WILMINGTON TRUST COLLECTIVE INVESTMENT TRUST INTERNATIONAL VALUE FUND FINANCIAL STATEMENTS DECEMBER 31, 2017 INDEPENDENT AUDITOR'S REPORT

Transcription

1 WILMINGTON TRUST COLLECTIVE INVESTMENT TRUST INTERNATIONAL VALUE FUND FINANCIAL STATEMENTS DECEMBER 31, 2017 WITH INDEPENDENT AUDITOR'S REPORT

2 INTERNATIONAL VALUE FUND CONTENTS Independent Auditor's Report... 1 Schedule of Investments... 3 Statement of Assets and Liabilities... 9 Statement of Operations... 9 Statement of Changes in Net Assets Financial Highlights Notes to the Financial Statements... 12

3 INDEPENDENT AUDITOR'S REPORT Wilmington Trust, N.A, Trustee for Wilmington Trust Collective Investment Trust Report on the Financial Statements We have audited the accompanying financial statements of (the "Fund") of Wilmington Trust Collective Investment Trust (the "Trust"), which comprise the Statement of Assets and Liabilities, including the Schedule of Investments, as of, and the related Statements of Operations and Changes in Net Assets, and the Financial Highlights for the period from May 1, 2017 (date of inception) to, and the related Notes to the Financial Statements. These financial statements and Financial Highlights are hereinafter collectively referred to as financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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 these financial statements 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 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 auditor's 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 financial position of the Fund as of, and the results of its operations, and changes in its net assets and its financial highlights for the period from May 1, 2017 (date of inception) to, in accordance with accounting principles generally accepted in the United States of America. 1

4 Other Matter Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary information on investments purchased and sold for the period from May 1, 2017 (date of inception) to, following the Schedule of Investments, is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Tulsa, Oklahoma April 30,

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6 Schedule of Investments Principal Amount or Fair Shares Cost Value Common Stocks % Basic Materials - 3.0% BHP Billiton PLC 19,545 $ 245,465 $ 402,541 Shin-Etsu Chemical Co. Ltd. 1, , ,120 Total Basic Materials 444, ,661 Communications - 5.3% BT Group PLC 33, , ,549 KDDI Corporation 7, , ,759 Telenor ASA 11, , ,495 Turkcell Iletisim Hizmetleri A.S. 83, , ,967 Yandex N.V. 5, , ,012 Total Communications 967,398 1,071,782 Consumer Discretionary - 6.7% Don Quijote Holdings Company Ltd. 8, , ,887 Isuzu Motors Ltd. 15, , ,290 Mr Price Group Ltd. 11, , ,067 Sony Corporation 5, , ,684 Valeo SA 2, , ,690 Total Consumer Discretionary 969,972 1,352,618 Consumer Staples - 5.2% British American Tobacco PLC 6, , ,980 Carlsberg AS Class B 2, , ,101 Unilever PLC 5, , ,318 Total Consumer Staples 908,873 1,044,399 Consumer, Cyclical - 2.8% Bridgestone Corporation 3, , ,393 Cie Generale des Etablissements Michelin SCA 2, , ,547 Yamaha Corporation 3, , ,478 Total Consumer, Cyclical 490, ,418 Consumer, Non-cyclical - 6.7% Anheuser Busch Inbev NV 2, , ,794 Cielo SA 33, , ,859 Diageo PLC 7, , ,630 Kao Corporation 2, , ,173 Medtronic PLC 4, , ,948 Total Consumer, Non-cyclical 1,321,550 1,345,404 See Notes to the Financial Statements. 3

7 Schedule of Investments (continued) Principal Amount or Fair Shares Cost Value Common Stocks % (continued) Energy - 6.0% Caltex Australia Ltd. 4,322 $ 104,005 $ 115,104 Royal Dutch Shell PLC 15, , ,872 Statoil ASA 13, , ,293 Suncor Energy, Inc. 8, , ,284 Total Energy 1,057,510 1,208,553 Financial % Aon PLC 2, , ,034 Banco Espirito Santo SA 25,753 32,881 - Bankia SA 9,403 44,373 45,018 BB Seguridade Participacoes 23, , ,261 DBS Group Holdings Ltd. 15, , ,499 Julius Baer Group Ltd. 3, , ,606 Kasikornbank PCL 28, , ,272 KBC Groep NV 1,866 89, ,336 National Bank of Canada 5, , ,949 Nordea Bank AB 21, , ,677 Prudential Financial, Inc. 21, , ,969 Sampo Oyj 4, , ,545 SLM Ltd. 41, , ,669 Sumitomo Mitsui Financial Group, Inc. 6, , ,245 UniCredit S.p.A. 5,841 84, ,276 Total Financial 2,705,553 3,428,356 Healthcare - 4.5% Novartis AG 6, , ,252 Shire PLC 7, , ,380 Total Healthcare 956, ,632 Industrials % AP Moeller Maersk A/S , ,045 Assa Abloy AB - Class B 15, , ,629 Canadian National Railway Company 1, , ,065 Deutsche Post AG 5, , ,217 Howden Joinery Group PLC 19, , ,405 Makita Corporation 6, , ,620 RELX PLC 13, , ,059 Safran SA 1, , ,934 Tenaris SA 8, , ,448 See Notes to the Financial Statements. 4

8 Schedule of Investments (continued) Principal Amount or Fair Shares Cost Value Common Stocks % (continued) Industrials % (continued) VINCI SA 4,009 $ 286,361 $ 409,913 Wolseley PLC 4, , ,135 Wolters Kluwer 6, , ,607 Total Industrials 2,618,774 3,133,077 Materials - 1.5% Air Liquide SA 2, , ,402 Real Estate - 2.2% Daiwa House Industry Company Ltd. 11, , ,238 Technology - 6.5% Capgemini 3, , ,166 SAP SE 3, , ,449 Tencent Holdings Ltd. 9, , ,974 Total Technology 846,174 1,313,589 Utilities - 2.0% CIA Saeamento Basico De SP 14, , ,136 Red Electrica Corporacion 10, , ,373 Total Utilities 373, ,509 Total Common Stocks 14,202,821 17,096,638 Depositary Receipts % Communications - 1.9% PT Telekomunikasi Indonesia (1) 11, , ,319 Consumer, Cyclical - 1.1% Ryanair Holdings PLC (1) 2, , ,922 Diversified - 0.7% KOC Holding AS (1) 5, , ,175 Financial - 1.3% ICICI Bank Ltd. (1) 26, , ,640 Technology - 6.3% Samsung Electronics Company, Ltd. (2) , ,108 Taiwan Semiconductor Manufacturing Company, Ltd. (1) 15, , ,024 Total Technology 790,921 1,263,132 Total Depositary Receipts 1,666,399 2,256,188 See Notes to the Financial Statements. 5

9 Schedule of Investments (continued) Principal Amount or Fair Shares Cost Value Short-Term Deposit - 2.5% State Street Eurodollar Time Deposit, 0.01%, due 1/2/2018 $ 501,777 $ 501,777 $ 501,777 Total Investments % $ 16,370,997 19,854,603 Other Assets in Excess of Liabilities - 1.2% 250,310 Net Assets - 100% $ 20,104,913 (1) American Depositary Receipts (2) Global Depositary Receipts See Notes to the Financial Statements. 6

10 Schedule of Investments (continued) The following table summarizes how the Fund's investments are broken down by country of issuance as a percentage of net assets of the Fund: Percentage Country of Issuer Fair Value of Net Assets Japan $ 2,777, % United Kingdom 2,504, % France 1,742, % Switzerland 1,098, % United States of America 882, % Netherlands 853, % Canada 723, % Germany 691, % Korea 654, % Taiwan 609, % Ireland 593, % Brazil 587, % Sweden 582, % Norway 531, % Australia 517, % South Africa 514, % China 508, % Denmark 475, % Turkey 473, % Belgium 438, % Indonesia 385, % Spain 289, % Singapore 284, % India 261, % Finland 241, % Thailand 208, % Russia 179, % Luxembourg 134, % Italy 109, % Total $ 19,854, % The following is a summary of the fair value of the investments in the Fund based on the inputs used to value them as of (see Note 3 in Notes to the Financial Statements): Fair Value Measurements Level 1 Level 2 Level 3 Total Common Stocks $ 17,096,638 $ - $ - $ 17,096,638 Depositary Receipts 2,256, ,256,188 Short-Term Deposit 501, ,777 Total $ 19,854,603 $ - $ - $ 19,854,603 See Notes to the Financial Statements. 7

11 Schedule of Investments (continued) During the period ended, the Fund did not hold any Level 3 securities. The Fund recognizes transfers between the fair value hierarchy levels as of the beginning of the fiscal year. There were no transfers between any of the fair value hierarchy levels during the period. Supplementary Information: Total investment purchases, sales proceeds, and realized gain for the period ended, were: Purchases Sales Realized at Cost Proceeds Gain Investments $ 2,972,372 $ 5,961,891 $ 608,384 See Notes to the Financial Statements. 8

12 Statement of Assets and Liabilities Assets Investments in securities, at fair value (cost $16,370,997) $ 19,854,603 Foreign currency, at fair value (cost $8,385) 8,517 Interest, dividends, and tax reclaim receivables (net of tax 275,358 withholding liability of $177) Receivable for foreign currency sold 11,491 Receivable for investment securities sold 8,802 Total assets 20,158,771 Liabilities and Net Assets Payable for foreign currency purchased 11,491 Payable for investment securities purchased 10,813 Payable for fund units redeemed 4,450 Accrued expenses 27,104 Total liabilities 53,858 Net assets $ 20,104,913 Statement of Operations For the period from May 1, 2017 (date of inception) to Investment income Dividends (net of withholding taxes of $23,955) $ 290,644 Interest 594 Total investment income 291,238 Expenses Trustee, sub-advisory and service provider fees 7,424 Professional services and other operating expenses 44,050 Total expenses 51,474 Net investment income 239,764 Realized and unrealized gain on investments and foreign currency transactions Net realized gain on investments 608,384 Net realized gain on foreign currency transactions 2,228 Net change in unrealized appreciation on investments 3,483,606 Net change in unrealized appreciation on foreign currency transactions 132 Net realized and unrealized gain on investments and foreign currency transactions 4,094,350 Net increase in net assets resulting from operations $ 4,334,114 See Notes to the Financial Statements. 9

13 Increase in net assets resulting from operations Net investment income $ 239,764 Net realized gain on investments 608,384 Net realized gain on foreign currency transactions 2,228 Net change in unrealized appreciation on investments 3,483,606 Net change in unrealized appreciation on foreign currency transactions 132 Net increase in net assets resulting from operations 4,334,114 Merger transactions (see Note 1) Class 0IM 19,044,500 Class 45 51,381 Class ,975 Total proceeds from merger transactions 19,761,856 Fund unit transactions Proceeds from units issued Class 0IM 1,823,429 Class 0TS ^ 570,997 Class 45 2,548 Class 60 15,038 Total proceeds from units issued 2,412,012 Value of units redeemed Class 0IM (5,635,655) Class 60 (767,414) Total value of units redeemed (6,403,069) Net decrease in net assets resulting from fund unit transactions (3,991,057) Increase in net assets 20,104,913 Net assets, beginning of period - Net assets, end of period $ 20,104,913 ^Class 0TS funded on 8/9/2017. Statement of Changes in Net Assets For the period from May 1, 2017 (date of inception) to See Notes to the Financial Statements. 10

14 Financial Highlights For the period from May 1, 2017 (date of inception) to Per Unit Operating Performance Class 0IM Class 0TS Class 45 Class 60 Net asset value, at inception $ $ ^ $ $ Income from investment operations: Net investment income (1) Net realized and unrealized gain on investments (1) Total income from investment operations Net asset value, end of period $ $ $ $ Total Return 15.42% ^ 7.38% ^ 14.60% ^ 14.45% ^ Supplemental Data Ratio to average net assets: Total expenses 0.35% # 0.78% # 1.34% # 1.49% # Net investment income 1.87% # 0.87% # 0.83% # 1.04% # Fund Unit Activity Units, beginning of period Issued 71,144 21, Merger transactions (see Note 1) 859,744-2,407 31,714 Redeemed (221,773) - - (31,823) Units, end of period 709,115 21,923 2, (1) Based on average units outstanding. ^Returns for periods of less than one year are not annualized. Class 0TS funded on 8/9/2017. #Annualized. See Notes to the Financial Statements. 11

15 Notes to the Financial Statements Note 1 Organization Wilmington Trust Collective Investment Trust (the "Trust") is intended to constitute an exempt trust under Section 501(a) of the Internal Revenue Code of 1986, as amended, and a group trust within the meaning of Revenue Ruling , as clarified and amended. The Trust is exempt from registration under the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended. Wilmington Trust, N.A. ("WTNA" or the "Trustee") is the Trustee of the Trust. The Trustee is responsible for maintaining and administering the Trust and the (the "Fund") and also serves as the investment advisor (the "Investment Advisor") to the Fund. M&T Bank Corporation is the ultimate parent of the Trustee. State Street Bank and Trust Company provides custody and transfer agency services for the Trust and the Fund. The purpose of the Trust is to allow collective investments by 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; group trusts or separate accounts consisting solely of assets of the foregoing; and other investors eligible for participation in the Trust. The Trust consists of separate funds with differing investment objectives, which are available for investment by participating plans. An eligible plan may join the Trust, subject to the Trustee's acceptance, and become a participating plan by executing participation documents specified by the Trustee. This report includes only the financial statements of the Fund. The Fund was created subsequent to April 30, 2017, when the International Value Portfolio of the Trust for Employee Benefit Plans was merged with and into the of the Trust. The Fund's investment objective is to seek long-term capital appreciation. It shall be a goal of the Fund to generate a total return in excess of its benchmark, the MSCI All Country World (MSCI ACWI) ex-u.s. Index, over a full market cycle. WTNA has engaged Lazard Asset Management LLC (the "Sub-Advisor") to provide investment advice in connection with the investment of the Fund's assets. While the Trustee generally relies on the Sub-Advisor to manage the Fund's assets, the Trustee maintains ultimate fiduciary authority over the management of and investments made in the Fund. The Sub-Advisor is engaged pursuant to a sub-advisory agreement. Note 2 Significant Accounting Policies The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The Fund is an investment company and follows the accounting and reporting guidance in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic No The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of the financial statements: 12

16 Notes to the Financial Statements (continued) Net Asset Value ("NAV") Units of each fee class 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 fair value of the assets of a Fund, less its liabilities, by the total number of units outstanding at the time of such computation. Investment income earned is reinvested in the Fund 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 of the Fund determined as of the close of business each day. A summary of the Fund unit activity for the Fund is included with its Financial Highlights. The Fund requires the plan sponsors to provide advance written notice of 5 business days for withdrawals that will exceed $1 million or 10% of the assets invested in the Fund. Investment Valuation Investments are valued at their current fair value determined as follows: Securities Securities, other than bonds, listed on a securities exchange, market or automated quotation system for which quotations are readily available are valued at the closing price on the primary exchange or market on which they are traded on the day of valuation or, if there is no such reported sale on the valuation date, at the most recent bid quotation on the principal exchange. If a market price is not readily available or if such price is deemed unreliable, it will be valued at fair value in accordance with valuation procedures established by the Trustee. The Trustee's determination of fair value involves consideration of a number of subjective factors, and therefore, no single standard for determining fair value will apply. When the valuation methods described above are not reflective of fair value, investments are valued at fair value following procedures and/or guidelines determined by or under the direction of the valuation committee established by the Trustee. In light of the judgment involved in fair value decisions, there can be no assurance that a fair value assigned to a particular investment is accurate. Cash and Cash Equivalents The Fund considers all highly liquid instruments with original maturities of three months or less at the acquisition date to be cash equivalents. Investment Transactions and Investment Income The Fund records security transactions on a trade date basis. Dividend income is recorded on the ex-dividend date. Net realized gains and losses on investments are determined by the first-in, first-out method. Interest income and expenses are recorded daily on the accrual basis. Gains arising from class action lawsuits are recognized when realized. If the Fund holds the security at the time of realization, the cost basis is reduced and the gain is recognized as an unrealized gain; if the security is not held, the proceeds are accounted for as a sale against no cost resulting in a realized gain. For the period ended December 31, 2017, the realized gain compromised from class action litigation lawsuits was $14,187. Fee Classes and Allocations The Fund offers multiple fee classes. Not all fee classes are available for investment by all plans. Each class is allocated expenses on the basis of expense loads assigned to that class. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each fee class based on the units outstanding for the fee class in proportion to the total outstanding units. 13

17 Notes to the Financial Statements (continued) Use of Estimates The preparation of financial statements in conformity with U.S. GAAP 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 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. Income Tax Status The Trust has received a determination from the Internal Revenue Service (the "IRS") that the Trust is exempt from federal income taxation under Section 501(a) of the Code. 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 Fund'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 morelikely-than-not threshold are recorded as a tax expense. In the event that the Fund 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 return for which the applicable statutes of limitations have not expired are subject to examination by the IRS. The Fund did not accrue any interest or penalties related to uncertain tax liabilities as of. 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 twelve months. Subsequent Events The Trustee has evaluated the effect of subsequent events on the Fund's financial statements through April 30, 2018, which is the date the financial statements were available to be issued, and has determined that there are no material subsequent events that would require disclosure or adjustment in the Fund's financial statements through this date. 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 Fund's investments. The Trustee 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 assets and liabilities. Level 2 Other significant observable inputs (including quoted prices for similar assets and liabilities, published net asset values, interest rates, credit risk, and others). 14

18 Notes to the Financial Statements (continued) Level 3 Significant unobservable inputs (including the Trustee's own assumptions in determining the fair value of assets and liabilities). The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. A summary of the inputs used as of, in valuing the Fund's assets carried at fair value is included in Note 2. The FASB issued Accounting Standards Update ("ASU") , Fair Value Measurement (Topic 820) - Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share as a practical expedient. ASU also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share as a practical expedient. Investments that calculate NAV per share (or its equivalent), but for which the practical expedient is not applied, will continue to be included in the fair value hierarchy along with the related required disclosures. The Fund adopted ASU and applied the changes to the, financial statements. The aggregate fair value of the investments in the Fund, by input level used as of, is included following the Fund's Schedule of Investments. Note 4 Fees and Expenses Trustee, Sub-Advisory and Service Provider Fees All asset-based fees are based upon the net assets as determined at the end of each preceding business day as set forth in the table below (in basis points). Except as otherwise noted, all asset-based fees are paid from the assets of the Fund. Fee Class Trustee Fee Sub-Advisory Fee Service Provider Fee Class 0IM Class 0TS Class Class Trustee Fee The Trustee receives an annual fee for supervising the overall investment management of the Fund and for the trustee, administrative and management services provided to the Fund. Trustee fees are based upon the average daily value of the Fund and are accrued daily, paid quarterly in arrears and charged against the assets invested in the Fund. Such Trustee fees for the period ended, are included in the Statement of Operations for the Fund. Plans invested in Class 0IM have agreed to pay external fees that are paid either by redemption of Fund units or paid directly by the plan sponsors. Portions of external fees are paid to the Sub-Advisor for investment advisory services 15

19 Notes to the Financial Statements (continued) provided to the Fund. External fees are based on the fair value as of the last business day of the previous month-end and paid monthly in advance. Sub-Advisory Fee The Sub-Advisor is compensated for its investment advisory services provided to the Fund. Sub-advisory fees for each class, except as noted below with respect to Class 0IM, are based upon the average daily value of the Fund and are accrued daily, paid quarterly in arrears and charged against the assets invested in the Fund. Such sub-advisory fees for the period ended, are included in the Statement of Operations for the Fund. Plans in Class 0IM (or their plan sponsors) paid a sub-advisory fee of 45 basis points based on the month-end values of the class. These fees are not reflected in the Fund's expense ratio. For Class 0IM, the actual expense ratio including sub-advisory fees incurred would be 80 basis points. Service Provider Fees Service provider fees, if any, are used to compensate other service providers to the Fund, including brokers and financial intermediaries and other parties providing services to retirement plans participating in 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, recordkeeping and other administrative services to participating plans invested in the Fund. 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. When assets of the Fund are invested in other investment vehicles, such as other collective funds or exchangetraded funds, those investment vehicles will incur fees and expenses, which will be reflected in the operating results and value of the Fund's investment in such investment vehicle, and are separate and distinct from the fees and expenses of the Fund described above. Note 5 Related Party Transactions The Trustee is a national bank that provides trust and custodial services for tax-advantaged 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. Note 6 Risks Associated with Investing in the Fund In the normal course of business, the Fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the fair value of the investments. The principal risks associated with investing in the Fund are: Currency. Investments in securities traded in foreign currencies or more directly in foreign currencies are subject to the risk that the foreign currency will decline in value relative to the U.S. dollar, which may reduce the value of the Fund. Investments in currency hedging positions are subject to the risk that the value of the 16

20 Notes to the Financial Statements (continued) U.S. dollar will decline relative to the currency being hedged, which may result in a loss of money on the investment as well as the position designed to act as a hedge. Cross-currency hedging strategies and active currency positions may increase currency risk because actual currency exposure may be substantially different from that suggested by the Fund's holdings. Derivatives. Investments in derivatives may be subject to the risk that the sub-advisor does not correctly predict the movement of the underlying security, interest rate, market index, or other financial asset, or that the value of the derivative does not correlate perfectly with either the overall market or the underlying asset from which the derivative's value is derived. Because derivatives usually involve a small investment relative to the magnitude of liquidity and other risks assumed, the resulting gain or loss from the transaction will be disproportionately magnified. These investments may result in a loss if the counterparty to the transaction does not perform as promised. Emerging Markets. Investments in emerging markets securities may be subject to greater market, credit, currency, liquidity, legal, political, and other risks compared with assets invested in developed foreign countries (please see Foreign Securities, below). Emerging markets countries may have restrictive national policies that limit investment opportunities, limited information about issuers, a general lack of uniform accounting, auditing and financial reporting standards as compared to the standards of developed countries, less liquidity and more volatility, limitations on the movement of funds, difficulties in enforcing contractual obligations and the possibility of expropriation or nationalization. Equity Securities. The value of equity securities, which include common, preferred, and convertible preferred stocks, will fluctuate based on changes in their issuers' financial conditions, as well as overall market and economic conditions, and can decline in the event of deteriorating issuer, market, or economic conditions. Foreign Securities. Investments in foreign securities may be subject to increased volatility as the value of these securities can change more rapidly and extremely than the value of U.S. securities. Factors that increase the risk of investing in foreign securities include but are not limited to the following: less public information about issuers of non-u.s. securities; less governmental regulation and supervision over the issuance and trading of securities, the unavailability of financial information regarding the non-u.s. issuer or the difficulty of interpreting financial information prepared under non-u.s. accounting standards, less liquidity, the imposition of withholding and other taxes, and adverse political, social or diplomatic developments. In addition, foreign securities are subject to increased costs because there are generally higher commission rates on transactions, transfer taxes, higher custodial costs, and the potential for foreign tax charges on dividend and interest payments. Many foreign markets are relatively small, and securities issued in less-developed countries face the risks of nationalization, expropriation or confiscatory taxation, and adverse changes in investment or exchange control regulations, including suspension of the ability to transfer currency from a country. Economic, political, social, or diplomatic developments can also negatively impact performance. Industry and Sector Investing. Concentrating assets in a particular industry, sector of the economy, or markets may increase volatility because the investment will be more susceptible to the impact of market, economic, regulatory, and other factors affecting that industry or sector compared with a more broadly diversified asset allocation. 17

21 Notes to the Financial Statements (continued) Issuer. A stake in any individual security is subject to the risk that the issuer of that security performs poorly, resulting in a decline in the security's value. Issuer-related declines may be caused by poor management decisions, competitive pressures, technological breakthroughs, reliance on suppliers, labor problems or shortages, corporate restructurings, fraudulent disclosures, or other factors. Additionally, certain issuers may be more sensitive to adverse issuer, political, regulatory, market, or economic developments. Management. Performance is subject to the risk that the sub-advisor's asset allocation and investment strategies do not perform as expected, which may cause the Fund to underperform its benchmark, other investments with similar objectives, or the market in general. The investment is subject to the risk of loss of income and capital invested, and the sub-advisor does not guarantee its value, performance, or any particular rate of return. Market/Market Volatility. The market value of the Fund's securities may fall rapidly or unpredictably because of changing economic, political, or market conditions, which may reduce the value of the Fund. Value Investing. Value securities may be subject to the risk that these securities cannot overcome the adverse factors the sub-advisor believes are responsible for their low price or that the market may not recognize their fundamental value as the sub-advisor predicted. Value securities are not expected to experience significant earnings growth and may underperform growth stocks in certain markets. 18