fund,which might have an adverse effect on the Fund’s investment flexibility, portfolio diversification andexpense ratio.

Valuation. When market quotations are not readily available, or are believed by BBH to be unreliable, theFund’s investments may be valued at fair value by BBH pursuant to procedures adopted by the Fund’sBoard of Trustees. When determining an asset’s “fair value,” BBH seeks to determine the price that aFund might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction.The price generally may not be determined based on what the Fund might reasonably expect to receive forselling an asset at a later time or if it holds the asset to maturity. While fair value determinations will bebased upon all available factors that BBH deems relevant at the time of the determination, and may bebased on analytical values determined by BBH using proprietary or third party valuation models, fair valuerepresents only a good faith approximation of the value of a security. The fair value of one or moresecurities may not, in retrospect, be the price at which those assets could have been sold during theperiod in which the particular fair values were used in determining the Fund’s net asset value. As a result,the Fund’s sale or redemption of its shares at net asset value, at a time when a holding or holdings arevalued by BBH (pursuant to Board-adopted procedures) at fair value, may have the effect of diluting orincreasing the economic interest of existing shareholders.

Referral Arrangements. BBH may enter into advisory and/or referral arrangements with third parties.Such arrangements may include compensation paid by BBH to the third party. BBH may pay a solicitationfee for referrals and/or advisory or incentive fees. BBH may benefit from increased amounts of assetsunder management.

Personal Trading. BBH, including the Investment Adviser, and any of their respective partners,principals, directors, officers, employees, affiliates or agents, face conflicts of interest when transactingin securities for their own accounts because they could benefit by trading in the same securities as theFund, which could have an adverse effect on the Fund.

Gifts and Entertainment. From time to time, employees of BBH, including the Investment Adviser, andany of their respective partners, principals, directors, officers, employees, affiliates or agents, may receivegifts and/or entertainment from clients, intermediaries, or service providers to the Fund or BBH, includingthe Investment Adviser, which could have the appearance of affecting or may potentially affect thejudgment of the employees, or the manner in which they conduct business.




The Fund hereby designates $705,293 as an approximate amount of capital gain dividend for the purposeof dividends paid deduction.

The qualified investment income (QII) percentage for the year ended October 31, 2017 was 100%. InJanuary 2018, shareholders will receive Form 1099-DIV, which will include their share of qualifieddividends distributed during the calendar year 2017. Shareholders are advised to check with their taxadvisers for information on the treatment of these amounts on their individual income tax returns.


ADDITIONAL FEDERAL TAX INFORMATIONOctober 31, 2017 (unaudited)

38

Information pertaining to the Trustees and executive officers of the BBH Trust is set forth below. Themailing address for each Trustee is c/o BBH Trust, 140 Broadway, New York, NY 10005.

Name andBirth Year

Position(s)Held withthe Trust

Term ofOffice andLength ofTimeServed#

Principal Occupation(s)During Past 5 Years

Number ofPortfoliosin FundComplexOverseenby Trustee^

Other PublicCompany orInvestmentCompanyDirectorshipsheld byTrusteeDuring Past5 Years

Independent Trustees

H. Whitney WagnerBirth Year: 1956

Chairman ofthe Boardand Trustee

ChairmanSince 2014;TrusteeSince 2007and 2006-2007 withthePredecessorTrust

President, Clear BrookAdvisors, a registeredinvestment adviser.

6 None.

Andrew S. FrazierBirth Year: 1948

Trustee Since 2010 Consultant to Western WorldInsurance Group, Inc.(“WWIG”) (January 2010 toJanuary 2012).

6 Director ofWWIG.

Mark M. CollinsBirth Year: 1956

Trustee Since 2011 Partner of Brown InvestmentAdvisory Incorporated, aregistered investment adviser.

6 Chairman ofDillon TrustCompany.

John M. TesoroBirth Year: 1952

Trustee Since 2014 Partner, Certified PublicAccountant, KPMG LLP(Retired in September 2012).

6 Trustee,BridgeBuilder Trust(8 Funds)Director;TetonAdvisors, Inc.(a registeredinvestmentadviser).

TRUSTEES AND OFFICERS OF BBH INTERMEDIATE MUNICIPAL BOND FUND

(unaudited)


Name, Addressand Birth Year



Principal Occupation(s)During Past 5 Years

Number ofPortfoliosin FundComplexOverseenby Trustee^

Other PublicCompany orInvestmentCompanyDirectorshipsheld byTrusteeDuring Past5 Years

Interested Trustees

Susan C. Livingston+50 Post Office SquareBoston, MA 02110Birth Year: 1957

Trustee Since 2011 Partner (since 1998) andSenior Client Advocate (since2010) for BBH&Co.; Directorof BBH Luxembourg S.C.A.(since 1992).

6 None.

John A. Gehret+140 BroadwayNew York, NY 10005Birth Year: 1959

Trustee Since 2011 Limited Partner of BBH&Co.(2012-present); GeneralPartner of BBH&Co. (1998 to2011). Director of BBHLuxembourg S.C.A. (since2012); Director of BBH Trust(Cayman) Company Ltd. (since2012).

6 None.


(unaudited)

40




Principal Occupation(s) DuringPast 5 Years

Officers

Jean-Pierre Paquin140 BroadwayNew York, NY 10005Birth Year: 1973

President andPrincipalExecutiveOfficer

Since 2016 Partner of BBH&Co. since 2015; joined BBH&Co. in 1996.

Daniel Greifenkamp140 BroadwayNew York, NY 10005Birth Year: 1969

VicePresident

Since 2016 Managing Director of BBH&Co. since 2014; joined BBH&Co.in 2011.

Charles H. Schreiber140 BroadwayNew York, NY 10005Birth Year: 1957

Treasurer andPrincipalFinancialOfficer

Since 20072006-2007with thePredecessorTrust

Senior Vice President of BBH&Co. since 2001; joinedBBH&Co. in 1999.

Paul F. Gallagher140 BroadwayNew York, NY 10005Birth Year: 1959

ChiefComplianceOfficer(“CCO”)

Since 2015 Senior Vice President of BBH&Co. since September 2015;Executive Director, Counsel, Morgan Stanley Smith BarneyLLC (2009-September 2015).

Keith M. Kelley140 BroadwayNew York, NY 10005Birth Year: 1983

Anti-MoneyLaunderingOfficer(“AMLO”)

Since 2016 Vice President of BBH&Co. since February 2016; joinedBBH&Co. in 2016; Director, Legal and Compliance, MorganStanley Smith Barney LLC (2014-February 2016); ComplianceManager, State Street Corporation (2013-2014); Associate,J.P. Morgan Chase & Co. (2011-2013).


(unaudited)





Principal Occupation(s) DuringPast 5 Years

Suzan M. Barron50 Post Office SquareBoston, MA 02110Birth Year: 1964

Secretary Since 2009 Senior Vice President and Senior Investor Services Counsel,BBH&Co. since 2005.

Rowena Rothman140 BroadwayNew York, NY 10005Birth Year: 1967

AssistantTreasurer

Since 2011 Vice President of BBH&Co. since 2009.

# All officers of the Trust hold office for one year and until their respective successors are chosen and qualified(subject to the ability of the Trustees to remove any officer in accordance with the Trust’s By-laws). Mr. Wagnerpreviously served on the Board of Trustees of the Predecessor Trust.

+ Ms. Livingston and Mr. Gehret are “interested persons” of the Trust as defined in the 1940 Act because of theirpositions as Partner and Limited Partner of BBH&Co., respectively.

^ The Fund Complex consists of the Trust, which has six series, and each is counted as one “Portfolio” for purposesof this table.


(unaudited)

42

AdministratorBrown Brothers Harriman & Co.140 BroadwayNew York, NY 10005

DistributorALPS Distributors, Inc.1290 Broadway, Suite 1100Denver, CO 80203

Shareholder Servicing AgentBrown Brothers Harriman & Co.140 BroadwayNew York, NY 100051-800-575-1265

Investment AdviserBrown Brothers Harriman

Mutual Fund AdvisoryDepartment

140 BroadwayNew York, NY 10005

To obtain information or make shareholder inquiries:By telephone: Call 1-800-575-1265By E-mail send your request to: [email protected] the internet: www.bbhfunds.comThis report is submitted for the general information of shareholders and is not authorized fordistribution to prospective investors unless preceded or accompanied by an effective prospectus.Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buyshares of the Fund.For more complete information, visit www.bbhfunds.com for a prospectus. You should consider the Fund’sinvestment objectives, risks, charges and expenses carefully before you invest. Information about these andother important subjects is in the Fund’s prospectus, which you should read carefully before investing.Opinions, forecasts, and discussions about investment strategies represent Fund management’s views as ofthe date of this commentary and are subject to change without notice. References to specific securities, assetclasses, and financial markets are for illustrative purposes only and are not intended to be, and should notbe interpreted as recommendations.Holdings and allocations are subject to change. Fund holdings should not be relied on in making investmentdecisions and should not be construed as research or investment advice regarding particular securities. Currentand future holdings are subject to risk.The Fund files with the Securities and Exchange Commission (“SEC”) a complete schedule of its portfolioholdings, as of the close of the first and third quarters of its year, on “Form N-Q.” Information on Form N-Qis available without charge and upon request by calling the Funds at the toll-free number listed above. A textonly version can be viewed online or downloaded from the SEC’s website at http://www.sec.gov; and maybe reviewed and copied at the SEC’s Public Reference Room in Washington, DC (call 1-800-SEC-0330 forinformation on the operation of the Public Reference Room). You may also access this information from theBBH Funds website at www.bbhfunds.com.A summary of the Fund’s Proxy Voting Policy that the Fund uses to determine how to vote proxies, if any, relatingto securities held in the Fund’s portfolio, as well as a record of how the Fund voted any such proxies duringthe most recent 12-month period ended June 30, is available, without charge, upon request by calling the toll-free number listed above. This information is also available on the SEC’s website at www.sec.gov.

NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE

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