Brown Advisory Funds N-CSRCertified annual shareholder report (management investment company)

Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Fund's annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website (www.brownadvisory.com/mf/how-to-invest), and you will be notified by mail each time a report is posted and provided with a website link to access the report.

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You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the Fund, you can call (800) 540-6807 to let the Fund know you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper will apply to all Funds held in your account if you invest through your financial intermediary or all Funds held with the fund complex if you invest directly with the Funds.

The Global Industry Classification Standard (GICS^®) was developed by and is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS^® is a service mark of MSCI, Inc. and S&P and has been licensed for use by the Administrator, U.S. Bancorp Fund Services, LLC.

Alpha refers to the abnormal rate of return on a security or portfolio in excess of what would be predicted by an equilibrium model like the capital asset pricing model (CAPM).

Bloomberg Barclays 1-10 Year Blended Municipal Bond Index is a market index of high quality, domestic fixed income securities with maturities of less than 10 years.

Bloomberg Barclays Intermediate US Aggregate Bond Index represents domestic taxable investment-grade bonds with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities with average maturities and durations in the intermediate range. This index represents a sector of the Bloomberg Barclays US Aggregate Bond Index.

Bloomberg Barclays Mortgage Backed Securities Index is a market value-weighted index which covers the mortgage-backed securities component of the Bloomberg Barclays US Aggregate Bond Index. The index is composed of agency mortgage-backed passthrough securities of the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac) with a minimum $150 million par amount outstanding and a weighted-average maturity of at least 1 year. The index includes reinvestment of income.

Bloomberg Barclays US Aggregate Bond Index is a broad-based benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.  The index includes Treasuries, government-related and corporate securities, MBS, ABS and CMBS.

Bloomberg Barclays US Corporate High Yield Index measures the US Dollar denominated, high-yield, fixed-rate corporate bond market.

Basis point(s) (bps) is a unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security. 1% is equal to 100 basis points.

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

Book value is the net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities.

CAPEX, or capital expenditures, are funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. It is often used to undertake new projects or investments by the firm. This type of outlay is also made by companies to maintain or increase the scope of their operations.

Cash flow measures the cash generating capability of a company by adding non-cash charges (e.g. depreciation) and interest expense to pretax income.

Correlation is a statistical measurement of how two securities move in relation to each other.

Dividend Yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock.

Downside Capture is a statistical measure of a fund’s performance in down markets. For example, a fund with downside capture of 90% would only have declined 90% as much as the related index during the same down market period.

Duration is a measure of the sensitivity of the price of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years.

Earnings growth is a measure of growth in a company’s net income over a specific period, often one year. The term can apply to actual data from previous periods or estimated data for future periods.

Earnings per share (EPS) is calculated by taking the total earnings divided by the number of shares outstanding.

Earnings Yield is the earnings per share for the most recent 12-month period divided by the current market price per share. The earnings yield shows the percentage of each dollar invested in the stock that was earned by the company.

EBITDA is the Earnings Before Interest, Taxes, Depreciation and Amortization. An approximate measure of a company’s operating cash flow based on data from the company’s income statement.

Enterprise Value (EV) is a measure of a company’s value, often used as an alternative to straightforward market capitalization. Enterprise Value is calculated as market capitalization plus debt, minority interest and preferred shares, minus total cash and cash equivalents.

FTSE All-World Index is a market capitalization weighted index representing the performance of large and mid-capitalization stocks from the FTSE Global Equity Index Series.

FTSE Emerging Index is a market capitalization weighted index representing the performance of over 790 large and mid-capitalization companies in 22 emerging markets.

Forward price to earnings ratio uses forecasted earnings, rather than current earnings, to calculate the price to earnings ratio.

Free Cash Flow is the operating cash flows (net income plus amortization and depreciation) minus capital expenditures and dividends. Free cash flow is the amount of cash that a company has left over after it has paid all of its expenses, including investments.

Gross Domestic Product (GDP) is the monetary value of all the goods and services produced by an economy over a specified period. It includes consumption, government purchases, investments, and exports minus imports.

ICE BofAML 0-3 Month US Treasury Bill Index is a subset of the ICE BofAML US Treasury Bill Index and includes all securities with a remaining term to final maturity less than 3 months.

MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

MSCI Emerging Markets Small Cap Index is a free float-adjusted market capitalization index that is designed to measure small cap equity market performance in the global emerging markets.

MSCI Europe Index is an index that captures large and mid cap representation across 15 developed market countries in Europe.

Positive Convexity is a measure describing the sensitivity of a bond’s duration to changes in yield where a fall in yields leads to a greater increase in price than price declines due to an increase in yields providing downside protection for investors.

Price to Book Value Ratio (P/B) is ratio used to compare a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share.

Price to earnings ratio (P/E) is a common tool for comparing the prices of different common stocks and is calculated by dividing the current market price of a stock by the earnings per share.

Quantitative Easing is an expansionary monetary policy implemented by a central bank aiming to increase the money supply and decrease interest rates by buying bonds in order to inject liquidity into the economy.

Return of Capital (ROC) is a return from an investment that is not considered income. The return of capital is when some or all of the money an investor has in an investment is paid back to him or her, thus decreasing the value of the investment.

Return on Capital Employed (ROCE) is a financial ratio that measures a company’s profitability and the efficiency with which its capital is employed. Return on Capital Employed (ROCE) is calculated as:  ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed.

Return on Equity (ROE) is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.

Return on Invested Capital (ROIC) is a calculation used to assess a company’s efficiency at allocating the capital under its control to profitable investments. ROIC is typically calculated by taking a company’s net income, subtracting dividends the company paid out and dividing that amount by the company’s total capital.

Russell Midcap Growth Index measures the performance of the mid-capitalization growth sector of the U.S. equity market.

Russell 1000^® Growth Index measures the performance of the large-cap growth segment of the of the U.S. equity universe. It includes those Russell 1000^® companies with higher price to book value ratios and higher forecasted growth values.

Russell 1000^® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000^® companies with lower price to book value ratios and lower expected growth values.

Russell 2000^® Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000^® companies with higher price to book value ratios and higher forecasted growth values.

Russell 2000^® Index measures the performance of the 2,000 smallest companies in the Russell 3000^® Index.

Russell 2000^® Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000^® companies with lower price to book value ratios and lower forecasted growth values.

Russell 3000^® Index measures the performance of the 3,000 largest U.S. companies representing approximately 98% of the investable U.S. equity market.

S&P 500 Index (“S&P 500”) is a market-value weighted index representing the performance of 500 widely held, publicly traded large capitalization stocks.

Tangible Book Value (“TBV”) is a valuation ratio expressing the price of a security compared to its hard, or tangible, book value as reported in the company’s balance sheet. The tangible book value number is equal to the company’s total book value less the value of any intangible assets.

Tier 1 Capital Ratio is a comparison between a banking firm’s core equity capital and total risk-weighted assets. A firm’s core equity capital is known as its Tier 1 capital and is the measure of a bank’s financial strength based on the sum of its equity capital and disclosed reserves, and sometimes non-redeemable, non-cumulative preferred stock. A firm’s risk-weighted assets include all assets that the firm holds that are systematically weighted for credit risk. Central banks typically develop the weighting scale for different asset classes, such as cash and coins, which have zero risk, versus a letter or credit, which carries more risk.

Turnover refers to a fund buying or selling securities. (The fund “turns over” its portfolio.) A fund pays transaction costs, such as commissions, when it buys and sells securities. Additionally, a higher turnover rate may result in higher taxes when the fund shares are held in a taxable account.

Yield Curve is a line that plots the yields of securities having equal credit quality but different maturity dates.

Yield Spread is the difference between yields on differing securities, calculated by deducting the yield of one security from another.

The broad based market indexes referenced in the following management commentaries are considered representative of their indicated market, the indexes are unmanaged and do not reflect the deduction of fees, such as, investment management and fund accounting fees, or taxes associated with a mutual fund. Investors cannot invest directly in an index.

Dear Shareholders:

During the year ended June 30, 2020, the Brown Advisory Growth Equity Fund – Investor Shares (the “Fund”) increased 22.70% in value. During the same period, the Russell 1000^® Growth Index (the “Index”), the Fund’s benchmark, increased 23.28%.

Equity markets have been quite volatile over this twelve month period as the COVID-19 pandemic put a damper on one the longest running bull markets of all time. Stocks plunged in response to the potential havoc that the pandemic is wreaking on the global economy.  However, despite the murky economic backdrop, the stock market staged a dramatic rebound, driven in large part by mega-capitalization stocks such as Apple, Microsoft, and Amazon. After the initial drawdown the Index posted its largest gain on record in the second quarter of 2020. The Fund managed to keep pace with the rebound and given the defensiveness that the portfolio exhibited during the downdraft, we are satisfied with the relative performance of the portfolio during this period.

Health care was the biggest positive contributor on a relative basis. Dexcom’s performance has been simply amazing in its resiliency, with the stock up 170% over this period. Continuous glucose monitoring (CGM) has rapidly become the standard of care for diabetics to better manage their disease. Fundamental results have been better than expected as diabetes has been designated a co-morbidity factor with COVID-19. Intuitive Surgical and Edwards Lifesciences underperformed as hospitals redirected resources to fighting the virus and many non-emergency procedures such as hernia repairs were delayed. We believe that roughly half of Intuitive’s procedure volume is considered elective and could be delayed. This will undoubtedly negatively impact volumes and revenue in the near term. However, this is not a situation where competitive dynamics have shifted. The global trend toward robotically assisted surgery has a long way to go and Intuitive Surgical Inc. (ISRG) remains the industry leader. Edwards Lifesciences is experiencing a similar slowdown for its minimally invasive heart valve procedure. A heart valve procedure can only be delayed so long before it will become an emergency condition for a patient. Again, this is not a function of heart surgeons opting for another solution, but rather it is a temporary delay of a lifesaving treatment.

Technology was the biggest drag from a relative perspective due in part to the underweight to Apple and Microsoft.  Apple does not meet our growth criteria; however, it now comprises more than 10% of the benchmark. Microsoft is a business model that we quite like, yet at more than 10% of the benchmark, it can be a drag on performance from a relative perspective. Genpact traded down on concerns that its operations in India could be hindered by government actions to contain the virus. The company has contingency plans in place, including the ability for a significant portion of employees to work from home. These plans should enable the company to continue to provide services to its customers, and we believe the stock reaction is overblown.

Some of the portfolio holdings have been hit harder by the pandemic than others, such as industrial company Fortive.  We believe the company can weather the COVID-19 storm given its strong balance sheet and having the financial flexibility to navigate near-term disruption to its end markets. We are keenly focused on avoiding companies with existential risk during this period and do not believe this to be the case with any of our current portfolio holdings.

We maintain a fully invested portfolio. With that in mind, we have been patient with respect to portfolio trading activity. During short periods of heightened uncertainty we become keenly focused on the opportunities that arise due to pricing anomalies. This includes not just looking for new stocks that come into our price range. It also requires being fairly ruthless in trimming, or selling companies within the portfolio, in order to put more capital into our very best investment ideas, where the market has perhaps overreacted. One example is the elimination of our position in online travel (OTA) company Booking Holdings Inc. The OTA industry has become more competitive and more mature which has led to slowing growth for all participants. Given the prevailing negative backdrop on top of the recent malaise for travel, our confidence in the company’s ability to meet our growth requirements for this portfolio was severely diminished. We also took advantage of the volatility by swapping out of our position in TJX Companies into Lululemon Athletica. While nothing at TJX was broken, our action was purely an upgrade from one good business model into an even better one, in our view. We believe Lululemon has an exceptional business model within the athleisure apparel space. The company has complete control over its product line distribution which is rather unique for an apparel company. This gives the company a favorable margin structure coupled with a fast growing top line.  As compared to TJX, Lululemon also benefits from a higher percentage of sales from ecommerce which is becoming even more important both in the near and long term.

The stock market has clearly favored a handful of stocks that are the most obvious beneficiaries of the current environment. Some refer to this phenomenon as the fear of missing out (FOMO) trade as new investors bid up prices of technology and consumer stocks like Amazon as they rebounded.  Currently, the top five stocks in the Index account for nearly 37% of the total market capitalization of the Index. The portfolio has been and continues to be exposed to some of these stocks and the positive trends

they enjoy. However, we remain unwavering to the pillars of our investment process as they pertain to position sizing, diversification, and our valuation discipline. As such, we are comfortable with the underweight to mega-capitalization stocks. We have seen these kinds of movies before and they always seem to end the same way.

Sincerely,

Kenneth M. Stuzin, CFA

Portfolio Manager

Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.

Definitions for terms and indices are provided in the Glossary of Terms.

The following chart reflects the change in value of a hypothetical $10,000 investment, including reinvested dividends and distributions, in the Fund as measured against broad-based securities market indices. The Russell 1000^® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000^® companies with higher price to book ratios and higher forecasted growth values. The S&P 500 Index is a market-value weighted index representing the performance of 500 widely held, publicly traded large capitalization stocks. The indexes are unmanaged and do not reflect the deduction of fees, such as investment management fees.  Investors cannot invest directly in an index.

Dear Shareholders:

During the year ended June 30, 2020, the Brown Advisory Flexible Equity Fund – Investor Shares (the “Fund”) increased 11.12% in value. During the same period, the S&P 500^® Index (the “Index”), the Fund’s benchmark, increased 7.51%.

The Index peaked at 3,386 on February 19—before the ferocious selling related to the COVID-19 pandemic. The Index bottomed at 2,237 on March 23, at which point the markets were down approximately 34% from the peak in 23 trading days. Since hitting the bottom, we saw a sharp rebound and by June 8 the Index had recovered all of its losses for the year. This is one of the sharpest corrections and fastest rebounds on record. The Fund fell behind the benchmark during the market decline but surpassed the benchmark during the current upswing.

Stock selection was a more meaningful contributor to the return than our sector allocation relative to the Index. Consumer discretionary, consumer staples and real estate contributed the most to the portfolio’s return relative to the Index due to a higher return than the benchmark. Energy also detracted from the return relative to the Index. While the weightings were similar, the holdings in the portfolio did not increase as much as those in the Index.

The biggest contributors to returns in the twelve-month period were Microsoft Corp., a leading technology services and software business, Apple Inc., a manufacturer of various personal digital, computing and communications devices, Lowe’s Companies, Inc., a leading home improvement retailer, PayPal Holdings, Inc., a digital payments company and Facebook, a leader in social media. These companies achieved strong business results and we continue to like their long-term prospects.

The largest detractors to returns were Delta Air Lines, an airline, Berkshire Hathaway, Inc., a diversified insurance and industrial company (Warren Buffett’s company), Cimarex Energy Co., an independent oil and gas exploration and production company, Suncor Energy, an integrated Canadian energy company and Kinder Morgan, a pipeline transportation company. Delta Air Lines declined sharply with the severe disruptions in travel. Berkshire Hathaway modestly detracted from the portfolio’s return, after reporting results that underwhelmed investors. The effect of COVID-19 on the economy negatively impacted the company’s earnings. The three energy-related holdings were challenged by lower crude oil prices and poor investor sentiment toward the sector. We eliminated small holding Cimarex Energy in favor of consolidating our oil related investments by adding to Suncor Energy which we believe is a stronger company to own with oil prices at a low. We sold Delta Air Lines due to the extremely difficult present time for the airline industry.

Our level of activity picked up during the market declines in the first and second quarters. The broad market sell-off allowed us to make investments in new businesses that we believed were fundamentally attractive, but had refrained from buying due to their high share prices. We added four new investments and eliminated five since our December 31, 2019 Semi-Annual Report to shareholders. In addition to these purchases and sales, new holdings Raytheon Technologies Corp., Carrier Global Corp. and Otis Worldwide Corp. were the result of the acquisition of Raytheon Company by United Technologies Corp., a portfolio holding, and the subsequent spin-offs of the Carrier (air conditioning) and Otis (elevator) businesses. We purchased additional shares of Carrier Global Corp. as it was trading at a significant discount to its peer companies.

We initiated a new position in Analog Devices, funded by the elimination of Broadcom. Both are semiconductor companies. We believe that Analog Devices has one of the stronger business models in the semiconductor industry, with high margins and better future growth prospects, in our view. Broadcom’s business strategy shifted since our purchase, leading us to prefer Analog Devices.

We exited Charles Schwab as its earnings will be under pressure due to the low interest rate environment. We eliminated Wells Fargo in favor of investing in Blackstone Group. We believe that Blackstone has the strongest platform among alternative asset managers and is likely to benefit from the prevailing low interest rate environment. Wells Fargo’s growth has been limited by consent decrees that stemmed from the fraudulent opening of new accounts.

We added Dollar Tree, an American retail chain operating a variety of discount stores. The company has faced challenges delivering on expected synergies from its 2015 acquisition of Family Dollar. We believe the management team has initiatives in place to improve comparable sales and margins at Family Dollar to realize value.

We purchased Intuit, the leader of accounting solutions for small businesses (QuickBooks) and tax preparation solutions for consumers (TurboTax). We believe that Intuit has a large addressable market, dominant position, wide moat and a strong balance sheet.

We were able to execute on these new investments in a relatively short timeframe, as we had already completed in-depth research and analysis in previous months. We were patiently waiting for attractive prices and the sell-off gave us the opportunity to execute. Had we foreseen the pandemic, we would have unloaded our investment in Delta Airlines and lightened up on our exposure in banks earlier. Nevertheless, there were opportunities to do so in March and April, when there was overreaction and bounce backs. Prices generally respond to news headlines—slowly at first perhaps—but once the news becomes widespread it is definitely priced in—sometimes too much so. We added to stocks as prices declined, picked up new holdings and added to some existing holdings that had declined too much and exited some where we felt the future became less attractive or less clear for longer. We are pleased to report that the changes we executed have contributed positively to the portfolio performance.

During these volatile times, it has become a recurring theme of our letters to remind readers that it is difficult to predict where the market is going next week, next month or next year—though we expect an upward bias over time, based on long-term economic progress. As we have said before, getting out at the peak and getting back in at the bottom is mostly a fool’s errand and not something we contemplate. The quick reversal of the market in a short period is a testament that it is time, and not timing, that usually works in favor of long-term equity investors.

The recent equity market rebound should by no means lull one into believing that problems related to the health and financial crises are behind us. Virtually every country in the Western Hemisphere has been in a lockdown for most of the quarter, which has caused tremendous economic pain in many sectors of the economy and has resulted in unprecedented levels of unemployment from which the world has yet to recover. In the U.S., real gross domestic product (GDP) declined at a 5% annual rate in the first quarter of the year and is likely to contract at an unprecedented pace in the second quarter. The unemployment rate has swung from a 50-year low in February at 3.5%, to an 80-year high in April at 14.7%.

The odds of the market or the economy rebounding to the extent it has would be slim had the Federal Reserve and our elected officials not responded in a big and decisive way in a matter of days by supporting the incomes of households and small businesses. The Fed stepped in to support the flow of credit to households and companies, lowered interest rates to near zero and calmed down international dollar funding markets.

In addition, Congress voted to distribute approximately $2.9 trillion, about 14% of U.S. GDP, in COVID-19 relief. The forcefulness of the actions by central banks and governments have helped reduce the stress that could have amplified the shock associated with the shutdown of the vast swaths of the global economy. We agree with Warren Buffett that we collectively owe a huge debt of gratitude to the Federal Reserve for acting strongly in March and since then. Buffett is convinced that the U.S. will do fine over the long-term. Buffett notes that since the United States’ founding in 1789, it has always been a mistake to bet against America—the American miracle, or the American experiment, has always come through. If a person could pick any time and place in history to be born, America at the present time would be it.

We are also tremendously grateful to the medical staff in hospitals, who are still responding to the ongoing spread of the virus in the U.S.

We usually close our written commentaries with the following statement about our investment approach.

We search for investment bargains among long-term attractive businesses with shareholder-oriented managers—those with productive assets and productive managers. These businesses should have or develop competitive advantages that result in good business economics, managers who allocate capital well, capacity to adjust to changes in the world and the ability to grow business value over time.  Bargains in these types of stocks can arise for various reasons, but are often due to short-term investor perceptions, temporary business challenges that will improve, company or industry changes for the better or as-yet-unrecognized potential for long-term growth and development. Despite the occasional investment that will go awry and stretches when the general stock market is unrewarding, we are optimistic about the long-term outlook for equities of good businesses purchased at reasonable prices and our ability to find them.

Sincerely,

Maneesh Bajaj, CFA

Portfolio Manager

Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.

Definitions for terms and indices are provided in the Glossary of Terms.

The following chart reflects the change in value of a hypothetical $10,000 investment, including reinvested dividends and distributions, in the Fund as measured against the broad-based securities market index. The S&P 500 Index (“Index”) is a market-value weighted index representing the performance of 500 widely held, publicly traded large capitalization stocks. The Index is unmanaged and does not reflect the deduction of fees, such as investment management fees.  Investors cannot invest directly in an index.

Dear Shareholders:

During the year ended June 30, 2020, the Brown Advisory Equity Income Fund – Investor Shares (the “Fund”) increased 0.24% in value. During the same period, the S&P 500^® Index (the “Index”), the Fund’s benchmark, increased 7.51%.

The past 12 months was certainly a historically unusual period for the U.S. stock market. In particular, the second half of the year will be remembered as one of the most volatile periods for investors in recent memory as stocks dropped sharply amid the COVID-19-related business shutdowns. Then, in the final months of the period, stocks rallied just as sharply as investors responded positively to various government actions to contend with the pandemic.

The information technology sector, which is the largest single sector in the Index, played an outsized role in determining the Index’s overall return during the period. Information technology was far and away the best performing sector in the Index, rising 36% compared to the 12% return of the next best sector, which was consumer discretionary. A number of the Fund’s information technology holdings performed well. For instance, Microsoft and Apple both benefitted from the global shift to remote working and distance learning brought on by the pandemic. However, the Fund’s holdings overall in the sector failed to keep pace with the benchmark’s impressive advance.

In contrast to the information technology sector’s attractive results, many other sectors were severely impacted and disrupted by the pandemic. In several instances, the reduced near-term earnings outlook resulted in changes to a company’s stated dividend policy and subsequently prompted changes to the Fund’s holdings. In consumer discretionary, jeanswear maker Kontoor Brands was eliminated prior to the eventual suspension of its dividend. Similarly in the real estate sector, timber products company Weyerhaeuser was eliminated after the unexpected suspension of its dividend. In industrials, Carrier Global was eliminated after the HVAC systems company initially refrained from instituting a dividend upon its separation from previous holding United Technologies. And in the energy sector, oil and gas producer Occidental Petroleum was eliminated after weaker commodity prices resulted in a large reduction in its dividend.

In other instances, the gyrating stock market created opportunities to upgrade the Fund into new holdings with better near-term cash flow stability and superior long-term growth prospects versus prior holdings in our view. Semiconductor maker Analog Devices was added and fellow chip maker Broadcom was sold. Outsourced nursing home services provider Healthcare Services Group was eliminated in favor of a new position in managed care services company UnitedHealth Group. Broadline retailer Target was added and replaced apparel company VF Corp and luxury retailer Tiffany & Co., which received an acquisition offer from a rival. Bank holding company Wells Fargo was sold while asset managers T. Rowe Price Group and Blackstone Group were added. Elsewhere, railroad operator Canadian National Railway was added and agricultural products company Corteva and materials company DuPont de Nemours were both eliminated.

Late in the year, the Fund acquired a small position in a mandatory convertible preferred security with an attractive annual coupon issued by medical products supplier Becton, Dickinson & Co. The purchase marked the Fund’s first non-common stock purchase in several years. As companies adjust to the new operating environment presented by the COVID-19 pandemic, there may be additional opportunities to add similar securities with attractive yields in the months to come.

Dividend growth has been a hallmark of the Fund for the past several years and remains an important consideration when assessing any individual investment opportunity. However, it is reasonable to expect that the overall rate of dividend growth will slow for both the Fund and the Index until the global economy fully recovers from the ongoing COVID-19 pandemic. While the ultimate trajectory of the economic recovery remains uncertain, the Fund’s investment process and core objective remain unchanged. As always, the goal is to construct the best possible portfolio of investments offering above-average yields with a strong potential for future growth at reasonable valuations.

Sincerely,

Brian Graney, CFA

Portfolio Manager

Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.

Definitions for terms and indices are provided in the Glossary of Terms.

The following chart reflects the change in value of a hypothetical $10,000 investment, including reinvested dividends and distributions, in the Fund as measured against a broad-based securities market index. The S&P 500 Index (“Index”) is a market-value weighted index representing the performance of 500 widely held, publicly traded large capitalization stocks. The Index is unmanaged and does not reflect the deduction of fees, such as investment management fees. Investors cannot invest directly in an index.

ADR — American Depositary Receipt

Dear Shareholders:

During the year ended June 30, 2020, the Brown Advisory Sustainable Growth Fund – Institutional Shares (the “Fund”) increased 22.01% in value. During the same period, the Russell 1000^® Growth Index (the “Index”), the Fund’s benchmark, increased 23.28%.

We are pleased to have performed in line with the Index during a period marked by tremendous volatility and uncertainty.  Our stock selection remained strong and we added value in health care, industrials, real estate and communication services. Outperformance from these sectors, on a stock specific basis, more than offset underperformance in consumer discretionary, information technology, consumer staples and materials. Sector allocation was a headwind to performance during the period. Our underweight to information technology and our overweight to materials detracted from performance.

The coronavirus epidemic is a terrible human tragedy and we are deeply saddened by the tremendous suffering caused by this event. Our hearts go out to all those affected. The world has been transformed in ways we never would have imagined. Given the uncertainty caused by COVID-19, investor sentiment reflected in the markets is increasingly unpredictable. There has been no shortage of new information—everything from the massive fiscal stimulus to a new surge of COVID-19 hospitalizations. The turmoil that reached a peak in the U.S. at the end of the first quarter crested even higher with world-wide civil protests calling for racial justice.  While the macroeconomic environment remains fluid and is always uncertain, our focus remains unchanged. We seek to identify fundamentally superior companies that are using sustainability strategies to drive strong financial performance.

Taking a closer look at the last twelve months, Amazon and Microsoft led performance but we also had strong results from some less well-known names including West Pharmaceutical Services, Monolithic Power Systems and Tyler Technologies.  West Pharmaceuticals, a leader in drug containment, reported a very strong first quarter and raised guidance.  The company is executing well and we expect more information throughout the remainder of the year on partnerships related to COVID-19 treatments and/or vaccines. Monolithic Power Systems reported solid quarterly results and backlog despite the coronavirus. Demand for the company’s energy-efficient, analog semiconductors continues to be broad-based across multiple end markets including auto, consumer, industrial and data center. Tyler Technologies reported solid growth within its municipal and local government end-market. As more customers demand cloud solutions to manage their information technology infrastructure, we believe Tyler will be in a leadership position to gain market share.

In terms of our largest detractors, Marriott International, Fortive and Unilever were our worst performers during the period. Marriott came under considerable pressure given the lockdown orders in the first half of the year.  The company faces tremendous uncertainty as to the future demand for travel. We sold Marriott during the first quarter and replaced it with Accenture which we believe has a more durable business model and less volatile growth rate. Fortive declined given that the company faces three critical challenges in the near-term: finalize the IPO of its retail fueling business (i.e. Vontier), manage through the cyclical downturn in its largest businesses (Fluke and Tektronix) and integrate its largest acquisition to date, Advanced Sterilization Products (ASP). We believe the management team is up to the task given it was trained in the Danaher Business System prior to the spin out from Danaher. We added to our position during the period. Unilever reported disappointing revenue growth particularly in the developed markets. The duration of share losses in key product areas remains unclear. We sold Unilever in the first quarter and replaced it with Starbucks which we believe has a faster growth rate going forward.

We added six new names to the portfolio during the last twelve months including Accenture, Bio-Rad Laboratories, Etsy, Nike, ServiceNow, and Starbucks.

Bio-Rad is a globally diversified manufacturer of life science and clinical diagnostic instruments, consumables, software and services. The company has leadership positions in DNA and cell analysis, bio-chromatography, blood typing, quality control, and consumables for infectious disease testing. We believe the company’s sustainable business advantage (SBA) advances the discovery process and ultimately improves health outcomes.

Nike is a global manufacturer of footwear and apparel. For the first time in recent memory, the company should be able to grow revenue and margins simultaneously. Margin improvement should come from the increased shift to direct-to-consumer sales, cost reductions, and pricing power. While a new CEO will have to prove himself, and with room to improve on some ESG characteristics, we believe the company has evolved from approaching sustainability as a reputation management issue, to embracing sustainability more broadly as a source of innovation and growth.

Etsy is an e-commerce marketplace that specializes in connecting buyers with personalized, unique, handmade, and vintage items.  Etsy has taken a leadership position in environmental performance and gender diversity. It is the first global e-commerce company to offset 100% of the carbon emissions generated from shipments on its platform and is on track to reach its goal of powering global operations with 100% renewable electricity by 2020.

ServiceNow is a software provider of information technology service management (ITSM) solutions for enterprises across the globe. ServiceNow helps enterprises become more productive and efficient which is its sustainable business advantage (SBA).  Its software helps increase the productivity of new hires and moves more legacy work processes to the cloud.

Starbucks is the premier roaster, marketer, and retailer of specialty coffee globally operating more than 32,000 company and licensed stores in 75 countries. We believe the strength of the brand, beverage-led innovation and digital/mobile investments should drive strong growth going forward. The company has a long history of building a reliable supply of high quality coffee given its focus on ethically-sourced coffee and Fair Trade.

Accenture is a global professional services company providing consulting and outsourcing services to large enterprises across the globe. With thousands of personnel devoted to helping clients solve sustainability challenges, we believe Accenture has the most coverage across the globe in sustainability relative to its peers.

As for deletions during the period, we eliminated Marriott, Unilever, and J.B. Hunt, Mettler-Toledo, Aptiv, and salesforce.com.  We sold Marriott, Aptiv and J.B. Hunt to lower our cyclical exposure and “upgrade” the portfolio into more durable businesses including Accenture, Etsy and Nike. We exited salesforce.com, Mettler-Toledo and Unilever in favor of three faster-growing companies: ServiceNow, Bio-Rad and Starbucks.

We maintain a disciplined process of discerning what we believe are high-quality names poised for steady success–even in uncertain operating environments. Sustainable growth requires management teams to be resilient against many challenges, including constraints on the natural environment and resources. Our deep sustainability research helps us identify the companies that for many years now have been making the right long-term investments toward their own long-term sustainability and growth.

While we enter the second half of calendar year 2020 with considerable macroeconomic and political uncertainty, we will maintain focus on our disciplined, repeatable formula for stock selection which we believe will enable us to provide attractive long-term returns.

Sincerely,

David Powell, CFA and Karina Funk, CFA

Portfolio Managers

Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.

Definitions for terms and indices are provided in the Glossary of Terms.

The following chart reflects the change in value of a hypothetical $1,000,000 investment, including reinvested dividends and distributions, in the Fund as measured against a broad-based securities market index. The Russell 1000^® Growth Index (“Index”) measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000^® companies with higher price to book ratios and higher forecasted growth values.  The Index is unmanaged and does not reflect the deduction of fees, such as investment management fees.  Investors cannot invest directly in an index.

Dear Shareholders:

During the year ended June 30, 2020, the Brown Advisory Mid-Cap Growth Fund – Investor Shares (the “Fund”) increased 5.46% in value. During the same period, the Russell Midcap Growth Index (the “Index”), the Fund’s benchmark, increased 11.91%.

The gains cited above smooth over a meaningful drawdown in U.S equity values in the month of March due to the global pandemic and a subsequent snapback in April, May, and June. During the entire one-year period, several market themes of recent years were surprisingly bolstered by the COVID-19 pandemic and governments’ responses to the crisis. Growth continued to outpace value, large-caps materially beat small-caps, and technology’s lead versus other sectors strengthened. Some trends eased, however. Notably, the yield on the U.S. ten-year Treasury fell 134 basis points to 0.65% and the price of oil was cut by approximately one third.

Most of these market characteristics are interrelated. In our view, investors have continuously paid more for growth in recent years as interest rates stayed low, required returns waned, and growth became scarce late in the cycle. The recent downturn caused by the COVID-19 pandemic surprisingly accentuated this trend. Many technology and health care companies are insulated or benefit from the pandemic’s distinct effects, including consumers sheltering in place, working from home, and vaccine development. Investors rotated into those sectors the past four months, pushing valuations—which we viewed as mildly stretched after the market’s run in 2019—even higher. Meanwhile, cyclicals, or any business requiring physical presence such as those in the travel, retail, and services sectors, have been significantly hindered by the same trends. Simply put, beneficiaries comprise a more meaningful portion of growth and larger-cap styles, while smaller-cap and value-oriented indexes tilt more towards cyclical businesses, rate sensitive financials, and those hindered by the current crisis.

The Fund’s underperformance during the trailing one-year period was concentrated in the last four months. While we detail contributors and detractors below, we believe our “valuation-sensitive” or “traditional growth” style has faced a headwind since February as, perhaps ironically, the market favored more “aggressive growth” approaches. Over the last two years, we invested more in “traditionally defensive” consumer and business-services companies instead of high-growth technology stocks as valuations extended late in the cycle. We believed the former offered superior opportunities over a three- to five-year period and, in some cases, less cyclicality. This bottom-up stock selection led to an underweight in technology. Given the sector’s outperformance, the underweight provided a headwind to the Fund’s relative returns in the past four months and over the entire twelve-month period covered by this review.

Most of our top contributors benefited from the pandemic’s effects captioned above, while the Fund’s largest detractors were hurt by them. Top contributors during the period included Dexcom (DXCM), Etsy (ETSY) and Marvell (MRVL). Dexcom’s (DXCM) shares outperformed largely attributed to continued strong revenue growth. Dexcom also benefited from investors’ views that its continuous glucose monitors (CGMs) were insulated from the COVID-19 pandemic as compared to many other medical device products which could be hurt by a steep decline in hospital admissions. The company also benefitted from investor hope that the pandemic might accelerate the adoption of its hospital-based CGM system. Gross merchandise sales (GMS) growth on Etsy’s (ETSY) marketplace accelerated meaningfully in April as consumers shifted to purchases online. On its first-quarter 2020 earnings call, management guided investors to an 80%-100% GMS growth in the second quarter, up from +32% year-over-year in the first quarter. Marvell (MRVL) posted strong results the last two quarters despite weakness in its storage segment due to COVID-19 as 5G deployments and cloud demand drove growth in its networking division.

The biggest detractors during the period included KAR Auction Services (KAR), Aptiv (APTV), and Marriott (MAR). KAR Auction Services’ share-price fell 44% in the first quarter of 2020 on COVID-19 worries. Stay-at-home policies reduced demand for new cars, which in turn hurts whole-car auctioneers. Marriott faced an unprecedented environment with stay-at-home orders affecting nearly all of its hotels; revenue per available room collapsed almost entirely. We sold our position after a significant bounce in March. We think travel may be hurt for a longer period of time by virus mitigation efforts and that business travel specifically may take longer to recover. Similarly, Aptiv’s exposure to the auto industry under COVID-19 restrictions hurt the stock. We sold our position late in the quarter to fund other opportunities with similar or better risk/reward profiles.

During the period, the Fund added eighteen investments and exited twenty-three positions. Dollar turnover remained within historical norms. Given our three- to five-year investment time-horizon, we expect turnover to range between 20% and 50% annually, depending on market conditions, portfolio needs, and investment opportunities.

Six of the new positions were in health care, three in consumer discretionary, three in information technology, two in industrials, two in communications services, one in consumer staples, and one in the materials sector. We took advantage of the recent drawdown to build positions in Bio-Rad (BIO), Dynatrace (DT), IHS Markit (INFO), Live Nation Entertainment (LYV), Lululemon Athletica (LULU), and Verisk Analytics (VRSK).  Most recently, the Fund purchased Ascendis Pharma (ASND), KLA Corp (KLAC), and Zynga (ZNGA). We also participated in four IPOs during the last twelve months: Datadog (DDOG), Inari Medical (NARI), Royalty Pharma (RPRX), and Shift4 Payments (FOUR).

Despite lower volatility and higher prices, we also found several opportunities to build new positions during the second half of 2019. We bought shares of pesticide-maker FMC Corp (FMC). We believe its business is undergoing a transformation that is not yet fully appreciated by the market. Specifically, we think diamide insecticides acquired from DuPont are growing in excess of other pesticides in FMC’s portfolio largely attributed to a secular shift away from chemicals that harm pollinators. We also think those products carry higher gross margins and can lift the corporate total over our three- to five-year investment time horizon. In addition to FMC, we also built positions in Five Below (FIVE), Bruker Corp (BRKR), Casey’s General Stores (CASY), and Health Equity (HQY).

We sold positions across a variety of sectors: seven in consumer discretionary, four in information technology, four in health care, three in industrials, two in consumer staples, two in financials, and one in the communications services sector. Typically, we sell for three reasons: valuation, structural (an acquisition, for instance), or fundamentals. We sold Fair Isaac (FICO), HEICO (HEI), and Tradeweb (TW) due to valuation. Pfizer acquired Array BioPharma (ARRY) in 2019. We sold a number of other positions throughout the last twelve months, mostly to fund new positions with, in our view, more attractive risk/reward profiles.

As always, we remain committed to achieving attractive risk-adjusted returns over a full market cycle by owning a diversified portfolio of companies that we believe could one day grow much larger. We are grateful for your support and look forward to updating you again.

Sincerely,

George Sakellaris, CFA

Portfolio Manager

Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.

Definitions for terms and indices are provided in the Glossary of Terms.

The following chart reflects the change in value of a hypothetical $10,000 investment, including reinvested dividends and distributions, in the Fund compared with the broad-based securities market index. The Russell Midcap Growth Index (“Index”) measures the performance of the mid-capitalization growth sector of the U.S. equity market. The Index is unmanaged and does not reflect the deduction of fees, such as investment management fees.  Investors cannot invest directly in an index.

Dear Shareholders:

During the year ended June 30, 2020 the Brown Advisory Small-Cap Growth Fund – Institutional Shares (the “Fund”) increased 2.18% in value. During the same period, The Russell 2000^® Growth Index (the “Index”), the Fund’s benchmark, increased 3.48%.

While security selection was generally strong throughout the period, returns were punctuated by two relatively distinct environments. The first six months were highlighted by a shift in leadership to very small-cap cyclicals and biotechnology issues. Given that these are areas where the portfolio carries a philosophical underweight, the portfolio underperformed. (It is also worth noting that the first half of calendar year 2019 was a time of meaningful portfolio outperformance, which likely led to some consolidation of absolute gains in the second half of 2019 calendar year.) In the last six months, equity markets were whipsawed by the outbreak of the COVID-19 pandemic. Stock prices experienced a decline and rally of historic proportions. Fortunately, the Fund was able to demonstrate solid downside protection in the late February and March swoon and had several above-average weight positions do exceedingly well during the recovery, allowing the portfolio to outperform. Thus, while it was an absolute and relative roller coaster ride for the full period, the portfolio held its own despite stylistic headwinds largely attributable to overall solid stock selection by our analytical team.

At present, the primary issue still gripping investors is the spread and lethality of the virus and its immediate and intermediate economic impacts. Although we always place great emphasis on portfolio diversification, our team is thinking deeply about our collection of holdings, attempting to achieve “balance” in these uncertain times. As a reminder, our mission is never to try and maximize returns for one given set of economic or market conditions. It is to deliver attractive long-term investment returns in the small-cap equity market, while taking on less risk to achieve that end. Instead of focusing on top-down factors, we aim to reach our goal by focusing our time and attention on finding high-quality, differentiated business franchises that we calculate have a higher-than-average probability of maturing into multi-year “compounders.” It is for this reason that we tend to protect capital reasonably well during volatile periods, but sometimes lag in pronounced “risk-on” environments. This dynamic has served the portfolio well over time and it is particularly important to embrace this ethos given the cross currents investors face today—a topic worth touching on in greater depth.

There has been a great deal written about the divergent paths of the U.S. economy and the U.S. stock market. The former is experiencing an unprecedented negative shock that is historic in nature, and the latter is experiencing a rally in (growth) stocks that is unrelenting. At its outset, the difficulty in assessing the impact of the pandemic on equity prices was that it was an exogenous shock of which both the depth and the duration was unknown. The low point in the market corresponded with this fact. The recovery in prices is linked to a near “goldilocks” combination of monetary and fiscal stimulus (measured in trillions of dollars), a cessation of COVID-19-perceived risk and recent improvements across the board in short-cycle economic data.

The good news is that we know that things are getting better for the economy. The bad news is that we do not know how long the continuous improvement will last or how much of prior peak economic output will be reclaimed and when. If GDP can climb back to its recent highs in short order and grow off the base, it will be quite the accomplishment and the trillions of dollars spent to plug the temporary hole will likely be deemed worth it. However, if the economy is only able to reach 90% to 95% of prior output and then stalls, that would be a terrible predicament. We believe that pundits would surely question whether all of that money merely delayed the inevitable instead of avoiding it. Only time will be able to answer this crucial question. The answer will determine if this is simply a sugar high or something more sustainable in nature.

With the U.S. elections on the horizon, we are likely to err on the side of caution.

Our analytical team has been producing strong stock selection of late, which is fortunate given the investment environment encountered recently. We tend to think of our portfolio as higher “quality.” According to one small-cap strategist, “If your game is quality, then the past quarter was not for you.” Lower quality factors, such as low share price, low return on equity, highly shorted, high leverage and unprofitable stocks led returns across most sectors. As is typical in market rallies, when the recovery gains steam, investors feel more comfortable moving out on the risk curve to source incremental gains. In short, what the pandemic had seemingly destroyed was restored, as headlines of fewer cases and potential vaccines sent many investors to their trading accounts to hit the BUY button.

The leadership dynamics of unprofitable and expensive do not represent tailwinds for the portfolio. In fact, the market rise is somewhat ill-suited to our strategy of seeking to best the Index. We believe that it is truly a testament to the hard work of the colleagues that we work with that have put us in the position we are in today. It is also important to highlight that we are presently underweight both technology and health care, based on our internal sector allocation framework. We are well aware that certain components of the market are gripped by momentum and exceptionally crowded. If the momentum ever turns, there will likely be a lot of investors running for the exits at the same time and we prefer not to get trampled.

We have this mentality because our goal is not to be the best-performing portfolio over any short-time period. Our goal is to build an all-weather portfolio that clients can own through a full market cycle, where upside is driven by bottom-up, individual stock selection and capital conservation is achieved based on the asset quality, diversification and valuation discipline embedded in the portfolio.

Over an extended period of time, we believe that security selection will drive the vast majority of our investment results and attribution. We were pleased to see that during the last twelve months our stock picking added value. However, the portfolio lost ground to the Index due to certain sector allocations. Unfortunately, in early 2020, we had decreased our ownership in businesses with high leverage, no earnings, or extremely expensive valuations as compared to our benchmark. We rotated this capital into historically very stable, predictable and low beta consumer services and business services companies. We would have anticipated that during a very large market drawdown these portfolio tilts would have favored performance. Yet, the unique downside catalyst that was and is COVID-19 actually rendered our tactics ineffective. Stay-at home-orders prompted our stable companies to underperform. And, more astonishingly, it led to market-beating returns from the riskier cohort – non-earners actually bested the small-cap index by roughly 800 basis points! It is for this reason that our overweight in consumer discretionary/services and an underweight to biotechnology (i.e. health care) companies harmed our results.

At the individual company level, the pandemic was the predominant explanatory factor of what separated our winners from losers. We had a diverse set of positive contributors where the underlying investment thesis has played out nicely, but received an incremental boost given their COVID-19 positioning. Zynga, a mobile game developer, is a perceived beneficiary of stay-at-home orders as its casual gamers likely had incremental time to devote to game play. This enhanced engagement supplements a solid fundamental story anchored by new game launches and solid performance by the company’s forever franchises such as Words with Friends. Catalent, a contract drug manufacturer, did not witness a meaningful deterioration in its business due to the pandemic because of the steady nature of pharmaceutical consumption, but it also has benefitted from being selected as a manufacturing partner for several prominent COVID-19 vaccine candidates. Chegg, an online learning aid, was seeing strong subscriber growth and cash flow generation prior to COVID-19, but experienced a significant pick-up in demand as students were forced to turn to online aids as on-campus activities ceased. Hain Celestial Group, a leading producer and distributor of organic and natural products, was making progress against its strategic priorities that were likely accelerated by increased grocery store traffic and sales. And, finally, Dynatrace is a software-as-a-service company whose platform utilizes artificial intelligence and advanced automation to monitor the performance of applications, the underlying hybrid cloud infrastructure and the experience of the customers’ users. As an increasing number of workloads move to the cloud, the company has seen robust growth in existing customer usage and an increasing number of new customers sign up for its service. When companies around the world were forced to have their employees work remotely, it is likely that Dynatrace’s solutions became even more mission critical.

On the other side of the ledger, four out of the top five largest detractors for the period were due to COVID-19. Hexcel Corporation supplies carbon fiber to commercial aerospace original equipment manufacturers and other industrials businesses. Its stock suffered as the outcome for new plane orders deteriorated substantially. Bright Horizons Family Solutions, a leading player in early childhood education and care, was forced to close the majority of its facilities for a period of time due to government stay-at-home orders. Webster Financial Corporation, a Northeast regional bank with a leading HSA business, witnessed a slow down in loan growth and net interest margin compression due to lower interest rates and a flattening yield curve. The position was sold. Covetrus, a position sold prior to the pandemic, failed to realize the promise of the combination of Vets First Choice innovative software platform and Henry Schein’s animal health business despite a compelling long-term rationale. Analysts were forced to lower their cash flow projections, which caused certain leverage ratios to rise instead of fall as the company’s original projections demonstrated. The final detractor for the period was EVO Payments, a global merchant acquirer and processor. While the stock has rallied strongly lately, it sold off materially during the pandemic as payment volumes plunged due to stay-at-home orders.

As is customary, we thoroughly analyze both our successes and failures to understand if there are lessons to be learned. If so, we may make minor alterations to the manner in which we operate with the hope of making or saving our clients more money. We strive to be continuous learners in what is an incredibly competitive business.

Great attention tends to be paid to the portfolio positions that have the largest positive and negative impact to performance each quarter. Yet, we have found that sometimes it is the investment stories that are outside of the highlights that tend to shed the most light on our process. We hope that the short anecdotes provided in this section help you visualize a bit more clearly how we work.

Over the past 12 to 18 months, we have slowly reduced our technology exposure in favor of health care, which is now the largest sector in the portfolio. The primary driver of this tilt has been what we believe is the likely unsustainable rise in the valuations across much of the information technology landscape and, secondarily, the dramatic changes in our most widely-used benchmark over the last two years. With the hard work of Mark Kelly, our small- and mid-cap health care analyst, we have sifted through dozens of ideas across his area of expertise. We have acted on several select opportunities that fit our preferred “3G” (sustainable growth, sound governance and scalable go-to-market) investment characteristics and are priced as attractive risk/reward opportunities. Phreesia (PHR), a software company providing patient check-in solutions for medical practices, is a good example. Through our network of venture capital and private equity relationships at Brown Advisory, we had known about Phreesia for a few years as a private company, although we had little direct interaction with the management team.

The company develops, maintains and distributes a software-as-a-service-based platform that offers health care providers with a robust suite of solutions to help manage patient intake and other core functions to securely process patient payments. Evident by its description, Phreesia represented an opportunity to add-back software content that had been removed from the portfolio—although with markedly different drivers than the typical mid-market to enterprise software business. It was here where our interest was focused.

In May of 2019, Phreesia began a process of selecting a group of investment banks to arrange “Test-the-Waters” meetings before an official initial public offering roadshow. The purpose of these sessions was to prepare the management team and their “story” for the rigors of the public market and to provide an early look into the business for select, long-term investors. We believe our invitation to these events is a function of our reputation, our multi-year time horizon, and the fact that, while we analyze numerous deals, we are highly selective and committed to the select few we participate in per annum.

After meeting with the Phreesia management team in the spring of last year, we concluded that it was likely that the business and leadership represented a strong fit with our desired portfolio characteristics. In order to validate this gut feel, we reached out to several customers to better understand their experience with the company’s products. We were fortunate to have a contact at a large medical practice that used Phreesia’s software tools. We believe that this provided us with a window into how “sticky” Phreesia’s solutions might be and what type of revenue opportunities might be available to the company through up-sell and cross-sell over time. It was through this conversation, and a few others, that we were able to help validate the management team’s assessment of their total addressable market, which is critical to understanding a company’s runway for growth. We then requested a second meeting with the company in June 2019, to better understand the underlying operations and governance of the business, so we could model how the company might scale over the next few years if our assessment of its top-line growth came to pass.

By the IPO on July 18, 2019, we believed we had a firm handle on the business, discussed the execution of management with a member of the board, validated the solution set with customers and were prepared to make an investment… if the price was right. The IPO was priced at $18 per share—a price we believed provided enough upside given our positive long-term views to participate in the deal. Hopefully, because of our efforts to explain our investment style, we received a reasonably good allocation in what was a rather hot offering. However, despite this allocation, we remained well below our target position weight in the name. For this reason, we participated in the December 13, 2019 secondary offering because we believed it represented an attractive source of liquidity and, given the market’s dramatic rise during the year, it represented a relatively attractive investment opportunity in our space.

Our final push into the name to reach our target of approximately 1% involved a bit of luck. The stock was trading in the mid-$30s until the COVID-19 pandemic hit. As elective procedures and nonessential checkups were cancelled in mass, the price of Phreesia’s stock plummeted back down to its IPO price. The market clearly was worried that practice closures would hamper Phreesia’s go-to-market motion, inhibit its future bookings and reduce patient volumes negatively, which would in turn impact payment processing revenue. Upon assessing the situation, we believed these issues were (hopefully) transient and thought it was possible that certain areas of Phreesia’s virtual software functionality might be able to help its clients during this incredibly difficult period. With this view in mind, we rounded up our stake in the business near its pandemic-induced lows. While this execution was solid, we did leave some gains on the table as we kept a little “dry powder” to potentially increase our position further should

the virus linger, which we believed would negatively impact our medical system for a longer period of time. This was an outcome that we believed would have driven the stock even lower. This did not occur and Phreesia’s equity value soared along with other small-cap growth stocks from the late March lows.

We believe that this review of Phreesia is emblematic of what we are attempting to do in the portfolio. We strive to conduct rigorous, in-depth due diligence and monetize this work as the market serves up prices that we believe are attractive or skewed in favor of our clients. Today, valuations have climbed back toward their previous lofty levels—or higher still if you believe the pandemic-induced hit to earnings is more than a temporary phenomenon—and we are forced to run ever harder in search of ideas that we feel compensate our investors for the risks they are assuming. The good news is that this continues to lead to a growing “on-deck” circle of new ideas, which we believe leaves us prepared to act when the next eventual bout of volatility hits.

The first half of 2020 has been nothing less than extraordinary. It started with new all-time highs in equity prices and then witnessed the swiftest market decline by magnitude in recorded history. And now, is once again, on the verge of taking out the old highs reached in February.

During this time, our team has been forced to assess whether any of our companies were at risk of not surviving and, in the same breath, which businesses could thrive on the other side. Whether COVID-19 lingers or vanishes via herd immunity or a vaccine, what were once long-term and slow moving economic and societal changes have been inexorably accelerated. Some of the perceived beneficiaries are now being valued as if they are nearly risk-free investments. More broadly, sectors such as technology and health care have benefited from capital flows that are, dare we say, harkening us back to memories of the late 1990s. We are forced to remember that sometimes great companies do not equal great investments. It is price versus value that matters.

We will continue to do our best to scour the small-cap landscape in pursuit of companies that we believe have promising futures ahead of them where the market has not already priced in all the present and future good news. We have witnessed insane volatility already this year and our goal as a team is to make sure that we are prepared for more should it come our way in the second half of the year.

We believe that investing remains simple—buying solid companies at attractive values—but certainly not easy. We respect and are humbled by the difficulties associated with the long-term game that we play and will strive to continue reporting that we generated solid returns… while taking on less (and, maybe more importantly today, being aware of) risk.

Sincerely,

Chris Berrier

Portfolio Manager

Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.

Definitions for terms and indices are provided in the Glossary of Terms.

The following chart reflects the change in value of a hypothetical $1,000,000 investment, including reinvested dividends and distributions, in the Fund compared with the broad-based securities market index. The Russell 2000^® Growth Index (“Index”) measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000^® companies with higher price to book ratios and higher forecasted growth values. The Index is unmanaged and does not reflect the deduction of fees, such as investment management fees.  Investors cannot invest directly in an index.

Dear Shareholders:

During the year ended June 30, 2020, the Brown Advisory Small-Cap Fundamental Value Fund – Investor Shares (the “Fund”) declined 18.49% in value. During the same period, the Russell 2000^® Value Index (the “Index”), the Fund’s benchmark, declined 17.48%.

Over the course of the first half of 2020, we have witnessed the coronavirus morph from a distant and isolated event to a global health crisis. The pandemic has brought both enormous human suffering and economic damage. Small cap companies reflected the initial impact of the financial reverberations. While March 2020 was the weakest month since either October 2008 or October 1987, the full first quarter was the worst quarter since the Depression era.

After the first quarter’s historic decline in the equity markets, the second quarter was marked by rapid price appreciation. The increase in equity prices has been across multiple sectors and virtually all market segments. It has also been in the face of a dramatic increase in unemployment, a surge in levels of delinquent debt, and uncertainty surrounding the duration and ultimate severity of the pandemic. A number of factors seem to be driving the markets higher, including massive fiscal and monetary stimulus, promising potential of several vaccines, and what appears to be a significant increase in speculative behavior by retail investors. While small capitalization share prices have sharply rebounded off the lows of the first quarter, they are still down materially year-to-date and the spread between growth and value stocks continued to widen during the quarter.

For the year ended June 30, 2020, the Fund trailed its benchmark by a narrow margin. Consumer discretionary and information technology were major detractors on a relative basis, down 27.8% and 6.5%, respectively. Contrastingly, communication services and energy provided strong relative contribution, down 1.1% and 27.2%, respectively. Health care was the strongest performing sector on an absolute basis, up 17.1%.

Providence Service Corporation (PRSC) was the top contributor for the period. Shares in the company experienced a strong rebound following a period of pandemic-driven uncertainty as it became clear its medical transportation offerings were more essential and robust than many expected. The company also added new, critical services such as delivery services at the request of state partners. Lastly, management reached an agreement that will release it from paying a significant preferred dividend to a long-standing shareholder which should enhance realized free cash flow.

MFA Financial, Inc. (MFA) was the largest detractor during the period. MFA is a specialty finance business that is focused on the mortgage market. The company is structured as a REIT and its primary asset is a portfolio of sub-prime mortgage-backed securities (MBS) that it opportunistically acquired with steep discounts between 2008 and 2011. Since that time, it has used cash flow and sales from the portfolio to finance other credit-related mortgage investments. We made our initial investment in 2009 and believe the team has acted prudently in order to generate an attractive return-on-equity (ROE) for its shareholders over this time period. As the fixed income markets were dramatically impacted over a short period in mid-March, MFA breached its covenants, and while we believed that the company’s liquidity and sizable pool of unencumbered assets would provide a cushion, we were wrong and sold our investment at a steep loss.

The Fund had the opportunity to add 20 new investments over the course of year. Notable additions include: Cardtronics plc, SPX Corporation, Helen of Troy Limited, and EastGroup Properties.

Cardtronics plc (CATM), which was purchased at the end of 2019, operates a network of 295,000 ATMs worldwide, with 75,000 owned by the company and 220,000 managed for financial institutions and retailers. Driven by $1 billion+ deployed for acquisitions and expanding worldwide, the company grew its topline at a double-digit compound annual growth rate (CAGR) in the past decade amid the secular headwind of cash-to-card conversion at the point of sale. We like the value proposition Cardtronics brings to its partners. The current management team took over in early 2018, and shifted focus to drive organic growth through its existing network and optimize cost to achieve margin expansion.

SPX Corporation (SPXC), purchased during the second quarter of 2020, is a supplier of infrastructure equipment and products. The company operates in three segments: HVAC, detection and measuring, and power business. While the company trades at a sizable discount on a sum of the parts basis, we are attracted to the high levels of free cash flow due to its capital light business model.

Helen of Troy (HELE), purchased in March of 2020, was the second biggest contributor over the past 12 months. Helen of Troy is a manufacturer and distributor of branded small appliances and personal care and household products. Concerns around the impact of the coronavirus on both its products and retail partners presented an attractive entry point to own this company. Helen

of Troy benefits from market share leading brands that have compelling growth opportunities, in addition to a management team that has a strong track record of accretive mergers and acquisitions.

EastGroup Properties (EGP), also purchased in March 2020, is a REIT that owns industrial properties across Sun Belt markets. EastGroup’s portfolio is focused on smaller (80,000-130,000 square foot), multi-tenant properties in “in-fill” locations close to urban areas. We believe EastGroup’s unique portfolio is well insulated from new supply (which has been concentrated in the larger building types) while still benefitting from the secular growth in demand for industrial real estate. EastGroup has been able to drive consistent high single-digit rent growth over the last several years and has an attractive development pipeline that it can activate selectively over coming years.

The Fund was also active in selling its investments, with 25 eliminations over the course of the year. Fourteen of these sales occurred during the first quarter, when coronavirus-related shutdowns caused uncertainty in many business models. We took the opportunity in the market sell-off to repurpose these proceeds to fund new positions in higher conviction ideas.

There was also one acquisition that occurred during the period. Continental Building Products (CBPX) was acquired in early February, following a deal announced in November 2019, by Saint-Gobain, a European building products conglomerate.

This upcoming earnings season will be very telling. After months of speculation, we will finally see the actual results of companies that have been enduring the pandemic and hear about the prospects for the rest of the year. Given the resurgence of the pandemic as well as the upcoming election, our assumption is that volatility will continue to be elevated. In line with previous volatile market conditions, the team has continued to opportunistically leverage the volatility. We will continue to evaluate current conditions and results in order to assess the ongoing cash flow ability of our existing portfolio of investments, as well as potential new ones.

Sincerely,

J. David Schuster

Portfolio Manager

Fund holdings and sector allocations are subject to change and should not be considered a recommendation to buy or sell any security. For a complete list of fund holdings, please refer to the Schedule of Investments provided in this report.

Definitions for terms and indices are provided in the Glossary of Terms.

The following chart reflects the change in value of a hypothetical $10,000 investment, including reinvested dividends and distributions, in the Fund as measured against a broad-based securities market index. The Russell 2000^® Value Index (“Index”) measures the performance of small-cap value segment of the U.S. equity universe. It includes those Russell 2000^® companies with lower price to book ratios and lower forecasted growth values. The Index is unmanaged and does not reflect the deduction of fees, such as investment management fees.  Investors cannot invest directly in an index.