WILMINGTON TRUST RETIREMENT AND INSTITUTIONAL SERVICES COMPANY COLLECTIVE INVESTMENT TRUST III FOR METLIFE GROUP ANNUITY CONTRACT NO.

Transcription

1 WILMINGTON TRUST RETIREMENT AND INSTITUTIONAL SERVICES COMPANY COLLECTIVE INVESTMENT TRUST III FOR METLIFE GROUP ANNUITY CONTRACT NO FINANCIAL STATEMENTS DECEMBER 31, 2014 WITH INDEPENDENT AUDITOR'S REPORT

2 CONTENTS Independent Auditor's Report... 1 Statement of Net Assets... 2 Statement of Operations... 2 Statement of Changes in Net Assets... 3 Financial Highlights... 4 Notes to Financial Statements... 7

3 INDEPENDENT AUDITOR'S REPORT Wilmington Trust Retirement and Institutional Services Company, Trustee for Wilmington Trust Retirement and Institutional Services Company Collective Investment Trust III Report on the Financial Statements We have audited the accompanying financial statements of Wilmington Trust Retirement and Institutional Services Company Collective Investment Trust III for MetLife Group Annuity Contract No (the "Trust" or "Fund"), which comprise the statement of net assets as of December 31, 2014, and the related statements of operations, changes in net assets and the financial highlights for the year then ended and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements and financial highlights in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements and financial highlights that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and financial highlights. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements and financial highlights, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements and financial highlights in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 2014, and the results of its operations, and changes in its net assets and its financial highlights for the year then ended in accordance with accounting principles generally accepted in the United States of America. April 28, S. Utica Place, Suite 200, Tulsa, OK P F

4 Wilmington Trust Retirement and Institutional Services Company Collective Investment Trust III MetLife Group Annuity Contract No Statement of Net Assets December 31, 2014 Assets MetLife Group Annuity Contract No , at fair value $ 1,959,651,583 Wrapper contract, at fair value 18,274,649 Receivable for fund units purchased 2,707,266 Receivable for investment securities sold 21,545,473 Total assets 2,002,178,971 Liabilities and Net Assets Payable for fund units redeemed 24,252,739 Accrued expenses 2,624,701 Total liabilities 26,877,440 Net assets reflecting all investments at fair value 1,975,301,531 Adjustment from fair value to contract value for fully benefit-responsive investment contracts (72,235,813) Net assets $ 1,903,065,718 Statement of Operations For the year ended December 31, 2014 Investment income Interest $ 44,674,381 Expenses Trustee, administrative services and service provider fees 10,521,161 Professional services and other operating expenses 38,499 Net investment income 34,114,721 Net increase in net assets resulting from operations $ 34,114,721 See notes to financial statements. 2

5 Wilmington Trust Retirement and Institutional Services Company Collective Investment Trust III Increase in net assets resulting from operations Net investment income $ 34,114,721 Net increase in net assets resulting from operations 34,114,721 Fund unit transactions Proceeds from units issued Class F0 20,199,951 Class F75 19,783,724 Class 15^ 202,401,713 Class 25 26,608,279 Class 40 21,116,207 Class ,544 Class 50 66,357,029 Class ,022 Class ,107,263 Class 80 45,436,832 Class 95 8,562,204 Class I 11,780,317 Class J 253,320,203 Class K 45,066,140 Class L 221,876,387 Class M 6,774,543 Total proceeds from units issued 1,147,965,358 Value of units redeemed Class F0 (4,204,745) Class F75 (48,712,343) Class 15^ (38,283,343) Class 25 (183,448,809) Class 40 (11,833,246) Class 45 (2,024,616) Class 50 (90,919,712) Class 70 (319,240) Class 75 (293,972,533) Class 80 (51,664,603) Class 95 (12,129,733) Class I (18,117,173) Class J (227,809,858) Class K (56,236,277) Class L (232,502,262) Class M (2,439,241) Total value of units redeemed (1,274,617,734) Decrease in net assets resulting from fund unit transactions (126,652,376) Decrease in net assets (92,537,655) Net assets, beginning of year 1,995,603,373 Net assets, end of year $ 1,903,065,718 ^Class 15 was funded on 2/28/2014. MetLife Group Annuity Contract No Statement of Changes in Net Assets For the year or period ended December 31, 2014 See notes to financial statements. 3

6 Wilmington Trust Retirement and Institutional Services Company Collective Investment Trust III MetLife Group Annuity Contract No Financial Highlights For the year or period ended December 31, 2014 Per Unit Operating Performance Class F0 Class F75 Class 15 Class 25 Net asset value, beginning of year or inception $ $ $ $ Income from investment operations: Net investment income Total income from investment operations Net asset value, end of year $ $ $ $ Total Return 2.15% 1.57% 1.79% ^ 2.02% Supplemental Data Ratio to average net assets: Expenses 0.15% 0.80% 0.17% ^ 0.30% Net investment income 2.17% 1.50% 1.78% ^ 1.92% ^Not annualized for periods less than a year; Class 15 funded on 2/28/2014. Fund Unit Activity Units, beginning of year or period 31,685 4,188,266-11,368,666 Issued 1,194,670 1,186,838 12,070,612 1,574,065 Redeemed (247,633) (2,922,459) (2,268,134) (10,878,506) Units, end of year 978,722 2,452,645 9,802,478 2,064,225 Financial Highlights For the year ended December 31, 2014 Per Unit Operating Performance Class 40 Class 45 Class 50 Class 70 Net asset value, beginning of year $ $ $ $ Income from investment operations: Net investment income Total income from investment operations Net asset value, end of year $ $ $ $ Total Return 1.85% 1.80% 1.74% 1.51% Supplemental Data Ratio to average net assets: Expenses 0.45% 0.50% 0.55% 0.75% Net investment income 1.84% 1.77% 1.74% 1.55% Fund Unit Activity Units, beginning of year 2,211, ,231 6,608,275 63,678 Issued 1,250,141 26,842 3,950,446 7,426 Redeemed (700,488) (119,869) (5,388,303) (19,079) Units, end of year 2,761, ,204 5,170,418 52,025 See notes to financial statements. 4

7 Wilmington Trust Retirement and Institutional Services Company Collective Investment Trust III MetLife Group Annuity Contract No Financial Highlights (continued) For the year ended December 31, 2014 Per Unit Operating Performance Class 75 Class 80 Class 95 Class I Net asset value, beginning of year $ $ $ $ Income from investment operations: Net investment income Total income from investment operations Net asset value, end of year $ $ $ $ Total Return 1.51% 1.45% 1.33% 2.24% Supplemental Data Ratio to average net assets: Expenses 0.80% 0.85% 1.00% 0.05% Net investment income 1.50% 1.46% 1.32% 2.20% Fund Unit Activity Units, beginning of year 41,033,174 9,265,996 1,788,335 3,095,050 Issued 11,873,039 2,725, , ,057 Redeemed (17,608,860) (3,098,526) (729,925) (1,059,518) Units, end of year 35,297,353 8,892,601 1,574,275 2,723,589 Financial Highlights (continued) For the year ended December 31, 2014 Per Unit Operating Performance Class J Class K Class L Class M Net asset value, beginning of year $ $ $ $ Income from investment operations: Net investment income Total income from investment operations Net asset value, end of year $ $ $ $ Total Return 2.13% 1.91% 1.62% 1.45% Supplemental Data Ratio to average net assets: Expenses 0.15% 0.40% 0.65% 0.90% Net investment income 2.11% 1.87% 1.64% 1.43% Fund Unit Activity Units, beginning of year 24,879,231 6,002,744 8,460, ,328 Issued 14,858,306 2,664,425 13,244, ,460 Redeemed (13,394,791) (3,329,630) (13,869,730) (146,133) Units, end of year 26,342,746 5,337,539 7,835, ,655 See notes to financial statements. 5

8 Wilmington Trust Retirement and Institutional Services Company Collective Investment Trust III MetLife Group Annuity Contract No Financial Highlights (continued) For the year ended December 31, 2014 Yield Analysis The average yield earned by MetLife Group Annuity Contract No (the "Contract") for the year ended December 31, 2014, was 4.61%. This represents the annualized earnings of the separate account investments owned by MetLife in which the Contract funds are invested divided by the fair value of the Contract at December 31, The average yield earned by the Contract with an adjustment to reflect the actual interest rate credited to participants in the Contract for the year ended December 31, 2014, was 2.22%. This represents the annualized earnings credited to participants in the Contract divided by the fair value of the Contract at December 31, Sensitivity Analysis Actual weighted average interest crediting rate for the first quarter of 2015: 2.40% The table below illustrates the effect on the weighted average interest crediting rate, calculated as of the end of the next four quarterly periods, where there is an immediate hypothetical increase or decrease in market yields, equal to one-quarter and one-half of the current yield, with no change to the duration of the underlying investment portfolio and no contributions or withdrawals. 1 st Quarter March 31, nd Quarter June 30, rd Quarter September 30, th Quarter December 31, 2015 Increase of 50% 2.42% 2.43% 2.45% 2.46% Increase of 25% 2.40% 2.39% 2.38% 2.38% Decrease of 25% 2.35% 2.30% 2.26% 2.21% Decrease of 50% 2.33% 2.26% 2.19% 2.13% The table below illustrates the effect on the weighted average interest crediting rate, calculated as of the date of the next four quarterly periods, where there is an immediate hypothetical increase or decrease in market yields, equal to one-quarter and one-half of the current yield, combined with an immediate, one-time, hypothetical 10% decrease in the net assets of the Contract due to participant transfers, with no change to the duration of the portfolio. 1 st Quarter March 31, nd Quarter June 30, rd Quarter September 30, th Quarter December 31, 2015 Increase of 50% 2.38% 2.40% 2.42% 2.43% Increase of 25% 2.41% 2.40% 2.40% 2.39% Decrease of 25% 2.46% 2.40% 2.35% 2.30% Decrease of 50% 2.48% 2.40% 2.33% 2.26% See notes to financial statements. 6

9 WILMINGTON TRUST RETIREMENT AND INSTITUTIONAL SERVICES COMPANY COLLECTIVE INVESTMENT TRUST III FOR METLIFE GROUP ANNUITY CONTRACT NO NOTES TO FINANCIAL STATEMENTS December 31, 2014 Note 1 Organization and Summary of Significant Accounting Policies Organization Wilmington Trust Retirement and Institutional Services Company Collective Investment Trust III for MetLife Group Annuity Contract No (the "Trust" or "Fund") was formed for the purpose of allowing participating plan sponsors, who maintain defined contribution plans qualified under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), to invest in MetLife Group Annuity Contract No (the "Contract") issued by Metropolitan Life Insurance Company ("MetLife") to the Trustee, Wilmington Trust Retirement and Institutional Services Company ("WTRISC" or the "Trustee"), to establish a stable value fund. The Trustee is responsible for maintaining and administering the Trust. The Trustee is a wholly owned indirect subsidiary of M&T Bank Corporation. Management of funds The Contract is administered by MetLife and is managed by MetLife and WTRISC. While the Trustee generally relies on MetLife to manage the Fund's assets, the Trustee maintains ultimate fiduciary authority over the management of, and investments made in, the Fund. Basis of presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The Fund is an investment company and follows the accounting and reporting guidance in Financial Accounting Standards Board Accounting Standards Codification ("ASC") Topic No Net asset value ("NAV") Units of the Fund are valued each day on which the New York Stock Exchange ("NYSE") is open for trading in accordance with the valuation procedures established by the Trustee. The NAV per unit is calculated as of the close of trading on the NYSE (generally, 4:00 p.m. U.S. Eastern time). The NAV per unit is computed by dividing the total contract value of the assets of the Fund, less its liabilities, by the total number of units outstanding at the time of such computation. Investment income earned is reinvested in the portfolio and included in the determination of unit values. Fund unit transactions The Fund sells new units and repurchases outstanding units on a daily basis. Unit purchases and redemptions are transacted at the NAV per fee class determined as of the close of business each day. Redemptions paid after the end of the year, but based upon year-end NAVs, are reflected as payables for fund units redeemed. A summary of the Fund unit activity is included with the Financial Highlights. The NAV is calculated daily based on the contract value. Contract valuation The Contract is a guaranteed investment contract. The statement of net assets presents the investment contract at fair value. Since this contract is fully benefit-responsive, a line item is presented in the statement of net assets reporting an adjustment from fair value to contract value. The fair value of the Contract is determined by MetLife based on quoted market prices of the underlying investments owned by MetLife. Investments transactions and investment income The Fund records security transactions on a trade date basis. Interest income on investments in stable value funds is accrued at the investment contracts' crediting rate. The crediting rate is generally based on the fair value, duration, and yield to maturity of the underlying contract. These contracts typically allow for realized and unrealized gains and losses on the underlying assets to be amortized, 7

10 WILMINGTON TRUST RETIREMENT AND INSTITUTIONAL SERVICES COMPANY COLLECTIVE INVESTMENT TRUST III FOR METLIFE GROUP ANNUITY CONTRACT NO NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2014 usually over the duration of the underlying investments, through adjustments to the future interest crediting rate, rather than reflected immediately in the net assets of the Fund. MetLife guarantees that all qualified participant withdrawals will be at contract value. Fee classes and allocations The Fund offers different fee classes, which pay different expenses. Income and expenses (other than expenses attributable to a specific class) are allocated to each fee class based on the units outstanding for the fee class in proportion to the total outstanding units. Use of estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Guarantees and indemnifications Under the Fund's organizational documents, each trustee, officer, employee and agent of the Trust (including MetLife) is indemnified, to the extent permitted by law, against certain liabilities that may arise in the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts that contain a variety of indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund has not had prior claims or losses pursuant to these contracts and the Trustee believes the risk of loss to be remote. Subsequent events The Trustee has evaluated the effects of subsequent events on the Trust's financial statements through April 28, 2015, which is the date the financial statements were available to be issued, and has determined that, except as disclosed below, there are no material subsequent events that would require disclosure or adjustment in the Trust's financial statements through this date. Effective February 17, 2015, State Street Bank and Trust Company will provide transfer agency services for the Fund. Note 2 MetLife Group Annuity Contract MetLife deposits participating plan contributions in the Contract, which are invested in the following separate accounts (the "separate accounts") to provide competitive total returns relative to the respective benchmarks: Account MetLife Aggregate Bond Index Fund Wilmington Short/Intermediate Bond Fund Wilmington Broad Market Bond Fund Benchmark Barclays Capital U.S. Aggregate Bond Index Barclays Capital U.S. Intermediate Government/Credit Index Barclays Capital U.S. Aggregate Bond Index The Contract simulates the performance of a guaranteed investment contract through the guarantee of a specific interest rate and a portfolio of financial instruments that are owned by MetLife. The participating plans' assets are the unit ownership interests in the Contract. The separate account investments are owned by MetLife. The Contract provides that the Trust execute transactions at contract value. MetLife guarantees the contract value, which 8

11 WILMINGTON TRUST RETIREMENT AND INSTITUTIONAL SERVICES COMPANY COLLECTIVE INVESTMENT TRUST III FOR METLIFE GROUP ANNUITY CONTRACT NO NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2014 represents contributions, plus interest, less participant-initiated withdrawals or transfers. This is the Contract's guaranteed value. The Contract's fair value equals the Contract's proportionate share of the fair value of the separate accounts. A participating plan's fair value in the Contract equals the Contract's fair value times the ratio of the plan's guaranteed value to the Contract's guaranteed value. If a participating plan terminates participation in the Trust, the lesser of the guaranteed value or the fair value will be received. The Contract provides a fixed interest rate for a fixed period that will apply to the entire guaranteed value. The interest rate is reset every quarter as determined by MetLife with consideration of the market value of the underlying investments, the anticipated market yields-to-maturity of benchmark indices of underlying investments, expected payments into and out of the Contract, amortization of the difference, if any, between the market value of underlying investments and the guaranteed value of the Contract, and the fees allowed under the Contract. MetLife guarantees that the rate will never be less than zero. MetLife's estimated value of the guarantee is presented in the statement of net assets as a wrapper. The adjustment to contract value is calculated as follows: Major Credit Ratings Investments at Fair Value Wrapper at Fair Value Adjustment to Contract Value GAC No Aa3/AA- $ 1,959,651,583 $ - $ (72,235,813) Wrapper - 18,274,649 - Total $ 1,959,651,583 $ 18,274,649 (72,235,813) Adjustment to contract value, beginning of year (27,135,590) Change in adjustment $ (45,100,223) If a withdrawal is made from the Contract as a result of an employer or plan sponsor-initiated event or if a withdrawal is requested due to a complete or partial termination of a participating plan in the Trust before the Contract ends, and the Contract's fair value equals or exceeds the guaranteed value, payment is made in an amount equal to the amount of the guaranteed value which is attributable to the participating plan. If the Contract's fair value is less than its guaranteed value, the amount paid is equal to the guaranteed value reduced by the amount of fair value deficit allocable to the participating plan. Note 3 Fair Value Measurements Fair value is defined as the price a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. Various inputs are used in determining the fair value of the Trust's investments. The Trust has performed an analysis of the significance and character of these inputs to the fair value determination. These inputs are summarized in the three broad levels listed below: Level 1 Quoted prices in active markets for identical securities. 9

12 WILMINGTON TRUST RETIREMENT AND INSTITUTIONAL SERVICES COMPANY COLLECTIVE INVESTMENT TRUST III FOR METLIFE GROUP ANNUITY CONTRACT NO NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2014 Level 2 Other significant observable inputs (including quoted prices for similar securities, published net asset values, interest rates, credit risk, and others). Level 3 Significant unobservable inputs (including the Trustee's own assumptions in determining the fair value of investments). The fair value of the Contract is determined using level 2 inputs. The fair value of the investments is the Contract's pro-rata share of the fair value of the securities in the underlying separate accounts in which the Contract participates. The wrapper is classified as level 3. The fair value of the wrapper is determined by the discounted revenue method, being 20 basis points of the guaranteed value over five years discounted by the LIBOR swap curve. The inputs used for valuing the Trust's assets are not necessarily an indication of the risk associated with these investments. The following table sets forth a summary of change in the fair value of the wrapper for the year ended December 31, 2014: Fair Value of Wrapper Balance, beginning of year $ 19,283,067 Change in fair value (1,008,418) Balance, end of year $ 18,274,649 Note 4 Fees and Expenses Contract fees Fees are charged in accordance with the terms of the Trust agreement and the Contract. The fees are paid by MetLife for investment management services and are considered when establishing the quarterly guaranteed interest rate. MetLife's annual contract charge is determined as follows: MetLife Aggregate Bond Index Fund Wilmington Short/Intermediate Bond Fund Wilmington Trust Broad Market Bond Fund Contract Value Annual Charge Contract Value Annual Charge Contract Value Annual Charge First $10,000, bps First $25,000, % First $10,000, % Next $15,000, bps Next $25,000, % Next $20,000, % Next $25,000, bps Next $50,000, % Next $20,000, % Over $50,000, bps Over $100,000, % Next $50,000, % Over $100,000, % Contract fees paid by the Fund in 2014 to MetLife totaled $6,214,667. Trustee fee The Trustee receives an annual fee for trustee services provided to the Fund. These fees are accrued daily, payable in arrears as of the close of business in New York, New York (normally, 4:00 p.m. U.S. Eastern time) on the last business day of each calendar quarter, and charged against the assets invested in the Fund. The Trustee receives 5 basis points for all fee classes except I, J and F0, for which it receives no annual trustee fee. 10

13 WILMINGTON TRUST RETIREMENT AND INSTITUTIONAL SERVICES COMPANY COLLECTIVE INVESTMENT TRUST III FOR METLIFE GROUP ANNUITY CONTRACT NO NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2014 Administrative services fee Administrative service fees of 5 basis points are based upon the average daily value of the respective share classes. These fees are accrued daily and payable quarterly in arrears. These fees are intended to enable a participating plan to fund plan level fees and expenses paid to third parties for services, including, among others, participant recordkeeping and other administrative services provided to a participating plan. Service provider fee Service provider fees are used to compensate other service providers to the Fund, including brokers and financial intermediaries and other parties providing services to the Fund. Service provider fees may also be paid to plan service providers, such as third-party administrators and record keepers that provide sub-transfer agency, record keeping and other administrative services to participating plans invested in the Fund. The service provider fees paid by the Fund are set forth in the table below (in basis points): Fee Class Service Provider Fee I 0 J 0 K 25 L 50 M 75 F0 0 F75 65 Operating expenses In addition to the fees described above, the Fund bears expenses related to its operation, including, but not limited to, audit, custody, tax, and legal services. Expenses incurred in connection with the investment and reinvestment of Fund assets, including, without limitation, transfer agency fees, brokerage commission and other expenses, are also charged against the Fund. Note 5 Related Party Transactions Wilmington Short/Intermediate Bond Fund and Wilmington Trust Broad Market Bond Fund separate accounts are advised by Wilmington Trust Company. The Trustee is a nondepository trust company that provides trust and custodial services for ERISA-qualified retirement plans as well as trust and investment services to smaller business pension and retirement plans. The Trustee is responsible for managing the Trust's investment and business affairs. 11

14 WILMINGTON TRUST RETIREMENT AND INSTITUTIONAL SERVICES COMPANY COLLECTIVE INVESTMENT TRUST III FOR METLIFE GROUP ANNUITY CONTRACT NO NOTES TO FINANCIAL STATEMENTS (continued) December 31, 2014 Pursuant to an Investment Management Agreement, MetLife pays Wilmington Trust Company a fee to manage the separate accounts as follows: Wilmington Short/Intermediate Bond Fund Wilmington Trust Broad Market Bond Fund Contract Value Annual Charge Contract Value Annual Charge First $25,000, % First $10,000, % Next $25,000, % Next $20,000, % Next $50,000, % Next $20,000, % Over $100,000, % Next $50,000, % Over $100,000, % Investment management fees paid by MetLife in 2014 to Wilmington Trust Company totaled $1,231,616. Note 6 Risks Associated with Investing in the Funds In the normal course of business, the Funds trade financial instruments and enter into financial transactions where risk of potential loss exists due to changes in the fair value of the Funds. Contract issuer risk. The Fund invests in the Contract, which presents risks to the Fund. These risks include, without limitation, the risks that the issuer will default on its obligations under the Contract; the premium or other fee payments under the Contract will reduce the performance of the Fund; the terms of the Contract will expire before a replacement contract with favorable terms can be secured; the issuer could control the investment management activities of the Fund; or the occurrence of certain events could cause the Contract to lose its "benefit responsive" or "stable value" features. 12