Minnesota School District Liquid Asset Fund Plus. Annual Report

Transcription

1 Minnesota School District Liquid Asset Fund Plus Annual Report June 30, 2016

2 Table of Contents Independent Auditor s Report Management s Discussion and Analysis Statements of Net Position Statements of Changes in Net Position Notes to Financial Statements Supplementary Information Schedules of Investments (unaudited) This information does not represent an offer to sell or a solicitation of an offer to buy or sell any fund or other security. Investors should consider the investment objectives, risks, charges and expenses before investing in any of the Fund s series. This and other information about the Fund s series is available in the Fund s current Information Statement, which should be read carefully before investing. A copy of the Fund s Information Statement may be obtained by calling MSDLAF or is available on the Fund s website at While the MSDLAF+ Liquid Class and Max Class seek to maintain a stable net asset value of $1.00 per share and the MSDLAF+ TERM series seek to achieve a net asset value of $1.00 per share at its stated maturity, it is possible to lose money investing in the Fund. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Shares of the Fund are distributed by PFM Fund Distributors, Inc., member Financial Industry Regulatory Authority (FINRA) ( nra.org). PFM Fund Distributors, Inc. is a wholly owned subsidiary of PFM Asset Management LLC. Member SIPC.

3 Independent Auditor s Report To the Board of Trustees and Investors of the Minnesota School District Liquid Asset Fund Plus We have audited the accompanying financial statements of the Minnesota School District Liquid Asset Fund Plus MSDLAF+ Portfolio, MSDLAF+ Term Series H and MSDLAF+ Term Series I (hereafter collectively referred to as the Funds ), which comprise the statements of net position as of June 30, 2016, and the related statements of changes in net position for each of the periods indicated, and the related notes to the financial statements, which collectively comprise the Funds basic financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements 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 that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits 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 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 our 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, we consider internal control relevant to the Funds 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 Funds 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 financial position of the Minnesota School District Liquid Asset Fund Plus MSDLAF+ Portfolio, MSDLAF+ Term Series H and MSDLAF+ Term Series I at June 30, 2016, and the changes in net position for each of the periods indicated, in accordance with accounting principles generally accepted in the United States of America. Other Matter The accompanying Management s Discussion and Analysis on pages 2 through 4 are required by accounting principles generally accepted in the United States of America to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audits of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audits were conducted for the purpose of forming an opinion on the basic financial statements. The accompanying Schedules of Investments of the Minnesota School District Liquid Asset Fund Plus MSDLAF+ Portfolio and MSDLAF+ Term Series I are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audits of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Philadelphia, Pennsylvania October 26, 2016 Minnesota School District Liquid Asset Fund Plus Annual Report June 30,

4 Management s Discussion and Analysis We are pleased to present the Annual Report for the Minnesota School District Liquid Asset Fund Plus ( MSDLAF+ or the Fund ) for the period ended June 30, Management s Discussion and Analysis is designed to focus the reader on significant financial items and provide an overview of the Fund s activities for the periods ended June 30, The Fund s MSDLAF+ Portfolio has adopted Governmental Accounting Standards Board ( GASB ) Statement No. 79, which became effective for fiscal years beginning after June 15, The financial statements presented within this Annual Report have been prepared in conformity with the reporting framework prescribed by GASB for local government investments pools. There was no impact on the net position of the Fund s portfolios as a result of adopting the GASB reporting framework. Economic Update Overall, the U.S. economy grew moderately over the past year, while decelerating in the first months of As compared to other areas of the developed world (such as Europe and Japan) that struggled with stagnation, U.S. gross domestic product ( GDP ) expanded at a decent pace in 2015, propelled largely by consumer spending. GDP growth slowed markedly in the first quarter of 2016, with a sluggish expansion at an annual rate of 1.1%, following the pattern of first-quarter slowdowns over the last few years, but also attributable to anemic business investment and a strong dollar that has led to a rise in imports and a decline in exports. Nonetheless, the U.S. labor market continues to do well, and although the pace of new job creation has slowed recently, the unemployment rate fell from 5.5% in May 2015 to 4.9% in June Global growth concerns precipitated by slowdown of the Chinese economy, and the sharp decline in commodity prices led by oil, played a significant role in the global economy strengthening the dollar while dampening inflation in the U.S. However, based on the recent recovery of oil prices, it appears that the short-term supply/demand dynamics could be approaching an equilibrium state. The most significant economic development of 2016 so far has been the unexpected result of the United Kingdom s ( UK s ) referendum in favor of Brexit (a British exit), where a majority of UK votes agreed that their country should leave the European Union ( EU ). As it will likely take at least two years before the departure takes place, it is too early to determine the long term impact on the global economy. The most direct impact could be a disruption in trade between the UK and EU, which may lead to a slowdown in both economies. Because of the decline in the value of the British pound and the euro, a slowdown in Europe could spill over to the U.S. economy by reducing exports, but the impact is expected to be modest. The global impact could be even greater if other countries attempt to follow the UK s lead in leaving the EU. The Federal Open Market Committee ( FOMC ) raised the federal funds target rate by 25 basis points (0.25%) at its December 2015 meeting, ending its seven-year zero interest rate policy. In doing so, the FOMC stressed its intention to normalize rates at a gradual pace. The move was triggered by a consistently strong labor market in 2015 that brought the unemployment rate below the Federal Reserve s ( Fed s ) target range (5.2%-5.5%). Rising wage growth led to improved expectations of future inflation that also contributed to the Fed rate hike. However, the rise in interest rates across the yield curve coincident with the rate hike was almost entirely reversed over the first quarter of 2016 due to widespread global economic concerns and a steep decline in commodity prices. Brexit put further downward pressure on yields around the world, causing the 10-year U.S. Treasury to hit an all-time low below 1.4%. It also caused significant flattening of the yield curve, and reduced the probability of a Fed rate hike for the remainder of Central banks around the world, some of which (including Europe and Japan) already have a negative interest policy in effect, have expressed their willingness to further ease the monetary policy if needed. The Bank of England ( BOE ) that seemed ready to raise rates leading up to Brexit, is now contemplating a cut in interest rates. Financial Statement Overview Management s Discussion and Analysis provides an overview of the financial statements of the Fund s MSDLAF+ Portfolio, MSDLAF+ Term Series H and MSDLAF+ Term Series I (each a Portfolio and, collectively, the Portfolios ). The financial statements for each Portfolio include a Statement of Net Position and Statement of Changes in Net Position. These financial statements are supported by the Notes to Financial Statements. In addition, Schedules of Investments for the MSDLAF+ Portfolio and MSDLAF+ Term Series I are included as Supplementary Information following the Notes to Financial Statements. MSDLAF+ Term Series H ceased to operate on June 30, 2016 and has no investment outstanding as of that date, so no Schedule of Investments is shown for that Portfolio. Condensed Financial Information and Analysis Yearly variances in the gross income generated by the Portfolios are impacted by the overall rate environment described in the preceding paragraphs. Average net assets also impact the net investment income, as well as certain of the expense line items that are based on a percent of Portfolio net assets and other fixed costs are spread over the average net assets. The Statements of Net Position presents the financial position of each Portfolio at June 30, 2016 and includes all assets and liabilities of each Portfolio. The difference 2 Minnesota School District Liquid Asset Fund Plus Annual Report June 30, 2016

5 between total assets and total liabilities, which is equal to the investors interest in the Portfolio s net position, is shown below for the current and prior fiscal year-end dates, as applicable: MSDLAF+ MSDLAF+ Portfolio Term Series I MSDLAF+ Term Series H June 30, 2016 June 30, 2015 June 30, 2016 June 30, 2016 June 30, 2015 Total Assets $ 1,712,794,931 $1,566,959,361 $ 363,602,954 $ 28,882 $ 142,179,999 Total Liabilities (23,113,983) (4,538,794) (250,775) (28,882) (45,973) Net Position $ 1,689,680,948 $1,562,420,567 $ 363,352,179 $ $ 142,134,026 Total assets of the Portfolios fluctuate as investable assets rise and fall when capital shares are issued and redeemed. The increase in total assets of the MSDLAF+ Portfolio is primarily comprised of an $11,608,074 increase in cash and cash equivalents and a $133,456,897 increase in investments. The increase in total liabilities of the MSDLAF+ Portfolio is mainly due to a $19,979,556 payable for securities purchased for an investment purchase which settled after the fiscal year-end date. MSDLAF+ Term Series I commenced operations September 17, 2015, therefore it had no assets at the prior fiscal year-end; its total assets at the current year-end are primarily comprised of $347,632,614 of investments and $15,201,921 of cash and cash equivalents. MSDLAF+ Term I s liabilities include accrued fees payable to its service providers excluding any investment advisory or other waivers. Any such waivers will be determined following its scheduled termination date on June 30, MSDLAF+ Term H ceased to operate as of June 30, 2016, its scheduled termination date; at this date, as is typical of Term series upon their termination, its assets were comprised solely of $28,882 of cash and cash equivalents since the $142,033,240 of investments it held at the prior fiscal year-end had matured or been sold to meet scheduled investor redemptions. The total liabilities for MSDLAF+ Term H are comprised of accrued fees payable to its service providers and the $28,882 payable is net of $319,638 of investment advisory fees which were waived during the life of the series. The changes in each Portfolio s net position for the periods ended June 30, 2016 primarily relate to a net capital share issuance for the year, as well as net investment income and realized gains on sale of investments as reflected in the discussion of the Statement of Changes in Net Position below. The Statement of Changes in Net Position presents the activity within the net position for the periods ended June 30, Activity within net positions consists of net investment income, realized gains on sale of investments, and net shares issued and redeemed by investors, as outlined below for the current and prior fiscal periods, as applicable: MSDLAF+ MSDLAF+ Portfolio Term Series I MSDLAF+ Term Series H September 17, September 26, Year Ended Year Ended 2015 (1) through Year Ended 2014 (1) through June 30, 2016 June 30, 2015 June 30, 2016 June 30, 2016 (2) June 30, 2015 Investment Income $ 7,505,754 $ 3,330,421 $ 1,141,580 $ 428,775 $ 245,395 Net Expenses (4,055,078) (2,818,141) (319,935) (106,421) (66,333) Net Investment Income 3,450, , , , ,062 Realized Gains on Sale of Investments 98,429 53,396 3,638 7,786 8 Net Capital Shares Issued/(Redeemed) 123,711,276 (95,871,545) 362,526,896 (142,464,166) 141,954,956 Changes in Net Position $127,260,381 $ (95,305,869) $ 363,352,179 $ (142,134,026) $ 142,134,026 (1) Commencement of operations for each respective Term Series. (2) Scheduled termination date for MSDLAF+ Term Series H. The investment income of the Portfolios is driven by a combination of the amount of investable assets and the general short-term interest rate environment that impacts the yields on investments the Portfolios can purchase. Realized gains on sale of investments occur whenever investments are sold for more than their carrying value. A rise in short term interest rates in 2015 caused yields on the investments each Portfolio could purchase to rise on a year-over-year basis. The MSDLAF+ Portfolio s average net assets increased approximately 6% year-over-year, which is reflected in the increase in the net capital shares issued/(redeemed) above. This also resulted in higher investable assets, as well as an increase in the net expenses since a significant portion of the Portfolio s expenses are calculated as a percentage of average net assets. The increase in the MSDLAF+ Portfolio s expenses is also the result of a $770,971 decrease in waivers by service providers and a $135,577 reduction is bank earnings credits in the current year as compared to the prior year. The waivers decreased as rates rose from the near zero level they were at the past several years and as short term interest rates rose some of the cash which was left on deposit at the Custodian to generate bank earnings credits was invested in higher yielding investments. Since MSDLAF+ Term I commenced operations during the current fiscal year it had no changes in net position from the prior year. MSDLAF+ Term I issued $385,085,917 of shares in the portion of the current fiscal year it was active and earned $1,141,580 of investment income as those assets were invested. The net expenses of MSDLAF+ Term I include an investment advisory fee of 0.25% Minnesota School District Liquid Asset Fund Plus Annual Report June 30,

6 of its average daily net assets, so as assets grow this amount grows also. However, this amount may be reduced in the future by any investment advisory or other waivers which will be determined following MSDLAF+ Term I s scheduled termination date on June 30, MSDLAF+ Term H commenced operations during the prior fiscal year and terminated operations as scheduled on the current fiscal year-end date of June 30, Thus the increase in net position from the prior fiscal period was entirely offset by a decrease in net position in the current fiscal period as all shares were redeemed by the termination date. The investment income increased from the prior to the current fiscal period as a result of the increase in short-term interest rates coupled with the current period being a full year versus the prior period being less than a full year based on it September 26, 2014 commencement of operations. The net expenses of MSDLAF+ Term H are net of $319,638 of investment advisory fees which were waived during the life of the series. The total returns of the MSDLAF Liquid and MAX Classes for the year ended June 30, 2016 were 0.21% and 0.27%, up from 0.03% and 0.05%, respectively, for the year ended June 30, The return of each investor s investment in a MSDLAF+ Term varies based on the timing and rate at which they invest. Select financial highlights for each of the Portfolios for the current fiscal period, as compared to the prior fiscal period, as applicable, are as follows: MSDLAF+ MSDLAF+ Portfolio Term Series I MSDLAF+ Term Series H September 17, September 26, Year Ended Year Ended 2015 (1) through Year Ended 2014 (1) through June 30, 2016 June 30, 2015 June 30, 2016 June 30, 2016 (2) June 30, 2015 Ratio of Expenses to Average Net Assets 0.27% 0.11% 0.09% Liquid Class 0.32% 0.22% MAX Class 0.26% 0.20% Ratio of Expenses to Average Net Assets, Before Fee Waivers 0.27% 0.28% 0.29% Liquid Class 0.38% 0.38% MAX Class 0.29% 0.28% Ratio of Net Investment Income to Average Net Assets 0.70% 0.33% 0.24% Liquid Class 0.20% 0.02% MAX Class 0.26% 0.04% Ratio of Net Investment Income to Average Net Assets, Before Fee Waivers 0.70% 0.16% 0.04% Liquid Class 0.14% -0.14% MAX Class 0.23% -0.04% (1) Commencement of operations for each respective Term Series. (2) Scheduled termination date for MSDLAF+ Term Series H. The ratios above are computed for each Portfolio taken as a whole, for each MSDLAF+ Term series these ratios are calculated using the period during which shares of each Portfolio were outstanding as noted above. The computation of such ratios for an individual investor in a MSDLAF+ Term and net asset value of each investor s investment in a MSDLAF+ Term series may vary based on the timing of capital transactions and rate upon which they invest. The ratio of expenses to average net assets on a pre-waiver basis did not change significantly year-over-year for the Liquid and MAX Classes of the MSDLAF+ Portfolio since the bulk of these expenses are calculated as a percentage of net assets. After factoring in the decrease in waivers noted above, the ratio of expenses to average net assets rose by 0.10% for the Liquid Class and by 0.06% for the MAX Class. Despite the increase in the ratio of expenses to average net assets, the ratio of net investment income to average net assets also rose due to the increase in investment income noted above. The impact of fee waivers in the current year were equivalent to 0.06% for the Liquid Class and 0.03% for the MAX Class, a decrease from 0.16% and 0.08%, respectively, in the prior year. Since MSDLAF+ Term I commenced operations during the current fiscal year it had no ratios for the prior year. MSDLAF+ Term I net investment income ratio of 0.70% reflects the higher general interest rate environment as those assets were invested. The expense ratios of MSDLAF+ Term I include an investment advisory fee of 0.25% of its average daily net assets, as well as other operating expenses. However, this ratio may be reduced in the future for any investment advisory or other waivers which will be determined following MSDLAF+ Term I s scheduled termination date on June 30, MSDLAF+ Term H commenced operations during the prior fiscal year and terminated operations as scheduled on the current fiscal year-end date of June 30, The ratio of expenses to average net assets on a pre-waiver basis did not change significantly from the prior fiscal period to the current fiscal period since the bulk of these expenses are calculated as a percentage of net assets. The ratio of net investment income to average net assets increased from the prior to the current fiscal period as a result of the increase in short-term interest rates. The ratios of MSDLAF+ Term H are net of investment advisory fee waivers of 0.17% and 0.20% during the current and prior fiscal periods, respectively. 4 Minnesota School District Liquid Asset Fund Plus Annual Report June 30, 2016

7 Statements of Net Position June 30, 2016 MSDLAF+ MSDLAF+ MSDLAF+ Portfolio Term Series I Term Series H Assets Investments $ 1,328,756,739 $ 347,632,614 $ Cash and Cash Equivalents ,381,207 15,201,921 28,882 Interest Receivable ,649, ,419 Subscriptions Receivable ,651 Total Assets ,712,794, ,602,954 28,882 Liabilities Payable for Securities Purchased ,979,556 Subscriptions Received in Advance ,465,123 Redemptions Payable ,668 Investment Advisory Fees Payable , ,125 12,692 Administration Fees Payable Liquid Class ,329 MAX Class ,184 Marketing Fees Payable Liquid Class ,295 MAX Class ,635 Sponsorship Fee Payable Liquid Class ,867 MAX Class ,966 Audit Fees Payable ,550 20,234 15,900 Custodian Fees Payable ,259 3, Legal Fee Payable ,499 Other Accrued Expenses ,984 1, Total Liabilities ,113, ,775 28,882 Net Position $ 1,689,680,948 $ 363,352,179 $ Net Position Consists of: Liquid Class Shares $ 606,646,604 (applicable to 606,646,604 outstanding shares of benefi cial interest; unlimited authorization; no par value; equivalent to $1.00 per share) MAX Class Shares $ 1,083,034,344 (applicable to 1,083,034,344 outstanding shares of benefi cial interest; unlimited authorization; no par value; equivalent to $1.00 per share) MSDLAF Term Series I Shares $ 363,352,179 (applicable to 364,801,273 outstanding shares of benefi cial interest; unlimited authorization; no par value) The accompanying notes are an integral part of these fi nancial statements. Minnesota School District Liquid Asset Fund Plus Annual Report June 30,

8 Statements of Changes in Net Position MSDLAF+ MSDLAF+ MSDLAF+ Portfolio Term Series I Term Series H Year September 17, Year Ended 2015 (1) through Ended June 30, 2016 June 30, 2016 June 30, 2016 (2) Income Investment Income $ 7,505,754 $ 1,141,580 $ 428,775 Expenses Investment Advisory Fees ,161, , ,537 Administration Fees Liquid Class ,276 MAX Class ,032,718 Marketing Fees Liquid Class ,496 MAX Class ,511 Sponsorship Fees Liquid Class ,679 MAX Class ,973 Custodian Fees ,470 6,654 4,208 Audit Fees ,550 20,234 24,569 Legal Fees , Other Expenses ,512 4,037 2,110 Total Expenses ,605, , ,833 Less: Investment Advisory Fee Waivers (3,399) (167,412) Administration Fee Waivers (153,436) Sponsorship Fee Waivers (138,892) Custodian Fee Waivers (30,000) Expenses Paid Indirectly (224,779) Net Expenses ,055, , ,421 Net Investment Income ,450, , ,354 Other Income Net Realized Gain on Sale of Investments ,429 3,638 7,786 Net Increase from Investment Operations Before Capital Transactions ,549, , ,140 Capital Shares Issued ,085, ,281,518 Liquid Class ,295,951,254 MAX Class ,410,380,216 Capital Shares Redeemed (22,559,021) (333,745,684) Liquid Class (8,190,879,348) MAX Class (4,391,740,846) Net Increase (Decrease) in Net Position ,260, ,352,179 (142,134,026) Net Position Beginning of Period ,562,420, ,134,026 Net Position End of Period $ 1,689,680,948 $ 363,352,179 $ (1) Commencement of operations for MSDLAF+Term Series I. (2) Scheduled termination date for MSDLAF+ Term Series H. The accompanying notes are an integral part of these fi nancial statements. 6 Minnesota School District Liquid Asset Fund Plus Annual Report June 30, 2016

9 Notes to Financial Statements A. Organization and Reporting Entity The Minnesota School District Liquid Asset Fund Plus ( MSDLAF+, or the Fund ) was established on November 29, 1984, as a common law trust organized under Section of the Minnesota Statutes (the Joint Powers Act). The purpose of the Fund is to enable such school districts and other organized bodies to pool their available funds for investment. The Fund may invest only in instruments as authorized by Sections 118A.04 and 118A.05 of the Minnesota Statutes ( Permitted Investments ). Shares of the Fund s portfolios are offered exclusively to Minnesota school districts, intermediate units, cooperative units, regional information centers and joint purchasing units. The Fund has not provided or obtained any legally binding guarantees to support the value of shares. All participation in the Fund is voluntary. The Fund is not required to register with the Securities and Exchange Commission ( SEC ) as an investment company. The Fund currently consists of the MSDLAF+ Portfolio and the MSDLAF+ Term Series. The MSDLAF+ Portfolio has a Liquid Class of shares and a MAX Class of shares. The financial statements of each MSDLAF+ Term Series are prepared on an interim date if the life of the series is in excess of an annual period and following the termination date of each individual MSDLAF+ Term Series. These financial statements and related notes encompass the Liquid and the MAX Classes of the MSDLAF+ Portfolio; MSDLAF+ Term Series I; and MSDLAF+ Term Series H (each a Portfolio, and collectively the Portfolios ). MSDLAF+ Term Series H commenced operations on September 26, 2014 and terminated its operations on June 30, MSDLAF+ Term Series I commenced operations on September 17, 2015 is scheduled to terminate its operations June 30, MSDLAF+ Term s shares have termination dates of up to one year. Each Series of MSDLAF+ Term is a portfolio of Permitted Investments and will have a Series-specific termination date. Multiple MSDLAF+ Term Series are created with staggered maturity dates. MSDLAF+ Term offers its investors an estimated yield on their investments when the shares are purchased. The investment strategy of MSDLAF+ Term is to match, as closely as possible, the cash flows required to meet investors planned redemptions, including the projected dividend, with the cash flows from the portfolio. Consistent with this strategy, active trading of securities held by the portfolio will be practiced with the objective of enhancing the overall yield of the portfolio. An investor only receives dividends from the investment of the MSDLAF+ Term Series in which it is invested. At the termination date of any MSDLAF+ Term Series, any excess net income of the Series may be distributed in the form of a supplemental dividend only to investors of the Series that are outstanding on the termination date of the Series, and the excess net income will be allocated on a pro rata basis to all investors then outstanding. The investment portfolio of each MSDLAF+ Term Series is accounted for independent of the investment portfolio of any other Series or portfolio of MSDLAF+. In the event a MSDLAF+ Term Series portfolio were to realize a loss (whether of principal or interest), no contribution would be made to such MSDLAF+ Term Series from any other Series or portfolio of MSDLAF+ to offset such loss. No Series would constitute security or collateral for any other Series or portfolio. B. Summary of Significant Accounting Policies The following is a summary of significant accounting policies followed by the Fund in preparation of its financial statements. Measurement Focus and Basis of Accounting The Fund reports transactions and balances using the economic resources management focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. Cash and Cash Equivalents The Fund reflects cash on deposit in bank accounts which are available within one business day as cash and cash equivalents. Certificates of deposit are disclosed separately as investments in the financial statements. Valuation of Investments In accordance with the authoritative guidance on fair value measurements and disclosures under Governmental Accounting Standards Board ( GASB ) Statement No. 72, the Fund discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows: Level 1 Quoted prices in active markets for identical assets. Level 2 Inputs other than quoted prices that are observable for the asset, including quoted prices for similar investments based on interest rates, credit risk and like factors. Level 3 Unobservable inputs for the assets, including the Portfolios own assumption for determining fair value. Minnesota School District Liquid Asset Fund Plus Annual Report June 30,

10 Fund investments are assigned a level based upon the observability of the inputs which are significant to the overall valuation. In accordance with GASB Statement No. 79, MSDLAF+ Portfolio securities are valued at amortized cost, which approximates fair value. GASB Statement No. 79 requires a comparison of the MSDLAF+ Portfolio s investments on an amortized cost basis to fair values determined on a market value basis at least monthly. The market prices used to determine fair values in this comparison, as well as the fair values for investments held by MSDLAF+ Term Series, are derived from closing bid prices as of the last business day of the month as supplied by third-party pricing services. Where prices are not available from these generally recognized sources the securities are priced using a yield-based matrix system to arrive at an estimated market value. Prices that fall between data points are interpolated. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Since the value is not obtained from a quoted price in an active market, all securities held by the Fund s portfolios at June 30, 2016 are categorized as Level 2. There were no transfers between levels in any of the Fund s portfolios during the year ended June 30, Investment Transactions Security transactions are accounted for on trade date (date the order to buy or sell is executed). Costs used in determining realized gains and losses on the sale of investment securities are those of specific securities sold. Interest income is recorded using the accrual method. Discounts and premiums are accreted and amortized, respectively, to interest income over the lives of the respective securities. Repurchase Agreements Repurchase agreements entered into with broker-dealers are secured by U.S. government or agency obligations. The Fund s custodian takes possession of the collateral pledged for investments in repurchase agreements. The Fund also enters into tri-party repurchase agreements. Collateral pledged for tri-party repurchase agreements is held for the Fund by an independent thirdparty custodian bank until the maturity of the repurchase agreement. Repurchase agreements are collateralized at 102% of the obligation s principal and interest value. In the event of default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. If the seller defaults and the value of the collateral declines realization of the value of the obligation by the Fund may be delayed. In the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to delays from legal proceedings. Dividends and Distributions On a daily basis, the MSDLAF+ Portfolio declares dividends and distributions for its Liquid and MAX Classes from its net investment income, and net realized gains or losses from securities transactions, if any. Such dividends and distributions are payable to investors of record at the time of the previous computation of the Portfolio s net asset value and are distributed to each investor s account by purchase of additional shares of the Portfolio on the last day of each month. Dividends to investors in MSDLAF+ Term are declared and paid on the termination date of each MSDLAF+ Term series, except for dividends on shares redeemed pursuant to a planned early redemption or a premature redemption before the termination date of such series, which will be declared and paid when such shares are redeemed. Redemption Restrictions Shares of the MSDLAF+ Portfolio are available to be redeemed upon proper notice without restrictions under normal operating conditions. There are no limits to the number of redemptions that can be made as long as an investor has a sufficient number of shares to meet their redemption request. The Fund s Board of Trustees can suspend the right of withdrawal or postpone the date of payment if the Trustees determine that there is an emergency that makes the sale of a Portfolio s securities or determination of its net asset value not reasonably practical. With the exception of direct investment of funds distributed by the State of Minnesota or the deposit of proceeds of aid, tax or revenue anticipation certificates of indebtedness, investments in shares of the MSDLAF+ Portfolio s MAX Class must be made for a minimum of at least 14 calendar days or be subject to a penalty as further described in the Fund s Information Statement. Shares of MSDLAF+ Term Series are purchased to mature upon pre-determined maturity dates selected by the investor at the time of purchase. Should an investor need to redeem shares in an MSDLAF+ Term Series prematurely they must provide notice at least 7 days prior to premature redemption date. The value of a pre-mature redemption is equal to the original price for such share, plus dividends thereon, at the projected yield less such share s allocation of any losses incurred by the series, less a premature redemption penalty, if any. Refer to the Fund s Information Statement for additional information. Use of Estimates The preparation of financial statements under accounting principles generally accepted in the United States of America ( GAAP ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates made by management. 8 Minnesota School District Liquid Asset Fund Plus Annual Report June 30, 2016

11 Income and Expense Allocations Income, common expenses and realized gains and losses are allocated to the classes of the MSDLAF+ Portfolio based on the relative net assets of each class when earned or incurred. Expenses specific to a class of shares of the MSDLAF+ Portfolio, such as administrative, marketing, sponsorship and banking fees, are allocated to the class of shares to which they relate. Certain expenses of the Fund, such as legal, trustee, and insurance fees, are allocated between the MSDLAF+ Portfolio and each MSDLAF+ Term Series based on the relative net assets of each when such expenses are incurred. Income, realized gains and losses and expenses specific to Series of MSDLAF+ Term, such as investment advisory, administration, audit, banking and rating fees, are allocated to the MSDLAF+ Term Series to which they relate. Income Tax Status The Fund is not subject to Federal or Minnesota income tax upon the income realized by it. Accordingly, no provision for federal income taxes is required in the financial statements. The Fund has evaluated this tax position to determine whether the tax position is more likely-than-not of being sustained by the applicable tax authority. Management has concluded that no provision for federal income tax is required for the Fund s financial statements. Representations and Indemnifications In the normal course of business, the Fund enters into contracts that contain a variety of representations which provide general indemnifications. The Fund s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience the Fund expects the risk of loss to be remote. Subsequent Events Evaluation The Fund has evaluated subsequent events through October 26, 2016, the date through which procedures were performed to prepare the financial statements for issuance. No events have taken place that meet the definition of a subsequent event requiring adjustment or disclosure in these financial statements. C. Investment Risks Under GASB Statement No. 40, state and local governments and other municipal entities are required to disclose credit risk, concentration of credit risk, and interest rate risk for investment portfolios. The following risk disclosures of the MSDLAF+Portfolio and MSDLAF+ Term Series I portfolios as of June 30, 2016 have been provided for the information of the Portfolios investors. Credit Risk The Portfolios investment policies, as outlined in the Fund s Information Statement, limits the Portfolios investments to those which are authorized investments as permitted under Minnesota law. As of June 30, 2016, the MSDLAF+ Portfolio and MSDLAF+ Term Series I was comprised of investments which were, in aggregate, rated by Standard and Poor s ( S&P ) as follows: S&P MSDLAF+ MSDLAF+ Term Rating Portfolio Series I AA+ (1) 5.84% 1.66% A % 27.94% A % 69.80% Exempt (2) 1.89% 0.60% Not Rated (3) 0.53% (1) Represents investments in obligations of the U.S. government or its agencies or instrumentalities, which are rated Aaa and AAA by Moody s Investor Service and Fitch Ratings, Inc., respectively, which are the highest category of credit ratings by each of those statistical rating organizations. (2) Represents investments in U.S. Treasury securities, which are not considered to be subject to overall credit risk per GASB. (3) Represents investments in certificates of deposit insured by the FDIC. The above ratings of the MSDLAF+ Portfolio include the ratings of collateral underlying repurchase agreements in effect at June 30, Concentration of Credit Risk As outlined in the Fund s Information Statement, each Portfolio s investment policy establishes certain restrictions on investments and limitations on portfolio composition. The MSDLAF+ Portfolio and MSDLAF Term Series I investment portfolios at June 30, 2016 included the following issuers which individually represented greater than 5% of each Portfolio s total investment portfolio: Minnesota School District Liquid Asset Fund Plus Annual Report June 30,

12 MSDLAF+ MSDLAF+ Term Issuer Portfolio Series I Bank of Nova Scotia 5.75% Bank of Tokyo Mitsubishi UFJ 6.04% BOFI Federal Bank (2) 7.53% BNP Paribas Securities Corp. (1) 5.64% BNP Paribas Finance Inc. 7.74% Canadian Imperial Bank 6.63% Credit Suisse (NY) 9.74% HCBC Bank 7.23% Federal Home Loan Banks 5.27% JP Morgan Securities LLC 10.33% Pentagon Federal Credit Union (2) 6.02% Toronto Dominion Bank (NY) 7.53% Toyota Motor Credit Corp. 5.95% (1) This issuer is also counterparty to a repurchase agreement entered into by the MSDLAF+ Portfolio. This repurchase agreement is collateralized by the U.S. Treasury obligations. (2) Guaranteed by Federal Home Loan Bank letters of credit. Interest Rate Risk The Portfolios investment policies limit their exposure to market value fluctuations due to changes in interest rates by requiring that (1) the MSDLAF+ Portfolio maintain a dollar-weighted average maturity of not greater than sixty days (2) and the MSDLAF+ Term Series maintain a weighted average maturity of not greater than 1 year. At June 30, 2016, the weighted average maturity of the MSDLAF+ Portfolio and the MSDLAF+ Term Series I, including cash and cash equivalents and certificates of deposit, were 32 days and 156 days, respectively. The range of yields to maturity, actual maturity dates, principal values, fair values and weighted average maturities of these types of investments the MSDLAF+ Portfolio and MSDLAF+ Term Series I held at June 30, 2016 are as follows: MSDLAF+ Portfolio Yield-to Weighted Maturity Maturity Fair Average Type of Deposits and Investments Range Range Principal Value Maturity Cash and Cash Equivalents n/a n/a $ 382,381,207 $ 382,381,207 1 Day Certifi cates of Deposit Negotiable 0.64%-1.07% 7/26/16-6/8/17 767,500, ,514, Days Certifi cates of Deposit Non-negotiable 0.60%-0.94% 7/12/16-6/26/17 218,000, ,000,000 3 Days Commercial Paper 0.69%-1.04% 7/25/16-1/24/17 211,000, ,595, Days Repurchase Agreements 0.35% 7/1/16 34,900,000 34,900,000 1 Day U.S. Government Agency Bonds 0.47%-0.51% 11/15/16-3/9/17 42,753,000 42,760, Days U.S. Government Agency Discount Notes 0.40%-0.48% 10/5/16-10/14/16 30,000,000 29,965, Days U.S. Treasury Notes 0.51% 8/31/16 25,000,000 25,020, Days $1,711,534,207 $1,711,137,946 MSDLAF+ Term Series I Yield-to Weighted Maturity Maturity Fair Average Type of Deposits and Investments Range Range Principal Value Maturity Cash and Cash Equivalents n/a n/a $ 15,201,921 $ 15,201,921 1 Day Certifi cates of Deposit Negotiable 0.54%-1.26% 7/15/16-5/31/17 219,490, ,522, Days Commercial Paper 0.60%-1.09% 7/8/16-3/17/17 117,526, ,117, Days U.S. Government Agency Bonds 0.62%-0.68% 1/27/17-6/9/17 5,735,000 5,754, Days U.S. Government Agency Discount Notes 0.47%-0.54% 11/7/16-2/21/17 3,153,000 3,146, Days U.S. Treasury Notes 0.59%-0.78% 12/15/16-1/3/17 2,075,000 2,091, Days $ 363,180,921 $ 362,834,535 The weighted average maturities shown in the preceding table are calculated based on the stated maturity dates with the following exceptions: (1) floating or variable rate securities are assumed to have an effective maturity of the date upon which the securities interest rate next resets; (2) the effective maturity of callable securities is assumed to be its stated maturity unless the security had been called as of the reporting date, in which case the effective maturity would be assumed to be its called date; and (3) the effective maturity of cash and cash equivalents are assumed to be one day. Refer to the Schedule of Investments included in the Supplementary Information that follows for further information. 10 Minnesota School District Liquid Asset Fund Plus Annual Report June 30, 2016

13 D. Fees and Charges Pursuant to an Investment Advisory Agreement with MSDLAF, PFM Asset Management LLC ( PFM ) serves as the Investment Adviser and Administrator of the Fund, and PFM s wholly-owned subsidiary, PFM Fund Distributors, Inc., has been delegated the authority to provide marketing services to the Fund. Investment Advisory Fees For its advisory services provided to the MSDLAF+ Portfolio, PFM is paid a fee at an annual rate which is determined as follows: MSDLAF+ Portfolio Average Daily Net Assets Rate First $1,500,000, % $1,500,000,001 to $2,000,000, % $2,000,000,001 to $2,500,000, % $2,500,000,001 to $3,000,000, % Over $3,000,000, % Such fees are calculated daily and payable monthly. Under the terms of its Investment Advisory Agreement with PFM, each MSDLAF+ Term Series pays PFM a monthly fee for investment advisory services at the annual rate of 0.25% of each Series average daily net assets. Such fee is calculated daily and paid monthly. At its discretion, PFM may waive some or all of its fees for each MSDLAF+ Term Series, and such waiver may be discontinued at any time. PFM waived $319,638 of its fees payable by MSDLAF+ Term Series H for the period from its commencement on September 26, 2014 through its termination on June 30, In its discretion, PFM may waive fees payable by MSDLAF+ Term Series I following the termination of its operations June 30, Administration Fees Under its Agreement with the Fund, PFM is paid a fee for its services as Administrator to the MSDLAF+ Portfolio at an annual rate which was determined as follows: Rate Applied to the Rate Applied to the Average Daily Net Assets by Class Liquid Class MAX Class First $250,000, % 0.12% $250,000,001 to $500,000, % 0.11% Over $500,000, % 0.10% Such fees are calculated daily and payable monthly. PFM is not compensated for the administration services it provides to the MSDLAF+ Term Series Marketing Fees Pursuant to the authority granted under its Agreement with the Fund, PFM has delegated its duty to provide marketing services for the Fund to its wholly-owned broker/dealer subsidiary, PFM Fund Distributors, Inc. ( PFM Fund Distributors ). For the marketing services it provides to the MSDLAF+ Portfolio, PFM Fund Distributors is paid a fee at an annual rate according to the schedule that follows: Rate Applied to the Total Average Daily Net Fund Assets MSDLAF+ Breakpoint Portfolio First $750,000, % $750,000,001 to $1,500,000, % $1,500,000,001 to $3,000,000, % Over $3,000,000, % For the purpose of calculating breakpoints to determine the applicable rates above, the total average daily net assets of all Fund programs shall be included, including but not limited to: the Liquid Class of the MSDLAF+ Portfolio or Liquid Portfolio, as applicable, the MAX Class of the MSDLAF+ Portfolio or MAX Portfolio, as applicable, each MSDLAF+ Term Series, all SAM accounts, all BAM Accounts, the individualized portfolios, the Fixed Term Investment Program, or any other investment program approved, endorsed or otherwise made available to investors by the Fund or PFM. The fee is computed daily and payable monthly from the Liquid Class and MAX Class of the MSDLAF+ Portfolio based on the average daily net assets in each such class. PFM Fund Distributors is not compensated for the marketing services it provides to the MSDLAF Term Series. Minnesota School District Liquid Asset Fund Plus Annual Report June 30,