WILMINGTON TRUST FIDUCIARY SERVICES COMPANY COLLECTIVE INVESTMENT TRUST FOR EMPLOYEE BENEFIT PLANS GIC PORTFOLIO

Transcription

1 WILMINGTON TRUST FIDUCIARY SERVICES COMPANY COLLECTIVE INVESTMENT TRUST FOR EMPLOYEE BENEFIT PLANS GIC PORTFOLIO FINANCIAL STATEMENTS (PREPARED ON THE LIQUIDATION BASIS OF ACCOUNTING) FOR THE YEAR ENDED AUGUST 31, 2015 WITH INDEPENDENT AUDITORS REPORT

2 GIC Portfolio CONTENTS Independent Auditors' Report... 1 Statement of Assets and Liabilities in Liquidation... 3 Statement of Operations... 4 Statement of Changes in Net Assets... 5 Statement of Changes in Net Assets in Liquidation... 6 Financial Highlights... 7 Notes to the Financial Statements... 8

3 KPMG LLP 1601 Market Street Philadelphia, PA Independent Auditors Report To the Trustee and Participating Plans of the GIC Portfolio of the Wilmington Trust Fiduciary Services Company Collective Investment Trust for Employee Benefit Plans: We have audited the accompanying financial statements of the GIC Portfolio, a separate fund of Wilmington Trust Fiduciary Services Company Collective Investment Trust, which comprise the statement of assets and liabilities in liquidation, as of August 31, 2015, the related statement of changes in net assets in liquidation for the period from June 23, 2015 to August 31, 2015, the related statements of operations and changes in net assets for the period from September 1, 2014 to June 22, 2015, and the financial highlights for the year ended August 31, 2015, 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 U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, 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 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. 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 net assets in liquidation of the GIC Portfolio as of August 31, 2015, the changes in its net assets in liquidation for the period from June 23, 2015 to August 31, 2015, and the results of its operations and changes in its net assets for the period from September 1, 2014 to June 22, 2015, and the financial highlights for the year ended August 31, 2015 in accordance with U.S. generally accepted accounting principles applied on the basis describe in note 1 to the financial statements. KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity. 1

4 Emphasis of Matter As discussed in Note 1 to the financial statements, the trustee approved a plan of liquidation on June 22, 2015 and concluded liquidation was imminent as defined in ASC Subtopic , Liquidation Basis of Accounting. As a result, the Company has changed its basis of accounting for periods subsequent to June 22, 2015 from the going-concern basis to a liquidation basis. August 4,

5 Wilmington Trust Fiduciary Services Company GIC Portfolio Statement of Assets and Liabilities in Liquidation August 31, 2015 Assets Cash $ 62,107,958 Receivable for participant units sold 18,507 Due from manager 40,611 Due from Trustee 9,009 Total assets 62,176,085 Liabilities Audit fee payable 7,500 Custodian fee payable 1,509 Payable for participant units redeemed 95,732 Total liabilities 104,741 Net assets in liquidation (equivalent to $ per unit based on 1,723,114 units outstanding) $ 62,071,344 See notes to financial statements. 3

6 Wilmington Trust Fiduciary Services Company GIC Portfolio Statement of Operations For the period from September 1, 2014 through June 22, 2015 Investment income Interest income $ 143 Total investment income 143 Expenses Wrapper fees 80,506 Waivers and/or reimbursements - see Note 4 (80,506) Professional fees 26,456 Portfolio operating expense waivers - see Note 3 (26,456) Net expenses - Net investment income 143 Fully benefit responsive investment contract losses (312,691) Contributions made by investment manager Payments from investment manager - see Note 4 546,040 Total contributions made by investment manager - see Note 4 546,040 Net increase in net assets resulting from operations $ 233,492 See notes to financial statements. 4

7 Wilmington Trust Fiduciary Services Company GIC Portfolio Statement of Changes in Net Assets For the period from September 1, 2014 through June 22, 2015 Increase in net assets resulting from operations: Net investment income $ 143 Payments made by investment manager - see Note 4 546,040 Fully benefit responsive investment contract losses (312,691) Net increase in net assets resulting from operations 233,492 Contributions made by investment manager, trustee, wrap providers as adjustments from fair value to contract value for fully benefit responsive investment contracts - see Note 7 8,655,429 Net increase in net assets 8,888,921 Fund unit transactions: Proceeds from units sold 18,197,267 Value of units redeemed (63,283,737) Decrease in net assets resulting from fund unit transactions (45,086,470) Net decrease in net assets (36,197,549) Net assets Net assets at contract value, beginning of period 105,560,039 Adjustments from fair value to contract value for fully benefit responsive investment contracts, beginning of period (44,397,871) Net assets at fair value, September 1, ,162,168 Net assets at fair value, at June 22, 2015 $ 24,964,619 See notes to financial statements. 5

8 Wilmington Trust Fiduciary Services Company GIC Portfolio Statement of Changes in Net Assets in Liquidation For the period from June 23, 2015 through August 31, 2015 Net assets at June 23, 2015 $ 24,964,619 Cumulative-effect adjustment for change in accounting basis - Net assets in Liquidation at June 23, ,964,619 Increase in net assets in liquidation resulting from operations: Payments made by investment manager - see Note 4 76,915 Net increase in net assets in liquidation resulting from operations 76,915 Contributions made by investment manager, trustee, wrap providers as adjustments from fair value to contract value for fully benefit responsive investment contracts - see Note 8 36,055,133 Net increase in net assets in liquidation 36,132,048 Fund unit transactions: Proceeds from units sold 5,603,694 Value of units redeemed (4,629,017) Increase in net assets in liquidation resulting from fund unit transactions 974,677 Net increase in net assets in liquidation 37,106,725 Net assets at fair value in liquidation, at August 31, 2015 $ 62,071,344 See notes to financial statements. 6

9 Wilmington Trust Fiduciary Services Company GIC Portfolio Financial Highlights For the year ended August 31, 2015 Class 0IM Net asset value, beginning of year $ Increase in net assets from investment operations: Net investment income (1) - Payments from investment manager (1) Net increase in net assets resulting from operations Net asset value, end of year $ Total return (2) 0.752% Ratio to average net assets: Expenses (3) 0.000% Net investment income (4) 0.752% Fund Unit Activity: Units, beginning of the year 2,952,398 Issued 663,261 Redeemed (1,892,545) Units, end of year 1,723,114 (1) Based on average units outstanding. (2) Absent payment from investment manager, the total return would have been 0.00%. (3) Absent waivers, reimbursements and payments from investment manager (see Note 4), the expense ratio would have been 0.11%. (4) Absent waivers, reimbursements and payments from investment manager (see Note 4), the net investment income ratio would have been (0.11%). See notes to financial statements. 7

10 GIC Portfolio of the Wilmington Trust Fiduciary Services Company Notes to the Financial Statements August 31, 2015 Note 1 Organization Wilmington Trust Fiduciary Services Company (the "Trust") was created pursuant to a declaration of trust dated February 2, 1987, as last amended October 10, The Trust is organized and governed by the laws of the State of New Jersey, except to the extent pre-empted or superseded by the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or other governing federal law. Wilmington Trust Fiduciary Services Company (the "Trustee") serves as the Trustee of the Trust. The purpose of the Trust is to allow plan sponsors of retirement plans which qualify for exemption from federal income taxation pursuant to Section 501(a) of the Internal Revenue Code, as amended (the "Code"), by reason of qualifying under Section 401(a) of the Code; tax-exempt governmental plans under Section 414(d) or Section 818(a)(6) of the Code; eligible deferred compensation plans under Section 457(b) of the Code established by a government employer; or group trusts or separate accounts consisting solely of assets of the foregoing, collectively to invest plan assets in investments under the Trust. The Trust consists of separate investment portfolios with differing investment objectives, which are available for investment by participant plans. An eligible plan may join the Trust, subject to the Trustee's acceptance, and become a participating plan by executing participation materials specified by the Trustee. GIC Portfolio (the "Portfolio") is one of the portfolios of the Trust and offers one share class 0IM for investment by eligible participant plans. The Portfolio was created during November 2000 by the Trustee, with the objective to generate a total return in excess of the benchmark BOA/Merrill Lynch 1 year US Treasury Note Index by investing in a pool of fixed income securities, primarily insurance and bank investment contracts for the purpose of offering stability of principal, while maximizing current income and providing book value liquidity for individual plan participant withdrawals. The Trustee has appointed UBS Global Asset Management (Americas) Inc. as sub-adviser to the Portfolio. Effective February 17, 2015, State Street Bank and Trust Company provides transfer agency services for the Portfolio. The Trustee approved a plan of liquidation and concluded liquidation was imminent as defined in ASC subtopic , Liquidation Basis of Accounting - effective June 22, Under the plan of liquidation, the Portfolio plans to collect receivables and use cash to satisfy the Portfolio s obligations and pay the final redemption distribution to unit holders. As a result, the Portfolio changed its basis of accounting from the going concern basis to the liquidation basis of accounting effective June 22, Under the liquidation basis of accounting, assets are measured at the estimated amount of cash or other consideration that the Portfolio expects to collect in settling or disposing of those assets and liabilities are measured at their estimated settlement amount, including costs that the Portfolio expects to incur through the end of its liquidation ( liquidation value ). Based on the nature of the Portfolio s assets as of June 22, 2015 and through the end of the year, fair value approximates liquidation value. The use of the liquidation basis of accounting is substantially similar to the basis of accounting that the Portfolio had applied prior to the use of the liquidation basis of accounting. Therefore, the Trustee believes the adoption of the liquidation basis of accounting did not have a material effect on the carrying values of assets and liabilities as of August 31, As of July 9, 2015, the Trustee has notified the investing plans of the liquidation and in anticipation of the liquidation the Trustee has waived the notice period for plans wanting to redeem their plan's investment in full. Any plans remaining in the Portfolio as of September 30, 2015 will receive funds representing the fair value of their units as of that date. 8

11 GIC Portfolio of the Wilmington Trust Fiduciary Services Company Notes to the Financial Statements (continued) August 31, 2015 Note 2 Significant Accounting Policies The financial statements have been prepared in conformity with U.S. generally accepted accounting principles and the Trust agreement which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Cash The Portfolio maintains its cash in custody at UBS Financial Services, Inc. Security Transactions and Related Investment Income and Expense Security transactions are accounted for on the trade date (the date the order to buy or sell is executed). Interest income is recorded on the accrual basis. Costs used in determining realized gains (losses) on the security transactions are calculated on a first-in, first-out basis. Units Issued and Redeemed Unit purchases and redemptions are transacted at the net asset value per unit of the Portfolio determined as of the close of each business day. The Portfolio issues new units and repurchases outstanding units on a daily basis at the net asset value per unit. Each participating plan may withdraw, in whole or in part, amounts from its account, upon 12-month notice to the Trustee. In the event such notice is less than 12 months, the Trustee may approve the participating plan withdrawal subject to a withdrawal penalty equal to the market to book ratio difference at the time of withdraw. As of July 9, 2015, in anticipation of the planned liquidation the Trustee has waived the notice period for plans wanting to redeem their plan's investment in full. Investment income earned is retained in the Portfolio and included in the determination of unit values. Income Taxes The Trust is a qualified Trust under Section 401(a) of the Code and as such, no provision for income taxes is required. It is intended that the Trust and the Portfolio be exempt from taxation under Section 501(a) of the Code and qualify as a "group trust" under Revenue Ruling and other applicable Internal Revenue Service rules and regulations. ASC , Accounting for Uncertainty in Income Taxes, provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. ASC requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Portfolio's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense. The Trustee has evaluated uncertain tax positions in the United States and all major foreign jurisdictions for all open tax years for the Portfolio since the Portfolio's inception and has determined that the Portfolio's tax positions are deemed to be "morelikely-than-not" as of August 31, In the event that the Portfolio incurs any tax liabilities in the future, the tax liabilities and the corresponding tax expense will be recorded on the Statement of Assets and Liabilities and Statement of Operations, respectively. The Trust's federal fiduciary tax returns for tax years for which the applicable 9

12 GIC Portfolio of the Wilmington Trust Fiduciary Services Company Notes to the Financial Statements (continued) August 31, 2015 statutes of limitations have not expired are subject to examination by the Internal Revenue Service. The Portfolio did not accrue any interest or penalties related to uncertain tax liabilities as of August 31, The Trustee is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months. Note 3 Expenses Trustee Fee The Trustee is entitled to receive an annual fee for trustee and administrative services provided to the Portfolio. These fees are based upon the average daily value of the Portfolio. 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 month, and charged against the assets invested in the Portfolio at a rate of three basis points. The Trustee has voluntarily waived its fee for the year ended August 31, This waiver can be discontinued at any time. For services provided by the Trustee to the Trust, the Trustee also receives Trustee fees of 10 basis points which are not charged to the Portfolio, but to the plans themselves or their plan sponsor. Management Fee The Sub-Advisor is compensated for its investment advisory services provided to the Portfolio. Such fees are accrued and expensed directly to the plan or plan sponsor at a rate of five basis points of the average daily value of the Portfolio. These fees are not reflected in the Portfolio's expense ratio. Absent any waivers, the actual expense ratio for a participant investing in Class 0IM, including management and trustee fees incurred, would have been 0.15%. Portfolio Operating Expenses In addition to the fees described above, the Portfolio may bear 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 Portfolio assets, including, without limitation, transfer agency fees, brokerage commission and other expenses, are also charged against the Portfolio. For the fiscal year ended August 31, 2015, the Trustee paid such operating expenses on behalf of the Portfolio. Note 4 Payments from Investment Manager On March 17, 2009, the Portfolio entered into a fee waiver, fee reimbursement agreement with UBS Global Asset Management (Americas), Inc. effective February 1, 2009, and until further notice. This waiver and reimbursement can be discontinued by UBS Global Asset Management (Americas), Inc. at any time without prior notice to plan sponsors or participants in the Portfolio. 10

13 GIC Portfolio of the Wilmington Trust Fiduciary Services Company Notes to the Financial Statements (continued) August 31, 2015 Beginning July 2011, UBS Global Asset Management (Americas), Inc. has made voluntary cash payments on a monthly basis to maintain an annual crediting rate of 0.75% of the Portfolio's book value (gross of ordinary operating expenses). These voluntary payments may be discontinued by UBS Global Asset Management (Americas), Inc. at any time without prior notice to plan sponsors or participants in the Portfolio. During the year ended August 31, 2015, UBS Global Asset Management (Americas), Inc. made voluntary payments in the amount of $622,955. Note 5 Related Party Transactions (a) The Trustee is a non-depository bank that provides trust and custodial services for ERISA-qualified retirement plans as well as trust and investment services to business pension and retirement plans. The Trustee is responsible for managing the Trust's investment and business affairs. For such services provided by the Trustee to the Trust, the Trustee receives Trustee fees which are not charged to the Portfolio but to the plans themselves or their plan sponsor. (b) Another portfolio in the Trust has invested in this portfolio. At August 31, 2015, the other portfolio owned 499,747 units, which represent approximately 27.1% of the outstanding units. With respect to related party transactions, all transactions were executed at the net asset value on the transaction date. Note 6 Indemnification The Trust's organizational documents provide limited indemnification for the Trustee, and its directors, officers, employees and agents against liabilities arising in connection with the performance of their duties to the Trust. The Trust's maximum exposure under this arrangement is unknown as this would be dependent on future claims that may be made against the Trust. The risk of material loss from such claims is considered remote. Note 7 Reconciliation of Assets and Liabilities and Other Adjustments As of June 30, 2015, the wrap contracts have been terminated, and the Trustee had arranged for contributions, which have been paid to the Portfolio, that have eliminated the adjustment from fair value to contract value for fully benefit responsive contracts. At August 31, 2014, a Payable to Trustee (the "Payable") on the Statement of Assets and Liabilities equal to $2,686,405 reflected a liability associated with certain advancements made by WTFSC to the Portfolio during prior periods in connection with book value withdrawals from the Portfolio by certain participating plans. The Portfolio received market value payments, rather than book value payments, from its wrap providers. WTFSC advanced to the Portfolio the difference between book and market value in connection with such withdrawals, with the result that the plans received withdrawals at book value. WTFSC's advances were documented in an unsecured, non-interest bearing note payable by the Portfolio to WTFSC. On June 30, 2015, WTFSC forgave the Note resulting in an addition to assets of $2,686,405. At August 31, 2014, Other receivables (the "Receivable") on the Statement of Assets and Liabilities equal to $2,230,612 reflected the value of an amount due to the Portfolio that had not been paid as of that date. The amount 11

14 GIC Portfolio of the Wilmington Trust Fiduciary Services Company Notes to the Financial Statements (continued) August 31, 2015 was associated with the inadvertent distribution of a crediting rate in excess of the Portfolio s actual net earnings in prior periods. In anticipation of the liquidation, The Trustee, the Investment Manager and the Wrap Providers negotiated a settlement to cover the Receivable owed to the Portfolio, to reduce the Payable owed to the Trustee and to pay the adjustment necessary to bridge the difference between the contract value and the market value of the wrap contracts to ensure all investment contracts would be fully benefit responsive. The required adjustment was estimated to be $44,710,562, as of June 30, Any remaining amounts due the Portfolio would be borne by the Trustee. The product of the negotiations resulted in payments, during the year ended August 31, 2015, as follows: Payments by Wrap providers for the Receivable $ 1,872,020 Payment by WTFSC for the Receivable 358,592 $ 2,230,612 Payment by the Investment Manager for adjustments from fair value to contract value for fully benefit responsive investment contracts $ 18,172,166 Payments by Wrap Providers for adjustments from fair value to contract value for fully benefit responsive investment contracts 23,851,991 Forgiveness of the Payable by WTFSC 2,686,405 $ 44,710,562 Note 8 Subsequent Events The Trustee has evaluated the effects of subsequent events on the Portfolio's financial statements through August 4, 2016, which is the date the financial statements were available to be issued, and has determined that there are no material subsequent events other than the event below. As discussed in Note 1, the Portfolio adopted a plan of liquidation during the year. As a result of the plan of liquidation, the Portfolio paid liquidating redemptions equal to $62,131,861 subsequent to year end. On September 30, 2015 the Portfolio paid final liquidating redemptions, at which time all units outstanding were deemed cancelled and the Portfolio ceased operations. 12