Annual Report With Report of Independent Auditors
Table of Contents Page Report of Independent Auditors 1 Portfolio of Investments 2-3 Statement of Assets and Liabilities 4 Statement of Operations 5 Statement of Changes in Net Assets 6 Financial Highlights 7-13 Notes to Financial Statements 14-21
Report of Independent Auditors To the Trustee of Lazard/Wilmington International Equity Portfolio: We have audited the accompanying financial statements of Lazard/Wilmington International Equity Portfolio ( the Portfolio ), which comprise the statement of assets and liabilities, including the portfolio of investments, as of, and the related statements of operations, of changes in net assets and the financial highlights for the year then ended. These financial statements and financial highlights are hereafter collectively referred to as "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. Auditors Responsibility Our responsibility is to express an opinion on the 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 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 Portfolio 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 Portfolio 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 Lazard/Wilmington International Equity Portfolio as of, and the results of its operations, changes in its net assets and the financial highlights for the year then ended, in accordance with accounting principles generally accepted in the United States of America. March 31, 2017 PricewaterhouseCoopers LLP, 101 Seaport Boulevard, Suite 500, Boston, MA 02210 T: (617) 530 5000, F: (617) 530 5001, www.pwc.com/us 1
Portfolio of Investments Description Common Stocks 95.8% Australia 3.8% Shares Fair Value BHP Billiton PLC 911,062 $ 14,669,286 Caltex Australia, Ltd. 431,559 9,486,298 24,155,584 Belgium 3.5% Anheuser-Busch InBev SA/NV 165,429 17,509,667 KBC Group NV 70,240 4,349,782 21,859,449 Brazil 1.1% BB Seguridade Participacoes SA 813,200 7,070,870 Canada 5.8% Canadian National Railway Co. 118,680 7,987,133 MacDonald Dettwiler & Associates, Ltd. 89,340 4,450,864 National Bank of Canada 289,400 11,753,608 Suncor Energy, Inc. 391,800 12,810,502 37,002,107 Denmark 1.1% Carlsberg A/S, Class B 81,113 7,000,124 Finland 2.4% Sampo Oyj, A Shares 333,857 14,967,604 France 10.4% Air Liquide SA 98,344 10,937,083 Airbus Group SE 70,169 4,641,578 Capgemini SA 144,819 12,218,369 Cie Generale des Etablissements Michelin 82,810 9,213,867 Valeo SA 274,413 15,774,697 Vinci SA 187,560 12,774,052 65,559,646 Germany 2.4% SAP SE 174,469 15,208,459 Ireland 4.9% James Hardie Industries PLC 442,634 7,017,809 Ryanair Holdings PLC Sponsored ADR 86,442 7,197,161 Shire PLC 295,740 17,071,771 31,286,741 Israel 1.8% Teva Pharmaceutical Industries, Ltd. Sponsored ADR 319,835 11,594,019 Italy 0.8% Azimut Holding SpA 292,767 4,887,755 Japan 18.1% ABC-Mart, Inc. 112,200 6,355,200 Daiwa House Industry Co., Ltd. 608,820 16,648,460 Don Quijote Holdings Co., Ltd. 392,000 14,506,096 Description Shares Fair Value Hoshizaki Corp. 14,400 $ 1,139,679 Isuzu Motors, Ltd. 819,800 10,388,225 Japan Tobacco, Inc. 255,000 8,386,909 KDDI Corp. 337,300 8,541,085 Makita Corp. 138,300 9,265,361 Seven & i Holdings Co., Ltd. 269,500 10,268,094 Sony Corp. 497,000 13,926,631 Sumitomo Mitsui Financial Group, Inc. 296,976 11,332,731 United Arrows, Ltd. 142,200 3,923,808 114,682,279 Luxembourg 0.7% RTL Group SA 57,311 4,206,703 Netherlands 5.4% Koninklijke KPN NV 1,756,853 5,204,076 Royal Dutch Shell PLC, A Shares 642,267 17,750,054 Wolters Kluwer NV 313,068 11,343,151 34,297,281 Norway 2.6% Statoil ASA 440,574 8,081,540 Telenor ASA 568,097 8,486,571 16,568,111 Philippines 0.3% Alliance Global Group, Inc. 7,658,200 1,968,756 Spain 0.9% Red Electrica Corporacion SA 317,570 5,992,152 Sweden 3.6% Assa Abloy AB, Class B 659,008 12,231,714 Swedbank AB, A Shares 427,755 10,343,383 22,575,097 Switzerland 6.1% Novartis AG 332,054 24,163,018 Wolseley PLC 232,094 14,192,938 38,355,956 Taiwan 2.3% Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR 495,200 14,237,000 Turkey 0.6% Turkiye Garanti Bankasi AS 1,815,699 3,922,886 United Kingdom 13.8% British American Tobacco PLC 313,445 17,852,372 Diageo PLC 274,546 7,139,194 Direct Line Insurance Group PLC 990,866 4,510,902 Howden Joinery Group PLC 930,133 4,399,483 Informa PLC 811,301 6,798,961 Provident Financial PLC 173,647 6,096,932 2
Portfolio of Investments (concluded) Description Shares Fair Value Prudential PLC 1,030,016 $ 20,659,347 RELX PLC 659,603 11,778,843 Unilever PLC 203,089 8,240,694 87,476,728 United States 3.4% Aon PLC 114,515 12,771,858 Signet Jewelers, Ltd. 92,429 8,712,357 21,484,215 Total Common Stocks (Cost $623,671,342) 606,359,522 Short-Term Investment 4.8% State Street Institutional U.S. Government Money Market Fund, Administration Class, 0.17% (7 day yield) (Cost $30,707,007) 30,707,007 30,707,007 Total Investments 100.6% (Cost $654,378,349) $ 637,066,529 Liabilities in Excess of Cash and Other Assets (0.6)% (3,678,417) Net Assets 100.0% $ 633,388,112 Security Abbreviations: ADR American Depositary Receipt Portfolio holdings by industry as a percentage of net assets (unaudited): Aerospace & Defense 1.4% Airlines 1.1 Auto Components 3.9 Automobiles 1.6 Banks 6.6 Beverages 5.0 Biotechnology 2.7 Building Products 1.9 Capital Markets 0.8 Chemicals 1.7 Construction & Engineering 2.0 Construction Materials 1.1 Consumer Finance 1.0 Diversified Telecommunication Services 2.2 Electric Utilities 1.0 Food & Staples Retailing 1.6 Household Durables 2.2 Industrial Conglomerates 0.3 Insurance 9.6 IT Services 1.9 Machinery 1.6 Media 1.7 Metals & Mining 2.3 Multiline Retail 2.3 Oil, Gas & Consumable Fuels 7.6 Personal Products 1.3 Pharmaceuticals 5.7 Professional Services 3.7 Real Estate Management & Development 2.6 Road & Rail 1.3 Semiconductors & Semiconductor Equipment 2.3 Software 2.4 Specialty Retail 3.0 Tobacco 4.1 Trading Companies & Distributors 2.9 Wireless Telecommunication Services 1.4 Subtotal 95.8 Short-Term Investment 4.8 Total Investments 100.6% 3
Statement of Assets and Liabilities Assets Investments in securities, at fair value (cost $654,378,349) $ 637,066,529 Foreign currency, at fair value (cost $43,856) 44,119 Receivables for: Dividends 2,700,573 Investments sold 612,291 Units sold 21,586 Total Assets 640,445,098 Liabilities Due to Custodian 245,147 Payables for: Units redeemed 5,299,075 Investment advisory fees (Note 4) 854,646 Investments purchased 461,739 Trustee fees (Note 4) 129,728 Custodian fees (Note 5) 39,503 Professional services 23,058 Unitholders' services fees (Note 5) 4,090 Total Liabilities 7,056,986 Net Assets $ 633,388,112 Class 1 Net Assets $ 54,753,487 Units Outstanding 6,047,989 Net Asset Value per Unit $ 9.05 Class 2 Net Assets $ 57,322,532 Units Outstanding 6,323,456 Net Asset Value per Unit $ 9.07 Class 3 Net Assets $ 185,455,173 Units Outstanding 20,421,882 Net Asset Value per Unit $ 9.08 Class 6 Net Assets $ 102,786,944 Units Outstanding 11,269,270 Net Asset Value per Unit $ 9.12 Class 7 Net Assets $ 204,671,445 Units Outstanding 22,500,000 Net Asset Value per Unit $ 9.10 Class 8 Net Assets $ 23,129,959 Units Outstanding 2,531,405 Net Asset Value per Unit $ 9.14 Class 10 Net Assets $ 5,268,572 Units Outstanding 552,911 Net Asset Value per Unit $ 9.53 4
Statement of Operations For the Year Ended * Investment Income (Loss) Income Dividends (net of foreign withholding taxes of $632,403) $ 15,749,985 Total investment income 15,749,985 Expenses Investment advisory fees (Note 4): Class 1 314,252 Class 2 294,662 Class 3 1,005,846 Class 6 392,307 Class 7 1,106,730 Class 8 69,714 Trustee fees (Note 4) 464,621 Custodian fees (Note 5) 216,559 Professional services 27,442 Unitholders' services fees (Note 5) 25,591 Total gross expenses 3,917,724 Investment advisory fees waived and expenses reimbursed (Note 4) (153,402) Total net expenses 3,764,322 Net investment income (loss) 11,985,663 Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions Net realized gain (loss) on: Investments (38,830,670) Foreign currency transactions (317,780) Total net realized gain (loss) on investments and foreign currency transactions (39,148,450) Net change in unrealized appreciation (depreciation) on: Investments (505,267) Foreign currency translations (103,692) Total net change in appreciation (depreciation) on investments and foreign currency translations (608,959) Net realized and unrealized gain (loss) on investments and foreign currency transactions (39,757,409) Net increase (decrease) in net assets resulting from operations $ (27,771,746) * The inception date for Class 10 was April 29, 2016. 5
Statement of Changes in Net Assets For the Year Ended * Increase (Decrease) in Net Assets Operations: Net investment income (loss) $ 11,985,663 Net realized gain (loss) on investments and foreign currency transactions (39,148,450) Net change in unrealized appreciation (depreciation) on investments and foreign currency translations (608,959) Net increase (decrease) in net assets resulting from operations (27,771,746) Unitholder Transactions (Note 6): Proceeds from units sold 249,290,717 Cost of units redeemed (73,504,859) Net increase (decrease) in net assets from unitholder transactions 175,785,858 Total increase (decrease) in net assets 148,014,112 Net assets at beginning of year 485,374,000 Net assets at end of year $ 633,388,112 Changes in Units (Note 6): Units outstanding at beginning of year 51,153,310 Units sold 26,352,485 Units redeemed (7,858,882) Net increase (decrease) in units 18,493,603 Units outstanding at end of year 69,646,913 * The inception date for Class 10 was April 29, 2016. 6
Financial Highlights - Class 1 Selected data per unit outstanding throughout the year ended Net asset value, beginning of year $ 9.47 Income (loss) from investment operations: Net investment income (loss) (a) 0.17 Net realized and unrealized gain (loss) (0.59) Total from investment operations (0.42) Net asset value, end of year $ 9.05 Total Return (b) -4.44 % Ratios and Supplemental Data: Net assets, end of year (in thousands) $ 54,753 Ratios to average net assets (c): Net expenses 0.85 % Gross expenses 0.88 % Net investment income (loss) 1.82 % (a) (b) (c) Net investment income (loss) has been computed based on average daily units outstanding. Certain expenses of the Portfolio have been waived or reimbursed by the Sub-Advisor; without such waiver/reimbursement of expenses, the Portfolio's return would have been lower. Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning of the year and end of the year and assumes reinvestment of all distributions, if any. The calculation includes only those expenses charged directly to the Portfolio. Individual unitholders may incur administration or other fees related to the management or maintenance of their individual unitholder accounts, which would have the effect of reducing a unitholder's net return on their investments in the Portfolio. An individual unitholder's return may also vary based on the timing of capital transactions and fees. Ratios to average net assets do not reflect expenses charged directly to the unitholders. An individual unitholder s ratios to average net assets may vary based on the timing of capital transactions and fees. 7
Financial Highlights - Class 2 Selected data per unit outstanding throughout the year ended Net asset value, beginning of year $ 9.47 Income (loss) from investment operations: Net investment income (loss) (a) 0.15 Net realized and unrealized gain (loss) (0.55) Total from investment operations (0.40) Net asset value, end of year $ 9.07 Total Return (b) -4.22 % Ratios and Supplemental Data: Net assets, end of year (in thousands) $ 57,323 Ratios to average net assets (c): Net expenses 0.80 % Gross expenses 0.83 % Net investment income (loss) 1.62 % (a) (b) (c) Net investment income (loss) has been computed based on average daily units outstanding. Certain expenses of the Portfolio have been waived or reimbursed by the Sub-Advisor; without such waiver/reimbursement of expenses, the Portfolio's return would have been lower. Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning of the year and end of the year and assumes reinvestment of all distributions, if any. The calculation includes only those expenses charged directly to the Portfolio. Individual unitholders may incur administration or other fees related to the management or maintenance of their individual unitholder accounts, which would have the effect of reducing a unitholder's net return on their investments in the Portfolio. An individual unitholder's return may also vary based on the timing of capital transactions and fees. Ratios to average net assets do not reflect expenses charged directly to the unitholders. An individual unitholder s ratios to average net assets may vary based on the timing of capital transactions and fees. 8
Financial Highlights - Class 3 Selected data per unit outstanding throughout the year ended Net asset value, beginning of year $ 9.48 Income (loss) from investment operations: Net investment income (loss) (a) 0.18 Net realized and unrealized gain (loss) (0.58) Total from investment operations (0.40) Net asset value, end of year $ 9.08 Total Return (b) -4.22 % Ratios and Supplemental Data: Net assets, end of year (in thousands) $ 185,455 Ratios to average net assets (c): Net expenses 0.75 % Gross expenses 0.78 % Net investment income (loss) 1.96 % (a) (b) (c) Net investment income (loss) has been computed based on average daily units outstanding. Certain expenses of the Portfolio have been waived or reimbursed by the Sub-Advisor; without such waiver/reimbursement of expenses, the Portfolio's return would have been lower. Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning of the year and end of the year and assumes reinvestment of all distributions, if any. The calculation includes only those expenses charged directly to the Portfolio. Individual unitholders may incur administration or other fees related to the management or maintenance of their individual unitholder accounts, which would have the effect of reducing a unitholder's net return on their investments in the Portfolio. An individual unitholder's return may also vary based on the timing of capital transactions and fees. Ratios to average net assets do not reflect expenses charged directly to the unitholders. An individual unitholder s ratios to average net assets may vary based on the timing of capital transactions and fees. 9
Financial Highlights - Class 6 Selected data per unit outstanding throughout the year ended Net asset value, beginning of year $ 9.50 Income (loss) from investment operations: Net investment income (loss) (a) 0.20 Net realized and unrealized gain (loss) (0.58) Total from investment operations (0.38) Net asset value, end of year $ 9.12 Total Return (b) -4.00 % Ratios and Supplemental Data: Net assets, end of year (in thousands) $ 102,787 Ratios to average net assets (c): Net expenses 0.50 % Gross expenses 0.53 % Net investment income (loss) 2.16 % (a) (b) (c) Net investment income (loss) has been computed based on average daily units outstanding. Certain expenses of the Portfolio have been waived or reimbursed by the Sub-Advisor; without such waiver/reimbursement of expenses, the Portfolio's return would have been lower. Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning of the year and end of the year and assumes reinvestment of all distributions, if any. The calculation includes only those expenses charged directly to the Portfolio. Individual unitholders may incur administration or other fees related to the management or maintenance of their individual unitholder accounts, which would have the effect of reducing a unitholder's net return on their investments in the Portfolio. An individual unitholder's return may also vary based on the timing of capital transactions and fees. Ratios to average net assets do not reflect expenses charged directly to the unitholders. An individual unitholder s ratios to average net assets may vary based on the timing of capital transactions and fees. 10
Financial Highlights - Class 7 Selected data per unit outstanding throughout the year ended Net asset value, beginning of year $ 9.49 Income (loss) from investment operations: Net investment income (loss) (a) 0.20 Net realized and unrealized gain (loss) (0.59) Total from investment operations (0.39) Net asset value, end of year $ 9.10 Total Return (b) -4.11 % Ratios and Supplemental Data: Net assets, end of year (in thousands) $ 204,671 Ratios to average net assets (c): Net expenses 0.63 % Gross expenses 0.66 % Net investment income (loss) 2.19 % (a) (b) (c) Net investment income (loss) has been computed based on average daily units outstanding. Certain expenses of the Portfolio have been waived or reimbursed by the Sub-Advisor; without such waiver/reimbursement of expenses, the Portfolio's return would have been lower. Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning of the year and end of the year and assumes reinvestment of all distributions, if any. The calculation includes only those expenses charged directly to the Portfolio. Individual unitholders may incur administration or other fees related to the management or maintenance of their individual unitholder accounts, which would have the effect of reducing a unitholder's net return on their investments in the Portfolio. An individual unitholder's return may also vary based on the timing of capital transactions and fees. Ratios to average net assets do not reflect expenses charged directly to the unitholders. An individual unitholder s ratios to average net assets may vary based on the timing of capital transactions and fees. 11
Financial Highlights - Class 8 Selected data per unit outstanding throughout the year ended Net asset value, beginning of year $ 9.51 Income (loss) from investment operations: Net investment income (loss) (a) 0.22 Net realized and unrealized gain (loss) (0.59) Total from investment operations (0.37) Net asset value, end of year $ 9.14 Total Return (b) -3.89 % Ratios and Supplemental Data: Net assets, end of year (in thousands) $ 23,130 Ratios to average net assets (c): Net expenses 0.40 % Gross expenses 0.43 % Net investment income (loss) 2.41 % (a) (b) (c) Net investment income (loss) has been computed based on average daily units outstanding. Certain expenses of the Portfolio have been waived or reimbursed by the Sub-Advisor; without such waiver/reimbursement of expenses, the Portfolio's return would have been lower. Total return calculation is based on the value of a single unit of participation outstanding throughout the year. It represents the percentage change in the net asset value per unit between the beginning of the year and end of the year and assumes reinvestment of all distributions, if any. The calculation includes only those expenses charged directly to the Portfolio. Individual unitholders may incur administration or other fees related to the management or maintenance of their individual unitholder accounts, which would have the effect of reducing a unitholder's net return on their investments in the Portfolio. An individual unitholder's return may also vary based on the timing of capital transactions and fees. Ratios to average net assets do not reflect expenses charged directly to the unitholders. An individual unitholder s ratios to average net assets may vary based on the timing of capital transactions and fees. 12
Financial Highlights - Class 10 Selected data per unit outstanding throughout the period April 29, 2016 (Commencement of Operations) through Net asset value, beginning of period $ 10.00 Income (loss) from investment operations: Net investment income (loss) (a) 0.14 Net realized and unrealized gain (loss) (0.61) Total from investment operations (0.47) Net asset value, end of period $ 9.53 Total Return (b) -4.70 % Ratios and Supplemental Data: Net assets, end of period (in thousands) $ 5,269 Ratios to average net assets (c): Net expenses 0.10 % Gross expenses 0.12 % Net investment income (loss) 2.11 % (a) (b) (c) Net investment income (loss) has been computed based on average daily units outstanding. Certain expenses of the Portfolio have been waived or reimbursed by the Sub-Advisor; without such waiver/reimbursement of expenses, the Portfolio's return would have been lower. Total return calculation is based on the value of a single unit of participation outstanding throughout the period. It represents the percentage change in the net asset value per unit between the beginning of the period and end of the period and assumes reinvestment of all distributions, if any. The calculation includes only those expenses charged directly to the Portfolio. Individual unitholders may incur administration or other fees related to the management or maintenance of their individual unitholder accounts, which would have the effect of reducing a unitholder's net return on their investments in the Portfolio. An individual unitholder's return may also vary based on the timing of capital transactions and fees. Return for a period of less than one year is not annualized. Ratios to average net assets do not reflect expenses charged directly to the unitholders. An individual unitholder s ratios to average net assets may vary based on the timing of capital transactions and fees. Annualized for a period of less than one year except for professional services. 13
Notes to Financial Statements (1) Organization Lazard/Wilmington International Equity Collective Trust (the "Trust") is a trust formed pursuant to a Declaration of Trust dated October 23, 2013, as amended and/or restated from time to time and governed by the laws of the State of Delaware. The Trust is currently comprised of one portfolio: Lazard/Wilmington International Equity Portfolio (the Portfolio ). The Portfolio's investment objective is to achieve long-term capital appreciation by investing, using a relative value approach, primarily in equity and equityrelated securities of issuers that are located in, or that do significant business in, countries other than the United States, including emerging market countries. Wilmington Trust, National Association ("WTNA"), a related party of the Trust, is the Trustee of the Trust and is responsible for maintaining and administering the Trust and the Portfolio. Lazard Asset Management LLC (the "Sub-Advisor"), a subsidiary of Lazard Frères & Co. LLC, provides sub-advisory services for the investment assets of the Portfolio. State Street Bank and Trust Company (the Custodian ) is the Custodian of the Portfolio and is responsible for custody of the Portfolio's assets and providing transfer agent, recordkeeping and accounting functions. According to the Offering Memorandum, the Portfolio is divided into seven classes, which shall be identical except as to expenses to be borne by a particular class. Additional classes may be added by the Trustee in its discretion. As of, the Portfolio had seven funded classes, Class 1, Class 2, Class 3, Class 6, Class 7, Class 8 and Class 10 (commenced operations on April 29, 2016). (2) Significant Accounting Policies The accompanying financial statements are presented in conformity with accounting principles generally accepted in the United States of America ( GAAP ). The Portfolio is an investment company and therefore applies specialized accounting guidance in accordance with Accounting Standards Codification Topic 946. The following is a summary of significant accounting policies consistently followed by the Portfolio in the preparation of the financial statements: (a) Valuation of Investments Market values for securities listed on the New York Stock Exchange ("NYSE"), NASDAQ national market or other US or foreign exchanges or markets are generally based on the last reported sales price on the exchange or market on which the security is principally traded on each valuation date; securities not traded on the valuation date are valued at the most recent quoted bid price. The Portfolio values NASDAQ-traded securities at the NASDAQ Official Closing Price, which may not be the last reported sales price in certain instances. Investments in money market funds are valued at the fund s net asset value ("NAV") per share. Calculation of the Portfolio s NAV may not take place contemporaneously with the determination of the prices of portfolio assets used in such calculation. Trading on Europe, Latin and South America and Far East securities exchanges and in over-the-counter markets ordinarily is completed well before the close of business on each business day in New York (i.e., a day on which the NYSE is open). In addition, European or Far Eastern securities trading generally or in a particular country or countries may not take place on all business days in New York and on which the NAV of the Portfolio is calculated. The Sub-Advisor may evaluate a variety of factors to determine the fair value of securities for which market quotations are determined not to be readily available or reliable. These factors include, but are not limited to, the type of security, the value of comparable securities, observations from financial institutions and relevant news events. Input from the Sub-Advisor s portfolio managers/analysts also will be considered. 14
Notes to Financial Statements (continued) If a significant event materially affecting the value of securities occurs between the close of the exchange or market on which the security is principally traded and the time when the Portfolio s NAV is calculated, or when current market quotations otherwise are determined not to be readily available or reliable (including restricted or other illiquid securities such as certain derivative instruments), such securities will be valued at their fair value as determined by, or in accordance with procedures approved by, the Sub-Advisor. Non-US securities may trade on days when the Portfolio is not open for business, thus affecting the value of the Portfolio s assets on days when Portfolio unitholders may not be able to buy or sell Portfolio units. (b) Portfolio Securities Transactions and Investment Income Portfolio securities transactions are accounted for on trade date. Realized gain (loss) on sales of investments are recorded on an average cost basis. Dividend income is recorded on the ex-dividend date except for certain dividends from non-us securities where the dividend rate is not available. In such cases, the dividend is recorded as soon as the information is received by the Portfolio. Interest income, if any, is accrued daily. The Portfolio may be subject to taxes imposed by non-us countries in which it invests. Such taxes are generally based upon income earned or capital gains (realized or unrealized). The Portfolio accrues and applies such taxes to net investment income, net realized gains and net unrealized gains concurrent with the recognition of income earned or capital gains (realized and unrealized) from the applicable portfolio securities. (c) Foreign Currency Translation The accounting records of the Portfolio are maintained in US dollars. Portfolio securities and other assets and liabilities denominated in a foreign currency are translated daily into US dollars at the prevailing rates of exchange. Purchases and sales of securities, income receipts and expense payments are translated into US dollars at the prevailing exchange rates on the respective transaction dates. The Portfolio does not isolate the portion of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in their market prices. Such fluctuations are included in net realized and unrealized gain (loss) on investments. Net realized gain (loss) on foreign currency transactions represents net foreign currency gain (loss) from disposition of foreign currencies, currency gain (loss) realized between the trade and settlement dates on securities transactions, and the difference between the amount of dividends, interest and foreign withholding taxes recorded on the Portfolio's accounting records and the US dollar equivalent amounts actually received or paid. Net change in unrealized appreciation (depreciation) on foreign currency translations reflects the impact of changes in exchange rates on the value of assets and liabilities, other than investments in securities, during the period. (d) Tax Reclaims Receivable Tax reclaims receivable, if any, are recorded on the ex-dividend date based upon the interpretation of country-specific taxation of dividend income, which may be subject to change due to changes in country-specific tax regulations regarding amounts reclaimable or the interpretation of country-specific taxation of dividend income and related amounts reclaimable. (e) Income Taxes The Portfolio intends to continue to be exempt from taxation under section 501(a) of the Internal Revenue Code and qualify as a group trust under IRS Revenue Ruling 81-100 and any amendments thereto, and other applicable IRS rules and regulations. The unitholders are required to report their respective portion of the Portfolio s US taxable income or loss in their own income tax returns and are liable for any related taxes thereon. Accordingly, no provision for federal income taxes is made in the financial statements of the Portfolio. 15
Notes to Financial Statements (continued) Management has analyzed the Portfolio s tax positions in its major jurisdictions. Based on this review, the Portfolio has identified uncertain tax positions which may give rise to exposure in various non-us jurisdictions in which it trades, such exposure principally arising from capital gains withholding taxes. In each case, the application of the tax law is uncertain. Management concluded that such uncertain tax positions are more-likely-than-not to be sustained upon examination. Therefore, management has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on tax returns filed for open tax years (2013-2015), or expected to be taken in the Portfolio s 2016 tax returns. (f) Distributions to Unitholders Net investment income and net realized gains are retained by the Portfolio. (g) Estimates The preparation of financial statements in conformity with 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 increases and decreases in net assets resulting from operations during the reporting period. Actual results could differ from those estimates. (h) Net Asset Value NAV per unit for each class of the Portfolio is determined each day the NYSE is open for trading as of the close of regular trading on the NYSE (generally 4:00 p.m. Eastern time). The Portfolio will not treat an intraday unscheduled disruption in NYSE trading as a closure of the NYSE, and will price its units as of 4:00 p.m., if the particular disruption directly affects only the NYSE. NAV per unit is determined by dividing the value of the total assets of the Portfolio represented by such class, less all liabilities, by the total number of Portfolio units of such class outstanding. (3) Short Term Investment Cash is held by the Custodian which, as contracted on behalf of the Portfolio, sweeps on each business day into the State Street Institutional U.S. Government Money Market Fund, a registered open-end management investment company under the Investment Company Act of 1940, which is included in the Portfolio of Investments. (4) Sub-Advisor Fees and Expenses Pursuant to the Sub-Advisor Agreement, the Sub-Advisor regularly provides the Portfolio with investment research, advice and supervision and furnishes continuously an investment program consistent with the Portfolio s investment objectives and policies, including the purchase, retention and disposition of securities. For its services provided to the Portfolio, the Sub-Advisor earns an investment advisory fee expressed as a percentage of the average daily net assets for each of the classes, and at the annual rate, set forth below: 16
Notes to Financial Statements (continued) Class Annual Rate Class 1 0.75% Class 2 0.70% Class 3 0.65% Class 6 0.40% Class 7 0.75% on the first $50 million 0.50% on the next $50 million 0.45% on amounts in excess of $100 million Class 8 0.30% The investment advisory fees are accrued daily and paid quarterly. Class 10 unitholders pay the investment advisory fees externally (i.e., outside of the Portfolio) at the end of each quarter by making a payment directly to the Sub-Advisor in an amount equal to such unitholder s investment advisory fees payable for such quarter. As such, a Class 10 unitholder s account will not be reduced by the amount of the investment advisory fees, nor will such fees be paid out of the assets of the Class 10. The NAV per unit for the Class 10 will not reflect the investment advisory fees and, as such, the investment advisory fees for Class 10 are not included in the Statement of Operations. However, a Class 10 unitholder s account will be reduced by other fees and expenses of the Portfolio, including without limitation, the trustee fees. The Sub-Advisor has voluntarily agreed to reduce its fees and, if necessary, reimburse the Portfolio if annualized operating expenses, exclusive of the investment advisory fees, taxes, brokerage, interest on borrowings, fees and expenses of Acquired Funds and extraordinary expenses, and excluding other transaction fees, exceed 0.10% of average daily net assets for each class. For purposes of this item, an Acquired Fund means any company in which the Portfolio invests or has invested during the relevant fiscal period that (A) is an investment company or (B) would be an investment company under section 3(a) of the Investment Company Act (15 U.S.C. 80a-3(a)) but for the exceptions to that definition provided for in sections 3(c)(1) and 3(c)(7) of the Investment Company Act (15 U.S.C. 80a-3(c)(1) and 80a-3(c)(7)). During the period ended, the Sub-Advisor waived $11,365, $11,503, $41,168, $25,678, $54,168 and $6,084 of its fees for Class 1, Class 2, Class 3, Class 6, Class 7 and Class 8, respectively, and reimbursed Class 10 in the amount of $3,436 for such excess expenses. The Trustee is responsible for certain administrative and financial reporting functions. For these services, the Portfolio pays the Trustee a per annum fee of 0.08% on the first $1 billion of net assets and 0.06% on net assets in excess of $1 billion. The trustee fees are accrued daily and paid quarterly. (5) Custody Agreement The Custodian is responsible for the custody of the Portfolio s assets and providing transfer agent, recordkeeping and accounting functions. For these services, the Portfolio pays the Custodian a per annum fee of 0.03% on the first $50 million of net assets and 0.01% on net assets in excess of $50 million. The minimum annual custody fee for the Portfolio is $24,000. The Portfolio also pays the Custodian holding fees and transaction fees for its global custody services. In addition, the Custodian receives a monthly account services fee computed on the basis of the number of unitholder accounts it maintains for the Portfolio during the month, and is reimbursed for certain out-of-pocket expenses. The custodian and unitholders' services fees are accrued daily and paid monthly. 17
Notes to Financial Statements (continued) (6) Unitholders' Transactions The Portfolio offers units for sale and redemption of its units at the NAV of each class as of the close of each business day. For the year ended, the units transactions were as follows: Class Units Dollar Amounts Class 1 Units sold 3,537,335 $ 32,648,613 Units redeemed (363,788) (3,330,871) Net increase (decrease) in units 3,173,547 $ 29,317,742 Class 2 Units sold 4,874,059 $ 45,875,000 Units redeemed (241,457) (2,165,870) Net increase (decrease) in units 4,632,602 $ 43,709,130 Class 3 Units sold 5,584,826 $ 53,000,000 Units redeemed Net increase (decrease) in units 5,584,826 $ 53,000,000 Class 6 Units sold 9,201,614 $ 86,890,257 Units redeemed (4,678,416) (43,359,795) Net increase (decrease) in units 4,523,198 $ 43,530,462 Class 7 Units sold $ Units redeemed Net increase (decrease) in units $ Class 8 Units sold 133,504 $ 1,236,892 Units redeemed (106,985) (980,843) Net increase (decrease) in units 26,519 $ 256,049 Class 10* Units sold 3,021,147 $ 29,639,955 Units redeemed (2,468,236) (23,667,480) Net increase (decrease) in units 552,911 $ 5,972,475 Total increase (decrease) in units 18,493,603 $ 175,785,858 *The inception date for Class 10 was April 29, 2016. 18
Notes to Financial Statements (continued) (7) Investment Risks (a) Non-US Securities Risk The Portfolio's performance will be influenced by political, social and economic factors affecting the non-us countries and companies in which the Portfolio invests. Non-US securities carry special risks, such as less developed or less efficient trading markets, political instability, a lack of company information, differing auditing and legal standards, and, potentially, less liquidity. (b) Emerging Market Risk Emerging market countries can generally have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. The economies of countries with emerging markets may be based predominantly on only a few industries, may be highly vulnerable to changes in local or global trade conditions, and may suffer from extreme debt burdens or volatile inflation rates. The securities markets of emerging market countries have historically been extremely volatile. These market conditions may continue or worsen. Investments in these countries may be subject to political, economic, legal, market and currency risks. The risks may include less protection of property rights and uncertain political and economic policies, the imposition of capital controls and/or foreign investment limitations by a country, nationalization of businesses and the imposition of sanctions by other countries, such as the US. Significant devaluation of emerging market currencies against the US dollar may occur subsequent to acquisition of investments denominated in emerging market currencies. (c) Foreign Currency Risk Investments denominated in currencies other than US dollars may experience a decline in value, in US dollar terms, due solely to fluctuations in currency exchange rates. The Sub-Advisor does not intend to actively hedge the Portfolio s foreign currency exposure. (d) Unitholder Concentration Risk As of, the number of unitholders that held units in excess of 10% of the respective Class units, and the aggregated percentages of the total units that those unitholders held of each Class, were as follows: Class Number of Unitholders Aggregated Percentages Class 1 3 93.70% Class 2 3 100.00% Class 3 3 100.00% Class 6 1 99.70% Class 7 1 100.00% Class 8 1 100.00% Class 10 1 100.00% (e) Counterparty Default Risk Certain investment techniques the Portfolio may employ involve risk that the counterparty to such instruments will become insolvent or otherwise default on its obligation to perform as agreed. In the event of such default, the Portfolio may have limited recourse against the counterparty and may experience delays in the recovery (or loss) of collateral. 19
Notes to Financial Statements (continued) (8) Contractual Obligations The Portfolio enters into contracts in the normal course of business that contain a variety of indemnifications. The Portfolio s maximum exposure under these arrangements is unknown. Management has reviewed the Portfolio s existing contracts and expects the risk of loss to be remote. (9) Fair Value Measurements Fair value is defined as the price that the Portfolio would receive to sell an asset, or would pay to transfer a liability, in an orderly transaction between market participants at the date of measurement. The Fair Value Measurements and Disclosures provisions of GAAP also establish a framework for measuring fair value, and a three-level hierarchy for fair value measurement that is based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer, broadly, to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio s own assumptions about the assumptions that market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances. The fair value measurement level within the fair value hierarchy for the assets and liabilities of the Portfolio is based on the lowest level of any input that is significant to the overall fair value measurement. The three-level hierarchy of inputs is summarized below: Level 1 unadjusted quoted prices in active markets for identical assets and liabilities Level 2 other significant observable inputs (including unadjusted quoted prices for similar assets and liabilities, interest rates, prepayment speeds, credit risk, etc.) Level 3 significant unobservable inputs (including the Portfolio s own assumptions in determining the fair value of assets and liabilities) Changes in valuation technique may result in transfers into or out of the current assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in these securities. The following table summarizes the valuation of the Portfolio s assets and liabilities by each fair value hierarchy level as of December 31, 2016: Unadjusted Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Balance as of Description Common Stocks* $ 606,359,522 $ $ $ 606,359,522 Short-Term Investment 30,707,007 30,707,007 Total $ 637,066,529 $ $ $ 637,066,529 * Please refer to Portfolio of Investments for portfolio holdings by country and industry. The Portfolio recognizes all transfers between levels as though they were transferred at the beginning of the reporting period. There were no transfers into or out of Levels 1, 2 or 3 during the year ended. 20
Notes to Financial Statements (concluded) (10) Subsequent Events Management has evaluated subsequent events affecting the Portfolio through March 31, 2017, the date that these financial statements were available to be issued, and has determined that there were no subsequent events that required adjustment or disclosure. 21